Sparks v. West Point Mfg. Co.

• Decision Date: 18 October 1962
• Docket Number: 3 Div. 972
• Parties: Guy SPARKS, as Commissioner of Revenue, v. WEST POINT MANUFACTURING COMPANY.
• Court: Alabama Supreme Court

Page 816

145 So.2d 816

274 Ala. 102

Guy SPARKS, as Commissioner of Revenue, v. WEST POINT MANUFACTURING COMPANY.

3 Div. 972.

Supreme Court of Alabama.

Oct. 18, 1962.

MacDonald Gallion, Atty. Gen., and Herbert I. Burson, Jr., Asst. Atty. Gen., for appellant.

Rushton, Stakely & Johnston, Montgomery, Moore, Thomas, Taliaferro, Forman & Burr, Birmingham, and Morgan S. Cantey, West Point, Ga., for appellee.

LAWSON, Justice.

The question in this case is whether a domestic corporation, in computing its net income for state income tax purposes, is authorized by the provisions of § 402(6), Title 51, Code 1940, to deduct dividends received from a foreign subsidiary corporation of which it owns as much as fifty per cent of the capital stock, which subsidiary did no business in Alabama nor paid any income tax to the State of Alabama.

The trial court answered the question in the affirmative in accordance with the contention of the taxpayer, West Point Manufacturing Company, and the Commissioner of Revenue of the State of Alabama has appealed.

The question was here on appeal from a decree overruling a demurrer, but we declined to answer it on the ground that there were considerations, such as the construction which had been placed on § 402(6), Title 51, by the Department of Revenue which should be taken into consideration before a construction was placed on that section. See Grant v. West Point Manufacturing Co., 272 Ala. 280, 130 So.2d 336.

The trial which followed our affirmance of the decree overruling the demurrer has shed no light on the question for determination. The answer to the question depends upon the construction to be placed upon § 402(6), Title 51, which reads:

'In computing the net income of domestic corporations doing business in this state subject to the tax imposed by section 398 of this title, there shall be allowed as deductions: * * * (6) The amounts received as dividends from a corporation, or any subsidiary corporation of which the parent corporation owns as much as fifty percent of the capital stock, which is taxable under this title upon the net income of the parent corporation or the subsidiary.' (Emphasis supplied.)

The quoted subsection was not artfully drawn. It contains careless language and grammatical errors. But in the interpretation of statutes, courts are not bound by grammatical rules and may ascertain the meaning of words by the context. Cavender v. Hewitt et al., 145 Tenn. 471, 239 S.W. 767, 22 A.L.R. 755; Southern Pacific Co. et al. v. Riverside County, 35 Cal.App.2d 380, 95 P.2d 688. See Ex parte State ex rel. Lawson, 241 Ala. 304, 2 So.2d 765.

Despite the imperfections in the subsection, we think it clear from the language used that its general purpose is to prevent double taxation.

We construe the statute as follows:

A domestic corporation, in computing its net income for state income tax purposes, is permitted to deduct the amounts received as dividends from another corporation 'which is taxable under this title' upon its net income. If the dividend paying corporation pays income tax on its income to the State of Alabama, then a domestic corporation which owns stock in that corporation may deduct amounts received as dividends on the stock so owned. It matters not whether the dividend-paying corporation is domestic or foreign if it pays income tax to the State of Alabama on its earnings. A foreign corporation which carries on its business in this state can be subject to the state income tax laws.

Where a domestic corporation owns stock in a subsidiary corporation, that is, a corporation of which another corporation owns as much as fifty per cent of its capital stock, the said domestic corporation may deduct the dividends it receives from the subsidiary corporation, provided either the subsidiary corporation or its parent...