Petition of Union Elec. Co. of Missouri

• Decision Date: 10 March 1942
• Docket Number: 37903,37904
• Parties: In the Matter of Petition of Union Electric Company of Missouri (formerly Union Electric Light & Power Company) for Abatemant of Income Tax Assessment for the year 1938. In the Matter of Petition of Union Electric Company of Missouri (formerly Union Electric Light & Power Company) for Abatement of Income Tax Assessment for the year 1937
• Court: Missouri Supreme Court

161 S.W.2d 968

349 Mo. 73

In the Matter of Petition of Union Electric Company of Missouri (formerly Union Electric Light & Power Company) for Abatemant of Income Tax Assessment for the year 1938. In the Matter of Petition of Union Electric Company of Missouri (formerly Union Electric Light & Power Company) for Abatement of Income Tax Assessment for the year 1937

Nos. 37903, 37904

Supreme Court of Missouri

March 10, 1942

Appeal from Circuit Court of City of St. Louis; Hon. William B Flynn, Judge.

Affirmed.

Roy McKittrick, Attorney General, William C. Connett IV, and Russell C. Stone, Assistant Attorneys General for appellant.

(1) Section 11343 of the Revised Statutes of Missouri, 1939 subdivision third, provides for the imposition of a tax on the net income of corporations, whether domestic or foreign, from all sources in this State. Secs. 11343, 11345, R. S. 1939; In re Kansas City Star Co., 346 Mo. 658, 142 S.W.2d 1029; Union Electric Co. v. Coale, 146 S.W.2d 631. (a) Income from sources in this State must be construed as meaning only such income as results from the employment of capital and labor in this State. Secs. 11343, 11345, R. S. 1939; In re Kansas City Star Co., 346 Mo. 658, 142 S.W.2d 1029; F. Burkhart Mfg. Co. v. Coale, 345 Mo. 1131, 139 S.W.2d 502; State ex rel. Corinne Realty Co. v. Becker, 8 S.W.2d 970; Christensen v. Eno, 106 N.Y. 97, 12 N.E. 648; Smith v. Dana, 60 A. 117, 77 Conn. 543; Bailey v. Clark, 88 U.S. 284, 22 L.Ed. 651; Iron Ry. Co. v. Lawrence Furnace Co., 30 N.E. 616, 49 Ohio St. 102; Iowa State Savs. Bank v. City Council of Burlington, 98 Iowa 737, 61 N.W. 851; State ex rel. Batz v. Lewis, 118 Wis. 432, 95 N.W. 388; State v. Banana Selling Co., Inc., 185 La. 667, 170 So. 30; Turner v. Cattleman's Trust Co., 215 S.W. 831; Rhode Island Hospital Trust Co. v. Doughton, 270 U.S. 69, 70 L.Ed. 