Maxwell v. Hans Rees' Sons, Inc.

• Decision Date: 16 June 1930
• Docket Number: 586.
• Parties: MAXWELL, Commissioner of Revenue, v. HANS REES' SONS, Inc.
• Court: North Carolina Supreme Court

153 S.E. 850

199 N.C. 42

MAXWELL, Commissioner of Revenue, v. HANS REES' SONS, Inc.

No. 586.

Supreme Court of North Carolina

June 16, 1930

Appeal from Superior Court, Buncombe County; McElroy, Judge.

Proceeding by the State, on the relation of Allen J. Maxwell Commissioner of Revenue, against Hans Rees' Sons, Inc. which filed a petition with the Commissioner for a rehearing and readjustment of income tax. From the judgment of dismissal, the defendant appeals.

Affirmed.

Portions of income tax corporation paid voluntarily without objection cannot be recovered, though levied unlawfully.

On August 17, 1927, the defendant filed a petition with R. A Doughton, commissioner of revenue, "for a rehearing and readjustment of the income tax assessed against it for the years 1923, 1924, 1925, and 1926." The defendant duly filed income tax returns for said years in accordance with the requirements of chapter 4, section 201 of the Public Laws of 1923, and section 201 of chapter 101 of the Public Laws of 1925. These returns are contained in the record and we deem it unnecessary to recapitulate them. On March 11, 1925, the defendant paid without protest the sum of $3,959.88, the amount of income tax as shown by its return. On March 14, 1925, the defendant paid without protest the sum of $5,221.90, the amount of tax due for the year 1924, according to its return. On March 15, 1926, the defendant paid without protest the sum of $3,453.28, same being the amount of tax due for the year 1925, according to its return. On April 11, 1927, the defendant paid under protest the sum of $3,651.46, same being the tax computed according to its return.

Thereafter the commissioner of revenue audited the returns filed by the defendant and assessed an additional tax. After making an examination of the returns the commissioner of revenue reported to the defendant as follows:

"Income reported to this department was $230,279.40 to which was added debts reclaimed not included in original report of $2,552.50 and allowed dividends in the sum of $904.00, which left net income corrected to $231,927.90. You reported for the purpose of allocating income to this department total valuation of property of $1,582.297.99. He reported total value of the property allowable for allocation purposes consisting of inventories, land, buildings, machinery, equipment, furniture and fixtures of $1,148,114.14. This operated to increase your percentage from .5732 to .837. This percentage of net income of $231,927.90 equals $194,123.65 taxable at 3% and results as follows:

At 3% ..............	$5,823.61.
previously paid ....	3,959.88.
balance ............	1,863.73.
interest ...........	260.92.
total additional ..	$ 2,124.65.

1924.

"For this year you reported $253,921.82 to which the deputy added income tax deducted, which is not allowable under the North Carolina law, of $3,959.88, making total net income of $257,881.70. You reported assets as a whole for allocation purposes of $2,241,654.94. He reduced this amount to $1,792,110.61. For this year he also reduced property in North Carolina from $1,536.861.36 to $1,529,323.24, allowing in both instances only inventories, land, buildings, machinery, equipment, furniture, fixtures, etc. This increased your percentage in North Carolina from .6855 to .8589. This percentage of the net income above stated makes income taxable to North Carolina $221,494.59 and results as follows:

Tax at 3% .........	$6,644.84.
previously paid ....	5,221.90
balance ...........	$1,422.94.
interest ...........	113.83
total additional ..	$1,536.77.

"You reported as net income $139,043.43. The books showed income $141,339.53, plus state income tax deducted $5,221.90, making correct income $146,561.43. You reported property value as a whole for allocation purposes $2,293,929.85. After eliminating items included which are not permitted under the law this amount was reduced to $2,147,097.12 and percentage increased from .6209 to .6632. This percentage of the total net income is $97,217.13 and results as follows:

Tax at 4% .........	$3,888.68.
previously paid ...	3,453.28.
balance ...........	435.40.
interest ..........	8.71.
total additional ..	444.11.

