State ex rel. Van Dyke v. Cary

• Decision Date: 31 January 1923
• Citation: 191 N.W. 546,181 Wis. 564
• Parties: STATE EX REL. VAN DYKE ET AL. v. CARY, MILWAUKEE COUNTY CLERK.
• Court: Wisconsin Supreme Court

181 Wis. 564

191 N.W. 546

STATE EX REL. VAN DYKE ET AL.

v.CARY, MILWAUKEE COUNTY CLERK.

Supreme Court of Wisconsin.

Jan. 9, 1923.

Dissenting Opinion Jan. 31, 1923.

Appeal from Circuit Court, Milwaukee County; Hon. Edward T. Fairchild, Judge.

Proceeding by the State, on relation of William Van Dyke and others, against William J. Cary, County Clerk of Milwaukee County. From a judgment granting part of the relief sought, the parties bring cross-appeals. Modified and affirmed.

The relators are trustees under the will of Charles L. McIntosh, deceased, and brought this proceeding to review certain determinations made by the taxing officers as to the income tax assessed against such trustees for income received by them during the year 1920. A particular item involved was the distribution to such trustees by the J. I. Case Threshing Machine Company, a Wisconsin corporation, of 3251.1429 shares of the common stock of said company as their 42 per cent. proportionate share of a stock dividend. The shares thus issued were of the par value of $100. An assessment was made upon the entire net income to said trustees, including such stock dividend valued at par and the amount claimed to be due from said trustees included the normal income tax, educational bonus surtax, and teachers' retirement fund surtax.

Upon objections interposed by the trustees a hearing was had before the income tax board of review, and evidence presented as to the market value of the common stock of the corporation above named; such stock not being listed on any stock exchange.

The board of review modified the assessment by placing the valuation on such stock dividend on the basis of the market value as shown by such evidence of $70 per share as of the time of the distribution, and adopting such market, instead of the par value, materially reduced the assessment.

Thereafter an appeal was taken to the Wisconsin Tax Commission which reinstated the original assessment. A writ of certiorari was then issued out of the circuit court for Milwaukee county to review such determination, and upon hearing, in disposing of the contentions presented, in substance it was held as follows:

(1) That the stock dividend distributed to such trustees is assessable as income.

(2) That, being so assessable, it should be assessed at its market rather than its par value.

(3) That section 20.251 as created by chapter 459 of 1921, providing for a surtax on incomes for the teachers' retirement fund, so far at least as the same affects the taxpayers of the city of Milwaukee, is unconstitutional.

(4) That if it should be held that an assessment on incomes under such statute could be properly made, the assessment should be computed by starting at 1 per cent. on the first $4,000 of income rather than at 1 3/4 per cent.

The consideration of the third point above stated involved a consideration of the following:

At present and for some time past there have been two separate and distinct legislative systems, regulating the tenure of office and pensioning of school-teachers; one relating to cities of the first class, meaning, and as it will be hereinafter referred to, the city of Milwaukee, and the other for school-teachers in the state outside of that city, and which we shall call the state system.

The Milwaukee law was prior, and first enacted by chapter 453 of 1907; it was repealed and recreated by chapter 510 of 1909, and from then on until 1919 the Milwaukee system was designated as section 925--xx. It now appears as section 42.55. The state system was first created by chapter 323 of the Laws of 1911 and now appears as sections 42.20 to 42.54. Under each of such systems contributions were required from the respective teaching forces to be deducted from their salaries. In the Milwaukee law that city was required by what is now section 42.55 (20) (a) to set aside from the general fund of that city levied and collected for the support of its schools from the taxpayers of Milwaukee an amount to make up any possible deficit in the retirement funds to an amount not less than that paid by the teachers themselves during the specified periods; in the state law, by what is now sections 42.45 and 42.46, providing that upon proper certificates the state treasurer shall transfer from the appropriate fund in his hands to the state retirement deposit fund a sufficient amount to make up any required payments out of such fund.

Substantial changes were made from time to time in the two systems, and particularly in 1921 by two separate enactments. By chapter 459 of that year the then existing provisions as to the state system were enlarged so as to include the University and normal schools, and was further amended and re-enacted in matters not material here except in the one particular hereinafter mentioned. In the Milwaukee law, chapter 591 of 1921 inserted what is now section 42.55, subd. 20 (b), providing for the equalization of payments into the retirement fund as apparently required by the new surtax created by the aforesaid chapter 459 and now to be specified.

