Scobie v. Wis. Tax Comm'n

• Citation: 275 N.W. 531,225 Wis. 529
• Parties: SCOBIE v. WISCONSIN TAX COMMISSION.
• Decision Date: 12 October 1937
• Court: United States State Supreme Court of Wisconsin

225 Wis. 529

275 N.W. 531

SCOBIE

v.WISCONSIN TAX COMMISSION.

Supreme Court of Wisconsin.

Oct. 12, 1937.

FAIRCHILD and NELSON, JJ., dissenting.

Appeal from a judgment of the Circuit Court for Rock County; George Grimm, Judge.

Affirmed.

Appeal to the circuit by Florence A. Yates Scobie from assessments against her by the Wisconsin Tax Commission of a normal income tax and a surtax under the general income tax law and a special emergency tax under chapter 29 of the Special Session of 1931-32. From a judgment confirming the taxes imposed by the commission, the taxpayer appeals.Jeffris, Mouat, Oestreich, Wood & Cunningham and Hiram M. Nowlan, all of Janesville, for appellant.

Orland S. Loomis, Atty. Gen., and Harold H. Persons, Asst. Atty. Gen., for respondent.

FOWLER, Justice.

The case is an appeal by a taxpayer, who removed from the state during the year 1931, from a judgment of the circuit court for Rock county confirming an assessment against her by the State Tax Commission of a normal income tax, a surtax, and a special emergency tax under chapter 29 of the Special Session of 1931-32.

The taxpayer in her return for the year involved reported her “net profits from sale of Wisconsin real estate, of securities and personal property at $1,086.79,” but claimed exemptions of federal and state income taxes paid to a total of $30,190.22, and thus claimed no taxable income under the General Statutes. She submitted a statement by letter separate from the formal return showing a net income for the year of $67,278.08, all from stocks and bonds, except the $1,086.79. After audit by an auditor of the Tax Commission, the assessor of incomes imposed upon the taxpayer a normal income tax of $1,801.80; a teachers' retirement surtax of $330.30; and an emergency relief tax of $2,248.34. On appeal by the taxpayer to the Board of Review, the board imposed the normal tax and the teachers' retirement surtax, but held that the emergency relief tax was erroneously imposed. On appeals by both taxpayer and the assessor of incomes to the Tax Commission, the commission reversed the decision of the Board of Review as to the emergency tax and upheld the taxes as imposed by the assessor of incomes, but modified the computation of the normal and teachers' surtaxes by adopting the method of computation according to McCarty v. Tax Commission, 215 Wis. 645, 255 N.W. 913, 93 A.L.R. 1196, instead of as made by the assessor. The appellant raises no issue as to the amount of the taxes. No income from real estate located or business transacted within the state is involved. The sole question is whether the taxpayer, under the circumstances of her removal from the state before the taxes were assessed, was subject to their imposition.

The normal income tax statutes under which the taxpayer was assessed are section 71.01, Stats. 1931, which by its terms assesses the net income of persons resident of the state throughout the year and the income of nonresidents derived from property located and business transacted within the state, except as exempted, and section 71.09(2), Stats., which provides for assessment upon income other than that from property located or business transacted within the state of persons other than corporations who reside within the state for a portion of the year only at such ratio of their income as the time of their residence bears to the entire year. Deductions for personal exemptions of such persons are prorated in the same ratio.

We will first consider the taxpayer's contentions relative to the normal income tax and the surtax. That contention is that the imposition of the normal and surtax upon her income was invalid because the only warrant for taxing a nonresident upon income, and she was a nonresident when the tax was assessed, is that the income be derived from property or business transacted within the state.

The argument of appellant is, except as to the class of income last stated, that persons who remove from the state during the year are not within the state when the tax is assessed; that the tax is an annual personal tax, as held in Fitch v. Tax Commission, 201 Wis. 383, 230 N.W. 37; that it cannot be assessed until the income from the year has been determined, and it cannot be determined until the year is ended; that the only basis for assessing a personal tax is jurisdiction of the person at the time it is assessed, and if the recipient of the income is a nonresident of the state when the tax is assessed, as was appellant, the state has no jurisdiction over him and is without power to impose a personal tax against him.

