Virden v. State Tax Commission

• Decision Date: 03 January 1938
• Docket Number: 32921
• Citation: 180 Miss. 467,177 So. 784
• Court: Mississippi Supreme Court
• Parties: VIRDEN et al. v. STATE TAX COMMISSION

177 So. 784

180 Miss. 467

VIRDEN et al. v. STATE TAX COMMISSION

No. 32921

Supreme Court of Mississippi

January 3, 1938

Division A

1 TAXATION.

A taxpayer's "gross income" included profits on sales of property not regularly employed in conduct of regular trade or business where income tax statute was broad enough to include profits on sales of all property in gross income, notwithstanding statute contained provisions for determining gains realized or losses sustained from disposition of assets employed in conduct of regular trade or business but not for determining gains or losses sustained on sales of property not employed in trade or business, since provisions for determining gains or losses were not in conflict with legislative intent clearly expressed in preceding provisions that profits on sales of all property should be included in gross income (Laws 1934, c. 120 sections 3(1), 6(a), 7, 8(4)).

2 STATUTES.

A statute must be construed to effectuate the legislative intent, which intent must primarily be ascertained from the language of the statute.

3 STATUTES.

An administrative interpretation of income tax statute to effect that it did not impose tax on gains realized from capital transactions could not be considered in determining whether gross income within statute included profits on sales of property not regularly employed in conduct of regular trade or business, where the administrative interpretation was in conflict with statute and the commission making the interpretation had not adhered to such interpretation (Laws 1934, c. 120, sections 3(1), 6(a), 7, 8(4), 32).

4. STATUTES.

The subsequent amendment of income tax statute could not be considered in determining whether under original statute gross income included profits on sales of property not regularly employed in conduct of regular trade or business, where original statute was not ambiguous (Laws 1934, chapter 120, sections 3(1), 6(a), 7, 8(4); and sections 7(a), 8(4), as amended by Laws 1936, chapter 151, sections 1, 2).

HON. V. J. STRICKER, Chancellor.

APPEAL from chancery court of Hinds county HON. V. J. STRICKER, Chancellor.

Proceeding by M. L. Virden and others against the State Tax Commission to review an income tax assessment. From a judgment dismissing the petition, the petitioners appeal. Affirmed.

Affirmed.

Ernest Kellner, and William Payne, both of Greenville, for appellants.

The trial court held that the gains in question were taxable under the provisions of Section 7 (2), Chapter 120, Laws of 1934.

Pursuant to Section 32, Chapter 120, Laws of 1934, the Commissioner of Income Tax issued Regulations No. 4.

I concede that the regulations promulgated by him pursuant to the act cannot change the act, but they are in any event persuasive and controlling unless they are in conflict with the act. If the meaning of the act is doubtful the regulations are entitled to great consideration.

United States v. Hermanos, 209 U.S. 337.

The only provision in the act whereby the gains realized by the appellants in this case are taxable is the disjoined or disconnected quotation by the trial court from Section 7 (a) thereof to the effect that: "The term gross income includes gains, profits and income derived from . . . other transactions of business carried on for gain or profit . . . and income derived from any source whatever."

The first part of the foregoing quotation definitely confines the gains, profits and income to be included in gross income to such as are derived from transactions of business, and the latter part of the quotation including incomes from any source whatever is definitely limited by a later provision of the section, insofar as gains realized from the disposition of assets are concerned, to gains realized from the disposition of assets regularly employed in the conduct of the regular trade or business of the taxpayer. I quote the latter part of the section: "Gains realized from the disposition of assets regularly employed in the conduct of the regular trade or business shall be determined by deducting from the amount realized, plus the depreciation sustained, the cost of such asset."

Clearly the very section of the act partially quoted from by the trial court confines the gains realized from the disposition of assets to be included in gross income to the gains realized from the disposition of assets regularly employed in the conduct of the regular trade or business of the taxpayer, and does not include in gross income gains realized from the disposition of assets wholly disconnected with and not regularly employed in the conduct of the regular trade or business of the taxpayer7

The act also excludes as a deduction from gross income losses sustained by the disposition of assets not regularly employed in the conduct of the regular trade or business of the taxpayer, in that, only losses sustained from the disposition of assets employed in the conduct of the regular trade or business are deductible.

