181 Wis. 564 | Wis. | 1923
Lead Opinion
The following opinion was filed January 9, 1923:
The questions here presented are as follows:
(1) Is a stock dividend assessable under the income tax law, sub. (2) (b), sec. 71.02, Stats.?
(2) If so taxable, shall it be assessed at its par or market value, if the latter be the lesser?
(3) Is the surtax for the teachers’ retirement fund, sec. 20.251, Stats., as created by ch. 459, Laws of 1921, so far at least as Milwaukee taxpayers are concerned, in violation of state or federal constitutions?
(4) If such surtax be valid, should the basic rate of one per cent, or one and three-fourths per cent. (sub. (1) (a), (d), sec. 71.06) be applied to the first $4,000 of the taxpayer’s net income ?
On the first question we shall adhere to the ruling in State ex rel. Dulaney v. Nygaard, 174 Wis. 597, 183 N. W. 884, where this precise question was fully considered and it was held that a stock dividend is lawfully assessable under our statute for income-tax purposes.
In a very able and comprehensive argument counsel for relators challenge the correctness of our former decision and ask that we now overrule it. Stress is laid upon the fact that the House of Lords, in Commissioners of Inland Revenue v. Blott, 125 L. T. Rep. 497, decided just a month before our decision in the Dulaney Case, supra, held that a distribution of shares out of the profits of a corporation to the shareholders, they having no option but to receive it in such form, must be considered as capital and not taxable income, thus apparently overruling a decision by the Judicial Committee of the Privy Council (1914) in Swan Brewery Co. v. The King, 110 L. T. Rep. 211, and which was considered
On the second of these questions the court below held that the actual or. market value of such dividend stock at the time it was issued and distributed, rather than its par or face value, should be its value for such assessment purposes.
Ordinarily it is undoubtedly true that, in the absence of express statutory language otherwise providing, property should be valued at its actual going value rather than at fictitious or. mere book value. State ex rel. Howe v. Lee, 172 Wis. 381, 386, 178 N. W. 471; Doyle v. Mitchell Bros. Co. 247 U. S. 179, 187, 38 Sup. Ct. 467; Osgood v. Tax Comm’r, 235 Mass. 88, 92, 126 N. E. 371; Cummings v. National Bank, 101 U. S. 153, 162. As to real estate, such basis of actual or sale value is fixed by statutory declaration. State ex rel. Northwestern Mut. L. Ins. Co. v. Weiher, 177 Wis. 445, 188 N. W. 598. And inquiry may be made as to the source of the dividend in questions of taxation. State ex rel. Moon v. Nygaard, 170 Wis. 415, 418, 175 N. W. 810; Matter of Osborne, 209 N. Y. 450, 475, 103 N. E. 723, 823. But a somewhat special situation is here presented by the provision regulating the issue of common stock such as this, though issued for dividend purposes, by a Wisconsin corporation. It could only lawfully be issued by the company, and of course only so received by relators pursuant to and under the conditions of sec. 1753, Stats., the material part of which reads as follows:
“No corporation shall issue any stock or certificate of stock except in consideration of money or of labor, or*571 property estimated at its true money value, actually received by it, equal to the par value thereof, . . . and all stocks and bonds issued contrary to the provisions of law and all fictitious increase of the capital stock of any corporation shall be void.”
Its stamped or mint value, so to speak, as so issued by the corporation and delivered to and received by the relators at the time of the distribution must be -considered and assumed to be then of the par value expressed and stamped on the face thereof. Otherwise it is a fictitious increase and void in whole or in part under the above quoted statute. It being properly considered as taxable income, neither the corporation that issued it nor the stockholders who received it ought to be heard to say that as so issued by the corporation and received by the relators it was of less value than that which the statute directs must be its then true money value — par. Its selling value thereafter is immaterial. But being assessable as income, and of the moment of issue and distribution by the corporation and receipt by the stockholders, it should, for taxing purposes at least, be treated as of par value.
On the third question the trial court held that the legislation of 1921, ch. 459, so far as it attempted a surtax for the teachers’ retirement fund, violated the constitutional requirement of uniformity and was for that reason void; the alleged lack of uniformity being that the taxpayer of Milwaukee may have a heavier tax burden to bear so far as this teachers’ retirement fund tax is concerned than is borne by the taxpayer outside of Milwaukee, in that the former, while paying to the city his school tax to help carry on the city’s share of the Milwaukee teachers’ retirement fund, is also required to contribute to the state system by the surtax, out of which latter contribution there is an arbitrary distribution to Milwaukee’s fund of but twenty-five cents out of each dollar he so contributes. This alleged lack of uniformity, however, is one that relates to the manner of the distribution of the proceeds from taxation
The lack of uniformity, if any exists, in this situation is as to' the distribution of the proceeds of the tax. It well may be that in view of the substantial differences, not necessary here to particularize, between the Milwaukee system and the state system, the individual taxpayer in Milwaukee receives less real or theoretical benefit per dollar of his contribution to the surtax than does the taxpayer outside of that city, but such is post, not ante, to the surtax reaching the state treasury and becoming there ready for disbursement.
