Summary
In Tri-State Transit Co. v. Tax Commission, 196 Miss. 23, 16 So.2d 35, and on rehearing at page 782 of the Southern citation, it was held that, the exclusion by the statute of all income taxes as a deduction, included federal excess profits taxes, since such excess profits taxes were income taxes within the meaning of the act.
Summary of this case from Cook, Comm'r of Revenues v. Walters Dry GoodsOpinion
No. 35459.
December 20, 1943. Suggestion of Error Sustained and Decree Affirmed February 14, 1944.
1. TAXATION.
Excess profits taxes paid by corporation to federal government were "income taxes" and as such not deductible in determining income tax due state under statute allowing deduction of all taxes paid other than income taxes (Laws 1934, ch. 126, sec. 8; Second Revenue Act 1940, 26 U.S.C.A. Int. Rev. Acts).
2. STATUTES.
Rule that ambiguities in tax statutes are to be resolved in favor of the taxpayer has no application to provision for deductions which are allowable only when plainly authorized.
3. INTERNAL REVENUE.
The "excess profits tax" is a species of "income tax".
4. STATUTES.
Unless expressly made to apply only to past or present facts, all statutes phrased in general and comprehensive terms apply to and include all things within those terms, not only as presently existing, but those as well which subsequently come into existence, although having no existence at the time of enactment.
ALEXANDER and ROBERDS, JJ., dissenting.
APPEAL from chancery court of Hinds county, HON. V.J. STRICKER, Chancellor.
Stevens Stevens, of Jackson, for appellant.
The question, and the fundamental question to be decided by this court, is what the legislature of the State of Mississippi meant when it authorized a corporation to deduct from its state income tax return all taxes of every kind, character and description, "other than income taxes imposed by any authority, paid or accrued within the taxable year."
Laws 1934, Ch. 120, Sec. 8.
Primarily, therefore, we have here a purely domestic question as to the true meaning, intent and purpose of a state statute. Our state law recognizes the public policy of allowing a taxpayer a deduction for all taxes with one sole exception, to-wit: income taxes imposed by any authority. It makes no difference whether these income taxes are imposed by a sister state, by a foreign government, or by the Federal Government. What, then, is meant by the phrase "income taxes imposed by any authority"? At the time this law was enacted, we did not have the present excess profits tax, with its severe and onerous burdens. Is the present excess profits tax, therefore, to be classified as an income tax within the true meaning of our state law? Our contention is that it simply excluded what is commonly and popularly known as federal income taxes, or income taxes imposed by a sister state, and does not embrace in the exclusion excess profits taxes.
The first point we make is that the phrase "income taxes imposed by any authority," has reference to a species of taxes well known at the time our legislature used this phrase. The ordinary income taxes imposed both by the Federal Government and all states of the Union have a common denominator, and our legislature was using the phrase that would be applicable to both state and federal income taxes. So far as we know, no sister state of our Union imposes an excess profits tax.
The next point we stress is the admitted fact that neither the Federal Congress nor any of the federal courts, including the Supreme Court of the United States, has ever referred to an excess profits tax as an income tax. On the contrary, an excess profits tax is imposed by an entirely separate provision of the Revenue Code, and both terms or descriptions, to-wit, income tax and excess profits tax, are written into the Internal Revenue Code, and into the decisions. Furthermore, the Federal Congress, in its income tax law, likewise allows, deductions from gross income with certain exceptions, and in providing for these duductions, federal income taxes and federal war profits and excess profits taxes are excepted by proper language.
Cumulative Annual Pocket Parts, United States Code Annotated, 1942, Title 26, Par. 23, Sub-sec. (c), Taxes Generally.
It will be observed that the Federal Congress allows as deductions generally, taxes paid or accrued within the taxable year, except (1) federal income taxes; (2) war profits taxes and excess profits taxes imposed by Title II of the Revenue Act, etc.; (3) income, war profits and excess profits taxes imposed by the authority of any foreign country, etc., with other deductions for taxes not necessary to be mentioned. Here we find the Federal Congress referring to the usual federal income taxes under one head and war profits and excess profits taxes under another. They give these taxes a separate name and they provide for their exclusion from the deductible allowances under their proper designation or name. If the State Tax Commission is correct, then the Federal Congress did a foolish and unnecessary thing in separating federal income taxes from federal excess profit taxes. It could have provided in the exclusion or exception for simply federal income taxes, and left out any reference whatever to excess profits taxes. We find, therefore, that in the adoption of the Federal Excess Profits Tax, the Congress of the United States deals with it as an entirely separate part of our laws, and we further find that in adopting the regular or normal federal income tax they provide for an exception under the two classifications and not one.
The provisions of an income tax statute are not to be extended by implication beyond the clear import of the language used, and in case of doubt, are to be construed against the government and in favor of the taxpayer. The words of an income tax statute are generally interpreted in their ordinary and accepted meaning. Particular provisions of an income tax statute are to be construed with reference to their legislative history and in connection with other related provisions.
27 Am. Jur. 309; 27 Am. Jur. 313, Sec. 10.
Language of a statute must be given its usual and common signification.
In re Park, 8 F.2d 544.
Words of a statute will be taken in ordinary and proper signification, unless enlargement or modification is necessary to effectuate legislative intent.
Town of Union v. Ziller, 151 Miss. 467, 118 So. 293, 60 A.L.R. 1155.
