Commonwealth v. Davis

• Decision Date: 12 September 1933
• Citation: Commonwealth v. Davis, 284 Mass. 41, 187 N.E. 33 (Mass. 1933)
• Parties: COMMONWEALTH v. DAVIS.
• Court: Supreme Judicial Court of Massachusetts

284 Mass. 41

187 N.E. 33

COMMONWEALTH

v.DAVIS.

Supreme Judicial Court of Massachusetts, Suffolk.

Sept. 12, 1933.

Exceptions from Superior Court, Suffolk County; W. Thayer, Judge.

Action of contract by the Commonwealth against Edgar B. Davis.Verdict for plaintiff for $439,537.97, and defendant brings exceptions.

Exceptions overruled.W. F. Stephens and R. W. Copeland, both of Brockton, and F. W. Murphy, of New York City, for defendant.

A. W. Rockwood and W. Flaherty, Sp. Asst. Attys.Gen., for the Commonwealth.

RUGG, Chief Justice.

This is an action of contract to recover an income tax.G. L. (Ter. Ed.)c. 62, § 41.The plaintiff's declaration alleges that the defendant was a resident of Brockton in this commonwealth, that a tax of a specified sum has been assessed upon income received by him during 1926, that no part of it has been paid and that entire amount is due with interest from October 1, 1927.The defendant's answer contains a general denial, denial that he has been an inhabitant of the commonwealth since December 31, 1925, [1926] avers that he has been an inhabitant of the state of Texas since on or about December 21, 1926, and that the assessment of the income tax is in violation of his rights under the Constitution of this commonwealth and under the Constitution of the United States.

The parties have stipulated for the purposes of this case that there has been compliance with all procedural requirements and formalities with respect to the assessment and collection of the tax in question and the bringing of the present action.

The parties have further stipulated with respect to the income on which the tax was laid that the defendant was the owner of one hundred and eighty three thousand out of the two hundred thousand shares of stock of the United North & South Oil Company, Inc., a New York corporation which owned oil leases on lands in Texas.In 1926 a sale of most of its property including oil leases was made to the Magnolia Petroleum Company, a subsidiary of the Standard Oil Company, for $12,100,000, one half of which was paid in cash and the balance later as the oil was taken out of the properties.The money was paid to the United North & South Oil Company, Inc., which was liquidated and dissolved.Dividends were paid to the defendant by the latter company during 1926 as follows: Forty per cent. in cash prior to the sale to the Magnolia Petroleum Company, three hundred per cent. in cash after that sale, one hundred per cent. in stock of the United North & South Development Company, Inc., a Delaware corporation, the capital stock of which was owned by the United North & South Oil Company, Inc., and the fair value of which at the time of its receipt by the defendant was its par value.The income tax was levied at the rate of six per cent. on the amounts thus received in cash and stock after deducting the par value of the stock owned by the defendant in the United North & South Oil Company, Inc.

The case was tried to a jury largely upon oral evidence, the testimony of the defendant being voluminous.The chief question for decision is whether there was error of law in the denial of the motion by the defendant that a verdict be directed in his favor.This is the only exception stated in the bill as allowed.No exception was taken to the charge by either party and all exceptions as to evidence were waived.At the close of the charge, this special question was submitted to the jury: ‘Did the defendant, Edgar B. Davis, change his domicile from Brockton, Mass., to Luling, Texas, in fact?’The jury answered ‘No.’Thereupon the trial judge directed a verdict for the plaintiff for the amount claimed in the declaration.

