185 Wis. 525 | Wis. | 1925
This is an appeal from the judgment of the circuit court for Dane county in proceedings upon a writ of certiorari issued from that court to the Wisconsin Tax Commission. The defendant made return to the writ and to this return a demurrer was filed, which was overruled.
The petition sets forth that the relator duly filed its return of income for the year 1918 subject to income taxation in Wisconsin, stating the total gross income, expenses, and deductions and the net taxable income in the amount of $64,470.41; that the Tax Commission gave notice of an additional assessment of income in the amount of $40,127 for 1918; that this additional assessment of income was caused by the Tax Commission disallowing certain deductions claimed in the return, thereby making additional net income for the year; that the principal addition is an item of $80,000 set up by the corporation on its books in 1918 as a reserve for accrued and accruing commissions and expenses; that subsequently the amount of the liability was determined by a judgment of the supreme court and paid by the taxpayer on November 4, 1920; that in said judgment it was determined that the commissions were for services performed for the relator and due in 1918 in the sum of $24,077.46; that an appeal had been denied and the assess
The claim for deduction arose out of a contract with one Smith, by which the plaintiff had agreed to pay Smith certain commissions for services rendered. The company paid Smith commissions for a period, but afterward refused to pay such commissions for the year 1918. It was the claim of the plaintiff that Smith had forfeited his right to the commissions by a violation of his contract. Suit was brought by Smith against the company in August, 1917, to establish the validity of the contract and for an accounting to the date of the commencement of the action. The suit was tried in the circuit court for Milwaukee county in February, 1919, and resulted in judgment for damages for commissions earned in 1916 and 1917 to the date of the commencement of the action. The relator appealed to this court and a decision was rendered in September, 1920, modifying the judgment and awarding an accounting for commissions to the date of the trial of the case in the circuit court. An accounting was had and resulted in the finding that Smith was entitled to commissions earned in the year 1918 in the sum of $24,077.46. This judgment was paid on November 4, 1920. The increased amount of the tax, including income tax, soldiers’ educational surtax, and soldiers’ bonus tax, for the year 1918 was $4,255.67. Subsequently there was added an additional assessment for interest.
In the litigation between- the plaintiff and Smith there
“In view of all the circumstances, it appears that the company did not recognize that Smith had any legal claim against it. Consequently, it could not have properly deducted any amount of the commissions it was subsequently compelled to pay during the years in which the castings were manufactured. Smith’s claim was entirely contingent upon winning his suit. The Wisconsin income-tax law provides that contingent losses and liabilities are not deductible. The Commission has consistently held in similar cases that contingent losses and liabilities cannot be deducted until based on a complete and closed transaction, and can see no reason why any exception should be made in this case.”
For substantially the same reasons the trial court sustained the decision of the Commission.
Counsel for the appellant rely on several sections of the statutes for their claim that the deduction made in the income-tax return of the plaintiff should have been allowed. Sec. 1087m — 3 (b), Stats. 1917, now sub. (2), sec. 71.03, reads:
“Other ordinary and necessary expenses and cash bonuses to employees, actually paid within the year out of the income in the maintenance and operation of its business and property. . .
Sec. 1087» — 1, Stats. 1917, now sec. 71.01, reads in part as follows:
“There shall be assessed, levied, collected and paid a tax upon incomes . . . provided that firms . . . which cus*529 tomarily close their annual accounts on a date other than December 31st, or which customarily estimate their income or profits on a basis other than of actual cash receipts and disbursements, may, with the consent and approval of the tax commission, return for assessment and taxation the income or profits earned during the business year for which the accounts of such person are customarily made up.”
Sub. (3) (b), sec. 71.02, of the Statutes of 1923 reads as follows:
“The terms ‘paid’ or ‘actually paid,’ as used in this chapter, are to be construed in each instance in the light of the method used in computing-taxable income whether on the accrual or receipt basis; provided, that the deduction for federal income and excess profits taxes shall be confined to cash payments made within the year covered by the income tax return, and that reserves for contingent losses or liabilities shall not be deducted.”
Counsel for the relator claim that the books had been kept on an accrual basis and that the obligation which was set up in estimated figures in 1918 and finally determined by the court in 1920 constituted an allowable deduction for 1918 in the amount allocated by the court for that year; that since that amount is $24,077.46, and $80,000 was set up on the relator’s books during that year, only the excess above that amount, or $55,922.54, should be disallowed. It is claimed that the relator could not, on making the return, state the true amount, and that if any deduction was made it was necessarily an estimate. It seems clear, as urged by the appellant, that the sum of $24,077.46 was earned by Smith for services rendered during 1918 and that they were services actually rendered in producing the income for that year. The payment for the services was. not made during that year and not until 1920. But it is contended that the obligation for the services was incurred during 1918 and that the words “payments within the year” should be construed to include obligations incurred during the year. It may be a serious question whether the deduction was for “contingent losses or liabilities.” In 1918 the claim of
This court has several times defined contingent claims within the meaning of the statutes regulating the filing of demands against estates. It was said in Austin v. Saveland’s Estate, 77 Wis. 108, 45 N. W. 955, that “A contingent claim, within the meaning of the statutes, is one where the absolute liability depends upon some future event, which may never happen, and which therefore renders such liability uncertain and indeterminable.” In Davis v. Davis, 137 Wis. 640, 119 N. W. 334, the rule was stated as follows: “The mere fact that an accounting is necessary to determine the amount due does not make a claim a contingent claim. A contingent claim is one which may never accrue. 9 Cyc. 73. A contingent claim is one where the liability depends upon some future event which may or may not happen and therefore makes it uncertain whether there ever will be a liability.” For further discussion of the subject see South Milwaukee Co. v. Murphy, 112 Wis. 614, 88 N. W. 583. We doubt whether the demand of Smith depended upon any such future event as to place it within the class of “conting-ent losses or liabilities.”
