Court Opinion

ID: 9539544
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:05:43.997609+00
Date Added: 2024-06-11T14:58:56.449425
License: Public Domain

Justice Meyer
dissenting.
Believing that the strike benefits paid to Mr. Stone under the facts of this case do not constitute a “gift,” I respectfully dissent. I am convinced that the strike benefits paid here are taxable income under both state and federal law. The trial court correctly concluded from the evidence that the payments to Mr. Stone were not gifts, and were therefore taxable income.
G.S. § 105-141(a) defines “gross income” as “all income in whatever form and from whatever source derived.” “Net income” *746is “gross income less deductions” N.C.G.S. § 105-140, and the individual income tax is imposed upon the basis of “net income.” N.C.G.S. § 105-136. “Gross income” is so potentially broad and all-inclusive a term that the legislature has seen fit to expressly remove many items from its reach which otherwise would be encompassed by it. N.C.G.S. § 105441(b) provides that “the words ‘gross income’ do not include the following items: ... (3) the value of property acquired by gift. . . .”
N.C.G.S. § 105441(b)(3) did not spring from our General Assembly full-grown and unrelated to anything that had occurred before. The language first appeared in the North Carolina income tax laws in 1921, when Section 301 of the Revenue Act was enacted, as one of the exemptions listed in Section 301. 1921 N.C. Sess. Laws Ch. 34, § 301. Subparagraph 2 thereof provided that “the words ‘gross income’ do not include . . . (c) the value of property acquired by gift. . . .” The source of this language is the federal income tax law of 1913, 28 Stat. (Part 1) 167 (1913), which finds its current expression in 26 U.S.C. § 102(a), providing that “gross income does not include the value of property acquired by gift----”
Thus we have an identical exclusion of “gifts” from gross income under both federal and state income tax law; the state law obviously having been drawn from the earlier federal law. This being so, it stands to reason that determination of what constitutes a “gift” under such laws ought, as a matter of common sense, to follow identical tracks for the sake of simplicity, ease of administration, and fairness to taxpayers and tax practitioners who must, in cases of divergence, keep track of separate results from separate tax systems.
I believe it is extremely important that our state taxation statutes be interpreted in a manner which is consistent with their federal counterparts. While paying lip service to this principle, the majority has gone far out of its way to avoid following it here. The majority reaches an erroneous and unwise result, first through the misinterpretation of the North Carolina case of Manufacturing Co. v. Johnson, Comr. of Revenue, 261 N.C. 504, 135 S.E. 2d 205 (1964) and then by misinterpreting the holding of the United States Supreme Court in United States v. Kaiser, 363 U.S. 299, 4 L.Ed. 2d 1233 (1960).
*747In my opinion, the majority has completely misinterpreted the holding in Manufacturing Co. As indicated in the majority opinion, Manufacturing involved the forgiveness of a debt owed by a corporation to an officer/stockholder. The officer/stockholder forgave the debt and the court held that the forgiveness of the debt was a contribution to capital. The language of the court in that regard is as follows:
Theoretically, a contribution by a stockholder increases the resources of the corporation and the value of all the stock, including his own, proportionately. This business aspect removes such a transaction from the concept of a pure gift.
When a creditor who is a stranger to the corporation forgives its debt to him the forgiveness is exempt from income tax under the exclusion of gifts. When a stockholder gratuitously cancels the debt the corporation owed him, the transaction is denominated a contribution to capital.
We hold that the forgiveness of the debt in question constituted a contribution to the capital of the plaintiff corporation and was therefore not taxable income.
Id. at 507, 135 S.E. 2d at 208.
Thus it is clear that although the court said that neither a gift nor a contribution to income is considered taxable income, Manufacturing Co. did not hold that the forgiveness of the debt was a “gift.” My point is that it is not reasonable to apply the definition of “gift” from Manufacturing Co. to all situations, and in particular the situation presented by the case now before us. Under our statute, N.C.G.S. § 105-141(b)(3), it is necessary that the benefits actually constitute a “gift.”