Words of a statute must be given their usual and ordinary meaning unless it appears from settled legislative custom they were intended to mean something different.
Warburton-Beacham Supply Co. v. City of Jackson, 151 Miss. 503, 118 So. 606.
See, also Chattanooga Sewer Pipe Works v. Dumler, 153 Miss. 276, 120 So. 450; Commissioner of Internal Revenue v. Beebe, 67 F.2d 662, 92 A.L.R. 862; Avery v. Commissioner of Internal Revenue, 78 L.Ed. 1216; Reinecke v. Smith, 289 U.S. 172, 53 S.Ct. 570, 77 L.Ed. 1109.
If then we apply the ordinary meaning to the statute here involved, and under construction, the phrase "income taxes" would be construed to mean only the same type of taxes which the state was there imposing, which our sister states have imposed, and which at that time was in existence as a federal income tax.
It is a further rule of construction that the inclusion of one excludes all others, which is a well-known legal maxim.
Farmers Loan and Trust Co. v. United States, 9 F.2d 688; 25 C.J. 220.
That is exactly the contention we are making here. The state says that a taxpayer may deduct all taxes of every kind "other than," that is, except, "income taxes." Therefore, in the exclusion we do not find excess profits tax. We are here dealing with an exception upon an exception. It may be argued that exceptions or exclusions in a tax statute are to be construed strongly against a taxpayer. But there can be no question that excess profits taxes would be classified under the heading of taxes, and since the state law provides generally for an exclusion of taxes other than income taxes, then the burden is upon the state to show that excess profits taxes are not only income taxes, but the type of income taxes within the true intent, meaning and purpose of the state law.
There is no state decision which here controls, but if the question is left to the decisions announced by the federal courts, then we are clearly right in our contention.
Beam v. Hamilton, Collector of Internal Revenue, 289 F. 9; Rockland Rockport Lime Corporation v. Ham, 38 F.2d 239; Fawcus Machine Co. v. United States, 75 L.Ed. 397, 399; La Belle Iron Works v. United States, 256 U.S. 377, 41 S.Ct. 528, 65 L.Ed. 998; Federal Tax Guide, published by Prentice-Hall, Inc.
In construing our Mississippi statute the court should take a common sense, practical view of the language employed rather than a legalistic view.
Hattiesburg Grocery Co. v. Robertson, 126 Miss. 34, 88 So. 4, 25 A.L.R. 748; Notgrass Drug Co. v. State ex rel. Rice, 175 Miss. 358, 165 So. 884; Compress of Union v. Stone, 188 Miss. 49, 193 So. 329; Brushaver v. Union P.R. Co., 240 U.S. 1, 36 S.Ct. 236; Towne v. Eisner, 245 U.S. 418, 425.
Greek L. Rice, Attorney-General, by Jefferson Davis, Assistant Attorney-General, for appellees.
Learned counsel for the appellant states that the fundamental question to be decided by this court in this case is what the legislature of this state meant when it authorized a corporation to deduct from its state income tax return all taxes of every kind, character and description "other than income taxes imposed by any authority, paid or accrued within the taxable year." As to this we cannot wholly agree for the reason that the statute which the appellant seeks to have the court construe is plain and unambiguous. There is absolutely nothing uncertain or ambiguous in the provision: "In computing the net income there shall be allowed as deductions: . . . (3) Taxes, other than income taxes imposed by any authority, paid or accrued within the taxable year."
Section 8, Ch. 120, Laws of 1934.
Where this is true there is no room for construction, and the court cannot restrict or enlarge upon the meaning of the statute.
Yerger v. State, 91 Miss. 802, 45 So. 849; City of Hazlehurst v. Mays, 96 Miss. 656, 51 So. 890; Hamner v. Yazoo Delta Lumber Co., 100 Miss. 349, 56 So. 466; State v. Traylor, 100 Miss. 544, 56 So. 521; McCary v. State, 187 Miss. 78, 192 So. 442; Wilson v. Yazoo M.V.R. Co., 192 Miss. 424, 6 So.2d 313; Eagle Lumber Supply Co. v. Robertson, 161 Miss. 17, 135 So. 499.
Therefore, the real issue seems to be whether the "federal excess profits tax" and the "federal surtax" which appellant seeks to have deducted in arriving at its net income is in reality an income tax, and in this regard the writer can find but one definition of the words "income tax" and that is the universal as well as the usual and unequivocal definition that the words "income tax" means a tax on one's income.
Powell v. Gleason (Ariz.), 74 P.2d 47, 50, 114 A.L.R. 838; Levi v. City of Louisville (Ky.), 30 S.W. 973, 974, 28 L.R.A. 480; Brandon v. State Revenue Commission (Ga.), 186 S.E. 872, 874; Reynolds Metal Co. v. Martin (Ky.), 107 S.W.2d 251, 258; Crescent Mfg. Co. v. State Tax Commission 129 S.C. 480, 124 S.E. 761, 763; Poorman v. State Board of Equalization (Mont.), 45 P.2d 307, 312; Shivel v. Vidro (Mich.), 294 N.W. 78, 82; Kay v. Keller, 140 Fla. 346, 191 So. 542, 545, 547; J.C. Penney Co. v. Wisconsin Tax Commission, 298 N.W. 186, 188, 134 A.L.R. 908; Forester v. Culpepper, 194 Ga. 744, 22 S.E.2d 595, 597.