A main contention of the defendant is that there was no evidence to support the finding that the defendant did not change his domicil from this commonwealth to Texas.It is conceded that the defendant's domicil was and continued to be in Brockton in this commonwealth from his birth until some time in the latter part of December, 1926.The point in controversy is whether he then changed his domicil to Luling in the state of Texas.Relevant facts and testimony bearing on this point, summarily stated, are these: The defendant was born in 1873, was brought up and received his education in Brockton and never married.He was engaged in business there until 1904 when by reason of sickness he was compelled to give up all business activities.Thereafter he traveled extensively, was absent from Brockton a good deal of the time, but continued to look upon Brockton as his legal domicil and never contended prior to the latter part of December, 1926, that his home was not in the family residence there.That was a house which the defendant and his brother acquired and maintained as a home for their parents during their lives and later for other members of the family.The defendant made his home there.The defendant voted whenever possible and paid his taxes in Brockton.He was engaged in the rubber business in the Far East from 1908 to 1918 and was absent from America about three-fourths of the time.In 1919he became interested in the oil prospecting business, organized a New York corporation known as the United North & South Oil Company, Inc., for that purpose and was its chief stockholder.It became financially successful in 1925.In that year he acquired the sole title to the homestead in Brockton of which he had theretofore been part owner, and to the former summer home of his parents on Buzzards Bay in Wareham, and made considerable additions to both of them.For the latter he bought adjoining land and made extensive enlargements and alternations to the buildings at an expense of more than $100,000.It was his purpose thus to provide a summer home for his sisters but also to have the house available for the descendants of his father and mother.The defendant caused to be organized in 1925, and chartered in February, 1926, a corporation known as ‘A house on the Sand, Inc.’Although this was organized under the business corporation law of this commonwealth, it was not designed and has never been operated for profit.The defendant owns all the stock.To this corporation he conveyed the Buzzards Bay property.Automobiles were bought and paid for by the defendant and transferred to this corporation.He has paid all the upkeep and expenses of the property and has used it and the automobiles as his own since December, 1926, as well as before.In June, 1926, the defendant organized a corporation called ‘The Davis House, Inc.’ of which he owned substantially all the stock and conveyed to it the homestead property in Brockton and several automobiles.The transfer of this property has not affected its use.It has been occupied by the defendant's sister and her companion and by the defendant whenever he has been in Brockton since 1926 just as it was before the transfer.All its expenses have been paid by the defendant.The defendant testified that this house ‘was a nice place to live in’; that ‘in it they had the nearest approach to a family home in that they had things there that had been handed down in the family, things of the heirloom type’; that it was ‘conducted pretty much the same as any ordinary dwelling house.’

The defendant's personal property in 1926 was invested largely in stock of the United North & South Oil Company, Inc., a New York corporation.Beginning in 1925 it paid substantial dividends and the defendant received from this source large sums of money.Commencing in March, 1926, the defendant and his attorneys had conferences with the commissioner of corporations and taxation (hereafter called the commissioner) as to the rate at which his income from this stock should be taxed, the defendant urging that it should be taxed at the rate of three per cent.They also discussed the rate at which his 1926 income would be taxed in the event of the sale of the assets of the United North & South Oil Company, Inc. to another corporation.The defendant testified that at the time of these conferences he contemplated changing his domicil to Texas but he never wanted to lose the contacts with his friends and relatives in Brockton and he wanted to retain the use of the family homestead.About that time during an illness he had such evidence of friendship on the part of his fellow citizens in Brockton that he felt unable to make the change.In the first half of 1926the defendant organized two corporations, one, for furthering the industrial development of Brockton, of which he owned all the capital stock and in which he held important executive offices, and the other. for charitable purposes in that vicinity, of which he is president and to which he has given large endowments.In July, 1926, the defendant was notified that his dividends from the oil stock received in 1925 would be assessed at the rate of six per cent.That tax was paid in October, 1926, and the matter of the defendant's tax for income received during 1926 was taken up again with the commissioner.On December 9 a letter was written to the commissioner by counsel for the defendant stating that the latter did not contend that he was exempt from taxation but contended that the rate should be three per cent. rather than six per cent.The defendant testified that this letter set forth correctly his position at that time.The commissionerreplied by letter dated December 14, 1926, stating that the same principles of law must be applied to transactions involving large and small amounts and that the income of the defendant from the oil company must be taxed at six per cent.Thereafter acting under advice of counselthe defendant took various steps in order to avoid payment of the income tax in this commonwealth.A friend in Luling, Texas, one Baker, gave him his house with the understanding that Baker and his family might make their home there as long as they wished.The defendant said to the mayor of Brockton and to various...