West Virginia Pulp & Paper Co. v. Karnes , 137 Va. 714 ( 1923 )

Sims, J.,

after making the foregoing statement, delivered the following opinion of the court:

There is but 'a single question presented for our •decision by the assignments of error, which is within a very narrow compass, and is as follows:

1. Are taxes owing by the taxpayer to the Federal government “bills,” or “accounts payable,” within the meaning of subsection “2” of paragraph “second” of -section 8 (“Schedule C”) of the tax bill statute, approved March 6, 1918 (Acts 1918, pp. 171, et seq.)?

The question must be answered in the negative.

The property of the taxpayer which was assessed for taxation in the instant case consisted wholly of '“bills and accounts receivable.” This is a distinct kind of property, different from “stock on hand,” “machinery and tools not taxed as real estate,” “money on hand and on deposit,” and “all other property of any kind whatsoever, including all * * (other) demands and claims” employed in the trade or business of the taxpayer. “Bills and accounts receivable” are of course “demands” or “claims;” but, as appears from the express language of the statute, they are a peculiar kind of demands or claims, different from all other demands •or claims “whatsoever.” It is manifest from the terms of the statute that the “excess of bills and accounts receivable,” which is taxable thereunder as “capital,” is to be ascertained by deducting from the total thereof •only the amount of “bills and accounts payable,” which ■ are the same kind of demands or claims as “bills and accounts receivable,” with the single exception that the latter are owing to (“receivable” by), and the former . are owing by (“payable” by) the taxpayer. It is plain) therefore, that it is not every kind of demand or claim, owing by the taxpayer which the statute allows to be deducted from the total of his “bills and accounts receivable,” in order to ascertain the “excess” thereof which is taxable as “capital” but only such demands, and claims owing by him as would be “bills and accounts receivable” if they were owing to (“receivable” by), instead of being owing by (“payable” by) him.

Now, as to the meaning of the terms “bills and. accounts receivable” and “bills and accounts payable;” these terms have a well understood technical meaning.. According to that meaning they embrace only contract obligations, express or implied. Blake’s Law Dictionary (2d ed.), pp. 16, 134; 1 Words and Phrases, p. 87; 1 Bouvier’s Law Dictionary, pp. 63, 243; 1 C. J. .730. As appears from these authorities “accounts receivable” are contract obligations “owing to a person oil open account;” “bills receivable” are all other contract obligations “owing to” a person; “accounts payable” are contract obligations owing by a person on open account; and “bills payable” are all other contract obligations owing by a person. Such obligations do not include taxes, State or Federal, as the latter are not contract obligations.

In 1 Cooley on Taxation (3d ed.), page 17, this is said::

“Taxes not Debts.—* * taxes are not contracts between party and party, either express or implied; but they, are the positive acts of government, through its-various agents, binding upon the inhabitants, and to the making and enforcing of which their personal consent is not required. * * They are not the subject of set-off * * on behalf of the person taxed, as against (the) State, municipality or collector. * *”

To the same effect see 37 Cyc. 710; 26 R. C. L. p. 26; Baker v. City of East Orange, 95 N. J. Law, 365, 111 Atl. 681.

The ease of Felker v. Standard Yarn Co., 148 Mass. 226, 19 N. E. 220, is relied on for the plaintiff in error taxpayer as a contrary holding. That was a case in which the collector of taxes filed a bill to enforce the payment of taxes assessed upon the real and personal property of the defendant company under a statute (Pub. St. 1882, e. 12, §20), which provided as follows: “When a person taxed * * neglects to pay his tax for one year after it is committed to the hands of the collector, the collector may, in his own name, maintain an action of contract, or trustee process, therefor, in like manner as for his own debt. The court held that the tax was a debt within the meaning of this statute and that the suit was maintainable under its provisions. The case is plainly not in point in the instant case, for the reason that the peculiar terms of the statute required such holding.

That the holding of the authorities on the subject is as above stated, is not controverted in argument before us in behalf of the plaintiff in error taxpayer. It is, however, urged in his behalf that when the statute in question (subsection “2”of paragraph ‘ ‘second” of section 8, “Schedule C”) is read along with section 2304 of the Code of 1919 and with the “first” paragraph of said section 8, it becomes apparent that the statute in question does not use the terms “bills and accounts payable” with the aforesaid technical meaning, but with the meaning of all debts, claims, or demands whatsoever, owing by the taxpayer, which would include the Federal taxes in question.

Section 2304 of the Code (1919), so far as material, is as follows:

Construction of the Revenue Laws.—In addition to the rules of construction prescribed by chapter two of this Code, the following rules of construction shall apply to the law for the assessment and eolleetion of taxes, unless such, construction should be inconsistent with the manifest intent of the General Assembly.

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“The word ‘credits’ shall be construed to mean all solvent debts, claims or demands owing or coming to any person, whether the evidence of such debts, claims or demands be in writing or not, * * .” (Italics supplied.)

The word “credits” is not used in the subsection of the statute in question. Moreover, we find this word only in the “third” paragraph of said section 8 (“Schedule C”), and it is there used to designate property upon which the statute means to impose taxation, and not to designate deductions which the taxpayer is entitled to' make from taxable property. And that such is the meaning of the word “credits” as used in said section 2304 is indeed apparent from the very terms there used,, defining “credits” as “solvent” debts, claims or demands owing or coming to any person.”

The “first” paragraph of said section 8 imposes taxation upon certain bonds and other ehoses in action (which consist of contract obligations alone), and does allow the deduction by the taxpayer from the aggregate amount of such form .of property “of all such * * demands or claims * * owing to others (by him) as principal debtor.” But, manifestly, from the very terms of' this portion of the statute the deductions allowed are confined to obligations of the taxpayer which are of the same kind as those on which this paragraph of the statute imposes taxation, namely, contract obligations of the taxpayer, not taxes owning by him.

Moreover, as this court held in Bridgewater Mfg. Co. v. Funkhouser, 115 Va. 476, 79 S. E. 1074, each classification of property made by statute imposing taxation stands alone so far, as determining whether any deductions can be allowed from the aggregate amount thereof, and, if any, what deductions. In that ease this is said* * The lawmaking power alone must determine whether such an allowance shall be made * * and, if made, against what forms of property the deduction shall be allowed and to what extent.”

Examples are cited in argument for the plaintiff in error of claims which might arise owing to the taxpayer from sources other than contracts which would be taxable to the corporation as capital, such as claims arising out of condemnation of the property of the corporation for public use, or out of a tort committee against the corporation, and it is urged that if such claims are taxable they are deductible. But the error in this assumption consists in this: Such claims would be taxable, but not as “bills and accounts receivable.” They would be taxable under subsection 5 of the aforesaid statute as “all other * * demands and claims,” and from such form of property the statute allows no deduction whatever.

The ease will be affirmed.

Affirmed.