Fidelity & Columbia T. Co. v. Com'R of Revenue
Decision Date | 16 May 1941 |
Citation | 287 Ky. 522 |
Court | United States State Supreme Court — District of Kentucky |
Parties | Fidelity & Columbia Trust Co. v. Reeves, Commissioner of Revenue. |
4. Constitutional Law. — The Court of Appeals must presume in favor of the validity of a law until its violation of the Constitution is proved beyond a reasonable doubt.
Appeal from Franklin Circuit Court.
Woodward, Dawson & Hobson and Franklin P. Hays for appellant.
Hubert Meredith, Attorney General, and Jesse K. Lewis, Assistant Attorney General, for appellee.
Before W.B. Ardery, Judge.
Affirming.
Parties stipulated that on April 4, 1935, trustee for Emma Bennett, received from the Axton estate certain described securities of the aggregate value of $8,000. On January 1, 1936, their value had nearly doubled, and when sold in February and May of 1936, this value had increased to some extent.
It was agreed that if the taxing authorities correctly adopted as a basis of assessment of income the plan of taking the difference in value as of April 4, 1935, and the sales price, disregarding exemptions, the taxable gain would be $7,463.12. However, if the proper method, as contended by appellant, was to take the difference in values as of January 1, 1936, and the sales prices as the basis, the taxable gain would be $1,770.55. Trustee had made return and paid the tax based on its method, but upon consideration the Director of Income Tax asserted a balance due of $243.76, certifying his conclusion to the commission, which upheld him and issued a deficiency notice. Upon review the commission declined to alter its ruling.
Appellant sought court review, the petition detailing the facts above stated, and that the law under which the assessment was made was not effective until August, 1936. The income tax act was introduced April 8, and approved May 8, 1936. Session Act 3d Ex. Sess. 1936, Ch. 7, now 4281b-1 et seq., Kentucky Statutes. The chancellor held that the application of the commission's method, as provided by the act, did not violate the Federal or State Constitutions. We incorporate such portions of the act (using statute sections) as are pertinent.
Section 4281b-2 includes in gross income
"The taxes imposed by this Act shall first be collected and paid with respect to the net income received during the calendar year 1936." Section 4281b-24:
"All return of income for the preceding taxable year shall be made on or before the fifteenth day of April in each year,"
with exceptions as to returns made on the fiscal year basis.
Appellant summarizes its contentions thusly:
"The Commonwealth of Kentucky does not have the power to impose an income tax upon the increase in capital value of assets accruing from April, 1935 to Jan. 1, 1936, when such assets were sold in 1936 prior to the date the first Kentucky Income Tax law became effective, Aug. 7, 1936."
(2) "The Kentucky law does not require as a matter of construction, the taxation of the increase in value of capital assets prior to Jan. 1, 1936."
On this point we express no doubt as to the meaning of the law, or the obvious intention of the legislative body. The grounds stated, it is claimed, involve such provisions of the Federal Constitution as guarantee equal protection of the laws and due process, Amendment 14, and of our Constitution guaranteeing remedy by due course of law, Section 14, and providing for uniformity of taxation on like classes of property. Section 171.
The latter contention is based on the argument that there is lack of uniformity, because as asserted, when there has been an increase in value of capital assets, the act is complete and the total becomes property subject to the ad valorem rate and cannot be subjected to another tax. Counsel admits that in Reynolds Metal Co. v. Martin, 269 Ky. 378, 107 S.W. (2d) 251, 257, dismissed in United States Supreme Court for want of substantial federal question, 302 U.S. 646, 58 S. Ct. 146, 82 L. Ed. 502, we held that taxation of income did not constitute a tax on property. We find nothing presented by counsel to conflict with our conclusions in the Metal case, and wherein we held "that the receipt of income * * * is a taxable event is universally recognized." As recently as February, 1941, in Superior Bath House Co. v. McCarroll, 61 S. Ct. 503, 506, 85 L. Ed. ___, the United States Supreme Court, in speaking of a state income tax, said:
The argument that the increase in value constituted non-taxable assets is chiefly based on Bundy v. Nygaard, 163 Wis. 307, 158 N.W. 87, L.R.A. 1917E, 563. There the taxpayer purchased stock in 1907 and sold it in 1914 at an advance. January 1, 1911, was the beginning of the year in which Wisconsin's first tax law was enacted, and it appeared there was no substantial difference between values as of January 11, and date of sale in 1914. The Wisconsin law 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." St. Wis. 1913, Section 1087m — 2(d).
The Wisconsin court held that insofar as the section quoted applied, since there had been no advance in the stock during the period covered by the assessment, the increase in value was capital property, and not taxable as income. But see West v. Tax Comm., 207 Wis. 557, 242 N.W. 165.
It is clear from reading our statute that it was so drawn as to constitute all gains as income, if the securities be held no longer than two years from the time acquired. Here the legislature specifically provided that gains from the sale of property of every character "for the purpose of this act shall be treated as income." We find nothing in either Constitution to preclude the legislature from defining taxable gain.
Citing Helvering v. New York Trust Co., 292 U.S. 455, 54 S. Ct. 806, 78 L. Ed. 1361.
We find many cases upholding the federal statute taxing the gain on securities or other properties real and personal, held in trust. In some the debated question was whether or not, as to property acquired from a decedent either through intestacy or inheritance, the gain should be determined by the difference in value at time of death of testator,...
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