If the excess profits tax which appellant claims he is entitled to deduct in arriving at his net taxable income is an income tax imposed by any authority, the position taken by the State Tax Commission and upheld by the chancery court below must be approved by this court because of subsection 3 of Section 8 of Chapter 120, Laws of 1934.
Learned counsel for appellant says that this excess profits tax is not an income tax, but counsel fails to say what kind of tax it is if it is not an income tax. It is bound to be some kind of tax, that is, a property tax, a privilege tax, an income tax, or something.
The tax involved, that is, the law imposing the tax, is sub-chapter (E), 710 et seq. of Title 26, U.S.C.A. (p. 296 Cumulative Annual Pocket Part). This section is a part of the Internal Revenue Code and appears under the general heading, "Additional Income Taxes." As seen from the statute imposing the same, this tax is based entirely and alone upon the net income. If no net income accrues to the taxpayer, it is not liable for the tax. The excess profits tax was imposed in order to capture excess earnings as a result of unusual and extraordinary economic conditions brought about by the present war conditions. Under the law above referred to, a corporation is allowed to show what its annual average net income was for a period of years prior to the effective date of the excess profits tax law. After this adjustment is made under the terms and conditions set forth in the act, all income above these normal earnings is subject to the excess profits tax. If there are no excess earnings over the average for the years preceding, then there is no liability for the tax. It is purely and simply an income tax and cannot be classified in any other manner. In this regard it is no different from the "normal tax" imposed by the Internal Revenue Act, or the "surtax" imposed by the Internal Revenue Act, nor is it any different from any of the other classes of taxes imposed by such act, all of which when grouped together, are income taxes.
The various and sundry taxes on income levied by the Federal Government are levied pursuant to the Sixteenth Amendment to the Federal Constitution. The excess profits tax now in effect could not be levied by Congress if it were not for the Sixteenth Amendment. If any federal tax, regardless of its name, is levied and collected under authority of the Sixteenth Amendment to the Constitution, then it is an "income tax" imposed by federal authority and falls within the exclusion of the Mississippi statute.
Helvering v. National Grocery Co., 304 U.S. 282, 82 L.Ed. 1346; Helvering v. Northwest Steel Rolling Mills, Inc., 311 U.S. 46, 85 L.Ed. 29; Foley v. Commissioner of Internal Revenue (C.C.A.), 106 F.2d 731; LaBelle Iron Works v. United States, 256 U.S. 377, 41 S.Ct. 528, 65 L.Ed. 998; Curley v. Moore, 244 N.Y.S. 80.
Learned counsel argues that Chapter 120 of the Laws of 1934, being a taxing statute, must be construed in favor of the taxpayer. However, that which counsel seeks to have construed is an exception or an exemption from a general taxing statute and the rule is that it must be strictly construed.
Counsel overlooks the fact that it is the normal tax, the surtax and the excess profits tax that make up and constitute the income tax.
If it is necessary to classify the excess profits tax, may we suggest that it would be proper to classify it as a "surtax on excess earnings." If it is not that, what is it? That is exactly what it is, a surtax on excessive earnings. If this be true, then we submit that all the cases referred to above are precisely and directly in point to the effect that a surtax is an income tax within the meaning of the Sixteenth Amendment.
Stevens Stevens, of Jackson, for appellant, on suggestion of error.
In the communication from this honorable court, our attention is directed to the statement found in 27 Am. Jur. 313, as follows: "and the rule that ambiguities are to be resolved in favor of the taxpayer does not apply in the case of provisions for deductions." It is admitted that federal excess profits taxes are properly classified as taxes. They come within the general definition of taxes and, therefore, within the general definition of deductions. If there were any ambiguity in what is meant by the word "taxes," then this excerpt from American Jurisprudence would apply, but, of course, there is not such ambiguity, and the sole controversy here pertains to the question as to what was in the legislative mind when it used the words of the exception to the deduction, that is, the words, "other than income taxes," etc. The whole question then gets back to the starting point, to-wit: What did the legislature intend and mean by the use of this phrase?
Exceptions, as a general rule, should be strictly, but reasonably, construed; they extend only so far as their language fairly warrants, and all doubts should be resolved in favor of the general provision rather than the exception. Where a general rule is established by statute with exceptions, the court will not curtail the former nor add to the latter by implication, and it is a general rule that an express exception excludes all others, although it is always proper in determining the applicability of this rule, to inquire whether, in the particular case, it accords with reason and justice. Another generally accepted rule of construction is that an exception of a particular thing from the general words shows that, in the opinion of the lawgiver, the thing excepted would be within the general provision had not the exception been made.
59 C.J. 1092, Sec. 643.
We submit that when the statute allows as a lawful deduction all taxes of every nature, and then excludes income taxes, that then the exception should be strictly but reasonably construed. The logical sequence is that the words "income taxes" should be strictly construed, in accordance with their usual and ordinary meaning, and not as embracing something known by an entirely different name, and exacted by a different statute, requiring an altogether different return, and calculated by altogether different methods.
