National Life & Accident Ins. Co. v. Dempster

• Decision Date: 23 February 1935
• Citation: 79 S.W.2d 564
• Court: Tennessee Supreme Court
• Parties: NATIONAL LIFE & ACCIDENT INS. CO. v. DEMPSTER, Commissioner of Finance and Taxation, et al.

79 S.W.2d 564

NATIONAL LIFE & ACCIDENT INS. CO. v. DEMPSTER, Commissioner of Finance and Taxation, et al.

Supreme Court of Tennessee.

February 23, 1935.

Appeal from Chancery Court, Davidson County; James B. Newman, Judge.

Suit by the National Life & Accident Insurance Company against George Dempster, Commissioner of Finance and Taxation, and others. From a decree dismissing the bill, complainant appeals.

Affirmed.

Tyne, Peebles, Henry & Tyne, of Nashville, for appellant.

Roy H. Beeler, Atty. Gen., and Edwin F. Hunt, Asst. Atty. Gen., for appellees.

P. M. Estes, of Nashville, amicus curiæ.

DE HAVEN, Justice.

The Public Acts of the General Assembly of the state of Tennessee for the year 1923, chapter 21, as amended by chapter 44 of the Public Acts for the year 1927, imposes an excise tax upon certain corporations and joint-stock associations. These acts are brought forward in section 1316 et seq. of the Code of Tennessee. The sections relevant to this suit are as follows:

"1316. Tax imposed. — All corporations and joint-stock associations organized under the laws of the State of Tennessee, other than those organized for general welfare and not for profit, and all corporations and joint-stock associations organized under the laws of any other state or country for profit and doing business in Tennessee, shall, without exception, pay to the state comptroller annually an excise tax, in addition to all other taxes, equal to three per cent. of the net earnings for their preceding fiscal year of such corporations and joint-stock associations, arising from business done wholly within the state, excluding earnings arising from interstate commerce. Tennessee insurance companies shall pay on net earnings proportioned to premiums on policies on persons and property in this state."

"1322. Supervision and collection under department of finance and taxation; forms for reports. — The supervision and collection of the tax imposed shall be under the direction of the department of finance and taxation, and such department shall have authority and power to prescribe forms upon which corporations and joint-stock associations, liable for the tax imposed, shall make reports of such facts and information as will enable the commissioner of said department to ascertain the correctness of the amount reported and paid by such corporations or joint-stock associations."

"1323. Judgment and opinion of commissioner is conclusive, when; subject to revision in the courts, when. — In all matters requiring the exercise of judgment and discretion as to what may or may not be net income, the judgment and opinion of said commissioner shall be final and conclusive, and there shall be no review of his action; except the constitutional right of redress in the courts under the laws."

It appears from the original bill herein that appellant made its report to the commissioner of finance and taxation of its net earnings for the year 1931, upon the forms for returns as furnished by the then commissioner, specifically providing for a deduction of interest on "tax free" bonds in fixing the income upon which the tax in question was to be computed. This report showed the total amount of "net earnings," credited to Tennessee business, exclusive of interest on "tax free" bonds, to be $70,342.66. Appellant paid the tax on this amount. Appellant also collected during the year 1931 interest on certain "tax free" bonds owned by it. The proportionate part of said interest credited to Tennessee business amounted to $62,775.39. The commissioner demanded that appellant include this interest in its "net earnings" for the year 1931, and that it pay excise tax thereon. Appellant paid, under protest, the additional tax required of it by the commissioner, amounting to $1,883.26, plus interest and penalty. The purpose of the bill is to recover this payment from appellees.

It appears that appellant had, since the statute first became effective, paid to the comptroller 3 per cent. of its net earnings for each fiscal year arising from business done wholly within the state, there being excluded therefrom, however, the earnings of appellant collected by it on bonds of the United States, the state of Tennessee, and the political subdivisions thereof, owned by it, which state, county, and municipal bonds, and interest thereon, were by the acts authorizing their issuance specifically exempted from taxation, and which bonds were purchased by appellant, under the contract of sale and purchase, as such tax free securities. The exclusion of interest on such bonds by appellant from its net earnings, in computing the amount upon which to pay its excise tax, was specifically authorized by the then commissioner of finance and taxation at the time the statute imposing said excise tax became effective, and had been authorized by each and every succeeding commissioner down to and including the immediate predecessor of the commissioner in office when the bill herein was filed, except during the last few months of his tenure of office, and that the forms furnished for such periods specifically provided for a deduction of interest on "tax free" bonds in arriving at the income upon which said tax was to be computed.

