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

• Decision Date: 16 January 1940
• Citation: 289 N.W. 677,233 Wis. 286
• Parties: J. C. PENNEY CO. v. WISCONSIN TAX COMMISSION.
• Court: Wisconsin Supreme Court

233 Wis. 286

289 N.W. 677

J. C. PENNEY CO.

v.WISCONSIN TAX COMMISSION.

Supreme Court of Wisconsin.

Jan. 16, 1940.

Appeal from a judgment of the Circuit Court for Dane County; August C. Hoppmann, Judge.

Reversed.

FOWLER, J., dissenting.

J. C. Penney Company, a foreign corporation, began this action on August 23, 1938, to set aside an order of the defendant, Wisconsin Tax Commission, dated July 21, 1938. From a judgment entered on June 10, 1939, confirming the assessment, plaintiff appeals.

The facts will be stated in the opinion.

Ela, Christianson & Ela, of Madison, and Gwinn & Pell, of New York City (EmersonEla, of Madison, and W. H. Dannat Pell and Roswell Dean Pine, Jr., both of New York City, of counsel), for appellant.

John E. Martin, Atty. Gen., and Harold H. Persons, Asst. Atty. Gen., for respondent.

ROSENBERRY, Chief Justice.

The plaintiff is a Delaware corporation, having its statutory office at Wilmington, Delaware. It is engaged in the business of operating a nation wide chain of retail department stores, approximately 1,500 in number. It is licensed to do business in the state of Wisconsin but has no executive office of any kind located within the state. During the year 1934 is operated 47 stores in this state. In 1935 and 1936 it operated 48 stores in Wisconsin. During the year 1934, plaintiff had a total net income computed on the Wisconsin tax basis of $16,022,607, and in 1935, a total net income of $15,223,478. Applying the formula of the Wisconsin income tax statute (sec. 71.02), $562,331 of the 1934 income was allocable to Wisconsin business and $587,001 of the 1935 income was allocable to Wisconsin business. The plaintiff declared the following dividends:

On December 31, 1935, J. C. Penney Company declared a dividend of $2.25 per share, making total dividend payments of $5,555,214.

In 1936, J. C. Penney Company declared and paid the following dividends:

+------------------------------------------------------------+
                ¦Date Paid¦Amount per share¦Total Amount Paid to Stockholders¦
                +---------+----------------+---------------------------------¦
                ¦3/31/36  ¦$ .75           ¦$ 1,851,738.00                   ¦
                +---------+----------------+---------------------------------¦
                ¦6/30/36  ¦.75             ¦1,851,738.00                     ¦
                +---------+----------------+---------------------------------¦
                ¦9/30/36  ¦1.00            ¦2,468,984.00                     ¦
                +---------+----------------+---------------------------------¦
                ¦12/15/36 ¦4.75            ¦11,727,674.00                    ¦
                +------------------------------------------------------------+
                

Pursuant to a notice of additional assessment, dated July 16, 1937, the Tax Commission assessed a privilege dividend tax, which was ultimately adjusted at the sum of $23,586.79. The plaintiff duly filed its application for hearing and made objection to the assessment within the period prescribed by law.

The plaintiff operates its business in the following manner: the total proceeds from sales of goods in all its stores, including Wisconsin stores, are deposited in local banks. From such deposits payments are made,-payrolls, rents, advertising and other local expenses. The remainder not needed for such expenses is ultimately transferred to the treasurer's office in New York City and deposited in New York banks to the credit of the Company. No separate account is kept of the funds from the various states and moneys after leaving the local banks completely lose their identity with respect to being derived from a particular source. From the funds deposited in New York, salaries, general overhead expenses in New York and other offices, taxes and dividends are paid. Checks are drawn in payment for all merchandise purchased and shipped to the various stores. All of the stockbooks, minute books and secretary's records of the Company are kept in the state of New York, except that a duplicate stock ledger is kept in Delaware as required by that state. All transfers of shares of stock are made by the New York transfer agent of the Company; all directors' and stockholders' meetings are held in the State of New York and all dividends are declared at such meetings. The actual payment of dividends is effected by checks drawn upon the accounts of the plaintiff Company in New York, payable to the stockholders of record upon each dividend record date. Such checks are mailed to the post office address of each stockholder as the same appears in the record. No act in connection with the payment of dividends was performed within the state of Wisconsin and no act in connection with the receipt of such dividend was performed in the state of Wisconsin except that certain stockholders of the Company received their mail in this state. It appears from the evidence that 391 stockholders were residents of the state of Wisconsin as of the date of payment of the December 31, 1935, dividend as against a total of 12,385 stockholders. With respect to the dividend paid on December 15, 1936, there were 406 Wisconsin stockholders as against a total of 13,281 stockholders. If the tax had been levied upon the basis finally adopted by the Commission it would have amounted to $274.54. The tax was levied pursuant to the provisions of sec. 3, ch. 505, Laws of 1935, as amended. This was the same as sec. 71.60 of the Laws of 1937 except the expiration date is July 1, 1937, instead of July 1, 1939. The law is as follows:

