State ex rel. Van Dyke v. Cary

The following opinion was filed January 9, 1923: Eschweiler, J. 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 — 570 — by the federal supreme court in Eisner v. Macomber, 252 U. S. 189, 216, 40 Sup. Ct. 189, in arriving at the determination there reached in accord with the view now held by the House of Lords in the Blott Case, supra. The Massachusetts court, whose views we adopted in the Dulaney Case, as expressed in Tax Comm’r v. Putnam, 227 Mass. 522, 116 N. E. 904, has reaffirmed that view in Tilton v. Tax Comm’r, 238 Mass. 596, 131 N. E. 219, decided in May, 1921, practically simultaneously with the Blott and Dulaney Cases, supra. 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 — 572 — rather than one relating to its prior, assessment and collection. .The scheme for the collection of this surtax is one that does not offend against the legal canons as to uniformity in taxation; it makes the same kind of a call on the taxpaying resident of the metropolis that it does on the taxpaying denizen of the rural district, and each taxpayer, no matter where he resides in the state, is required to pay at the same rate upon the same income as any other taxpayer— no more and no less. Up to the point where the proceeds from such surtax reach the state treasury there-has been no violation of any constitutional requirements, either express or implied. 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. — 573 — 397; In re De Las Casas, 180 Mass. 471, 472, 62 N. E. 738; Att’y Gen. v. Williams, 174 Mass. 476, 55 N. E. 77. 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 — 574 — following rates, to wit: (a) On the first one thousand dollars of taxable income or any part thereof, at the rate of one per cent. . . . (d) On the fourth one thousand dollars or any part thereof, one and three-fourths per cent.” 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 — 575 — for in sub. (3), sec. 20.251, supra. The net surtax income, therefore, is that reached after all proper subtractions ha.ve been made from the gross income. When this is done,.then the first thousand of such surtax net income is chargeable with one sixth of one per cent, according to sub. (1) (a), sec. 71.06, as was held by the trial court. 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. — 576 — By the Court. — Judgment modified and affirmed as stated. Neither to have costs as against the other; relators to pay the clerk’s fees.