223 Wis. 319 | Wis. | 1937
Lead Opinion
The sole'question upon this appeal is the constitutionality of sec. 6, ch. 15, Laws of 1935, which is
The material portions of the statute here in question are as follows:
“(1) For the purpose of this section.
“(a) ‘Person’ shall mean persons other than corporations as defined in subsection (1) of section 71.02.
“(b) ‘Dividends’ shall mean all dividends derived from stocks whether paid to shareholders in cash or property received in the calendar year 1933, or corresponding fiscal year, and deductible under subsection (4) of section 71.04.
“(d) ‘Net dividend income’ shall mean gross dividend income less seven hundred and fifty dollars.
“(2) To provide revenues for relief purposes there is levied and there shall be assessed, collected, and paid, an emergency tax upon the net dividend income of all persons in the calendar year 1933 or corresponding fiscal year at the following rates:
“(a) On the first two thousand dollars of net dividend income or any part thereof, at the rate of one per cent.
“(b) On the next three thousand dollars of net dividend income or any part thereof, at the rate of three per cent.
“(c) On all net dividend income above five thousand dollars, at the rate of seven per cent.”
Plaintiff’s first contention is that the act is discriminatory and obnoxious to the provisions of the Fourteenth amendment to the United States constitution as well as to secs. 1 and 22, of art. I, Wisconsin constitution. These sections read as follows:
“Section 1. All men are born equally free and independent, and have certain inherent rights; among these are life, liberty and the pursuit of happiness; to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed.”
“Section 22. The blessings of a free government can only be maintained by a firm adherence to justice, moderation, temperance, frugality and virtue, and by frequent recurrence to fundamental principles.”
It is also contended that there is discrimination as between members of the same class for the reason that only a fixed sum is deductible from the net income which does not vary in accordance with the circumstances or amount of the net income of a stockholder receiving dividend income from Wisconsin corporations. We do- not consider this objection to be valid. Considering the class to consist of all persons receiving dividends from Wisconsin corporations, all are treated alike, taxed alike, given the same deduction, and the same rate of tax. So long as this is properly treated as an income tax, the progressive character of the rates cannot be considered to be objectionable. It is our conclusion that there is no clear indication here that the purpose or effect of
The foregoing consideration of plaintiff’s claim that the act is discriminatory took no account of the retroactive features of the law under examination. It now becomes proper1 to consider plaintiff’s objection that the law is invalid because of these features. It is plaintiff’s claim that the legislature is authorized to make income tax provisions retroactive during the year of enactment and during the preceding year where the tax upon such preceding year has not been determined and paid, but that it is beyond the power of the legislature to tax dividends received in 1933 by a statute passed in 1935. We deem this objection to be unsound. It was held in Appeal of Van Dyke, 217 Wis. 528, 259 N. W. 700, that an income tax which is given retroactive effect by the legislature cannot properly be assailed on constitutional grounds if it applies to the year in which the law is enacted or if it applies to prior but recent transactions. This is also' the rule as announced by the United States supreme court. Brushaber v. Union Pacific R. Co. 240 U. S. 1, 36 Sup. Ct. 236; Lynch v. Hornby, 247 U. S. 339, 38 Sup. Ct. 543; Cooper v. United States, 280 U. S. 409, 50 Sup. Ct. 164. In the Cooper Case it is said:
“That the questioned provision cannot be declared in conflict with the federal constitution merely because it requires gains from prior but recent transactions to be treated as part of the taxpayer’s gross income has not been open to serious doubt since Brushaber v. Union Pacific R. Co. 240 U. S. 1, and Lynch v. Hornby, 247 U. S. 339.”
It is our conclusion, (1) that under this rule the legislature may measure an income tax by the income of a year sufficiently recent so that the income of that year may reasonably be supposed to have some bearing upon the present
The next two contentions of plaintiff may properly be considered together. They are that the tax is not authorized by the authority contained in sec. 1, art. VIII, Wisconsin constitution, for the imposition of taxes on income because while it purports to be a tax upon income, it is either, (a) a graduated tax ..on gross receipts, in which case it is void under the authority of Ed. Schuster & Co. v. Henry, 218 Wis. 506, 261 N. W 20, and Stewart Dry Goods Co. v. Lewis, 294 U. S. 550, 55 Sup. Ct. 525; or (b) that, being levied solely upon income from a-particular kind of property, the subject of the tax is so closely bound up with the ordinary attributes of ownership that it amounts to a tax upon the property itself and as such violates the constitutional requirement of uniformity. Sec. 1, art. VIII, provides as follows:
“The rule of taxation shall be uniform, and taxes shall be levied upon such property with such classifications as to forests and minerals, including or separate or severed from the land, 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 general principle underlying these contentions is that a tax measured in terms of income from a business, occupation or a particular kind of property is not an income tax within the meaning of that term as used in the constitution, but that it constitutes either an occupation or privilege tax, in which case it must not be levied retrospectively, or a property tax, in which case it must satisfy the constitutional re
By the Court. — Order reversed, and cause remanded with directions to sustain the demurrer.
