State ex rel. Manitowoc Gas Co. v. Wis. Tax Comm'n

• Decision Date: 01 June 1915
• Citation: 161 Wis. 111,152 N.W. 848
• Parties: STATE EX REL. MANITOWOC GAS CO. v. WISCONSIN TAX COMMISSION ET AL.
• Court: Wisconsin Supreme Court

161 Wis. 111

152 N.W. 848

STATE EX REL. MANITOWOC GAS CO.

v.WISCONSIN TAX COMMISSION ET AL.

Supreme Court of Wisconsin.

June 1, 1915.

Appeal from Circuit Court, Dane County; E. Ray Stevens, Judge.

Action by the State, on the relation of the Manitowoc Gas Company, against the Wisconsin Tax Commission and others. From a judgment setting the action of the Tax Commission aside, defendants appeal. Affirmed.

This action involves the construction of subsection 3 of section 1087m, Stats. 1911, which provides that an income tax--

“shall be assessed, levied and collected upon all income, not hereinafter exempted, received by every person residing within the state, and by every [[[other] nonresident of the state upon such income as is derived from sources within the state or within its jurisdiction.”

In 1913 the Wisconsin Tax Commission assessed against the bondholders of the relator an income tax of 6 per cent. upon $11,575, which was the amount of interest paid by it to them during the year 1911. It is stipulated between the parties that a portion of the bondholders to whom relator paid such interest were nonresidents of the state. The trial court reversed and set aside the action of the Tax Commission on the ground that subsection 3, § 1087m, Stats. 1911, in so far as it authorizes the assessment of a tax against relator's bondholders for interest paid by it to them, which tax is by section 1087m3(b) made a lien prior to all other liens upon the property and business of the relator, and, unless paid by said bondholders, requires payment thereof to be enforced out of the property of the relator, is unconstitutional and void. From a judgment entered accordingly the defendants appealed.W. C. Owen, Atty. Gen., and Winfield W. Gilman, Asst. Atty. Gen., for appellants.

Nash & Nash, of Manitowoc, and Olin, Butler, Stebbins, Curkeet & Stroud, of Madison, for respondent.

VINJE, J. (after stating the facts as above).

The Income Tax Cases, 148 Wis. 456, 503, 134 N. W. 673, 135 N. W. 164, dealt with only those provisions of the income tax act which, if declared void, might invalidate the whole law. Matters of detail or the consideration of separate parts, the invalidity of which would not affect the whole law, were left for future determination. The present question belongs to the latter class. It involves the construction of that part of the law taxing nonresidents upon “such income as is derived from sources within the state or within its jurisdiction,” being subsection 3, § 1087m, Stats. 1911.

[1] Our Constitution originally provided that:

“The rule of taxation shall be uniform, and taxes shall be levied upon such property as the Legislature shall prescribe.”

To this was added by the amendment of 1908:

“Taxes may also be imposed on incomes, privileges and occupations, which taxes may be graduated and progressive, and reasonable exemptions may be provided.” Section 1, art. 8.

It was stated in Income Tax Cases, 148 Wis. 456, 503, 134 N. W. 673, 135 N. W. 164, that the Constitution as amended clearly recognizes the idea that the taxation of property and the taxation of incomes are two separate and distinct things. In taxes upon property the rule of taxation must be uniform while taxes upon incomes may be graduated and progressive. It may be conceded that, logically and philosophically considered, all taxes are ultimately derived from property or labor and paid in property. But as was said in Van Dyke v. Milwaukee, 159 Wis. 460, 463, 464, 146 N. W. 812, 150 N. W. 509, philosophical and logical distinctions must yield to the clearly expressed intent of the written law and to the possibility of a practical administration thereof. The Constitution divides the subjects upon which taxes may be levied into two classes, one property, the other incomes, privileges, and occupations. The supreme law of the state having so divided them, and there being nothing in such division contrary to a valid classification or to the federal Constitution, courts must respect the division and administer the law as written. Income Tax Cases, 148 Wis. 456, 503, 134 N. W. 673, 135 N. W. 164.

[2] The taxing power of a state does not extend beyond its territorial limits. Union R. T. Co. v. Kentucky, 199 U. S. 194, 26 Sup. Ct. 36, 50 L. Ed. 150, 4 Ann. Cas. 493. Within such limits it may tax persons, property, incomes, or business. Tax on Foreign-Held Bonds, 15 Wall. 300, 21 L. Ed. 179. If the tax be on property it, or its lawfully constituted situs, must be found within the state. If an interest in property is taxed the situs of either the property or interest must be found within the state. If an income be taxed the recipient thereof must have a domicile within the state, or the property or business out of which the income issues must be situated within the state so that the income may be said to have a situs therein. Whether an income may have a situs for taxing purposes different from that of its recipient is not determined. But assuming that it can, did the income in question have a situs in this state?

[3] The bondholders as such were individually sought to be taxed. They were creditors of the relator, and a portion of them resided outside the state. The nonresidents as bondholders owned no property and conducted no business within its borders, and had no...