That there is a substantial distinction between an inequality in the assessing or collecting of a tax and inequality in the disbursing of its proceeds among those who contributed, and that while the former may invalidate the tax the latter does not, is established doctrine in this state. State ex rel. Owen v. Stevenson, 164 Wis. 569, 580, 161 N. W. 1; Rinder v. Madison, 163 Wis. 525, 529, 158 N. W. 302; Land, L. & L. Co. v. Brown, 73 Wis. 294, 303, 40 N. W. 482; State ex rel. Baraboo v. Sauk Co. 70 Wis. 485, 489, 36 N. W. 396; State ex rel. Atwood v. Johnson, 170 Wis. 218, 243, 175 N. W. 589.
The same rule is held in other jurisdictions. Bayville Village Corp. v. Boothbay Harbor, 110 Me. 46, 50, 85 Atl. 300; Chelsea v. Treasurer, 237 Mass. 422, 431, 130 N. E.
We certainly cannot say upon the showing here that the required refund to Milwaukee of but twenty-five cents for its teachers’ fund out of each dollar its taxpayers contribute to this surtax is so unreasonable and arbitrary as to compel judicial interference. The state system now, as it did not before, provides for a retirement fund for those in the teaching forces of the university and normal schools, so that the state system now no longer can be considered as concerned only with schools whose' functions and jurisdictions are sharply contrasted with similar, schools in Milwaukee; it now includes institutions- which must be considered of state-wide importance and not bounded by anything less than state boundaries.
Many other objections are suggested to this surtax, but in the view we have taken of it we do not deem it necessary to make specific reference to them. Many of them are such that, were they valid, yet the relators not being now or at all affected thereby cannot raise them. This brings us to a result contrary to that reached by the court below, and the judgment to that extent also must be modified.
The fourth and last question involves a construction of statutes, and in its solving we can here have no aid from decisions.
By sub. (1), sec. 20.251, Stats, (ch. 459, Laws 1921), this surtax, so- far as the question is here presented, is “on net income computed at one sixth the rates prescribed in subsection (1) of section 71.06,” and by sub. (3) the surtax “shall be upon the net income in excess of three thousand dollars,” and further by sub. (4) net income “shall be computed in the same manner as the income taxable under sections 71.01 to 71.05, inclusive.”
By sec. 71.06, Stats., it is provided by sub. (1) that the income tax, “after making such deductions and exemptions as are hereinbefore allozvcd, shall be computed at the
The difficulty here presented is in determining whether the surtax shall commence at one sixth of one per cent, on the first one thousand dollars of income subject to this surtax, or at one sixth of one and three-fourths per cent.
The surtax is only levied upon net income in excess, of three thousand dollars — that which in numerical order of thousands of any particular income becomes first subject to this surtax is that one thousand which is the fourth thousand in numerical order of the thousands subject to the general income tax. The net income under the general income tax law is the gross income less' the statutory deductions and exemptions; the net income, literally speaking, for this surtax is the same gross income less the same deductions and exemptions, with a further exemption of three thousand dollars more. The first one thousand dollars of net surtax income is identical, therefore, in any particular taxpayer’s instance, with the first four thousand dollars of his net general tax income, and it then becomes the basis for the primary rate for the surtax. By the express language of sub. (4), sec. 20.251, supra, the surtax net income shall be computed in the same manner (not shall be the same) as the general income tax is computed. The latter, of course, is computed by taking from the gross particular income the statutory deductions and exemptions allowable under the general income tax law; therefore to compute, for the purposes of the surtax, the net income in the same manner as above, the first thousand dollars of net surtax income cannot be arrived at until and after there has been taken from each particular gross income the deductions and exemptions proper under secs. 71.04 and 71.05 and the further three thousand dollars exemption provided
This view we have taken is rendered more certain when comparison is made with the express language used in the two surtax laws of 1919 and which were passed upon and upheld in State ex rel. Atwood v. Johnson, 170 Wis. 218, 175 N. W. 589, and (same title) 170 Wis. 251, 176 N. W. 224. The Soldiers’ Cash Bonus Act (ch. 667, Laws of 1919) provided by sec. 7 thereof that such surtax should be, in addition to the normal income tax, “on taxable income computed at the following rates, to wit: (a) on the fourth one thousand dollars or any part thereof, one and three-fourths per cent.” The latter, the Soldiers’ Educational Bonus Law (ch. 5, Special Session of 1919), by sec. 5 providing for that surtax that it should, in addition to the others, be “on taxable income computed at the following rates, to wit: (a) On the fourth one thousand dollars or any part thereof, seven-twentieths of one per cent.” In each of these acts the quoted provisions are followed by increased rates for the successive thousand dollars of income.
