Department of Treasury of Indiana v. Muessel

• Decision Date: 18 March 1941
• Docket Number: 27489.
• Citation: 32 N.E.2d 596,218 Ind. 250
• Parties: DEPARTMENT OF TREASURY OF INDIANA v. MUESSEL et al.
• Court: Indiana Supreme Court

32 N.E.2d 596

218 Ind. 250

DEPARTMENT OF TREASURY OF INDIANA v. MUESSEL et al.

No. 27489.

Supreme Court of Indiana

March 18, 1941

Appeal from Superior Court, St. Joseph County; J Fred Bingham, judge.

Omer Stokes Jackson, Atty. Gen. and Jos. P McNamara, Deputy Atty. Gen., for appellant.

Jones Obenchain & Butler, of South Bend, for appellees.

SWAIM Chief Justice.

This is an action to recover certain gross income tax paid by the appellees during the year 1933, the action being authorized by § 12, Indiana Gross Income Tax Act of 1933. Acts of 1933 ch. 50, p. 388, § 64-2601 et seq., Burns' 1933, § 15981 et seq., Baldwin's 1934. From a judgment for the appellees the appellant is prosecuting this appeal, assigning as error the overruling of the motion for a new trial, which specified the grounds that the decision of the court was not sustained by sufficient evidence and was contrary to law.

The undisputed facts disclose that in 1931 Muessel-Vassar, Inc., was organized under the laws of Indiana. It was incorporated as a holding company by the stockholders of the Vassar Realty Company and the Muessel Brewing Company. Thereupon said stockholders delivered to said Muessel-Vassar, Inc., all of their stock in the other two named corporations and received in return therefor all of the authorized stock of Muessel-Vassar, Inc., to-wit: 1,000 shares of class 'A' stock and 1,000 shares of class 'B' stock. The former shares were issued, share for share, to the stockholders of the Vassar Realty Company and the latter were issued, share for share, to the stockholders of the Muessel Brewing Company. The Muessel-Vassar, Inc., acquired no assets of any kind other than the stock of the Vassar Realty Company and of the Muessel Brewing Company and its only income was from dividends received by it on the Vassar Realty Company stock. In 1933 Muessel-Vassar, Inc., as one step in its dissolution, distributed the 1,000 shares of Muessel Brewing Company stock to the holders of its class 'B' stock, which stock was in turn surrendered by said stockholders to said Muessel-Vassar, Inc. Thereafter it likewise distributed the 1,000 shares of Vassar Realty Company stock to the holders of its class 'A' stock upon the delivery and surrender of said class 'A' stock for cancellation.

The Muessel Brewing Company shares and the Vassar Realty Company shares were distributed to the holders of its class 'B' stock and the holders of its class 'A' stock respectively in proportion to their respective holdings of such stock. Upon the completion of these transactions each stockholder of the Vassar Realty Company and each stockholder in the Muessel Brewing Company owned exactly the amount of stock in these corporations that he had owned prior to the organization of the Muessel-Vassar, Inc. The said holding company held no assets and was dissolved.

The question presented by this appeal is whether by such redistribution of said stock to the original owners thereof, they thereby received income taxable under the Gross Income Tax Law of 1933.

The appellant contends that the receipt by the appellees of said stock from Muessel-Vassar, Inc., constituted gross income under the terms of said act and is, therefore, taxable. The appellant quotes many definitions and explanations of 'gross income' from the decisions of this and other courts. While the general definition of 'gross income' would probably include the receipts here in question, we are bound by the definition of this term as set out in subsection 'f' of § 1 of said act, which reads as follows: 'The term 'gross income,' except as hereinafter otherwise expressly provided, means the gross receipts of the taxpayer received as compensation for personal services, and the gross receipts of the taxpayer derived from trades, business or commerce, and the gross receipts proceeding or accruing from the sale of property, tangible or intangible, real or personal, or service, or any or all of the foregoing, and all receipts by reason of the investment of capital, including interest, discount, rentals, royalties, fees, commissions or other emoluments, however designated, and without any deductions on account of the costs of property sold, the cost of materials used, labor cost, interest or discount paid, or any other expense whatsoever, and without any deductions on account of losses; Provided, however, That the term 'gross income' shall not include cash discounts allowed and taken on sales; nor freight prepaid by the taxpayer and repaid to him by the purchaser; goods, wares or merchandise, or the value thereof, returned by customers when the sale price is refunded either in cash or by credit; nor the sale price of any article accepted as part payment on any new article sold, if and when the full sale price of the new article is included in the 'gross income' subject to taxation under this act; Provided, further, That 'gross income' shall include the proceeds from the sale of any property handled on consignment by the taxpayer.'

Unless the transaction comes clearly within one of the provisions of this definition, it can not be taxed as gross income. It is a settled rule of statutory construction that statutes levying taxes are not to be extended by implications beyond the clear import of the language used, in order to enlarge their operation, so as to embrace transactions not specifically pointed out. In case of doubt such statutes are to be construed more strongly against the state and in favor of the citizen. United States v. Merriam, 1923, 263 U.S. 179, 44 S.Ct. 69, 68 L.Ed. 240, 29 A.L.R. 1547; Gould v. Gould, 1917, 245 U.S. 151, 38 S.Ct. 53, 62 L.Ed. 211; People v. Miller, 1940, 374 Ill. 376, 29 N.E.2d 604.

The appellant does not contend that the gross receipts here in question were received (1) as compensation for personal services, (2) as being derived from trades, business, or commerce, or (3) as proceeds or accruals from the sale of property, tangible or intangible, real or personal, or service. The appellant does contend that the receipt by the appellees of said stock constituted 'receipts by reason of investment of capital.'

In Department of Treasury v. Crowder, 1938, 214 Ind. 252, 15 N.E.2d 89, this court said that the return of invested capital by a final distribution to the shareholders of the net assets of a corporation on the voluntary dissolution of such corporation was taxable as a 'receipt by reason of the investment of capital.' However, on being more fully advised, and upon a careful reconsideration of the question, we are of the opinion that it was not the intention of the legislature to make the return of invested capital taxable under the clause 'all receipts by reason of the investment of capital' as used in this definition.

The entire clause of the definition which is here in question reads as follows: 'and all receipts by reason of the investment of capital, including interest, discount, rentals royalties, fees, commissions or other emoluments, however designated.' We are of the opinion...