Appeal from Oregon Tax Court. Carlisle B. Roberts, Judge.
Morris J. Galen, Portland, argued the cause for appellants. With him on the briefs were Tonkon, Galen & Baker, Portland.
Ira W. Jones, Assistant Attorney General, Salem, argued the cause for respondent. With him on the brief were Lee Johnson, Attorney General, and Theodore W. deLooze, Chief Tax Counsel, Salem.
The only issue in this case is whether plaintiffs are entitled to special capital gains treatment of a gain realized by them in the dissolution of an Oregon corporation which was wholly owned by plaintiff Melvin Peters. The Department of Revenue and the Tax Court held that plaintiffs were not entitled to treat the gain realized as a capital gain.*fn1 Plaintiffs appeal. Plaintiff Sandra Peters is a party only because she signed a joint return with her husband, Melvin Peters.
The facts are stipulated. On February 7, 1965, plaintiff owned all the issued and outstanding shares of West Coast Heating Supply, Inc. On the same day, West Coast was dissolved and all its assets were distributed to plaintiff Melvin Peters, its sole shareholder. Plaintiff concedes that he realized a gain on the distribution of the assets. We agree with the Tax Court that the gain realized is not entitled to special capital gains treatment under the income tax statutes in existence at that time.
Unlike Congress, which first introduced capital gains provisions into our federal income tax statutes in the Revenue Act of 1921, the Oregon legislature did
not make any provisions for special treatment of capital gains from the time of enactment of the Oregon Personal Income Tax in 1929 until 1959. At that time the legislature enacted Oregon Laws 1959, Chapter 591, which was codified as ORS 316.406 to ORS 316.450. Even then, the legislature placed severe restrictions and qualifications upon a taxpayer seeking special capital gains treatment of income. For example, a taxpayer selling or exchanging a capital asset and seeking to qualify for special treatment of a capital gain was required to make an election to do so by a statement on his tax return. ORS 316.432. He was required to reinvest the gain within one year after the close of the tax year in which any part of the gain was realized. ORS 316.430. The reinvestment must have been made in certain qualified subjects. ORS 316.420. If a capital gain were allowed, the amount of the taxable gain would depend upon the length of time the capital asset was held. The taxable gain ranged from 100 percent, if the asset had been held for not more than one year, down to 50 percent, if the asset had been held for more than five years. ORS 316.436.*fn2
At the time in question, February 7, 1965, the following statutes were in effect:
"ORS 316.410. As used in ORS 316.408 to 316.450:
"(1) 'Capital gain' means the gain from the sale or exchange of a capital asset if and to the extent that such gain is taken into ...