Union Elec. Co. v. Coale

• Decision Date: 04 January 1941
• Docket Number: 37050
• Citation: 146 S.W.2d 631,347 Mo. 175
• Parties: In re Petition of Union Electric Company of Missouri, a Corporation, for abatement of additional income tax assessment for the Year 1936 -- Union Electric Company of Missouri, a Corporation, Appellant, v. Ralph W. Coale, Assessor of the City of St. Louis, and Forrest Smith, State Auditor
• Court: Missouri Supreme Court

146 S.W.2d 631

347 Mo. 175

In re Petition of Union Electric Company of Missouri, a Corporation, for abatement of additional income tax assessment for the Year 1936 -- Union Electric Company of Missouri, a Corporation, Appellant, v. Ralph W. Coale, Assessor of the City of St. Louis, and Forrest Smith, State Auditor

No. 37050

Supreme Court of Missouri

January 4, 1941

Appeal from Circuit Court of City of St. Louis; Hon. Joseph J Ward, Judge.

Reversed and remanded (with directions).

Igoe Carroll, Keefe & McAfee for appellant; John A Woodbridge of counsel.

(1) Under the Missouri statute domestic corporations and foreign corporations alike are subject to the income tax only as to income from "sources in this state." Laws 1931, p. 365, Sec. 10115, R. S. 1929; Artophone Corp. v. Coale, 133 S.W.2d 343; Burkhart Mfg. Co. v. Coale, 139 S.W.2d 502. The present statutory provisions to that effect, enacted in 1927, were intended to eliminate the discrimination against domestic corporations in competition with foreign corporations doing business in Missouri, which resulted from prior provisions. Artophone Corp. v. Coale, 133 S.W.2d 343. (2) The dividends in question, received from foreign companies employing no capital and conducting no business in Missouri, cannot be considered income from sources in this State. (a) The source of a dividend is either the company which pays it or the capital and business of that company from which the funds out of which the dividend payment is made have been derived. Webster's New International Dictionary (2 Ed., 1935); 58 C. J., p. 811; Holmes, Fed. Taxes (6 Ed.), pp. 396-398. (b) The stock certificates held by appellant in Missouri -- being nothing more than evidences of ownership of shares -- 11 Fletcher, Cyclopedia Corps. (Perm. Ed.), sec. 5092, pp. 55-56; Eisner v. Macomber, 252 U.S. 189, 40 S.Ct. 193 -- cannot be considered the source of the dividend payments. Holmes, Fed. Taxes (6 Ed.), pp. 396-398; Burkhart Mfg. Co. v. Coale, 139 S.W.2d 502. (c) Under provisions of Federal statutes texing, in certain instances, income "from sources within the United States," it has been consistently held that a document evidencing an indebtedness or the right of the holder to receive a payment cannot be considered the source of the payment itself. Appeal of Standard Marine Ins. Co., Ltd., 4 Board of Tax Appeals, 853; Appeal of Estate of McKinnon, 6 Board of Tax Appeals, 412; Appeal of Codrington, 6 Board of Tax Appeals, 415; Lord Forres v. Commissioner of Internal Revenue, 25 Board of Tax Appeals, 154. (3) To construe Section 10115 (paragraph third) as taxing corporations upon dividends received from foreign corporations having no capital and doing no business in Missouri, merely because the taxpayer's certificate of stock ownership happens to be held in this State, would be unreasonable and inconsistent in view of the following additional factors: (a) Domestic corporations would be subjected to the possibility of multiple taxation, since the dividends might be taxed also in the State in which the money from which they were paid was earned. Shaffer v. Carter, 252 U.S. 37, 40 S.Ct. 225. (b) As applied to foreign corporations the statute would probably be held unconstitutional as an attempt to subject to a Missouri tax earnings of a nonresident not derived from sources within the State's tax jurisdiction. Shaffer v. Carter, 252 U.S. 37, 40 S.Ct. 225; Travis v. Yale & Towne Mfg. Co., 252 U.S. 60, 40 S.Ct. 228. (c) The provisions of Section 10117 (Laws, 1931, p. 363) of the statute show unmistakably that the Legislature did not regard such dividend payments as income from sources in this State. (4) Upon the question which this case presents the statute must be strictly construed in favor of the taxpayer. Artophone Corp. v. Coale, 133 S.W.2d 343; State ex rel. Ford Motor Co. v. Gehner, 325 Mo. 29, 27 S.W.2d 3.

Roy McKittrick, Attorney General, and Russell C. Stone, Assistant Attorney General, for respondents.

