Court Opinion

ID: 3838396
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:07:23.288037+00
Date Added: 2024-06-11T13:45:36.916104
License: Public Domain

The sole question presented by this appeal is whether or not the appellants should be taxed on the item "Income from Fiduciaries", appearing in their tax returns for the years 1931 and 1932, under the intangibles income tax law (chapter 335, Oregon Laws, 1931).
"Section 3. A tax hereby is imposed upon every resident individual and corporation, which tax shall be levied, collected and paid annually at the rate of 8 per cent with respect to the taxpayer's net income as herein defined." Laws of 1931, Chapter 335.
It will be observed that the tax is a personal tax levied according to the taxpayer's ability to pay measured by his net income from intangibles. The appellant, Alice H. Middlekauff, has some interest in the trust estate from which the income is derived. The complaint alleges that she "has no title or interest in or to the corpus of the trust estate". Assuming that this allegation of the complaint is true, then her interest must fall within some of the items within the definition of intangibles as laid down by the statute.
"9. The word `intangibles' means and includes money at interest, bonds, notes, claims, demands and all other evidences of indebtedness, secured or unsecured (not including open accounts), including notes, bonds or certificates secured by mortgages, and all shares of stock in corporations, joint stock companies, *Page 681 
or associations." Chapter 335, § 2, sub-sec. 9, Oregon Laws, 1931.
If said appellant's interest in said trust estate is an intangible interest, it is taxable. The said appellant has "claims" or "demands" against the trustee for one-half of the net income from the trust estate. The net income of the trust estate is that which is left in the hands of the trustee after deducting taxes against the estate, attorney's fees, trustee's fees, and other costs of administration. When this net income is ascertained and declared, one-half thereof becomes the absolute property of said plaintiff and the trustee ceases to have any control or direction over it. One-half of the net income so declared is then subject to the control and direction of said appellant. The situs of this income is then in the state where the owner is domiciled — in this case, in Oregon. It is for the privilege of owning and the protection afforded to them and their property, that the appellants are required to contribute to the costs of government.
It would serve no useful purpose to analyze and distinguish the many different cases cited in appellant's brief, or the many cases which have reached the courts of last resort of the various states and of the United States on this subject. The general principle that permeates them all is to the effect that taxation is for the support and maintenance of the functions of governmental activities and should be borne by those having the ability to pay in proportion to that ability and the benefits derived. It is not practical to apportion the burden with mathematical equality, but the law is satisfied if approximate justice is done.
Appellant relies on Redfield v. Fisher, 135 Or. 180
(292 P. 813, 295 P. 461, 73 A.L.R. 721). All that was decided in that case was that a tax on individuals, measured by their gross income from intangibles, is a *Page 682 
tax on property, and as taxes were not levied on corporations similarly on the same class of property the statute imposing such tax was in violation of the constitution.
In 1931, the legislature, by chapter 335, Oregon Laws, 1931, removed the objectionable features of the 1929 law on whichRedfield v. Fisher, supra, was based, and provided for a tax measured by the net income derived from intangibles. The only issue presented in the briefs in the instant case is whether the income under consideration is derived from intangibles or is a personal income as defined by the statute.
The legislature at its session in 1929 attempted to provide a comprehensive system of taxation whereby the residents of the state should be required to pay toward the costs of government, in addition to taxes levied against real property, a just proportion of such costs in accordance with the taxpayer's ability to contribute as measured by his income. The income was divided into three classes: (1) The income of corporations known as the excise law; (chapter 427, General Laws of Oregon, 1929, as amended by chapter 273, Oregon Laws, 1931, General ConstructionCompany v. Fisher, 149 Or. 84 (39 P.2d 358, 97 A.L.R. 1352); (2) Personal income (chapter 448, General Laws of Oregon, 1929); (3) Income of individuals derived from intangibles (chapter 429, General Laws of Oregon, 1929).
The first class was levied as an excise tax imposed upon corporations for the privilege of doing business within the state, and was measured by the amount of income derived from such business transactions.
The second was intended as a tax on the individual measured by his personal income as defined therein.
"The term `net income' means the gross income of the taxpayer less the deductions allowed by this act.": § 5, chapter 448, Laws of 1929. *Page 683 
"Section 6. 1. The term `gross income' includes gains, profits, income derived from salaries, wages or compensation for personal service, of whatever kind and in whatever form paid, or from professions, vocations, trades, business, commerce or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends or the transaction of any business carried on for gain or profit, or gains or profits, and income derived from any source whatever, within the state of Oregon, and also from such personal property as would regularly have its situs for taxation inside the state of Oregon and be lawfully taxable therein. The amount of all such items shall be included in the gross income of the tax year in which received by the taxpayer, unless, under the methods of accounting permitted under this act, any such amounts are to be properly accounted for as of a different period.
The term `gross income' does not include the following items, which shall be exempted from taxation under this act:
(a) Interest, dividends and/or other income which may be otherwise taxed by this state as income of the taxpayer.
                                *      *      *      *      *
(d) The value of property acquired by gift, bequest, devise or descent (but the income from such property shall be included in gross income)." Chapter 448, Laws of 1929.
The third was a tax levied upon the individual resident within the state measured by the taxpayer's gross income derived from intangibles. These different classes of taxes were levied as a just contribution required to be made by the individual or corporation for the privilege of doing business within the state, and enjoying the protection of its laws to themselves and their property.
There were some provisions in the law relating to the taxing of individuals in reference to their incomes *Page 684 
from intangibles, that did not comply with the constitutional requirements relative to taxation being equal and uniform on certain classes of property which invalidated the statute:Redfield v. Fisher, supra. These objectionable features were eliminated by chapter 335, Laws of 1931.
Much stress is laid by appellant on certain statements in the preamble of the act. Preambles to legislative enactments are sometimes valuable as an aid to the court in determining the intention of the legislative body. If the preamble to chapter 335, supra, means anything, it indicates an effort on the part of the legislature to compel those who had been dodging their duty to help finance the government of the state — to contribute according to their ability to pay. However, speaking for myself only, and not for the court, it is frequently found that the preamble was intended to fulfill the same purpose as the sugarcoat does to a bad tasting pill. The appellants are residents of the state. They receive and are protected in the enjoyment of an income from which they have not contributed a just share to the support of the government under which they live. They are willing to pay in that class where the levy is the lower, the personal income tax act, Oregon Code 1930, § 69-1501,et seq.
The income derived from the trust estate is not in any sense the product of the personal efforts, either mental or physical, of the recipient (McPherson v. Fisher, 143 Or. 615
(23 P.2d 913)), and should be classified as an intangible income in accordance with the statutory as well as the ordinary meaning of intangibles.
The decree of the circuit court should be affirmed.
ROSSMAN and BELT, JJ., concur. *Page 685