Lanning v. Trefry

Decision Date29 February 1924
PartiesLANNING v. TREFRY, Tax Com'r.
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court

OPINION TEXT STARTS HERE

Report from Superior Court, Suffolk County; J. D. McLaughlin, Judge.

Complaint by Edward Lanning against William D. T. Trefry, Tax Commissioner for the Commonwealth of Massachusetts, for abatement of income tax. On report on agreed statement of facts without decision. Complaint dismissed.

W. D. Turner, of Boston, for complainant.

C. R. Cabot, of Boston, for respondent.

RUGG, C. J.

This is a complaint under St. 1916, c. 269, § 20, for the abatement of an income tax assessed in 1917 on the value of capital stock issued to the complainant as stockholder by a foreign corporation as a stock dividend on January 10, 1916. The salient facts are that the complainant, a resident of this commonwealth, was a stockholder in the Continental Insurance Company, a corporation of the State of New York. Prior to 1916 the corporation had accumulated a large surplus of earnings. In the latter part of the year 1915 the corporation voted to issue to its stockholders on January 10, 1916, a stock dividend in amount equal to the surplus from earnings accrued prior to March 1, 1913, and to transfer that amount from the ‘surplus' to the ‘capital stock’ account. The tax in question was laid upon the stock dividend thus issued to the complainant. Facts as to the market value of the shares of stock before and after the declaration of this stock dividend and other facts set forth in the record need not be narrated. Shortly stated, the issue raised is whether a stock dividend declared by a corporation out of an accumulated surplus of earnings is taxable as income to the stockholder receiving the same.

The relevant words of St. 1916, c. 269, are in section 2 as follows:

‘Income of the following classes received by any inhabitant of this commonwealth during the calendar year prior to the assessment of the tax shall be taxed at the rate of six per cent. per annum: * * * (b) Dividends on shares in all corporations * * * organized under the laws of any state * * * other than this commonwealth. * * * No distribution of capital, whether in liquidation or otherwise, shall be taxable as income under this section; but accumulated profits shall not be regarded as capital under this provision.’

The case at bar is not affected by St. 1920. c. 352, whereby stock dividends are exempted from the income tax.

Confessedly this case is indistinguishable in its main features from Tax Commissioner v. Putnam, 227 Mass. 522, 534, 535, 536, 116 N. E. 904, L. R. A. 1917F, 806. It there was held that a stock dividend was taxable as income under this statute. The only distinction between that case and this is that in the case at bar the stock dividend was voted by the corporation before the year 1916 payable to and received by the complainant in January of the year 1916. That is to say, this dividend was declared and was payable before the enactment of the income tax law on May 26, 1916. That fact in some cases may be of significance. See Nutter v. Andrews, 246 Mass. 224,140 N. E. 744,142 N. E. 67. The statute under which the tax was levied in the case at bar by the express terms of sections 1 and 2 was first to be levied in the year 1917 on all income received by the taxpayer during the preceding calendar year, and was accompanied by suitable exemptions of the property from which the income was derived. See section 11. This distinction does not bring the tax in the case at bar within the inhibition of the principle suggested in 227 Mass. at page 529, 116 N. E. 904, L. R. A. 1917F, 806.

An earnest and able argument has been made to the effect that Tax Commissioner v. Putnam, 227 Mass. 522, 116 N. E. 904, L. R. A. 1917F, 806, ought to be overruled out of deference to the decision in Eisner v. Macomber, 252 U. S. 189, 40 Sup. Ct. 189, 64 L. Ed. 521, 9 A. L. R. 1570, holding that stock dividends are not income under the Sixteenth Amendment to the United States Constitution and the Acts of Congress imposing an income tax, and declining to adopt the reasoning or result of Tax Commissioner v. Putnam, 227 Mass. 522, 116 N. E. 904, L. R. A. 1917F, 806. It is cause for regret that there is diversity of view between this court and the Supreme Court of the United States. Uniformity of thought is not always possible. Even in the Eisner Case four out of nine justices of that court believed that a stock dividend could be taxed as income and elaborate dissenting opinions were filed in support of that conclusion. The decision in the Putnam Case was rendered first. It was delivered after full and careful consideration in which all the justices participated. It has been followed on this precise point in later cases. Wilder v. Tax Commissioner, 234 Mass. 470, 125 N. E. 689;Tilton v. Tax Commissioner, 238 Mass. 596, 131 N. E. 219. See Lapham v. Tax Commissioner, 244 Mass. 40, 138 N. E. 708. Doubtless much money has been paid into the Treasury of the Commonwealth on the strength of that decision. It relates to the interpretation of the Forty-Fourth Amendment to the Constitution of this commonwealth and of a statute enacted pursuant thereto. It is supported by the reasoning and conclusion of Swan Brewery Co. v. The King, 1914 A. C. 231, by dissenting opinions of four justices in Eisner v. Macomber, 252 U. S. 189, 40 Sup. Ct. 189, 64 L. Ed. 521, 9 A. L. R. 1570, and by well reasoned opinions of two of the five law lords participating in the decision of Inland Revenue Commissioners v. Blott [1921] 2 A. C. 171.The question has been examined anew and the authorities reviewed again in the light of what has been said on the subject since the Putnam Case was decided. No sufficient reason is perceived for overruling that decision. Old Dominion Copper Mining & Smelting Co. v. Bigelow, 203 Mass. 159, 176, 196, 89 N. E. 193,40 L. R. A. (N....

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