Summary
authorizing enforcement of tax statute "even to the extent of correcting errors in the language used"
Summary of this case from State v. BurnhamOpinion
No. 33401.
November 21, 1938. Suggestion of Error Overruled January 2, 1939.
1. TAXATION.
The purpose of income tax law was to tax income earned within state by both domestic and foreign corporations, and to exempt income earned without state where a plant or place of business is maintained in foreign state and the income derived therefrom would not be subject to taxation or was exempt therefrom (Laws 1934, chapter 120, as amended by Laws 1936, chapter 151).
2. TAXATION.
The income of foreign corporation earned outside Mississippi cannot be taxed, but income of domestic corporation, wheresoever received, can be taxed by the Legislature (Laws 1934, chapter 120, as amended by Laws 1936, chapter 151).
3. TAXATION.
The income tax law was intended to place domestic and foreign corporations upon a basis of equality (Laws 1934, chapter 120, as amended by Laws 1936, chapter 151).
4. STATUTES.
In construing a statute, a court can ascertain its true meaning by studying it as a whole and, when ascertained, can enforce it, even to the extent of correcting errors in the language used.
5. STATUTES.
In construing statutes, the court must seek to ascertain the legislative intent from the statute as a whole and not from a segregated portion considered apart from the rest of the statute.
6. STATUTES.
A construction placed on statute by administrative department of government will not be adhered to by court, where such construction is clearly erroneous and has not been followed by administrative department for a long time or the administrative department at various times has placed different construction on the statute.
7. STATUTES.
A court can follow a reasonable construction, long used or practiced by administrative officers, in construing tax statute in order to avoid unnecessary hardship upon the taxpayers, but court must reach its own conclusion where it is of the opinion that such construction is not proper.
8. TAXATION.
Under provision of income tax law that income from any loan "by" nonresidents or foreign corporations or citizens of a foreign country should not be included as taxable income, income received by foreign corporation doing business in Mississippi from loans made by corporation principally in the state of Mississippi was taxable; the word "to" being substituted for the word "by" (Laws 1934, chapter 120, section 11, subd. 1(a), amended by Laws 1936, chapter 151).
APPEAL from the chancery court of Hinds county; HON. V.J. STRICKER, Chancellor.
Green, Green Jackson, of Jackson, for appellant.
Mississippi Cottonseed Products Company, appellant herein, is a foreign corporation, organized under the laws of the state of Delaware, with its principal office in Jackson, from which it conducts its business of operating cottonseed oil mills. The company acquires the requisite cotton seed for its operation in the open markets in the states of Louisiana, Arkansas, Mississippi, Tennessee, Illinois and Missouri (through subsidiaries in the last two states) and converts the cotton seed at its several mills into oil, meal and other products.
In order to successfully carry on its large business the company makes loans to persons who furnish it with cotton seed, such loans being made directly and indirectly in the several states above mentioned, but being principally confined to Mississippi. The company has not adequate capital of its own to purchase at all times sufficient seed to carry on its large business, and is, therefore, compelled to borrow from various creditors in the above-mentioned states and in New York, and sometimes elsewhere (said creditors usually being banks).
The company has always been classified, and filed its income tax return as a foreign corporation. Such tax impositions as have been paid by the company in the past have always been determined by provisions applicable to foreign corporations.
This controversy arose from the attempt of the State Tax Commission to impose on this company a tax on the interest accruing to the company from the various loans above mentioned. Until the present time the company was not required by the regulations of the Tax Commission to file such items as part of its net income, and has never done so, nor has it ever paid a tax on the interest accruing from such notes and indebtedness.
The Tax Commission after protest and a hearing on February 11, 1938, issued an order attempting to backassess the company with additional taxes for the fiscal year ending June 30, 1937, on these items with interest thereon, under the provisions of Chapter 120, Laws of 1934, Section 11, Paragraph 1-a, re-enacted as Chapter 151, Section 11, Laws of 1936.
The State Tax Commission having continuously since the original enactment of this ambiguous act with its contradictory and irreconcilable provisions, placed a departmental construction (as evidenced by its printed regulations) upon it to the effect that such items were not taxable income of foreign corporations, and the act having been several times re-enacted by the Legislature, such construction will prevail as this court will not disturb it except for cogent reasons, there being no showing that such construction is incorrect.
The first appearance of an act containing provisions similar to those under which the Tax Commission now seeks to hold the company liable for the interest on such loans is Section 15, subdivision 1-a, Chapter 132, Laws of Mississippi, 1924, which is substantially the present act.
