Fulton Foundation v. Wisconsin Dept. of Taxation
| Decision Date | 07 March 1961 |
| Citation | 13 Wis.2d 1,108 N.W.2d 312 |
| Parties | FULTON FOUNDATION et al., Respondents, v. WISCONSIN DEPARTMENT OF TAXATION, Appellant. |
| Court | Wisconsin Supreme Court |
John W. Reynolds, Atty. Gen., Harold H. Persons, Asst. Atty. Gen., E. Weston Wood, Asst. Atty. Gen., for appellant.
Foley, Sammond & Lardner, Frederic Sammond, James R. Modrall, Bender, Trump, Davidson & Godfrey, Milwaukee, Walter H. Bender, Milwaukee, Kneeland A. Godfrey, Milwaukee, of counsel for respondents.
See 72.75(5)(a), Stats.1947, provided as follows:
'All property transferred to municipal corporations within the state for strictly county, town or municipal purposes, or to corporations or voluntary associations of the state, organized under its laws, solely for religious, humane, charitable, or educational purposes, * * * which shall use such property exclusively for the purposes of their organization within the state * * * shall be exempt [from gift tax].' (Italics supplied.)
Ch. 356, Laws of 1949, repealed and then recreated such statute so as to drastically broaden the definition of gifts exempt from taxation. Ch. 634, Laws of 1949, renumbered such recreated statute sec. 72.79(1). New sec. 72.79(1) provided as follows:
'The following transfers are exempt from such [gift] tax:
'(1) All transfers of property to * * * any corporation * * * operating principally within this state, organized and operated exclusively for * * * charitable * * * purposes, * * * no part of the net income of which inures to the benefit of any private stockholder or individual; * * * For the purposes of this subsection, a corporation * * * shall be considered as operating principally within this state if 50 per cent or more of its funds, expended during the period from July 9, 1933, to December 31, 1948, or to the close of its fiscal year immediately preceding the date of such transfer (or expended in its first fiscal year in the case of a transfer during such fiscal year to or by such organization created after December 31, 1948), whichever is later, have been used within this state for the purposes of its organization or have been contributed to a donee or donees transfers to which are exempt under this subsection.' (Italics supplied.)
See. 2 of ch. 356, Laws of 1949, provided:
'This act shall apply to all transfers of property made in the calendar year 1949 and subsequent calendar years and to all transfers of property prior to 1949 on which the gift tax has not been paid prior to the enactment hereof.'
Such ch. 356, Laws of 1949, became effective on June 30, 1949. As of that date, no gift taxes had been paid on the 1948 transfers by Mr. and Mrs. Fulton to the Foundation, although, if any such taxes were payable, they were then delinquent.
The department cites the general rule that statutes creating exemptions from taxation are to be strictly construed against to taxpayer and in favor of the taxing authority. Mitchell v. City of Horicon, 1953, 264 Wis. 350, 352, 59 N.W.2d 469; and Comet Co. v. Wisconsin Department of Taxation, 1943, 243 Wis. 117, 123, 9 N.W.2d 620. However, there is some division of authority as to whether this strict rule of construction is to be invoked with respect to exemptions from inheritance tax accorded to transfers to charitable organizations. 28 Am.Jur., Inheritance, State, and Gift Taxes, p. 51, sec. 48; 85 C.J.S. Taxation § 1161b, p. 977; Annotation 149 A.L.R. 1333, 1336. This court by way of dictum in Estate of Johnston, 1925, 186 Wis. 599, 601, 602, 203 N.W. 376, 377, stated:
The California court in In re Fleming's Estate, 1948, 31 Cal.2d 514, 190 P.2d 611, 614, stated that 'exemptions in favor of charitable organizations are liberally construed so as not to diminish their available resources in the distribution of their ultimate benefits.' On the other hand, the Connecticut court in Hoenig v. Connelly, 1954, 141 Conn. 266, 105 A.2d 775, 778, held that a statute exempting charitable organizations from a succession tax must be strictly construed. These two cases well illustrate the division of authority on this question of how statutes extending exemptions from inheritance and estate taxes are to be construed. Gift taxes are in pari materia with inheritance and estate taxes and, therefore, the rule of construction applicable to the former would also apply to the latter.