[1] The argument fails because it would apply equally to the taxing of nonresidents upon income from business transacted within the state. That such income is taxable is conceded. Such tax is also a personal tax, and the taxpayer is out of the state when it is assessed. The receipt of income while a person is a resident of the state is of equal force as a basis of taxing that income although he is a nonresident at the time of its assessment as the receipt of income from business transacted within the state by one who was a nonresident throughout the year. It is stated in Greene v. Tax Commission, 221 Wis. 531, 539, 266 N.W. 270, that the basis for taxation of a resident on income received from business transacted outside the state “is that it was received by the taxpayer within the state.” If receipt of income within the state is a proper basis for taxation in the one situation, it is in the other.

This establishes the validity of the normal income tax and the surtax for the teachers' retirement fund. While it sufficiently disposes of the constitutionality of those taxes, the contentions of the parties on the proposition that the constitutionality of such taxes has been expressly declared by the court will be discussed.

[2] The respondent claims that the constitutionality of the statutes for taxing the income of persons who were residents within the state for a part of the year is settled by McCarty v. Tax Commission, supra. It is true that taxpayer McCarty, like appellant, removed from the state during the year, and a tax against him upon income received while within the state was upheld. The appellant counters that the constitutionality of the tax was not there raised or considered. This is correct, and what was not considered was not decided. It was only assumed.

However, the constitutionality of the taxes was inferentially upheld in Greene v. Tax Commission, supra, although the taxpayer there involved moved into the state instead of out of it, and was a resident of the state when the tax was assessed. The appellant contends that a tax on income received within the state assessed when one is a resident may be valid while such a tax assessed when one is a nonresident is invalid for want of jurisdiction of the person in the latter case. But it was held in the Greene Case, supra, that while a tax could not be constitutionally assessed on income such as is here involved, received while the recipient was a nonresident, it could be constitutionally assessed on the portion of such income received while he was a resident of the state. This holding, together with the statement of the opinion that receipt of income within the state is the basis for holding valid taxation of the income of a resident of the state, implies that a tax assessed against a nonresident upon such income is constitutional. There being a constitutional basis for taxing his income, it is immaterial that the taxpayer is a nonresident when the tax is assessed, just as it is immaterial that a person is a nonresident when his income from business transacted within the state is taxed.

The assessment of the emergency tax upon the appellant raises another question. Subsection (1) of section 4 of chapter 29, Special Session Laws of 1931-32, levied “in addition to all other income taxes, an emergency tax upon the net incomes of all persons other than corporations” in 1931, at the rate specified in section 71.06(1) of the general income tax law. Subsection (2) provided that the tax should be “assessed, collected and paid in the same manner, upon the same income” as provided by the general income tax law, with certain variations not here material. Subsection (3) provided that “the exemptions specified” in section 71.05 of the general income tax law should apply except as in the section stated.

Chapter 29 was enacted by the Legislature after the appellant had left the state. It applied to taxes to be assessed in the future, and the tax was to be applied for relief of the unemployed during the year 1932 when the appellant was no longer a resident of the state. The appellant contends that the state is without power to impose such a tax, and urges that Messinger v. Tax Commission, 222 Wis. 156, 267 N.W. 535, rules the point in her favor.

The facts as to the residence of the taxpayer are the same in the instant case as in the Messinger Case. The taxes involved in the two cases are emergency relief taxes. Both were to be assessed in the future for purposes of relief to unemployed during the year next following the enactment when the taxpayers were not residents of the state.

It is said in the opinion in the Messinger Case, 222 Wis. 156, at page 158, 267 N.W. 535: “It [the act involved] declares that ‘there is levied *** an emergency tax upon the net incomes of all persons *** received in the calendar year 1932.’ *** It is made upon all persons. It is made in the year 1933. It is an income tax.” The tax was declared void as to persons who were nonresidents at the time it was enacted.

If the decision of the Messinger Case, supra, had been based upon the statement from the Messinger Case above quoted, the appellant's proposition that it rules this case would be correct. But the decision turned upon the point that there was nothing in the statute involved to indicate an intent, and it was not its intent, to impose such a tax upon...