191 Wis. 153 | Wis. | 1926
Lead Opinion
The appeal raises the question whether a stock dividend ■ declared solely upon an appreciation of corporate assets was subject to an income tax in 1920. It does not raise the question whether it is taxable within the income tax amendment of 1911 to the constitution, or whether it should be taxed as income ór profits. The inquiry is, Had the legislature, prior to the levy of this tax, made such a stock dividend subject to a tax?
Our constitution provides that “taxes shall be levied upon such property as the legislature shall prescribe” . . . and “may also be imposed on incomes . .„ . and reasonable exemptions may be provided.” Art. VIII, sec. 1. It will thus be seen that before property becomes subject to a tax
Of course it was necessary to limit taxable dividends to such as were earned or accrued subsequent to January 1, 1911. But in order to do that it was not necessary to leave out one class of dividends entirely. It would have been quite sufficient to say that all dividends declared out of earn-
Much is contained in the briefs about the power to tax dividends issued upon an appreciation of'corporate assets, and as to the duty to tax the same to the corporation or to the stockholders. We express no opinion as to their taxability or the method of taxing them because the questions are not involved in this appeal. As said in the beginning, the only question we' have to consider is, Had the legislature, at the time these stock dividends were issued, declared them subject to an income tax? We go to the statutes, and need go only to the statutes, for an answer to the inquiry. That answer is, that not until 1925 did the legislature declare dividends issued upon an appreciation of corporate assets taxable.' This court has never decided this question before. What it may heretofore have said as to all dividends being taxable must, as to this question, be regarded as obiter merely.
By the Cotirt. — Judgment reversed, and cause remanded with directions to enter judgment declaring void the assessment involved in this appeal.
The following opinion was filed November 17, 1926:
Dissenting Opinion
(dissenting). • The question here presented is whether a stockholder of a corporation is subject to an income tax upon a stock dividend issued to him to absorb an increase in the value of the corporate property, which increase the corporation has set up on its books and carries as additional capital. In other words, whether the income tax statute makes a distinction between a stock dividend based upon an appreciation of corporate property and one paid out of the profits of the corporate business. I find
When enacted, the income tax law provided that income, among other things, should include “all dividends derived from stocks.’.’ Certainly there could not be a more sweeping and inclusive declaration. “All dividends derived from stocks” were made subject to an income tax. The federal income tax act of 1913 contained a similar provision. Straightway corporations adopted the'practice of declaring stock dividends rather than dividends payable in cash, thinking thereby to evade the income tax acts of state and nation. This practice resulted in a conflict of view, and much public debate as to whether a stock dividend constituted taxable income. This practice, and the public discussion resulting therefrom, brought the matter sharply to the attention of legislative bodies, and Congress by act of September 8, 1916 (ch. 463, 39 U. S. Stats, at Large, 736), provided “that the term 'dividends’ as used in this title shall be held to mean any distribution made or ordered to be made by a corporation . . . out of its earnings or profits accrued since March 1, 1913, and payable to its shareholder, whether in cash or in stock of the corporation, . . . which stock dividend shall be considered income, to the amount of its cash value.”
By ch. 247, Laws of 1917, par. (b) of sub. 2 of sec. 1087m — 2, Stats., was amended by adding thereto the following: “provided, that the term ‘dividend’ 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.”
The manifest purpose of both the act of- Congress and ch. 247, Laws of 1917, was to make plain the legislative
Up to this point there is no controversy, and the investigation must, proceed on the premise that the stock dividend here involved constituted income in the constitutional sense. The majority of the court, however, reaches the conclusion that the legislature did not intend to tax this particular form of stock dividend; or, in other words, that it did not intend to impose an income tax upon a stock dividend declared out of a surplus resulting merely from an appreciation of the corporate property. This conclusion is ba.sed upon the contention that sec. 182.19 establishes two classes of dividends, and authorizes the payment of one class out of surplus derived from the profits of the corporation and the other out of an appreciation of its property.
In the first place, I do not think that sec. 182.19 is subject to such a construction. That section is not affirmative but negative in its terms. It does not- purport to confer authority upon the corporation, but purports to limit and restrain
I submit that this declaration is not .a grant of power but a limitation upon power assumed to reside in- the corporation. If it be assumed that in the absence of this statutory provision a corporation of this state has no power to declare a stock dividend to absorb the appreciative value of its property, a reference to the unwritten law certainly indicates otherwise.
