concurring. I concur in the result reached by the majority because this case is controlled by the law of the case.1 I believe, however, that this court’s earlier decision in Stepp v. Gray, 58 Ark. App. 229, 947 S.W.2d 798 (1997), and the majority opinion in the case at bar are incorrect insofar as they instruct the chancellor to consider appellee’s depreciation deduction as income for child-support purposes.
Under Section II of Administrative Order No. 10: Arkansas Child Support Guidelines, 331 Ark. 581, income is defined as “any form of payment, periodic or otherwise, due to an individual, regardless of source, including wages, salaries, commissions, bonuses, worker’s compensation, disability, payments pursuant to a disability or retirement program, and interest, less proper deductions for: 1. Federal and state income tax. ...” (Emphasis added.) In the first place, even applying a most liberal interpretation, I am unable to construe a depreciation deduction to be a “form of payment” within the meaning of the foregoing definition. Secondly, the foregoing definition of income expressly excludes “proper deductions” for federal and state income taxes. If the supreme court had intended for the chancellors to disregard the Internal Revenue Code and determine that legally permissible depreciation deductions under that Code may not be considered in determining the amount of income taxes that can be properly deducted for the purpose of determining income, I believe it would have said so in its administrative order. In my view, the allowance of a depreciation deduction on one’s income-tax return merely reduces the taxpayer’s income-tax liability, and is not income as that term is defined in Administrative Order No. 10.
As the majority notes, Section III of Administrative Order No. 10, dealing with the calculation of support for nonsalaried payors, provides:
For self-employed payors, support shall be based on last year’s federal and state income tax returns and the quarterly estimates for the current year. Also the court shall consider the amount the payor is capable of earning or a net worth approach based on property, life-style, etc.
To me, this section sets forth clearly that in calculating the amount of the child-support obligation of a self-employed person, the court is required to determine the amount of the payor’s income by referring to the payor’s federal and state income-tax returns, (and to consider the amount the payor is capable of earning or use a net-worth approach). Both the federal and state income-tax codes allow taxpayers to exclude (i.e., deduct) from taxable income the amount by which certain property depreciates over its useful life.2 Also, since quarterly estimates of income taxes are based on a percentage of the taxpayer’s income-tax liability for the preceding year, they necessarily reflect the taxpayer’s tax liability after the deductions allowed by federal and state tax codes.3 I am unable to interpret Section III to mean that all or part of a taxpayer’s depreciation deduction on his tax returns is to be considered as income for purposes of calculating child support.
Depreciation is the presumptive amount of the decline in the value of certain types of property over the passage of time as a result of exhaustion, wear, tear, and obsolescence.4 Whether the presumed amount of the property’s decline in value is valid cannot be determined until the property is sold. When the sale occurs, if the price received for the property is equal to or less than its depreciated value, the taxpayer has received no income from the sale. On the other hand, if the sale price exceeds the depreciated value of the property, at that point the taxpayer will have received income, and that amount of income should be considered in calculating any child-support obligation he or she may have at that time.5 By including the depreciation deduction as income for the purpose of calculating child support, the child-support obligor will be required to pay support on income that may never be received, and the child-support recipient will be receiving the benefit of a profit on the obligor’s investment before it can be determined that there will be any profit.
I am not aware of any authority by which an obligation to pay child support in the present is to be calculated based on income that a child-support obligor may realize in the future from investments. Is the child-support recipient going to be required to refund all or part of the money he or she received if it is ultimately determined that the price received for the property when it is sold does not exceed its depreciated value?
I have one other concern with the majority opinion. Although it recognizes that our opinion in Stepp v. Gray, supra, caused confusion to the chancellor when he was required, on remand, to consider whether and how much of appellant’s depreciation deduction to include in income, the majority opinion in the case at bar provides no guidance that will eliminate that confusion in other cases involving the same issue. Much like the opinion in Stepp, the majority in the case at bar simply informs the chancellors that “depreciation is a factor that should be considered, just as property and lifestyle are considered, on a case-by-case basis.”6 The majority provides no hint as to what criteria the chancellor is to consider in making the determination of whether all or some portion of the depreciation deduction should be considered as income. If only part of the deduction is to be included, there is no guidance offered as to how chancellors should determine what portion to include. I find it ironic that chancellors are mandated by Administrative Order No. 10 to set child support according to the sums specified in the Family Support Chart, unless a variance from the chart is justified by specific written findings, yet in cases involving a depreciation deduction, the amount of income derived by the chancellor to begin with, from which the presumptive amount of support set forth in the chart is determined, can be fixed by the chancellor without any guidance from the administrative order or the appellate court as to what factors should be considered in determining whether and how much of the depreciation deduction should be deemed income.