See Middleton v. Lincoln County, 122 Miss. 673, 84 So. 907; State ex rel. Collins v. Grenada Cotton Compress Co., 123 Miss. 191, 85 So. 137; Sperry Hutchinson Co. v. Harbison, 123 Miss. 674, 86 So. 455; Miller v. Illinois Cent. R. Co., 146 Miss. 422, 111 So. 588; Board of Levee Com'rs. for Yazoo Mississippi Delta v. Howze Mercantile Co., 149 Miss. 843, 116 So. 92; State ex rel. Knox v. Union Tank Car Co., 151 Miss. 797, 119 So. 310; Pan-American Petroleum Corporation v. Miller, 154 Miss. 565, 122 So. 393; McKenzie v. Adams-Banks Lumber Co., 157 Miss. 482, 128 So. 334; L.H. Conard Furniture Co. v. Mississippi State Tax Commission, 160 Miss. 185, 133 So. 652; Gully v. Jackson International Co., 165 Miss. 103, 145 So. 905; Town of Utica v. State ex rel. Rice, 166 Miss. 565, 148 So. 635; Frazier v. Stone, 171 Miss. 56, 156 So. 596; Roseberry v. Norsworthy, 135 Miss. 845, 100 So. 514; State v. Traylor, 100 Miss. 544, 56 So. 521; People ex rel. Seligman v. Gilchrist, 213 N.Y.S. 181, 215 App. Div. 166; State ex rel. Liggett Myers Tobacco Co. v. Gehner, 316 Mo. 1075, 292 S.W. 1028; State of Montana ex rel. Davis v. State Board of Equalization of Montana, 64 P.2d 1057, 108 A.L.R. 1397; Willcuts, Collector of Internal Revenue for the District of Minnesota v. Milton Dairy Co., 72 L.Ed. 247; 27 Am. Jur. 359, 360, notes.
Greek L. Rice, Attorney-General, by W.B. Fontaine, Assistant Attorney General, for appellee, on suggestion of error.
On December 20, 1943, this court decided, in effect, that excess profits taxes collected by the Federal Government were not income taxes imposed by that authority, and, therefore, such excess profits taxes paid were a deductible item on appellant's income tax return.
Excess profits taxes are collected from one source only, and that is on corporate returns, and are based upon income received by corporations in excess of that which they normally receive and report in years in which conditions are not such as to create an abnormal receipt for services rendered to the public or others. It is purely a temporary measure to collect taxes on excess profits made by corporations arising out of war conditions, and it goes without saying that such conditions will almost immediately cease upon the termination of the present World War.
In looking for Congressional action levying such taxes, it is to be found under the heading "Additional Income Taxes," and is part of Title 26 of United States Code Annotated, and begins with Section 710 of said Title. A reading of the various statutes levying this excess profits tax shows that it is nothing more than a super tax imposed upon corporations to be paid out of the income, profits or earnings received by them during the taxable year or years.
An excess profits tax is nothing more or less than an additional income tax.
La Belle Iron Works v. United States, 256 U.S. 377, 41 S.Ct. 528, 65 L.Ed. 998; Mencher v. Alden, 41 N.Y.S.2d 678; United States v. Hudson, 299 U.S. 498, 81 L.Ed. 370, 57 S.Ct. 309; Biddle v. Commissioner of Internal Revenue, 302 U.S. 573, 58 S.Ct. 379, 82 L.Ed. 431; Steinhagen Rice Milling Co. v. Scofield, 87 F.2d 804; Foley Securities Corp. v. Commissioner, 106 F.2d 731; H.W. Gossard Co. v. Commissioner, 119 F.2d 346; Merten's Law of Federal Income Taxation, Volume 7A; 3 Montgomery's "Excess Profits, Estate, Gift, Capital Stock Tax Procedure," 1926 Edition, p. 3; 27 Am. Jur., "Income Taxes," Sec. 8.
J.H. Sumrall, of Jackson, for appellee, on suggestion of error.
There is no contention that an "excess profit" tax is not based on net income. Indeed, it is only a name given to income which falls in the highest bracket. The name given to the taxes which fall into a bracket above a certain fixed limit should no more change the nature of such tax than the imposition of a higher rate in each succeeding higher bracket arbitrarily selected. And the state graduates the rate of its taxes according to the class into which such amount of income taxes falls. Each class of income falling by reason of amount into succeeding higher brackets is given a different classification by reason of the higher rate just as positively as if a special name were given to each succeeding division of amount used to determine the rate of taxation in such class.
The term "excess profit" implies that there is excess of profit over some definite fixed limit. Each succeeding higher bracket into which income may fall by reason of amount, would properly come within the classification of the general term "excess profit." And the very basis of imposing any "net income tax" is the fact that the amount subject to tax represents net income or profit in excess of the allowed deductions. And to give to the term a meaning for the purpose of including the tax represented by such classification within the allowed deduction in contradistinction from the general term of income tax to which it properly belongs, is the equivalent of granting exemption by implication.
This court is too familiar with the rule, that exemptions cannot be granted by implication, to require the citation of authorities on the subject. But when the court takes into consideration the fact that Section 7 of Chapter 120, Laws of 1934, the act imposing the tax defines gross income as the amount received from every conceivable source which the legislature could think of, apparently, and then added for emphasis, "income derived from any source whatever," then it is inconceivable that the legislature intended that the granting of deductions which amounted to exemption should be determined by "construction," rather than by specific language positively granting the exemption.
Exemption statutes must be construed strictissimi juris.
He who claims exemption from taxation must establish his right thereto, by a statute, the wording of which is too plain to admit of argument. If any doubt exists as to whether or not the exemption is granted, the doubt must be resolved against the exemption.