When, as here, we have no appropriate State precedent, we should look to the federal decisions for a definition of the term “gift.” In Commissioner v. Duberstein, 363 U.S. 278, 4 L.Ed. 2d 1218 (1960), the United States Supreme Court was called upon to determine the meaning of “gift” in the context of the federal income tax statute which is nearly identical to G.S. § 105-141(a) and (b). The Court stated:
The course of decision here makes it plain that the statute does not use the term “gift” in the common-law sense, but in *748a more colloquial sense. This Court has indicated that a voluntary executed transfer of his property by one to another, without any consideration or compensation therefore, though a common-law gift, is not necessarily a “gift” within the meaning of the statute. For the Court has shown that the mere absence of a legal or moral obligation to make such a payment does not establish that it is a gift. . . . And, importantly, if the payment proceeds primarily from “the constraining force of any legal or moral duty,” or from “the incentive of anticipated benefit” of an economic nature ... it is not a gift. And, conversely, “[w]here the payment is in return for services rendered, it is irrelevant that the donor derives no economic benefit from it.” .... A gift in the statutory sense, on the other hand, proceeds from a “detached and disinterested generosity,” . . . “out of affection, respect, admiration, charity or like impulses. . . .” (Citations omitted.) (Emphasis added.)
Id. at 285, 4 L.Ed. 2d at 1224-25.
The majority errs in concluding that Manufacturing Co. “tacitly rejected the Duberstein definition of a gift.”
I also believe that the majority has misconstrued the holding in United States v. Kaiser, 363 U.S. 299, 4 L.Ed. 2d 1233. Nevertheless, that very case upon which the majority relies (Kaiser) cites Duberstein with approval. Duberstein and Kaiser both make it clear that whether a transaction amounts to a “gift” in the context of taxation statutes is essentially a question of fact to be determined by the trier of fact. The burden of proving “gift” is upon the party claiming it. If that party fails in its burden the transaction is presumed taxable and the assessment is presumed correct. This case was tried on the facts and the trial judge made appropriate findings of fact fully supported by the evidence and made conclusions of law fully supported by the findings of fact. The process resulted in a judgment favorable to the Secretary of Revenue.
The Court in Kaiser held that the evidence in that case was sufficient to permit (but not require) a jury to find that the transaction was a “gift.” It is noteworthy that in Kaiser the recipient of the strike benefits was not a member of the Union for much of the time that he received benefits. I hardly see how the Kaiser *749court could have avoided affirmation of the jury’s finding of a “gift” under the circumstances before it.
Even if I believed, as does the majority, that Kaiser is apposite to the facts at hand, I would not find the benefits paid to Mr. Stone to be a “gift” in this case. With the single exception of Kaiser, every case (including each jury case) to have considered the matter that I am aware of has found strike benefits not to be gifts from the Union to the recipient. See, e.g., Woody v. United States, 368 F. 2d 668 (CA 9, 1966); Halsor v. Lethert, 240 F. Supp. 738 (D.C. Minn. 1965); Placko v. Commissioner, 74 T.C. 452 (1980); Colwell v. Commissioner, 64 T.C. 584 (1975); Brown v. Commissioner, 47 T.C. 391 (1967); Hagar v. Commissioner, 43 T.C. 468 (1965); see also Jernigan v. Commissioner, T.C. Memo. 1968-18 (1968) and Phillips v. Commissioner, T.C. Memo. 1965-268 (1965).
A holding that the benefits here were income and therefore taxable in addition to being the correct legal result, would do equity. Those fellow employees of Mr. Stone who did not participate in the strike, including those who were Union members, continued to pay state income tax on their earnings. Mr. Stone’s right to join in the strike is an important right but the mere fact that an individual chooses to join in a strike should not provide him with a tax shelter.
Chief Justice Branch joins in this dissent.