Dissenting Opinion
(dissenting). This is an action to recover a tax paid under protest assessed under sec. 6, ch. 15, Laws of 1935, enacted March 27, 1935, which by its terms imposes an emergency tax on persons who received dividends from Wisconsin corporations during the year 1933 which were then deductible from the income on which the normal income tax of the person who received them was computed.
The claimed basis for the imposition of the tax upon the species of income covered by it and not imposing it upon any other species of income during that year, is that all other species of income were included in the income on which the normal income tax was computed, and were thus taxed, while the dividends covered by the section were not included and not taxed. It is reasoned that as these dividends might properly have been taxed during the year 1933 and were not then taxed, it is proper to tax them now, by analogy to the rule that property or income omitted from taxation during one year may be taxed in subsequent years on discovery of the omission.
That reasoning would support a tax imposed by a statute of 1935 on church property and all other property exempt from taxation by the laws as they stood in 1933. Would such a tax be legal, or would it be an illegal interference
In the Covington Case, supra, a state statute by its terms provided that by reason of the- fact that a prior statute taxing the franchises of national banks had been declared invalid by the supreme court of the United States, a tax was imposed on the shares of stock of such banks within the state, and by a section of the. latter statute it was applied retroactively to include taxation of shares during the period between the two enactments. The retroactive section was held unconstitutional and a preliminary injunction was granted against assessing any tax under the latter statute for the period prior to its enactment. The period reached back several years, but the injunction went against taxation for the last year of the period as well as the first. It is stated in 2 Cooley, Taxation (4th ed.), § 520, upon the authority of this case, that “It would seem that a statute cannot impose retroactive taxation for previous years upon a class of property not then subject to taxation,” and this statement is cited with approval in Norris v. Tax Comm. 205 Wis. 626, 628, 237 N. W. 113, 238 N. W, 415.
In Weber v. City of Detroit, 158 Mich. 149, 150, 122 N. W. 570, it is held that a statute imposing personal liability for special improvement assessments made prior to its enactment, where no such liability existed prior to its enactment, was void. For like reason a tax levied on property or an
The only adjudicated case bearing directly upon the precise point under discussion that I have been able to discover is the Covington Case, supra. I find two other cases, however, that bear upon it indirectly and to' my mind quite persuasively. In the Matter of Pell, 171 N. Y. 48, 63 N. E. 789, a statute was involved enacted in 1899 that imposed an inheritance tax upon all estates upon remainder or reversion which vested prior tO' the date of a previously enacted general inheritance tax statute, but which would not come into actual possession or enjoyment until after the date of the enactment, to be taxed when the recipient came into possession. The statute was declared unconstitutional because its effect would be to “diminish the value of these vested estates,’to impair the obligation of a contract, and take private property for public use without compensation” (p. 55). In the instant case the respondent’s property in the $12,000 of income involved, became vested in him at the time he received it. Now to impose a tax upon it under the statute is to diminish its value, and to take property for public use without compensation precisely as much as did the New York statute stated.
In Portuondo’s Estate, 19 Pa. Co. Ct. Rep. 419, an inheritance tax statute was involved that provided that “so much of the estates of persons heretofore deceased as has not been actually distributed and paid to persons entitled thereto prior to the passage of this act shall be liable to the tax imposed by this law, as well as the estates of persons who may die hereafter.” This was held unconstitutional on the ground that “when the right vested under existing law;s is taxed by a subsequent law, for general purposes of government and not for any purpose specially benefiting the owner of such right, it is not only taking the property of such owner without compensation, . . . but it is violating the other con
It is stated in the opinion of the court that it has been held by this court and by the supreme court of the United States that income taxes are not void as retroactive if applied to recent transactions. The cases so holding were considering net income, as distinguished from individual items, and income received over a consecutive period next antecedent to the enactment of the taxing statute, not a period wholly disconnected with the time <bf the enactment and separated therefrom by an intervening period not subject to the tax imposed. It seems to me that the opinion of the court in effect concedes the invalidity of the retroactive feature of the tax when it says : “While the present tax may approach or reach the limit of permissible retroactivity, it does not exceed it.” It is not for the court to fix the limit of retroactivity. If income from dividends received in 1933 were properly subject to taxation why not those of 1932 or 1931 ? Why not go back to 1929, when dividends were many and large, instead of 1933, when they were few and small ? The basis (1) of the court’s rule by which to test the validity of the tax, that the year must be “sufficiently recent so that the income of that year may reasonably be supposed to have some bearing upon the present ability of the taxpayer to pay the tax,” seems to me to be here absent. I see no connection between receipt of income from dividends in 1933 and present ability to pay a tax upon that item of income. Dividends of 1933 have “gone with the wind” by this time in all but comparatively few cases.