I therefore respectfully remind the court that excess profit income taxes have been continuously imposed by the Federal Government since 1934. The State Tax Commission has uniformly construed the language of the statute under consideration since its enactment in 1934 as not allowing deduction of excess profits tax. Yet by Chapter 151, Laws of 1936, the legislature re-enacted Section 8 of Chapter 120, Laws of 1934, with some amendments thereto, but left the language of subsection 3 exactly as it has been since the original enactment of the law in 1934, at which time a federal excess profit income tax was imposed by the Federal Government.
I therefore respectfully, but confidently, assert that, by all the rules of construction, as well as by all the rules of presumption, the meaning uniformly and continuously given to the language of the statute by the State Tax Commission is the correct one, and supported by the greater weight of authority and reason than that adopted by a majority of the court.
Argued orally by J.M. Stevens, Sr., for appellant, and by Jefferson Davis, for appellee.
Appellant filed its petition to revise its income tax return for the year 1941 so as to claim deduction for excess profits taxes paid to the Federal Government during that period. The petition was denied by the Commissioner and upon appeal to the State Tax Commission the former ruling was upheld. This action was reaffirmed upon appeal to the Chancery Court. Sections 29, 30, Chapter 120, Laws of 1934. Our attention has been focused upon Section 8 of this Act which is as follows: "In computing the net income there shall be allowed as deductions: (1) . . . (2) . . . (3) Taxes, other than income taxes imposed by any authority, paid or accrued within the taxable year." At the time the Act was passed, there was no excess profits tax in force.
In the order of the Commissioner denying the right to amend the return and allow the deduction, his action was sought to be justified by the holding that such taxes were "Taxes measured by income." Whether the use of this language was an instinctive recognition of a necessity to broaden the connotation of income taxes or was consciously adroit, we need not ponder. It is apparent that the decision, by its own construction, assumed a premise which, if sound, would furnish a staunch basis for its conclusions.
Had our statute in fact allowed as deductions all taxes except those "measured by income," it would have excluded by this phrase alone not only income taxes properly so called but also such excise taxes as estate taxes, gift taxes, sales taxes and all those privilege taxes which are so admeasured. Among the latter are those upon contractors, cotton compresses, ferries, insurance companies, railroads, certain public utilities, and tobacco. Had it excepted all "excise taxes," it would have been similarly broad, yet it is extremely doubtful if even such designation would have included "income taxes."
That a tax is computed upon income does not constitute it an income tax any more than the fact that an inheritance tax computed upon property makes of it a property tax. See Enochs v. State, 133 Miss. 107, 97 So. 534. Indeed the legislature has appropriated the name "income tax" as designating a well understood excision from net income. They have preempted the phrase as a technical term and given it a popular connotation. It is differentiated from other forms of direct and excise taxes by its purpose and its permanence, by the occasion for its imposition, by its incidents and its incidence, and particularly by its name. It is not sufficient that an excess or war profits tax is likewise measured by income. It is not computed alone on the factor of the current year's income. It had a distinct purpose and occasion; its incidence is upon corporations alone; it is a war measure with a limited life expectancy. Income taxes, properly so called, have been enacted since the Civil War. Excess profits taxes were first imposed in 1917, and later repealed. The present enactment was made in 1942. It has a distinctive designation — one which is invariably used in federal statutes to distinguish it from what are known as income taxes. The federal statute does not confound them but lists its exceptions as income taxes, excess profits taxes, estate taxes, inheritance taxes, succession taxes and gift taxes. To the state's challenge that, "if an excess profits tax is not an income tax what is it?" counsel make the apt and laconic reply that it is an excess profits tax. While it is true that a corporation is never liable for an excess profits tax unless it is liable for an income tax, the reverse does not obtain. A return for income tax does not reveal liability for excess profits tax, nor will the filing of a return for the former set in motion the statute of limitation against liability for the latter. Beam v. Hamilton, 6 Cir., 289 F. 9; Rockland Rockport Lime Corporation v. Ham (D.C.), 38 F.2d 239; United States v. Updike (D.C.), 1 F.2d 550.
In Curley v. Moore, 137 Misc. 312, 244 N.Y.S. 580, cited by appellee, a private agreement to apportion income taxes was held to have intended to include excess profits taxes. In addition to the circumstances that a private contract was being construed, the court called attention to the fact that at the time of the contract an excess profits tax was in force. The case is not helpful.
The excess profits tax has been designated as one imposed "in addition to other taxes." Chapman v. United States, 64 Ct. Cl. 247. It has been described as a "separate, distinct, and then novel source of revenue." Beam v. Hamilton, supra [289 F. 12], wherein it was pointed out that a "distinction between ordinary income taxes and excess profits taxes was clearly recognized." In La Belle Iron Works v. United States, 256 U.S. 377, 41 S.Ct. 528, 65 L.Ed. 998, they are referred to as "special taxation." This tax was in its essentials an emergency measure primarily to conscript for war purposes the excess profits of corporations engaged in supplying the tools of war. In no unreal sense, it fixes a ceiling upon unusual war profits. Let it be assumed that the proposal to limit individual income to $25,000 had become statutory. Could it be supposed that a taxpayer whose net salary was $50,000 would be liable for an income tax computed on the latter figure? After a cessation of hostilities, the excess profits tax will unquestionably by its terms and purpose be discontinued. But the income tax as a permanent source of governmental revenue will undoubtedly remain. Income taxes fall upon individuals, associations, partnerships, corporations, estates and trusts. If the earnings of corporations do not exceed a certain previously ascertained figure, they are not liable for an excess profits tax. They regularly pay a tax upon their income, while under the latter tax they in a rather literal sense pay the income.
