Mckesson & Robbins Inc. v. Walsh

• Decision Date: 13 January 1944
• Citation: Mckesson & Robbins Inc. v. Walsh, 130 Conn. 460, 35 A.2d 865 (Conn. 1944)
• Court: Connecticut Supreme Court
• Parties: McKESSON & ROBBINS, Inc., v. WALSH, Tax Commissioner.

130 Conn. 460

35 A.2d 865

McKESSON & ROBBINS, Inc.,

v.WALSH, TaxCommissioner.

Supreme Court of Errors of Connecticut.

Jan. 13, 1944.

Appeal from Superior Court, Hartford County; McEvoy, Judge.

Appeal by McKesson & Robbins, Inc., from a corporation tax levied against it by Walter W. Walsh, Tax Commissioner, taken to the Superior Court and reserved by the court for the advice of the Supreme Court of Errors.

Question answered.

William Reeves, of Bridgeport, for plaintiff.

Leo V. Gaffney, Asst. Atty. Gen., and Francis A. Pallotti, Atty. Gen., for defendant.

Before MALTBIE, C.J., and BROWN, JENNINGS, ELLS, and DICKENSON, JJ.

MALTBIE, Chief Justice.

The plaintiff is a corporation which carries on a portion of its business in this state and is subject to the corporation business tax imposed by Chapter 66b of the General Statutes, Cumulative Supplement of 1935, as amended.It made a return to the defendant tax commissioner upon the basis of its business for the first six months of the calendar year of 1942.The tax commissioner refused to allow one of the ‘deductions' it claimed, and assessed an additional tax.From that ruling, the plaintiff appealed to the Superior Court and the case has been reserved to this court.

The corporation business tax is a ‘tax or excise upon its [the corporation's] franchise for the privilege of carrying on or doing business within the state,’ measured by its net income as defined in the act.General Statutes, Supp. 1941, § 176f.Gross income was defined in the 1935 act as meaning ‘gross income as defined in the federal corporation net income tax law in force on the last day of the income year’ with certain additions, and net income was defined as meaning ‘net earnings received during the income year and available for contributors of capital, whether they be creditors or stockholders, computed by subtracting from gross income the deductions allowed by the terms of section 419c.’General Statutes, Cum.Supp.1935, § 417c.These definitions were repeated when the section was amended in 1939 and in 1943.General Statutes, Cum.Supp.1939, § 353e;Supp.1943, § 291g. Section 419c provides that in determining net income ‘there shall be deducted from gross income all items deductible under the federal corporation net income tax law effective and in force on the last day of the income year, except (1) federal taxes on income or profits, losses of prior years, interest received from federal, state and local government securities and specific exemptions, if any such deductions shall be allowed by the federal government and (2) interest and rent paid during the income year.’These provisions make it clear that, as we pointed out in W. T. Grant Co. v. McLaughlin, 129 Conn. 663, 667, 30 A.2d 921, 923, ‘this tax is tied into the federal corporation income tax.’

For the year 1942 corporations under the federal income tax laws were subject to a ‘normal tax’ levied upon the ‘normal-tax net income,’ defined as ‘the adjusted net income minus the credit for income subject to the tax imposed by Subchapter E of Chapter 2 provided in section 26(e) and minus the credit for dividends received provided in section 26(b),’ and to a ‘surtax’ levied upon the ‘corporation surtax net income,’ defined as ‘the net income minus the credit for income subject to the tax imposed by Subchapter E of Chapter 2 provided in section 26(e) and minus the credit for dividends received provided in section 26(b)(computed by limiting such credit to 85 per centum of the net income reduced by the credit for income subject to the tax imposed by Subchapter E of Chapter 2 in lieu of 85 per centum of the adjusted net income so reduced), and minus, in the case of a public utility, the credit for dividends paid on its preferred stock provided in section 26(h).’56 Stat. Pt. 1, p. 805, §§ 105, 15, 26 U.S.C.(Sup.1942) § 13(a)(2), p. 258, § 15, p. 259, 26 U.S.C.A. Int.Rev.Code, §§ 13(a)(2), 15.Section 26 of the Internal Revenue Code was entitled ‘Credits of corporations.’53 Stat. Pt. 1, p. 18, 26 U.S.C. § 26, 26 U.S.C.A. Int.Rev.Code, § 26.It was amended by the Revenue Act of 1942, applicable for the year 1942, by the addition of a paragraph, ‘(e),’ the portion of which material to the issues before us is as follows: ‘In the case of any corporation subject to the tax imposed by Subchapter E of Chapter 2, an amount equal to its adjusted excess-profits net income (as defined in section 710(b).’56 Stat. Pt. 1, p. 806, § 15(e), 26 U.S.C.(Sup.1942) § 26(e), p. 271, 26 U.S.C.A. Int.Rev.Code, § 26(e).The tax imposed by the provisions of Subchapter E of Chapter 2 of the public laws enacted by the 76th Congress, The Internal Revenue Code, was an ‘excess profits tax.’See53 Stat. Pt. 2, p. 510;54 Stat. Pt. 1, p. 975, § 201, 26 U.S.C. p. 2147, 26 U.S.C.A. Int.Rev.Code, § 710;56 Stat. Pt. 1, p. 899, § 202, 26 U.S.C.(Sup.1942) § 710, 26 U.S.C.A. Int.Rev.Code, § 710.It was based primarily upon the ‘adjusted excess profits net income’ as defined in § 710(b) of the Internal Revenue Code, and this section referred to § 711, which fixed as the basis of the tax ‘the normal-tax net income,’ subject to certain deductions and credits.54 Stat. Pt. 1, pp. 975, 976, § 201, 26 U.S.C. §§ 710, 711, 26 U.S.C.A. Int.Rev.Code, §§ 710, 711.In the 1942statute an alternative provision was inserted which permitted a corporation to pay the tax based upon the lesser of two amounts, either 90 per centum of the adjusted excess-profits net income or ‘an amount which when added to the tax imposed for the taxable year under Chapter 1(other than section 102) equals 80 per centum of the corporation surtax net income, computed under section 15 or Supplement G, as the case may be, but without regard to the credit provided in section 26(e)(relating to income subject to the tax imposed by this subchapter).’56 Stat. Pt. 1, p. 899, § 202, 26 U.S.C. (Sup.1942) § 710, 26 U.S.C.A. Int.Rev.Code, § 710.

The plaintiff corporation was subject to these taxes.In its return to the federal government of income subject to the normal tax and the surtax for the first six months of 1942, it stated, in accordance with the requirements of the form adopted by the internal revenue service of the Treasury Department, its ‘adjusted net income’ as $7,540,857.84, ‘less: income subject to excess profits tax-$1,638,506.66.’Certain corrections were later made in these sums.Whe the plaintiff made its return to the tax commissioner of this state as a basis for computing its corporation business tax, it claimed as a deduction ‘Excess Profits Taxable Income-$1,432,332.96.’The question presented on this reservation is whether this was an item ‘deductible under the federal corporation net income tax law’ and so a deduction from the income of the corporation in determining the tax to be paid this state.

The plaintiff claims that the words in § 419c of our act ‘federal corporation net income tax law’ do not include the...