Bingham v. Commissioner of Corp. and Taxation.

• Decision Date: 21 May 1924
• Citation: 249 Mass. 79
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: NORMAN W. BINGHAM, JR. & others, executors, v. COMMISSIONER OF CORPORATIONS AND TAXATION.

249 Mass. 79

NORMAN W. BINGHAM, JR. & others, executors, v. COMMISSIONER OF CORPORATIONS AND TAXATION.

Supreme Judicial Court of Massachusetts, Suffolk.

May 21, 1924

November 22, 23 1923.

Present: RUGG, C.

J., BRALEY, CROSBY PIERCE, & CARROLL, JJ.

Tax, On income. Executor and Administrator. Statute, Construction.

The word "income" as used in Sections 5, 7 and 9 of G.L.c 62, may be said to include the true increase in amount of wealth which comes to a person during a stated period of time and imports an actual gain. Per RUGG,

C.J.

The income of the estate of a deceased person which is subject to a tax under G.L.c. 62, Section 9, can refer only to such income as is received from the body of capital after the death of such deceased person.

No income tax should be assessed by reason of a sale by an executor of intangible personal property at a price which is less than the value of the property at the time of the death of the testator, although the selling price is greater than the cost of the property to the testator, who purchased it after January 1, 1916.

It is a familiar principle of statutory interpretation that tax laws are to be construed strictly against the taxing power; if the right to tax is not plain, it is not to be implied. Per RUGG, C.J.

COMPLAINT, filed in the Superior Court on January 26, 1923, under G.L.c. 62 Section 47, for abatement of an income tax assessed against the complainants as executors of the will of King Upton, late of Marblehead.

The facts were agreed upon. Material facts are described in the opinion. The complaint was reserved and reported by Wait, J., upon pleadings and agreed facts, without making any decision, for determination by this court.

N.W. Bingham, Jr., for the complainants A. Lincoln, Assistant Attorney General, for the respondent.

RUGG, C.J. This is a complaint for the abatement of an income tax. The testator of whose will the complainants are executors, died on February 27, 1921. After their appointment as executors and during 1921 the complainants sold intangible personal property of the estate of the testator at a considerable advance over its cost to the testator, who acquired it subsequent to January 1, 1916, but at a price less than its fair market value on the date of the death of the testator or at the time of the qualification of his executors. An income tax was levied on the difference between the cost to the testator and the amount realized from the sale by the executors.

The question for decision is whether, in case of a sale by executors, during the settlement of the estate, of intangible property owned by the testator at his death, the basis for ascertaining whether there has been a gain or a loss for income tax purposes is the value of such property at the time of the death of the testator or its value at the time of its acquisition by him.

The relevant statutes are in G.L.c. 62, as follows: "Section 5. Income of the following classes received by any inhabitant of the Commonwealth during the preceding calendar year shall be taxed as follows: . . . . . . . . . . (c) The excess of the gains over the losses received by the taxpayer from purchases or sales of intangible personal property, shall be taxed . . ." "Section 7. . . . In determining gains or losses realized from sale of capital assets, the basis of determination, in case of property owned on January first, nineteen hundred and sixteen, shall be the value on that date, and in case of property acquired thereafter, the value on the date when it is acquired." "Section 9. The estates of deceased persons who last dwelt in the Commonwealth shall be subject to the taxes imposed by this chapter upon all income received by such persons during their lifetime, if assessed within the time limited by section thirty-seven, except income taxable under subsection (b) of section five. The income received by the estates of such deceased persons shall be subject to all the taxes imposed by this chapter to the extent that the persons to whom such income is payable, or for whose benefit it is accumulated, are inhabitants of the Commonwealth . . . ."

The word "income" as used in these sections may be said to include the true increase in amount of wealth which comes to a person during a stated period of time. It imports an actual gain. It is based on the practical conception that additional property has come to the taxpayer out of which some contribution is exacted and can be paid for the support of government. Income indicates increase of wealth in hand out of which money may be taken to satisfy the enforced pecuniary contributions levied to help bear the public expenses. It does not comprehend increase in the value of capital investment discernible only by estimation and not otherwise. It refers simply to an increase in value realized by sales or conversion of capital assets. Tax Commissioner v. Putnam, 227 Mass. 522 , 526, 529, 530. Brown v. Commissioner of Corporations & Taxation, 242 Mass. 242 , 244. Lapham v. Tax Commissioner, 244 Mass. 40 , 42.

These sections of the statutes in certain aspects differentiate between taxation of incomes of estates of deceased persons and of natural persons. The terms of Section 5 are comprehensive and include every inhabitant of the Commonwealth except as otherwise modified. The terms of Section 9 modify these broad terms. They impose the tax upon all income received by deceased inhabitants during their lifetime to be paid by their estates; but the income received by the estates of such deceased inhabitants is made subject to the tax only to the extent that the persons ultimately benefited by such income are inhabitants within this...