It would seem as logical to identify all estate taxes with inheritance taxes. Indeed our statute does so, but by express terms. Yet even they are not necessarily identical. Turner v. Cole, 118 N.J. Eq. 497, 179 A. 113; 28 Am. Jur., p. 10. Nomenclature cannot be ignored when terms have been given a technical meaning by popular usage.
Diversities of definition are apt to follow when the tax is analyzed solely by legalistic tests. For example, in Washington Mutual Savings Bank v. Chase, 157 Wn. 351, 290 P. 697, 71 A.L.R. 232, a tax "according to or measured by" the net income of corporations, although denominated by the statute a privilege tax, was held to be in effect an income tax. On the other hand, in Evans v. McCabe, 164 Tenn. 672, 52 S.W.2d 159, 617, a tax calculated upon a percentage basis of the income derived from stocks and bonds and designated in the statute as an income tax was held not to be an income tax. It should not be questioned that under our statute the tax in the former case, although construed as an income tax, would be an allowable deduction, while in the latter case the tax, although held not to be an income tax, would not be deductible. In both cases the courts in making detours around constitutional barriers collided with popular notions. As an example of restricted application, income from estates has been held not liable for an "income tax." Gavit v. Irwin (D.C.), 275 F. 643, 648. Under the Act of Oct. 3, 1913, 38 St. L. 166, c. 16.
Nor may we risk violence to legislative intent by defining alike all terms which fall within general categories. Under the all inclusive word "taxes," there may be found the genus excise taxes under which there are several species, for example, privilege, income, estate and gift or social security taxes. Estate or inheritance taxes have been held to be taxes upon a privilege. Enochs v. State, 133 Miss. 107, 97 So. 534. Yet they are not mentioned in our privilege tax code. Legacies are gifts but an "estate tax" is not a "gift tax." All capitation taxes are poll taxes, yet a "poll tax," as is here generally understood and technically so referred to, means a particular form of tax for a special purpose. Used loosely, a municipal street tax is a poll tax. Indeed, in City of Faribault v. Misener, 20 Minn. 396, a commutable highway or road tax is so designated. Yet, in our local glossary of terms, the two have achieved a distinct import.
The two forms of taxation here involved are set forth in separate chapters, always separately referred to and are administered separately, each pursuant to distinct regulations. By Section 227 of the Act of October 21, 1942, 26 U.S.C.A., Int. Rev. Code, sec. 734, Section 734 of the Internal Revenue Code, as amended, was amended so as, for certain purposes, to include within the definition of "income taxes" all excess profit taxes. (See 56 Statutes at Large, p. 921). This amendment first appeared in the Act of March 7, 1941, sec. 11, 55 Stat. 27. While such a provision, if included in our statute, would have settled the matter, it was not done, and it is significant that this declaration was deemed necessary by the Congress for its particular purposes. Nor may this recognized necessity inure to the appellee's advantage since this provision was not only enacted long after our statute but also in positive recognition of its non-inclusion in the absence of such arbitrary enactment.
However, the point need not be belabored. The foregoing discussion has been extended merely to indicate typical bases of differentiation which have been generally recognized. While we have sought to rivet upon the impartial mind the conviction that the original, technical and popular implications of the term coincide, we should not and do not ignore relevant conventional aids to construction. The legislature did not in terms exclude excess profits from the allowable deduction of all "taxes." It could not have had in mind that "income taxes" then included "excess profits taxes" for the simple reason that the latter did not then exist. The point is narrowed then to whether they intended to include all future taxes computed upon income. Properly analyzed, the statute provides in substance that all taxes except income taxes may be deducted in the return. No matter what sort of taxes have been paid, they are deductible unless they have been paid as income taxes. The language used must be given its usual and common signification. Town of Union v. Ziller, 151 Miss. 467, 118 So. 293, 60 A.L.R. 1155; Warburton-Beacham Supply Company v. City of Jackson, 151 Miss. 503, 118 So. 606; Chattanooga Sewer Pipe Works v. Dumler, 153 Miss. 276, 120 So. 450, 62 A.L.R. 999; Green v. Weller, 32 Miss. 650; In re Park (D.C.), 8 F.2d 544; Reinecke v. Smith, 289 U.S. 172, 53 S.Ct. 570, 77 L.Ed. 1109. In Duggan v. Bay Street Railway Company, 230 Mass. 370, 374, 119 N.E. 757, 758, L.R.A. 1918E, 680, the court said: "It is a principle of general scope that a statute must be interpreted according to the intent of the makers, to be ascertained from its several parts and all its words construed by the ordinary and approved usage of the language, unless they have acquired a peculiar meaning in the law." Certainly when the words have been given "a peculiar meaning in the law" which is the same as their "approved usage," the case is yet stronger. Section 1394, Code 1930, provides that "All words and phrases contained in the statute are used according to their common and ordinary acceptation and meaning . . ." While this section provides also that technical words shall be construed in their technical sense, it is not found to have a double thrust because, as stated, the two meanings are the same.
