Wood v. Tawes

• Decision Date: 19 November 1942
• Docket Number: 16-20.
• Citation: 28 A.2d 850,181 Md. 155
• Parties: WOOD v. TAWES, Comptroller, et al. and four other cases.
• Court: Maryland Court of Appeals

28 A.2d 850

181 Md. 155

WOOD v. TAWES, Comptroller, et al. and four other cases.

Nos. 16-20.

Court of Appeals of Maryland

November 19, 1942

Appeals from Circuit Court, Montgomery County; Charles W. Woodward Judge.

Proceedings by Henry G. Wood, by J. V. Morgan, by Alexander Tucker, and by J. H. Lewis against J. Millard Tawes, Comptroller, and others to determine question of liability for state income tax. From the orders Henry G. Wood, J. V. Morgan, Alexander Tucker and J. H. Lewis appeal and J. Millard Tawes, Comptrol ler, and others appeal from so much of an order as held that the portion of the salary earned by Henry G. Wood before moving into the state was exempt from taxation.

Affirmed on the first four appeals and on the last appeal order reversed and order of State Tax Commission reinstated.

Jo. V Morgan and Alexander F. Prescott, both of Bethesda, and Clarence E. Dawson, of Washington, D. C., and (Alexander Tucker, of Silver Spring, on the brief), for appellant Wood and others.

Hall Hammond, Deputy Atty. Gen., (William C. Walsh, Atty. Gen., on the brief), for appellee Tawes and others.

Before BOND, C.J., and SLOAN, JOHNSON, DELAPLAINE COLLINS, MARBURY, and GRASON, JJ.

BOND Chief Judge.

The first four appellants, employed by the federal government in Washington, District of Columbia, and residing in Maryland in the year 1939, bring up for review questions of their liability for the state income tax of that year on the amounts of their salaries paid by the federal government; and the state officials appeal in the last case from an exemption of so much of the salary of one as was received during the first three months of the year, when he had not come into the state. On appeals below from rulings of the State Tax Commission, the Circuit Court for Montgomery County held the individual appellants liable, except as to the portion of salary earned by the one before removing into the state.

Henry G. Wood, the first appellant, it was, who took up his residence in the state on March 23, 1939, when he bought a house in Bethesda, in Montgomery County. He has lived there ever since. In 1936 he came from the state of New York to accept the position of legislative draftsman of the United States Senate, a position created under the Revenue Act of 1918, section 1303, 40 Stat. 1057, 1141, and thereafter lived in the District until 1939. By section 1101 of the Revenue Act of 1924, 43 Stat. 253, 353, 26 U.S.C.A. Int.Rev.Acts page 141, the legislative drafting service became known as the office of legislative counsel, and the draftsmen, including this appellant, known as legislative counsel. The compensation has been allocated from time to time by the President of the Senate and Speaker of the House of Representatives, jointly, to the appropriate grade in the compensation schedule of section 13 of the Classification Act of 1923, 5 U.S.C.A.

§ 673 , an act, as its preamble states, 'to provide for the classification of civilian positions within the District of Columbia and in the field services.' And the appellant in his Maryland income tax return filed in 1940, claimed an exemption of the amount of compensation so paid him in 1939 because he was a federal official, and especially claimed exemption of the portion of it earned before he came to live in the state.

The appellant Jo. V. Morgan, was domiciled in Montgomery County, Maryland, during the whole of the year 1939. He was the sole member of a Board of Tax Appeals for the District of Columbia, which has jurisdiction to review tax assessments in the District, his findings being subject to review by the United States Court of Appeals for the District. The duties of his position were all performed, and his compensation was paid, in that jurisdiction. On the ground that federal officers are exempt from payment of the state income tax he claims an exemption of his compensation for the year 1939 from the basis of computation of his Maryland income tax.

Alexander Tucker came from New Jersey in 1935 to accept an appointment as a special attorney in the Department of Justice, the position to be held at the will of the Attorney General. He was and is engaged in tax cases before the federal courts, and his compensation for performance of his duties has been earned in the District. He has meanwhile lived in an apartment house in Silver Springs, Montgomery County. He owns no real or personal property in Maryland, and has a residence or dwelling in New Jersey to which he returns frequently, and has personal property there. He claims exemption as a nonresident of the state as well as an officer of the federal government.

