309 Mass. 84 | Mass. | 1941
The taxpayer, on June 23, 1937, was the owner of one hundred shares of seven per cent cumulative preferred stock and five hundred shares of Class C common shares in a certain association or trust, the beneficial interest in which was represented by transferable shares. On that day, in order to reduce the capitalization of the trust to eliminate a capital deficit, which prevented the payment of dividends under the terms of the trust, a plan of reorganization was approved and carried out by the shareholders. In accordance therewith the taxpayer surrendered her old shares in exchange for one hundred shares of five per cent cumulative preferred stock, one hundred seventy-five shares of common stock and one hundred twelve and one half purchase warrants, and waived arrears in dividends
The case was heard by the Appellate Tax Board upon statements of counsel which are not reported. The board found that the new shares issued to the taxpayer represented the same interest in the same assets and granted an abatement of the entire tax. The commissioner of corporations and taxation appealed to this court.
The right to tax is one of the essential prerogatives and one of the inherent powers of sovereignty, Commonwealth v. Norman, 249 Mass. 123, 130; Curry v. McCanless, 307 U. S. 357, 366, but the exercise of this prerogative and power must be plainly authorized by an act of the Legislature before any tax may be imposed upon a citizen. Taxing statutes must be strictly construed, and liability to a tax must be founded in the express terms of a statute. Such liability cannot arise merely by implication from some statutory provision. Hill v. Treasurer & Receiver General, 229 Mass. 474. Hayes v. Commissioner of Corporations & Taxation, 261 Mass. 134. Sayles v. Commissioner of Corporations & Taxation, 286 Mass. 102.
Our income tax is a property tax, United, States Trust Co. v. Commissioner of Corporations & Taxation, 299 Mass. 296; Hale v. State Board of Assessment & Review, 302 U. S. 95, which, not being “proportional . . . upon all . . . estates lying” within the Commonwealth as provided for by c. 1, § 1, art. 4 of the Constitution, could not become effective except by an amendment to the Constitution, permitting the imposition of a tax at different rates upon income derived from different classes of property and the same rate for each class. This was accomplished by the adop
Under the statute in its original form, an exchange of the capital stock of one corporation for that of another corporation, which succeeded the first as the result of a reorganization or a consolidation, was a sale of the stock, and if the market value of the stock acquired exceeded the cost of that given in exchange, then this excess was income within this statute even though this new stock was held during the remainder of the taxable year by its owner. The gain was realized upon the receipt of the new stock. Osgood v. Tax Commissioner, 235 Mass. 88. Stone v. Tax Commissioner, 235 Mass. 93. The same conclusions were reached in holding that the gains presently resulting from the exchange of stock in carrying out a plan of reorganization, merger or consolidation of corporations were taxable income under the act of October 3, 1913, c. 16, 38 U. S. Sts. at Large, 114, and the act of September 8, 1916, c. 463, Title 1, §§ 1, 2, 39 U. S. Sts. at Large, 756, 757, in neither of which were there any provisions especially relating to gains from such sources. United States v. Phellis, 257 U. S. 156. Rockefeller v. United States, 257 U. S. 176. Cullinan v. Walker, 262 U. S. 134. Weiss v. Stearn, 265 U. S. 242. Marr v. United States, 268 U. S. 536. But the revenue act of 1918, and subsequent revenue acts, provided that certain gains and losses resulting from an exchange of stock in the reorganization of a corporation, as defined in these acts, should not be recognized as a present gain or loss. See U. S. C. Title 26, § 112. Pinellas Ice & Cold Storage Co. v. Commissioner of Internal Revenue, 287 U. S. 462. John A. Nelson Co. v. Helvering, 296 U. S. 374. G. & K. Manuf. Co. v. Helvering, 296 U. S. 389. Minnesota Tea Co. v. Helvering, 302 U. S. 609. Helvering
A similar change, although based upon a slightly different ground, has been made in our first income tax statute, St. 1916, c. 269, § 5 (c), providing for a tax on gains from the sale and purchase of intangibles, by so amending said clause (c) that any gain or loss resulting from an exchange of stock in the reorganization of a corporation is not to be determined for the purpose of taxation until the stockholder has disposed of the stock and his profit or loss has been definitely ascertained.
St. 1916, c. 269, § 5 (c), which became G. L. c. 62, § 5 (c), was amended in the year following the decisions in Osgood v. Tax Commissioner, 235 Mass. 88, and Stone v. Tax Commissioner, 235 Mass. 93, by St. 1921, c. 376, and again in the next year by St. 1922, c. 449, which provided that “If, in any exchange of shares upon the reorganization of one or more corporations . . . associations or trusts, the beneficial interest in which is represented by transferable shares, the new shares received in exchange for the shares surrendered represent the same interest in the same assets, no gain or loss shall be deemed to accrue from the transaction until a sale or further exchange of such new shares is made.” In substance this provision has since remained in the statute. See now G. L. (Ter. Ed.) c. 62, § 5 (c), as amended by St. 1935, c. 481. The exchange of the old for the new shares still constitutes a sale and the transferor of the old becomes a purchaser of the new shares. The value of the new shares at the time of their receipt is no longer the standard to determine whether a taxable gain or a deductible loss has occurred. Under our present stat
The commissioner contends that the taxpayer received a different interest in the property of the trust by the acquisition of the new shares, and that as the market value of these new shares exceeded what she paid for the old shares, a tax was properly imposed upon this difference in value.
The taxpayer at the time of the reorganization was the owner of one hundred shares of seven per cent cumulative preferred stock and five hundred shares of Class C common shares, and when the reorganization was effected she was the owner of one hundred shares of five per cent cumulative preferred stock, of one hundred seventy-five shares of the new common stock, and of one hundred twelve and one half purchase warrants. The record does not disclose any difference between the rights that the taxpayer had under the old preferred shares and those that she had under the new preferred shares, except, as the name implies, the rate of dividends under the latter was less than under the former. So far as the record indicates there was to be no decrease
The actual results of the exchange were that the taxpayer held the same number of preferred shares and a lesser number of common shares, together with the purchase warrants. The other shareholders received similar warrants on the same basis and in the same proportion. The terms and conditions governing the use of these warrants are not shown by the decision of the board. There is no finding of
All the shares were in the same trust. All the shareholders were treated with equality. Each, it seems, waived the arrears on overdue unpaid dividends and assumed proportionately the common burden imposed by a reduction of the outstanding common shares. So far as the new capital structure is disclosed by the findings of the board, we see nothing to indicate that the position of any shareholder with respect to his respective fractional ownership in the beneficial interest of the assets of the trust was changed by the reorganization. The finding of the board that the new shares represented the same interest in the same assets as was represented by the old shares brings the case within the statutory exemption. This finding rests upon unreported evidence and is not shown to be vitiated by an error of law by anything contained in the decision of the board. Such a finding cannot be disturbed. G. L. (Ter. Ed.) c. 58A, § 13. Commissioner of Corporations & Taxation v. J. G. McCrory Co. 280 Mass. 273. Revere v. Revere Construction Co. 285 Mass. 243. Commissioner of Corporations & Taxation v. Ford Motor Co. 308 Mass. 558.
The decision of the board should have included interest at the rate of six per cent from October 1, 1938, G. L. (Ter. Ed.) c. 58A, § 13. An abatement must be granted for the full amount of the tax and such interest together with the costs of this appeal.
So ordered.