Falk v. Rosa

• Decision Date: 01 April 1930
• Citation: 201 Wis. 292,230 N.W. 64
• Parties: FALK ET AL. v. ROSA ET AL.
• Court: Wisconsin Supreme Court

201 Wis. 292

230 N.W. 64

FALK ET AL.

v.ROSA ET AL.

Supreme Court of Wisconsin.

April 1, 1930.

Appeal from a judgment of the Circuit Court for Milwaukee County; Otto H. Breidenbach, Circuit Judge. Reversed.

The executors of the estate of Charles F. Pfister, deceased, appealed to the circuit court for Milwaukee County under the provisions of section 71.16 Stats., from an additional assessment of income tax imposed upon the estate of Charles F. Pfister, deceased, by the Assessor of Incomes of Milwaukee County, which assessment was modified and affirmed by the Board of Review of Milwaukee County and by the Wisconsin Tax Commission. Judgment was entered affirming the assessment, and from that judgment the executors bring this appeal.Lines, Spooner & Quarles, of Milwaukee (Louis Quarles and Leo Mann, both of Milwaukee, of counsel), for appellants.

John W. Reynolds, Atty. Gen., Geo. A. Bowman, Dist. Atty., and Robert R. Freeman, Sp. Counsel, both of Milwaukee, and A. L. Hougen, Sp. Counsel, of Manitowoc, for respondents.

OWEN, J.

Upon various dates, all prior to January 1, 1911, Charles F. Pfister, in his lifetime, acquired 3,000 shares of the capital stock of the Sentinel Company, at a cost of $471,310. In 1924, the executors of his estate sold the stock for $131,901.04 less than Mr. Pfister paid for it. The assessor of incomes, however, found that the value of the stock on January 1, 1911, was $114,408.96 less than it was sold for, and the board of review found that on that date its value was $39,408.96 less than it was sold for, and the additional income tax complained of is upon the latter amount. The contention is that as the stock sold in 1924 for $39,408.96 more than its value was found to be by the board of review on January 1, 1911, that amount represents income upon which Mr. Pfister or his estate is liable for an income tax.

[1][2] Income is the basic essential for the income tax authorized by the Constitution. Without income there can be no tax. The term “income” as used in the Constitution is to be interpreted in accordance with its common, ordinary meaning as understood in every day life. “It must be gain or profit, and it must be money or something equivalent thereto.” State ex rel. Bundy v. Nygaard, 163 Wis. 307, 158 N. W. 87, 88, L. R. A. 1917E, 563. Income does not arise from the ordinary fluctuations in the value of property. In order for property to give rise to income, there must be a sale thereof in excess of its cost. Miller v. Tax Commission, 195 Wis. 219, 217 N. W. 568. That the stock in question was sold for less than Mr. Pfister paid for it, is conceded. Confessedly, therefore, no gain, profit, or income arose from the transaction comprehended within the purchase and sale of this stock.

[3] The imposition of the income tax complained of is defended by the taxing authorities upon the sole ground that in 1924 the stock sold for more than its value on January 1, 1911. This contention is based upon section 71.02 (2) (d) Stats., which declares subject to an income tax “all profits derived from the transaction of business or from the sale of real estate or other capital assets; provided, that for the purpose of ascertaining the gain or loss resulting from the sale or other disposition of property, real or personal, acquired prior to January 1, 1911, the fair market value of such property as of January 1, 1911, shall be the basis for determining the amount of such gain or loss.”

The effective date of the income tax law was January 1, 1911. As originally enacted, the law made no provision for apportioning the income arising from sales made after January 1, 1911, of property purchased before January 1, 1911. However, the administration of the law evidently revealed the necessity for some such apportionment, and by section 2(d), c. 720, Laws 1913, it was provided “that of the profits derived from the sale of real estate or other capital assets acquired previous to January 1, 1911, only such proportion shall be taxable as the time between January 1, 1911, and the date of sale bears to the entire time between the date of acquisition and the date of sale.” It will be noticed that this was an arbitrary apportionment and had no reference whatever to the time when the appreciation of the property actually occurred.

The case of State ex rel. Bundy v. Nygaard, 163 Wis. 307, 158 N. W....