Court Opinion

ID: 9419515
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:49:54.472748+00
Date Added: 2024-06-11T17:22:18.735127
License: Public Domain

Me. Chief Justice Stone
delivered the opinion of the Court.
These cases come here on appeal under § 237 (a) of the Judicial Code, 28 TJ. S. C. § 344 (a), from judgments of the Supreme Court of Wisconsin, reviewing and sustaining assessments by appellee, the Wisconsin Department of Taxation, of the Wisconsin Privilege Dividend Tax imposed with respect to appellants, which are foreign corporations doing business in Wisconsin. 243 Wis. 198,211. The appellants present again, but in a new aspect, the substance of the question decided in Wisconsin v. J. C. Penney Co., 311 U. S. 435. In that case we sustained the constitutionality, under the due process clause of the Fourteenth Amendment, of the Wisconsin Privilege Dividend Tax, § 3 of Ch. 505 of Wisconsin Laws of 1935 as amended by Ch. 552, Wisconsin Laws of 1935.1 The tax is imposed with respect to both foreign and domestic corporations doing business within the state “for the privilege of declaring and receiving dividends” out of income derived from property located and business transacted in the state. The payor corporation is required to deduct the tax from the dividends payable to both resident and nonresident stockholders.
*438Appellants are respectively a New Jersey and a Delaware corporation doing business in Wisconsin. Appellee has assessed the Privilege Dividend Tax with respect to dividends declared and paid by appellant Harvester Company to its stockholders, including non-residents, between December 2,1935 and October 15, 1937, inclusive, and on dividends similarly declared and paid by appellant Minnesota Mining Company in the years 1936 to 1940, inclusive. In the case of each appellant the tax as assessed was measured by so much of the dividends as were derived from the portion of the corporate surplus attributed by the tax authorities to income earned by the corporation in Wisconsin. The dividends were declared at directors’ meetings held outside the state, and the dividend checks were drawn on bank accounts outside the state.
In the Penney case we sustained the tax in the case of a Delaware corporation doing business in Wisconsin, but having its principal office in New York, holding its meetings and voting its dividends there, and drawing its dividend checks on New York bank accounts. In considering the incidence of the tax in Wisconsin, which could afford a basis for the taxation there although the declaration and payment of the dividend took place outside the state, this Court pointed out that the practical operation of the tax is to impose an additional tax on corporate earnings within Wisconsin, but to postpone the liability for payment of the tax until such earnings are paid out in dividends, and we added, 311U. S. at p. 442: “In a word, by its general income tax Wisconsin taxes corporate income that is taken in; by the Privilege Dividend Tax of 1935 Wisconsin superimposed upon this income tax a tax on corporate income that is paid out.”
Since our decision in the Penney case, the Wisconsin Supreme Court has said, in both the Penney case on remand, 238 Wis. 69, 72-73, and in the International Harvester case below, 243 Wis. 198, 204-206, that under the *439Wisconsin constitution, the state has no power to lay an income tax on citizens of other states, who are not doing business in Wisconsin, and that the tax is not on the income of the corporation. And in Wisconsin Gas Co. v. Department of Taxation, 243 Wis. 216, 10 N. W. 2d 140; cf. Blied v. Wisconsin Foundry Co., 243 Wis. 221, 10 N. W. 2d 142, the Court held that the burden of the tax is imposed upon the stockholders so that the corporation is not entitled to deduct the privilege tax from gross income as a business expense, in arriving at net taxable income under the state’s income tax law. In the Wisconsin Gas Company case, supra, the Court said, at p. 220-1:
“We are certain of three things: (1) That the burden of the tax is specifically laid upon the stockholder; (2) that the corporation declaring the dividend must deduct the tax from the dividend and may not under any circumstances treat the tax as a necessary expense of doing business [for state income tax purposes]; (3) that the power to levy the tax so construed was authoritatively established in the Penney case.”
From this, appellants argue that the state court has now conclusively declared that the tax is not on income of the corporation, but only on the stockholders’ privilege of receiving dividends, and that it must be deducted from the dividends before their payment to the stockholders. Appellants renew the contentions urged in the Penney case that since the declarations of the dividends here in question were made outside the state and the non-resident stockholders received their dividends outside the state, the taxing statute as applied in these cases infringes due process by imposing the tax on stockholders and on activities and objects outside the territory of the State of Wisconsin, and consequently outside its legislative jurisdiction. Compare Connecticut General Ins. Co. v. Johnson, 303 U. S. 77. To this is added the further argument, not presented in the Penney case, that the tax violates the Four*440teenth Amendment because retroactively applied to and measured by Wisconsin income which was earned and carried to appellants’ surplus accounts before the enactment of the statute.
