Court Opinion

ID: 9418993
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:44:29.617691+00
Date Added: 2024-06-11T08:10:37.564885
License: Public Domain

MR. Justice Roberts,
dissenting.
The Constitution of Wisconsin, Article VIII, § 1, provides: “Taxes may also be imposed on incomes, privileges and occupations, which taxes may be graduated and progressive, and reasonable exemptions may be provided.” Pursuant to this grant, the State, since 1911,1 has had a statute levying a general income tax on corporations and individuals at a graduated rate. The system, which is analogous to that with which we are familiar in the federal field, has, like the latter, been amended from time to time in detail. The law as it stood in 1933 is found in the 1933 edition of the Wisconsin statutes as chapter 71. The tax is imposed for annual periods. The gross income.of a given year includes rents, dividends, wages, and salaries, profits from the transaction of business or sale of property and all other gains, profits, or income derived from any source except such as are specifically exempted. In ascertaining taxable income each tax*152payer is entitled to deduct from gross receipts wages, salaries, and other expenses of conducting a business, occupation, or profession, depreciation, also cost of property sold. In addition each is permitted to deduct certain losses incurred within the year not compensated by insurance, interest paid on indebtedness, state and federal taxes, contributions to the State or its subdivisions or to charitable objects and amounts paid to an unemployment reserve.2 Pensions are exempted, and a specified amount may be deducted from the tax, when ascertained, as a personal exemption.3 Dividends (with exceptions not material) received from certain corporations filing income tax returns under the law, and paying income tax to the State, are deductible from gross income.4 We were told at the bar that this deduction had been authorized for many years prior to 1933.
The appellant, a resident of Wisconsin, on or about March 15, 1934, as by law required, made a return of his income for 1933 showing his gross income and took deductions for interest paid, for losses on the sale of securities, for business expenses, for charitable contributions, and for dividends received from certain corporations, with the result that no net taxable income remained. Without the deduction of the dividends his net income would have been $2,221.39.
When the Wisconsin legislature met in its regular biennial session in January 1935 it was confronted by a need for additional revenue to meet the State’s obligations. The condition is referred to as an emergency because the need for additional funds grew out of the then current relief load, but the emergency was no different than if the State had found itself short of funds for the *153payment of official salaries. As the Supreme Court of Wisconsin has said: “Expense for relief of the unemployed is on no different footing than any other governmental expense.” 5 And it goes without saying that an emergency does not create power but is merely the occasion for the exercise of existing powers in conformity to constitutional principles.6
What then did the legislature do to meet the demand for public revenue? It adopted a statute effective March 27, 1935.7 By § 2 this Act laid an income tax additional to and separate from the general income tax at a graduated rate on the income of all individuals, for the year 1934, which was to be “assessed, collected, and paid in the same manner, upon the same income and subject to the same regulations,” as provided “by law for the assessment, collection and payment of the normal income tax,” with certain variations. One of the variations was that no deduction was to be allowed for those corporate dividends which were deductible under subsection (4) of § 71.04 of the general law.
Section 3 imposed an additional tax on transfers of property made up to July 1, 1937. Section 4 placed additional license fees for the year 1934 on telephone companies. Section 5 imposed an additional license fee for 1934 upon electric, gas and similar utility companies.
Section 6 imposed on the 1933 dividends, which had been deductible under the general law, a graduated tax of one per cent, on the first two thousand dollars of net dividend income, three per cent, on the next $3,000, and seven per cent, on all above $5,000. Net dividend income is defined as gross dividend income less $750. The tax *154is to be assessed, collected and paid in the same manner as the normal income tax for 1934. Under this section the appellant was required to make return and pay on some $12,000 of the dividends which he had been permitted to deduct from gross income in calculating and paying his income tax for 1933 and was assessed thereon $545.71, which he paid under protest and brought this action to recover.
The question is whether § 6 transgresses the prohibition of the Fourteenth Amendment. The Supreme Court of Wisconsin, although stating that “While the present tax may approach or reach the limit of permissible retroac-tivity, it does not exceed it,” sustained the statute as against challenge under the equal protection and due process clauses of the amendment.8 I think the statute is violative of the guarantees of equal protection and due process.