475; Bryan v. Aiken, 86 A. 674, 683, 10 Del. Ch. 446; Curry v. McCanless, 307 U.S. 357, 83 L.Ed. 1339; Addis v. Swofford, 180 S.W. 548; Brinkerhoff-Faris Trust & Savs. Co. v. Home Lumber Co., 118 Mo. 447, 24 S.W. 129; Armour Brothers Banking Co. v. St. Louis Natl. Bank, 113 Mo. 12, 20 S.W. 690; Banta v. Hubbell, 167 Mo.App. 38, 150 S.W. 1089; Carthage Natl. Bank v. Poole, 160 Mo.App. 133, 141 S.W. 729; Ogden v. St. Joseph, 90 Mo. 522, 3 S.W. 25; Baldwin v. Missouri, 281 U.S. 586, 74 L.Ed. 1056; Van Allen v. Assessors, 70 U.S. 573, 18 L.Ed. 229; Shepherd v. State, 197 N.W. 344, 184 Wis. 88; W. A. Sheaffer Pen Co. v. Lucas, 41 F.2d 117; Eisner v. Macomber, 252 U.S. 189, 64 L.Ed. 521; Coudon v. Tait, 56 F.2d 208; Welch v. City of Boston, 221 Mass. 155, 109 N.E. 174; DeGanay v. Lederer, 250 U.S. 376, 63 L.Ed. 1042; State ex rel. American Automobile Ins. Co. v. Gehner, 8 S.W.2d 1057, 320 Mo. 702. (2) Respondent's income in the form of interest and dividends has its source in this State, under the provisions of Section 11343 of the Revised Statutes of Missouri, 1939, as construed by this court. (a) Under the provisions of Section 11343 of the Revised Statutes of Missouri, 1939, all of respondent's income is from sources in this State. In re Kansas City Star Co., 346 Mo. 658, 142 S.W.2d 1029; First Bank Stock Corp. v. Minnesota, 301 U.S. 234, 81 L.Ed. 1061; State ex rel. Marquette Hotel Inv. Co. v. State Tax Comm., 282 Mo. 213, 221 S.W. 721; Ludlow-Saylor Wire Co. v. Wollbrinck, 275 Mo. 339, 205 S.W. 196; Sec. 11343, R. S. 1939; State ex rel. American Automobile Ins. Co. v. Gehner, 8 S.W.2d 1057, 320 Mo. 702; State ex rel. Manitowoc Gas Co. v. Wisconsin, 161 Wis. 111, 152 N.W. 847; McCulloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579; James v. Dravo Contr. Co., 302 U.S. 134, 82 L.Ed. 155; Shaffer v. Carter, 252 U.S. 37, 64 L.Ed. 445; Sec. 11345, R. S. 1939; Miller v. McColgan, 110 P.2d 419; Union Electric Co. v. Coale, 146 S.W.2d 631; Artophone Corp. v. Coale, 133 S.W.2d 343; F. Burkhart Mfg. Co. v. Coale, 345 Mo. 1131, 139 S.W.2d 502; Lawrence v. Miss. State Tax Comm., 286 U.S. 276, 76 L.Ed. 1102; Farmers Loan & Trust Co. v. Minnesota, 280 U.S. 204, 74 L.Ed. 371, 50 S.Ct. 98; United States v. Bennett, 232 U.S. 299, 34 S.Ct. 433, 58 L.Ed. 612; State Tax on Foreign Held Bonds, 15 Wall. 300, 21 L.Ed. 179.

