Court Opinion

ID: 8197078
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:20:31.422632+00
Date Added: 2024-06-11T16:40:47.966374
License: Public Domain

The following opinion was filed October 14, 1931:
Fairchild, J.
Upon the motion for rehearing a brief was filed by the appellants which convinces us that the decision in this case should be clarified as to the ruling on the constitutionality of the law there involved.
In the matter before us we considered the law as it applied to the facts there presented and did not state as fully *630as we might have that the constitutionality of the statute was directly the issue. We did not expressly state in the opinion that all receipts of that character by the executor are not income and are not subject to tax as such under the income tax law.
In applying income tax laws the courts look beyond the mere form to the substance of the transaction for the purpose of ascertaining the nature of the property resulting from sale or descent. Miller v. Wis. Tax Comm. 195 Wis. 219, 217 N. W. 568. Items of the character considered in this case, uncollected at the time of the death, fix themselves into the estate, become part of the corpus, are subject to inheritance tax, but cannot be treated as income. Sec. 1, art. VIII, Const., provides the authority for imposing taxes on incomes, privileges, and occupations, and while it authorizes the imposition of graduated taxes it is on income only; therefore an act which attempts to impose an income tax on what is, and is commonly understood to be, principal, capital, or corpus of an estate, is void.
It seems clear that no authority is given by the constitution and no power has been created by which the legislature can change that which has always been capital at the time of descent into income when it is collected by the executor.
While the facts in Herzberg v. Wis. Tax Comm. 194 Wis. 126, 215 N. W. 936, cited in the opinion, arose before this law was enacted, the doctrine followed there is based upon principles so fundamental that their integrity has not been disturbed by any constitutional amendment or legislative enactment.
In the decision in this case we held that the specific property descending'to respondent was principal or corpus and could not be taxed as income. It is established, of course, that an income tax is not a ta.x on property but a tax against the recipient of the income. State ex rel. Manitowoc Gas *631Co. v. Wis. Tax Comm. 161 Wis. 111, 114, 152 N. W. 848; Falk v. Wis. Tax Comm. 201 Wis. 292, 293, 230 N. W. 64.
The decision in the Herzberg Case, supra, rested on the ground that certain part payments of an obligation to an estate, which payments might have been income had Mr. Herzberg remained alive, constituted corpus and not income, and that the contract became part of the estate and the appraised value for inheritance purposes was capital to the executor. It was there stated:
“The two sums so paid were but part payments of the obligation to make future payments, the present worth of which obligation as of the time of the death of the testator here having been appraised at $66,071. They were in no sense interest upon said fund of $66,071 or in any sense an increment to it, or in the nature of a return upon the use of such fund.”
It being the accepted-doctrine that the income tax is not a tax on property but a tax against the recipient of the income, it follows that when the person who was the owner and to be the recipient dies, the obligation becomes a part of the estate which passes to his executor or administrator, and the property when it appears again is the property of new owners, a new estate.