“(1) For the privilege of declaring and receiving dividends, out of income derived from property located and business transacted in this state, there is hereby imposed a tax equal to two and one-half per centum of the amount of such dividends declared and paid by all corporations (foreign and local), except those specified in paragraphs (d) and (g) of subsection (1) of section 71.05 of the statutes, after the passage and publication of this act and prior to July 1, 1939. Such tax shall be deducted and withheld from such dividends payable to residents and non-residents by the payor corporation.

“(2) Every corporation required to deduct and withhold any tax under this section shall, on or before the last day of the month following the payment of the dividend, make return thereof and pay the tax to the tax commission, reporting such tax on the forms to be prescribed by the tax commission.

“(3) Every such corporation hereby made liable for such tax shall deduct the amount of such tax from the dividends so declared.

“(4) In the case of corporations doing business within and without the state of Wisconsin, such tax shall apply only to dividends declared and paid out of income derived from business transacted and property located within the state of Wisconsin. The amount of income attributable to this state shall be computed in accordance with the provisions of chapter 71. In the absence of proof to the contrary, such dividends shall be presumed to have been paid out of earnings of such corporation attributable to Wisconsin under the provisions of chapter 71, for the year immediately preceding the payment of such dividend. If a corporation had a loss for the year prior to the payment of the dividend, the tax commission shall upon application, determine the portion of such dividend paid out of corporate surplus and undivided profits derived from business transacted and property located within the state. ***”

The plaintiff contends that this law as applied to a foreign corporation doing business as plaintiff does business is invalid for the reason that it deprives the plaintiff of its property without due process of law in contravention of the Fourteenth Amendment to the constitution of the United States ment to the constitution of the United States, U.S.C.A., and Art. VIII, sec. 1, of the constitution of the state of Wisconsin. Stated specifically it is the contention of the plaintiff that the state of Wisconsin has no jurisdiction to impose an excise tax upon a transaction which takes place beyond its borders; that all of the acts of the plaintiff company in the declaration and payment of dividends and the acts of its stockholders in receiving them outside of the state are insufficient to confer jurisdiction to tax dividends declared by a corporation organized under the laws of a sister state. As already stated only an inconsiderable part of the dividend is received through the mails by Wisconsin stockholders.

This Court had the constitutionality of sec. 3, ch. 505, Laws of 1935, as amended before it in State ex rel. Froedtert G. & M. Co., Inc., v. Tax Comm. of Wisconsin, 1936, 221 Wis. 225, 265 N.W. 672, 267 N.W. 52, 56, 104 A.L.R. 1478. That was an action for a declaratory judgment and was brought by a Wisconsin corporation. The Court held that the tax imposed upon the Wisconsin corporation pursuant to the provisions of sec. 3, ch. 505, as amended by Laws 1935, c. 552, was a valid tax. In that case the Court held that the language of the act “for the privilege of declaring and receiving dividends, out of income derived from property located and business transacted in this state, there is hereby imposed a tax equal to two and one-half per centum of the amount of such dividends declared and paid by all corporations (foreign and local)” imposed an excise or privilege tax upon the transaction involved of transferring the dividends from the corporation to its stockholders.

There was a motion for a hearing in the Froedtert case and briefs amicus curiae were filed by counsel appearing on behalf of foreign corporations. While the application of the law to foreign corporations was not before the Court upon the pleadings in the case, the Court concluded to consider the validity of the act as applied to foreign corporations and held: “We perceive no more difficulty in taxing the transfer of dividends of foreign corporations attributable to business transacted or property situated within the state than in taxing such corporations on income so derived, and the validity of the latter form...