Brady v. John Hancock Mut. Life Ins. Co.
| Citation | 342 So.2d 295 |
| Decision Date | 12 January 1977 |
| Docket Number | No. 48955,48955 |
| Parties | Charles R. BRADY, Chairman, State Tax Commission, Petitioner-Appellant, v. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, Respondent-Appellee. |
| Court | United States State Supreme Court of Mississippi |
Joe D. Gallaspy, James H. Haddock, William N. Lovelady, Jr., Jackson, for petitioner-appellant.
Watkins, Pyle, Ludlam, Winter & Stennis, L. Arnold Pyle, David B. Grishman, Warren V. Ludlam, Jr., Jackson, for respondent-appellee.
Before PATTERSON, SMITH and LEE, JJ.
The Mississippi State Tax Commission brings this appeal from a decree of the Chancery Court of the First Judicial District of Hinds County. It held John Hancock Mutual Life Insurance Company was not subject to Mississippi state income tax upon interest from its mortgage loan investments within this state. The decree reversed an order of the Mississippi State Tax Commission of May 15, 1973, assessing income tax and interest of $228,481.19 against John Hancock Mutual Life Insurance Company on interest income for the taxable years 1969, 1970 and 1971 from loans secured by real property situated in this state.
The appellee, John Hancock Mutual Life Insurance Company, hereinafter Hancock, is a foreign corporation qualified with the State Insurance Commission to conduct life, health, accident and variable insurance business in Mississippi. It is not qualified with the Secretary of State or other agency to conduct a different business within the state. The mortgage investment and insurance activities of Hancock are separated into two divisions, but when combined, constitute the corporation. The Mississippi State Tax Commission, hereinafter Commission, contends the divisions of Hancock are interrelated and dependent upon each other because the premium income from insurance is invested into mortgage loans from which interest income is earned. This income is then employed by Hancock to service its insurance obligations and any surplus remaining is returned to its policyholders through dividends. We note that for two of the three years spanning this case Hancock experienced a net loss from its insurance business within the state, but when the mortgage investment income was included, a net profit resulted.
Hancock acknowledges that an insurance company must receive income from investments for the conduct of its business. It maintains, however, that the investments secured by property within this state are separate and apart from its insurance business.
As part of its overall business the appellee makes loans to local residents secured by mortgages on real property within the state. These loans are closed, the deeds of trust are recorded and foreclosures, when necessary, are conducted within this state. A member of the local bar is substituted as trustee by Hancock to transact foreclosures. All notes, deeds of trust and mortgages are transferred to Hancock's domicile in Massachusetts after the loans are closed and the deeds of trust are recorded in the county of the security.
Hancock maintains insurance offices and agents in the state. It engages a salaried employee who devotes his time exclusively to its mortgage lending business in Mississippi, Arkansas and Louisiana. This employee works from the appellee's office in Memphis, Tennessee one or more days each week. However, since he resides in Cleveland, Mississippi, the Commission contends he utilizes his home as an office the remainder of the week for the appellee's ins-state mortgage lending activities. Hancock owned 300, estimated, Mississippi farm loans during the tax period in dispute.
Hancock's residential and commercial loans secured by local property were transacted through Bridges Loan & Investment Company of Jackson, Mississippi for the time involved. Bridges was without restriction to conduct similar business with other investment companies. Its activities for Hancock were substantial and paid for by a percentage of annual interest collected.
For the years 1969, 1970 and 1971 Hancock paid no state income tax on the interest income earned from its mortgage lending activities in Mississippi. The Commission, then chaired by Arny Rhoden, pursuant to Mississippi Code Annotated section 27-7-23(1)(a) (1972) and 27-7-49 (1972), assessed the company $223,456.60 in income taxes for these years. The assessment was based upon a net investment in Mississippi for interest income of $2,235,604 in 1969, $2,184,941 in 1970 and $2,160,993 in 1971.
The parties agree the promissory notes are 'intangibles' for tax purposes.