Although sub. (3) (b), sec. 71.02, was not enacted until 1921, both parties cite it and rely on it. Counsel for the plaintiff argues that it was a legislative declaration of a practice of allowing the deduction of accrued items which had been adopted by the Commission. Counsel for the State argue that this section is merely a declaration of the effect of the law from the beginning, and in support of this position refer to the revisor’s note to Bill No. 8 S, Session of 1921, to revise and renumber the income tax law. The plaintiff corporation in the return of 1918 reported a very
The point is raised by the appellant’s counsel that if it should be held that the additional assessment is authorized by any provisions of the income tax law, such provisions are unconstitutional as not within the powers conferred by sec. 1, art. VIII, of the Wisconsin constitution, as the word “income” as used in the constitution means net income and not gross income, and that expenses and deductions from gross income must be allowed in order to arrive at net income. The income tax statutes are not based on the theory that gross incomes are to be taxed. On the contrary they contain provisions for deductions from gross income, as already appears. It is well settled that in determining what deductions may be made in respect to inheritance and income taxes the legislature has very broad powers (Estate of Week, 169 Wis. 316, 172 S. W. 732; State ex rel. Stern M. Co. v. Tax Comm. 170 Wis. 506, 175 N. W. 931), and that “income” for the purposes of
By the provisions of sec. 71.10, whenever it appears probable that a corporation has been over or under-assessed or that no assessment has been made when one should have been made in any of the years following January 1, 1915, the Tax Commission may determine the true amount of taxable income received during the year or years under investigation, and any part of the income so ascertained and not previously assessed is to be assessed and entered upon the next assessment roll. This statute has been held constitutional. State ex rel. Globe Steel Tubes Co. v. Lyons, 183 Wis. 107, 197 N. W. 578. The statute also affords a remedy to the taxpayer if the assessment has been excessive. Under the practice of the Commission, if in 1920, when the true amount proper to be deducted was known, it had been reported, the Commission could have ascertained the true income tax for 1918 and proper allowance would have been made in the assessment for 1920. The difficulty and hardship to the plaintiff in this case arises from the fact, as appears from the record, that in the year 1920 there were no profits. Many instances might be given in which tax laws and their administration work hardship and even injustice in individual cases, but it does not necessarily follow therefrom that the statutes are unconstitutional.
It is further argued by the appellant that even if the statutes may not authorize the allowance of the reserve set up in the return as a deduction from its income, the Commission should, on equitable principles, have deducted from the income of 1918 the amount found by the court to be due to Smith for commissions earned in that year. The case of
The further point is made by counsel for the appellant that ch. 310 of the Laws of 1923, under which the assessments of interest were made, was not legally enacted, because, as claimed, the following sections of the state constitution were not complied with. Art. IV, sec. 19, reads as follows: “Any bill may originate in either house of the legislature, and a bill passed by one house may be amended by the other.” Art. VIII, sec. 8, provides:
“On the passage in either house of the legislature of any law which imposes, continues or renews a tax, or creates a debt or charge, or makes, continues or renews an appropriation of public or trust money, or releases, discharges or commutes a claim or demand of the state, the question shall be taken by yeas and nays, which shall be duly entered on the journal; and three fifths of all the members elected to such house shall in all such cases be required to constitute a quorum therein.”
The bill had quite a history. But it does not seem necessary to recite the full details of its journeys back and forth between the houses before and after June 1, 1923. Counsel for the appellant complain of no irregularity prior to that date. On that date the vote by which the original bill was passed was reconsidered in the Senate, and an amendment, No. 18, was adopted, but the yeas and nays were not entered on the journal. The bill was received in the Assembly from the Senate, was referred, and on June 8th a former vote, by which the bill had been adopted, was reconsidered.
The assessment of back income was made final on February 15, 1923. The statute authorizing the assessment of interest on such assessments, sub. (3) of sec. 71.06, became a law June 29, 1923. This was before the time came to certify the tax and place it on the tax roll. On August 23, 1923, which was also before that time arrived, the Commission added interest to the taxes assessed. The claim is made that this action was beyond the powers of the Commission; that having once acted upon facts before it the Commission could not reopen the matter and make an additional assessment on the same facts. For this proposition counsel rely on State ex rel. Schuster Realty Co. v. Lyons, 184 Wis. 175, 197 N. W. 585, 199 N. W. 48. In that case, which related to the depreciation to be allowed on a building, where the Commission had taken final action some years before, it was held that, in making reassessment of income tax under sec. 71.10, Stats., the Tax Commission cannot act on the same identical facts it acted on in making the original assessment, but it is only when new and additional information comes to it, either through the corporation or otherwise, that it is authorized to reassess. In the case before us new facts had come to the knowledge of the Commission, in the shape of an important statute mandatory in its nature and
By the Court. — -Judgment affirmed.