Wilder v. Trefry

• Citation: 234 Mass. 470,125 N.E. 689
• Parties: WILDER et al. v. TREFRY, Tax Com'r.
• Decision Date: 10 January 1920
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

234 Mass. 470

125 N.E. 689

WILDER et al.

v.TREFRY, Tax Com'r.

Supreme Judicial Court of Massachusetts, Suffolk.

Jan. 10, 1920.

Report from Superior Court, Suffolk County; John F. Brown, Judge.

Petition for abatement of tax by Herbert A. Wilder and Alfred S. Hall, trustees of the estate of Charles T. Wilder, against William D. T. Trefry, Tax Commissioner of Massachusetts. On report without decision to the Supreme Judicial Court. Petition denied.

Everett E. Kent, of Boston, for complainants.

Henry A. Wyman, Atty. Gen., and Wm. Harold Hitchcock, Asst. Atty. Gen., for Tax Com'r.

DE COURCY, J.

On June 1, 1917, the petitioners were the owners of 756 1/4 shares of the preferred stock of the International Paper Company, a New York corporation. The company was in arrears to the extent of 33 1/2 per cent. in declaring the six per cent. cumulative dividends to which owners of this stock were entitled in preference to the payment of any dividends upon the common stock. On the preferred stock of the petitioners these accumulations amounted to $25,334.38. They received in payment or settlement thereof, as hereinafter set forth, the sum of $5,671.87 in cash, 105 7/8 shares of the preferred stock of the market value of $8,152.34, and 90 3/4 shares of common stock of the market value of $3,993-a total of $17,817.21. The tax commissioner assessed thereon a tax of $1,175.95; and upon his denial of their application for an abatement, the petitioners seasonably appealed to the superior court.

The sole question before us is whether the cash and shares of stock received by the petitioners constituted a ‘dividend’ within the meaning of section 2 of the Income Tax Law (St. 1916, c. 269). The provisions of this section here applicable are as follows:

‘Sec. 2. Income of the following classes received by any inhabitant of this commonwealth during the calendar year prior to the assessment of the tax shall be taxed at the rate of six per cent. per annum: * * *

‘(b) Dividends on shares in all corporations and joint-stock companies organized under the laws of any state or nation other than this commonwealth, except,’ etc.

‘No distribution of capital, whether in liquidation or otherwise, shall be taxable as income under this section; but accumulated profits shall not be regarded as capital under this provision.’

The material facts relating to this alleged ‘dividend’ are as follows: On January 31, 1917, the International Paper Company and its subsidiary companies had outstanding bonded debt amounting to about $10,000,000 which would become due in the year 1918, about $727,000 maturing in 1919, and more which would not become due in the immediate future. The accrued cumulative dividends on the outstanding preferred stock amounted to $7,506,244.50. The management of the company determined upon a comprehensive plan, whereby the bonded debt would be readjusted, and future financial requirements of the corporation providedfor, by an issue of not exceeding $20,000,000 thirty-year bonds secured by a first and refunding sinking fund mortgage. As part of the plan it was decided to adjust the accumulated dividends. In full settlement of the 33 1/2 per cent. unpaid dividends the directors voted to offer to the preferred stockholders 7 1/2 per cent. of the face value of their holdings in cash, 14 per cent. in 6 per cent. cumulative preferred stock, and 12 per cent. in common stock.

In his letter to the stockholders, January 31, 1917, the president stated:

‘The directors of the company, therefore, have come to the conclusion that no plan for adjustment of the cumulative dividends is now practicable without ample provision at the same time for the company's future capital requirements.’

And:

‘Your directors are firmly of the opinion that it would not be wise nor in the interest of the stockholders to attempt to liquidate the accumulated dividends in cash, and that by the proposed plan the equity of the stock in the already valuable property which the company owns will be greatly increased.’

The agreement for deposit of preferred stock contained, among other references to the liquidation and discharge of the accumulated dividends, the following:

‘If the said offer for adjustment of the deferred dividends on said preferred stock shall be accepted by the holders of such an amount of the preferred stock as, in the judgment of the committee and of the company, shall be sufficient, the same shall be consummated and carried out, and the accumulated deferred dividends shall be paid as therein provided. The payment of the said dividends may be made directly to the holders of certificates of deposit or to the committee as their representatives, as may be determined by the committee and the company, and such payment so made shall constitute and be deemed to be a payment and discharge in full of all deferred dividends upon the preferred stock so deposited hereunder; and the fact that such deferred dividends have been paid in full may be stamped upon the certificates of stock so deposited if the committee and the company shall deem it necessary to do so.’

After the committee representing the preferred...