Gifts to charitable organizations are favored by the law generally. Because of this, the words of the gift tax exemption statute before us for interpretation should not be accorded a strained or unusual meaning in the guise of applying a rule of strict construction, but rather their plain and ordinary meaning. The key word is 'operating.' It is synonymous with acting. If the Foundation engaged in any activities during the few days of its existence in the last week of 1948, it was 'operating.' The election of directors and officers at the organization meetings held, the adoption of by-laws, and the acceptance and rentention of the gifts of corporate stock from Mr. and Mrs. Fulton, all constituted activities of the Foundation. As all of these acts were performed in Wisconsin, the Foundation necessarily was 'operating principally within this state' in 1948 within the provisions of sec. 72.79(1), Stats.1949, unless the so-called '50 per cent test' of this statute was intended by the legislature to be exclusive.
It is the position of the department that such '50 per cent test' is exclusive. Such test is set forth in that portion of sec. 72.79(1), Stats.1949, which provides, 'For the purposes of this sub-section, a corporation * * * shall be considered as operating principally within this state if 50 per cent or more of its funds, expended during the period from July 9, 1933, to December 31, 1948, * * * have been used within this state for the purposes of its organization or have been contributed to a donee or donees transfers to which are exempt under this subsection.'
We consider the case of Greenebaum v. Department of Taxation, 1957, 1 Wis.2d 234, 83 N.W.2d 682, to be controlling with respect to whether the '50 per cent test' of the statute is exclusive. In that case we had for construction an income tax statute which granted and exemption from tax to dividends received from corporations subject to Wisconsin income tax whose principal business 'must be attributable to Wisconsin.' The exemption statute further provided,
'* * * for the purpose of this subsection any corporation shall be considered as having its principal business attributable to Wisconsin if 50 per cent or more of the entire net income or loss of such corporation after adjustment for tax purposes (for the year preceding the payment of such dividends) was used in computing the taxable income provided by chapter 71. * * *'
This court held in the Greenebaum case that the aforequoted statutory provision was not made the sole and exclusive test of whether the principal business of the dividend-paying corporation was attributable to Wisconsin. We are unable to distinguish the '50 per cent test' embodied in the statute before the court in the Greenebaum case from the similar one found in sec. 72.79(1), Stats.1949.
Under the argument advanced by the department, if the Foundation had made a $100 token contribution to a Wisconsin charitable organization in December, 1948, then the transfers to it from Mr. and Mrs. Fulton in 1948 would be exempt from gift tax. We cannot believe that the legislature ever intended the exemption to be dependent on such a trivial happenstance.
Before the circuit court, and now before this court, the department has attempted to raise the issue that the retroactive feature of the exemption contained in sec. 72.79(1), Stats.1949, is unconstitutional. It is asserted that such retroactive exemption is unconstitutional on the following two grounds:
(1) Inasmuch as the gift tax was already due upon the transfers in questions when the 1949 legislature created the exemption, the exemption thereof from tax constitutes an expenditure of public funds for a private purpose; and
(2) It constitutes a denial of the equal protection of the laws under the Fourteenth amendment.
The circuit court in its memorandum opinion held that the department, being an administrative agency, 'is a mere creature of the legislature, and as such is totally without authority to question the constitutionality of legislative acts, any more than a municipality may question the constitutionality of a statute delegating a primary government function to it.' The correctness of such determination is challenged on this appeal.
It is surprising that this court has not been required to directly pass on such question long prior to this. As recently as last October the department challenged the constitutionality of a retroactive exemption in an income tax statute, and the taxpayer raised no issue with respect to its right to do so. Wisconsin Department of Taxation v. City of La Crosse, 1960, 11 Wis.2d 345, 105 N.W.2d 800. Because the right of the department to raise the issue of constitutionality was not therein challenged, such case has no efficacy as a precedent with respect to such question.
The Wisconsin precedent closest in point is the following statement appearing in the opinion of Mr....
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