316 Mass. 484 | Mass. | 1944
These are two appeals by the commissioner of corporations and taxation from decisions of the Appellate Tax Board granting partial abatements of income taxes assessed on income received by the appellees in the years 1938 and 1939 and reported in returns filed in 1939 and 1940.
The taxpayers are the Massachusetts residents of a partnership engaged in the stock brokerage business in Boston. The firm during the two years in question had four sources of income: (1) interest from customers on their margin accounts; (2) interest and dividends on securities held for sale in the course of business; (3) gains from sales of securi
The fact that the firm was conducting a single business would not permit it to charge off total expenses from total receipts and to pay a tax on the balance unless the taxing system, like the Federal income tax, was a general income tax. The right to impose a tax upon income derived from varying kinds of property and at different rates, depending upon the nature of the property from which the income was secured, was expressly granted to the General Court by the Forty-fourth Amendment to the Constitution, which was adopted in 1915 after the Legislature had unsuccessfully sought to devise a method of taxation that would prevent the then generally prevailing avoidance of taxation on securities and at the same time prescribe a fair and equitable rate without violating the constitutional mandate, c. 1, § 1, art. 4, requiring that all taxes must be “proportional and reasonable,” and which prohibited the imposition of a tax upon a group of persons or upon a class of property at a
Our income taxing system is not a general income tax but on the contrary imposes a tax upon certain designated sources of income at particular rates. In the instant cases the entire income of the appellees fell into four classes: the first item, interest from margin customers, and the second item, interest and dividends, both of which were taxable at the rate of six per cent; the third item, commissions taxable under § 5 (b), as amended, at one and one half per cent; and the fourth item, gains from sales of securities, taxable under § 5 (c), as amended, at the rate of three per cent. These four items comprise four distinct taxing units which, for convenience and practical purposes, are joined in a single taxing system. The grouping of specially enumerated classes side by side in a single enactment does not destroy class boundaries, or cause a merger of one class into another, or impair the individual identity of any class. There is, furthermore, a plain line of demarcation between income from interest and dividends and income from net gains and business income, as § 5 (e) provides that “Interest and dividends taxable under section one shall not be taxed under this section” and § 5 (a) provides that income from property held in trust shall be taxed as interest under § 1 even though it is received by the beneficiary in the form of an annuity. Different deductions are provided for the different classes of income. It may be said that, in general, the structure of our taxing system shows a legislative intent that deductions from income from intangibles taxable under § 1 are provided for in §§ 2, 3, 4, while deductions from the gross income from a profession, employment, trade or business are provided for in § 6. Persons who are engaged in the business of dealing in securities and whose deductible items under § 6 exceed their income from their trade or business and from gains on the purchases and sales of securities may deduct from their
The present income tax has always been considered by this court as imposing a tax upon different classes of income at different rates and as limiting deductions to the income from such classes as the statute permits. Goldman v. Tax Commissioner, 230 Mass. 554. Hayes v. Commissioner of Corporations & Taxation, 261 Mass. 134. Commissioner of Corporations & Taxation v. Hornblower, 296 Mass. 201. Nichols v. Commissioner of Corporations & Taxation, 314 Mass. 285. Commissioner of Corporations & Taxation v. Hale, 315 Mass. 556. It was held in the Hornblower case that a firm of stockbrokers could not deduct under § 6 (f) from their business income taxed under § 5 losses incurred on account of bad debts owed by customers for loans on margin accounts. In the Hale case we refused to hold that income received from an annuity which had been substituted for a retirement contract under which the employer paid a retirement allowance to the taxpayer was income received as a retirement allowance subject to the personal exemption provided for in § 5 (b), as amended. It was said in Nichols v. Commissioner of Corporations & Taxation, 314 Mass. 285, 307, in deciding that interest paid
The commissioner now makes no contention that the taxpayers are not entitled to partial abatements based upon the depreciation on furniture and office equipment, but contends that abatements upon taxes paid can be allowed only to the extent here decided. The decisions of the Appellate Tax Board were wrong and only abatements to be computed by the board in accordance with this opinion are granted.
So ordered.