A divided state Supreme Court sided with the Oklahoma Tax Commission in a dispute over a company’s attempt to claim a capital gains tax deduction.
CDR Systems Corp, which sold all of its assets for about $49.8 million in 2008, had its bid for the tax deduction denied in August 2009 because it was not based in Oklahoma for three years prior to the sale, as required by state law. The deduction would have excluded more than $3.5 million from state taxation.
The Oklahoma Court of Civil Appeals reversed that finding before being overruled Tuesday by the Supreme Court in a narrow 5-4 decision.
CDR Systems’ attorney did not return a call seeking comment on Tuesday, but the tax commission welcomed the ruling.
“We feel the court reached a correct and just result in the case,” spokeswoman Paula Ross said. “We trust this puts an end to the controversy and are happy the decision eliminates any adverse budget results.”
CDR Systems, which manufactured polymer concrete and fiberglass handholds and pads for utility companies, was incorporated in California in 1970, according to court papers.
It was sold to Hubbell Lenoir City Inc. in a stock purchase agreement that was treated as an asset sale under the tax code.
At the time of its sale, the company was registered to do business in Oklahoma, Florida, California, Michigan and Iowa, but its primary headquarters was in Ormond Beach, Fla. It also had a manufacturing facility in Waynoka.
CDR Systems sought a capital gains deduction when it filed its 2008 tax return, but that claim was denied by the tax commission.
An administrative law judge upheld that decision, spurring the company to turn to the Court of Civil Appeals.
The appeals court ruled the deduction discriminated against interstate commerce, only to see that ruling overturned by the Oklahoma Supreme Court.
“Most, if not all states, have tax incentives whose primary purpose is to attract business to the state and to promote economic development within the state. Oklahoma is no different,” Justice Noma Gurich wrote in the 26-page decision. “The Oklahoma Capital Gains Deduction was passed by the Legislature to promote significant business investment in Oklahoma’s economy.”
Justice Douglas L. Combs wrote the dissenting view, holding the deduction was discriminatory in violation of the U.S. Constitution’s dormant commerce clause.
CONTRIBUTING: Randy Ellis, Capitol Bureau