Stiles v. Currie, 18

• Decision Date: 01 March 1961
• Docket Number: No. 18,18
• Court: North Carolina Supreme Court
• Parties: J. C. STILES v. James S. CURRIE, Commissioner of Revenue.

Page 428

118 S.E.2d 428

254 N.C. 197

J. C. STILES v. James S. CURRIE, Commissioner of Revenue.

No. 18

Supreme Court of North Carolina.

March 1, 1961

William I. Millar, Waynesville, for plaintiff-appellant.

T. W. Bruton, Atty. Gen., and Lucius W. Pullen and Peyton B. Abbott, Asst. Attys. Gen., for defendant-appellee.

RODMAN, Justice.

The motion made here by the Attorney General to substitute W. A. Johnson, successor in office to defendant Currie, is allowed.

Our statute imposes a tax on the net income of residents of the State and upon that portion of a nonresident's income derived from the operation of a business conducted here. Net income is gross income less the deductions enumerated by statute. G.S. § 105-140. Permissible deductions are enumerated in G.S. § 105-147. They fall into two classes: (a) those relating or incidental to the cost of producing income; (b) those unrelated to the cost of producing income--personal to the taxpayer. Some of the items enumerated fall in one class, some in another, and some may fall within either class, as illustrated by subsec. 9, which permits deduction of losses if (a) of capital or property used in trade or business, (b) of property not connected with trade or business arising from fire, storm, or other casualty, or theft, to the extent not compensated by insurance, (c) losses incurred from the sale of corporate shares or bonds of corporations or from transactions in commodity futures contracts.

Interest, taxes, and charitable contributions may fall within either class, dependent upon the purpose for which the expenditure is made, but expenditures for medical care or funeral expenses of a dependent or to defray the cost of institutional care of a dependent relative who is physically or mentally defective clearly fall in the class of personal as distinguished from business expenditures.

G.S. § 105-147(18) limits the right of the nonresident taxpayer to claim enumerated permissible deductions only if related to business in this State. It provides: 'In the case of a nonresident individual, the deductions allowed in this section shall be allowed only if and to the extent that they are connected with income arising from sources within the State; and the proper apportionment and allocation of the deductions with respect to sources of income within and without the State shall be determined under rules and regulations prescribed by the Commissioner of Revenue.'

Plaintiff contends the statute creates an arbitrary discrimination in violation of the United States Constitution for that residents are permitted to deduct certain expenditures unrelated to the production of income, which right is denied to him. He asserts that he is entitled to deduct that proportion of his personal expenditures which his North Carolina income bears to his total income. He overlooks the fact that our statute taxes the income of its residents wherever earned, but asserts a right to tax only that part of a nonresident's income which is earned in North Carolina.

The claim of arbitrary discrimination between residents and nonresidents by reason of similar statutory provisions was raised more than forty years ago and answered adversely to plaintiff's claim by the Supreme Court of the United States. Shaffer v. Carter, 252 U.S. 37, 40 S.Ct. 221, 64 L.E.d. 445; Travis v. Yale & Towne Manufacturing Co., 252 U.S. 60, 40 S.Ct. 228, 64 L.Ed. 460. Mr. Justice Pitney delivered the opinion for the Court in each of these cases. The validity of Oklahoma's income tax law was involved in Shaffer v. Carter. It permitted residents to deduct nonbusiness losses and denied that right to nonresidents. Mr. Justice Pitney said [252 U.S. 37, 40 S.Ct. 227]: 'Appellant contends that there is a denial to noncitizens of the privileges and immunities to which they are entitled, and also a denial of the equal protection of the laws, in that the act permits residents to deduct from their gross income not only losses incurred within the state of Oklahoma, but also those sustained outside of that state, while nonresidents may deduct only those incurred within the state. The difference,...