Thus, in 5 Thompson on Corporations (2d ed.) at sec! 5275: “Stock dividends are not infrequently and legitimately made where the procéeds have been used in improvements of the corporate property or in the extension of its business. Another and a frequent, and proper instance of such dividends is where the corporate property by improvements or otherwise has greatly increased in value and has become worth more than the original capitalization and the additional stock is issued to represent the difference between
In a note, beginning at the bottom of page 68, in 50 L. R. A. n. s, the annotator says:
“The general rule is, at least in the absence of controlling statutory or constitutional provision,, that a corporation having a charter or statutory right to increase its stock may regard corporate assets over and above the amount of capitalization and indebtedness, whether consisting of accumulated, undistributed profits held as such, or invested in improvements or extensions of plant, etc.., or a general increase in the valuation of the corporate property, etc., as consideration for an increase of stock to the amount of the surplus assets.”
The annotator then cites many cases in support of the doctrine, and concludes by saying: “In Wisconsin by statutory declaration the unwritten law has been adopted,” citing sec. 1765, Stats. 1898, now sec. 182.19. Indeed, it is believed that this court plainly recognized this authority on the part of corporations in Soehnlein v. Soehnlein, 146 Wis. 330, 131 N. W. 739, where it said:
“There is no legal objection, in the absence of some statute to the contrary, to a corporation declaring a dividend, payable in stock, out of its net income, leaving its ordinary capital unimpaired. That method is common. True, the general conception of dividend incidents to corporate stock is payment from time to time out of net income of moderate amounts, somewhat in the nature, as to regularity of payment and amount thereof, of interest on money investments represented by notes and bonds. But for convenience of the corporation and according to the judgment of directors, dividends out of net earnings carried as undivided profits, or surplus, or otherwise, and existing in cash or property, may be made in cash or stock of any legitimate kind by some method which will operate to actually transfer distributable assets — those not impairing capital — to individual ownership of stockholders, or constructively do so by bene*161 ficially giving them additional shares of stock, thus changing the distributable property into permanent capital against new liabilities,”—
after saying which the court goes on to say that “by the written law of this state the stock method of distribution is recognized as legitimate and expressly authorized;” and, after quoting sec. 1765, declares “that is but a statutory declaration of what has become unwritten law by the uniform trend of decisions.”
I am therefore unable to agree that sec. 182.19 created two classes of dividends, or that any such distinction was in the mind of the legislature when it enacted ch. 247, Laws of 1917. I must agree thát if the laws of this state specifically and definitely defined two classes of stock dividends, and the income tax law referred to but one of them, it might be legitimately argued that it appeared that the legislature intended to exempt from taxation the dividend not specifically mentioned in the income tax law. But even should such appear to be the effect of sec. 182.19, in view of the history and of the development of our income tax law I could not regard such circumstance as conclusive of the legislative intent. As before stated, it is clear that when the income tax law was first enacted the legislature intended to impose an income tax upon all dividends, and that the amendment of 1917 was enacted not for the purpose of limiting the prior all-inclusive language of the statute, but for the purpose of making it plain that it did intend to tax stock dividends and, as far as the legislature could accomplish it, tq put at rest the controversy of whether a stock dividend constituted taxable income. * This was the construction placed upon it by the tax commission, an ád-ministrative body of the state in very close touch with the legislature, when the latter was dealing with the subject of taxation. It well may be assumed that this very amendment was suggested to the legislature by the tax commis
It thus appears that the legislature first made “all dividends derived from stocks” taxable as income. Sec. 1087« — 2 (b), Stats. 1913. To meet the contention that stock dividends did not constitute income and were not taxable as such, the legislature defined the term “dividend” as including “any distribution made by a corporation . . . and paid to its shareholders- whether in cash or in stock of the corporation.” Manifestly this was a legislative effort to make plain the legislative purpose of subjecting all dividends to an income tax. This purpose was further maintained and revealed when, after objection was interposed to the levy of the tax involved in this action, the legislature, by ch. 446, Laws of 1925, added to sec. 71.02 (2) (b) the following: “and shall also include any distribution of increased value in capital assets ,under the authority of section 182.19.” This legislation was all consistent with the original idea of the legislature to make all dividends declared by corporations of whatever kind, nature, or description subject to an income tax.
To my mind the amendment made by ch. 446, Laws of 1925, is not indicative of the legislative purpose attributed to it by the majority opinion. I fully recognize that under some circumstances an amendment to a statute justifies a construction such as is invoked in the majority opinion. However, this is by no means inexorable. It is well known that amendments to statutes may have one of two purposes: first, to change the law, and second, to more clearly reveal the legislative intent. It seems clear to me that the purpose of ch. 446, Laws of 1925, was to make clear what was said in the beginning and emphasized by ch. 247, Laws of 1917, namely, that all dividends of corporations were subject to an income tax. Such has been the consistent inter
I am authorized to state that Mr. Justice Crownhart and Mr. Justice Stevens concur in the views herein expressed.