I also disagree with parts of Judge Rogers’s concurring opinion. In it, Judge Rogers expresses her concern “about depreciation being manipulated by the noncustodial parent,” even though there was no suggestion by either of the accountants who testified in this case, nor a contention by the appellant, that appellee had “manipulated” any information on his tax returns to create an inaccurate picture of his income.7 Obviously, if a child-support payor’s income-tax returns were shown to be fraudulent or erroneous, the court could look to the correct information and make the necessary calculations to determine the appropriate amount of child support. But, in the absence of fraud or error in the tax returns or quarterly estimates, it seems to me that the amount of child support to be paid by the self-employed should be calculated based on the income shown on tax returns and quarterly estimates, as required by Administrative Order No. 10.
I am also puzzled by Judge Rogers’s suggestion in her concurring opinion that one’s child-support obligation can be reduced in instances of real-estate transactions where one has no investment in the property but can receive cash flow. If this is a suggestion that the depreciation deduction should be included as income in calculating child support where the asset was purchased with borrowed money, but should not be included as income where the obligor has fully paid for an investment asset with his or her own money, I see no validity to that distinction. Appellee is obligated to pay these debts whether or not he ever makes any money on his investment. Furthermore, there is no suggestion by the evidence in this case that appellee had no investment in the property or was receiving the benefit of a significant positive cash flow. To the contrary, although we can not tell from the abstract the total amount appellee paid for the rental properties that are the subject of his depreciation deduction, we can tell that as of December 31, 1994, he owed a balance of $605,000 on promissory notes that were secured by real-estate mortgages on his rental property, and that in 1994, alone, he reduced that indebtedness by more than $32,000 while realizing rental income of only $15,731. Under these circumstances, I cannot agree that appellee has no investment in the property, or that he benefitted from a significant cash flow. In fact, these figures would indicate that, for 1994, a negative cash flow resulted.
As I stated at the outset, unfortunately this case must be affirmed because of the requirement that we apply the doctrine of the law of the case. However, I hope that when future cases are considered that involve the issue of whether a depreciation deduction should be treated as income for purposes of calculating child support, our mistake will be corrected. I commend and join with the majority judges in their concern that the children of our state be appropriately and adequately supported by their noncustodial parents. However, I am also concerned that the effect of this court’s decisions in the Stepp case and the case at bar is to assess child support against income that has not yet been realized, and, therefore, to impose an inequitable assessment of child support against the investor, as compared to the noncustodial parent who chooses not to invest.
Griffen, J., joins in this concurring opinion.
The doctrine of the law of the case prevents an issue raised in a prior appeal from being raised in a subsequent appeal. Vandiver v. Banks, 331 Ark. 386, 962 S.W.2d 349 (1998). The doctrine provides that a decision of an appellate court establishes the law of the case for the trial upon remand and for the appellate court itself upon subsequent review. Kemp v. State, 335 Ark. 139, 983 S.W.2d 383 (1998). On the second appeal, the decision of the first appeal becomes the law of the case, and is conclusive of every question of law or fact decided in the former appeal, and also of those which might have been, but were not, presented. Griffin v. First Nat’l Bank, 318 Ark. 848, 888 S.W.2d 306 (1994); Mercantile First Nat’l Bank v. Lee, 31 Ark. App. 169, 790 S.W.2d 916 (1990).
Under the federal tax code, a depreciation deduction is allowed for “the exhaustion, wear and tear (including a reasonable allowance for obsolescence) ... of property held for production of income.” 26 U.S.C. § 167 (1994). The terms of the Internal Revenue Code regarding depreciation have been adopted by reference in the Arkansas Income Tax Act for the purpose of computing Arkansas income-tax liability. Ark. Code Ann. § 26-51-428 (Repl. 1997).
See generally 26 U.S.C. § 6654(d) (1994).
26 U.S.C. § 167.
Of course, any “profit” from the sale, for purposes of calculating child support, would have to be reduced by the amount of the income taxes that the federal and state taxing authorities will “recapture” as a result of the sale of residential rental property for a sum that is greater than its depreciated basis. 26 U.S.C. § 1250 (1994); Ark. Code Ann. § 26-51-411 (Repl. 1997).
It should be noted that “property and lifestyle” are specifically mentioned in Administrative Order No. 10 ns factors that may be properly considered in determining the support obligation of self-employed payors on a net worth approach, whereas, there is no mention that consideration should be given to the payor’s depreciation deduction.
According to appellant, he was utilizing a “straight-line” depreciation schedule, approved by Internal Revenue Code (26 U.S.C. 167), over a period of “twenty-seven and a half or twenty-eight and a half years.” Under 26 U.S.C. § 168(d) (1994), the minimum term of depreciation for “section 1250 property” (residential rental property) is 27.5 years.