One must ignore the realities of the situation if he approaches a decision of the case in the light of the equal protection clause as if the statute under attack were prospective in operation; or, in the light of the due process clause, as if the statute were a revision of an existing general income tax system, theretofore in force. The illegal discrimination and the arbitrary character of the Act condemn it under the equal protection clause not because it selects a particular class of citizens for the imposition of the tax but because, in so doing, it reaches back and singles out for a new and wholly different sort of income tax those few only to whom a specific deduction was allowed in the general computation of their taxable income for the year 1933. It will not do to examine the classifi*155cation as if it were the declaration of a new policy of taxation to be operative in the future. No more will it do to separate the retroactive feature of the law and consider it as if it were a mere amendment of a general income tax system as such applicable to all income of all taxpayers subject to the law as it. stood at the date of the amendment. The reason for allowing the deduction is plain. As has been said in this court: “The purpose of the Legislature was solely to prevent double taxation by the State of Wisconsin, of the income received by individuals in the form of dividends.” 9 The same thing may be said as to the reason for other allowable deductions, as, for instance, of taxes paid. Reasons of fairness and public policy moved the State to allow the permitted deductions from gross income.
It readily may be conceded that Wisconsin is, and always has been, free in the imposition of an income tax, for good and sufficient reason, to treat the recipients of dividends on a basis different from the recipients of other sorts of income. The State also was free to revoke, alter, and amend the provisions for deductions as its views of fairness and policy might dictate. This case presents no such situation. After the taxpayers had returned and paid their tax under the existing system and according to the long established public policy of the State, the State sought additional revenues. Instead of levying an exaction upon the citizens generally or certain classes of citizens, the State went back and sought to tax a small class of income tax payers by reason of the purely arbitrary and adventitious fact that they had been allowed a particular deduction in a past year. It chose as the base of the tax a part of the income of the taxpayer under the law as previously in force. The previously granted deduction was not withdrawn but, on the contrary, the income rep*156resented by that deduction was picked out from all others, was classified by itself and taxed in a manner wholly unrelated to the income and the taxes of the recipient of these dividends under the general law under which he had computed and paid his tax. If the State was at liberty to do this it was equally free to tax at a new rate and upon a new scheme income of the taxpayers who in 1933 deducted losses sustained or those who deducted interest paid or taxes paid or charitable contributions made. It was equally at liberty to form a taxable class of those who were granted personal exemptions, to wrest out of their setting, as part of the general income of a taxpayer, rents received, royalties received, or professional income accrued in 1933 and to impose a special income tax on one or all of those items. As the trial judge well said:
“In the equitable distribution of taxation persons receiving dividends in the year 1933 should not be classified less favorably than persons receiving other kinds of income that year. For the purpose of taxation the income was not materially different than the following kinds: Salaries paid officers of private corporations; salaries paid to public officials; interest; rents; profit and income of all kinds received by individuals and corporations generally, unless some good reason appeared for some legislative exception.
“The statute is also discriminatory against the class of persons receiving dividends in the year 1933 when compared with other classes of persons when such other classes are assessed at all. It discriminates in being more drastic in limiting deductions for losses, expenses and exemptions. It is more drastic in the rapid increase of the graduated rate. For some reason one class only was selected to bear the entire burden of the emergency tax in question. This class was subjected to an unusually inequitable burden.”
Decisions sustaining the power of a State prospectively to classify, to grant exemptions, or otherwise to inter*157relate the tax burdens of different classes of taxpayers are of no aid and lend no support to the present statute. In ■ no case heretofore to which attention has been called have the courts sustained a law which after the fact reaches back two years and selects for a special form of income taxation at a new rate a group of the taxpayers who, in accordance with preexisting law, had paid that share of the general income tax which the legislature had adjudged to be its equal and proportionate share of the burden of government. To attempt this was, in my judgment, arbitrary and discriminatory classification.
