Norman v. Bradley
| Docket Number | 8056. |
| Decision Date | 23 September 1931 |
| Citation | 160 S.E. 413,173 Ga. 482 |
| Parties | NORMAN, Tax Com'r, v. BRADLEY et al. |
| Court | Georgia Supreme Court |
Syllabus by the Court.
Judgment is affirmed by operation of law where members of Supreme Court are equally divided between affirmance and reversal.
One of the questions in this case being whether, where a taxpayer sold corporate stock in February, 1929, and realized profits thereon, all of which had accrued prior to 1929, such profits arising upon the sale of the stock were taxable as income under the provisions of an act "to provide for levying and collecting a tax on net incomes in this State" (Ga Laws 1929, p. 92), although the act referred to was not passed until August in the year 1929, on this question the court is evenly divided, Russell, C.J., and Beck and Hines JJ., being of the opinion that the profits upon the stock sold are taxable, and Atkinson, Hill, and Gilbert, JJ., being of the contrary opinion; and therefore upon this issue the judgment of the court below granting the injunction is affirmed by operation of law.
Profits arising from sale of stock subsequent to effective date of income tax law held taxable as "income," though profits accrued prior to statute's enactment (Laws 1929, p, 92; Revenue Act 1928, § § 11, 22, 113 (a, b), 26 USCA § § 2011, 2022, 2113 (a, b).
As to profits arising from the sale of other stock under precisely the same circumstances except that the sale took place in October, 1929, after the passage and approval of the act, the court erred in enjoining the levy and collection of such tax.
Error from Superior Court, Fulton County; G. H. Howard, Judge.
Suit by W. C. Bradley and others against R. C. Norman, State Tax Commissioner. Judgment for plaintiffs, and defendant brings error.
Affirmed in part by operation of law, and reversed in part.
George M. Napier, Atty. Gen., T. R. Gress, Asst. Atty. Gen., R. C Norman, of Atlanta, and Park & Strozier, of Macon, for plaintiff in error.
Slade & Swift, of Columbus, and Spalding, MacDougald & Sibley and Harold Hirsch & Marion Smith, all of Atlanta, for defendants in error.
This case arises under the act "to provide for levying and collecting a tax on net incomes in this State," approved August 22, 1929 (Laws 1929, p. 92), which act is generally referred to as the "Boykin Income-Tax Act." The act provided that the tax levied under it for 1929 should be assessed pro rata for one fourth of that year. The controlling question in the case may be stated in a general way as: What is taxable as income for 1929? But, to bring it within the issues made by the pleadings and facts in this case, it is more specifically stated thus: Where taxpayers sold corporate stock in February and October, 1929, and realized profits thereon, all of which had accrued prior to 1929, are such profits taxable as income for that year?
Bradley, Turner, and Glenn, the defendants in error, owned stock in the Coca-Cola Company, all of which was purchased prior to 1929. Bradley and Turner sold their stock at a profit in February, 1929. Glenn sold his at a profit in October, 1929. The profit on the stock so sold by them all accrued prior to January 1, 1929. Norman, the state tax commissioner, sought to tax these profits as income under the Boykin Act. Plaintiffs brought suit in Fulton superior court to enjoin the collection of income tax on these profits as a part of income. The petition as amended set out the facts stated above, and alleged further that the profits sought to be taxed represented an appreciation in capital assets and not income; that none of such appreciation is subject to income tax under the Boykin Act; and that in so far as it undertakes to subject such profits to taxation, the Boykin Act is violative of the federal and state Constitutions, because it is retroactive, because it deprives petitioners of their property without due process of law, and because it is an attempt to tax property under a statute not uniform. There were other allegations attacking the provisions of the law regarding contests by taxpayers, and seeking to justify resort to injunction, which are not here material; the parties agreeing that the question raised should be presented by the suit in its present form. Defendant filed a general and a special demurrer. Plaintiffs amended to meet the special demurrer. There was no dispute on the facts. The case was tried upon the demurrer, and upon the petition as amended and the answer and a stipulation as to other facts not otherwise appearing in the record. These facts so agreed upon are as follows:
The judge overruled the demurrer and granted an injunction as prayed, stating in his judgment that "the court is of the opinion that the statute in question is retroactive and violates the constitution of Georgia." To this judgment the tax commissioner excepted.
The defendant contends that the Boykin Act as it applies to the profits sought to be taxed is not unconstitutional as being retroactive, and in support of this contention he relies upon two propositions: First, the profits on all this stock are not capital gain, but are income, and they became income when they were realized; that is, when the stocks were sold. These profits, therefore, accrued or were realized as income in February and October, 1929. That is to say, they became a part of the gross income of plaintiffs for 1929 during those months of that year. Second, the Boykin Act taxes one-fourth of the taxpayer's net income for 1929, and such income was not ascertainable until the end of the year. The tax was then to be levied upon one-fourth of the total net income for the year. The whole income for 1929 did not come into existence until December, 31. The act became effective on August 22, on something that did not exist until December 31, and therefore could not be retroactive as to items going to make up the gross income that accrued before August 22, but nevertheless went to make up the whole income for the entire year.
The question arising here is: What is income under the Boykin Act? Section 1 of the act provides that "there shall be levied and collected by the State of Georgia an income tax similar to that of the United States, but at the rate and according to the scale hereinafter set forth." Section 2 provides that taxpayers shall make to the state tax commissioner duplicates of their returns to the United States. And it is provided that the tax paid to the state shall be one-third of that paid to the United States. The Boykin Act adopts by reference the Federal Income-Tax Act, making it effective as the law of this state, with certain changes which are immaterial relatively to the controlling question in this record, which were intended to adapt it to our conditions and to carry out the purpose of the legislators. The Georgia law, except for the changes just referred to, is identical with the federal law. And inasmuch as the Supreme Court of the United States has dealt with this question in construing and applying the federal law, the question naturally arises, in view of the authoritative decisions by the Supreme Court of the United States upon questions arising under the federal statute, what is income under the federal law? The federal law of force when the Boykin Act was adopted was the Revenue Act of 1928 (26 USCA § 2001 et seq.). That act provides that there shall be levied, collected, and paid for each taxable year, upon the net income of every individual, a tax at certain specified rates. 26 USCA § 2011. It defines gross income, from which net income is arrived at, as including "gains, profits, and income derived from salaries, wages, or compensation for personal service, of whatever kind and in whatever form paid, *** or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property, *** or gains or profits and income derived from any source whatever." 26 USCA § 2022. The act further defines the basis for determining gain or loss from sales of property as follows: 26 USCA § 2113 (a, b).
This is the law of the United States which the General Assembly has made the law of Georgia, with the slight changes just referred to above, and which it is not material to state here or consider. Under its provisions, profit from the sale of property is income for the year in which the sale is made. Such profit is the difference between the cost and the sale price, if the property was bought after March 1, 1913. If it was bought before that date, the profit is the difference between the sales price and the cost, or the value on March 1, 1913, whichever is greater. The date given is fixed for the reason that the income-tax- "tax amendment to...
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