Insofar as a revenue act operates to deprive the citizen of property, it should be construed strictly. Black, Interpretation of Law, p. 515. Provisos or exceptions which take a case out of a general rule should be so construed as not to include cases not falling fairly within its terms, Id., p. 435. Where there is an enumeration of exceptions, they are to be strictly construed so as to exclude all others. Crawford, Statutory Construction (1940), pp. 610, 611. Let it be assumed that the legislature had used the term "excess profits taxes," it could not be reasonably supposed that this would operate to include surtaxes, although both are superimposed upon normal income bases. Our court has held that sales taxes are taxes on income. Notgrass Drug Company v. State, 175 Miss. 358, 165 So. 884; Compress of Union v. Stone, 188 Miss. 49, 193 So. 329. It would not, however, commend itself to even a prejudiced mind that such taxes are comprised within the popular and accepted meaning of "income taxes."
In Clement v. Stone, 195 Miss. 774, 15 So.2d 517, decided by the court November 8, 1943, we were construing a tax of the State of Tennessee designated an income tax. It was in a literal sense such a tax since it dealt solely with income from stocks and bonds. It is important, however, that we were at the same time construing the same term as used in our statute. The question was whether the State of Tennessee had that which we call an income tax, as regards the application of our reciprocity clause. We held with the Tax Commission's view that the foreign statute was not an income tax as comprehended by our income tax law. The circumstance that it was computed upon income was not found sufficient to meet our definition. It is not an unreasonable assumption that if that state had only an excess profits tax on corporations, the same result would have been reached.
We have not of course considered the feasibility nor advisability of thus enlarging the ordinary meaning by legislative action. Nor have we tested their language by lexicon to see what it could mean but have sought to find what they did mean. Our views are summarized in the conclusion that our statute did not by express terms nor implication include excess profits taxes within the terms "income taxes," but that it then meant that there may be deducted all "taxes" except what was then and had been popularly and legally known and designated as income taxes to which both individuals and corporations are subject.
As stated by Justice Holmes in New York Trust Company v. Eisner, 256 U.S. 345, 41 S.Ct. 506, 507, 65 L.Ed. 963, 983, 16 A.L.R. 660, when discussing whether an estate tax was direct or indirect, "That matter also is disposed of by Knowlton v. Moore [ 178 U.S. 41, 20 S.Ct. 747, 44 L.Ed. 969] not by an attempt to make some scientific distinction, which would be at least difficult, but on an interpretation of language by its traditional use. . . . Upon this point a page of history is worth a volume of logic."
The deduction ought to have been allowed.
Reversed and remanded.
ON SUGGESTION OF ERROR.
Inasmuch as the withholding of any rationally legitimate deduction operates to increase the income taxes which the taxpayer must discharge, makes taxable that which otherwise would not be taxable, it would seem sound legal logic that any exception which would withhold such a deduction should be strictly construed, and all doubts resolved, in favor of the taxpayer; and it was upon this logic that I concurred in the reversal of the decree when this case was decided a few weeks ago. The opposite view, however, may well be taken — that because deductions are merely factors in arriving at the taxable net income, factors by which the taxable net income may be made smaller in amount, the allowable deductions more nearly resemble exemptions as to which the construction is against the taxpayer. Subsequent reflection as to the admissibility of the latter view caused me to make an independent investigation whether direct authority might be found on the specific point, and this investigation has disclosed that the federal Supreme Court has expressly decided that "the rule that ambiguities in tax statutes are to be resolved in favor of the taxpayer has no application to provisions for deductions; they are allowable only when plainly authorized." Helvering v. Intermountain L. Ins. Co., 294 U.S. 686, 55 S.Ct. 572, 79 L.Ed. 1227, and other cases therein cited.
The citizen of today is beset and often bewildered by thousands of shifting enactments and regulations, among which are the perplexing intricacies of the income tax laws. Confusion of statute and regulation should not be further confounded by diversity of decision if conscientiously the courts may avoid such results; and I am thus constrained to the conclusion that the federal rule as above stated, and which we now have before us, should be followed rather than to which I, as one of the majority, adhered on the former decision.
The statute allows the deduction of all taxes paid other than income taxes. The effect of the statute is to say to the taxpayer, you may not deduct income taxes paid by you but may as to all other taxes, or, in other words, you may deduct all taxes paid by you which are not income taxes. Applying thereto the quoted rule, it must be plain that excess profits taxes are not income taxes, else they cannot be deducted, which is to say, if it be not plain or free from doubt, then the doubt must be resolved against the deduction. The excess profits tax is a species of income tax. The term "income taxes" is sufficiently comprehensive to embrace it, and doubt as to its being embraced must be resolved against the deduction; and that is the case we have here.
But appellant has argued that excess profits taxes were not in existence when the statute in question was passed; that, therefore, such taxes could not have been contemplated at the time, and for that reason excess profits taxes should be construed as not being within the legislative intent in the use of the term "income taxes." The established rule is, however, that unless expressly made to apply only to past or present facts, all statutes phrased in general and comprehensive terms apply to and include all things within those terms, not only as presently existing, but as well as those which subsequently come into existence, although having no existence at the time of enactment. Hester v. Copiah County, 186 Miss. 716, 191 So. 496; 59 C.J. 1105; 25 R.C.L. 778. In 2 Lewis' Sutherland Stat. Const. (2 Ed.), p. 956, attention is called to the holdings "that the language of a statute is generally extended to new things which the language of the act is sufficient to comprehend, although such things were not known, and could not have been contemplated by the legislature when the act was passed." Such is the rule, and no sustained authority explicitly in point has been found to the effect that comprehensive terms must nevertheless be strictly construed and made something else than comprehensive as to things subsequently coming into existence.