This same act has been re-enacted by the Legislature of the State of Mississippi as Section 5037, Mississippi Code of 1930, and as Chapter 120, Laws of 1934, Section 11, Paragraph 1-a, and finally as Chapter 151, Section 11, Laws of 1936.
The Tax Commission which has been entrusted with the enforcement of this act by the Legislature since it first became effective has uniformly, since 1924, construed this ambiguous act with its contradictory terms as excluding such items from the taxable income payable by foreign corporations. Since that time this corporation has paid no tax on such items pursuant to the instructions in the printed regulations of the commission.
We maintain that since the State Tax Commission has continuously and consistently, through its printed regulations, declared such items non-taxable since 1924, that this departmental construction should prevail, and that the court will not disturb it except for unusual reasons, none of which appear in the present case.
Sutherland on Statutory Construction (2 Ed.), sec. 474; 59 C.J., page 1064; 25 R.C.L. 1043; R.C.L. Perm. Sup., page 5644; Gully v. Jackson International Co., 165 Miss. 103, 145 So. 905; White v. Miller, 160 Miss. 734, 133 So. 146; Robinson v. Texas Oil Co., 163 Miss. 574, 106 So. 451; Briscoe v. Buzbee, 163 Miss. 574, 143 So. 407; State v. Morris, 164 Miss. 158, 144 So. 374; Masonite v. Lochridge, 163 Miss. 797, 141 So. 760; Miller v. Y. M.V.R. Co., 132 So. 597, 160 Miss. 603; Miss. Cottonseed Products Co. v. Shelton, 81 Fed. 2d 169; L.H. Conrad Furniture Co. v. Miss. State Tax Commission, 133 So. 652, 160 Miss. 186; Mississippi Digest, Key No. 219, Statutes.
The re-enactment of a statute, after it has been construed by officers charged with its enforcement, without materially altering the part construed, impliedly adopts the construction, unless plainly erroneous, and such construction is, therefore, binding on the courts.
73 L.Ed. 322.
With due deference to the State Tax Commission and to opposing counsel the instant case is a clear-cut example of a familiar principle of statutory construction that the re-enactment of a statute after it has been uniformly construed by officers charged with its enforcement without material alteration of the part construed, is an implied adoption by the Legislature, and such construction is, therefore, binding on the courts.
73 L.Ed. 322, Annotation.
The second provision of the statute holding such items not taxable, being inconsistent with, and flatly contradictory of the first provision, will prevail since it is the latest expression of the Legislature's will, and will not be disturbed by the courts.
Gibbon v. Brittenum, 56 Miss. 232; Sutherland on Statutory Construction (2 Ed.), sec. 349; Swift Co. v. Sones, 107 So. 881, 142 Miss. 660.
The second provision of the act which holds these interest-bearing items (loans, notes, etc.) not within the taxable income of a foreign corporation should prevail, being the latest and best expression of the Legislature's will. J.A. Lauderdale, Assistant Attorney-General, for appellee.
The question for determination is: Does Section 11 of Chapter 120, Laws of 1934, as amended by Section 3 of Chapter 151, Laws of 1936, require a foreign corporation doing business in this state to include as taxable income derived from sources within this State interest received by it from money loaned in this State.
Section 11 (1) (a) requires a foreign corporation to include income derived from interest "on bonds, notes, or other interest bearing obligations of residents, corporate or otherwise." The second provision in paragraph (a) does not exempt a foreign corporation from the payment of income tax on income derived from interest on bonds, notes, or other interest bearing obligations.
The language of the statute levying a tax must be plain and unambiguous, and all doubts resolved in favor of the taxpayer.
Pan-American Petroleum Corp. v. Miller, 154 Miss. 565, 122 So. 393; Gully v. Alexander, 158 So. 201; Middleton v. Lincoln County, 84 So. 908, 122 Miss. 673; Gully v. Jackson International Co., 145 So. 905, 165 Miss. 103; Furniture Co. v. Tax Commission, 133 So. 652, 160 Miss. 185; Town of Utica v. State, 148 So. 635, 166 Miss. 565; State v. Grenada Compress Co., 123 Miss. 191, 55 So. 139; State v. Union Tank-Car Co., 119 So. 312, 151 Miss. 797; Middleton v. Lincoln Co., 84 So. 908, 122 Miss. 673; Gully v. Goyer Co., 147 So. 327, 165 Miss. 279; McKenzie v. Adams Banks Lbr. Co., 154 Miss. 565, 122 So. 393; Board of Levee Comrs. v. Howie, 149 Miss. 843, 116 So. 92; Sperry Hutchinson Co. v. Harbison, 123 Miss. 682, 86 So. 455.