"I wish to state with reference to change in property values that under the law and decisions of this department (concurred in by the Attorney-General) that all cash, bills receivable, good will, stock in other corporations and property of like character is not allowed to be used as tangible property within the meaning of the Act for the purpose of allocating income to this state.

"I sincerely trust that the above is clear and that you will favor me with your check as requested in my previous letter."

A hearing was had by the commissioner of revenue, and on February 22, 1928, the said commissioner made certain findings of fact and conclusions of law which are set out in the record. These findings of fact are to the effect that the defendant in its original return had included "both tangible and intangible assets, disregarding the provision of section 311 of the Revenue Act (Pub. Acts 1927, c. 80) which specifies that only real estate and tangible personal property may be used in such allocation." The same reason is given for the changes made in the returns for the years 1924, 1925, and 1926. Thereupon the commissioner of revenue denied the petition of defendant. Thereafter the defendant filed certain exceptions to the findings of fact and conclusions of law made by the commissioner which were overruled by the commissioner, and the defendant appealed to the superior court of Buncombe county and waived a jury trial.

The cause was heard and the following judgment entered: "This cause coming on to be heard before His Honor, McElroy, Judge, jury trial having been waived, it being agreed that His Honor should find the facts with the same force and effect as by jury trial and render judgment thereon, it being admitted that the Commissioner of Revenue in assessing the tax complained of has followed the method set forth in section 311 of the Revenue Act of 1927, sub-section (a), and similar sections (201(a) of the Act of 1923 and 1925, and that the valuation fixed for the real estate and tangible property of the complaining taxpayer, both within and without the State, is admitted to be correct, and that the total net income of the complaining taxpayer used for a basis of calculation by the Commissioner of Revenue is admitted to be correct, and that the allocation thereof for the purposes of taxation was made in accordance with the method indicated in the statute referred to, the complaining taxpayer having offered testimony as appears in the record, over the objection of the State, and upon the conclusion of the testimony the State having moved to strike out the testimony offered as immaterial, and the Court being of the opinion that such testimony is immaterial, allows the motion to strike out and holds upon the admission of the taxpayer that the statutory method has been followed and that the tax levied by the Commissioner of Revenue is a valid tax and that the section authorizing the said levy is not in violation of any constitutional rights of the taxpayer. It is therefore ordered and adjudged that the action be dismissed at the cost of the taxpayer."

From the foregoing judgment the defendant appealed.

Harkins & Van Winkle, of Asheville (Louis H. Porter, of New York City, of counsel), for appellant.

Dennis G. Brummitt, Atty. Gen., and Frank Nash and Walter D. Siler, Asst. Attys. Gen., for the State.

BROGDEN J.

Certain admissions were made by the defendant at the hearing in the superior court and set forth in the judgment. In substance these admissions were:

(a) In assessing the tax the commissioner of revenue followed the statutory method prescribed in chapter 4, section 201, of the Public Laws of 1923, chapter 101, section 201 of the Public Laws of 1925, and section 311 of chapter 80 of the Public Laws of 1927; (b) that the valuation of the real estate and tangible property of the taxpayer "both within and without the State" is correct; (c) that the total net income used as a basis for the calculation of tax is correct; (d) that the allocation of the net income for purposes of taxation was in full accord with the statute.

Therefore, the only defense left to the complaining taxpayer is the assertion that the statutes are unconstitutional. The attack upon the statutes is based upon the contention that they are so "arbitrary and unreasonable as to be repugnant to the commerce clause and the Fourteenth Amendment to the Federal Constitution."

The taxing statute is as follows:

"Every corporation organized under the laws of this State shall pay annually an income tax, equivalent to four per cent. of the entire net income as herein defined, received by such corporation during the income year; and every foreign corporation doing business in this State shall pay annually an income tax equivalent to four per cent. of a proportion of its entire income to be determined according to the following rules:

"(a) In case of a company other than companies mentioned in the next succeeding section, deriving profits principally from the ownership, sale or rental of real estate or from the manufacture, purchase, sale of, trading in, or use of tangible property, such proportion of its entire net income as the fair cash value of its real estate and tangible personal property in this State on the date of the close of the fiscal year of such company in the income year is to the fair cash value of its entire real estate and tangible personal property then owned

...