Burwell v. South Carolina Tax Commission
| Decision Date | 31 December 1924 |
| Docket Number | 11634. |
| Citation | 126 S.E. 29,130 S.C. 199 |
| Parties | BURWELL ET UX. v. SOUTH CAROLINA TAX COMMISSION ET AL. |
| Court | South Carolina Supreme Court |
Original proceeding by Ernest Burwell and wife against the South Carolina Tax Commission and W. G. Query, J. Fraser Lyon, and J. P. Derham, members thereof, for injunction. Injunction granted.
The following is the agreed statement of facts on the submission of this controversy, without action, under the provisions of section 675 of the Code of 1922:
(1) That the petitioners are husband and wife, and resided at the times hereinafter mentioned, and still reside in the city of Spartanburg, county of Spartanburg, state of South Carolina.
(2) That during the year 1923, said petitioners conducted an automobile sales business in the city of Spartanburg, county and state aforesaid, under the following circumstances: The petitioner, Ernest Burwell, made an oral contract before marriage with the petitioner, Faith C. Burwell (who was a daughter of wealthy parents), that if she would marry him he would give her one-half of all his property, including a half interest in the capital invested in his automobile sales business. That upon said understanding and agreement they were married. That said Ernest Burwell immediately thereafter conveyed to Faith C. Burwell a lot in the city of Spartanburg, on which to build their home, and in compliance with said antenuptial agreement, one-half of the capital invested in his automobile sales business in the city of Spartanburg, was treated as the property of his wife Faith C. Burwell, and each of said petitioners received one-half of the net earnings of said automobile business, and the petitioner, Faith C. Burwell, during the year 1923 collected as the building progressed and used her part of said earnings in building a home on the lot of land conveyed to her by her husband, Ernest Burwell; same being the home your petitioners now occupy.
(3) That the petitioners filed their income tax returns with respondents, showing the total income of said automobile business, and at the same time filed their separate individual returns, reporting therein one-half each the net income from said automobile business, and paid the tax in accordance with the statements contained in said separate returns.
(4) That prior to the making of said returns, but subsequent to the period for which same were made, said automobile sales business, as heretofore conducted, was duly incorporated under the laws of the state of South Carolina, under the corporate name of Ernest Burwell, Inc. That in consideration of the property belonging to said automobile business being transferred to said corporation, your petitioner, Ernest Burwell, had issued to him, as his interest in said business 51 per cent. of the capital stock, and Faith C. Burwell received for her interest therein 49 per cent. of the capital stock in said corporation.
(5) The South Carolina tax commission, in so far as the income from said automobile business is concerned, disallowed the returns made upon the theory that the petitioners were partners for the year 1923, and have charged the entire net income from said automobile business against the petitioner, Ernest Burwell, individually, thereby creating a greater liability for surtax under the terms of said act than would be the case by division of profits between the petitioners herein, and separate returns for one-half thereof, as more fully shown by Exhibits A1 and A2 hereto attached and made a part of this agreed statement of facts. That said commission has notified the petitioners that their separate returns as copartners have been disallowed, and that the entire profits of said automobile business have been charged to the petitioner Ernest Burwell, and that after giving said Ernest Burwell credit for the taxes paid by both petitioners, an additional tax, by reason of the larger amount of profit liable to said tax, had been assessed against said Ernest Burwell, in the sum of $1,826.85, as shown by Exhibit A1 hereto attached, and demand for the payment of same has been made upon the said Ernest Burwell. The rulings of the tax commission herein are based upon the provisions of section 5516, vol. 3, Code of Laws of 1922, and the ruling of the United States Treasury Department hereto attached as Exhibit B, and made a part of this petition. Respondents contend that said ruling of the United States Treasury Department is binding on respondents and petitioners until the legal status of a married woman to contract partnership with her husband is judicially determined by the courts of this state.