Statutes granting exemptions must be clear and unambiguous, and all doubts will be resolved in favor of the taxing authority, that exemptions from taxation will never be presumed, and that the burden is upon the claimant of exemption to establish clearly his right to such exemption.
Jackson Fertilizer Co. v. Stone, 173 Miss. 183; Barnes v. Jones, 139 Miss. 675, 103 So. 773, 43 A.L.R. 673; Morris Ice Co. v. Adams, 75 Miss. 410, 22 So. 944; Gulfport Building Loan Assn. v. City of Gulfport, 155 Miss. 498, 124 So. 658; Millsaps College v. City of Jackson, 136 Miss. 795, 101 So. 574, 275 U.S. 129, 48 S.Ct. 94, 72 L.Ed. 196.
The provision in said paragraph (1) is plain and unambiguous. It clearly and expressly requires the inclusion of income derived from interest on bonds, notes, etc. The proviso in the second provision is ambiguous. Its meaning is not clear. The first provision of paragraph (a) deals with income from interest. The second provision deals with income received as dividends from domestic corporations, and then follows the proviso undertaking to exempt certain interest from income taxes. Such proviso has no reference whatever to the first provision requiring the inclusion of income derived from interest, and it makes no sense in reference to the second provision which requires the inclusion of income from dividends.
In the event the statute requiring the inclusion of interest as taxable income is plain and the proviso undertaking to exempt interest from the income tax is ambiguous, the provision levying the tax will be sustained and the exemption held void.
Adams v. Standard Oil Co., 97 Miss. 879; Miller, Tax Collector v. C. G. Ry. Co., 154 Miss. 317; Smith, Tax Collector v. Perkins, 112 Miss. 870; Johnson v. Long Furniture Co., 113 Miss. 373; Moore v. Tunica County, 143 Miss. 821; Building Loan Assn. v. City of Gulfport, 155 Miss. 498.
Where a clause or provision of a statute is ambiguous it is the duty of the court to determine from the whole act the intention of the Legislature, and to construe such ambiguous clause or provision in accordance with the legislative intent.
Leaf Hotel Corp. v. City of Hattiesburg, 168 Miss. 304; Huber v. Freret, 138 Miss. 238; Wray v. Kelly, 98 Miss. 172; Building Loan Assn. v. City of Gulfport, 155 Miss. 498; Helvering v. New York Trust Co., 79 L.Ed. 1361; Helvering v. Stockholms Enskilda Bank, 79 L.Ed. 211.
When a proviso in a statute is ambiguous and the true meaning of the statute can be ascertained from the act considered as a whole, such meaning will be enforced by the courts even to the extent of correcting errors in the language used.
Roseberry v. Norsworthy, 135 Miss. 845; Kennington v. Hemingway, 101 Miss. 259; Gandy v. Public Service Corp., 163 Miss. 187.
The Tax Commissioner is authorized to make rules construing the act under consideration. However, when such rules are in conflict with the statute they are not controlling on the court.
Virden v. State Tax Commission, 177 So. 784.
Even though an administrative construction of an ambiguous statute when uniform and continuous for a long period of time is entitled to great weight and is persuasive, yet it is not controlling upon the court.
State v. Henry, 87 Miss. 125; U.S. v. Missouri Pacific R. Co., 278 U.S. 269, 73 L.Ed. 322; Burnett v. Chicago Portrait Co., 76 L.Ed. 587; Robinson v. Lundrigan, 227 U.S. 173, 57 L.Ed. 468.
Argued orally by Garner Green, for appellant, and by J.A. Lauderdale, for appellee.
