Mississippi State Tax Commission v. Brown

Decision Date15 April 1940
Docket Number33932
CourtMississippi Supreme Court

APPEAL from the chancery court of Hinds county HON. V. J. STRICKER Chancellor.

Suit by J. T. Brown against the Mississippi State Tax Commission to annul assessment of tax on income from national bank stock. From the judgment, the defendant appeals. Affirmed.

On suggestion of error.

Suggestion of error overruled.

J. A Lauderdale, for appellant, on suggestion of error.

Neither this court nor the Supreme Court of the United States held that to require a citizen to include dividends received from shares in a national bank as a part of his taxable income would be a tax on such bank.

Graves v. New York, 83 L.Ed. 927.

In most of the numerous cases cited by Judge Ethridge in support of the conclusion reached by him, the court had under consideration statutes which levied a tax upon the bank, its property, or its franchises. It will be noted that a national bank was a party in nearly all of such cases. It will be further noted that none of them held that the tax on the income from shares of such bank was a tax on the bank. When I was briefing this case I made a careful search, and since its decision I have renewed the search, and I have been unable to find any case where the question involved in this case was decided either expressly or by necessary inference. In other cases, the decisions as to whether the tax on income is a tax on its source are conflicting and irreconciliable. While there are no cases exactly in point, there are numerous cases analogous in principle which hold that the tax on income is not a tax on its source.

N O. M. & C. R. Co. v. State, 110 Miss. 290; Chassanoil v. City of Greenwood, 166 Miss. 770; Lawrence v. State Tax Commission, 162 Miss. 338, 76 L.Ed. 1102; State ex rel. v. G. M. & N. R. R. Co., 138 Miss. 70; Parker v. Miss. State Tax Com., 178 Miss. 680; Des Moines Nat. Bank v. Fairweather, 68 L.Ed. 191; Miller v. Milwaukee, 71 L.Ed. 487.

The Constitution of the United States prohibits a state from taxing interstate commerce, and the courts all hold that a state cannot tax interstate commerce; however, they likewise hold that income from such commerce is subject to taxation by a state.

Underwood Typewriter Co. v. Chamberlain, 65 L.Ed. 165.

The Constitution likewise prohibits Congress from taxing exports. However, the Supreme Court of the United States holds that net income derived from exporting merchandise may be taxed.

William E. Peck & Co. v. Lowe, 62 L.Ed. 1049; U.S. Glue Co. v. Town of Oak Creek, 62 L.Ed. 1135; Nat. Paper & Typewriter Co. v. Bowers, 69 L.Ed. 331; Barclay & Co. v. Edwards, 69 L.Ed. 703; Burnett v. Jergins Trust, 77 L.Ed. 925; Group No. 1 Oil Corp. v. Bass, 75 L.Ed. 1032, 1036; Choteau v. Burnet, 75 L.Ed. 1353.

The income received by Brown from the bank was paid to him without any restrictions.

Llewellyn v. Colonial Trust Co., 72 L.Ed. 256; Helvering v. Stockholms Enskilda Bank, 79 L.Ed. 211; Metcalf v. Mitchell, 70 L.Ed. 384.

The law is well established that a stockholder in a bank is separate and distinct from the corporation. When the bank issued its shares of stock it agreed to pay, if earned, dividends thereon. In other words, there was a contract between the stockholder and the bank. Tax on income received therefrom is not a tax on the bank or a tax on the federal government.

The income tax law of Mississippi, especially that part of it prescribing what income shall be taxed, is practically a transcript of the federal income tax law.

Helvering v. Clifford, Advance Sheet No. 9, 84 L.Ed. 504.

A decision of a court of supreme jurisdiction overruling a former decision is retrospective in its operation, and its effect is that the former decision never was the law.

14 Am. Jur. 345, Sec. 130; 15 C. J. 961, Sec. (358) 12; Great Northern R. Co. v. Sunburst Oil & Refining Co., 77 L.Ed. 360; Welch v. Henry, 83 L.Ed. 87; James v. Dravo Construction Co., 82 L.Ed. 155; O'Malley v. Woodrough, 83 L.Ed. 1289; Southern Natural Gas Corp. v. Ala., 81 L.Ed. 970; Helvering v. Gerhardt, 82 L.Ed. 1427; Interstate Natural Gas Co. v. Stone, 103 P.2d 544.

Under these decisions, if, on account of erroneous decisions of the court, a citizen escapes the payment of just taxes assessed against him, the error does not work to exempt him from liability for the taxes so assessed, and he is required to pay, as held in Welch v. Henry, supra, for the support of the government just as other citizens are required to pay.

The question of law decided by the opinion of Justice Ethridge was not raised until after this cause was submitted to the court. A decision of the case on such question violates the "due process" clause of the federal constitution.

