Rockwood v. Comm'r of Corporations & Taxation

• Decision Date: 29 November 1926
• Citation: 257 Mass. 572,154 N.E. 182
• Parties: ROCKWOOD v. COMMISSIONER OF CORPORATIONS AND TAXATION (two cases).
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

257 Mass. 572

154 N.E. 182

ROCKWOOD

v.COMMISSIONER OF CORPORATIONS AND TAXATION (two cases).

Supreme Judicial Court of Massachusetts, Worcester.

Nov. 29, 1926.

Exceptions from Superior Court, Worcester County; J. D. McLaughlin, Judge.

Complaint by George I. Rockwood against the Commissioner of Corporations and Taxation to abate an income tax. Finding for complainant, and respondent excepts. Exceptions overruled.T. H. Gage, C. A. Hamilton, M. S. June, and G. A. White, all of Worcester, for plaintiff.

A. Lincoln, Asst. Atty. Gen., for defendant.

CARROLL, J.

In these two complaints the decisive question is that right of the commonwealth to tax the income received from royalties for the use of patents issued by the United States. The complaints are against the commissioner of corporations and taxation for the abatement of income taxes assessed for income received in the years 1921 and 1922. The judge of the superior court found for the complainant; the respondent excepted.

The complainant, a resident of Worcester for several years, was the president and principal stockholder of the Rockwood Sprinkler Company, a corporation located at Worcester, and of the Rockwood Sprinkler Company of Illinois. He invented, from time to time prior to the year 1916, certain sprinkler systems protected by patents. From these he received royalties, which were paid to him by the Worcester company for the use of the patents.

[1] A patent right itself is not taxable by a state. Letters patent of the United States give to the patentee a right of monopoly in the invention, and with this right the state cannot interfere. It is conceded by the respondent that the rights secured by the patents could not be taxed by the state without the consent of Congress. Webber v. Virginia, 103 U. S. 344, 347, 26 L. Ed. 565;McCulloch v. State of Maryland, 4 Wheat. 316, 432, 4 L. Ed. 579;Opinion of the Justices, 193 Mass. 605, 608, 609, 81 N. E. 142;People v. Assessors, 156 N. Y. 417, 418,51 N. E. 269,42 L. R. A. 290.

[2] As a state cannot tax the patent it cannot tax the royalties received from its use. What the state cannot do directly it cannot accomplish in an indirect way. The true nature of the tax must be considered. A tax on rents received from land is the same in substance as a tax on the land itself. Rights under patents could be impaired or destroyed if taxed by the state and if royalties from patents can be taxed the right itself might thereby be destroyed. The Legislature in giving a tax a particular name, cannot ‘take away our duty to consider its real nature and effect.’ See Choctaw, Oklahoma & Gulf Railroad v. Harrison, 235 U. S. 292, 298, 35 S. Ct. 27, 59 L. Ed. 234;Pollock v. Farmers' Loan & Trust Co., 157 U. S. 429, 581, 15 S. Ct. 673, 39 L. Ed. 759.

In Gillespie v. State of Oklahoma, 257 U. S. 501, 506, 42 S. Ct. 171, 172 (66 L. Ed. 338), where it was held that a tax upon a lease of Indian lands being invalid a tax upon the income received from the lease is invalid, it was said:

‘The same considerations that invalidate a tax upon the leases invalidate a tax upon the profits of the leases, * * * a tax upon such profits is a direct hamper upon the effort of the United States to make the best terms that it can for its wards.’ ‘A tax upon the leases is a tax upon the power to make them, and could be used to destroy the power to make them.’ Indian Territory Illuminating Oil Co. v. State of Oklahoma, 240 U. S. 522, 530, 36 S. Ct. 453, 456 (60 L. Ed. 779). ‘A tax upon the incomeof property is in reality a tax upon the property itself.’ Opinion of the Justices, 220 Mass. 613, 624, 108 N. E. 570, 574.

[3] A patented article, when manufactured, may be taxed by the state. A tax on such property, however, is not a tax on the privilege granted to the patentee by the federal government. The right to exclude others from making or selling the patented article is not interfered with by a tax on the patented article when made. Webber v. Virginia, supra. It has been decided that a federal estate tax may be assessed on an estate...