Hunton v. Commonwealth

• Decision Date: 16 January 1936
• Citation: 183 S.E. 873
• Court: Virginia Supreme Court
• Parties: HUNTON . v. COMMONWEALTH.

183 S.E. 873

HUNTON .

v.COMMONWEALTH.

Supreme Court of Appeals of Virginia.

Jan. 16, 1936.

Rehearing Denied March 20, 1936.

Error to Hustings Court of Richmond.

Petition by Eppa Hunton, IV, as executor of the estate of Eppa Hunton, Jr., to annul certain tax assessments on income of the testator. To review a judgment for the commonwealth, the petitioner brings error.

Affirmed.

Argued before CAMPBELL, C. J., and HUDGINS, GREGORY, BROWNING, CHINN, and EGGLESTON, JJ.

Eppa Hunton, IV, and E. Randolph Williams, both of Richmond, for plaintiff in error.

A. P. Staples, Atty. Gen., and W. W. Martin, Asst. Atty. Gen., and H. R. Miller, of Richmond, for the Commonwealth.

EGGLESTON, Justice.

Eppa Hunton, IV, as executor of the estate of Eppa Hunton, Jr., deceased, filed his petition in the court below asking relief from three alleged erroneous assessments for state taxes made against Eppa Hunton, Jr., during his lifetime, upon income omitted by him from his tax returns for the years 1928, 1929, and 1930.

The omitted items of income were dividends upon shares of stock issued by rail-

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road and power companies which Mr. Hunton claimed were exempt from state income taxes.

The state tax department, taking the view that such dividends were taxable, on December 29, 1931, assessed Mr. Hunton with income taxes in the sum of $572.58 on dividends amounting to $19,086 received in 1927. On July 19, 1932, it assessed him with income taxes amounting to $682.59 on $22,753 of dividends received in 1928, and $735.81 taxes on $24,527 of dividends received in 1929.

It is admitted that for each of the four years, 1926-1929, each of the companies from which the dividends were received was assessed with and paid the annual state franchise tax, and other taxes required of it, by sections 176, 177 of the Constitution of Virginia, and sections 216 and 229 of the Tax Code of Virginia (Acts 1928, c. 45, pp. 145, 159), providing for the taxation of railroads and power companies.

The case presented no issues of fact, and the questions of law before the lower court were the same as those here raised by the assignments of error. The trial court decided these in favor of the commonwealth, upheld the validity of the assessments, and entered an order denying the relief prayed for and dismissing the petition. The matter is here for review on a writ of error awarded by one of the justices of this court.

The assignments of error challenge the correctness of the judgment of the lower court in the following language:

"First: Petitioner contends that, under the provisions of section 177 of the Constitution of Virginia and section 28 of chapter 576 of the Acts of Assembly of 1926, now section 216 of the Tax Code of Virginia, providing for the assessment of franchise tax upon railroad companies, and section 170 of the Constitution and section 36¹/₂ of chapter 576 of the Acts of Assembly of 1926, now section 229 of the Tax Code, under which franchise tax has been levied upon railroads and other public service corporations, in which it is provided that the said franchise tax 'shall be in lieu of all taxes or license charges whatsoever upon the franchise of such corporation, the shares of stock issued by it and upon all its property * * *, ' the income derived from said shares can not be taxed because a tax levied on the income is a tax on the shares, and that a tax on income is a tax on the property or source from which the income is derived, if the source be not subject to tax the income cannot be.

"Second: That, as to the assessment sought to be made by the department of taxation December 29, 1932, upon income received during the year 1927, and as to the assessment sought to be made by the department of taxation July 19, 1932, upon the dividend or income received during the year 1928, the department of taxation is without authority to make the same as section 418 of the Tax Code under which the assessments were sought to be made provides for an assessment of omitted taxes 'for any tax year of the three tax years last past' and not for four years. That the tax levied December 29, 1931, was upon income received in 1927, and that the levy sought to be made in July, 1932, was upon income received in 1928, in each case was for periods beyond the three tax years last past.

"In other words, the department of taxation, without authority, has undertaken to assess alleged taxable income beyond the 'three tax years last past.'"

The two assignments will be considered in the order named.

