Walgreen Co. v. Gross Income Tax Division

• Decision Date: 05 December 1947
• Docket Number: 28284.
• Citation: 75 N.E.2d 784,225 Ind. 418
• Parties: WALGREEN CO. v. GROSS INCOME TAX DIVISION (successors to DEPARTMENT OF TREASURY).
• Court: Indiana Supreme Court

75 N.E.2d 784

225 Ind. 418

WALGREEN CO. v. GROSS INCOME TAX DIVISION (successors to DEPARTMENT OF TREASURY).

No. 28284.

Supreme Court of Indiana

December 5, 1947

Appeal from Marion Circuit Court; Lloyd D. Claycombe, Judge.

Symmes Fleming & Symmes, of Indianapolis, for appellant.

Cleon H. Foust, Atty. Gen., John J. McShane, of Indianapolis, and John H. Fetterhoff and Lloyd C. Hutchinson, Deputy Attys. Gen., for appellee.

GILKISON Judge.

The appellant, as plaintiff, brought suit in the lower court to recover certain sums charged against it by appellee as gross income taxes and paid by appellant under protest. From a judgment against it thereon this appeal is taken. By its assignment of error, and motion for new trial appellant contends that the decision is not sustained by sufficient evidence, and is contrary to law. Briefly stated the facts are as follows: Appellant, an Illinois corporation is lawfully engaged in the sale of drugs, goods and merchandise, in retail stores in Indiana. Various persons are employed by it in this business, who are paid agreed cash wages. By a supplemental arrangement its employees are privileged to secure from appellant's stores certain goods and merchandise at wholesale cost. An account thereof is kept by appellant and when employees' wages become due, deductions are made for the value of the articles so obtained by such employees and the balance due for wages is paid in cash.

The facts of the case were all stipulated by the parties, leaving the lagal questions alone for the court to decide. The appellant, the plaintiff below, contends (1) that no gross income tax became due by reason of the transactions between it and its employees noted; (2) that the transaction involved did not constitute a sale within the gross income tax law of the state of Indiana; (3) and that if the transaction is construed as coming within the gross income tax law of the state of Indiana, such laws violate certain sections of the Indiana and United States Constitutions, hereafter noted. We shall consider each of these contentions in the order stated.

It is the law of Indiana that to constitute gross income a transaction must come clearly within the statutory provisions, providing for such income. In case of doubt the statutes will be construed against the state and in favor of the taxpayer. Oster v. Department of Treasury, 1941, 219 Ind. 313, 317, 37 N.E.2d 528; Department of Treasury v. International Harvester Co., 1943, 221 Ind. 416, 421, 47 N.E.2d 150; Department of Treasury v. Muessel, 1941, 218 Ind. 250, 254, 255, 32 N.E.2d 596.

In arriving at the meaning of a statute it must be considered as an entirety, each part being considered with reference to all the other parts. Statutes are not to be considered as isolated fragments of law, but as parts of one great system. Rushville Gas Co. v. City of Rushville, et al, 1889, 121 Ind. 206, 213, 23 N.E. 72, 6 L.R.A. 315, 16 Am.St.Rep. 388; Bradley v. Thixton et al., 1889, 117 Ind. 255, 257, 19 N.E. 335; Morrison et al v. Jacoby et al., 1887, 114 Ind. 84, 89, 90, 14 N.E. 546, 15 N.E. 806; 50 Am.Jur. § 349, Statutes, pp. 345, 346.

Judge Elliott stated this proposition well in Humphries v. Davis, 1885, 100 Ind. 274, at page 284, 50 Am.Rep. 788, thus:

'A statute is not to be construed as if it stood solitary and alone, complete and perfect in itself, and isolated from all other laws. It is not to be expected that a statute which takes its place in a general system of jurisprudence shall be so perfect as to require no support from the rules and statutes of the system of which its becomes a part, or so clear in all its terms as to furnish in itself all the light needed for its construction. It is proper to look to other statutes, to the rules of the common law, to the sources from which the statute was derived, to the general principles of equity, to the object of the statute, and to the condition of affairs existing when the statutes was adopted. * * * Statutes are to be so construed as to make the law one uniform system, not a collection of diverse and disjointed fragments.'

