J. C. Penney Co. v. Wis. Tax Comm'n

• Decision Date: 20 May 1941
• Parties: J. C. PENNEY CO. v. WISCONSIN TAX COMMISSION et al. F. W. WOOLWORTH CO. v. SAME. MINNESOTA MINING & MANUFACTURING CO. v. SAME.
• Court: Wisconsin Supreme Court

238 Wis. 69

298 N.W. 186

J. C. PENNEY CO.

v.WISCONSIN TAX COMMISSION et al.

F. W. WOOLWORTH CO.

v.SAME.

MINNESOTA MINING & MANUFACTURING CO.

v.SAME.

Supreme Court of Wisconsin.

May 20, 1941.

On Remand from United States Supreme Court.

Actions by the J. C. Penney Company, a foreign corporation, by the F. W. Woolworth Company, a foreign corporation, and by the Minnesota Mining & Manufacturing Company, a foreign corporation, against the Wisconsin Tax Commission to set aside tax assessments, wherein the State of Wisconsin and Elmer E. Barlow, as Commissioner of Taxation of the State of Wisconsin, were substituted as defendants. Judgments of the Supreme Court of Wisconsin, which reversed judgments confirming the assessments, were reversed and remanded by the United States Supreme Court, 311 U.S. 435, 61 S.Ct. 246, 85 L.Ed. 267, 130 A.L.R. 1229, 311 U.S. 452, 61 S.Ct. 253, 85 L.Ed. 267, 311 U.S. 435, 61 S.Ct. 395, 85 L.Ed. 267. On remand.-[By Editorial Staff.]

Conforming to mandate of Supreme Court.

Ela, Christianson & Ela, of Madison, and Gwinn & Pell, of New York City (G. Burgess Ela, of Madison, and W. H. Dannat Pell and Roswell Dean Pine, Jr., of counsel, both of New York City, of counsel), for appellant J. C. Penney Co.

Davies, Auerbach, Cornell & Hardy, of New York City, and Ela, Christianson & Ela, of Madison, for appellant F. W. Woolworth Co.

John L. Connolly, of St. Paul, Minn., Frederick J. Miller, of Little Falls, Minn., and Ela, Christianson & Ela, of Madison, for appellant Minnesota Mining & Manufacturing Co.

John E. Martin, Atty. Gen., James Ward Rector, Deputy Atty. Gen., and Harold H. Persons, Asst. Atty. Gen., for respondents.

ROSENBERRY, Chief Justice.

On remand from the Supreme Court of the United States. This case was originally reported in 233 Wis. 286, 289 N.W. 677, 126 A.L.R. 133. In reversing the case the Supreme Court of the United States said, 311 U.S. 435, 61 S.Ct. 246, 248, 85 L.Ed. 267, 130 A.L.R. 1229: “‘For the privilege of declaring and receiving dividends, out of income derived from property located and business transacted in’ Wisconsin, an exaction ‘equal to two and one-half per centum of the amount of such dividends declared and paid by all corporations (foreign and local)’ is the additional tax now before us. In the enforcement of this measure against foreign corporations the amount of income attributable to Wisconsin is calculated according to the same formula as that employed in assessing the general corporate income tax paid by such foreign corporations. The practical operation of this legislation is to impose an additional tax on corporate earnings within Wisconsin but to postpone the liability for this tax until such earnings are paid out in dividends. In a word, by its general income tax Wisconsin taxes corporate income that is taken in; by the Privilege Dividend Tax of 1935 Wisconsin superimposed upon this income tax a tax on corporate income that is paid out.”

Upon the record being remanded to this court the plaintiff taxpayers seek to have the case reconsidered and the act declared invalid under state law on the ground that the Supreme Court of the United States held the tax to be an income tax and that as such it cannot be sustained under the Constitution and laws of the State of Wisconsin. The Supreme Court of the United States further said:

“The case thus reduces itself to the inquiry whether Wisconsin has transgressed its taxing power because its supreme court has described the practical result of the exertion of that power by one legal formula rather than another-has labeled it a tax on the privilege of declaring dividends rather than a supplementary income tax.

“A tax is an exaction. Ascertainment of the scope of the exaction-what is included in it-is for the state court. But the descriptive pigeon-hole into which a state court puts a tax is of no moment in determining the constitutional significance of the exaction.”