It follows from what has been said that the part of the judgment of the court below declaring so much of ch. 459, Laws 1921, as created sec. 20.251 unconstitutional and void and so much as declared that a stock dividend should be assessed at its market rather than its. par. value must be set aside, reversed, and it be determined to the contrary in each instance; so much of said judgment as holds the stock dividend taxable as income, and so much as held that the surtax here in question, if taxable, should be charged at the basic rate of one sixth of one per cent, for the first thousand taxable under this law, are each affirmed.
Dissenting Opinion
The following opinion was filed January 31, 1923:
(dissenting in par-t). I concur with the opinion of the court except in that part of the decision as to rates to be applied in assessing incomes for the surtax.
When the bill, 234, S, was before the legislature, the committees necessarily made estimates of the tax to be raised and the probable income based on the rates in the bill. After the bill passed the two houses and before it was signed by the governor, to be sure of the legislative intent the tax commission asked for and received the public opinion of the attorney general on the proper construction. In that opinion I fully concur. It reads as follows:
“June 24, 1921.
“You have asked my opinion as to the meaning of certain surtax provisions of the teachers’ retirement fund bill No. 234, S, which has 'now passed both houses and is about to be presented to the governor.
“The bill creates a new sec. 20.251, Stats. Sub. (1) provides that, in addition to the income tax imposed by the income tax law, there shall be levied on the incomes of all individuals, copartnerships, and fiduciaries a ‘surtax on net income computed at one sixth the rates prescribed in sub. 1 of sec. 1087m — 6.’ The second subsection of 20.251 makes a similar provision as to the income of corporations, referring to the rates named in sub. 2 of sec. 1087m — 6 as taxable income under the income tax law. The latter law provides that the surtax ‘shall be upon the net income in excess of $3,000.’ The fourth subsection provides that ‘net income’ shall be computed in the same manner as the income taxable under the income tax law.
' “The question on which you ask an opinion is whether, in determining the rate applicable to the first thousand dollars of income subject to surtax, you should take one sixth*577 of the rate applicable to the same income under the income tax law or one sixth of the rate applicable to the first $1,000 of taxable income under that law.
“Under the definition contained in sub. (4), net income within the meaning of the new law will be exactly the same as taxable income under the income tax law. The latter law provides as to individuals a rate of 1 % on the first $1,000 of taxable income, 1% % on the next $1,000, lj4 % on the third $1,000, and lj4 % on the fourth $1,000. The corresponding rates for corporations are 2 %, 2}4 %, 3 %, and 3j4 %, respectively. The new law provides that there shall be a surtax on the 'net income/ meaning the taxable income, and it further provides that the first $3,000 of that taxable income shall not be 'surtaxable/ if I may use the tefm. It then provides that when the point is reached at which the income becomes 'surtaxable/ the surtax shall equal one sixth the rates prescribed in the income tax law itself.
“To my mind, this very clearly means that the rate payable by a given thousand dollars of income after it reaches the point of being 'surtaxable’ shall be one sixth of the rate that that same thousand dollars is concurrently paying as regular income tax. The new law does not provide for an extra $3,000 to be taken'off the gross income before arriving at the net income; on the contrary, sub. (4) expressly provides that the net income for the purposes of the new law shall be ascertained in the same manner as the taxable income is ascertained under the income-tax law. Hence, the net income, within the meaning of the new law, begins to exist as soon as the taxable income begins to exist under the income law: i. e. as soon as there is a margin over the ordinary exemptions and deductions. As soon as this taxable income or net income begins to exist it is subject to an income tax, but it does not become subject to a surtax until another $3,000 has been added to it. When this $3,000 has been added it becomes ‘surtaxable’ at one sixth of the rate at which it is taxable. That rate, in the case of individuals, is 1^4 %> and in the case of corporations 3j4 %. It appears to me that the only meaning logically to be read out of the language of the new law is that the surtax rate applicable to the first $1,000 of ‘surtaxable’ income is one sixth of % in the case of individuals, and one sixth of 3j4 % in the case of corporations.”
As we have seen, the law was construed by the legal department of the state; that construction was acquiesced in by the legislative department; it was accepted by the executive department in signing the bill; the administrative department sustained such construction and so administered the law; the taxpayers generally have paid taxes under the law so construed without protest for one year, and a second assessment has been spread on the rolls and is now being paid.
“The construction given-to a statute by the body of men or officers who are directed to act upon it is always entitled to weight, and their construction should not be overridden by the courts, unless it be contrary to the clearly expressed meaning of the law.” Wright v. Forrestal, 65 Wis. 341, 348. 27 N. W. 52.
A motion for a rehearing was denied, without costs, on November 13, 1923.