If it be conceded that because the dividends covered by the statute were not taxed as income during the year 1933 they might properly be subsequently taxed as income received
Dividends from Wisconsin corporations, which are the only ones within the statute, certainly cannot be taxed at a higher rate than dividends from other corporations, else there is inequality. It is .true that equality of rate within the class is the only equality necessary to validity of an income tax. But the mere fact that one corporation is a corporation organized under the laws of Wisconsin and another is a corporation organized under the laws of another state, cannot form a basis for taxing a recipient of a dividend from the former and not taxing the recipient of a like dividend from the latter. Recipients of income constitute the class taxed under an income tax statute. If conceivably recipients of corporate dividends may constitute a separate class for income tax purposes, still all recipients of corporate dividends must constitute the class, not recipients of Wisconsin dividends only.
Under the instant section income from dividends is taxed at a rate entirely different from the rate imposed on incomes in 1933. A rate of taxation by the statute lower than the normal might conceivably be supported, because the corporation paid a tax on the earnings comprising the dividends, but a higher rate cannot possibly be. The first $2,000 of income under the statute involved would carry a slightly less tax than the normal tax, but on all above that the tax is higher. On the dividends received by the instant taxpayer the excess under the statute over the normal rate of 1933 is over $200. Moreover, taxpayers under the normal income tax law were entitled to offset capital losses. Such offset is denied by the instant statute. The instant taxpayer had
Counsel for appellant seem to contend in their briefs that the uniformity clause of the state constitution does not apply to income taxation because graduated rates of taxation are expressly provided for. But we have here something more than graduated rates. One class of income is taxed by one table of graduated rates, without deductions for capital losses, while all other kinds of income were taxed in 1933 at lower graduated rates with deductions for such losses. True, the uniformity clause when the constitution was adopted applied only to property taxation because that taxation was the only kind then covered by the clause. See sec. 1, art. VIII, Const., as contained in the statutes of 1858. But when the section was subsequently amended by adding thereto, the declaration of uniformity carried through, and it applies to all other species of taxation subsequently provided for, except as especially excepted by the terms of the 'amendment. This point is sufficiently covered by Nunnemacher v. State, 129 Wis. 190, 221, 108 N. W. 627, where it is said: “Uniformity of taxation or even equality of taxation, as applied to excise taxes, must necessarily mean taxation which does not discriminate, but which operates alike on all persons similarly situated.” There is the broad statement in Appeal of Van Dyke, 217 Wis. 528, 259 N. W. 700, that the uniformity clause does not apply to income taxes, but that is forthwith qualified by the statement that “the only uniformity required ... is uniformity within the class,” and this implies a proper classification.
The inequalities above stated made the tax imposed upon the respondent void if it be considered as an income tax. The tax is referred to in the opinion of the court as a “special income tax.” But it is not in my opinion an income tax at all but a property tax, and considered as such it is plainly
I am authorized to state that Mr. Justice Nelson concurs in this opinion.
Dissenting Opinion
{dissenting). I cannot agree with the majority. It seems to me that the limits of the powers conferred upon the legislature by the people have been exceeded in this particular. It has never been considered fair play to impose burdens or penalties by later legislation upon a fellow citizen for an act or transaction which was lawful at the time of its occurrence, and the power to do that was withheld from governmental agencies by the people. The idea is not a new one and was not at the time of the formation of this government. Due process and the law of the land as legal concepts
“Sixteen states of the United States have incorporated a literal translation of a portion of this canon in their fundamental law, and fully as many more use phrases of similar import.”
The thirty-ninth section of the Magna Carta reads, Mott, page 3:
“No freeman shall be taken and imprisoned or disseized or exiled or in any way destroyed, nor will we go upon him nor send upon him, except by the lawful judgment of his peers and by the law of the land.”