Section 8 (4), Chapter 120, Laws of 1934.

Regulations No. 4 promulgated by the commissioner in express language exclude gains derived from the disposition of assets not regularly employed in the conduct of the regular trade or business of the taxpayer.

It is uniformly held by the federal courts that the regulations promulgated by the Commissioner of Internal Revenue pursuant to the authority contained in the Federal Income Tax Act have the force and effect of law.

Crocker v. Lucas, 37 F.2d 275; Tyson v. Com., 68 F.2d 584; Pictorial R. Co. v. Helvering, 68 F.2d 766.

It is also uniformly held that regulations promulgated by an administrative department of government, issued pursuant to statutory authority, will be judicially noticed.

Caha v. U.S. 152 U.S. 211, 14 S.Ct. 513, 38 L.Ed. 415; Briscoe v. Buzbee, 163 Miss. 574.

I respectfully submit that Articles 3 and 59, Regulations No. 4, promulgated by the Commissioner pursuant to the 1934 Income Tax Act, and relied upon by appellants in this case, have the force of law and that this court will take judicial knowledge thereof.

I respectfully submit that Article 52, Regulations No. 5, relied upon by appellee, has no application in this case.

It must be admitted that unless it is clear and convincing from the act itself that the Act of 1934 undertook to include in gross income gains derived from the disposition of capital assets not regularly employed in the regular trade or business of the taxpayer this court is bound by Articles 3 and 59 of Regulations No. 4 excluding such gains from gross income.

Briscoe v. Buzbee, 163 Miss. 574; Furniture Co. v. Tax Commission, 160 Miss. 185: Miller v. I. C. R. R. Co., 146 Miss. 422.

J. A. Lauderdale, Assistant Attorney-General, for appellee.

This tax was assessed by the Commission in virtue of the provisions of Chapter 120, Laws of 1934.

The appellants contend that the income tax in question is not required to be included by Section 7 (a). There is no contention that either Section 7 (b) or Section 8 authorizes the deduction.

Section 32 authorizes the Commissioner, with the approval of the Governor, to make such rules and regulations "not inconsistent with this act" as he may deem necessary to enforce its provisions. The rules and regulations adopted by the Commissioner are not a part of the record in this case.

The statute requires all income to be included while the rule authorizes a part of the income to be excepted. If the rule had authorized the taxpayer to except salaries or interest or capital gains from property regularly employed in the business, I think anyone would concede that the rule was in conflict with the statute, and inasmuch as it excepts income that is clearly included in the statute, I think there can be no question but what the rule is in conflict with the statute and is, therefore, void. In the event the court considers these rules in the decision of this case, I think it should also consider Article 52 of the last revision of the rules, which is the same as Article 59, quoted by counsel for appellants except the last sentence thereof is omitted. In other words, the rule as it is now is not in conflict with the statute and requires the inclusion of the income in question as a part of the gross income of the taxpayer.

Section 36 of said Chapter 120 provides that the rules and regulations issued by the Treasury Department of the United States Government shall, insofar as applicable, be used in the construction of this statute. This court has not vet had occasion to construe the provisions of the statute now under consideration. However, similar provisions of the federal statute have been construed numerous times by the federal court.

Section 22, Title 25, U.S.C. A., is a transcript of the Federal Income Tax Statute of 1921, and contains the same provisions as are contained in Section 7 (a) of the statute under consideration. Sections 21 and 22, Title 26, U.S.C. A., are the same as Sections 212 and 213, U. S. Stat. at Large.

In Choteau v. Burnet, 75 L.Ed. 1353, text 1355, the Supreme Court of the United States held as follows: "The language of Sections 210 and 211 (a) subjects the income of 'every individual' to tax. Section 213 (a) includes income 'from any source whatever.' The intent of Congress was to levy the tax with respect to all residents of the United States and upon all sorts of income."

Five Civilized Tribes v. Commissioner of Internal Revenue, 79 L.Ed. 1517; M. W. & S. R. Co. v. Commissioner of Internal Revenue, 77 F.2d 1077; Baltimore & Ohio R. Co. v. Commissioner of Internal Revenue, 78 F.2d 460.

In Doyle v. Mitchell Bros. Co., 247 U.S. 179, 62 L.Ed 1054, text 1059, the Supreme Court of the United States held as follows: "Selling for profit is too...