212 Wis. 219 | Wis. | 1933
The following opinion was filed April 11, 1933:
The terms of the lease referred to in the statement of facts are subjected to an analysis at this time in an income tax proceeding because telegraph companies first became subject to the Wisconsin income tax law in 1929 when ch. 448 repealed portions of the existing law exempting from income taxation the income of companies of this character. Sec. 10, ch. 529, Laws of 1929, is of the following effect: That persons made subject to the income tax law should make reports to the Tax Commission of their net incomes during the years 1927 and 1928, and thereafter should file annual returns of income at the time and in the manner provided by the statutes. It was further provided that the first assessment of income taxes under the amendment should be based upon the average of net incomes of the years 1927, 1928, and 1929. In accordance with these provisions :the appellant filed income tax returns with the
No objection is raised by appellant to the manner of the apportionment of the amount; the sole contention.is that it had no income whatever during the years in question; that such revenue as there was was the income of individuals who are stockholders of appellant. So the inquiry is in relation to the ownership controlling the right and title to the rental paid to the stockholders by the Western Union Telegraph Company for the use of the property of appellant. These payments under the lease are to be made by the Western, Union directly to the stockholders. Does this rental payable to individuals constitute taxable income of appellant ?
A contract made in 1881 and still in force is as legally effective today as .it was on the day it was made. Under the lease the Western Union Telegraph Company agreed to manage and conduct the business at its own expense; to maintain the property in good repair; to carry out the lessor’s obligations under the contracts with the railroad
There is no question but that the arrangement between the lessor and lessee is a valid and binding agreement. A reading of the instrument leaves no room for question but that the appellant by a proper and lawful contract has leased its property to the Western Union Telegraph Company and bound the Western Union to pay the rentals therefor to appellant’s stockholders for the term of the lease and thus has divested itself of any and all right and claim thereto. The contract obligation of the Western Union Telegraph Company to pay those persons specified is unquestionably upon an adequate and legal consideration. This particular lease
The arrangement between the appellant and the Western Union, in which arrangement the individuals who are stockholders are third party beneficiaries, was made years before passage of the income tax law, and there is no occasion to treat it in any way as an evasion or an attempt to avoid taxation. It was merely in the interest of good business to save money for the stockholders by saving cost of administration. As suggested, a corporation is not a stranger to
In the investigation to ascertain whether or not the appellant has an existing income we are bound to consider the circumstances of the situation in which the appellant now is by reason of the contract made in 1881. It cannot prevent the Western Union Telegraph Company from paying the rental to the stockholders, for, according to the agreement, they are entitled to the rent as provided in that agreement and they can maintain an action for its payment without reference to the appellant. With reference to this rental there is nothing of the element of reducing a subsisting debt or obligation of the appellant. This is not a case where there is a discharge by a third person of an obligation of the lessor. The appellant’s situation remains the same. Were the legal obligations of the appellant being reduced by payments to creditors, very plainly there would exist income because each payment would operate to discharge a liability of the lessor to such third person. But that theory is inapplicable to such a situation as we have before us where payments made to third parties do not discharge or reduce a legal debt of the appellant and cannot in the nature of things confer any commensurate benefit upon the lessor. The rights of the stockholders here were created not against the appellant but against the Western Union Telegraph Company through the Western Union’s promise to pay to the stockholders specified rentals. In the case of United States v. Western Union Tel. Co. 50 Fed. (2d) 102, the court said:
“The Northwestern Telegraph Company could not prevent the Western Union Telegraph Company from paying*225 the stockholders after its agreement. . . . The shareholders are entitled to their share of the rent as provided in the stock certificate and can maintain an action for its payment without joining the Northwestern Telegraph Company.”
The control over the income is fixed in the stockholders of the appellant beyond its power to alter or interfere with. Mr. Justice Holmes in Corliss v. Bowers, 281 U. S. 376, 50 Sup. Ct. 336, sets out the point by use of this illustration: “If a man directed his bank to pay over income as received to a servant or friend until further orders, no one would doubt that he could be taxed upon the amount so paid. It is answered that in that case he would have title, whereas here he did not. But from the point of view of taxation there would be no difference. The title would merely mean a right to stop the payment before it took place.” In that circumstance it would be his income because it is under his control. It matters not so much where the title to the property is from which the income accrues; the test is control over that which is taxed. In the absence of an income tax law to be taken into consideration, and there was no such tax in this state in 1881, we agree with appellant’s contention that when the person against whom the tax is sought to be laid has, by valid contractual arrangement made before the income tax law was enacted, put beyond his further command, beyond the right to stop payment, rentals to accrue, and has by solemn contract made the right to those rentals to exist in other persons, has vested property rights, then those rights cannot be changed or impaired without such third party’s consent, and such rentals can be lawfully taxed as income only to those who beneficially own them, have control over them, possess the right to do with them as they please. Hoeper v. Wis. Tax Comm. 284 U. S. 206, 52 Sup. Ct. 120. If private property is to remain as an institution, rights under a contract must be beyond direct or, indirect attack. The rights of individuals to the control over the income from the
It follows that the additional assessment against appellant is violative of the due process clause, sec. 1 of the Fourteenth amendment, and sec. 10 of art. I of the constitution of the United States.
By the Court. — Judgment reversed, and cause remanded with directions to vacate the assessment.
A motion for a rehearing was denied, with $25 costs, on June 29, 1933.