Department of Treasury of Indiana v. Crowder

• Decision Date: 31 May 1938
• Docket Number: 27056.
• Citation: 15 N.E.2d 89,214 Ind. 252
• Parties: DEPARTMENT OF TREASURY OF INDIANA v. CROWDER.
• Court: Indiana Supreme Court

15 N.E.2d 89

214 Ind. 252

DEPARTMENT OF TREASURY OF INDIANA v. CROWDER.

No. 27056.

Supreme Court of Indiana

May 31, 1938

Appeal from Marion Circuit Court; Earl R. Cox, Judge.

Philip Lutz, Jr., Atty. Gen., Joseph W. Hutchinson Asst. Atty. Gen., and Joseph P. McNamara, Deputy Atty. Gen for appellant.

Pickens Gause, Gilliom & Pickens, of Indianapolis, for appellee.

TREMAIN Judge.

Pursuant to Section 12 of Chapter 50 of the Acts of the General Assembly of 1933, Sec. 64-2612, Burns' Ind.St.1933 section 15992, Baldwin's Ind.St.1934, the appellee filed this action against the appellant to recover the sum of $331.55, paid as Gross Income Tax upon the receipt of $33,155 as the appellee's distributive share of the corporate assets of the Crowder-Cooper Shoe Company, upon voluntary liquidation of the corporation.

Facts are alleged showing a compliance with the section of the statute which entitled appellee to maintain this action. Appellant's demurrer to the complaint was overruled; answer in general denial was filed; trial and judgment was rendered in favor of appellee.

The errors assigned are: Overruling appellant's demurrer to the complaint and motion for a new trial, based upon the grounds that the decision of the court is not sustained by sufficient evidence and is contrary to law.

The question presented involves a construction of Chapter 50, Acts 1933, Sections 64-2601 to 64-2629, Burns' Ind.St.1933, Secs. 15981 to 16010, Baldwin's Ind.St.1934. If the distributive share of appellee, paid to him on dissolution of the corporation, is taxable, the cause should be reversed, otherwise affirmed.

The corporation was duly dissolved by the action of its directors and stockholders in the manner provided by statute. After all debts were paid, the net capital assets remaining were distributed to the stockholders. The appellee owned 349 shares of the capital stock, par value $100 each, and received as his share of the net assets distributed to him during the taxing period ending December 31, 1933, the sum above named. Said sum was paid to him solely on account of his rights as a stockholder in said corporation.

It is the appellee's position that the distributive share received by him does not constitute gross income and is not within the purview of the Gross Income Tax Act, for the reason that it defined the term 'gross income' as 'all receipts by reason of the investment of capital,' Baldwin's St.1934, § 15981(f), and, therefore, the Legislature intended to tax the resultant of an investment, the accrual, gain or accretion, and did not intend to tax the investment or the capital; that the phrase, 'receipts by reason of the investment of capital,' is limited to interest, accrual, or other emoluments; that any other construction would be inconsistent with the position which the Department of Treasury of Indiana has placed upon the act; that the transaction which is the subject of this litigation was never intended to be taxed by the Legislature, nor included within the provisions of the statute.

The term 'gross income' is defined by clause (f), Section 1, of the act 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, businesses 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.'

The Gross Income Tax constitutes one of the ordinary and general burdens of government from which persons and corporations are not exempt. For the purpose of taxation there is no distinction between a person and a corporation. The corporation is an independent legal entity, separate and distinct from its stockholders. The Crowder-Cooper Shoe Company and the appellee are separate and distinct entities or persons. Appellee owned shares of stock in the corporation. He did not own the capital. As stated in Markle v. Burgess, 1911, 176 Ind. 25, 95 N.E. 308, 309:

'The capital stock belongs to the corporation considered as a legal person; the shares are the property of the individual shareholders. * * * The capital stock is to be distinguished from the amount of property owned by the corporation. * * * Generally the capital stock does not vary, although the actual property of the corporation may fluctuate widely in value. * * *

'A share of stock may be defined as a proportional part of certain rights in the management and profits of the corporation during its existence, and in the assets upon dissolution. * * * It is evidence of his ratable share in the distribution of the assets of the corporation on the winding up of its business. The capital stock is a liability of the corporation to its shareholders, after creditors' claims have been liquidated. All the property of the...