State ex rel. Houghton v. Phelps

Eschweiler, J. The statutes necessary for consideration on.the questions here are as follows: Section 1087m — 1. “There shall be assessed, levied, collected and paid a tax upon incomes received during the year ending December 31, 1911, and upon incomes received annually thereafter, by such persons and from such sources as hereinafter described; . . .” Section’ 1087m — 2. “1. The term ‘person,’ as used in this act, shall mean and include any individual, firm, copart-nership, and every corporation, ...” . Sec. 1087m — 4 refers to deductions for incomes of persons other than corporations. The following deductions are provided: “(a) Payments made within the year for wages of employees and a reasonable allowance for services of'copart-ners or members of a firm actually rendered in producing such income.” Relators contend that such an association of individuals for the practice of law as they have here is not such a “firm” or “copartnership” as is intended to be included in those two words as they appear in sub. 1, sec. 1087m — 2, Stats., above quoted; that the words should be limited to include such trading or mercantile partnerships as have or need to have capital invested in order to properly carry on business. The words used in this statute must be given their ordinary and usual meaning. Bayfield Co. v. Pishon, 162 Wis. 466, 470, 156 N. W. 463. When lawyers are associated in carrying on a law practice as relators do, they are usually and ordinarily spoken of and recognized as a law firm or firm of lawyers. In the absence of any statutory circumscribing of the term, we see no escape from the conclusion that the firm comprised of the relators in this case was such a firm as is designated in the statute above quoted. [18] Relators further contend, that the $172 expenses and the $4,300, being the proportionate amount of the earnings out of the $21,000 fee, all being as of'prior to January 1, 1911, should not be“ considered for income-tax purposes as part of the income received in the year 1916; that it is in effect something that belonged to the firm as in the nature of capital to be considered as in existence prior to 1911, and therefore, under the decision of this court in State ex rel. Bundy v. Nygaard, 163 Wis. 307, 158 N. W. 87, not subject to be reached for income-tax purposes. That case pointed out the difference between capital and income, and-under that ruling and the plain meaning of the two terms we must hold that the term “income,” as used in sec. 1087m — 1, supra, covers and includes just such and all of such a fund as was the$21,000 fee received by relators as part of their gross income of 1916.- Cash thus received in that year is income of that year, and cannot be separated for income-tax purposes by any method of differentiation based upon questions as to when services may have been rendered for which such money was payment. To hold otherwise would be to do violence to the plain language of the statute and the general rules of construction thereof. In the long run it works no hardship, and above all is evidently the determination of the legislature. Under sub. (a), sec. 1087m — 4, supra, the relators’ firm is entitled to have deducted from the income of 1916 the payments made during that year- of a reasonable allowance for services of members of the firm actually rendered in producing such income. The board of review arbitrarily fixed a sum much less than that actually paid .to and distributed among the members of the firm that year as being in its judgment such a reasonable allowance. The relators contend that there was no basis for such an arbitrary allowance and that the several amounts paid to the members of the firm during that year [19] were reasonable in amount and were for services actually rendered in producing the income received in that year. Having held, as we have above, that the money received during the year 1916 for legal services, irrespective of the time when the services were rendered, is, for the purposes of these statutes, the income for that year, it follows as a necessary and proper corollary to that proposition that the services which were necessary in order to produce such income are the services actually rendered in producing such income no matter when so rendered. The statute prescribes no time limitation, nor can we find any ground for inserting any such. The services for which the allowance is to be made are those rendered in producing the particular income, not those rendered merely during that particular year. If the relators are to be charged for taxing purposes with the cash received for services no matter when rendered, they are entitled, under a fair and reasonable construction of the statutes before us, to have considered the entire services necessarily rendered in producing such cash income whenever such were rendered. There would be a strong if not conclusive presumption that the $21,000 allowed by the court of claims for the services in the Indian case was a reasonable allowance in view of the fact that it was fixed and determined by the court before whom most of the services were rendered and under express statutory authority given so to do. But in any event the testimony before the board of review established that in such situations as we have here the money which a firm of lawyers distributes among its members out of its income as their earnings is the reasonable allowance to them for their services rendered in producing such income. This holding requires a finding that there was no taxable income to be assessed against these relators as a firm for the year 1916, and the judgment below in vacating the assessment was properly entered. [20] It is now contended by defendant that the application for the writ waá too late, in that the matter of assessing and levying the income tax against the plaintiffs had passed beyond the jurisdiction of the defendant and the county board of review, and that the judgment could not save the plaintiffs against its enforcement, it having already reached the city tax roll. The point not having been presented to the court below, we shall not pass upon it here. Will of Brandon, 164 Wis. 387, 390, 160 N. W. 177. By the Court. — Judgment affirmed.