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Don't Clog the Pipes: Retroactive Relief Applies to Oklahoma's Unconstitutional Capital Gains Deduction

By Mary Alexander and Prentiss Willson

The Oklahoma Court of Appeals held that retroactive relief applied to a facially unconstituti

June 17, 2013

By Mary Alexander and Prentiss Willson

The Oklahoma Court of Appeals held that retroactive relief applied to a facially unconstitutional capital gains deduction. The court previously held that the capital gains deduction set forth in 68 O.S. §238(d) discriminated on its face against interstate commerce because the holding period for out-of-state companies was longer than the required holding period for Oklahoma companies. On rehearing, the Oklahoma Tax Commission (OTC) argued that the court’s decision should only apply prospectively. However, pursuant to long-standing Oklahoma precedent, the court recognized that “retroactivity is generally applied to constitutional opinions.” Holding that retroactivity applied to the taxpayer, the court also stated that a constitutional pronouncement must be “given full retroactive effect” and went on to apply the “pipeline rule.” Under the “pipeline rule,” a decision applies to all cases still open on direct review and to all events that are not time-barred. The purpose of the rule is to secure equality for all pending claims, or those capable of being litigated, when a new rule is announced. The OTC will likely appeal the decision to the Oklahoma Supreme Court. CDR Sys. Corp. v. Oklahoma Tax Comm'n, Okla. Ct. of App., Case No. 109,886 (filed June 12, 2013).

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