207 Wis. 557 | Wis. | 1932
On January 1, 1926, Walter A. West owned 1,080 shares of the stock of the Wisconsin Butter and Cheese Company, a Wisconsin corporation, of the par value
The principal question involved upon this appeal is whether the liquidating dividends received by the deceased prior to his death .from the Wisconsin Butter and Cheese Company are subject to an income tax. The appellant contends that this question must be determined by the provisions of the Statutes of 1925 relating to the taxation of income. It is pointed out that by sec. 71.02 (2) (b) of the Statutes of 1925 taxable income included “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
Whether liquidating dividends were ■ taxable under the 1925 law would present an interesting question did that law govern the situation. As was said in Hellmich v. Heilman, 276 U. S. 233, at p. 236 (48 Sup. Ct. 244) :
“It is true that if sec. 201 (a) stood alone its broad definition of the term ‘dividend’ would apparently include distributions made to stockholders in the liquidation of a corporation — although this term, as generally understood and used, refers to the recurrent return upon stock paid to stockholders by a going corporation in the ordinary course of business, which does not reduce their stock holdings and leaves them in a position to enjoy future' returns upon the same stock.”
In Langstaff v. Lucas, 9 Fed. (2d) 691, at p. 694, speaking of sec. 201 of the federal revenue act, the court says:
“This section strips distributions made to stockholders in liquidation of a corporation of all disguises and declares that they shall'be considered for what they in effect are — -purchases of all their outstanding stock by the liquidating corporations, and not dividends as generally understood.”
We-make this reference to indicate that we would be confronted with rather an elusive question if we were required
However, the income tax law was amended in several substantial particulars by ch. 539, Laws of 1927, effective August 17, 1927. By sec. 2 of that law there was added to sec. 71.02 the following provision:
“Amounts distributed in liquidation of a corporation shall be treated as payment in exchange for the stock, and the gain or loss to the distributee resulting from such exchange shall be determined under the provisions of this paragraph and section 71.02 (2) (d). No amounts received in liquidation shall be taxed as a gain until the distributee shall have received amounts in liquidation in excess of his cost or income tax basis provided in section 71.02 (2) (d), and any such excess shall be taxed as gain in the year in which received.”
By sec. 27 of ch. 539, Laws of 1927, it was provided that “This act shall apply to incomes received in the years 1926 and 1927 or corresponding two fiscal years and annually thereafter. The usual income tax assessment and tax rolls as provided in chapter 71 of the Statutes of 1925 shall not be prepared or certified during the year 1927 and the principal assessment and tax rolls issued under the provisions of chapter 71 of the Statutes as amended by this act shall be issued on June 1, 1928, except that assessment and tax rolls may be prepared and issued from time to time as provided by this act, during the year 1927 and during the first five months of 1928 for the purpose of certifying for collection assessments of back taxes’ and income taxes of pet-sons reporting on fiscal year basis.”
Thus we see that upon the enactment of ch. 539, Laws of 1927, income tax assessors were enjoined to proceed no farther in the matter of assessing incomes or computing income taxes under the 1925 law. If proceeding in due course; they were engaged at that time in perfecting the income tax
A further contention is made that the three-year average provision of the income tax law is unconstitutional because it results in a discrimination between taxpayers. The brief contains hypothetical illustrations showing that upon assumed premises taxpayers who during a three-year period have the same income and the same losses may pay a different amount of taxes, depending upon the year in which the losses occurred. Thus, if during the first year of the averaging period the taxpayer sustains a loss without any taxable income, there are but two years left in which to absorb the loss, and, while it was the apparent intention of the legislature that only the difference between the income and the loss for the three-year period should be taxed, in the case of a taxpayer whose loss occurs in the first year only two-thirds of it is absorbed by the remaining two years. The same result occurs when the loss is sustained during the last year in which income is reported. In such case but one-third of the
While our constitution requires a uniform rule of taxation, whether the legislative rule operates uniformly is not to be determined by hypothetical mathematical results from the application of the rule to various situations which human genius may devise. The inquiry rather is whether the rule itself is uniform and is to be applied to all alike. If it is a rule which is to be applied to all situations, it is not to be condemned because the result of its application may give rise to mathematical inequalities. Such inequalities can be-readily conceived from the application of the old rule by which the income of one year was taxed in the next. Let us conceive of a situation where two taxpayers during a three-year period had a taxable income of $100,000, but during the same period had deductible losses of $50,000. Let us say that taxpayer A during the first year of the three-year period had a taxable income of $50,000. During the next year he had no income, but a loss of $50,000. During the third year he had a taxable income of $50,000. It is plain that during the three-year period he would pay an income tax on $100,000. Let us assume that taxpayer B during the first year of the period had a taxable income of $30,000 and a deductible loss of $20,000. His taxable income for that year was $10,000. For the second year he had a taxable income of $40,000 and a deductible loss of $20,000. For that year he had a taxable income of $20,000. For the third year he had a taxable income of $30,000 and a deductible loss of $10,000. For that year he had a taxable income of $20,000. Thus we see that taxpayer A during the three-year period pays an income tax on $100,000 while taxpayer B pays a tax on $50,000, yet for the threeryear period their income and losses are equal. Because taxpayer A was so unfortunate as to sustain his entire loss during a
Objection is further made that the law taxing liquidating dividends when distributed by a corporation that has paid taxes upon the profits which the liquidating dividends distribute to the stockholders, amounts to double taxation. We know of no objection to the legislature imposing a tax upon the income of corporations and also a tax upon the dividends received from the corporation by its stockholders. The earnings of the corporation constitute income received by it upon which the constitution authorizes the levy of a tax. The income received by stockholders in the form of dividends also represents income upon which the constitution authorizes the levy of a tax against the stockholder. In law the corporation and the stockholders are separate and distinct entities, and their earnings are plainly separate and distinct subjects of an income tax. The fact that the legislature has exempted dividends received from corporations which have paid an income tax upon their earnings is but a legislative concession. It is no indication that the legislature could not tax such dividends if it saw fit to do so, or that such taxation would constitute double taxation.
Doubt is expressed in the briefs as to whether the case of Norris v. Tax Commission, 205 Wis. 626, 237 N. W. 113 (on
The remaining questions presented by the appeal depend upon whether the record affords evidence to sustain the value which the county board of review placed on the stock, both preferred and common, of the United Milk Products corporation which Mr. West received as a part of his liquidating dividends from the Wisconsin Butter and Cheese Company. The board of review placed exactly the same value upon this stock that the executors placed upon it in their income tax report. We think the valuation which the executors themselves placed upon this stock constitutes evidence upon which the county board of review was authorized to act, and in view of that evidence their valuation of the stock cannot be disturbed. Lewis v. Racine, 179 Wis. 210, 190 N. W. 476.
By the Court. — Judgment affirmed.