For present purposes we assume that the statute, by directing deduction of the tax from declared dividends, distributes the tax burden among the stockholders differently than if the corporation had merely paid the tax from its treasury and that the tax is thus, in point of substance, laid upon and paid by the stockholders, some of whom might not bear the burden of the tax at all if, without more, it were paid out of the corporate treasury. This is obviously the case here with respect to the deductions from dividends on appellant Harvester’s preferred stock, since normally the economic weight of taxes paid by the corporation would be borne by its common stockholders.
If such is the nature of the tax, a question preliminary to determining its validity is whether appellants have standing to urge here the constitutional objections of their stockholders, who are not parties to the present suits and who alone may be affected adversely by the tax. For appellants are permitted to reimburse themselves for the amounts, which they must pay to the state, by appropriate deductions from the dividends belonging to the stockholders. Appellants’ failure in these cases to make the deductions was by their own choice and not by compulsion of the statute. But as the only way by which appellants can avoid the payment of the tax from their own funds is by collecting it from their stockholders’ dividends and as appellants would remain liable to the stockholders, certainly to the preferred stockholders, for the amounts of the deductions if not lawfully taken, they are, in either aspect, adversely affected by obedience to the statute, if it is unconstitutional. We therefore conclude that appellants have standing to challenge the constitutionality of the statute. Cf. Anderson National Bank v. Luckett, 321 U. S. 233, 242-3.
*441For the reasons stated in the Penney case we do not doubt that a state has constitutional power to make a levy upon a corporation, measured by so much of its earnings from within the state as it distributes in dividends, and to make the taxable event the corporation’s relinquishment of the earnings to its stockholders. That power is not diminished or altered by the fact that the state courts, for purposes of their own, denominate the levy a tax on the privilege of declaring and receiving dividends, or that they decline to call it an income tax. In determining whether a tax is within the state’s constitutional power, we look to the incidence of the tax and its practical operation, and not its characterization by state courts. Shaffer v. Carter, 252 U. S. 37, 55 and cases cited; Lawrence v. State Tax Commission, 286 U. S. 276, 280 and cases cited.
Nor do we perceive any constitutional obstacle, either to the state’s distributing the burden of the tax ratably among the stockholders, as the ultimate beneficiaries of the corporation’s activities within the state, and of the state’s relinquishment of control over the Wisconsin earnings, so as to render the tax pro tanto one on the stockholders’ income, or to the state’s imposing on the corporation the duty of acting as its agent for the collection of the tax, by requiring deduction of the tax from earnings distributed as dividends.
The power to tax the corporation’s earnings includes the power to postpone the tax until the distribution of those earnings, and to measure it by the amounts distributed. Compare Curry v. McCanless, 307 U. S. 357, 370. In taxing such distributions, Wisconsin may impose the burden of the tax either upon the corporation or upon the stockholders who derive the ultimate benefit from the corporation’s Wisconsin activities. Personal presence within the state of the stockholder-taxpayers is not essential to the constitutional levy of a tax taken out of so much of the corporation’s Wisconsin earnings as is distributed to them. A state may tax such part of the income *442of a non-resident as is fairly attributable either to property located in the state or to events or transactions which, occurring there, are subject to state regulation and which are within the protection of the state and entitled k* the numerous other benefits which jt confers. Compare Shaffer v. Carter, supra, and Travis v. Yale & Towne Mfg. Co., 252 U. S. 60, with Lawrence v. State Tax Commission, supra, and New York ex rel. Cohn v. Graves, 300 U. S. 308. And the privilege of receiving dividends derived from corporate activities within the state can have no greater immunity than the privilege of receiving any other income from sources located there.
We think that Wisconsin may constitutionally tax the Wisconsin earnings distributed as dividends to the stockholders. It has afforded protection and benefits to appellants’ corporate activities and transactions within the state. These activities have given rise to the dividend income of appellants’ stockholders and this income fairly measures the benefits they have derived from these Wisconsin activities. There is no contention here that the formula of apportionment does not fairly reflect the proper proportion of appellants’ earnings attributable to their Wisconsin activities and transactions. Wisconsin may impose a measure of control upon the corporation there with respect to its withdrawal of its earnings from the state, and also may, for the protection of the interests of the state and of its citizens, regulate to some extent the declaration and distribution of dividends by a foreign corporation, certainly with respect to its Wisconsin earnings. See, e. g., Judge Cardozo in German-American Coffee Co. v. Diehl, 216 N. Y. 57, 109 N. E. 875; New York Stock Corporation Law, § 114. The earnings in Wisconsin, their withdrawal from Wisconsin and their distribution in the form of dividends have resulted in the receipt of income by the stockholder-taxpayers and it is Wisconsin’s relation to all which permits it to levy the tax. It may *443condition the privilege of earning and disposing of the Wisconsin earnings upon the payment of a tax measured by and collected from the earnings to be distributed as dividends. Wisconsin v. J. C. Penney Co., supra.
