Court Opinion

ID: 4010092
Source: CourtListenerOpinion
Date Created: 2016-07-06 11:11:15.722267+00
Date Added: 2024-06-11T13:42:49.787531
License: Public Domain

This court held in State ex rel. Froedtert G.  M. Co.v. Tax Comm. (1936) 221 Wis. 225, 265 N.W. 672, 267 N.W. 52, that the statute involved herein was constitutional, and the instant decision reiterates that holding as applied to Wisconsin corporations.  The instant decision holds that as applied to corporations organized under the laws of sister states declaring dividends outside the state resulting from business conducted in this state the statute is unconstitutional.  The instant ruling is based upon the ruling of the supreme court of the United States in the case of Connecticut General LifeIns. Co. v. Johnson (1938), 303 U.S. 77,58 Sup. Ct. 436, 82 L.Ed. 673.  A ruling of the supreme court of the United States on a question under the constitution of the United States governs the ruling of this court in a case that involves the same state of facts.  But a decision in one case does not govern the decision of another unless the facts of the latter are so, like those in the former as to render the reason of the former as applicable to the latter as to the former.  Thus it is that the decision in the case cited does not govern the decision in the instant case if the facts of the instant case can be so differentiated as to render the reason of that case inapplicable here.
It is quite true that the Connecticut General Life Ins. Co.Case, supra, rules this case if we take literally statements of the opinion in that case, quoted in the instant opinion, and apply them to the factual situation here involved.  But the instant factual situation, while in some respects similar, is, as I view it, materially different in one respect from that involved in that case.  It is said in the opinion in that case that (p. 80) "the due-process clause denies to the state power to . . . tax the corporation's property and activities elsewhere." The reason for that statement is stated to be that jurisdiction of the state of California to impose the tax is (p. 80) "to be ascertained by reference to the incidence of the tax upon its objects."  The object of the California tax was the reinsurance premium received and contracted for in *Page 300 
the state of Connecticut.  The receipt and the contract were in no way connected with, in no way incidental to any transaction of the insurance company in California, and were in no way connected with or incidental to any earnings of the company from business conducted in California.  The object of the instant tax is the declaration of a dividend made in New York on earnings of the plaintiff corporation through business transacted in the state of Wisconsin.  The declaration of the instant dividend was connected with, was incidental to, related back to, the business conducted in Wisconsin on the earnings of which the tax was computed.  The reason for the invalidity of the California tax does not apply to the instant case.  The reason not applying, neither does the rule.  So at least it seems to me.  Under this concept, the statute here involved remains valid unless subsequently declared invalid by the supreme court of the United States.
The tax here involved is laid upon the declaration of dividends upon corporate earnings within this state.  It seems to me that if such a tax may be laid upon the declaration of dividends so earned by a Wisconsin corporation within the state, it may perforce be laid upon the declaration of dividends so earned by a foreign corporation, regardless of whether the dividends be declared within or without the state.  A Wisconsin corporation conducting a business in Wisconsin at Beloit would be subject to taxation upon a declaration of dividends based upon its earnings within the state, regardless of whether the declaration was made in Beloit or across the state line Illinois at South Beloit.  The directors declaring the dividend could not escape the tax merely by crossing the state line to declare it.  To permit this would be to exalt the mere mechanics of the matter over the reason of it.  Nor, by the same token, as it seems to me, is it material whether the declaration of dividends based on earnings made in Wisconsin, are declared in Wisconsin or in New York or Delaware. *Page 301 
No corporation of one state, that comes into another state and does business there in competition with corporations of that state, should be permitted to escape any taxation with which the corporations of that state with which it competes are burdened merely because it is organized under the laws of another state or because it receives or holds or handles its Wisconsin earnings in another state.  To permit corporations merely by organizing in one state and going into other states to conduct their operations to escape burdens of taxation or other disadvantages to which local corporations with which they compete are subject under the laws of the state in which they operate is wrong in principle.
Some tax decisions of the supreme court of the United States rendered since Connecticut General Life Ins. Co. v.Johnson, supra, was decided, and some rendered shortly before, seem to me to show that notwithstanding what is said in the opinion in that case, the plaintiff herein has a tax situs in Wisconsin for the imposition of the instant tax.
Newark Fire Ins. Co. v. State Board, 307 U.S. 313,59 Sup. Ct. 918, 83 L.Ed. 1312, sustained the taxation in New Jersey of the paid-up capital stock and surplus of a New Jersey corporation which kept its main office in New York and there kept its securities and the bulk of its cash.  Mr. Justice REED wrote an opinion concurred in by three other members of the court.  This opinion refers to the "fiction" by which intangibles have become taxable in a jurisdiction where the corporation has acquired a "tax situs."  It is said (p. 321), as the reason for recognition of such tax situs, that —
"The conception of a business situs for intangibles enables the tax gathering entity to distribute the burden of its support equitably among those receiving its protection.  It makes the notion of a tax situs for particular intangibles more definite. It is not the substitution of a new fiction as to the mass of choses in action for the established fiction of a tax situs at the place of incorporation.  To overcome the presumption of *Page 302 
domiciliary location, the proof of business situs must definitely connect the intangibles as an integral part of the local activity."
