Lavington v. Gano

• Decision Date: 03 July 1944
• Docket Number: 15430.
• Citation: 112 Colo. 510,150 P.2d 312
• Parties: LAVINGTON et al. v. GANO.
• Court: Colorado Supreme Court

150 P.2d 312

112 Colo. 510

LAVINGTON et al. v. GANO.

No. 15430.

Supreme Court of Colorado, En Banc.

July 3, 1944

Error to District Court, City and County of Denver; Charles C Sackmann, Judge.

Suit by Pauline Weare Gano against Leon E. Lavington, as State Treasurer of the State of Colorado, and another involving the plaintiff's liability for a surtax on trust income. To review a judgment for the plaintiff, the defendants bring error.

Judgment reversed and cause remanded.

Where state tax department had for six years applied certain interpretation of statute imposing surtax, rule of contemporaneous construction was properly invoked. Laws 1937 c. 175, § 2(a).

Gail L. Ireland, Atty. Gen., H. Lawrence Hinkley Deputy Atty. Gen., and George K. Thomas, Asst. Atty. Gen for plaintiffs in error.

Brock, Akolt & Campbell, E. R. Campbell, Robert A. Dick, Bartels, Blood & Bancroft, and Walter W. Blood, all of Denver, for defendant in error.

Lewis & Grant, James B. Grant, Pershing, Bosworth, Dick & Dawson, Fritz A. Nagel, Hughes & Dorsey, Thomas Keely, Dines, Dines & Holme, Peter H. Holme, and Stephen H. Hart, all of Denver, amici curiae.

BURKE Justice.

These parties appeared in reverse order in the trial court. They are hereinafter referred to as the treasurer, the director, and Gano, respectively. The Bankers Trust Company of New York City is referred to as the Trust Company and one Lillie Compson Weare, deceased, as Weare.

Weare left her estate to the Trust Company. Gano, a resident of Colorado, was one of the beneficiaries. During the years 1938 to 1941, inclusive, she received, through the trust, dividends totaling over $20,000. She paid the normal income tax thereon but refused to pay the surtax assessed by the director. The trial court held with her and to review the judgment entered accordingly the treasurer and director prosecute this writ. The facts are not in dispute. The five assignments present a simple question of law, i. e., Was this income derived from the trust or from intangibles? If the former the judgment must be affirmed, if the latter it must be reversed.

The corpus of the estate, owned by the Trust Company as trustee, consists entirely of intangibles, and the sole function of the Trust Company under the will of Weare is to collect and distribute to the named beneficiaries. The statute by virtue of which the director claimed the right and duty to issue the deficiency assessment for the surtax reads: 'In addition to the tax imposed by this section, a surtax without exemption or deduction for any cause, at the rate of two percentum (2%) is hereby imposed upon so much of the income of every individual resident of Colorado as may consist of dividends from corporate stock, royalties, interest from money, notes, credits, bonds, and other securities.' Sec. 2(a), chap. 175, L.1937.

That the corpus of the Weare estate is owned by the Trust Company and income therefrom is income from it is a mere fiction based upon a naked legal title, an ownership in law but none in fact. If the intangibles produce income Gano gets dividends, if not the Trust Company owes her nothing and she gets nothing. Hence her income, in fact, is produced by, and comes to her from, the intangibles, and the Trust Company is a mere collection agent. That in order for it to so function effectively it was necessary or advisable that it be vested with the legal title is immaterial. The state, in the levy and collection of taxes, its life blood, looks through all such fictions and puts its finger on the producing property and its beneficial owner.

By Article 4, § 31 et seq., chapter 2, Laws 1941, page 66, the administration of the income tax law was transferred from the treasurer to the director and the latter was empowered to make regulations for his department governing collections. By his Bulletin No. IT;MM:1, Section 19-B, sections 1 and 2, he provided:

'1. Surtax shall be collected from every resident beneficiary of any estate or trust to the extent that the amount distributed or distributal consists of interest, dividends or royalties.

'2. The foregoing applies to resident beneficiaries of non-resident estates or trusts.'

If interpretation of said section 2(a) as applied to the income here in question is necessary we think, in the light of section 13(a), id. the director's interpretation as disclosed by said Bulletin is inescapable. Said section 13(a) provides, inter alia: 'The net income of an estate or trust shall be computed in the same manner and on the same basis as in the case of an individual, except that * * * (2) There shall be allowed as an additional deduction in computing the net income of...