The facts that Wisconsin cannot prevent the withdrawal of the earnings from the state or the declaration of the dividends, if they be the facts, have no bearing on its right to measure, in terms of taxes, both the benefits which it has conferred on the stockholders in their relations with the state, and the activities or transactions which are within the reach of its regulatory power. Equitable Life Society v. Pennsylvania, 238 U. S. 143, 147; cf. Mr. Justice Holmes dissenting in Compañía de Tabacos v. Collector, 275 U. S. 87, 99, 100.
That the distribution of Wisconsin earnings was effected by the exercise outside Wisconsin of the power to declare dividends does not deprive it of its power to take toll from the income earned there upon its distribution to the stockholders. See Bullen v. Wisconsin, 240 U. S. 625; Curry v. McCanless, supra, 366-370 and cases cited; Graves v. Elliott, 307 U. S. 383; State Tax Commission v. Aldrich, 316 U. S. 174,180. And the fact that the stockholder-taxpayers never enter Wisconsin and are not represented in the Wisconsin legislature 2 cannot deprive it of its jurisdiction to tax. It has never been thought that residence within a state or county is a sine qua non of the power to tax. Cf. Cook v. Tait, 265 U. S. 47. So long as the earnings actually arise there, and their withdrawal from the state and ultimate distribution, in whole or in part, to stockholders are *444subject to some state control, the conditions of state power to tax are satisfied, see Shaffer v. Carter, supra, 55; State Tax Commission v. Aldrich, supra; compare McCulloch v. Maryland, 4 Wheat. 316, 429, even though some practically effective device be necessary in order to enable the state to collect its tax — here by imposing on the corporation the duty to withhold the tax on so much of the earnings withdrawn from the state as may be distributed in dividends. Imposition of this requirement on the corporation transgresses no constitutional limitations. Nelson v. Sears, Roebuck & Co., 312 U. S. 359, 364; Nelson v. Montgomery Ward & Co., 312 U. S. 373.
Appellants press with vigor, as controlling decision here, the denial of the state’s power to tax in Connecticut General Ins. Co. v. Johnson, supra. In that case California sought to levy a tax on gross receipts derived from contracts made and to be performed in Connecticut by a Connecticut corporation doing other business in California. But as we said of the Johnson case in the Penney case, supra, 446: “In the precise circumstances presented by the record it was found that the tax neither in its measure nor in its incidence was related to California transactions. Here, on the contrary, the incidence of the tax as well as its measure is tied to' the earnings which the State of Wisconsin has made possible, . . .” and both the earnings and their disposition are subject to state control and hence its power to tax.
It should be emphasized once again that the Fourteenth Amendment does not in terms or in effect prohibit unwise taxes, merely because they are unwise, or unfair or burdensome taxes, merely because they are unfair or burdensome. The wisdom or fairness of the tax before us are not matters subject to our control or revision. We are only concerned with the power of the state to lay the tax. The power to tax “is an incident of sovereignty, and is coextensive with that to which it is an incident. All sub*445jects over which the sovereign power of a state extends, are objects of taxation; . . .” McCulloch v. Maryland, supra, 429; Curry v. McCanless, supra, 366.
We conclude that appellants’ stockholders can have no constitutional objection to the withholding by Wisconsin of a tax measured by their dividends distributed from Wisconsin earnings.
Appellants do not deny that the dividends are derived from earnings from within the State of Wisconsin, but it is urged that some of them at least were paid from corporate surplus earned and set aside in years before the taxing statute was enacted. But since the taxable event, the distribution of dividends paid from earnings, and the deduction of the tax from them occurred subsequent to the enactment of the taxing statute, no question of its retroactive application is involved.
The contention of appellant, the Harvester Company, that the formula for assessing the tax is not one authorized by the statute is not open to consideration here. The State Supreme Court has construed and applied the statute and by its construction we are bound. Meyer v. Wells, Fargo & Co., 223 U. S. 298 and Davis v. Wallace, 257 U. S. 478, on which appellant relies, were cases coming here from the lower federal courts, in which this Court was required to place its own construction on a state statute which had not been definitively construed by the state courts.

Affirmed.

Mr. Justice Roberts took no part in the consideration or decision of these cases.

 The statute was re-enacted by § 3 of ch. 309 of Wis. Laws of 1937; § 1 of ch. 198 of Wis. Laws of 1939; § 3 of ch. 63 of Wis. Laws of 1941; and § 2 of ch. 367 of Wis. Laws of 1943.

 The Wisconsin Privilege Dividend Tax does not discriminate against non-residents or foreign corporations, or place an undue burden on them without a corresponding burden on residents or domestic corporations. Hence this is not a case where “legislative action is not likely to be subjected to those political restraints which are normally exerted on legislation where it affects adversely some interests within the state.” See South Carolina Highway Dept. v. Barnwell Bros., 303 U. S. 177, 184-5, n. 2 and cases cited.