People ex Rel. Barcalo Mfg. Co. v. Knapp

Full title: THE PEOPLE OF THE STATE OF NEW YORK ex rel. BARCALO MANUFACTURING COMPANY…

Court: Court of Appeals of the State of New York

Date published: Jul 15, 1919

124 N.E. 107 (N.Y. 1919)

124 N.E. 107

Opinion

Argued June 5, 1919

Decided July 15, 1919

Elon R. Brown and Edward H. Letchworth for appellant.

Charles D. Newton, Attorney-General ( C.T. Dawes of counsel), for respondents. Ernest G. Metcalfe for William G. Wrigley, Jr.

COLLIN, J.

The relator, a domestic manufacturing corporation, was by statute (Article 9-A of the Tax Law; Cons. Laws, chapter 60) obligated to pay for the tax year beginning November first, 1918, a franchise tax, "for the privilege of exercising its franchises in this state in a corporate or organized capacity," at the rate of three per centum of its net income or part thereof taxable within the state, determined as provided in the article (Sections 209, 215). Pursuant to the statute it duly transmitted to the state tax commission the report prescribed by the section 211. The report stated: "Net income for the calendar year ending December 31, 1917, as determined by the United States Treasury Department, $204,172.75. * * * The net income of $204,172.75, shown on the attached return, is the income upon which such corporation is required to pay a tax to the United States, and is computed as follows:

Total Net Income ........................... $256,201 75 Less Excess Profits Tax .................... 52,029 00 ____________ Net income subject to tax by United States ................................... $204,172 75 ============

Said amount of $204,172.75 is the only income of said corporation for said year 1917 upon which it is required to pay a tax to the United States." The state tax commission computed the tax to be paid by the relator upon the basis of its net income as being $256,201.75. The refusal to credit upon this amount of income the amount of the excess profits tax assessed by the United States, namely, $52029.00, constitutes the grievance of the relator.

On June 4, 1917, article 9-A (Laws of 1917, chapter 726, entitled "An act to amend the tax law, in relation to a franchise tax on manufacturing and mercantile corporations, and making appropriations for administration expenses"), in its original form took effect. On April 19, 1918, chapter 276 of the Laws of 1918, entitled "An act to amend the tax law, in relation to a franchise tax on manufacturing and mercantile corporations," took effect. It provided in effect that its amendments should take effect as of the date of the original act, June 4, 1917. Article 9-A as amended obligated the relator (and other domestic manufacturing corporations) to pay the annual franchise tax, to be computed by the tax commission upon the basis of "its net income" for the year, as thereinafter provided "which income is presumably the same as the income upon which such corporation is required to pay a tax to the United States." (Section 209.) The rate of the tax is three per centum "of the net income" "determined as provided by this article." (Section 215.) "The corporations shall on or before each July first, or within thirty days after the making of its report of net income to the United States treasury department" for the year, transmit to the tax commission a verified report, of an elaborate, prescribed form and substance relative to its net income, containing as an item: "The amount of its net income for its preceding fiscal or the preceding calendar year as shown in the last return of annual net income made by it to the United States treasury department, and if the corporation shall claim that such return is inaccurate the amount claimed by it to be the net income for such period." The commission may require further reported information necessary for the computation of the tax. (Sections 211, 213.) "If the entire business of the corporation be transacted within the state, the tax imposed by this article shall be based upon the entire net income of such corporation for such fiscal or calendar year as returned to the United States treasury department, subject to any correction thereof for fraud, evasion or error, ascertained by the state tax com mission." (Section 214.) If an obligated corporation does not make the report the commission may make an estimate of its net income. (Section 217.) On or before the first day of November in each year the commission shall compute the tax and notice the same to the state comptroller for collection. (Section 219-a.) "If the amount of the net income for any year of any corporation taxable under this article as returned to the United States treasury department is changed or corrected by * * * competent authority, such corporation, within ten days after the receipt of notice of such change or correction, shall make return under oath or affirmation to the tax commission of such changed or corrected net income, and shall concede the accuracy of such determination or state wherein it is erroneous. The tax commission shall ascertain, from such return and any other information in the possession of the commission, the net income of such corporation for the fiscal or calendar year for which such change or correction has been made by such * * * authority. * * * The tax commission shall thereupon reaudit and restate the account of such corporation for taxes based upon the net income for such fiscal or calendar year, such reaudit to be according to the net income so ascertained by the tax commission. * * *." (Section 219-d.)

