Gross Income Tax Division v. Bartlett

Decision Date19 June 1950
Docket NumberNos. 28609-28611,s. 28609-28611
Citation93 N.E.2d 174,228 Ind. 505
CourtIndiana Supreme Court

J. Emmett McManamon, Atty. Gen., John J. McShane, Deputy Atty. Gen., Lloyd C. Hutchinson, Dep. Atty. Gen., Edward L. Hamilton, Dep. Atty. Gen., for appellants.

Schultz Krinsley, Voorheis & Hedberg, Chicago, Ill., Crumpacker & Friedrich, Hammond, Owen W. Crumpacker, Hammond, Raymond Harkrider, Chicago, Ill., of counsel, for appellee.

YOUNG, Judge.

This appeal involves three cases from the Marion Circuit Court. Each contains identical issues and by leave of the court they were consolidated for briefing in this court.

The complaints alleged the names of the parties and that the plaintiff, Robert Bartlett, is now, and for many years last past has been continuously, a citizen and resident of the City of Chicago, Illinois; that on or about April 27, 1933, he acquired for the purpose of resale the real estate covered by the subdivisions known as Beverly Shores and Lake Shore in Indiana, which land had been laid out into various blocks, lots, streets and alleys; that in the course of selling the lots in said subdivision there was and is no practical market available for said lots in Indiana; that all records and books of account were kept at his office in Chicago, Illinois; that in order for plaintiff to successfully sell lots in Beverly Shores and Lake Shore, and to make collections of the installments of the purchase price, he maintained an office in the City of Chicago; that he created an organization consisting of salesmen, managers, bookkeepers and other employees; that with very few exceptions all employees, other than the salesmen, devoted all their time and efforts outside the State of Indiana; that the cost to plaintiff of selling said lots in said subdivisions, exclusive of the cost of the land sold, amounted to a substantial percentage of the sales price of such lots and became intangible choses in action; that at least 98 per cent of the obligors upon said contracts for the sale of said lots were domiciled in the City of Chicago and a very substantial portion of the activities and expenditures in connection therewith was performed and made outside the State of Indiana; that the sums of money collected are shown and it is alleged that said real estate sales contracts, since their taxable situs was outside the State of Indiana, could not properly or legally be taxed by the State of Indiana, nor could the receipts therefrom, either principal or interest, properly or legally be taxed by the State of Indiana; that there is a plea for a correction of the amount of taxes paid and the expression of a willingness, without admitting any part of said receipts are properly or legally taxable under the Gross Income Tax of 1933, Acts 1933, c. 50, Burns' Ann.St. § 64-2601 et seq., to pay one per cent upon that portion of said receipts as can reasonably be apportioned to the State of Indiana for taxation under said Act, and to this complaint an answer in denial is filed for and on behalf of the defendants.

A similar complaint was filed in each of the other two cases. There were later motions for substitution of parties defendant. The case was submitted upon a stipulation of facts whereby the allegations tending to support the complaint and the contentions of the parties were set out. There were also findings of fact and conclusions of law, the details of which need not be taken up in this opinion. Judgments were rendered in the three cases and, upon such findings of facts, the court found for the plaintiff and ordered returned to the plaintiff the sums of money which had been paid. There was a motion to modify the judgment and to adopt special findings proposed by the defendant, both overruled. A motion for a new trial was filed, the basis for which, so far as this law suit is concerned, was that the decision of the court was not sustained by sufficient evidence and the decision of the court is contrary to law, which was denied.

The constitutionality of the Indiana Gross Income Tax Law of 1933 has been upheld by both this court and the Supreme Court of the United States. Miles et al. v. Dept. of Treasury, 1935, 209 Ind. 172, 199 N.E. 372, 101 A.L.R. 1359, Id., 298 U.S. 640, 56 S.Ct. 750, 80 L.Ed. 1372.

The appellant in a general way contends that the receipts of the appellee were strictly from a local activity, to-wit: from the sale of Indiana real estate, the situs of which is in Indiana. The appellee contends that the receipts herein involved were derived from and attributable to activities or sources outside the State of Indiana which the State of Indiana could not properly or legally tax.