Butler Mercantile Co. v. Cruise, 175 Miss. 200; Equitable Life Assurance Society v. Slaughter, 178 Miss. 366; Byrd v. Bd. of Supervisors, 179 Miss. 880; Adams v. Bd. of Supervisors, 177 Miss. 403; Anderson v. Maxwell, 94 Miss. 138.

The decision of the court on a question not raised deprives appellant of its property without due process of law. He has had no opportunity to be heard on the question.

Adams v. Bd. of Supervisors, 177 Miss. 403.

Flowers, Brown & Hester, of Jackson, for appellee.

Ethridge, J., Smith, C. J., and Griffith and Anderson, JJ., dissenting.


Per Curiam.

A suggestion of error has been filed in this case to the effect that we erred in the opinion heretofore rendered. We might safely stand upon the opinion heretofore rendered, for the authorities therein cited show that until the year 1938 the United States Supreme Court had held that states were without power to tax the instrumentalities of the Government of the United States, either directly or indirectly.

It is said in the suggestion of error that the cases we cited were not income tax cases; but in the case of People ex rel. Rogers v. Mark Graves et al., 299 U.S. 401-409, 57 S.Ct. 269, 81 L.Ed. 306, it was held that the state of New York was not authorized to levy an income tax on the salary of the president of the Panama Railroad, and other employes of that company, which was entirely owned by the Government of the United States, and operated as its instrumentality. In the second syllabus it is said: "The operations of the Panama Railroad Company, of the capital stock of which the United States is the sole owner, are so connected with the Panama Canal as to confer upon the railroad company the immunity of a Federal instrumentality from state taxation, even though the railroad company to a limited extent utilizes its ships and railroad to carry private freight and passengers, and though it also operates in the Canal Zone a dairy, hotels, and a commissary for the benefit of the personnel of the Canal, the railroad company, and the armed forces of the United States in the Zone."

It is also held in the third syllabus: "The Federal government may use a corporation as a means to carry into effect substantive powers granted by the Constitution." And in the fourth syllabus it is held: "Where a corporation is immune from state taxation as an instrumentality of the Federal government, fixed salaries and compensation paid to its officers and employees in their capacity as such are likewise immune." And in the fifth syllabus it is said: "The general counsel, employed on a fixed salary, of a corporation which is a Federal instrumentality, is an employee of the corporation rather than an independent contractor, as respects the liability of his salary to state taxation."

This decision was rendered at the October term, 1936, of the United States Supreme Court, which was more than two years after the enactment of the statute involved in this suit.

In the case of Fred Miller v. City of Milwaukee, 272 U.S. 713, 47 S.Ct. 280, 71 L.Ed. 487, it was held that where income of a corporation which becomes the basis of dividends is derived from bonds of the United States government, a state cannot lay an income tax upon the dividends in the hands of stock-holders so far as they represent the income of such bonds. This case was decided at the October term, 1926, of the United States Supreme Court.

Until the decision in the case of Mark Graves et al. v. People ex rel. O'Keefe, 306 U.S. 466, 59 S.Ct. 595, 83 L.Ed. 927, 120 A. L. R. 1466, it is clear that the Federal law was that Federal instrumentalities were not subject to state taxation, either directly or indirectly, and that the consent of Congress was necessary before the states could tax such instrumentalities, either directly or indirectly. Some confusion and uncertainty, however, had been shown in the decisions of the Federal Supreme Court, in regard to the theory of whether or not the instrumentalities were engaged in a governmental function, or in a private function; and that where engaged in a private, rather than a governmental function, the state might tax it. Until 1936 when at the October term of the Supreme Court it was held, in the case of Brush v. Commissioner of Internal Revenue, 300 U.S. 352 at 352-378, 57 S.Ct. 495, 81 L.Ed. 691, 108 A. L. R. 1428, that salaries and compensation paid the municipal officers and employes, engaged in the performance of the city's governmental functions, are immune from Federal taxation, under the principle that neither a state nor a Federal government may levy a tax which will burden the activities of the other. This was held, although the city charged for the use of its facilities, exercised through the commissioners; and it was urged that, being so engaged in furnishing private customers for a price charged, such salaries were subject to taxation by the government. At page 372 of 300 U.S. 352, 57 S.Ct. 495, at page 501, 81 L.Ed. 691, at...

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    ...and consequently was doubtless not intended. Mississippi State Tax Commission v. Brown, 188 Miss. 483, 193 So. 794,195 So. 465, 127 A.L.R. 919. 6. See footnote, ante, 5. In the Final Report of the Commission to Investigate the Operation of the Laws relative to the Taxation of Certain Bankin......
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