174 Wis. 597 | Wis. | 1921
This is a certiorari to review the proceedings of the county income tax board of review of Eau Claire county relative to plaintiff’s income. The plaintiff, a resident of Wisconsin, received during the income year in question dividends from a foreign corporation doing no business in Wisconsin, which dividends were declared in stock out of its earnings and profits accrued since January 1, 1911, but he did not include them in his income report. The taxing authorities included said stock dividends in the plaintiff’s taxable income and computed his income tax accordingly.
The constitutional provision in this state as amended in 1908 is as follows:
Art. VIII, sec. 1. “The rule of taxation shall be uniform, and taxes shall be levied upon such property as the legislature shall prescribe. Taxes may also be imposed on incomes, privileges and occupations, which taxes may be graduated and progressive, and reasonable exemptions may be provided.”
The original income tax statute, passed in 1911 (ch. 658), provided:
“2. The term ‘income,’ as used in this act, shall include: . . .
“(d) All dividends or profits derived from stock or from the purchase and sale of any property or other valuables acquired within three years previous or from any business whatever.” Sec. 1087m — 2, Stats.
In 1917 the act was amended, and now reads:
“2. The term ‘income,’ as used in this act, shall include: . . .
“(b) All dividends derived from stocks and all interest derived from money loaned or invested in notes, mortgages, bonds or other evidence of debt of any kind whatsoever, provided, that the term ‘dividends’ as used in this section shall be held to mean any distribution made by a corporation, joint stock company or association, out of its earnings or profits accrued since January 1, 1911, and paid to its shareholders whether in cash or. in stock of the corporation, joint company or association.” Sec. 1087m — 2, Stats.
The question is presented for the first time in this court whether under the clause of the constitution already quoted it is competent for the legislature to impose a tax upon the stockholder on account of stock dividends declared by com porations and received by him; in other words, whether a stock dividend may be included within the word “incomes.”
It is strongly urged by the attorney general that this decision is decisive of the present case and is a rule of property. It is argued that if the plaintiff had received the dividends as. a life tenant while this statute and the decision just referred to were in force, he would have received it as income, and that it would be absurd to deny that it was income subject to taxation. But we are not convinced that the Soehn-lein Case is conclusive on the issue now before us in construing the constitutional amendment and the statute. The word “income” is a very broad and inclusive term and may not have exactly the same meaning in a will and in a state or federal constitution or a statute. This was well illustrated in two decisions in Massachusetts. In the leading case in that state, decided in 1868, it was declared: “A simple rule is, to regard cash dividends, however large, as income, and stock dividends, however, made, as capital.” Minot v. Paine, 99 Mass. 101. This was the rule as between life ten
There are very few decisions on the exact question here involved, but they are those of courts of high authority and are entitled to much weight. The case most relied upon by plaintiff is Eisner v. Macomber, 252 U. S. 189, 40 Sup. Ct. 189. This case involved a construction of the Sixteenth amendment to the federal constitution, which provides as follows: “The Congress shall have' power to lay and collect-taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration,” and of an act of Congress declaring that a “stock dividend shall be considered income, to the amount of its cash value.” The complaint alleged that in imposing the tax the revenue act violated that clause of the constitution which requires direct taxes to be apportioned according to population and that the stock dividend was not within the meaning of the Sixteenth amendment.
In an able and elaborate opinion Mr. Justice Pitney, for the majority of the court, reviewed former decisions of the court holding that taxes upon rents and profits of real estate and upon returns from investments of personal property are in effect direct taxes upon the property from which the income arises, imposed by reason of ownership, and that Con
' We have given this partial outline of this decision because it presents in the ablest and most authoritative manner the reasoning against legislative power to tax stock dividends as income. The persuasiveness of the opinion as authority is somewhat weakened by the fact that it is a five-to-four decision, four of the Justices having dissented. Mr. Justice' Holmes and Mr. Justice Day dissented on the ground that the word “incomes” in the Sixteenth amendment should be read in a sense most obvious to the common understanding at the time of its adoption. It was their view that the known purpose of the amendment was to get rid of nice questions as to what might be direct taxes, and that most of the people not lawyers would suppose when they voted for it that they put the question at rest. Mr. Justice Brandéis wrote an opinion, concurred in by Mr. Justice Clarke, in which the whole subject was ably discussed, holding that the language of the amendment was broad enough to include stock dividends and that the tax should be upheld.
The majority of the court may have been somewhat influenced by the fact that since the case of Gibbons v. Mahon,
“The Massachusetts court was not under an obligation, like the one which binds us, of applying a constitutional amendment in the light of other constitutional provisions that stand in the way of extending it by construction.” Page 217.
The problem is presented to us under quite different conditions. If we follow the rule declared in the Soehnlein Case, that in the absence of a contrary direction stock dividends are to be treated as income in all cases, as argued by the attorney general, there is only one alternative, namely, to sustain the statute. Although, as indicated, we do not regard the rule laid down in that case as absolutely controlling in this, since the questions involved are somewhat different, it has an important bearing on the meaning of the word “income” as declared by this court. As between life tenant and remainderman the word has a settled meaning in this state, and we can see no reason for giving a different meaning as between a taxpayer and the state unless it had acquired such different meaning before the constitutional amendment was adopted.
