Armour & Co. v. Wis. Dep't of Taxation

• Court: Wisconsin Supreme Court
• Writing for the Court: HUGHES
• Citation: Armour & Co. v. Wis. Dep't of Taxation, 252 Wis. 468, 32 N.W.2d 324 (Wis. 1948)
• Decision Date: 11 May 1948
• Parties: ARMOUR & CO. v. WISCONSIN DEPARTMENT OF TAXATION.

252 Wis. 468

32 N.W.2d 324

ARMOUR & CO.

v.WISCONSIN DEPARTMENT OF TAXATION.

Supreme Court of Wisconsin.

May 11, 1948.

Appeal from a judgment of the Circuit Court for Dane County; Herman W. Sachtjen, Judge.

Action by Armour & Company, an Illinois corporation, against the Wisconsin Department of Taxation, for partial refund of income tax. Judgment for defendant, and plaintiff appeals.-[By Editorial Staff.]

Affirmed.

This is an action by the appellant Armour and Company, an Illinois corporation, against the Wisconsin Department of Taxation, to procure a partial refund on income tax paid by it on income of Armour and Company, a Delaware corporation, earned between November 1, 1942, and September 24, 1943. The necessary facts will be stated in the opinion.

Lecher, Michael, Spohn, Best & Friedrich, of Milwaukee, for appellant.

John E. Martin, Atty. Gen. and Harold H. Persons, Asst. Atty. Gen., for respondent.

HUGHES, Justice.

The Delaware corporation was a subsidiary of the Illinois corporation and on September 24, 1943 was merged into the appellant corporation which became liable as transferee for the income taxes of its subsidiary and stands in the position of the taxpayer so that no distinction will hereafter be made between the two corporations. They will be referred to be the ‘taxpayer.’

At the time the tax was levied the taxpayer was a foreign corporation doing business in Wisconsin as well as many of the other states. The tax was figured by the Wisconsin authorities on a formula basis of apportionment with which there is but one disagreement on the part of the appellant, that is, that the department used an improper method of arriving at income upon which the tax was computed.

The first question raised upon this appeal is whether, in arriving at taxable income, the Department of Taxation correctly applied sec. 71.02(3)(d), Wis.Stats.1943. The subsection reads:

‘Persons engaged in business within and without the state shall be taxed only on such income as is derived from business transacted and property located within the state. The amount of such income apportionable to Wisconsin may be determined by an allocation and separate accounting thereof, when, in the judgment of the department of taxation, that method will reasonably reflect the income properly assignable to this state, but otherwise in the following manner: There shall first be deducted from the total net income of the taxpayer such part thereof (less related expenses, if any) as follows the situs of the property or the residence of the recipient; provided, that in the case of income which follows the residence of the recipient, the amount of interest and dividends deductible under this provision shall be limited to the total interest and dividends received which are in excess of the total interest (or related expenses, if any) paid and allowable as a deduction under section 71.03 during the income year. The remaining net income shall be apportioned to Wisconsin on the basis of the ratio obtained by taking the arithmetical average of the following three ratios: * * *.’

In the taxpayer's gross income of $90,629,000 is an item of $6,175,000 derived from interest and dividends which, if it were the only item of interest involved, would be conceded by the department to be nonassessable in Wisconsin. The taxpayer also pays interest in amount of $3,856,000 which the department likewise concedes would all be deductible from gross income before calculation of income tax, if standing alone.

The taxpayer contends that of this interest paid, the sum of $1,170,000 represents interest and investment charges on the roughly $80,000,000 investments from which the income of $6,175,000 is derived, and that this is the only interest that can legitimately be deducted from its exempt interest income.

The department of Taxation contends that it is required by the statute to deduct from the exempt interest received by the taxpayer all of the interest paid by it.

By way of illustration, the taxpayer contends that after calculating net income including the earnings of the exempt securities it is entitled to a deduction as follows:

+----------------------------------------------------------------------+
                ¦Exempt income                                              ¦$6,175,000¦
                +-----------------------------------------------------------+----------¦
                ¦Interest paid chargeable to investments                    ¦1,170,000 ¦
                +-----------------------------------------------------------+----------¦
                ¦Deduction by reason of inclusion in return of exempt income¦$5,005,000¦
                +----------------------------------------------------------------------+
                

The department contends that the taxpayer is not entitled to allocate certain portions of the interest paid and that the deduction should be:

+----------------------------------------------------------------------+
                ¦Exempt income

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