And speaking now for the court, it is ordered that the suggestion of error be sustained; that the dissenting opinion of SMITH, C.J., delivered on our previous announcement, shall be brought forward and made the controlling opinion, and that the decree of the chancery court be affirmed.
Suggestion of error sustained, and decree affirmed.
CONCURRING OPINION.
When a tax, by whatever name it may be called, must be paid by a business as an incident of the conduct of that business, and which must be met by what the business earns, it is in reality as much an expense necessary to the conduct thereof as would be any other essential business expenditure, and upon every consideration of just treatment shall be deductible as well in the calculation of the net income of the business. Even more so, for as to other expenditures the owner of the business has discretion and management, but as to taxes they are imposed in invitum, and are beyond the control of the management. And the funds necessary to meet income taxes are in effect never the funds of the business, but belong to the taxing authority as to which the owner of the business is in the meantime no more than a quasi-trustee. There is less excuse, therefore, for denying a deduction from gross income on account of taxes paid out of a business and which never in real fact belonged to the business than there would be in denying a deduction for the other actual and essential expenses incurred and paid out in its conduct.
And this being true, what difference does it make what kind of taxes is involved, and for the stronger reason what rational excuse, upon any basis of just treatment, is there for refusing to allow the deduction of income taxes, taken out of the business, and which, as already mentioned, never in real fact belonged to the business at all?
In view of all this, courts should not be called on to read into any statute, which runs so distinctly contrary to the considerations mentioned, anything which the words of the statute do not plainly compel, and more especially when the doubtful inclusion would bear upon only a particular class, rather than upon all alike. Technically speaking, an excess profits tax may be a species of income tax, but the ordinary rather than the technical sense is to be preferred in the interpretation of statutes, and as shown in the principal opinion, it took a special amendatory provision in a congressional act, recently passed, to put this particular matter out of doubt in the federal field. Would it not, therefore, require a similar express state enactment, effective only for the future, to take it out of doubt as to our state statute?
Inasmuch as taxing statutes are to be construed strictly, and all doubts resolved, in favor of the taxpayer, it follows that the rule would have to be reversed and the doubt resolved against the taxpayer, and a particular class of taxpayers at that, if this new and abnormal tax, called the excess profits tax, is not one for which the taxpayer may take deduction, and not only this, but as stated, the doubt would be resolved so as to work would be a palpable injustice. I have therefore concluded that the principal opinion is sufficiently well grounded to justify a concurrence in it.
DISSENTING OPINION.
The Federal tax, which the appellant says is not an income tax, and therefore should here be deducted from its income, is imposed by the Second Revenue Act of 1940, 26 U.S.C.A., Int. Rev. Acts, an examination of which seems to me clearly to disclose that it is an income tax. Title (1) of that statute imposes a tax "upon the normal-tax net income of every corporation the normal-tax net income of which is more than $25,000;" with some exceptions. Title (2) thereof imposes an additional tax on the same income of a corporation in the following words: "There shall be levied, collected, and paid, for each taxable year beginning after December 31, 1939, on the adjusted excess profits net income, as defined in subsection (b) of every corporation," with certain designated exceptions. The statute then proceeds to grade the tax according to the amount of a corporation's "adjusted excess profits net income."
Subsection (b) of the section of the statute imposing the tax is as follows: "Definition of Adjusted Excess Profits Net Income. — As used in this section, the term, `adjusted excess profits net income' in the case of any taxable year means the excess profits net income (as defined in section 711) minus the sum of," etc. The section 711 referred to is quite lengthy. Paragraph (a) thereof is as follows: "The excess profits net income for any taxable year beginning after December 31, 1939, shall be the normal-tax net income, as defined in section 13(a) (2), for such year except that the following adjustments shall be made."
Throughout the statute the words "excess profits net income" are used when referring to the tax imposed. Nowhere in the body of the statute is the tax imposed by it referred to simply as an "excess profits tax." Those words, without more, are used only in the first paragraph of title (2) thereof, wherein permission is given to cite the tax as the "excess profits tax of 1940." This permission was given merely for convenience in citing the statute, and cannot of itself determine the nature and character of the tax imposed. On the face of the statute imposing it, to which alone we should look, the tax here under consideration is an income tax, and I know of no rule of construction that would require, or even permit, us to hold otherwise.
The decree of the court below should be affirmed.
I am requested by Judge ANDERSON to say that he concurs in this dissenting opinion.
DISSENTING OPINION ON SUGGESTION OF ERROR.
It being conceded that an excess profits tax is computed upon income and is therefore reasonably comprehended within the inclusive generality of income taxes, the narrow question is whether the term as a technical concept should receive a construction favorable to the state or to the taxpayer. It was not contemplated by the legislature that it would mean more than the term implied when the act was passed, at which time there was no excess profits tax properly so called in force. Even the view that the term may be held to assemble to itself all subsequent exactions susceptible of computation on an income basis, returns us again to the question of a proper criterion of construction.
Assuming that deductions, if ambiguous, are to be construed favorably to the state, we find that the deduction is "all taxes." There is no ambiguity here. The exception of "income taxes" is calculated to transpose the term from its place in the deductions and to expose it to the direct impact of the tax. Borrowing the construction devise of the majority opinion, it seems that the effect of the statute is to say to the taxpayer, you must pay on all income including that which was used to pay income taxes, but all other taxes may be deducted.
Income taxes therefore fall not within the deduction but within the imposition.
I am authorized by Judge ROBERDS to say that he concurs in the views herein expressed.