There can be no doubt but it is competent by provision in the constitution, or amendment thereto, to subject stock dividends to taxation. No contention to the contrary is made. It is claimed, however, that they were not included in the word “incomes” and that this was not the intention of those adopting the amendment. It would serve no useful purpose to attempt to analyze the definitions of income as given in the standard dictionaries at the time the amendment was adopted. Very different inferences could be drawn from them, and the differences of opinion among lawyers, judges, and economists are and were quite irreconcilable. It is certain that before that time most of the decisions relating to the rights of life tenants and remaindermen had treated stock dividends as 'income. It is a matter of common knowledge that stock dividends were generally welcomed by shareholders in about the same manner as cash dividends; that when it was known in advance that stock dividends were to be issued the market value of the stock advanced. Stockholders and the public realized that when such dividends were issued the owner of the stock acquired new and substantial rights. Although his proportionate interest in the assets of the corporation was not increased, he retained his original shares and received others which represented surplus earnings which were added permanently to capital. Al
In the opinion of Mr. Justice Pitney above mentioned much stress is laid upon the claim that the owner of a stock dividend had not realized his profits and that there can be no tax imposed until a sale. But we consider, this objection rather theoretical than practical. Stock dividends actually earned and legally declared have a market value and are easy of transfer. The owner has the option to keep or to sell his stock; but we cannot agree that the right of the legislature to impose a tax upon his profits is to be determined by the exercise or non-exercise of such option. Mr. Justice Pitney stresses the words “derived” and “from” in the Sixteenth amendment and construes similar words in a definition of income previously adopted by the court as distinguishing the gains taxable under the federal amendment from gains in a general sense. He says:
“ ‘Derived — from—capital;’ ” — “ ‘the gain — derived— from — capital,’ etc. Here we have the essential matter; not a gain accruing "to capital, not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value proceeding from the property, severed from the capital however invested or employed, and coming in, being ‘derived,’ that is, received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal;— that is income derived from property. Nothing else answers the description.” Page 207.
There might be unlimited argument and refinement concerning the meaning of “income,” but we cannot believe that the legislature and the people adopting the amendment gave the word any such technical and restricted meaning as is claimed by plaintiff. It was undoubtedly their intention in adopting this far-reaching amendment to the constitution to shift to a greater degree than before the load of taxation upon those best able to pay. It seems to us incredible that they expected that the gains of stockholders in corporations should be increased indefinitely and that the liability of those gains to taxation should depend upon the manner in which boards of directors should declare the profits. It seems far more consistent with the general purpose of the amendment that they were considering substance rather than form and that they did not intend that the advantages and gains of stockholders derived from their, investments should remain
Although the direct question involved now comes before this court for the first time, the word “income” as used in the amendment under consideration has been given a liberal rather than a technical meaning. Van Dyke v. Milwaukee, 159 Wis. 460, 150 N. W. 509; State ex rel. Howe v. Lee, 172 Wis. 381, 178 N. W. 471.
In considering the statute involved in this case there is no room for construction. The language is so explicit in giving authority to tax stock dividends that there can be no possible doubt of the legislative intent. In the case of Tax Comm’r v. Putnam, 227 Mass. 522, 116 N. E. 904, above referred to, stock dividends were not in express terms made subject to the tax. But the court construed the word in the constitutional amendment and the statute to include them.
If we were to adopt the view of plaintiff’s counsel in this case we should strictly construe the constitutional amendment above quoted. But we cannot agree with that view. Clauses in constitutions and their amendments become the paramount and organic law. They state the basic principles on. which the fabric of future legislation is to- be erected. Three or four lines may remain for generations as the foundation for innumerable and complicated statutes. So long as their spirit and real meaning are not violated they may form the safe foundation for legislation never anticipated by the authors, who could not foresee the new conditions to arise in the changing economic and industrial life. When a clause in a constitution or an amendment confers new bcoad powers upoil the legislature, it is not within the province of the judiciary to whittle down the grant by technical refinements.
More than a century ago it was held by the supreme court of the United States that the question whether a law should be held void for its repugnance to the constitution is at all
“It is but a decent respect due to the wisdom, the integrity, and the patriotism of the legislative body, by which any law is passed, to presume in favor, of its validity, until its violation of the constitution is proved beyond all reasonable doubt.” Ogden v. Saunders, 12 Wheat. 213, 270.
This is the rule which has generally prevailed and which has been too often declared by this court to require the citation of cases.
For these reasons we agree with the conclusions reached by the courts of Massachusetts and New York in Tax Comm’r v. Putnam, 227 Mass. 522, 116 N. E. 904; People ex rel. Pullman Co. v. Glynn, 130 App. Div. 332, 198 N. Y. 605, 92 N. E. 1097, instead of that which prevails in the federal courts; and we hold that the statute under consideration is valid.
By the Court.- — Judgment reversed, and cause remanded with directions to enter judgment affirming the assessment of the county income tax board of review, and that the petition be dismissed.