State ex rel. Sallie F. Moon Co. v. Wis. Tax Comm'n

Decision Date22 June 1917
Citation166 Wis. 287,163 N.W. 639
PartiesSTATE EX REL. SALLIE F. MOON CO. v. WISCONSIN TAX COMMISSION.
CourtWisconsin Supreme Court

OPINION TEXT STARTS HERE

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

Certiorari by the State of Wisconsin, on the relation of the Sallie F. Moon Company, against the Wisconsin Tax Commission, to review proceedings of the Commission assessing the relator an income tax on dividends received by it as a stockholder in another company. Judgment reversed, and cause remanded, with directions to enter judgment affirming the action of the Commission.

Writ of certiorari to review the proceedings of the Wisconsin tax commission assessing the Sallie F. Moon Company an income tax on dividends received by it since January 1, 1911, as a stockholder of the Northwestern Lumber Company. The dividends were declared out of surplus on hand January 1, 1911. The Northwestern Lumber Company reported such surplus to the tax commission, which held it was not taxable to the Northwestern Lumber Company, as it was property in existence in its hands prior to the taking effect of the income tax law. But the commission held that when such surplus was, after January 1, 1911, distributed as ordinary dividends to its stockholders, such dividends constituted income to the stockholders and were taxable. The circuit court held that the dividends were not exempt from taxation on the ground that they were declared out of surplus on hand prior to January 1, 1911, but it held that they were exempt because they had been assessed to the Northwestern Lumber Company within the meaning of section 1087m3, subd. (e), and it entered a judgment reversing and setting aside the action of the tax commission. The latter appealed.

Marshall, Rosenberry, and Eschweiler, JJ., dissenting.W. C. Owen, Atty. Gen., and E. E. Brossard, Asst. Atty. Gen., for appellant.

Bundy & Wilcox, of Eau Claire, for respondent.

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

In Van Dyke v. Milwaukee, 159 Wis. 460, 146 N. W. 812, 150 N. W. 509, it was held that dividends declared during 1911 by a corporation out of the surplus on hand prior to January 1, 1911, when the income tax went into effect, were taxable as income to the stockholders receiving them. That case governs this, and we perceive no good reason for overruling it. Our attention is specially called to the case of Lynch v. Turrish, 236 Fed. 653, 149 C. C. A. 649, as holding a contrary doctrine and as criticizing the Van Dyke Case. There is nothing in the decision of the Lynch Case contrary to what is held in the Van Dyke Case if due regard is had to the difference in the acts under which they were decided. The federal income tax took effect March 1, 1913. It provides that:

“There shall be levied, assessed, collected and paid annually upon the entire net income arising or accruing from all sources in the preceding calendar year” an income tax. 38 Stats. p. 166, c. 16, § 11, subd. A.

In the Lynch Case income taxes for 1913 were in question. Under the act it became necessary to determine the net income of Turrish arising or accruing from all sources after March 1, 1913. Since the tax was to be levied only upon net income arising or accruing after March 1, 1913, it became necessary by the terms of the act to ascertain the net income that had accrued since that date and to exclude all income arising or accruing before March 1, 1913. Our act provides:

“There shall be assessed, levied, collected and paid a tax upon incomes received during the year ending December 31, 1911, and upon incomes received annually thereafter.” Section 1087m1, Stats. 1911.

And it further provides that:

“The term ‘income’ as used in this act shall include * * * (d) all dividends from * * * stock.” Section 1087m2, subd. 2(d).

[1] Hence, following the plain language of the law, if the dividends were derived from stock and if they were received during the year 1911, they were taxable. Unlike the federal act there is no need to ascertain when the income arose or accrued in order to determine whether it is taxable. The fact that it was received during 1911 makes it taxable irrespective of when it arose or accrued. That such provisions of the law do not render it void was held in the Income Tax Cases, 148 Wis. 460, 134 N. W. 673, 135 N. W. 164. It was there decided that the fact that the entire income for 1911 was taxed though the law did not take effect till July 1, 1911, did not render the income tax law retroactive. Judge Sanborn was justified in saying in the Lynch Case that the Van Dyke Case was not controlling or persuasive. But that was because of the difference in the requirements of the acts under which the income tax was to be assessed.

[2][3][4] Much confusion of thought arises from regarding the income tax as a tax that is levied upon or attaches to property as such, irrespective of the person sought to be taxed. It is the recipient of the income that is taxed, not his property; and the vital question in each case is, Has the person sought to be taxed received an income during the tax year? If so, such income, unless specifically exempted, is subject to a tax though the property out of which it is paid may have been exempt from an income tax in the hands of the payor. It is the relation that exists between the person sought to be taxed and specific property claimed as income to him that determines whether there shall be a tax. If the person sought to be taxed is the recipient during the tax year of such specific property as income in its ordinary significance, then the person is taxed. But the tax is upon the right or ability to produce, create, receive, and enjoy, and not upon specific property. Hence the amount of the tax is measured by the amount of the income, irrespective of the amount of specific property or ability necessary to produce or create it. In the ordinary acceptation of the term this may be said to be a tax upon income as the statute denominates it. But the tax does not seek to reach property, or an interest in property as such. It is a burden laid upon the recipient of an income. State ex rel. Manitowoc Gas Co. v. Wis. Tax. Comm., 161 Wis. 111, ...

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