Court Opinion

ID: 3876705
Source: CourtListenerOpinion
Date Created: 2016-07-06 09:09:28.910608+00
Date Added: 2024-06-11T11:52:37.570315
License: Public Domain

The State Income Tax Law went into effect on March 13, 1922 (32 Stat. at Large, 896).
The income tax required to be paid to the State in 1922 was one-third of the tax required to be paid to the United States government in 1922. The tax required to be paid *Page 474 
the United States in 1922 was the tax on net taxable income shown by the return made by the person or corporation in 1922. The net taxable income, shown by the return made in 1922, upon which the tax became payable in 1922, might, under the Federal law, be either the net taxable income for the next preceding calendar year (December 31, 1920, to December 31, 1921), or the net taxable income for the next preceding fiscal year of the firm or corporation making the return. Thus, in the case of the petitioner here, the return to the United States in 1922 showed the net taxable income for the next preceding fiscal year of the corporation, running from June 30, 1920, to June 30, 1921, and its liability to the United States for income tax payable in 1922 was determined upon the basis of that return. According to that return it is alleged that the petitioner sustained a loss in 1920 (from June 30 to December 31), of about $250,000, and earned a profit in 1921 (from January 1 to June 30) of about $50,000. Its return made in 1922 to the Federal Government, therefore, showed a net loss of about $200,000 for the next preceding fiscal year, and an entire absence of any liability to the United States for an income tax payable in 1922.
The State tax commission does not dispute that under the Federal law the petitioner's liability to the Federal Government for any income tax payable by it in 1922 was determinable upon the basis of its return in 1922 for its next preceding fiscal year, running from June 30, 1920, to June 30, 1921. But it is contended that it was the intent of the State Legislature, evidenced by the language of Section 3 of the State Act, to impose the State tax upon all net income actually earned in the year 1921, and that, so far as the State is concerned, net income earned in 1921 is not subject to offset or deduction on account of losses occurring in such part of a fiscal year as was embraced in the year 1920; that is, in the petitioner's case it is contended that "the proper method for calculating the tax for the first 6 *Page 475 
months of 1921 is to commence the calculation with January 1, 1921, and end it with June 30, 1921, disregarding whatever may have transpired during the calendar year 1920, even though such latter period is embraced in petitioner's fiscal year of 1920-21 return to the Federal Government."
While there are expressions in Section 3 of the Act which lend considerable force to that contention, I am satisfied that a sound construction of the Act as a whole requires the interpretation that the tax payable to the State in 1922 was one-third of the tax payable to the United States Government in 1922. If by reason of losses in 1920 — that is, in such period of its next preceding fiscal year as was embraced in 1920 — no tax was payable to the United States Government by this petitioner in 1922, none was payable to the State. If, on the other hand, a tax had been payable to the United States in 1922, on account of the net taxable income earned by this petitioner during the fiscal year running from June 30, 1920, to June 30, 1921, even though the whole of such net taxable income had been earned in the part of the fiscal year falling with 1920, the State would have been entitled to its one-third of the tax so payable to the national government; that is, in the view indicated, if the petitioner here had lost $50,000 during the 6 months of its fiscal year falling in 1921, and had earned $100,000 during the 6 months falling within 1920, it would have been liable to pay in 1922 to the United States the tax on its net income for the whole of its fiscal year amounting to $50,000, and would likewise have been liable to the State for one-third of the tax so paid to the national government. The rule, so applied, working both ways, could work no injustice to the State, and I am satisfied furnishes the test of liability which the Legislature intended to apply.
For the reasons indicated, I concur in the opinion of Mr. Justice Purdy.
MR. JUSTICE COTHRAN concurs. *Page 476