State ex rel. Hansen v. Cary , 191 Wis. 153 ( 1926 )

Vinje, C. J.

The appeal raises the question whether a stock dividend ■ declared solely upon an appreciation of corporate assets was subject to an income tax in 1920. It does not raise the question whether it is taxable within the income tax amendment of 1911 to the constitution, or whether it should be taxed as income ór profits. The inquiry is, Had the legislature, prior to the levy of this tax, made such a stock dividend subject to a tax?

Our constitution provides that “taxes shall be levied upon such property as the legislature shall prescribe” . . . and “may also be imposed on incomes . .„ . and reasonable exemptions may be provided.” Art. VIII, sec. 1. It will thus be seen that before property becomes subject to a tax it must have been prescribed by the legislature as taxable. This requirement of the constitution was.followed by the legislature upon the adoption of the income tax amendment. In sec. 71.02, Stats., containing several closely printed pages, it specifies what is income and what is subject to an income tax. As to dividends it said: “All dividends derived from stocks . . . provided that the term 'dividends’ as used in this section shall be held to mean any distribution made by a corporation . . . out of its earnings or profits accrued since January 1, 1911.” Now why did the legislature define the term “dividends”? Because there were two kinds of dividends well known to it, namely, dividends issued out of profits and dividends issued upon the increased value of corporate assets, as provided for in sec. 182.19. This classification of dividends has been on the statute books since 1878 and was no doubt well known to those who drafted the income tax law. In view of such situation we cannot come to the conclusion that when it defined one of those classes of dividends it also meant the other, especially so when the other by legislative act has since been declared taxable. See amendment to sec. 71.02 of 1925. It is argued by the State that the enactment of 1925 is merely declaratory of the law as it existed before. Grammarians say that there are two classes of nouns: proper and common, and that proper nouns shall begin with a capital letter. Does any one contend that they thereby declare that common nouns shall also begin with a capital letter? We cannot regard the amendment of 1925 as declaratory of the law as it existed, but as one declaring another class of dividends also taxable.

Of course it was necessary to limit taxable dividends to such as were earned or accrued subsequent to January 1, 1911. But in order to do that it was not necessary to leave out one class of dividends entirely. It would have been quite sufficient to say that all dividends declared out of earn-mgs or upon an appreciation of corporate assets made or accruing since January 1, 1911, shall be taxable if both classes were intended to be included.

Much is contained in the briefs about the power to tax dividends issued upon an appreciation of'corporate assets, and as to the duty to tax the same to the corporation or to the stockholders. We express no opinion as to their taxability or the method of taxing them because the questions are not involved in this appeal. As said in the beginning, the only question we' have to consider is, Had the legislature, at the time these stock dividends were issued, declared them subject to an income tax? We go to the statutes, and need go only to the statutes, for an answer to the inquiry. That answer is, that not until 1925 did the legislature declare dividends issued upon an appreciation of corporate assets taxable.' This court has never decided this question before. What it may heretofore have said as to all dividends being taxable must, as to this question, be regarded as obiter merely.

By the Cotirt. — Judgment reversed, and cause remanded with directions to enter judgment declaring void the assessment involved in this appeal.

The following opinion was filed November 17, 1926: