Tirrell v. Comm'r of Corporations

• Citation: 192 N.E. 77,287 Mass. 464
• Parties: TIRRELL v. COMMISSIONER OF CORPORATIONS AND TAXATION.
• Decision Date: 13 September 1934
• Court: United States State Supreme Judicial Court of Massachusetts

287 Mass. 464

192 N.E. 77

TIRRELL

v.COMMISSIONER OF CORPORATIONS AND TAXATION.

Supreme Judicial Court of Massachusetts, Norfolk.

Sept. 13, 1934.

Appeal from Supreme Judicial Court, Norfolk County.

Petition by Charles Q. Tirrell, a taxpayer, against the Commissioner of Corporations and Taxation for an abatement of an income tax for the calendar year 1928. From a decision by the Board of Tax Appeals denying his petition, the taxpayer appeals.

Petition dismissed.

J. E. Perry, of Boston, for appellant.

J. E. Warner, Atty. Gen., and C. F. Lovejoy, Asst. Atty. Gen., for appellee.

FIELD, Justice.

This is an appeal by a taxpayer from a decision of the Board of Tax Appeals denying an abatement of an income tax for the calendar year 1928. G. L. (Ter. Ed.) cc. 58A, 62.

The taxpayer is a resident of this Commonwealth. He filed a return with the commissioner of corporations and taxation in which he included, under the heading ‘Annuities,’ ‘income received during the year from taxable annuities . . . $3,000.00.’ He was taxed thereon at the rate of one and one half per cent. Thereafter an additional tax was assessed on this amount on the ground that the amount so reported was taxable at six per cent. as interest and dividends. The commissioner refused to abate the additional tax and the taxpayer appealed to the board.

The taxpayer received the amount so reported as a beneficiary under the fourth paragraph of the will of his sister, a resident of the state of Washington, which is as follows: ‘To my sister Anne Louise Burroughs and to my brother, Charles Quincy Tirrell, [the taxpayer] I give each the sum of Two Hundred Fifty and no/100 Dollars ($250.00) per month, to be paid from the income from my estate during their natural lives, to be paid by my executor monthly and prior to the payment of the money bequests hereinafter stated, that is, all money bequests hereinafter stated shall not interfere with the payment of the Two Hundred Fifty Dollars ($250.00) per month each to my said sister and brother; and I hereby direct my executor and trustee to set aside a fund sufficient to insure said payments. And after said money bequests hereinafter stated are paid, then all the balance of the net income of my said estate shall be divided equally between my said sister and my said brother during their natural lives, and upon the death of my said sister prior or subsequent to my death, the said income herein devised to her shall be divided equally between my two nephews, namely; Edward Tirrell Burroughs and William McKinstry Burroughs, and upon the death of my said brother prior or subsequent to my death the said income herein devised to him shall be equally divided between my nephew and nieces, namely: Bernard Gould Tirrell, Jane Tirrell and Caroline McKinstry Tirrell; provided, further, that at the end of twenty-one (21) years from and after my decease, all of the residue of my estate shall be divided among my nephews and nieces as follows: One-half (1/2) thereof in equal shares to my nephews, Edward Tirrell Burroughs and William McKinstry Burroughs, and one-half (1/2) thereof in equal shares to my nephew and nieces, namely: Bernard Gould Tirrell, Jane Tirrell and Caroline McKinstry Tirrell; provided further that said residue shall not be divided during the lifetime of either my sister or my brother above named.’ By the fifth paragraph of the will numerous pecuniary bequests are made and it is provided that ‘the payment of the bequests in this paragraph named shall not, in any way, interfere with the monthly payments hereinabove provided to my sister and to my brother.’ There are also bequests of personal effects and a direction to expend a sum not exceeding $1,500 in furnishing rooms in a hospital. The will contains a direction to the executor ‘to sell any or all of the property belonging to my estate, when in its judgment the business conditions will justify such sale or sales, the proceeds of said sales, after the payment of all bequests, to be invested in good, safe securities, the safety of such investments to be first considered, and the rate of interest thereon to be considered thereafter.’ A trust company in the state of Washington was appointed executor and trustee under the will and the executor was directed ‘to close said estate as soon as all debts and money bequests have been paid,’ to transfer the remaining estate to itself as trustee ‘to handle and distribute in accordance with the terms of this will.’ Pecuniary bequests thereunder amounted to $91,800 and the value of the whole estate was about $250,000. The taxpayer and his sister were the nearest relatives of the testatrix at the time of her death. The taxpayer offered no evidence before the board to show that the income taxed was not of such a nature as to be taxable as interest and dividends at six per cent. if it was not taxable as an annuity.

The taxpayer contends (a) that the income received by him was taxable as an annuity under G. L. (Ter. Ed.) c. 62, § 5(a), at the rate of one and one half per cent. per annum, and the additional tax should be abated, but (b) that, if the income was not so taxable, there is no evidence that it was taxable on any other ground, the additional tax should be abated, and the tax already paid should be refunded.

G. L. (Ter. Ed.) c. 62, § 1, imposes a tax at the rate of six per cent. per annum upon certain classes of interest and dividends received by an inhabitant of the Commonwealth. Section 5(a) provides as follows: ‘Income from an annuity shall be taxed at the rate of one and one half per cent. per annum. The income of property held in trust shall not be exempted from taxation under section one nor shall payments to beneficiaries be taxed under this section, because of the fact that the whole or any part of the payments to the beneficiaries is in the form of an annuity.’ Section 11, which is applicable to this taxpayer, is as follows: ‘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, and shall include such income in a return as required by section twenty-two.’

1. The income received by the petitioner was not taxable as an annuity under G. L. (Ter. Ed.) c. 62, § 5(a), at the rate of one and one half per cent. per annum.

The ‘income of property held in trust’ is not taxable as an annuity even though ‘the whole or any part of the payments to the beneficiaries is in the form of an annuity.’ In the case of a trust under the will of an inhabitant of this Commonwealth all income thereof, of a taxable nature, after the statutory deductions are made, is taxed, to the extent that such income is payable to inhabitants of this Commonwealth, irrespective of the manner of the distribution thereof, and the tax thereon is payable by the trustee. G. L. (Ter. Ed.) c. 62, §§ 10, 23. The same principle is applicable under section 11 to ‘income [received by an inhabitant of the Commonwealth] from one or more trustees * * * not subject to taxation’ in this Commonwealth, though the tax is payable by the beneficiary. In neither case is the fact that payments are ‘in the form of an annuity’ material if they are in substance payments from ‘income of property held in trust’ or its equivalent, ‘income from one or more trustees.’ The obvious purpose of the imposition of a tax on income from annuities is to reach for purposes of taxation income which is not taxable as ‘income of property held in trust’ (compare Bacon v. Commissioner of Corporations and Taxation, 266 Mass. 547, 165 N. E. 664), leaving all ‘income of property held in trust’ to be taxed under the provisions of the statute applicable to such income, irrespective of the manner in which it is distributed to taxable persons. This conclusion is supported by the history of the statute. The provision for taxation of income from annuities in the income tax statute is a continuation, though at a different rate, of the previous tax on income from annuities. St. 1909, c. 490, Pt. 1, § 4, cl. 4. See Report of Commission on Taxation, 1916, House Document 1700, pages 46, 110. See, also, (1916) House Document 2118, page 4. And the previous tax on income from annuities was imposed by statutes enacted when personal property was, in general, taxed upon its capital value and was clearly intended to apply to income from annuities only if the capital from which such income was derived could not be taxed. Gray v. City of Boston, 15 Pick. 376;Sweet v. City of Boston, 18 Pick. 123. Amendments to the Report of the Commissioners Appointed to Revise the General Statutes of the Commonwealth Adopted by the Committees on the Revised Statutes, page 3. Rev. St. 1836, c. 7, §§ 4, 10, cl. 5, Gen. St. 1860, c. 11, §§ 4, 12, cl. 5; Bemis v. Board of Aldermen of City of Boston, 14 Allen, 366, 369; Pub. St. 1882, c. 11, §§ 4, 20, cl. 5; Hunt v. Perry, 165 Mass. 287, 43 N. E. 103; R. L. 1902, c. 12, § 4, cl. 4; section 23, cl. 5. By Rev. St. 1836, c. 7, § 4, income from an annuity was made taxable ‘unless the capital of such annuity shall be taxed in this state.’ And by the later statutes, prior to the income tax statute, income from an annuity, like other incomes within the terms of those statutes, was not taxed if ‘derived from property subject to taxation.’

The amounts received by the taxpayer under the will of his sister were ‘income of property held in trust,’ though doubtless, being fixed periodical payments, they could also be described properly as ‘income from an...