State Tax Commission v. Fitts
| Decision Date | 18 March 1960 |
| Citation | 340 Mass. 575,165 N.E.2d 586 |
| Parties | STATE TAX COMMISSION v. Robert L. FITTS et al. * |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Roy F. Teixeira, Asst. Atty. Gen., for State Tax Commission.
Harry K. Mansfield, Boston, for taxpayer.
Before WILKINS, C. J., and SPALDING, WILLIAMS, COUNIHAN and CUTTER, JJ.
This is an appeal by the State tax commission from a majority decision of the Appellate Tax Board granting an abatement of an income tax assessed under G.L. c. 62, § 11, to Robert L. Fitts and his wife Mary N. Fitts, for the year 1955 by reason of the receipt of liquidating dividends in that year by the trustees of two Vermont trusts established by Robert and Mary. The case was submitted on agreed facts.
Robert and Mary were inhabitants of this Commonwealth during the entire calendar year 1955. On January 1, 1955, Robert owned 27,000 shares of the common stock of Southern Advance Bag and Paper Co., Inc. (hereinafter called Southern), of which he was the president. Mary owned 4,000 shares. As president of Southern, Robert had been negotiating for the sale of its assets to the Robert Gair Co., Inc. (hereinafter called Gair), and on February 28, 1955, a plan and agreement of reorganization was concluded for the sale, which was to be consummated on May 2, 1955. Under the agreement, a pro rata distribution of Gair stock to the shareholders of Southern was to be made on a date shortly after May 2, 1955. After the distribution Southern was to be liquidated.
In the latter part of April, shortly before the sale, Robert and Mary each executed trusts, Robert transferring his 27,000 shares in Southern to the Robert L. Fitts trust and Mary transferring 2,000 of her 4,000 shares to the Mary N. Fitts trust. Since the provisions of the two trusts are similar we need recite only the pertinent provisions of the Robert L. Fitts trust. The trustees are Robert's brother, Osmer C. Fitts, Esquire, an attorney in Brattleboro, Vermont, and the Proctor Trust Company of Proctor, Vermont. 1 Under Article Second the trustees are required to dispose of net income 'as the settlor may direct from time to time by an instrument in writing'; income in any year which is undistributed is to be added to principal at the end of the year. Elsewhere there are elaborate provisions in favor of the settlor's wife and issue and corresponding provisions are contained in Mary's trust. By Article Third, the settlor reserved the right, exercisable by himself and his brother if living, and if not, by himself alone, to amend, alter or revoke the trust in whole or in part. By § 8 of Article Twelfth all net proceeds from the sale, exchange or other disposition of the trust property shall be treated as principal and may not be allocated in any respect to income. Article Thirteenth gave the settlor, if living, the right to appoint a successor individual trustee should a vacancy occur in that office, and, if not, the settlor's wife was to have that right. 2 That article further provided that '[n]o individual shall be appointed a trustee hereunder who has any interest, vested or contingent, in the trust property.' Mr. Osmer C. Fitts, the individual trustee in both trusts, has no substantial adverse interest in either trust.
On May 2, 1955, the sale of Southern's assets to Gair was consummated and on May 18, 1955, the trustees of Robert's and Mary's trusts received their pro rata distribution of Gair stock in exchange for Southern stock held by them. It is agreed that the distribution in liquidation by Southern of Gair stock meets the definition of a dividend within the meaning of G.L. c. 62, § 1, and was subject to taxation to the extent provided by c. 62.
In a joint return filed by Robert and Mary for the year 1955, they failed to include for taxation the liquidating dividends of Southern received by the trusts. The State tax commission, after an audit, and in accordance with the proper procedure, made an assessment against Robert and Mary of an additional tax on the liquidating dividends. No question is raised either as to the computation of the dividends or as to the amount of the tax.
In May, 1955, when the transactions which gave rise to the assessment occurred, the applicable statute was G.L. c. 62, § 11, which read in part: 'Any inhabitant of the commonwealth who receives income from one or more trustees or other fiduciaries who are not subject to taxation under this chapter, shall be subject to the taxes imposed by this chapter upon such income according to the nature of the income received by such trustees or other fiduciaries.' By St.1955, c. 592, § 3 (), § 11 was amended to read, 'Any inhabitant of the commonwealth who receives, is entitled to, or to whom income is available from one or more trustees or other fiduciaries who are not subject to taxation under this chapter, shall be subject to the taxes imposed by this chapter upon such income according to the nature of the income received by such trustees or other fiduciaries' (emphasis supplied). It will be noted that the italicized words were added.
We are of opinion that the amendment is to be applied prospectively and that the rights of the parties are to be governed by § 11 as it stood prior to the amendment. 'Statutes imposing taxation are not to be construed as operating retroactively unless the legislative intention is clearly declared.' Magee v. Commissioner of Corporations and Taxation, 256 Mass. 512, 517, 153 N.E. 1, 3; United States Trust Co. v. Commissioner of Corporations and Taxation, 299 Mass. 296, 299, 13 N.E.2d 6; Squantum Gardens, Inc. v. Assessors of Quincy, 335 Mass. 440, 453, 140 N.E.2d 482. Here there is no indication that the Legislature intended the amendment to operate retroactively. Accordingly within the rule just stated, it cannot apply to the transactions under consideration, as they occurred approximately five months before the amendment became effective.
The question, then, is whether the receipt of the liquidating dividends by the Vermont trustees constituted income 'received' by the taxpayers within the meaning of § 11 as it read prior to the amendment. Had the dividends been paid directly to the taxpayers, there can be no doubt that they would have come within the statute (Commissioner of Corporations and Taxation v. Eaton, 304 Mass. 260, 23 N.E.2d 559) and that they would have been taxable as income under the rate prescribed by G.L. c. 62, § 1(b). Wellman v....
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