Court Opinion

ID: 9698355
Source: CourtListenerOpinion
Date Created: 2023-08-25 19:48:25.438744+00
Date Added: 2024-06-11T18:20:40.299240
License: Public Domain

Hallows, C. J.
(dissenting). I think the reserve judge was correct in holding sec. 71.337 (1), Stats., unconstitutional and the judgment should be affirmed. The narrow question is whether the state for income tax purposes can treat corporations differently on the basis of the residency of their shareholders.
I have no quarrel with the general statements of law made by the majority, but I do challenge its deductions and reasoning. A classification for taxation must be reasonable and rest on some ground of difference which has a substantial relationship to the object of the legislation. All persons similarly circumstanced must be treated alike. Royster Guano Co. v. Virginia (1920), *61253 U. S. 412, 415, 40 Sup. Ct. 560, 64 L. Ed. 989. A corporation is constitutionally entitled to the equal protection of law. Wheeling Steel Corp. v. Glander (1949), 337 U. S. 562, 69 Sup. Ct. 1291, 93 L. Ed. 1544.
The object of sec. 71.337 (1), Stats., is to avoid double taxation. To attain this for Wisconsin shareholders, the section does not recognize certain capital gains realized by a Wisconsin corporation in liquidation. This exclusion varies in each corporation depending upon what percentage of its shareholders are Wisconsin residents. Thus the tax seeks to reach indirectly only the income of nonresidents whom the state of Wisconsin has no jurisdiction to tax directly.
The classification for an income tax on a corporation is unreasonable because it disregards the corporate entity — does not treat all corporations equally in two respects — and in effect discriminates against Wisconsin shareholders by taxing them twice, thus frustrating the object of the section.
Under the tax, Wisconsin shareholders bear their proportion of the tax imposed on the corporation by the resulting reduction in value of their shares but also again are taxed in personal income tax on their realized capital gain. A going corporation is treated differently than a liquidating one and liquidating corporations are treated differently depending on the residency of the shareholders, i.e., a corporation with all nonresident shareholders is fully taxed, a corporation with all Wisconsin shareholders is not taxed. The tax cannot be justified as attempted by the majority on the ground the corporation is merely a conduit in the liquidation proceedings. If this were true, the tax based on nonresidency should be allocated to the nonresident shareholders, but this the state of Wisconsin has no jurisdiction to do. The end attempted by sec. 71.337 (1), Stats., does not justify piercing the corporate veil to find a basis for a classifica*62tion which in fact does not fairly and substantially attain the objective. Residency of shareholders as a basis for taxing a corporation is unreasonable as a basis for corporate tax and contrary to the accepted law to recognize a corporation as a separate entity.
Shareholders of a corporation should be treated alike and the objective underlying sec. 71.337 (1), Stats., does not allow a shortcut and save it because the means to that end violates the guarantee of the equal protection clause of the laws. Rinaldi v. Yeager (1966), 384 U. S. 305, 86 Sup. Ct. 1497, 16 L. Ed. 2d 577.
I am authorized to state Messrs. Justices Connor T. Hansen and Robert W. Hansen join in this dissent.