Case Name: State ex rel. Pfister and others, Respondents, vs. Widule, County Clerk, Appellant
Court: Wisconsin Supreme Court
Jurisdiction: Wisconsin
Decision Date: 1917-06-12
Citations: 166 Wis. 48
Docket Number: 
Parties: State ex rel. Pfister and others, Respondents, vs. Widule, County Clerk, Appellant.
Judges: Rosekberry, J., concurs in the foregoing dissenting opinion.
Reporter: Wisconsin Reports
Volume: 166
Pages: 48–54

Head Matter:
State ex rel. Pfister and others, Respondents, vs. Widule, County Clerk, Appellant.
May 17
June 12, 1917.
Income taxation: Dividends, when taxable: Constitutional law.
1. Ordinary dividends of a going corporation, not declared or paid in cancellation of any stock liability, are conclusively presumed, as against stockholders, to be from earnings or profits, and are taxable as income to the stockholders receiving them. So held as to dividends declared by a corporation organized to buy and improve a tract of land and resell it in lots. Van Dyke v. Milwaukee, 159 Wis. 460, followed. State ex rel. Bundy v. Nygaard, 163 Wis. 307, distinguished.
2. The assessment of such dividends as income does not violate the uniformity clause of sec. 1, art. VIII, Const.
Marshall, Rosenberry, and Eschweiler, JJ., dissent.
Appeal from a judgment of the circuit court for Milwaukee county: W. J. TueNee, Circuit Judge.
Reversed.
This is an appeal from a judgment entered in a certiorari proceeding setting aside assessments of income made in 1916 by the income tax board of review of Milwaukee county and confirmed by the Wisconsin tax commission, on account of income received during the years 1912, 1913, 1914, and 1915 by the stockholders in Prospect Hill Land Company as dividends on their stock in said company. The amount assessed aggregated $236,676, from which was deducted $22,936, being the amount upon which the corporation had been assessed during the years mentioned.
Prospect Hill Land Company, a Wisconsin corporation, was organized January 10, 1S93, with an authorized capital stock of $500,000, all of which was subscribed. There was paid in January 11, 1893, $125,000. Additional payments were made from time to time to February, 1909, when the cash payments of stockholders aggregated $388,098, which constituted the total cash payments by the stockholders. The balance, $111,902, which was later credited to the stockholders’ account upon the stock subscription, came out of money distributed upon making sales of property.
The company acquired title to a tract of land now in the Eighteenth ward, city of Milwaukee, known as Prospect Hill, .January 19, 1893, at the price of $425,000, of which $125,000 was paid in cash and a mortgage given to secure the balance, $300,000, plus $2,660 accrued interest. Work was immediately commenced by the company and expenditures made in platting, making streets, sidewalks, sewers, etc., and fitting the land for an exclusively residential subdivision, the expenditures amounting to $219,511.85. The land was purchased and held for resale and sold in lots. The reasonable value of the property January 1, 1911, was fixed by the company at $1,096,601, which exceeded the purchase price, improvements, and expenditures by $329,784.34. It also appears from the evidence that between January 1, 1911, and January 1, 1916, the value of the real estate held by the company decreased in value about thirty per cent, and that it is unlikely that the property will again rise in value.
The articles of association authorized the company to sell and deal in real estate generally and to make all necessary ¡ contracts. The company, however, has not up to the time of levy of the tax in question purchased or owned real estate, other than the Prospect Hill subdivision, with the exception of six lots outside of said subdivision.
Separate actions were commenced by each of the relators, which were later consolidated into one action by stipulation of counsel.
Error is assigned in bolding that the dividends declared in 1912, 1913, 1914, and 1915 by the Prospect Hill Land Company to its stockholders were not subject to taxation as “income” under the Wisconsin Income Tax Law, and in reversing and setting aside the assessments as made by the income tax board of review and confirmed by the Wisconsin tax commission.
For the appellant there was a brief by the Attorney General, E. E. Brossard, assistant attorney general, Winfred C. Zabel, district attorney of Milwaukee county, William L. Tibbs, special assistant district attorney, and Daniel W. Sullivan, assistant district attorney; and the cause was argued orally by Mr. Sullivan and Mr. Brossard.
For the respondents there was a brief by Lawrence A. 01-well of Milwaukee, and oral argument by Mr. Olwell and by Mr. O. T. Bundy of Eau Olaire.

Opinion:
KeewiN, J.
Dividends derived from stock in a corporation are "income" within the meaning of the law. Sec. 1087m — 2, Stats. The present case is ruled by Van Dyke v. Milwaukee, 159 Wis. 460, 150 N. W. 509, therefore little need be said here. In the Van Dyke Case it was held that ordinary dividends derived from stock are conclusively presumed as against stockholders to be earnings or profit, therefore income under the Wisconsin Income Tax Law. Van Dyke v. Milwaukee, supra; Klar Piquett M. Co. v. Platteville, 163 Wis. 215, 157 N. W. 763; Von Baumbach v. Sargent L. Co. 242 U. S. 503, 37 Sup. Ct. 201; State ex rel. Sallie F. Moon Co. v. Wis. Tax Comm., post, p. 287, 163 N. W. 639.
But it is argued that what was distributed in the instant case as dividends was not in fact income even though called dividends. This position is directly contrary to the statute, sub. 2 (b), sec. 1087m — 2. Van Dyke v. Milwaukee, supra; Stratton's Independence v. Howbert, 231 U. S. 399, 34 Sup. Ct. 136.
Tbe contention that the dividends in question were not ordinary dividends declared by a going corporation, hence not income, is without merit, as shown by the cases heretofore cited. There is no claim here that the dividends were declared in cancellation of stock liability or that any stock was in fact canceled, therefore we need not consider or decide such a ease.
It is also contended that the assessments in the instant casé violate the uniformity clause of sec. 1, art. VIII, of the constitution of the state of Wisconsin. No lack of uniformity is presented in the instant ease. All dividends of all stockholders of corporations are reached with the exception mentioned in the Van Dyke Gase. The classification is proper and violates no constitutional provision. Nunnemacher v. State, 129 Wis. 190, 108 N. W. 627; Chicago & N. W. R. Co. v. State, 128 Wis. 553, 108 N. W. 557; Stanton v. Baltic M. Co. 240 U. S. 103, 36 Sup. Ct. 298.
Respondent relies upon State ex rel. Bundy v. Nygaard, 163 Wis. 307, 158 N. W. 87. That ease is distinguishable from the instant case as pointed out in the opinion.
Counsel for respondent also relies upon Von Baumbach v. Sargent L. Co. 207 Fed. 423, and Lynch v. Turrish, 236 Fed. 653. The Von Baumbach Case was overruled in Von Baumbach v. Sargent L. Co. 242 U. S. 503, 37 Sup. Ct. 201. In Lynch v. Turrish, supra, it will be seen that the learned judge who 'wrote the opinion failed to observe the difference between the law upon which that case was decided and the Wisconsin law, as pointed out by Justice Vinje in State ex rel. Sallie F. Moon Co. v. Wis. Tax Comm., post, p. 287, 163 N. W. 639.
We are convinced that the court below was in error and that the judgment below must be reversed.
By the Gourt. — The judgment is reversed, with costs, and the cause remanded with instructions to affirm the assessment of income made by the income tax board of review of Milwaukee county and confirmed by the Wisconsin tax commission.