Jackling v. State Tax Comm'n.

• Court: New Mexico Supreme Court
• Writing for the Court: BICKLEY, Justice.
• Citation: Jackling v. State Tax Comm'n, 40 N.M. 241, 58 P.2d 1167, 1936 NMSC 28 (N.M. 1936)
• Decision Date: 23 May 1936
• Docket Number: No. 4110.,4110.
• Parties: JACKLINGv.STATE TAX COMMISSION.

40 N.M. 241

58 P.2d 1167

JACKLING

v.STATE TAX COMMISSION.

No. 4110.

Supreme Court of New Mexico.

May 23, 1936.Rehearing Denied June 18, 1936.

Appeal from District Court, Grant County; George W. Hay, Judge.

Action by D. C. Jackling against the State Tax Commission. From an adverse judgment, the plaintiff appeals. The plaintiff having no right to appeal, the Supreme Court of its own motion retained the cause as if presented on certiorari.

Remanded.

Statute imposing income tax on net income of nonresident in so far as such income was derived from property owned or business or occupation carried on within the state held not unconstitutional. Laws 1933, c. 85, §§ 3(p), 20, 21; U.S.C.A.Const. Amend. 14.

Wilson & Woodbury, of Silver City, and Harris K. Lyle, of Gallup, for appellant.

Frank H. Patton, Atty. Gen., and Quincy D. Adams, Asst. Atty. Gen., for appellee.

BICKLEY, Justice.

The appellant filed his complaint alleging that he was a nonresident of the state of New Mexico; and that he was a resident of California; that he had no residence in the state of New Mexico, and did not reside therein; that he had no business or agency in the state of New Mexico and was not engaged in the transaction of business in, into, or from the state of New Mexico.

The complaint further alleged that Gallup American Coal Company, a Delaware corporation, had a place of business in New Mexico, and conducted business there, and that the corporation also conducted business in other states. It is further alleged that the appellant is the president of Gallup American Coal Company, which maintained an office for said president in San Francisco, Cal., and that the corporation paid to appellant at San Francisco a salary for his services as president.

The remaining allegations set out the matters of fact relating to the amount of salary so paid, the demand upon him to file an income tax return in this state, and the steps taken by him to bring the case before the courts. The complaint sought a review of the determination of the tax commission that appellant is subject to the tax. A demurrer was filed by the tax commission presenting the proposition that the complaint did not state facts sufficient to constitute a cause of action, in that it showed that the plaintiff received a salary from a corporation doing business in the state of New Mexico. The demurrer was sustained and final judgment entered dismissing the complaint.

The following is an outline of the argument of appellant, as stated in his brief:

“Appellant is not within the scope of the New Mexico income tax, chapter 85, Session Laws of 1933.

“A. The State Cannot Tax Persons or Property Wholly Outside of its Boundaries.

“B. The Statute is Limited to Non-residents Doing Business In, Into or From This State.

“C. Appellant Has No Business In, Into or From the State of New Mexico.”

For the purposes of this opinion, we assume without deciding the correctness of appellant's propositions A. and B. Appellant concedes that his allegation that he has no business or agency in the state of New Mexico and that he is not engaged in the transaction of business in, into, or from the state of New Mexico is not the statement of a fact admitted by the demurrer. It appears from the complaint that during a portion of the taxable year the appellant is within the state of New Mexico performing his duties as president of the corporation which employs him.

[1] Appellant contends that as an individual he has no business in this state by virtue of his employment by the corporation; that the business done here is the business of the corporation as a legal entity, separate and distinct from its officers, agents, or stockholders. Appellant contends that, because his office as corporation president is in San Francisco, Cal., and that his salary is paid to him there, and much of the labor for his principals is performed in his office in California, his salary for services is not derived from a business or occupation carried on in this state.

Able counsel for appellant state that they have found no decision squarely supporting their contention, but cite several cases which they say touch closely upon it. One of these is Shaffer v. Carter, 252 U.S. 37, 40 S.Ct. 221, 225, 64 L.Ed. 445, and they quote therefrom as follows: “And we deem it clear, upon principle as well as authority, that just as a state may impose general income taxes upon its own citizens and residents whose persons are subject to its control, it may, as a necessary consequence, levy a duty of like character, and not more onerous in its effect, upon incomes accruing to nonresidents from their property or business within the state, or their occupations carried on therein, enforcing payment, so far as it can, by the exercise of a just control over persons and property within its borders.” (Italics appellant's.)

