Pomeroy v. State Board of Equalization of Montana

• Decision Date: 04 May 1935
• Docket Number: 7433.
• Citation: 45 P.2d 316,99 Mont. 534
• Parties: POMEROY v. STATE BOARD OF EQUALIZATION OF MONTANA et al.
• Court: Montana Supreme Court

45 P.2d 316

99 Mont. 534

POMEROY v. STATE BOARD OF EQUALIZATION OF MONTANA et al.

No. 7433.

Supreme Court of Montana

May 4, 1935

Original proceeding by V. W. Pomeroy against the State Board of Equalization, J. H. Stewart, Chairman thereof, and others and Raymond T. Nagle, as Attorney General, for an injunction. On demurrer to the complaint.

Demurrer sustained, and proceeding dismissed.

J. R Wine, of Helena, for plaintiff.

Raymond T. Nagle, Atty. Gen., and Jeremiah J. Lynch, Asst. Atty Gen., for defendants.

MATTHEWS Justice.

This is an original proceeding, instituted by V. W. Pomeroy against the State Board of Equalization, the members of the board, and Raymond T. Nagle, as Attorney General of the State of Montana, to determine whether or not the plaintiff, as an employee of the Reconstruction Finance Corporation, can be required to pay an income tax on his income for the year 1934, derived from salary as such employee.

The complaint alleges that the plaintiff is a citizen and a resident taxpayer of the state, and has been an employee of the Reconstruction Finance Corporation for the past two years, during which time he has been "in the employ of the United States"; that his salary is paid monthly by the United States and received by him from the United States by check drawn on the treasury and by the Treasurer of the United States from public funds raised and accumulated by public taxation. It is further alleged that the Reconstruction Finance Corporation is a corporation organized and existing by virtue of an act of Congress (15 USCA §§ 601-617), and has a capital of $500,000,000, all of which is subscribed by the United States from funds accumulated by public taxation; that the management of the corporation is vested in a board of directors consisting of the Secretary of the Treasury and six members appointed by the President. It is further alleged that the plaintiff has been required to make a return to the defendant board, showing the salary he received during the year 1934, and thereon the board has computed the tax which plaintiff must pay under the law, and that the board will proceed to collect the same unless restrained. Upon this complaint there was issued an order to show cause why the board should not be enjoined and prohibited from collecting the tax.

On behalf of all defendants the Attorney General filed a demurrer, based on the ground that the complaint does not state facts sufficient to warrant the relief sought, or any relief whatever, and, on the day set for hearing, the matter was presented on its merits and duly submitted for determination. The demurrer, of course, admits the truth of all facts properly pleaded, but does not admit mere legal conclusions drawn by the pleader.

The Attorney General concedes that plaintiff is an employee of the Reconstruction Finance Corporation, but does not concede that he is an employee of the United States, and the demurrer does not admit the latter, as the statement to that effect found in the complaint is an allegation of a conclusion of law by the pleader.

The controlling question for solution here is as to the right of the defendant board to collect the disputed tax from the plaintiff, and this question must be determined by first solving the question whether or not the plaintiff, as an employee of the Reconstruction Finance Corporation, is in fact an employee of the United States; if so, his salary, received from the United States, is exempt.

This result is compelled, not because the state cannot tax the salary of an official of the United States by reason of the mutual relation between the two governments [see Poorman v. State Board of Equalization (Mont.) 45 P.2d 307, just decided], but because section 7 of chapter 181, Laws of 1933 (our Income Tax Law) excludes such salaries from inclusion in the "gross income," which is the basis for computing the "net income" on which a tax must be paid. It follows that the fact that our income tax is not a tax on salaries, as held in the Poorman Case, is immaterial to the question of liability presented in the instant case.

Section 7 of the act declares that "the term 'Gross Income': (1) Includes gains, profits and income derived from salaries, *** (2) but does not include the following items *** (f) salaries, wages and other compensations received from the United States or officials or employees thereof, including persons in the military or naval forces of the United States."

It is first contended that this provision contains two classes of exemptions, (1) all salaries, etc., received from the United States, and (2) officials and employees of the United States, and that this plaintiff is exempt if he receives his salary from the federal government, even though he is neither an official nor employee thereof. This contention cannot be maintained, for the reason that the use of the co-ordinate particle "or" between the so-called two classes, thus, apparently, denoting the alternative, is palpably a typographical error; the word should be the preposition "of," denoting "belonging to," as we shall demonstrate.

In sustaining the constitutionality of our Income Tax Law, we said that it "very closely approximates the Idaho Act," pointed out minor differences, and showed that they were fundamentally the same. O'Connell v. State Board of Equalization, 95 Mont. 91, 25 P.2d 114. However, in composition and phraseology, our act and that of Idaho are, in many particulars, quite dissimilar; the Idaho act contains no such provision as the one under consideration.

The Illinois act, to which reference is made in the O'Connell Case, is, almost in its entirety, identical with ours, giving rise to the supposition that we copied their act, with only such changes as differing conditions warranted from that act; but it may have been copied from the New York act, or the "model" drafted in 1921 for the National Tax Association, as each of the three bears a striking similarity to our act. The provision under consideration is identical in the four drafts, except that in the "model," and in the New York act, the preposition "by" is used, preceding the noun "officials," and in the Illinois Act the preposition "of" precedes the noun; whereas our act employs the particle "or." It is, therefore, reasonable to presume that our act was copied from the Illinois act, and that the typist struck the "r" key instead of the "f" key, and, further, that this typographical mistake was not discovered on comparison after copying, if a comparison was had. To one familiar with the typewriter, such an error is readily understandable; the "r" key lies just above the "f" key, and reaching a fraction of an inch too far will record the "r" instead of the "f."

We see in the provisions of section 7, above, no indication of a legislative intent to exempt all federal employees from the payment of the tax on income from any and all sources. Rather it is clear that the Legislature merely intended to exclude from the computation of "gross income" the salaries "of" officials or employees of the United States. Words may be changed in a statute in order to compel its conformity with the intention of the Legislature. State ex rel. Hahn v. District Court, 83 Mont. 400, 272 P. 525. We will, therefore, consider the provision as reading, as does the act of Illinois, "salaries *** of officials or employees of the United States."

The fact that the plaintiff received his pay check from the United States treasury is not controlling, as the funds of the corporation are directed to be deposited there and paid out by the treasurer upon warrants issued to him by a duly authorized agent of the corporation. Section 607 of the act 15 USCA. On the face of the check issued for plaintiff's salary, and in evidence here, appear the words "Reconstruction Finance Corporation." Checks of this nature are issued monthly to many persons not employees of the United States, including...