The Mississippi Cottonseed Products Company, a corporation organized and chartered under the laws of the State of Delaware, filed a petition here against A.H. Stone, Chairman, John F. Frierson and Bruce Van Zandt, Commissioners, and A.S. Coody, Secretary, composing the State Tax Commission, and Honorable Greek L. Rice, Attorney-General of the State of Mississippi, alleging that while it was organized and chartered under the laws of Delaware, its place of business is located in the city of Jackson, Mississippi, where the meetings of its stockholders and directors have been held, pursuant to the provisions of its by-laws; that the business of said petitioners is the owning and operation of cotton oil mills; that it acquires cottonseed in the open market in the states of Louisiana, Arkansas, Mississippi, Tennessee, Illinois and Missouri — through subsidiaries in the two last-named states; and converts such cottonseed, at its several mills, into oil, meal and other products and by-products. The petitioner alleges that in order to do business it makes loans to persons who furnish it with cottonseed, such loans being made directly and indirectly in the several states mentioned, but principally in the State of Mississippi; that petitioner has not adequate capital of its own at all times to operate its seed business, and is therefore compelled to borrow, its creditors being located in the states of Missouri, Illinois, Tennessee, Alabama, Louisiana, Mississippi, New York, and sometimes elsewhere; said loans being made principally by banks to the petitioner, except a bonded indebtedness of approximately $700,000. The petitioner avers that now, and at all times previously, under the Income Tax Act of Mississippi, Laws of 1934, chapter 120, it has been classified, and has rendered its returns, as a foreign corporation, and the imposition of taxes upon its income so earned has been made by the State of Mississippi; that section 2 of said act, subdivision (c), provides that: "The term foreign when applied to any corporation or association, . . . means created or organized outside the State of Mississippi." The petitioner was thus organized, and qualified to do business in Mississippi, although not domesticated therein; and under all precedent acts the petitioner has been, and continues to be, so qualified.
The petitioner avers that the imposition of the tax, if any, as to interest on loans received by it, first appears in substantially its present form in section 15, subdivisions (1) and (a) of chapter 132, Laws of 1924, as follows:
"(1) That in the case of foreign corporations or of a non-resident or citizen of a foreign country the following items of gross income shall be treated as income from sources within the State.
"(a) . . . interest on bonds, notes, or other interest bearing obligations of residents, corporate or otherwise; the amount received as dividends from domestic corporations (other than national banks or banks and trust companies organized under the laws of the State of Mississippi), provided, income from money loaned by non-residents or foreign corporations or citizens of a foreign country, shall not be included as taxable income, or from foreign corporations of which more than fifty per centum of whose gross income was derived from sources within the State."
When thus appearing, pursuant to the power vested in the Commissioner, with the consent of the Governor, a regulation was made, interpreting said act, under and by which the petitioner, as a forign corporation, was relieved from liability in this respect, the regulation being substantially in the form of article 150 of the present regulations; that is to say: "Non-residents, foreign corporations and citizens of foreign countries shall include as gross income from sources within the State all income of every sort derived from business done or property located within the State; except that interest on bonds, notes or other interest-bearing obligations of residents, corporate or otherwise, need not be included."
The petitioner avers that this regulation, as it is advised, is in full force and effect in the State of Mississippi, and has been since 1924, being made a part of Regulation No. 4, a copy of which is made exhibit 3 to the petition as fully as if copied therein. And, further, avers that those charged with the administration of the income tax act have so far interpreted it in accordance with this regulation, thereby rendering the petitioner immune to that extent; that under said regulation, and interpretation of the act in question, the petitioner and others similarly situated are not taxable.
Section 5037, Code of 1930, was set out in the petition, which then recites that the same regulation, and interpretation of the act by those charged with its execution, continued; and that in the act of 1934, under this interpretation, both by regulation, and by practical construction, section 11 of the act was re-enacted, treating, "the following items of gross income . . . as income from sources within the State;" namely, "interest on bonds, notes or other interest bearing obligations of residents, corporate or otherwise; the amount received as dividends from domestic corporations, provided, income from any loan by non-residents or foreign corporations, or citizens of a foreign country, shall not be included as taxable income, or from foreign corporations of which more than fifty per cent (50%) of the gross income was derived from sources within the State."
The petitioner avers that under the departmental regulations, and the practical interpretation by those charged with the administration of these matters, this petitioner, as a foreign corporation, is not liable for the tax in question.
