Norris v. Wisconsin Tax Commission

The following opinion was filed June 12, 1931:

Fairchild, J.

The circuit court by its judgment held the $24,551.46 to be capital in the hands of the respondent and not taxable income. It is a fact that after Mr. Norris died July 7, 1926, the contract which brought the above amount into respondent’s estate was treated as corpus. Under the rule that the clear market value of the inventoried assets of an estate of a deceased person constitutes the corpus or principal to the executor, this amount was considered as a part thereof and its value was used to make up the total value on which the inheritance tax was based. Sec. 72.01 (8), Stats.

The law under which the tax authorities are proceeding and which they interpret to warrant holding this item as income did not become effective until August, 1927. The title, rights, and responsibilities of respondent, so far at least as what is the corpus of the estate is concerned, are controlled by the law existing at the time of the transfer of the estate to her. While -retrospective laws are not unusual in matters of taxation and under proper circumstances certainly are valid, they cannot impair the obligations of contracts, interfere with rights under the due-process provision of the constitution, or divest one of a vested right. A statute cannot impose retroactive taxation upon a class of property not then subject to such a tax. 2 Cooley, Taxation (4th ed.) § 520.

The property here involved descended to respondent free from all claims except those which legally existed July 7, 1926. No new burden in the shape of an income tax on the former estate can be created and visited upon this new estate of the executrix or beneficiary. The estate is worth that which exists after the payment of such debts of the decedent as by existing laws are such proper charges against it as to cause the separation between that which is to be used for the payment of debts and that which becomes corpus or principal in the hands of the executor. This is recognized in the scheme of taxation provided for inheritance and is the basis of a practical method of computing profit or loss on a sale of property acquired by descent or by will. Sec. 71.02 (2) (d).

The amount eliminated from the assessment by the trial court was an integral part of the corpus of the estate which had gone into the hands of the respondent. It was part of that which she received in the first instance and in no sense a gain or profit issued and severed from that estate. The only earnings or revenues produced by the capital after it became hers was the amount of $6,621, for which a proper report is conceded to have been made. The respondent is charged with an amount which includes the item- under consideration here as a part of that which she must account for as corpus. Had the whole amount of the contract been paid at the time of the assessment of the inheritance tax, it would seem quite clear that it could not also be subject to an income tax for that year as well. This instalment and the future instalments are but part payments on account of that which belongs to the estate and must be held to be corpus or principal of the estate. State ex rel. Kempsmith v. Widule, 161 Wis. 389, 154 N. W. 695; Herzberg v. Wis. Tax Comm. 194 Wis. 126, 215 N. W. 936.

It is unnecessary to a decision in this case to consider the other questions suggested by the briefs of counsel and we therefore have not passed upon them.

By the Coiirt. — Judgment, affirmed.