After setting forth the foregoing facts, appellant asserts in its bill that the assessment and collection on the part of appellees from it of said additional tax, computed on its earnings consisting of interest on "tax free" bonds, together with interest and penalty, was illegal, erroneous, and without authority in law for the reasons:

(1) That the bonds upon which said interest was collected, and upon which interest said tax was computed, were and are tax free, and the income therefrom was and is tax free and could not lawfully be subjected to said excise tax.

(2) That it was the intent of the Legislature in the passage of said statute imposing said tax measured by said income that there should not be included upon which said tax was computed any income consisting of interest collected on "tax free" bonds and tax free securities.

(3) That ever since said statute went into effect in 1923, it has been construed by the various commissioners of finance and taxation to mean that the income by which said tax was measured should not include interest on "tax free" bonds, and such construction had been uniformly followed by every commissioner down to and including the defendant's immediate predecessor in office, and upon the basis of such construction appellant had purchased said bonds and thereby property rights had become fixed, which rights would be seriously impaired under the construction now insisted on by defendant.

(4) That the Legislature of Tennessee had knowledge of the construction of said statute as placed thereon by the various commissioners, and by its failure to change or modify said statute so as to provide for the inclusion of interest collected on tax free bonds in net earnings for taxation purposes, it had approved and ratified said construction as the true and legislative intent.

(5) That the attempt by defendant to now construe said statute to impose a tax measured by income from "tax free" bonds was, in effect, the enactment of a new law which impaired the obligations of the contracts between appellant and the state and the political subdivisions thereof whose bonds complainant owned, and appellant specially pleads and relies on section 10 of article 1 of the Federal Constitution, and section 20 of article 1 of the Constitution of the state of Tennessee, to protect it against laws which would impair the obligations of contracts.

A demurrer to the original bill was interposed by the appellees, and upon hearing was sustained and the bill dismissed. To the action of the chancellor in sustaining the demurrer and dismissing the bill, appellant excepted and appealed to this court. Eleven assignments of error are made. These assignments are, in effect, that the chancellor erred in holding against appellant on the five objections to the validity of the tax set up in the bill, hereinbefore set out, and, in addition, that the court erred in failing to hold that appellant's being required to include interest from United States bonds, in the income by which the tax was measured, imposed a burden on the right of the federal government to borrow money, and was, therefore, in violation of article 1, § 8, cl. 2, of the Federal Constitution, authorizing the government "to borrow Money on the credit of the United States."

The sole question involved in this suit is whether or not interest collected by the appellant on "tax free bonds," during the year 1931, was properly included as a part of its "net earnings" upon which the state excise tax was competent.

The language of the statute, section 1316 of the Code, is comprehensive and inclusive. The tax is levied upon "net earnings" of corporations and joint-stock associations. The phrase "net earnings" is not defined in the statute. In the case of Bank of Commerce & Trust Co. v. Senter, 149 Tenn. 569, 596, 260 S. W. 144, 151, the constitutionality of the excise tax law was before this court for determination. In sustaining the constitutionality of the statute, the court said: "The term `net earnings,' not being defined by the act, must be given its usual and ordinary meaning of what is left of earnings after deducting necessary and legitimate items of expense incident to the corporate business."

The term "net earnings" is unambiguous in its meaning. We must conclude the Legislature intended to convey the usual and ordinary meaning of the phrase used without any forced or subtle construction.

Undoubtedly, the interest received by appellant on tax free bonds constituted a part of its net earnings. This is not denied. The contention is that the portion of appellant's net earnings arising from tax free bonds must be excluded in calculating the amount of excise tax due by it. The statute itself authorizes no such...