Sec. 6, ch. 15, Laws of 1935, is retroactive. I think it must be conceded that the taxpayer in this case had fully discharged all claims against him and his income under the law of 1933. Since this is so, his income for that year had been earned, taxed, and discharged of all obligations as income, and, under the “pattern of the income tax law,” had passed from its status as income into the taxpayer’s estate. Its character as income had vanished, and whatever was left of it was no longer income, but was property and a part of the taxpayer’s holdings or his estate. It has been decided that the legislature may constitutionally authorize the tax commission to go back several years for the purpose of reassessing incomes and correcting errors and eliminating frauds-in previous returns. State ex rel. Globe Steel Tubes Co. v. Lyons, 183 Wis. 107, 197 N. W. 578. A legislature would not, of course, be acting under such constitutional power in levying a tax upon income not previously taxed at
The legislature has also been upheld in levying new taxes on income already, but recently, earned. If this power to go back in levying new taxes is unlimited as to time, the tax in question would be valid. Can the legislature on March 14, 1935, levy a new tax upon incomes received during the calendar year 1933, or corresponding fiscal year? On July 13, 1911, the legislature imposed a tax on incomes received during the calendar year 1911. This act was upheld in Income Tax Cases, 148 Wis. 456, at p. 514, 134 N. W. 673, 135 N. W. 164. On August 17, 1927, a tax was imposed upon incomes received in the calendar year 1926, and it was held valid in West v. Tax Comm. 207 Wis. 557, 242 N. W. 165. In this case the tax on incomes received during 1926 as imposed by the law passed in 1925 was in the midst of the process of assessment when the 1927 law was passed.
Cooper v. United States, 280 U. S. 409, 50 Sup. Ct. 164, lays down the test that gains from “prior but recent transactions” may be taxed as income. No case holds, and, with one exception, no case suggests, that the legislature may constitutionally impose a tax upon income received during a year, the taxes for which have been assessed and paid. Stockdale v. Insurance Companies, 20 Wall. (87 U. S.) 323, holds good a tax imposed by congress on July 14, 1870, on incomes received during the period from January 1, 1870, to August 1, 1870, but at page 331, the court says :
“The right of congress to have imposed this tax by a new statute, although the measure of it was governed by the income of the past year, cannot be doubted; much less can it be doubted that it could impose such a tax on the income of the current year, though part of that year had elapsed when the*339 statute was passed. The joint resolution of July 4, 1864, imposed a tax of five per cent upon all income of the previous year, although one tax on it had already been paid, and no one doubted the validity of the tax or attempted to resist it.”
Apart from the quoted remark in the Stockdale Case, there is no authority for holding that after an income tax on income received during a given year has been assessed and collected, the legislature may constitutionally tax the income received that year to a further extent. Fairness suggests that when a taxpayer’s tax on one year’s income has been assessed and paid according to the law then in force, the taxpayer is justified in concluding that the matter is closed except for fraud or erroneous assessment. The power of the legislature to provide for the collection of taxes which validly should have been assessed under the existing law, but which were omitted because of fraud or mistake, cannot be doubted, but that power does not support the law here in question. There is no claim of fraud as a reason for reexamining and reassessing this income of 1933, but the legislature in 1935 seeks to reach into a citizen’s present estate and lay a tax, called an income tax, on that portion of his present property which was income during 1933, but not thereafter, and by such so-called income tax, compel him to disgorge a sum of money into the common treasury. That he may be able to afford it is no more a sufficient excuse for the usurpation of power than is the great need by the treasury of money. Even though the need be great, constitutional rights should not be invaded. A desire for material to patch a leak does not warrant tearing away structure that prevents inundation.
“When the government through its established agencies interferes with the title to one’s property, or with his independent enjoyment of it, and its action is called in question as not in accordance with the law of the land, we are to test its validity by those principles of civil liberty and constitu*340 tional protection which have become established in our system of laws, and not generally by rules that pertain to forms of procedure merely.” Cooley, Const. Lim. (7th ed.) p'. 505.
Civilized countries, enlightened nations have protected and preserved the rights of its citizens, encouraged thrift and the honest accumulation of resources. Laws relating to acts and events to occur in the future are acceptable and may be justified in taxation under the fundamental policy of protecting the rights of all and preserving the integrity of the government, but impositions on closed transactions cannot long be tolerated in a free government. Mr. Justice Story in the case of Society for the Propagation of the Gospel v. Wheeler, Fed. Cas. No. 13,156, 2 Gall. *105, 139, defined a retroactive or, as he called it, a retrospective law:
“Upon principle, every statute, which takes away or impairs vested rights acquired under existing laws, or creates a new obligation, imposes a new duty, or attaches a new disability, in respect to transactions or considerations already passed, must be deemed retrospective.”
I have adverted to the fact that the taxpayer’s 1933 income discharged itself of impositions then existing. The majority opinion suggests many subtle differentiations, but these do not appear to me to build a substantial difference between the closed act which is beyond the reach of the legislature and that particular situation of which the taxpayer complains.
I do not feel any practical purpose can be served by further discussion of the point. The feeling that persons who have income from dividends from Wisconsin corporations have escaped taxation long enough may exist, but such escape was purposely permitted by the legislature in the belief that a sufficient tax on that earning had been paid by the corporation. Income from such dividends might be taxed from 1935 on, but for the years that had closed, the legislature was precluded by its own determination that such income was
The objections to the act here outlined, together with those advanced by Mr. Justice Fowler in the dissent by him and Mr. Justice Nelson, sufficiently disclose the reasons for my not concurring in the majority opinion.