Thomas v. Wiscnsin Dep't of Taxation
| Decision Date | 14 May 1947 |
| Citation | 26 N.W.2d 310,250 Wis. 8 |
| Parties | THOMAS v. WISCNSIN DEPARTMENT OF TAXATION. |
| Court | Wisconsin Supreme Court |
OPINION TEXT STARTS HERE
Appeal from a judgment of the Circuit Court for Milwaukee County; Daniel W. Sullivan, Judge.
Affirmed.
FRITZ, J., dissenting.Action by Hampton H. Thomas against the Wisconsin Department of Taxation to review an order of the Board of Tax Appeals modifying an assessment of income taxes made by the Assessor of Incomes. From a judgment confirming the decision of the Board of Tax Appeals entered May 3, 1946, the plaintiff appeals.
The basis of the tax proceeding is an alleged partnership agreement between husband and wife for the carrying on of an insurance business being conducted by the husband. The agreement reads as follows:
‘This Agreement made and entered into as of the 2nd day of January, 1941, by and between H. H. Thomas of Milwaukee County, Wisconsin, hereinafter referred to as party of the first part, and Jessica B. Thomas of Milwaukee County, Wisconsin, hereinafter referred to as party of the second part, witnesseth:
‘Whereas, the party of the first part has for several years been engaged in an insurance agency business and has operated said business under the name of H. H. Thomas Co.; and
‘Whereas, the party of the second part has heretofore on various occasions loaned funds and securities to the party of the first part of the development and maintenance of said business; and
‘Whereas, the party of the first part presently has the use of certain funds and securities belonging to the party of the second part, and as compensation for the use of said funds and securities and also as compensation for the use of funds and securities that may hereafter be loaned by the party of the second part to the party of the first part the parties hereto have agreed to enter into a co-partnership;
‘Now, therefore, in consideration of the mutual promises hereinafter contained, it is mutually agreed between the parties hereto as follows:
‘1. That the parties hereto enter into a co-partnership to engage in an insurance agency business under the name of H. H. Thomas Co.
‘2. The party of the first part shall be the general manager of said business and shall receive for his services as such general manager a salary of Five Thousand ($5,000) Dollars per annum.
‘3. That the parties hereto shall and will, at all times during said co-partnership, bear, pay, and discharge equally between them, all expenses that may be required for the support and maintenance of said business, and that all gains, profit and increase that shall come or arise from or by means of their said business, shall be divided between them equally and all loss that shall happen to their said joint business shall be borne and paid by them equally.
‘4. It is agreed by and between the parties hereto that there shall be had and kept at all times during the continuance of their co-partnership, just and true books of account wherein the partners shall enter and set down all money by them or either of them received, paid, laid out or expended in and about the said business, and all other matters and things whatsoever to the said business and the management thereof belonging; which said books shall be used in common between the said co-partners so that either of them shall have access thereto at the office maintained by the partnership, and the party of the first part, as the general manager of the business conducted by said co-partnership, shall annually make, yield and render to the party of the second part a true, just and perfect inventory and account of all profits and increase by them or either of them made, and of all losses by them or either of them sustained, and also all payments, receipts, disbursements and all other things by them made, received, disbursed or suffered in this said co-partnership and business, and the same account so made, shall and will clear, adjust, pay and deliver, each to the other, at the time, their just share of profits so made as aforesaid.
‘5. The said parties hereby mutually covenant and agree to and with each other that during the continuance of the said co-partnership neither of them shall nor will, while purporting to act on behalf of said co-partnership, endorse any note, or otherwise become surety for any person or persons whomsoever, without the consent of the other of the partners. And at the termination of their co-partnership, the said co-partners, each to the other, shall and will make a true, just and final account of all things relating to their said business, and in all things truly adjust the same; and all of the gains and increase thereof which shall appear to be remaining, either in money, goods, wares, fixtures, debts or otherwise, shall be divided between them equally.
‘In Witness Whereof, the parties hereto have hereunto set their hands and seals.