On appeal from the Commission's order to the Chancery Court in a trial de novo (Mississippi Code Annotated section 27-7-73 (1972)) the court concluded:
The issue is simply whether the Commission's assessment should be upheld under the theory that the promissory notes in question have acquired a 'business, commercial or actual situs' within this state, or whether in accord with Hancock's contentions, there is not a sufficient nexus to link evidences of ownership of intangible property with any such situs.
After stating the issue, the chancellor found, among other things:
. . . It is axiomatic that an insurance company must make investments and receive income therefrom for the proper conduct of its business. . . .
Hancock makes mortgage loans to Mississippi residents, secured by real property within this state. Its lending activities are separate and apart from its insurance business. . . .
The court concluded the agreement of Hancock with Bridges was nonexclusive and that the method utilized by it in investing mortage money was the same as other nonresident investors. It also determined the officials of the Tax Commission, as well as former officials, were for many years aware of the exclusion from tax of intangible income secured by property in this state prior to the present assessment.
In construing Mississippi Code Annotated section 27-7-23 (1972), designating the items of gross income of foreign corporations classified as derivative from sources within this state, the trial judge was of the opinion the section contained conflicting specific and general provisions necessitating a choice between the two to determine which had application. He concluded the specific portion of the statute to be:
Net income of nonresident and foreign taxpayers:
(1) In the case of foreign corporations or of individuals, partnerships, trusts or estates, not residents of the State of Mississippi, the following items of gross income shall be treated as income from sources within the state:
(a) Income from intangible property of any kind or nature, if the evidence of ownership has acquired a business, commercial, or actual situs in this state; . . . (Emphasis added.)
Thus it prevailed over the last sentence of Subsection (1)(a) which the court considered general and nonspecific. It follows:
There shall be reported any and all income from activities or transactions engaged in within this state for the purpose of financial profit or gain, whether or not the taxpayer is qualified to do business in this state, maintians an office or place of business, or the activities or transaction is in, or connected with, interstate or foreign commerce.
The trial court construed the first section to require evidence of business situs. It thereby rejected the Commission's contention that the lands are protected by the laws of this state, the deeds of trust are of record in this state and the laws of this state protect the mortgagee and furnish the sole means of enforcing its lien. The basis for rejection was that the facts were insufficient to create a nexus between the security and the intangibles, the notes.
The trial court, in separate findings, held the evidence did not establish a business connection between Hancock's insurance division and investment division within the state so that the income-producing intangibles could be taxed here.
Finally, it held that the Commission regulations were so long continued they had, in effect, the force of law because the legislature, aware of the regulations, had acquiesced therein by not enacting laws to the contrary.
We first address the trial court's construction of the statute. In doing so we think the legislature's intention must be determined by the total language of the statute and not from a segment considered apart from the remainder that the overall intention may be decided without adjudicating which of two provisions prevails. It is also proper in considering intent to use the ordinary meaning of words at the time and under the circumstances in which they were written. In Fortenberry v. State, 190 Miss. 729, 1 So.2d 585 (1941), we stated:
In considering the meaning and effect of a new and supplemental enactment, which by an express provision disclaims the purpose to repeal any existing law, there is, more than in the ordinary case, the duty of the court to take into consideration all the facts and circumstances leading up to the new enactment, the developments in the history of the times and the particular characteristics of the specific evil which the new and supplemental statute was designed to curb, . . .. (190 Miss. at 735-736, 1 So.2d at 587)
Regardless of whether the trial court was correct in finding the first portion of the statute was specific and prevailed over the latter and general portion of the statute there remains the necessity of deciding if the construction placed upon the specific portion correctly reflected the legislative intention.
We observe the times, history and interpretations of the statute as it progressed to its present form to determine the real intention of the legislature. See Zeigler v. Zeigler, 174 Miss. 302, 164 So. 768 (1935). The state's first income tax law was enacted in 1912. Section 15(1)(a), Chapter 132, Laws of 1924, expressed the law as it was rewritten in pertinent part:
Section 15. (1) That in the case of foreign...
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