It is further averred by the petitioner that it made due and regular return of its income for the fiscal year ending June 30, 1937; stating that during that period it received interest on money loaned to the amount of $69,648.17, which, since it was a foreign corporation, was not taxed, or taxable, under the Income Tax Act of 1934, as amended in 1936; notwithstanding which, the Tax Commission caused an income tax to be assessed thereon to an aggregate of $4,178.90, with interest thereon from and after September 15, 1937, at the rate of one-half of one per cent per month. The petitioner appealed from the assessment so made by the Commissioner, to the Tax Commission, before which a hearing was had on February 11, 1938; and the Commission, upon considering the matter, entered an order fixing the assessment, and adjudging, that the petition of the taxpayer, the Mississippi Cottonseed Products Company, be denied and overruled and that its claim for the abatement of the assessment of the amount of additional taxes assessed by the Commissioner be disallowed; and the said taxpayer is hereby assessed with additional taxes under the provisions of chapter 120, Laws of 1934, known as the Income Tax Law of 1934, as amended by chapter 151, Laws of 1936, in the sum of $4,178.90.
It is alleged that during this entire period the petitioner was a foreign corporation, engaged in business as above stated; that it received interest in the amount shown, and that it such interest were taxable, the computation is correct; but the petitioner avers that since it was, and is, a foreign corporation, such interest is not taxable in the State of Mississippi. Whereupon the petitioner appealed, giving bond, from the judgment of the Tax Commission affirming the assessment.
The petition was filed in the Chancery Court, and was demurred to by the defendants on the grounds, first, that under the facts averred in the petition, the petitioner is liable for the income tax assessed against it by the State Tax Commission; and, second, that it appears that the State Tax Commission entered the proper order in the matter; which demurrer was sustained by the Chancery Court. The petitioner declined to plead further, final judgment was entered, and appeal was taken to this Court.
Taking the statute involved in its entirety, chapter 120 of the Laws of 1934, as amended by the Laws of 1936, chapter 151, set forth in the petition, it clearly appears that the purpose of the act was to tax income earned within the state by both domestic and foreign corporations, and to exempt income earned without the State, where a plant or place of business is maintained in the foreign State, and the income derived therefrom would not be subject to taxation, or was exempt therefrom. It is, of course, not permissible to tax that part of a foreign corporation's income which was earned outside of the State of Mississippi; whereas, it is possible for the legislature to tax a domestic corporation on its income, wheresoever received.
From a reading of the entire statute it is manifest that it was the purpose of the legislature to place domestic and foreign corporations upon the same basis — that is, a basis of equality. The one trouble with the statute, creating a difficulty, is the use of the word "by" instead of the word "to" in clause (a) of subdivision 1 of section 11, wherein it is provided, "income from any loan by non-residents or foreign corporations or citizens of a foreign country, shall not be included as taxable income." If we substitute the word "to" for the word "by," the purpose clearly outlined in the statute, of preserving equality between the two classes of corporations, foreign and domestic, is maintained.
To sustain the contention of the appellant would place such a construction upon the act as to cast doubt upon its constitutionality; that is, to hold that a foreign corporation, doing business entirely within the State of Mississippi, is exempt from taxes on money loaned by it in Mississippi and elsewhere; while money loaned by a domestic corporation within the State would undoubtedly be taxed, under the plain language of the act. In such case, with two classes of persons or corporations doing, in many ways, exactly the same character of business within the same territory, the one would be taxed, and the other not. It could not well be assumed that the Legislature intended to bring about any such result. In construing a statute a court may ascertain its true meaning by studying it as a whole; and when ascertained, may enforce it, even to the extent of correcting errors in the language used; Gandy et al. v. Public Service Corp., etc., 163 Miss. 187, 140 So. 687. The Court, in construing the statute, must seek to ascertain the legislative intent from the statute as a whole, and not from a segregated portion, considered apart from the rest of the statute; see Henderson v. Blair et al., 102 Miss. 640, 59 So. 856; Johnson v. Reeves Co., 112 Miss. 227, 72 So. 925; Robertson v. Texas Oil Co., 141 Miss. 356, 106 So. 449. When the construction placed upon a statute by an administrative department of the government is clearly erroneous, and has not been followed by it for a long time, or where the administrative department, at various times, places different constructions upon the statute, the Court will not adhere to such constructions when, in its opinion, they are erroneous. See Virden v. State Tax Commission, 180 Miss. 467, 177 So. 784. While it is proper for the Court to follow a reasonable construction, long used or practiced by the administrative officers of the law, to the end that there shall be no unnecessary hardship upon the taxpayers, yet, where it is of the opinion that such construction is not proper, it must reach its own conclusions. In the case before us we are satisfied that the word "by" was intended to be the word "to," and that by substituting the latter word therefor the real purpose of the Legislature is carried out. The Chancellor below having held in accordance herewith, the judgment is affirmed.
Affirmed.