Fitch v. Wis. Tax Comm'n

• Citation: 230 N.W. 37,201 Wis. 383
• Parties: FITCH ET AL. v. WISCONSIN TAX COMMISSION ET AL.
• Decision Date: 01 April 1930
• Court: United States State Supreme Court of Wisconsin

201 Wis. 383

230 N.W. 37

FITCH ET AL.

v.WISCONSIN TAX COMMISSION ET AL.

Supreme Court of Wisconsin.

April 1, 1930.

Appeal from a judgment of the Circuit Court for Milwaukee County; Charles L. Aarons, Circuit Judge.

Grant Fitch and Eliot Fitch, executors under the will of Martha E. Fitch, made application to the assessor of incomes of Milwaukee county for a refund of certain taxes paid under protest. The application was denied by the income tax assessor. Upon appeal to the income tax board of review of Milwaukee county, the ruling of the income tax assessor was reversed and the refund granted. Upon appeal to the Tax Commission of the state of Wisconsin, the action of the board of review was reversed and the refund denied. From this determination, the executors appealed to the circuit court for Milwaukee county under the provisions of section 71.16 et seq., of the Statutes. The circuit court reversed the ruling of the tax commission, and the assessor of incomes brings this appeal. Affirmed.John W. Reynolds, Atty. Gen., Geo. A. Bowman, Dist. Atty., of Milwaukee, A. L. Hougen, Sp. Counsel, of Manitowoc, and Robert R. Freeman, Sp. Counsel, of Milwaukee, for appellants.

Douglass Van Dyke, of Milwaukee (Miller, Mack & Fairchild, of Milwaukee, of counsel), for respondents.

OWEN, J.

On November 8, 1928, the executors of the will of Martha E. Fitch, desiring to close the estate and secure their discharge as such executors, applied to the assessor of incomes of Milwaukee county for a determination of the amount of the income tax due from the estate on the income of the estate for the year 1928. This application was made under the provisions of section 71.095(6) of the Statutes, which makes it the duty of the income tax assessor, when an executor or an administrator desires to close the estate, to compute in advance the amount of the income tax assessable against said estate. The assessor assessed not only an income tax that was normally due and payable in 1929, but assessed a mythical or assumed income tax for the years 1929 and 1930. To ascertain the income tax for the year 1928, normally due and payable in the year 1929, he took, as a basis, the average income for the years 1926, 1927, and 1928. The tax thus ascertained was voluntarily paid. For the tax of 1929 he took, as a basis, the income reported for the years 1927 and 1928, with zero for the 1929 income, and based the tax upon the average of such incomes. For the year 1930 he took, as a basis, the income for the year 1928 and zero for 1929 and 1930, and based a tax upon the average income for those three years thus ascertained. It is the mythical tax imposed for the years 1929 and 1930 for which the refund is claimed.

The effect of this computation is to impose an income tax for the years 1929 and 1930 upon a deceased person, and/or upon an estate that has been distributed and has no existence. This is a practice out of harmony with well-settled notions concerning the right of the state to impose, or the duty of the taxpayer to pay, a tax.

[1][2][3] In the very opening sentence of Cooley on Taxation (3d Ed.), we find it stated that “taxes are the enforced proportional contributions from persons and property, levied by the State by virtue of its sovereignty for the support of government and for all public needs. The State demands and receives them from the subjects of taxation within its jurisdiction that it may be enabled to carry into effect its mandates and perform its manifold functions, and the citizen pays from his property the portion demanded, in order that, by means thereof, he may be secured in the enjoyment of the benefits of organized society. The justification of the demand is thereforefound in the reciprocal duties of protection and support between the state and those who are subject to its authority, and the exclusive sovereignty and jurisdiction of the state over all persons and property within its limits for governmental purposes.” The exaction of a tax can only be justified from one who is enjoying the protection of government either for himself or for his property. A deceased persons enjoys none of the protections or benefits of government, and a tax imposed upon him or his personal representatives does not find a consideration in his personal protection. So long as his estate remains an entity, however, it enjoys the protection of government for which it may properly be taxed. When, however, the estate is dissipated upon final order of distribution, the theory upon which the state may thereafter continue to exact a tax is not readily perceived. To say the least, it is an extraordinary use of the taxing power, and the purpose of the state to exact such tax should plainly appear. It should not result from construction of equivocal statutory provisions. First National Bank v. Douglas County, 124 Wis. 15, 102 N. W. 315, 4 Ann. Cas. 34.

[4][5] Prior to the enactment of chapter 539, Laws 1927, a tax was imposed upon specific annual income. The income was earned in one year, the return thereof was made and the tax assessed the next year, and the taxes became collectible the year following. By the enactment of chapter 539, Laws 1927, it was provided that the basis of the tax should be the average net income for three years, namely, the year in which the income reported was earned, and the income earned in the two preceding years. Section 71.10 (1) (a) Stats. It seems that the practice of the Tax Commission in exacting mythical taxes for the years subsequent to the distribution of an estate did not arise until after the change of method in arriving at the basis of the tax by the passage of chapter 539, Laws 1927. This seems to be based upon the assumption that only 1/3 of the income for the current year is taxed for that year. This is certainly erroneous. The change of the basis of the income tax assessment from the net income of a specific year to the average income of three years worked no such result. Under the average theory, the basis for an income tax for a three-year period is exactly equal to the basis of the income tax for the same period on the specific...