The language of the statute expresses clearly the legislative intentions and enactments: The tax imposed was upon the entire net income of each year. This conclusion is repetitiously expressed and is indubitable. A definition of the words "net income" was not incorporated in the statute. The meaning given and characterizing them through and as used in the Federal statutes was their meaning as used in the state statute. The conditions and limitations, expressed in the Federal statutes, creating their office and effect under those statutes are adopted by the state statute. It used the term net income as established by the Federal statutes. While the net income is declared by the statute to be presumably the same as the income upon which the corporation is required to pay a tax to the United States, it is clear and certain that within the legislative intention the net income of the statute is that returned or reported to the United States in accordance with the Federal statutes. While the basis for the computation of the commission is the returned net income under the Federal statutes, the commission is free to fix, from the return and any other information, the true and correct amount of the net income, but not to change the nature or definition of it. The language of section 5 of chapter 276 of the Laws of 1918, which I have already stated, makes certain and mandatory the conclusion that the relator is governed and obligated by the provisions of article 9-A of the Tax Law existing and in force on November first, 1918. It is equally certain that those provisions were to be read and enforced, in so far as Federal statutes were involved, with the Federal statutes existing and in force on that date. In case section 209 of article 9-A had originally read as chapter 276 of the Laws of 1918 framed it, the net income returned to the United States in any year, if true and correct, would, in virtue of the statute, be the net income for that year under the state statute. The tax commission was given no power to change or correct it other than to make it as established by the then existing Federal statute, true and correct in amount. To hold otherwise would be to pervert legislative intention.

It remains for us to determine whether or not the term net income, within the meaning and effect of the Federal statutes, excludes the amount of any excess profits tax imposed by act of Congress and assessed for the year upon the taxpayer. Under the language of those statutes the problem is not difficult; the solution is not uncertain. It should be borne in mind that we are to reach the correct comprehension of the net income which those statutes require to be returned or reported to the United States treasury department, and not of the amount those statutes require the tax to be paid upon. The Federal statutes define the taxable net income as including gains, profits and incomes from manifold sources, subject only to such exemptions and deductions as they, allow. (Act of 1916, ch. 463 [39 U.S. Stat. 756, 757], §§ 1 (a), 2; act of 1917, ch. 63 [40 U.S. Stat. 329], tit. 12, § 1200.) They state the exemptions they allow (Act of 1916, ch. 463 [39 U.S. Stat. 758, 761, 766], §§ 4, 7, 11; act of 1917, ch. 63 [40 U.S. Stat. 329], tit. 12, § 1200), and the deductions. (Act of 1916, ch. 463 [39 U.S. Stat. 759, 767], §§ 5, 12; act of 1917, ch. 63 [40 U.S. Stat. 330, 331, 335], §§ 1201, 1203, 1208.) Neither the exemptions nor the deductions include the income taxes or the excess profits tax. "The tax shall be computed upon the net income, as thus ascertained." (Chapter 463, §§ 8, 13; act of 1917, ch. 63 [40 U.S. Stat. 331, 335], §§ 1204, 1208.) The sections 1 have referred to have no relation to the excess profits tax. They relate to the income tax or the war income tax. Within them or within the other sections relating to those taxes it is not enacted that the net income to be returned is affected by or dependent in any way upon those taxes or the excess profits tax. Title 2 of chapter 63 of the act of 1917 (40 U.S. Stat. 302-308) provides for the excess profits tax. The discussion does not require consideration of it. The act of 1917 amended title 1 of the act of 1916 by adding to part 3, relating to general administrative provisions, six new sections (Act of 1917, ch. 63 [40 U.S. Stat. 336], § 1211), of which section 29 is: "That in assessing income tax the net income embraced in the return shall also be credited with the amount of any excess profits tax imposed by act of Congress and assessed for the same calendar or fiscal year upon the taxpayer, and, in the case of a member of a partnership, with his proportionate share of such excess profits tax imposed upon the partnership." This provision does not affect the definition of the words "net income" as established by the statute. It provides that in the case of the corporation, partnership or individual liable for the excess profits tax, the net income returned to the United States shall, in assessing the income tax upon that net income, be credited with the amount of the excess profits tax. The net income is not changed. A part of it equal to the sum of the excess profits tax is not, in such case, taxed. The corporations, partnerships or individuals who are not assessed the excess profits tax are assessed upon the net income for the income taxes. The net incomes of those who were and who were not assessed were ascertained under the same enactments and based upon identical specifications.

The return by the relator of its annual net income to the United States treasury department showed the annual total net income to be $256,201.75. It was not inaccurate. The statute did not authorize the state tax commission to credit that net income with the sum of the excess profits tax assessed upon the relator or to assess the franchise tax upon the sum of it exceeding that tax.

The order should be affirmed, with costs.

CUDDEBACK, CARDOZO, POUND and McLAUGHLIN, JJ., concur; HISCOCK, Ch. J., and ANDREWS, J., dissent.

Order affirmed.