The tax involved in that case was a property tax, but the same reason that applies to a tax situs for property taxation intangibles applies for establishing a tax situs for the purpose of excise taxation when, as in the instant case, the thing taxed is "definitely connected" "as an integral part of the local activity."  The basis of the taxation of appellant herein is that the declaration of the dividend on which the excise tax against the corporation is based is so definitely connected as an integral part of the local activity of the taxpayer in earning the dividends on which the tax is computed as to give it a tax situs in Wisconsin.
In this case Mr. Justice FRANKFURTER also wrote an opinion, also concurred in by three other justices, in which it is said in respect of interference with taxation by the states (p. 323):
"Wise tax policy is one thing; constitutional prohibition quite another.  The task of devising means for distributing the burdens of taxation equitably has always challenged the wisdom of the wisest financial statesmen.  Never has this been more true than today when wealth has so largely become the capitalization of expectancies derived from a complicated network of human relations.  The adjustment of such relationships, with due regard to the promotion of enterprise and to the fiscal needs of different governments with which these relations are entwined, is peculiarly a phase of empirical legislation.  It belongs to that range of the experimental activities of government which should not be constrained by rigid and artificial legal concepts.  Especially important is it to abstain from intervention within the autonomous area of the legislative taxing power where there is no claim of encroachment by the states upon powers granted to the national government.  It is not for us to sit in judgment on attempts by the states to evolve fair tax policies.  When a tax appropriately challenged before us is not found to be in plain violation of the constitution our task is ended." *Page 303 
In Smith v. Ajax Pipe Line Co. (8th Cir.) 87 F.2d 567, it was held that a Delaware corporation keeping its funds in a bank in New York but having its principal place business in Missouri and keeping its books and records there had a tax situs in Missouri, and that the state of Missouri might tax its bank deposits kept in New York.  Similarly in First Bank Stock Corp. v. Minnesota, 301 U.S. 234,57 Sup. Ct. 677, 81 L.Ed. 1061, Minnesota was permitted to tax a Delaware corporation on stock in Montana and Dakota banks.  It is said on page 241 of the opinion:
"We have recently had occasion to point out that enjoyment by the resident of a state of the protection of its laws is inseparable from responsibility for sharing the costs of its government."
The reason back of the rule permitting taxation of a corporation of one state to be taxed in another state on its intangibles attributable to business in that other state is as stated in the above quotation.  That reason applies just as aptly and just as strongly to uphold the excise tax here involved and upon that reason the instant tax should be upheld.
The case of Curry v. McCanless, 307 U.S. 357,59 Sup. Ct. 900, 83 L.Ed. 1339, bears upon the question here involved.  It deals with an excise tax based on devolution of intangibles by death.  A resident of Tennessee created a trust whereby securities were given to trustees residing in Alabama for purposes declared in the instrument of trust. The donor by the instrument of trust reserved to herself the right to dispose of the corpus by will.  By her will she bequeathed the corpus to the trustees with direction to turn it over to residents of Alabama.  Tennessee based a death tax upon the exercise by the donor of the power of appointment by will.  Alabama imposed a death tax upon the trustees in Alabama.  The question involved was whether both states might impose the tax and it was he.  Id that they might.  That the devolution of the intangibles occurred in Tennessee, *Page 304 
where the donor resided at her death, did not deprive the state of Alabama from imposing a tax on that devolution. The thing that transferred the intangibles and the right to them was the will activated by the donor's death.  The thing that effected the transfer occurred in one state, yet the transfer was taxable in the other.  I see no more reason why the mere fact in the instant case that the devolution resulting from the declaration of the dividend occurred in New York should defeat the devolution tax imposed by Wisconsin than that the mere fact that the occurrence of the devolution in Tennessee should defeat the Alabama tax.  The connection between the devolution and the Alabama taxpayer's acquisition made the devolution to him taxable although that devolution occurred in Tennessee.  By the same token the connection between the declaration of the dividend in New York and the earning of those dividends in Wisconsin made the devolution effected by the declaration of the dividend in New York taxable in Wisconsin.
In Ford Motor Co. v. Beauchamp, 308 U.S. 331, 334,60 Sup. Ct. 273, 84 L.Ed. ___, decided December 11, 1939, an excise or franchise tax imposed by the state of Texas upon a foreign corporation doing business in that state and the other states of the United States was sustained.  The tax was based upon the proportion of the corporation's capital employed in Texas computed on the percentage of the corporation's sales made within Texas.  In the opinion of the court it is said:
"The exploitation by foreign corporations of intrastate opportunities under the protection and encouragement of local government offers a basis for taxation as unrestricted as that for domestic corporations.  In laying a local privilege tax, the state sovereignty may place a charge upon that privilege for the protection afforded.  When that charge, as here. is based upon the proportion of the capital employed in Texas, calculated by the percentage of sales which are within the state, no provision of the federal constitution is violated." *Page 305 
The statement next above quoted, down to the last sentence thereof, applies verbatim to the instant case.  The last sentence may be paraphrased:  "When that charge, as here," is based upon the amount of business done in Wisconsin, "no provision of the federal constitution is violated."
For the reasons above stated I think the judgment of the circuit court should be affirmed.