‘H. H. Thomas (Seal)
‘Party of the first part.
‘Jessica B. Thomas (Seal)
‘Party of the second part.’
Other controlling facts are stated in the opinion.Shaw, Muskat & Paulsen, of Milwaukee, for appellant.
John E. Martin, Atty. Gen., and Harold H. Persons, Asst. Atty. Gen., for respondent.
The case involves the imposition of an income tax against the appellant as a member of a claimed partnership consisting of the appellant and his wife, the profits of which were distributed equally between them according to an agreement between them claimed by the appellant to constitute a business partnership. The Department of Taxation based the tax imposed by it upon the whole net income of the business. The reason for the assessment as indicated by the statement of the assessor of incomes is that the arrangement between the spouses did not constitute a partnership. This statement reads as follows:
‘The Articles of Co-partnership have been carefully weighed and considered by me and I have concluded that Mrs. Thomas has rendered no service or capital to the enterprise, she has not acquired an interest in the business of the insurance agency by purchase, gift, or other disposition, and that the earnings of this agency are the result of personal service of yourself (taxpayer).’
The appellant applied to the Department for an abatement of the tax. His petition was denied. He then duly appealed to the Board of Tax Appeals. The Board after trial of the issues raised on appeal reduced the tax by basing it on seventy-five per cent. instead of the whole of the net earnings of the business during the years involved. The taxpayer took the Board's decision to the circuit court for review, claiming the Board should have computed his tax on his distributive share of the net earnings of the business as fixed by the claimed partnership articles and actually received by him. The circuit court confirmed the Board's decision and the taxpayer appealed to this court.
The business claimed to be a partnership is an insurance agency. The appellant had been conducting this business since 1915, except for a short time while in the military service during World War I. He first conducted it as a sole trader, then from 1930 or 1931 to 1936 as a corporation, then as a sole trader from 1936 to 1941, when the agreement of alleged partnership went into effect. During all this time the business was conducted under the name of H. H. Thomas Co., and the appellant had been licensed as an insurance agent. The insurance involved was principally based on bonds given by contractors for completion of construction contracts. The net profits during the two years herein involved, not including $5,000 a year taken by the husband as salary for managing the business, amounted to $56,138 in 1942 and $8,430 in 1943, and one-half of these amounts was distributed to the husband. The premiums were required to be remitted to the insurer within stated periods, usually thirty days. The appellant was, and had been in the habit, of carrying the premiums for the contractors when they did not pay them in time for his remittance. To advance the premiums the appellant was obliged to borrow from a bank and to put up collateral to secure his loans. The collateral required was loaned to him by his wife who had inherited $250,000 to $300,000 in securities from her parents. The amount up as collateral to the husband's bank loans at the time the alleged partnership agreement was made was about $25,000. No interest had ever been paid to the wife for use of these securities or any compensation made for their use. When payment of the loan was made the securities for that loan were returned to the wife. This custom prevailed during the years involved. During these years the husband signed a note ‘H. H. Thomas Co.’ and endorsed it personally and got securities from his wife to put up as collateral. The amounts so used as collateralwere constantly $20,000 to $25,000. The wife never had had and did not have during the years involved any license as an insurance agent, nor did she perform any service or take any part in connection with the business, except to supply use of the securities as stated. The business was conducted in every was after the agreement was made as before. There was no gift by the husband to the wife of a half interest or any interest in the business, nor was there any assignment or transfer of any interest in the business to the wife, or any words of assignment or transfer in the agreement. No tangible property of any kind was or had ever been used in the conduct of the business, as the husband was permitted to carry it on in the offices of the Fidelity & Deposit Company of Maryland maintained by that company in Milwaukee, of whose business in Milwaukee he was managing agent at a salary of $10,000 a year with the privilege of such use. The only thing of value connected with the business was its ‘good will’ which was and would continue on cessation of operation under the alleged partnership agreement personal to the husband. The agreement...
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