Robert J. Keefe, William H. Ferrell and Igoe, Carroll, Keefe & Coburn for respondent; John A. Woodbridge of counsel.

(1) The judgments appealed from should be affirmed on the authority of Union Electric Company of Missouri v. Coale, 146 S.W.2d 631. (2) Domestic and foreign corporations alike are subject to the Missouri Income Tax only on income from "sources in this state." Sec. 11343 (3), R. S. 1939; Artophone Corp. v. Coale, 345 Mo. 344, 133 S.W.2d 343; F. Burkhart Mfg. Co. v. Coale, 345 Mo. 1131, 139 S.W.2d 502; In re Kansas City Star Co., 346 Mo. 658, 142 S.W.2d 1029; Union Electric Co. v. Coale, 146 S.W.2d 631. The present statutory provisions to that effect, enacted in 1927, were intended to eliminate the discrimination, against domestic corporations in competition with foreign corporations doing business in Missouri, which resulted from prior provisions. Artophone Corp. v. Coale, 345 Mo. 344, 133 S.W.2d 343; F. Burkhart Mfg. Co. v. Coale, 345 Mo. 1131, 139 S.W.2d 502; Union Electric Co. v. Coale, 146 S.W.2d 631. (3) The source of the dividends and interest is outside this State, since they were paid to respondent by nonresident companies out of funds derived from capital employed and operations carried on outside this State. (a) The concept of source of income followed by the Missouri Supreme Court is a realistic one looking to the actual producing cause of the income as its source. Eisner v. Macomber, 252 U.S. 189, 40 S.Ct. 189; Holmes, Federal Taxes (6 Ed.), pp. 396-398; Appeal of Standard Marine Ins. Co., Ltd., 4 B. T. A. 853; In re Kansas City Star Co., 346 Mo. 658, 142 S.W.2d 1029; Webster's New International Dictionary, Second Edition (1935), "source." (b) The provisions of Section 11345, R. S. Mo. 1939, show that the Legislature could not have regarded dividends and interest received from a foreign corporation having no property and doing no business in Missouri as from "sources in this state." (4) The contentions of the appellants in the cases at bar are based upon a complete confusion of the terms "situs" and "source." (5) Analysis of authorities relied on by appellants. State ex rel. American Automobile Ins. Co. v. Gehner, 320 Mo. 702, 8 S.W.2d 1057; First Bank Stock Corp. v. Minnesota, 301 U.S. 234, 57 S.Ct. 677; State ex rel. Manitowoc Gas Co. v. Wisconsin Tax Comm., 161 Wis. 111, 152 N.W. 847; Miller v. McColgan, 110 P.2d 419; Domenech v. United Porto Rican Sugar Co., 62 F.2d 552; Newport Co. v. Wisconsin Tax Comm., 219 Wis. 293, 261 N.W. 884. (6) Upon the question which these cases present, the statute must be strictly construed in favor of the taxpayer. State ex rel. Ford Motor Co. v. Gehner, 325 Mo. 24, 27 S.W.2d 1; Artophone Corp. v. Coale, 345 Mo. 344, 133 S.W.2d 343; In re Kansas City Star Co., 346 Mo. 658, 142 S.W.2d 1029; Union Electric Co. v. Coale, 146 S.W.2d 631.

OPINION

Hays, J.

Respondent, the Union Electric Company of Missouri, is a Missouri corporation. As such it filed income tax returns for the years 1937 and 1938. Certain items of gross income, hereinafter more particularly described, were omitted from these returns, it being the contention of the taxpayer that they were not taxable. The assessor, as directed by the auditor, made additional assessments aggregating $ 6,990,813.90 covering these items and a tax was assessed thereon in the sum of $ 95,058.74. In due time respondent instituted two suits in the circuit court to abate the additional assessments as provided in Section 11366, R. S. Mo. 1939 [Mo. St. Ann., sec. 10135, p. 8107]. These actions were separately tried and resulted in judgments for the taxpayer, from which the assessor and auditor have appealed. The cases involve identical facts and can be disposed of in a single opinion.

The disputed items of income fall into two classes: (1) Respondent, as a corporation during the years mentioned, owned shares of stock in eight foreign corporations, one of which was licensed to do business in the State of Missouri, and also beneficial interest certificates in an unincorporated joint stock company organized outside the State as a common-law trust. With the one exception mentioned all of these various companies operated entirely outside the State of Missouri and the portion of income of the one company derived from its Missouri operations is not here involved. During the years 1937 and 1938 respondent received at its office in St. Louis dividend payments from each of the above mentioned companies. (2) Respondent also owned, during the period in question, bonds executed and issued by the Union Electric Company of Illinois, an Illinois corporation, which does business exclusively in that state. These bonds were not secured by any lien upon property in Missouri. Immediately after their receipt by the respondent they were deposited by it with the St. Louis Union Trust Company, a St. Louis bank, as security for certain of its own bonds. In 1937 and 1938 the issuing corporation paid interest on these bonds to the present taxpayer. The sole questions presented are whether or not these dividend and interest payments are income received by the taxpayer from sources within this State under Section 11343, R. S. Mo. 1939 [Mo. St. Ann., sec. 10115, p. 8080], and hence properly included in the taxpayer's gross income for the purpose of computing its net taxable income for the years under consideration. We shall consider the two classes of items separately.

Section 11343, R. S. Mo. 1939 [Mo. St. Ann., sec. 10115, p. 8080], supra, imposes an income tax upon corporate income "from all sources in this state." The appellants contend that dividends...