Wolbach v. Comm'r of Corp. & Taxtion

• Citation: 167 N.E. 677,268 Mass. 365
• Parties: WOLBACH et al. v. COMMISSIONER OF CORPORATIONS AND TAXATION.
• Decision Date: 12 September 1929
• Court: United States State Supreme Judicial Court of Massachusetts

268 Mass. 365

167 N.E. 677

WOLBACH et al.

v.COMMISSIONER OF CORPORATIONS AND TAXATION.

Supreme Judicial Court of Massachusetts, Suffolk.

Sept. 12, 1929.

Appeal and Exceptions from Superior Court, Suffolk County; Lummus, Judge.

Petitions by Anna W. Wolbach and another against Henry F. Long, as Commissioner of Corporations and Taxation. Judgment adverse to petitioners, and they appeal and bring exceptions. Order for judgment affirmed and exceptions dismissed.

C. M. Rogerson and J. N. Worcester, both of Boston, for complainants.

R. A. Cutter, Asst. Atty. Gen., for respondent.

RUGG, C. J.

These are two complaints by way of appeal from a refusal by the defendant to abate income taxes assessedupon the complainants for the year 1926 upon income of 1925, and for the year 1927 upon income of 1926. The complaints are filed under St. 1926, c. 287, § 3, amending G. L. c. 62, § 47. The two complaints were tried together and treated as raising questions of law upon the stipulated facts. The facts pertinent to the grounds of this decision are these: The complainants' testator died on February 2, 1925. He had been a partner in a firm existing under carefully drawn articles of copartnership. It therein was provided that upon ‘the death of a partner the partnership shall continue, but all right of the deceased to share in the profits shall terminate and all right and title of the deceased in and to the property, assets and business of the partnership including the good will, shall vest in the surviving partners' in specified proportions. A stated amount of the capital contributed by the deceased ‘shall remain with the partnership and shall be subject to the risks of the business, and in the event of any liquidation of the business shall be subordinate to the payment and satisfaction of all debts and obligations of the partnership and shall be treated in the final statement as if it were a contribution of capital.’ Such capital so remaining with the partnership ‘shall not be withdrawn by the representatives of the deceased partner but shall be paid to them by the surviving partners' at the rate of five equal annual installments. The privilege of anticipating the whole or any part of any or all of these installments was vested in the surviving partners. All payments of capital in the manner prescribed ‘shall be treated as withdrawals of capital and shall not, either before or at liquidation, be deemed debts or obligations of the continuing firm or any of the partners thereof, and no part of said amounts shall be charged against the account of any partner. Until the aggregate sum is fully paid the surviving partners shall pay the legal representatives of any deceased partner interest semi-annually at the rate of six (6) per cent. per annum on the amount from time to time unpaid and with the final payment such interest then accrued and unpaid.’ The sole remedy of the representatives of the deceased partner for failure by the surviving partners to make to them the required payments was the right, upon written notice to the surviving partners, to call upon them to liquidate the business in the manner provided in the articles; but in the event of such liquidation the representatives of the deceased partner do not share in any surplus or profits but receive only the amount of capital due them with interest. No demand has been made for the liquidation of the partnership. The firm, in accordance with the articles of copartnership, paid to the complainants for the period ending June 30, 1925, $65,583.98, and during the year 1926, $197,666.67, as ‘interest * * * at the rate of six (6) per cent. per annum on the amount’ of property of the estate of the testator remaining ‘with the partnership.’ The defendant assessed for each year upon two-thirds of the sum so paid (a beneficiary of one-third being a nonresident of this commonwealth) a tax at the rate of six per cent., classifying this income as taxable under G. L. c. 62, § 1(a), as ‘Interest from * * * money at interest and all debts due the person to be taxed.’ This section is by section 9 of the same chapter made applicable to the estates of deceased persons. The complainants paid these taxes under protest, and, having complied with all conditions precedent, seek by these proceedings to have the assessments declared contrary to the statute. They contend that the payments thus received by them were not interest on money at interest or on debts, and that the only tax due with respect to those sums was from the partnership itself under G. L. c. 62, § 17.

It is manifest that the complainants, as representing the estate of the deceased partner, did not become partners in the firm. The provision in the partnership articles to the effect that ‘upon the death of a partner the partnership shall continue,’ in view of the other provisions, did not have the effect of introducing into the partnership the representatives of the estate of the deceased partner. The death of a partner commonly has the effect of dissolving a partnership, at least in the sense that the deceased partner is no longer associated in the active business. This is so, both at common law, Wellman v. North, 256 Mass. 496, 501, 152 N. E. 886;Hawkes v. First National Bank of Greenfield (Mass.) 163 N. E. 249, and under the Uniform Partnership Act, St. 1922, c. 486, adding to G. L. the new chapter 108A, §§ 29, 30, 31. See Ashley v. Dowling, 203 Mass. 311, 89 N. E. 434,133 Am. St. Rep. 296;Williams v. Milton, 215 Mass. 1, 102 N. E. 355;Dana v. Treasurer & Receiver General, 227 Mass. 562, 565, 116 N. E. 941. Whatever may be the succeeding partnership, the one of which the deceased partner was a member has ceased so far as he is concerned. The complainants as representatives of their testator did not share in the profits of the partnership. They had no voice whatever in the management of the business or in shaping its policies. It may be, as a practical matter, that the six per cent. payable semi-annually on the amount of property of the deceased remaining with the business was paid out of profits, but that is not required by the terms of the articles of copartnership. Payment of that interest is all that can be demanded by the complainants. The partnership could provide for those payments in any way thought advisable by its members. Circumstances might arise which would render it wise for the firm, in order to avoid liquidation of the partnership on demand of the complainants, to make the stipulated payments of interest even though there were no profits available for that purpose. The only characteristic of a partnership inherent in the relation of the complainants to the firm was that the property of their testator remaining with the partnership was subject to its risks. That feature alone does not constitute a partnership. Rosenblum v. Springfield Produce Brokerage Co., 243 Mass. 111, 137 N. E. 357; Uniform Partnership Act, St. 1922, c. 486, adding to G. L. chapter 108A, §§ 6, 7, 18.

The case at bar is distinguishable from Stearns v. Brookline, 219 Mass. 238, 107 N. E. 57, where by oral agreement it was ‘part of the articles of copartnership’ that, in the event of the death of the testator, ‘the firm should continue and he would make arrangements ‘so that his estate, after his death, should take the same place in the firm which he had had while living, and under the same terms and conditions.’' That was held to be a dominating factor in that case and therefore the property left in the business under the will of the deceased partner was not a debt or money at interest, but was taxable only as partnership property because the trustees under the will of the deceased...