Appellant then observes: “But on this test, the state must fail. Appellant does not own the revenue producing property- that is the corporation's-and his personal occupation is carried on in California.”

He also cites Travis v. Yale & Towne Mfg. Co., 252 U.S. 60, 40 S.Ct. 228, 64 L. Ed. 460, and says: “The basis of this decision was the fact that the employment carried on in New York so it could be said ‘that the state protected the individual in his employment.’ This feature is lacking in the case at bar.”

Shaffer v. Carter, supra, cites Shaffer v. Howard (D.C.) 250 F. 873, 874 (decree reversed and dismissal of bill ordered for want of proper parties, in 249 U.S. 200, 39 S. Ct. 255, 63 L.Ed. 559), which discusses the theory upon which income taxes upon a nonresident may be justified.

From these cases and from Holmes, Federal Taxes (6th Ed.) we are able to glean certain statements of principles relative to the basic considerations governing the imposition of income taxes which we find of value in answering appellant's contention. In Shaffer v. Carter, supra, the court said:

“In well-ordered society property has value chiefly for what it is capable of producing, and the activities of mankind are devoted largely to making recurrent gains from the use and development of property, from tillage, mining, manufacture, from the employment of human skill and labor, or from a combination of some of these; gains capable of being devoted to their own support, and the surplus accumulated as an increase of capital. That the state, from whose laws property and business and industry derive the protection and security without which production and gainful occupation would be impossible, is debarred from exacting a share of those gains in the form of income taxes for the support of the government, is a proposition so wholly inconsistent with fundamental principles as to be refuted by its mere statement. ***

“Income taxes are a recognized method of distributing the burdens of government, favored because requiring contributions from those who realize current pecuniary benefits under the protection of the government, and because the tax may be readily proportioned to their ability to pay. ***

“That a state may tax callings and occupations as well as persons and property has long been recognized. ‘The power of taxation, however vast in its character and searching in its extent, is necessarily limited to subjects within the jurisdiction of the state. These subjects are persons, property, and business. *** It (taxation) may touch business in the almost infinite forms in which it is conducted, in professions, in commerce, in manufactures, and in transportation.’ *** And we deem it clear, upon principle as well as authority, that just as a state may impose general income taxes upon its own citizens and residents whose persons are subject to its control, it may, as a necessary consequence, levy a duty of like character, and not more onerous in its effect, upon incomes accruing to nonresidents from their property or business within the state, or their occupations carried on therein, enforcing payment, so far as it can, by the exercise of a just control over persons and property within its borders. This is consonant with numerous decisions of this court sustaining state taxation of credits due to nonresidents.”

The court in solving the problem presented by the attack on the Oklahoma statute found occasion to consider the federal income tax laws by way of analogy. They pointed to a federal statute which imposed a tax upon the entire net income arising or accruing from all sources (with exceptions not material) to every citizen of the United States, whether residing at home or abroad and to every person residing in the United States, though not a citizen thereof, followed by: “And a like tax shall be assessed, levied, collected, and paid annually upon the entire net income from all property owned and of every business, trade, or profession carried on in the United States by persons residing elsewhere.”

In Shaffer v. Howard, supra, the court held that income of a nonresident received from Oklahoma oil wells was taxable under the Oklahoma Income Tax Act which imposed a tax upon “the entire net income from all property owned, and of every business, trade or profession carried on in this State by persons residing elsewhere.” Laws Okl.1915, c. 164, § 1.

As against the contention that it was invalid in respect of nonresidents, the court said: “This [alleged invalidity of the law] is based on the claims that an income tax is a kind of taxation differing in its basic principles from all other taxation; and, as such, being a tax levied against the person who receives the income, is invalid because he is a nonresident; or, if levied against the income is still void because the income is made up from two inseparable elements-the property and the owner's management or intelligence-and the latter of these is outside the state. It is claimed that income taxation is a generic kind of taxation, different from all other taxation, and resting upon an entirely...