From what has been said I think it apparent that the retroactivity of the challenged statute taken alone is not the element which condemns it any more than the attempted classification alone would condemn it if the Act were prospective in operation. The cases relied upon to support the statute, viewed in its retroactive aspect, do not meet the present case. In one of the cited cases, — United States v. Hudson, 299 U. S. 498, 500, — earlier decisions were thus summarized: “As respects income tax statutes it long has been the practice of Congress to make them retroactive for relatively short periods so as to include profits from transactions consummated while the statute was in process of enactment, or within so much of the calendar year as preceded the enactment; and repeated decisions of this Court have recognized this practice and sustained it. . . .” That was a case which fell squarely within this statement of the scope of permissible retro-activity. All enactments sustained that amended the tax system of a prior year were continuations of that existing system, and the taxpayers had knowledge, before the expiration of the year of receipt of the income by which the tax was measured, that amendment of the system was under consideration. To this class belongs the provision of the Wisconsin Act of 1935 imposing an additional tax on income received in 1934. This feature of the Act is *158not here under attack. A very different course was adopted with respect to the income of 1933. For that year the statute imposed a special income tax on a class selected because the law in force when they paid their taxes had permitted them to deduct certain items, and ignored all others to whom similar deductions had been granted. Thus the whole scheme of the general income tax was unbalanced and a peculiar and specific burden laid upon a selected few who had theretofore been relieved of the unjust burden of double taxation. What was said in Milliken v. United States, 283 U. S. 15, 21, is peculiarly apposite to the facts here disclosed. There, referring to earlier decisions, condemning, under the due process clause, retroactive taxes, it was stated: “In both the point was stressed, as the basis of decision, that the nature and amount of the tax burden imposed could not have been understood and foreseen by the taxpayer at the time of the particular voluntary act which was made the occasion of the tax.” Here the nature and amount of this special and peculiar tax could not have been understood and foreseen when the petitioner paid his 1933 income tax.
It is to be remembered that the Act in question is not a curative statute for the collection of taxes assessed in a prior year and uncollected10 nor one intended to make available taxes which, by reason of illegality in their imposition, were not paid in the year in which they were assessed.11 The Act is not a remedial measure to confirm or ratify a doubtful administrative interpretation of prior legislation.12 It does not lay an excise or a privilege measured by the income of a prior year,13 nor is it a statute to settle doubts as to whether an earlier taxing Act had expired by limitation.14
*159It was suggested at the bar that the exaction is a property tax and bad as such because retroactively imposed. The reply was that retroactive property taxes have been upheld. The cases cited do not touch the validity of an ad valorem property tax retroactively imposed. Some of them involved special assessments for benefits assessed after the completion of the improvement.15 Another cited to the proposition dealt with an excise for the use, for pleasure, of foreign built yachts either owned or chartered by the user for more than six months during the taxable year. The exaction was held an excise on the privilege of use and not a tax upon ownership, and, moreover, the tax was not retroactive in operation but was assessed upon the taxpayer at a date during which the taxpayer’s use of the yacht continued.16 Still another dealt with a curative act passed to reach property illegally assessed.17 But whether viewed as a property or an income tax the exaction is bad. Most, if not all, the States have long maintained the policy of exempting places of religious worship from annual tax levies. Will it be contended that if the State were now to impose a tax on the value of such exempt property for some past year, the action would not be an arbitrary taking of property as well as a hostile discrimination?
If, as this court has repeatedly said, an income tax is an equitable method of distributing the necessary burdens of government, certainly no such discrimination as is evidenced by the challenged Act can properly fall within the description. The Act evidences purposeful and arbitrary discrimination and thus violates the guarantee of equal protection.
Mr. Justice McReynolds and Mr. Justice Butler join in this opinion. •

 Laws of Wisconsin 1911, c. 658, p. 984.

 § 71.04.

 § 71.05.

 § 71.04(4).

 Scobie v. Tax Commission, 225 Wis. 529, 538; 275 N. W. 531.

 Home Building & Loan Assn. v. Blaisdell, 290 U. S. 398, 425, 436; Wilson v. New, 243 U. S. 332, 348.

 Laws of Wisconsin 1935, c. 15, p. 19.

 The judges who heard the cause were equally divided in opinion. Four justices of the Supreme Court voted to sustain the Act. The trial judge and three justices of the Supreme Court were of the opinion that it was unconstitutional.

 Miller v. Milwaukee, 272 U. S. 713, 717.

 Florida Central & P. R. Co. v. Reynolds, 183 U. S. 471.

 Citizens National Bank v. Kentucky, 217 U. S. 443.

 Hecht v. Malley, 265 U. S. 144.

 Flint v. Stone Tracy Co., 220 U. S. 107.

 Stockdale v. Insurance Companies, 20 Wall. 323.

 Seattle v. Kelleher, 195 U. S. 351; Wagner v. Baltimore, 239 U. S. 207.

 Billings v. United States, 232 U. S. 261.

 Citizens National Bank v. Kentucky, supra.