Opinion ID: 1730468
Heading Depth: 1
Heading Rank: 1

Heading: Gross or Net Income

Text: The word income usually refers to gain or accretion or return. See Bowers v. Kerbaugh-Empire Co., 271 U.S. 170, 174, 46 S.Ct. 449, 70 L.Ed. 886 (1926); Humble Oil & Refining Co. v. Calvert, 478 S.W.2d 926 (Tex.1972); Fullerton v. Central Lincoln People's Utility Dist., 185 Or. 28, 201 P.2d 524 (1948); Kennard v. Wiggins, 353 Mo. 681, 183 S.W.2d 870 (1944); State ex rel. Miller v. State Board of Education, 56 Idaho 210, 52 P.2d 141 (1935); Stanton v. Zercher, 101 Wash. 383, 172 P. 559 (1918); In re Niland's Estate, 154 Wis. 514, 143 N.W. 170 (1913); Bingham v. Long, 249 Mass. 79, 144 N.E. 77 (1924); Connecticut General Life Ins. Co. v. Eaton, 218 F. 188 (D.C.Conn.1914); In re Owl Drug Co., 21 F.Supp. 907 (D.C.Nev.1937); Lyeth v. Hoey, 20 F.Supp. 619 (S.D.N.Y.1937); In re Phillips' Will, 138 N.J.Eq. 96, 46 A.2d 796 (1946); Hattiesburg Grocery Co. v. Robertson, 126 Miss. 34, 88 So. 4 (1921); Black's Law Dictionary (4th ed. 1951); Ballantine's Law Dictionary (1969); Oran, Law Dictionary for Non-Lawyers (1975); Webster's Third International Dictionary (1968); and Webster's Seventh New Collegiate Dictionary (1967). I agree that income has in some instances been used to mean the inflow without deduction for expenses. Our question then becomes a determination of the manner of use of the term in Section 1-d, Article 8, of the Texas Constitution. It is not the purpose of this provision to prohibit gain or activity; it is a measurement of priority. Occupations are to be ranked according to their fruits or products or consequences for the person. The gross income of an occupation is a midway factor, but it is not the ultimate result of the occupation. Since the purpose of the constitutional provision is to test the priority of the taxpayer/landowner's occupations, gross receipts or revenue is not the index; it is the gain or profit realized by the taxpayer/landowner from those occupations. We are directed by the Constitution to determine the business which is the primary source of income of the owner. Ranching and oil businesses are expected to have gross as well as net income, but the income of the owner from those businesses is his profit. If O. L. Gragg were asked the amount of his income from his ranch business during 1971, would he be likely to give the total gross sales of livestock, etc., by his ranches ($299,205.84), or would he give the income produced for his benefit ($79,397.67)? Would Farmer Brown, who lost his crop and $50,000 last year, tell you that his income from his farm was $60,000 since the latter figure was the amount of his gross income received from the liquidation of his herd of cattle? The majority seems to think that the determination of the gross income of a business is a simple matter. However, the gross income of a mercantile business is ordinarily considered to be the amount of total sales less the cost of goods sold. For the sake of simplicity let us assume that a farmer is on the cash basis of accounting; under federal tax regulations his gross income requires a computation of his profits from the sale of livestock or other items which were purchased by him. 1976 Federal Tax Regulations § 1.61-4. The full sales prices and receipts are not his gross income; the cost of the purchased livestock must first be deducted. I suggest that the determination of whether the taxpayer/landowner is primarily engaged in agriculture will not entail nearly so many difficult accounting problems as will the rule announced by the majority which requires a comparison of the gross income of each and every business in which the taxpayer/landowner is occupied. If the business is organized as a corporation, limited partnership or business partnership, there will be questions of how to allocate gross income to the taxpayer/landowner. Will it be possible to reduce the gross income by incorporating the business or by taking no money except in the form of wages or dividends? I can find no rational purpose in requiring a comparison of the sources of gross income. If I understand the writing of the majority at this point, the thought is simply that more farmers and ranchers will be entitled to the agricultural use designation if only gross agricultural income is considered. I do not know that this is true, but if it is, I respectfully request that this reasoning be compared to the time honored rule that the courts will construe constitutional and statutory exemptions strictly. River Oaks Garden Club v. City of Houston, 370 S.W.2d 851 (Tex.1963); Morris v. Loan Star Chapt. No. 6, Royal Arch Masons, 68 Tex. 698, 5 S.W. 519 (1887). Whether or not the agricultural use designation must be termed an exemption from taxation, it is favored treatment and the constitutional amendment should not be liberally construed. See Driscoll Foundation v. Nueces County, 445 S.W.2d 1, 5 (Tex.Civ.App.1969, writ ref'd, n.r.e., Tex., 450 S.W.2d 320, 1970).