The pertinent portion of section 170 of the Constitution, which was not affected by the amendment of 1927, is as follows:

"The General Assembly may levy a tax on incomes in excess of six hundred dollars per annum; may levy a license tax upon any business which cannot be reached by the ad valorem system; and may impose State franchise taxes, and in imposing a franchise tax, may, in its discretion, make the same in lieu of taxes upon other property, in whole or in part, of a transportation, industrial, or commercial corporation. Whenever a franchise tax shall be imposed upon a corporation doing business in this State, or whenever all the capital, however invested, of a corporation chartered under the laws of this State, shall be taxed, the shares of stock issued by any such corporation, shall not be further taxed." (Italics supplied.)

The amendments of 1928 to section 177 of the Constitution are not material on the question here involved. That section is:

"Every such railway or canal corporation shall also pay an annual State franchise tax to be prescribed by law, upon the gross receipts hereinafter specified in sec-tion one hundred and seventy-eight, for the privilege of exercising its franchises in this State, which, with the taxes provided for in section one hundred and seventy-six, shall be in lieu of all other taxes, or license charges whatsoever upon the franchise of such corporation, the shares of stock issued by it, or upon its property assessed under section one hundred and seventy-six; provided, that nothing herein contained shall exempt such corporation from the annual fee required by section one hundred and fifty-seven of this Constitution, or from assessments for street and other public improvements authorized by section one hundred and seventy; and provided, further, that nothing herein contained shall annul or interfere with or prevent any contract or agreement by ordinance between street railway corporations and muncipalities, as to compensation for the use of the streets or alleys of such municipalities by such railway corporations." (Italics supplied.)

So far as they are here material, the provisions of both sections 216 and 229 of the Tax Code are the same as those of the corresponding statutes in force for a number of years prior thereto.

Section 216 of the Tax Code (Acts 1926, c. 576, p. 983, Acts 1928, c. 45, p. 145), after having provided for the taxation of real and personal property (tangible and intangible) of railway and canal corporations, reads:

"Every such railway or canal corporation shall pay to the State an annual State franchise tax for each calendar year equal to one and one-half per centum upon the gross transportation receipts, hereinafter specified, for the privilege of exercising its franchise in this State, except that every such railway corporation operating an electric railway or railways shall pay to the State an annual State franchise tax equal to one and six-tenths per centum upon the gross transportation receipts, hereinafter specified, for the privilege of exercising its franchise in this State, which the taxes hereinbefore provided for, shall be in lieu of all taxes or license charges whatsoever, upon the franchises of such corporations and the shares of stock issued by them, and upon all their property, as hereinbefore provided." (Italics supplied.)

Section 229 of the Tax Code (Acts 1926, c. 576, p. 990, Acts 1928, c. 45, p. 159), afttr providing for the taxation of the real and personal property of water, heat, light, and power companies, reads in part as follows:

"Every corporation coming within the provisions of this and the preceding section shall pay to the State an annual State franchise tax equal to one and one-eighth per centum of its gross receipts, for the privilege of exercising its franchises in this State, which, with the taxes hereinbefore provided for, shall be in lieu of all State taxes or license charge whatsoever upon the franchises of such corporation, and the shares of stock issued by it, and upon all its property as hereinbefore provided." (Italics supplied.)

The question presented by the first assignment of error is whether the exemption from taxation, under sections 170 and 177 of the Constitution and sections 216 and 229 of the Tax Code, of "shares of stock issued by" railroad and electric power companies, which have paid franchise taxes in Virginia, exempts from taxation the income or dividends received by the shareholder from such stock.

The petitioner contends that a tax on such dividends is a tax on the shares themselves which is prohibited by the above constitutional and statutory provisions.

The commonwealth contends that its system of taxation, as embodied in the Constitution and statutes enacted pursuant thereto, expressly recognizes the distinction between a direct tax on property itself and a tax on the income derived from such property, and treats property, and income therefrom, as separate subjects of taxation. It argues that the exemption provided for in the above sections of the Constitution and Tax Code is limited to an exemption from taxes directly imposed or levied on "shares of stock" themselves, as one subject of taxation, as distinguished from the dividends or income from such stock, as a separate subject of taxation.

In approaching the subject we should keep in mind the distinction between legislative power and legislative policy. Whether the General Assembly has the power, under the...