Inasmuch as the legislature expressly declared the tax to be for the “privilege of declaring and receiving dividends,” we denominated it an excise or privilege tax. State ex rel. Froedtert Grain & M. Co. v. Tax Comm., 1936, 221 Wis. 225, 233, 265 N.W. 672, 675, 267 N.W. 52, 104 A.L.R. 1478. We said: “However the Legislature may have regarded the tax, we have no difficulty in construing the statute as imposing an excise or privilege tax upon the transaction involved of transferring the dividends from the corporation to its stockholders.”

[1][2] As we understand the law, our construction of the state statute is conclusive upon the Supreme Court of the United States. Erie R. Co. v. Tompkins, 1938, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487;Swift v. Tyson, 1842, 16 Pet. 1, 10 L.Ed. 865. See note 83 L.Ed. 519. If there has been a shifting of labels in this case, it was not done by this court. It is perfectly true that the tax cannot be sustained as an income tax under the law of this state. Under our constitutional amendment authorizing the levying of an income tax, it has been consistently held that an income tax is a burden laid upon the recipient of an income and the amount of the tax is measured by the amount of the income. State ex rel. Sallie F. Moon Co. v. Wis. Tax Comm., 1917, 166 Wis. 287, 163 N.W. 639, 165 N.W. 470. Under its laws this state cannot and it does not undertake to tax the income of citizens of other states who are not doing business in this state. Under the terms of the statute under consideration, no tax is levied until a dividend is declared. When the dividend is declared the dividend belongs to the stockholder. It is a debt of the corporation for the recovery of which the stockholder may maintain an action. Inasmuch as the tax cannot be levied until the dividend is declared if it is not a tax on the privilege of declaring and receiving a dividend as we hold it to be, then it must be a tax on the recipient, a person not engaged in doing business in this state nor a resident thereof. In no sense and to no extent whatever, is it a tax upon the income of the corporation.

Ch. 71, Wisconsin Stats., levies a tax on net income to be paid “by every person residing within the state or by his personal representative in case of death; and by every nonresident of the state, upon such income as is derived from property located or business transacted within the state.” Section 71.01.

Secs. 71.03, 71.04, 71.045, 71.047, 71.05 provide what shall he deducted from the gross income in order to establish net taxable income. There is no provision in the Wisconsin Statutes for taxing disbursements as income. The income of the corporation was taxed by the state when it was received. If the state sought to tax the corporate income at higher rate, all that it was required to do was to increase the rate.

In this situation we do not understand that the Supreme Court of the United States held the tax in question to be an income tax and sustained it as such. The Supreme Court of the United States said: “These tags are not instruments of adjudication but statements of result in applying the sole constitutional test for a case like the present one. That test is whether property was taken without due process of law, or, if paraphrase we must, whether the taxing power exerted by the state bears fiscal relation to protection, opportunities and benefits given by the state. The simple but controlling question is whether the state has given anything for which it can ask return. The substantial privilege of carrying on business in Wisconsin, which has here been given, clearly supports the tax, and the state has not given the less merely because it has conditioned the demand of the exaction upon happenings outside its own borders. The fact that a tax is contingent upon events brought to pass without a state does not destroy the nexus between such a tax and transactions within a state for which the tax is an exaction.”

[3] We understand the court upon the whole case to hold that the State of Wisconsin has jurisdiction to levy the tax in question upon the “privilege of declaring and receiving dividends” out of income earned within the state of Wisconsin even though the dividend is declared under the law of the state of Delaware or New York and the transaction of declaring the dividend took place within the state of New York where the disbursement was made.

[4] The only question presented by the record on appeal to the Supreme Court of the United States was whether the state had jurisdiction to levy the tax. The Supreme Court of the United States was not asked to construe the statute. That is a matter under the decisions of the Supreme Court of the United States which is clearly a function of this court and we must assume that the Supreme Court of the United States made its decision in recognition of that fact. While we do not concur in the view of the Supreme Court of the United States as to jurisdiction, we are bound by its decision and we yield to it upon the ground stated and upon no other.

Computation of Tax

In computing the tax, the Tax Commission proceeded as...