(1) The source of appellant's income is within the State of Missouri. (a) The construction of the term "sources in this state" by Division 2 of this court in the Artophone and Burkhart cases did not refer to the type of income here involved. Artophone Corp. v. Coale, 133 S.W.2d 343; Burkhart Mfg. Co. v. Coale, 139 S.W.2d 502. (b) When Sections 10115 and 10117 are construed together the act expressly provides for the inclusion of dividends as income subject to a tax. Sayles v. K. C. Structural Steel Co., 128 S.W.2d 1046; State ex rel. Dean v. Daues, 14 S.W.2d 990, 321 Mo. 1126; Laws 1931, Secs. 10115, 10117, pp. 363, 365; State ex rel. Manitowoc Gas Co. v. Wisconsin Tax Comm., 152 N.W. 848. 161 Wis. 111; Wiseman v. Interstate Pub. Serv. Co., 85 S.W.2d 700, 191 Ark. 255; Southeast P. & L. Co. v. McCarroll, 140 S.W.2d 1001. (c) Under Section 10115 appellant's dividend income has its source in this State because the shares of stock owned and held by appellant in this State have a situs in this State. Shaffer v. Carter, 252 U.S. 937, 40 S.Ct. 225; Lawrence v. State Tax Comm. of Miss., 286 U.S. 276, 76 L.E. 1102; First Natl. Bank v. Maine, 284 U.S. 312, 52 S.Ct. 174; First Bank Stock Corp. v. Minnesota, 301 U.S. 234, 57 S.Ct. 677-678. (2) A consideration of Section 10121 of Laws of Missouri, 1931, page 373, negatives appellant's contention that the Legislature assumed such dividends nontaxable even without specific exemption. Sec. 10121, Laws 1931, p. 373. (3) The question of multiple taxation is not herein involved under the facts presented. Sec. 10115, Laws 1931, p. 365.

Bradley, C. Hyde and Dalton, CC., concur.

OPINION

BRADLEY

This cause was filed January 13, 1940, by the Union Electric Company, and is a proceeding under Sec. 10135, R. S 1929, Mo. Stat. Ann., 8107, as amended, Laws 1939, p. 846, to abate an additional state income tax assessment of $ 75,201.56 for the year 1936. The trial court refused to abate and this appeal followed.

We shall refer to the Union Electric Company as plaintiff and to the assessor of St. Louis and the State Auditor as defendants. The cause was tried on an agreed statement from which the facts appear as follows:

Plaintiff is a domestic corporation, located in St. Louis, and is engaged as a public utility in supplying its customers with electricity and steam. In due time, plaintiff filed its State income tax return for the year 1936, which return showed gross income at $ 22,071,668.20, total deductions at $ 20,725,308.32, net taxable income at $ 1,346,359.88, the tax (2%) at $ 26,927.20, and such tax was untimely paid.

During the year 1936, plaintiff owned stock in eight foreign corporations and a foreign stock company operated by trustees. From these companies plaintiff received, in 1936, dividends in the sum of $ 3,760,078.50, and so reported in its 1936 return, but did not include such or any part thereof, as taxable income. The dividends "were paid from funds derived from capital employed and operations carried on in" the respective domicil states of each company from which dividends were received, "and none of said companies employed or had any capital in the state of Missouri during the year 1936, or prior thereto, or were engaged in any business or carried on any operations in the state of Missouri during or prior to said year."

Defendants contend that the assessment is authorized by Sections 10115, 10117, Revised Statutes 1929, as amended, Laws 1931, pp. 365, 363, Mo. Stat. Ann., pp. 8080, 8091, when construed together.

Section 10115 (first paragraph) makes taxable: (1) The net income (less exemptions), from all sources, of an individual citizen or resident; (2) the net income (less exemptions) from all sources within this State, of an individual, not a citizen or resident; (3) (second paragraph) the net income, from all sources within this State, of foreign corporations (not exempted); (4) (third paragraph) the net income, from all source in this State, of domestic corporations (with certain exceptions); and (5) the net income, from all sources in this State, of foreign corporations (with certain exceptions) licensed to or doing business in this State.

Section 7 of our original income tax act (Laws 1917, p. 528) made taxable the net income, from all sources, of domestic corporations, while foreign corporations were taxed only on the net income derived from all sources within this State, but this discrimination was removed by the Act of 1927, Laws 1927, p. 476, sec. 13106.

The third paragraph of Section 10115 further provides that income "shall include all gains, profits and revenues from the transactions of the business of the corporations in this state, including gains, profits and revenue from the doing in this state of such portions of each transaction of the business of the corporation which transaction is partly done in this state and partly done in another state or states, and all other income from sources in this state as income is otherwise defined" (italics ours).

Section 10117 defines income as follows: "Income shall include gains, profits, and earnings derived from salaries, wages or compensation for personal services of whatever kind and in whatever form paid; and from professions, vocations, businesses, trade, commerce, or sales or dealings in property, whether real or personal, growing out of the ownership or the use of any interest in real or personal property; and from interest, rent, dividends, securities and gains, profits and earnings from any other transactions of any business carried on for gain or profit; and from any source whatever" (italics ours).

It will be noted that the third paragraph of Section 10115 defines income as gains, profits, revenues from transactions in this State, and includes "all other income from sources in...