The title of the original gross income tax statute of Indiana, Acts 1933, Ch. 50, page 388, is as follows:

'An Act to provide for the raising of public revenue by imposing a tax upon the receipt of gross income, to provide for the ascertainment, assessment and collection of said tax, and to provide penalties for the violation of the terms of this act, and declaring an emargency.'

Clause (f) of Section 1 thereof defines gross income as follows:

'The term 'gross income,' except as hereinafter otherwise expressly provided, means the gross receipts of the taxpayer received as compensation for personal services, and the gross receipts of the taxpayer derived from trades, businesses or commerce, and the gross receipts proceeding or accruing from the sale of property, tangible or intangible, real or personal, or service, or any or all of the foregoing, and all receipts by reason of the investment of capital, including interest, discount, rentals, royalties, fees, commissions or other emoluments, however designated, and without any deductions on account of the costs of property sold, the cost of materials used, labor cost, interest or discount paid, or any other expense whatsoever, and without any deductions on account of losses; * * *.'

The definition is extended by clause (m), Section 1, Acts 1937, Ch. 117, pages 604, 606, and again by clause (m), Section 1, Acts 1941, Ch. 140, pages 420, 424, and also clause (m), Section 1, Acts 1943, Ch. 144, pages 425, 428. § 64-2601, Burns' 1943 Replacement.

However, the definition of 'gross income' contained in clause (f) of Section 1 of the 1933 Acts, supra, seem clearly to include the receipts from the transactions between appellant and its employees, as 'gross income,' since it constitutes a part of 'the gross receipts of the taxpayer derived from trades, businesses or commerce.' The same definition is contained in clause (m), Section 1 of the 1937 Acts at page 606; in clause (m), Section 1 of the 1941 Acts at pages 420, 421 and in clause (m), Section 1, Ch. 144, Acts 1943, pages 425, 428. In each of the acts cited it is also provided in appropriate language that the taxable amounts shall be the gross receipts 'without any deductions on account of the costs of property sold * * * or any other expense whatsoever, and without any deductions on account of losses.' The latter amendments indicate a sustained legislative intent as to what shall be considered gross income, existing from the enactment of the first income tax law in 1933. In the involved transactions appellant received the labor of its employees for the value of the goods, wares and merchandise taken by them agreeable with the 'supplemental arrangement' and to the extent of the value of the same, it was relieved of the payment of their wages in cash. In other words appellant retained in cash of its employees' wages the value of the merchandise taken by them. Appellant voluntarily allowed the employees to take the merchandise at cost. Whether this is a profitable or unprofitable arrangement and privilege is no concern of the state. That it has voluntarily continued the arrangement and granted the privilege year after year since 1923 indicates that appellant believes it is profitable; possibly because, in effect, it increases the wages of the employees without any actual cost to appellant and thus enables appellant to secure and retain capable and faithful employees at a more reasonable wage; and it may establish a loyalty and confidence beneficial alike to employee and employer. Since it has been the ordinary course of appellant's regularly conducted business with its employees for a number of years past we think it constitutes a sale at retail, without regard to whether it results in a profit, a loss or is merely a break-even transaction.

While we think the transactions involved constituted a sale of goods at retail, it is not essential that it should do so in order to be subject to the provisions of the gross income tax law. It is sufficient for that purpose if it constitutes 'gross receipts of the taxpayer derived from trades, businesses or commerce.' Certainly it is an income received from appellant's businesses at the various places where it operated its stores and traded with its employees. The arrangement was not a contract--it was a mere privilege granted by appellant which it could withdraw at will, and which any employee could nullify by merely failing to accept.

Appellant contends that the payment of a debt by a debtor does not constitute gross income to the debtor, and therefore, since in this case the appellant merely discharged its wage debt to its employees by the payment in merchandise, no gross income...