Hunton v. Commonwealth

• Citation: 166 Va. 229
• Court: Supreme Court of Virginia
• Decision Date: 16 January 1936
• Parties: EPPA HUNTON, IV, EXECUTOR OF THE ESTATE OF EPPA HUNTON, JR. v. COMMONWEALTH OF VIRGINIA.

Page 229

166 Va. 229

EPPA HUNTON, IV, EXECUTOR OF THE ESTATE OF EPPA HUNTON, JR. v. COMMONWEALTH OF VIRGINIA.

Supreme Court of Virginia, Richmond.

January 16, 1936.^*

Present, Campbell, C.J., and Hudgins, Gregory, Browning, Chinn and Eggleston, JJ.

ON REHEARING.

1. CONSTITUTIONAL LAW — Taxation — Policy of Tax Laws Is No Concern of Courts. — Whether the General Assembly has the power, under the Constitution, to enact a particular tax law is a question for the courts. But whether it is a wise policy to do so is a question solely for the lawmaking body and is no concern of the courts.

2. TAXATION — Exemption from Taxation — Construction of Provision for Exemption. — Taxation being the rule and exemption therefrom the exception, constitutional and statutory provisions exempting property from taxation should be strictly construed against the exemption and any doubt should be resolved in favor of the State.

3. STATUTES — Constitutionality — Every Reasonable Doubt Resolved in Favor of Constitutionality. — Every reasonable doubt should be resolved in favor of the constitutionality of an act of the legislature.

4. TAXATION — Income Taxes — Property and Income Derived Therefrom to Be Treated as Separate Subjects. — An examination of the Constitution of 1902 shows that its builders intended that income derived from property and property itself be treated as separate and distinct subjects of taxation.

5. TAXATION — Exemption from Taxation — Shares of Stock Issued by Corporation Paying Franchise Tax — Section 170 of the Constitution of 1902 — Exemption Relates to Ad Valorem Tax. — Instead of providing for an ad valorem "assessment upon all stock," as is found in article X, section 4, of the Constitution of 1870, section 170 of the Constitution of 1902 provides for the exemption from taxation of "shares of stock issued by" any corporation doing business in this State on which there has been imposed a franchise tax, or whenever all of its capital has been taxed. The exemption provided for in section 170 is the ad valorem tax on stock which is dealt with in the corresponding article X, section 4, of the Constitution of 1870.

6. TAXATION — Income Taxes — Definition of Income Includes Dividends on Stock. — The language of the provision of the Tax Code taxing income, which defines it as "all other gains and profits from any source whatsoever," is broad enough to embrace dividends on shares of stock.

7. STATUTES — Construction — Weight of Practical Construction Given Statute by Public Officials. — The practical construction given to the tax laws by public officials is entitled to, and has, great weight with the Supreme Court of Appeals.

8. TAXATION — Income Taxes — Income Tax Is an Excise Tax and Not a Tax on Property. — The tax levied by section 38 of the Tax Code upon every individual, upon and with respect to his entire net income, is not a tax upon property from which the income is derived, but it an excise tax.

9. TAXATION — Dividends on Stock — Dividend Is Subject of Taxation Separate from Stock. — When a dividend upon shares of stock is paid it becomes separated from the stock and becomes a subject of taxation, different from the property from which it was derived.

10. TAXATION — Tax Affecting Property Is Not Necessarily Tax on Property. — The theory that any tax which affects property in any way, directly or indirectly, is a tax on that property, is unsound and has been expressly repudiated by the Supreme Court of Appeals.

11. TAXATION — Income Taxes — Dividends on Stock of Railroad and Power Companies — Exemption of Shares of Stock Does Not Exempt Dividends — Case at Bar. — In the instant case, a suit seeking relief from an alleged erroneous assessment of taxes on income, it was contended that dividends on the stock of railroad and power companies were exempt because the companies paid the franchise tax required by section 170 and 177 of the Constitution of 1902 and sections 216 and 229 of the Tax Code, which provide that the franchise tax shall be in lieu of all other taxes upon the shares of a stock of such companies, petitioner contending that a tax on the income derived from the shares was a tax on the shares.

Held: That shares of stock and income therefrom are two separate and distinct subjects of taxation within the meaning of the Constitution, and the exemption from taxation of the "shares of stock" mentioned in sections 170 and 177 of the Constitution and in sections 216 and 229 of the Tax Code, does not exempt from taxation the income derived from such "shares of stock."

12. TAXATION — Assessment and Levy — Omitted Taxes — Section 418 of the Tax Code — Meaning of "Tax Year" — Case at Bar. — In the instant case, a suit seeking relief from an alleged erroneous assessment for State income taxes, petitioner contended that the tax department was without authority to make an assessment in 1931 on stock dividends received in 1927, and in 1932 on dividends received in 1928, since section 418 of the Tax Code provided for an assessment of omitted taxes "for any tax year of the three tax years last past," and the assessment in each case was for periods beyond the three tax years last past.

Held: That the expression "tax year," as used in section 418 of the Tax Code, means the year in which the assessment is made "with respect to," that is, based upon, the income received during the preceding year; that since the income received in the "taxable year" 1927 was first assessable in the "tax year" 1928, the assessment made in 1931, for income omitted from the 1928 assessment, was within "the three tax years last past;" and that the same was true of the 1932 assessment with respect to the 1928 income.

Error to a judgment of the Hustings Court of the city of Richmond on a petition for relief from erroneous assessments. Judgment for the Commonwealth. Petitioner assigns error.

The opinion states the case.

Eppa Hunton, IV, and E. Randolph Williams, for the plaintiff in error.

Abram P. Staples, Attorney-General, W. W. Martin, Assistant Attorney-General, and Henry R. Miller, Jr., for the Commonwealth.

EGGLESTON, J., delivered the opinion of the court.

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 railroad 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, ch. 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 36 1/2 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...