The fundamental position of the appellant is that a nonresident of Indiana who undertakes to sell land or real estate in Indiana thereby creates a situation whereby, so far as appellee is concerned, there was a receipt of income from an Indiana source. The taxable event, as designated in Section 2 of the Gross Income Tax Act, Acts 1933, c. 50, is, '* * * Such tax shall be levied upon the entire gross income * * * derived from sources within the State of Indiana, of all persons and/or companies, including banks, who are not residents of the State of Indiana, but are engaged in business in this state or who derived gross income from sources within the state * * *.' Section 64-2602, Burns' 1933. This section of the statute has been construed by this court in the case of Miles v. Dept. of Treasury, 1935, 209 Ind. 172, 188, 199 N.E. 372, 378, 379, 101 A.L.R. 1359, Id., 298 U.S. 640, 56 S.Ct. 750, 80 L.Ed. 1372 where the following language was used: 'We conclude that the tax in question is an excise, levied upon those domiciled within the state or who derived income from sources within the state, upon the basis of the privilege of domicile or the privilege of transacting business within the state, and that the burden may reasonably be measured by the amount of income. The reasoning which justifies the tax upon the basis of domicile as readily supports and justifies a tax upon the basis of the right to receive income within, or transact business under the protection of, the state. We feel that the weight of reason and authority sustains this view.'

In the case of Indiana Creosoting Co. v. McNutt, 1936, 210 Ind. 656, 663, 664, 5 N.E.2d 310, 313, this court used identical language in explanation of the statute.

These cases likewise hold that the taxable contention upon which the gross income tax is assessed, which involves the sale of Indiana real estate, is the fact of sale, and, in further support of this contention, it has been held that executory contracts relating to real estate are governed as to their requisite validity and effect by the law of the place where the real estate is located. Bethell v. Bethell, 1876, 54 Ind. 428, 430, 23 Am.Rep. 650; Robards v. Marley, 1881, 80 Ind. 185; Barnett v. Pool, 1859, 23 Tex. 517, 521; Wheeler v. Walker, 1879, 64 Ala. 560, 562.

It should also be remembered that contracts between citizens of different states are not subjects of interstate commerce where the performance of the contract is to be completed and carried out wholly within the borders of the state, even though such contracts may affect interstate commerce, Ware & Leland v. Mobile County, 1908, 209 U.S. 405, 411, 28 S.Ct. 526, 52 L.Ed. 855, 14 Am.Cas. 1031; Western Live Stock v. Bureau of Revenue, 1938, 303 U.S. 250, 253, 58 S.Ct. 546, 82 L.Ed. 823, 115 A.L.R. 944; Department of Treasury v. Ingram-Richardson Mfg. Co., 1941, 313 U.S. 252; Department of Treasury v. Wood Preserving Corp., 1941, 313 U.S. 62, 61 S.Ct. 885, 85 L.Ed. 1188, and the appellee cannot escape the tax by billing from the outside or by setting up his machinery so that the income from the sale is paid to it from another state. Department of Treasury v. Wood Preserving Corp., supra; Continental Assurance Co. v. State of Tennessee, 1940, 311 U.S. 5, 6, 61 S.Ct. 1, 85 L.Ed. 5; Gross Income Tax Division v. J. L. Cox & Sons, 1949, Ind.Sup., 86 N.E.2d 693, 698, 10 A.L.R.2d 642; Penn. R. R. Co. v. Clark Coal Co., 1915, 238 U.S. 456, 465, 466, 35 S.Ct. 896, 59 L.Ed. 1406.

The assessment of gross income tax on the sale of real estate in Indiana does not violate the due process clause of the Federal Constitution, Amend. 14, in that immovable property is exclusively subject to the laws of the government in which it is located. 15 C.J.S., Conflict-of-Laws, § 19(2), pp. 936, 937, 938; Restatement, Conflict-of-Laws, § 215; 11 Am.Jur., Conflict-of-Laws, § 30, p. 328; Fisher v. Parry, 1879, 68 Ind. 465, 468; Bethell v. Bethell, supra. Whether the seller be a resident of Indiana or a resident of the State of Illinois, our gross income tax law provides by § 1 thereof as follows: '(f) The term 'gross income,' except as hereinafter otherwise expressly provided, means the gross receipts of the taxpayer received * * * from the sale of property, tangible or intangible, real or personal, or service, or any or all of the foregoing, and all receipts by reason of the investment of capital, including interest, discount, rentals, royalties, fees, commissions or other emoluments, however designated, and without any deductions on account of the costs of property sold, the cost of materials used, labor cost, interest or discount paid, or any other expense whatsoever, and without any deduction on account of losses; * * *'. (Our italics.) Ch. 50, § 1(f), Acts of 1933, Burns' Ind.Stat.Ann. 64-2601.

Only such commodities as may in the ordinary course of events become subjects of purchase and sale on their movement from one state to another state are articles of commerce under the Commerce Clause of the Constitution, art. 1, § 8, cl. 3, 15 C.J.S., Commerce, § 17, p. 277; Boddy v. Continental Insurance Co., 1925, 18 Ala.App. 65, 88 So. 294; Republic Acceptance Corp. v. Bennett, 220 Mich. 249, 1922, 189 N.W. 901, and the decision of the lower ...

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