J. H. Lewis, the remaining individual appellant, claims a domicil in the State of Michigan, but during all the year 1939 he rented a house and lived in Chevy Chase, Montgomery County. He was a colonel in the National Guard of Michigan, and on May 20, 1938, was, with his consent, assigned for active duty in the National Guard Bureau of the United States War Department. He returned to Michigan in 1940, when relieved of that duty. His compensation while he was assigned to the War Department was all, of course, earned and paid in the District of Columbia and he claims exemption of the amount from the basis of taxation under the Maryland income tax law as an army officer of the federal government and as a nonresident of the state.

The state law, (Laws 1939, c. 277, Code, Art. 81, § 230), imposed the tax 'on the net income of every resident individual of this State,' and in section 222(i) defined a resident within the meaning of section 230 as 'an individual domiciled in this State on the last day of the taxable year, and every other individual who, for more than six months of the taxable year, maintained a place of abode within this State, whether domiciled in this State or not.' It expressly excluded from the gross income which is subject to deductions to ascertain the net income to be taxed (§ 216k, Code, Art. 81, § 223(k), that 'which this State is prohibited from taxing under the Constitution of the United States, or under any Act of Congress * * * in conformity therewith,' and under section 231 allows a deduction of any amount of income tax which the individuals may have paid to another state. All four of the individuals now appealing were residing in the state on the last day of the taxable year, but the fact, we think, is not of importance in the questions they raise.

Whatever application the words 'domicile' and 'resident' may require elsewhere, under this statute the tax is imposed on incomes of every individual who for more than six months of the taxable year maintained a place of abode within the state, whether domiciled in the state or not. It is a provision contained in a large number of state income tax statutes. Maintenance of a place of abode, however, must involve at least a sufficient residence within the state to bring the individual within the taxing jurisdiction, otherwise the exaction might amount to a deprivation in violation of the 14th Amendment of the United States Constitution. But subject to that qualification the state has power to impose the tax on such individuals even on the basis of income gained outside the jurisdiction, including that received as salary from the federal government. The exaction is of a share in the expenses of the state government the benefits of which the individual chooses to enjoy. Domicile and the intention of the individual regarding continuance in his abode are not decisive. People ex rel. Ryan v. Lynch, 262 N.Y. 1, 186 N.E. 28; Soucy v. Knight, 52 R.I. 405, 409, 161 A. 132.

Decisions of the Supreme Court of the United States, to which we must look for the law on the questions raised, appear to recognize the right of a state to tax the income of a resident though his domicile is in another state. 'In our system of government the states have general dominion, and, saving as restricted by particular provisions of the federal Constitution, complete dominion over all persons, property, and business transaction within their borders; they assume and perform the duty of preserving and protecting all such persons, property, and business, and, in consequence, have the power normally pertaining to governments to resort to all reasonable forms of taxation in order to defray the governmental expenses. * * * As to residents it may, and does [under a statute being considered], exert its taxing power over their income from all sources, whether within or without the state, and it accords them a corresponding privilege of deducting their losses, wherever these accrue. As to nonresidents, the jurisdiction extends only to their property owned within the state and their business, trade, or profession carried on therein, and the tax is only on such income as is derived from those sources.' Shaffer v. Carter, 252 U.S. 37, 57, 40 S.Ct. 221, 224, 64 L.Ed. 445; Lawrence v. State Tax Comm., 286 U.S. 276, 52 S.Ct. 556, 76 L.Ed. 1102, 87 A.L.R. 374; People of State of New York ex rel. Cohn v. Graves, 300 U.S. 308, 313, 57 S.Ct. 466, 81 [181 Md. 162] L.Ed. 666, 108 A.L.R. 721. And see Chestnut Securities Co. v. Oklahoma Tax Commission, 10 Cir., 125 F.2d 571.

'Enjoyment of the privileges of residence in the state and the attendant right to invoke the protection of its laws are inseparable from responsibility for sharing the costs of government. * * * The tax, which is apportioned to the ability of the taxpayer to pay it, is founded upon the protection afforded by the state to the recipient of the income in his person, in his right to receive the income and in his enjoyment of it when received.' People of State of New York ex rel Cohn v. Graves, 300 U.S. 308, 313, 57 S.Ct. 466, 467, 81 L.Ed. 666, 108 A.L.R. 721; Lawrence v. State...