Goldberg v. Gray
| Decision Date | 27 March 1941 |
| Docket Number | 6727 |
| Court | North Dakota Supreme Court |
Syllabus by the Court.
1. The phrase " income derived from any source whatever" as used in Section 17, Chapter 312, S.L.N.D.1923, as amended by Chapter 253, S.L.N.D.1933, refers to the origin of the income, unrestricted by situs or location.
2. Tax statutes are construed most strictly against the government and in favor of the citizen.
3. The purpose sought to be attained by the construction of any statute is to arrive at the intention of the lawmaking body that enacted it.
4. The term " gross income", as defined in the income tax act, includes a resident partner's share of the net profits of a partnership that does business wholly outside the state of North Dakota.
Appeal from District Court, Burleigh County; Fred Jansonius, Judge.
Action by J. H. Goldberg against John Gray, as Tax Commissioner of the state of North Dakota, for a declaratory judgment to determine whether the plaintiff was liable for additional income tax. From an order sustaining the defendant's demurrer to the complaint on grounds that it did not state facts sufficient to constitute a cause of action, the plaintiff appeals.
Affirmed.
H. C Young and Francis Murphy, for appellant.
In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt they are construed most strongly against the government, and in favor of the citizen. United States v. Wigglesworth, 2 Story, 369, Fed. Cas. No. 16,690; American Net & Twine Co. v Worthington, 141 U.S. 468, 35 L. ed. 821; Benziger v. United States, 192 U.S. 38, 48 L. ed. 331; Gould v. Gould, 245 U.S. 151, 62 L. ed. 211; State ex rel. Arpin v. Eberhardt, 158 Wis. 20, 147 N.W. 1016.
Alvin C. Strutz, Attorney General, C. E. Brace, Assistant Attorney General, and T. A. Thompson, for respondent.
When our statute makes income from "any source whatever" taxable, it means that all income, whether from business conducted in this state or elsewhere, is taxable. State ex rel. Arpin v. Eberhardt, 158 Wis. 20, 147 N.W. 1016; Jackling v. State Tax Commission, 40 N.M. 241, 58 P.2d 1167.
A state may tax incomes of its residents, the source of which is property or business activities carried on outside the state. Lawrence v. State Tax Commission, 286 U.S. 276, 76 L. ed. 1102, 87 A.L.R. 374; Hughes v. Wisconsin Tax Comr. 227 Wis. 274, 278 N.W. 403; Montag Bros. v. State Revenue Commission, 182 Ga. 568, 186 S.E. 558.
A grant of exemption from taxation is never presumed. 61 C.J. 391.
Doubt as to existence of tax exemption must be resolved against exemptions. Grand Lodge, M.K.P. v. Baltimore, 157 Md. 542, 146 A. 744; Cooley, Taxation, § 230; Lawrence v. State Tax Commission, 162 Miss. 338, 286 U.S. 276, 76 L. ed. 1102, 87 A.L.R. 374.
The plaintiff is a resident of the state of North Dakota. He is a member of the partnership known as Northern Seed and Grain Company, which does no business in North Dakota. It is located and operates a business in the state of Minnesota. In his North Dakota income tax returns for the years 1937 and 1939, the plaintiff did not include as taxable income for those years the distributive shares due him from the partnership, but paid a personal income tax thereon in the state of Minnesota. The partnership was also taxed in Minnesota.
The State Tax Commissioner of North Dakota assessed an additional income tax against the plaintiff for 1937 and 1938 upon the plaintiff's distributive shares of the partnership, whereupon the defendant deposited the sum of $2,692.02 with the district court of Burleigh county, this sum being the amount claimed to be due by the State Tax Commissioner.
This action is brought under the provisions of §§ 7712a1-7712a15, 1925 Supp. to N.D. Comp. Laws 1913, for a declaratory judgment to have the rights of the parties determined. The complaint sets forth the facts substantially as above outlined. The defendant demurred to the complaint upon the ground that it does not state facts sufficient to constitute a cause of action. The plaintiff appeals from an order sustaining the demurrer.
The controversy is wholly one of statutory construction. It arises under the income tax act, chap. 312, N.D. Sess. Laws 1923 () and certain amendments which will be later referred to. We quote from pertinent sections.
Section 3. "The tax imposed by this act shall be levied, collected and paid annually with respect to his entire net income not hereinafter exempted received by every resident individual."
Section 5. "Partnerships shall not be subject to tax under this act but the individual members of such partnerships shall be taxable on their share of the net profits of such partnership whether the same are distributed or not."
Section 6. "The tax imposed by this act shall be levied, collected and paid annually with respect to its North Dakota net income, as hereinafter defined, received by every corporation doing business in this state."
Section 7 deals with the allocation and apportionment of income of corporations and sets forth at length rules for the allocation of the income of corporations that do business both within and without the State of North Dakota.
Section 8 is entitled, "Allocation in Special Cases," and was extensively amended by chap. 283, N.D. Sess. Laws 1931. As amended, the section contains eight subdivisions. The first seven deal with the allocation of the income of corporations wherein it is declared: "Corporations engaged in business within and without the state shall be taxed only on such income as is derived from business transacted and property located within the state."
Subdivision 8 provides that "the income of a partnership shall be allocated to North Dakota and outside North Dakota in the same manner as is hereinbefore provided in the case of corporations."
This subsection appeared verbatim in § 8 of the 1923 Act.
Section 19, chap. 312, N.D. Sess. Laws 1923, provides for the allowance of deductions. In subsection 7, thereof, it is said:
Section 12, as amended by chap. 253, N.D. Sess. Laws 1933, (§ 2346a11) provides that "a tax is hereby imposed upon every resident of North Dakota, which tax shall be levied, collected, and paid annually with respect to this entire net income as herein defined, computed at the following rates after deducting the exemptions provided in this act:" (rates omitted).
The 1923 Act (§ 16) thus defines net income: "The words 'net income' mean the gross income of an individual or fiduciary less the deductions allowed by this act" (§ 2346a15, 1925 Supp. to Comp. Laws), and in § 17, gross income is defined as, (§ 2346a16, 1925 Supp. to Comp. Laws.)
This section was amended by chap. 253, Sess. Laws 1933, in a manner immaterial to this controversy. The trial court construed the words "from any source whatever" in the paragraph just quoted to include a partner's distributive share coming to him from without the state as well as from partnerships within the state and sustained the demurrer to the complaint.
It is argued by the plaintiff that the meaning of the word "source" as used in defining gross income, refers to the type of business producing the income and does not refer to its geographical location. We agree with the plaintiff's contention as to the definition of the word "source." It means "origin." Holmes, Federal Taxes, 6th ed. p. 396; Webster's International Dictionary, 2d ed.; Jackling v. State Tax Commission, 40 N.M. 241, 58 P.2d 1167. However, the source or origin of the income also has a situs. It is the location of the business or activity from which the income is derived. The phrase "from any source whatever" is broad enough to include both the origin and the situs, or, obversely stated, the phrase includes all sources unrestricted by situs or location.
The provision in chap. 312, N.D. Sess. Laws 1923, defining gross income, is identical with the definition of that term contained in paragraph 1 of § 359, chap. 627, Laws of New York, 1919. In Pierson v. Lynch, 237 A.D. 763 263 N.Y.S. 259, it was held that profits made upon purchases and sales of real estate located in Ohio...
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