(6) That the settlement of the questions herein presented are of general public interest, not only to petitioners, but to many others of like status now pending before respondents for adjustment and decision. And especially because of the doubt as to the effect and application of article 17, § 9, of the state Constitution for 1895, and act of 1897 (section 5540, 3 Code of Laws of South Carolina of 1922), as applied to copartnerships between husband and wife, and in view of the ruling of the United States Treasury Department, as shown by Exhibit C hereto attached, it is of urgent public necessity to have a speedy judicial determination of said question, not only for the benefit of petitioners, and many others in similar status, but also that the respondents, as public officers, may be properly informed by the courts of this state of their duty in the premises in the enforcement of said Income Tax Act.
(7) It is agreed by respondents that said additional tax, as above set forth, assessed against the petitioner, Ernest Burwell, will not be enforced by said respondents pending the adjudication of the questions herein involved by the Supreme Court upon this agreed submission of controversy without action.
(8) The remedy desired by the petitioners in this controversy is a writ of injunction by the Supreme Court in its original jurisdiction, permanently restraining the respondents from assessing and enforcing collection from petitioner, Ernest Burwell, of said additional tax of $1,826.85, by reason of disallowing said copartnership, and the separate returns of petitioners as copartners constituting said copartnership, and your petitioners will ever so pray.
"Exhibit A.1 Report on Return No. 82238.
Name, Ernest Burwell.
Period ended Dec. 31, 1923.
Additions (explain below):
(1) ....................................... $31,567.90 (4) ................................................... $31,567.90 Deductions (explain below): (5) ....................................... $ 433.85 (8) ................................................... $ 433.85 Net (additions) ........................................ $31,134.05 Net income as shown by return as corrected ............. $31,134.05 ---------- Net income as corrected ................................ $62,268.10 Exemption, 2000.00 .................................. $ 2,000.00 Balance of net income subject to normal tax ............ $60,268.10 Tax Balance at 4% .......................................... $ 4,000.00 $ 160.00 Balance at 8% .......................................... $56,268.10 4,501.45 Surtax ............................................................... 8,097.75 ---------- Total tax (use this line for corporation tax at 12 1/2%) .................................................. $12,759.20 ---------- Due state 1/3 ...................................................... $ 4,253.07 Tax paid""E. Burwell $1,212.54""Mrs. Burwell $1,213.58 .................................................. 2,426.12 ---------- Underpayment ....................................................... $ 1,826.85 Explanation. Int. @ 6% ............................................... ........ Total .................................................. $........
(1) Earnings of partnership Ernest Burwell, credited to Mrs. Ernest Burwell disallowed from her returns and placed in return of her husband in accordance with Sol. Memo. 2373--Vol. III, No. 35, Sept. 1, 1924, Internal Revenue Bulletin.
(5) Contributions taken by Mrs. Burwell allowed to Mr. Burwell.
O. W. Livingston, Auditor.
Exhibit A.2 Report on Return No. 82237.
Name, Mrs. Ernest Burwell.
Address, Spartanburg, South Carolina.
Period ended Dec. 31, 1923.
Additions (explain below):
(1) ............................................. $ 433.85 (4) ......................................................... $ 433.85 Deductions (explain below): (5) ............................................. $31,567.90 (8) ......................................................... $31,567.90 Net (additions) .............................................. $31,134.05 Net income as shown by return ................................ $31,158.05 ---------- Net income as corrected ...................................... $ 24.00 Exemption ........................................... None Balance at 4% ...................................................... None Tax Balance at 8% ............................................................ None Tax paid""$1,213.58 credited on account of Ernest Burwell. Underpayment ............................................................. None
Explanation: (1) Deduction for contributions taken out to allow on return of husband.
(5) Earnings of partnership of Ernest Burwell disallowed and placed to credit of husband in accordance with Sol. Memo. 2373--Internal Revenue Bulletin, Vol. III, No. 35, Sept. 1, 1924.
O. W. Livingston, Auditor.
Exhibit B.
Section 218--Partnerships.
Article 331-- Partnerships. Solicitor's Memorandum 2373.
Under the laws of South Carolina a married woman has no power to enter into a contract of partnership with her husband, and she cannot...
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