By said chapter 459 there was also provided, by what was designated in said chapter to be numbered section 20.251 (1) to (7), (and now found inserted in chapter 20, St. 1921, “Appropriations and Salaries,” and under the subheading “Common Schools”), for an additional surtax upon the net income in excess of $3,000 of individuals, copartnerships and fiduciaries (other provisions are not material here) at one-sixth the rates prescribed in (1) of section 71.06, the Income Tax Act. It also provided for computing the net income as in sections 71.01 to 71.05. It also provided that the whole amount of such surtax shall, as other income taxes are paid, be paid into the state treasury. It then declares that section 71.19, which provides for the apportionment of the general income taxes between the state, the county, and towns, cities, and villages, respectively, should not be applicable to this surtax. It then provides that the whole of such surtax, wherever collected, should be paid into the general fund of the state treasury and be set apart for the state retirement funds, except that the state treasurer shall annually remit to the city treasurer of Milwaukee 25 per cent. of the amount of such surtax as so levied and collected from the taxpayers of Milwaukee, such 25 per cent. to become a part of the Milwaukee teachers' annuity and retirement funds: Then the following provision (section 20.251, subsec. (7):

“Whenever in any year the receipts from the surtax herein provided for shall not be sufficient to provide the necessary moneys to carry out the provisions of this act [i. e., chapter 459 of 1921], the deficit shall be paid out of the general fund of the state treasury, and if in any year such surtax provides more money than is needed, such excess shall be paid into the general fund of the state treasurer.”

From the judgment entered the respective parties have taken cross-appeals.

Crownhart, J., dissenting in part.

Upham, Black, Russell & Richardson, of Milwaukee (Irving A. Fish and Perry J. Stearns, both of Milwaukee, of counsel), for William D. Van Dyke and others.

William J. Morgan, Atty. Gen., Ralph M. Hoyt, Deputy Atty. Gen., Winfred C. Zabel, Dist. Atty., and Daniel W. Sullivan, Asst. Dist. Atty., all of Milwaukee, for Wm. J. Cary, County Clerk.

John M. Niven, City Atty., and Charles W. Babcock, Asst. City Atty., both of Milwaukee, amicus curiæ.

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

The questions here presented are as follows:

(1) Is a stock dividend assessable under the income tax law, section 71.02 (2) (b), Stats.?

(2) If so taxable shall it be assessed at its par or market value, if the latter be the lesser?

(3) Is the surtax for the teachers' retirement fund (section 20.251 Stats., as created by chapter 459 of 1921), so far at least as Milwaukee taxpayers are concerned, in violation of state or federal Constitutions?

(4) If such surtax be valid, should the basic rate of 1 per cent. or 1 3/4 per cent. (section 71.06 [1] [a] [d]) be applied to the first $4,000 of the taxpayers' net income?

[1] On the first question we shall adhere to the ruling in State ex rel. Dulaney v. Nygaard, 174 Wis. 597, 183 N. W. 884, where this precise question was fully considered, and it was held that a stock dividend is lawfully assessable under our statute, for income tax purposes.

In a very able and comprehensive argument counsel for relators challenges the correctness of our former decision and asks that we now overrule it. Stress is laid upon the fact that the House of Lords, in Com'rs of Inland Revenue v. Blott, 125 L. T. R. p. 497, decided just a month before our decision in the Dulaney Case supra, held that a distribution of shares out of the profits of a corporation, to the shareholders, they having no option but to receive it in such form, must be considered as capital and not taxable income, thus apparently overruling a decision by the Judicial Committee of the Privy Council (1914) in Swan Brewery Co. v. King, 110 L. T. R. 211, and which was considered by the federal Supreme Court in Eisner v. Macomber, 252 U. S. 189, 216, 40 Sup. Ct. 189, 64 L. Ed. 521, 9 A. L. R. 1570, in arriving at the determination there reached in accord with the view now held by the House of Lords in the Blott Case, supra. The Massachusetts court, whose views we adopted in the Dulaney Case, as expressed in Tax Com'r v. Putnam, 227 Mass. 522, 116 N. E. 904, L. R. A. 1917F, 806, has reaffirmed that view in Tilton v. Tax Com'rs, 238 Mass. 596, 131 N. E. 219, decided in May, 1921, practically simultaneously with the Blott and Dulaney Cases, supra.

On the second of these questions the court below held that the actual or market value of such dividend stock at the time it was issued and distributed, rather than its par or face value, should be its value for such assessment purposes.

[2][3] Ordinarily it is undoubtedly true that, in the absence of...