First Wis. Trust Co. v. Wis. Dep't of Taxation

• Decision Date: 20 November 1945
• Citation: 248 Wis. 21,20 N.W.2d 647
• Parties: FIRST WISCONSIN TRUST CO. v. WISCONSIN DEPARTMENT OF TAXATION.
• Court: Wisconsin Supreme Court

248 Wis. 21

20 N.W.2d 647

FIRST WISCONSIN TRUST CO.

v.WISCONSIN DEPARTMENT OF TAXATION.

Supreme Court of Wisconsin.

Nov. 20, 1945.

Appeal from a judgment of the Circuit Court for La Crosse County; Robert S. Cowie, Judge.

Reversed.

Appeal by the Wisconsin Department of Taxation from a judgment reversing a decision and order of the Wisconsin Board of Tax Appeals, which affirmed an assessment of income and levy of taxes thereon against the First Wisconsin Trust Company and a co-trustee, as the trustees under the will of Mary E. Sawyer, deceased. The Department of Taxation appealed from the judgment.John E. Martin, Atty. Gen., and Harold H. Persons, Asst. Atty. Gen., for appellant.

Leo J. Federer, or Milwaukee, for respondent.

FRITZ, Justice.

For the consideration of the issues involved on this appeal it suffices to note the following. In the will of Mary E. Sawyer, she provided that after the payment of her debts, expenses of last illness and certain small bequests--

‘Third. All the rest of my estate, both real and personal, I give, devise, and bequeath to the First Wisconsin Trust Company, a corporation, of Milwaukee, Wisconsin, and Andrew Lees of La Crosse, Wisconsin, in trust for the following purposes:

‘I will and direct that my trustees are to pay to my brother, Frank F. LaRowe, the sum of Five Thousand Dollars ($5000.00) per year, said income to be paid semiannually or oftener as may be most convenient during the life of my said brother, Frank F. LaRowe.

‘Fourth. Upon the death of my said brother, Frank F. LaRowe, I will and direct that said trust be terminated and that the remainder of my estate be distributed by my said trustees or their successors in trust, as follows:

‘All the rest, residue and remainder of my estate, real, personal, and mixed, wherever situated, of which I may die seized or possessed, I give, devise and bequeath to the City of La Crosse, Wisconsin, for the purpose of erecting a suitable community building and auditorium for said City of La Crosse, to be known as the ‘Mary E. Sawyer Auditorium’, * * *.'

In the year 1942 the net income of the trust estate received by the trustees was $26,765.52, of which the sum of $4,619.82 was exempt from income taxation because it was received either as interest on United States Government bonds or as dividends paid by Wisconsin corporations. After the deduction of such tax exempt interest and dividends, and the expenses of the trust in 1942, and also the sum of $5,000, which the will directed the trustees to pay annually to the testatrix's brother, Frank F. LaRowe, there was left of the $26,765.52 net taxable income received by the trustees in 1942 the sum of $18,731.44. For this amount the trustees took a deduction in making their return as to the 1942 income; and as to this deduction they claimed it ‘was not taxable to the trust because it was distributable to the city of La Crosse, which as a municipal corporation of this state is an exempt recipient of income under sec. 71.05(1)(f), Wis.Stats.1943.’ Upon auditing the trustees' tax return, the Assessor of Incomes considered the $18,731.44 taxable to the trust as ‘non-distributable or contingently distributable income not distributed’ during 1942; and notice of his additional assessment therefor was given to the trustees. They petitioned for abatement of the taxes thereon, and, upon the denial thereof by the Assessor, the trustees appealed to the Wisconsin Board of Tax Appeals, which by its decision and order affirmed the additional assessment; and that order was reversed by the circuit court judgment which is under review on this appeal.

Under the Income Tax Act, Chap. 71, Stats., all taxable net income realized during a particular tax year is subject to taxation in the hands of the party who receives and is entitled to retain it during that year; and said sum of $18,731.44, which was left in 1942, in the possession of the trustees, as the excess of the net income obtained by them in that year, was taxable under the Income Tax Act unless that amount is income which is exempted from such taxation by reason of the provision in sec. 71.05, Stats., that--

‘(1) There shall be exempt from taxation under this chapter income as follows, to wit:

* * *

‘(f) Income received by the United States, the state and all counties, cities, villages, school districts or other political units of this state.’

This language is plain and unambiguous. It is obvious that the exemption created thereby can be considered applicable and operative only if-and then in only the year in which-the income is received by the city.

The sum of $18,731.44 involved in this case was received by the trustees in 1942, but it was not received in fact by the city of La Crosse in that year. The trustees were the only recipients thereof in 1942; and the only authorized distribution thereof by them to the city is the distribution directed by the provision in the will that--

‘Upon the death of my said brother, Frank F. LaRowe, I will and direct that said trust be terminated and that the remainder of my estate be distributed by my said trustees or their successors in trust, as follows:

‘All the rest, residue and remainder of my estate, real, personal, and mixed, wherever situated, of which I may die seized or possessed, I give, devise and bequeath to the City of La Crosse, Wisconsin, for the purpose of erecting a suitable community building and auditorium * * *.’

In view of that provision no payment or distribution could lawfully be made by the trustees to the city during 1942, nor was it then entitled to the receipt or distribution of any of the 1942 income. There can be no such payment or distribution until there occurs the termination of the trust upon the death of LaRowe, and there is then made the directed distribution to the city of the remainder of the estate.

Under sec. 71.095(3), ...