Fennell v. South Carolina Tax Commission
| Decision Date | 13 May 1958 |
| Docket Number | No. 17424,17424 |
| Citation | 103 S.E.2d 424,233 S.C. 43 |
| Court | South Carolina Supreme Court |
| Parties | Sam W. FENNELL, Respondent, v. SOUTH CAROLINA TAX COMMISSION et al., Appellants. |
T. C. Callison, Atty. Gen., James M. Windham, Asst. Atty. Gen., for appellants.
Herbert & Dial, Columbia, for respondent.
This action is for the recovery of state income taxes for the years 1950 and 1951 which were paid under protest by the respondent, who instituted suit against the Tax Commission for recovery pursuant to section 65-2662 of the Code of 1952. He recovered judgment and appeal by the Commission followed.
Respondent is a dentist residing in North Augusta in this State but practicing exclusively in Augusta, Georgia, where he maintains his dental office. During the years in question Georgia did not levy a tax upon the income although it was earned in that state. Neither did this state prior to that time and it was expressly ruled by the Commission in 1943 that the South Carolina tax was inapplicable to it. However, this ruling was reversed in January 1950, upon the advice of the Attorney General of the State whereby the net income earned by respondent by the practice of his profession in Georgia was held to be subject to the income tax of this state.
The controversy revolves around the construction and application of Section 65-259 of the Code of 1952 (Section 2449 of the Code of 1942) which prescribes deductions from gross income in order to determine the net income which is subject to tax. Subsection (10) of Section 65-259 follows:
'(10) The net income of resident individuals and corporations having an established business in another state or an investment in property in another state from such business or investment, this deduction in no case to extend to any part of the income of resident individuals and corporations from personal services or mortgages, stocks, bonds, securities or deposits.'
It is the well established rule that deductions from gross income are not a matter of right. They are a matter of legislative grace, and a taxpayer claiming a deduction must bring himself squarely within the terms of a statute expressly authorizing it. 85 C.J.S. Taxation § 1099, p. 771; Southern Weaving Co. v. Query, 206 S.C. 307, 34 S.E.2d 51.
The issue between the parties at bar is that respondent contends, and the lower court held, that his practice of dentistry constitutes 'an established business', and his net income therefrom may be deducted from gross income; whereas the appellant asserts that it is income from 'personal services' and may not be deducted from gross income.
Resort is had by respondent to the general definition contained in Section 65-202 wherein 'business' includes profession. On the other hand, under Section 65-251 gross income means income, quoting, 'derived from salaries, wages or compensation for personal service, of whatever kind and in whatever form paid, or from professions, vocations, trades, business,' etc. A profession and a business are thereby differentiated. And that comports with the common acceptance of the meaning of the terms. It is not understood that one who is engaged in the practice of a profession is engaged in business; the latter term relates rather to trade and commerce. A dentist is compensated for his personal services to his patients. His office may not be fairly characterized as a business.
The following definition of services is from Webster: (Emphasis added.) In Johnson v. U. S., 9 Cir., 135 F.2d 125, it was held that a lawyer in his practice renders 'personal services'; in Graham v. Commissioner of Internal Revenue, 9 Cir., 95 F.2d 174, an architect; and in CCoy v. Cornell, 40 Iowa 457, a physician. 32 Words and Phrases, Personal Services, p. 569. Of course, business methods are ordinarily relquisite to success in the practice of a profession; and office equipment, technical assistants, appliances, and bookkeeping are generally necessary to the successful practice of all of the professions, including doctors, dentists, lawyers, engineers, arthitects, and others; but their income is derived from the rendition of personal services to their patients and clients. Therefore, respondent's out-of-state earnings as a dentist were not deductible from gross income, under the express terms of the statute. Sec. 65-259(10).
That section governs particularly the question in issue. Respondent relies upon the general definition section (65-202) of the law, which may be...
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