Oster v. Department of Treasury
Decision Date | 25 November 1941 |
Docket Number | 27646. |
Citation | 37 N.E.2d 528,219 Ind. 313 |
Parties | OSTER v. DEPARTMENT OF TREASURY et al. |
Court | Indiana Supreme Court |
Appeal from Marion Superior Court; Herbert E. Wilson Judge.
James W. Noel, Robert D. Armstrong, and Noel, Hickam, Boyd & Armstrong, all of Indianapolis, for appellant.
George N. Beamer and Omer S. Jackson, Attys. Gen., and Joseph P McNamara, David I. Day and Byron B. Emswiller, Dep. Attys. Gen., for appellees.
Appellant rented and occupied a two-story brick factory building at Crawfordsville, Indiana, in which he had 117 sewing machines and also other machinery and manufacturing equipment. He employed from 150 to 160 operatives. Hirsch Brothers of Chicago furnished cloth in bolts to appellant who made it into ladies' coats. The 'findings' were purchased by appellant. He did not buy the cloth nor sell the coats but delivered them to Hirsch Brothers. Each season the parties agreed upon a price for making each specified garment. The items considered were the cost of findings, labor, repairs on machinery and building, etc., plus a profit for appellant. He made no garments for anyone other than Hirsch Brothers all of whose sales were made to retail merchants. Appellant's only source of income was from the stipulated price per garment received from Hirsch Brothers upon whom he drew from time to time in amounts of three to four thousand dollars.
From the time the Cross Income Tax law became effective, May 1, 1933, through the calendar year 1935, he made returns of such income and paid tax at the rate of one-fourth of 1% thereof. Appellee Department claimed that he should have paid 1% and assessed deficiency tax of the difference plus interest and penalties which appellant paid under protest. He brought this action to recover the deficiency assessment so paid.
The trial and Appellate Courts, evidently persuaded that they were bound by decisions of this Court, held that the tax should have been computed at the higher rate and denied recovery. We think otherwise.
The Gross Income Tax Act of 1933 was amended in 1937 and in 1941. Section 3 as originally worded is § 64-2603, Burns' 1933, § 15983, Baldwin's 1934, and as it now stands has the same section number in Burns' 1933 (Supp.1941) and Baldwin's Supp.1941. It is apparent from the latter that appellant's current income from such sources clearly is within subsection (a) 4, defined as 'wholesale sales,' and taxable at the lower rate. It is not clear that the lower rate was not also applicable prior to the first amendment in 1937.
We said recently with reference to another section of the Gross Income Tax Act of 1933 that 'in case of doubt such statutes are to be construed more strongly against the state and in favor of the citizen.' Department of Treasury of Indiana v. Muessel, Ind.Sup.1941, 32 N.E.2d 596, 597.
It has been held that an amendatory act sometimes furnishes aid to the court in explaining ambiguity in the act amended. Yarlott v. Brown, 1923, 192 Ind. 648, 138 N.E. 17; Taylor v. State ex rel. Ogle, 1907, 168 Ind. 294, 80 N.E. 849; Hennessey v. Breed, Elliott & Harrison, Inc., 1931, 92 Ind.App. 165, 176 N.E. 251; Armstrong, Adm'r, v. State ex rel. Klaus, Auditor, 1918, 72 Ind.App. 303, 120 N.E. 717; 25 R.C.L. Stat. § 288, p. 1064, In re Hurle, 1914, 217 Mass. 223, 104 N.E. 336, L.R.A.1916A, 279, Ann.Cas.1915C, 919.
With these principles in mind we have examined the conflicting views presented herein. Appellant insists that its sole income was from the 'business of manufacturing, compounding, or preparing for sale, profit, or use, any article or articles, substance or substances, commodity or conmodities' under clause (a) of § 64-2603, Burns' 1933, § 15983, Baldwin's 1934. Appellee claims that clause (f) applies, reading: 'Upon the gross income of every person engaged in any business or activity not enumerated in subsections (a) to (e) inclusive, of this section, including, but not in limitation of the foregoing, the gross income from professional services, personal services, sales of real estate, all funds received for the performance of contracts, all funds from the investment of capital, and all receipts from any source whatsoever, one (1) per cent.'
The words 'services' and 'performance of contracts' are stressed by appellee. But these terms are ambiguous. If making garments for a wholesaler thereof be called a service, certainly it is not 'professional,' nor is it within the usual definition of 'personal.' The clause as it now stands has been relettered (g) and amended to read 'professional services, personal services, or services of any character whatsoever,' which indicates at least a legislative doubt as to the comprehensive character of the original use of the word 'services.' 'Funds received for the performance of contracts' could include receipts from the performance of a contract for sale in wholesale lots, which obviously was not intended to be taxed at 1%. So these words as well as 'services' require explanation. Considering clause (f) as a whole it is apparent that it was the 'catchall' clause designed to cover only receipts not taxable under one of the preceding clauses. The question then is resolved into an inquiry as to whether appellant's income was reasonably within the purview of clause (a).
In Storen v. J. D. Adams Mfg. Co., 1937, 212 Ind. 343, 348, 7 N.E.2d 941, 943, reversed on other grounds 304 U.S. 307, 58 S.Ct. 913, 82 L.Ed. 1365, 117 A.L.R. 429, it was said that 'the rate does not depend upon the business in which the taxpayer is primarily engaged, but upon the activity from which each item of his gross lncome is received.' The court at the same time denied the manufacturer's contention therein that 'sale is an indispensable incident to the business of manufacturing.' It was not said and it is not true that there can be no income from manufacturing without a sale. A manufacturer may obtain income by a bailment for hire of his product. A bailment is not a sale. It is not seriously contended that the facts herein show a sale. But it can not be disputed that appellant had an income and we think that income can reasonably be ascribed to 'the business of manufacturing.' It is to be noted that 'the business of manufacturing' is not by clause (a) limited to manufacturing 'for sale' but may be for 'profit or use.' Appellant's operations were surely for profit and for use. So we think the income of appellant was fairly within the provisions of the clause.
Looking at the section as a whole we perceive the intent expressed in Clark's Laundry, etc., Co. v. Department of Treasury, 1937, 103 Ind.App. 359, 5 N.E.2d 683, 684, as follows: 'The gross income that is to be taxed at one-fourth of 1 per cent. is income derived from business activities which result in making available for use in the first instance, articles, substances, or commodities.'
The higher rate applies to ultimate sales to the consumer. Generally a distinction is recognized between the manufacturer...
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