Tax Law Commons^™

Taxation - Exemption Of State Instrumentality From Federal Tax, Francis T. Goheen

Michigan Law Review

A federal statute provided that "Upon all tobacco and snuff manufactured or imported into the United States, and hereafter sold by the manufacturer or importer, or removed for consumption or sale, there shall be levied, collected, and paid . . . a tax of 18 cents per pound, to be paid by the manufacturer or importer thereof." The company received an order to deliver a quantity of tobacco to a hospital owned by the State of Massachusetts; the company complied by shipping tobacco which had been previously stamped in accordance with the regulations under the above statute. The state paid …

Taxation -Federal Estate Tax-Interpretation Of Loss From "Other Casualty", Virginia M. Renz

Michigan Law Review

The Federal Revenue Act provides that losses incurred during settlement of an estate should be deducted when they arise from "fires, storms, shipwreck, or other casualty." Losses to the estate of the testator of the petitioner were caused by Great Britain's going off the gold standard. The petitioners contend this was a casualty within the meaning of the Revenue Act. Held, the language is to be construed according to the rule of ejusdem generis. This casualty is not of the same general kind or class as those specifically mentioned and therefore not within the act. Lyman v. Commissioner of …

Taxation - Situs Of Intangibles - Business Situs, Michigan Law Review

Michigan Law Review

A manufacturing corporation incorporated in Delaware and maintained a nominal office there, but had branch offices and factories in several states. Its principal office was in West Virginia. All contracts made by the branch offices were subject to approval by the home office and withdrawals from the bank deposits in the several states were under the control of the home office. A West Virginia statute placed an ad valorem property tax on corporations whose bank deposits and accounts receivable were "liable to taxation." The state court applied the statute to the bank deposits in banks outside the state and to …

Taxation - Special Assessments For Street Lighting, Herbert J. Bloom

Michigan Law Review

The city of Los Angeles, under the authority of the "Public Works and Utility Act" of California, passed two ordinances levying special assessments for street lighting purposes upon abutting property specially benefited according to the front foot rule. The validity of the ordinance ordering the necessary lighting posts and appliances, which were installed before the present proceeding was brought, was conceded. The other ordinance provided for the furnishing of electric current to light the public streets for a period of fourteen months. This was contested by the plaintiff, who owned three lots subject to the assessment, on the ground that …

Taxation - Income Taxation Of Stock Dividends, Donald H. Larmee

Michigan Law Review

The petitioner purchased cumulative non-voting preferred stock in a corporation. In subsequent years the company elected to pay, and the petitioner received, dividends in common voting stock. Later the company redeemed its preferred stock. In computing the profit made by the petitioner at the time of redemption, the commissioner allocated to the common stock a proportionate share of the original cost of the preferred stock. He thereupon taxed as income the difference between the redemption figure and the allocated portion of the cost. The stockholder protested, claiming that the stock dividends should be treated as income in the years in …

Municipal Corporations - Constitutional Limitation On Indebtedness - Delinquent Taxes As Deductible Asset, Emma Rae Mann

Michigan Law Review

Plaintiff taxpayer sued to enjoin defendant city from borrowing $500,000 for general public improvements, alleging that if, the city so obligated itself it would be indebted beyond the limit fixed by the constitution at two per cent of the assessed valuation of taxable property. Defendant showed that such limit would not be exceeded if two-thirds of the outstanding delinquent taxes were regarded as deductible. The court denied the injunction and held that since collection of at least two-thirds of such outstanding delinquent taxes was certain this item was properly deductible. Ward v. Pittsburgh, 321 Pa. 414, 184 A. 240 …

Taxation-Validity Of Tax On Income Of Superintendent Of School Cafeteria System -Sovereign Immunity, Elbridge D. Phelps

Michigan Law Review

Petitioners, husband and wife, residents of Texas, made returns of community income for the year 1932, listing as exempt the salary of the wife who was superintendent of a non-profit cafeteria system operated by the Ft. Worth public schools for the exclusive patronage and benefit of teachers and students. The Commissioner of Internal Revenue refused the exemption and levied a deficiency tax of $105. On appeal from an affirmance of the commissioner's decision by the Board of Tax Appeals, held, reversed on the ground that the operation of the cafeteria system was a proper exercise of a governmental function …

Taxation-Proceeding Before United States Board Of Tax Appeals -Validity Of Subpoena Duces Tecum - Unreasonable Search And Seizure, Royal E. Thompson

Michigan Law Review

In a proceeding for judicial process to compel defendant to obey a subpoena duces tecum issued by the United States Board of Tax Appeals, defendant asserted that the documents called for were irrelevant to the issue involved, and that the subpoena was a violation of the Fourth Amendment to the Federal Constitution. Held, a witness is not entitled to resist a subpoena for mere incompetency or irrelevancy. To question admissibility, the papers must be so manifestly irrelevant as to make it plain that it is a mere "fishing expedition." One paragraph of the subpoena was declared invalid, as lacking …

Taxation - Constitutionality Of Statute Permitting Rebate On Payment Of Delinquent Taxes

Michigan Law Review

Defendant county demurred to plaintiff's claim for taxes paid under protest, arguing that ,the statute upon which plaintiff relied, one giving taxpayers the right to pay off delinquent taxes without interest and with a five per cent reduction in principal, was unconstitutional. The demurrer was overruled and defendant appealed. Held, that while the court feels that the law is entirely valid, the county is not entitled to raise an objection to it. Vance Lumber Co. v. King County, 184 Wash. 402, 51 P. (2d) 623 (1935).

Taxation - Exemptions - Municipally-Owned Property

Michigan Law Review

In settlement for collateral notes given to secure its deposits in a bank which became insolvent, a municipality had conveyed to it an office building, located in a county other than the one in which said municipality was situated. The city thereafter rented the offices to tenants operating private businesses. The county in which the building was located subjected it to an ad valorem tax. Contesting the right to its collection, the city failed to pay the assessed taxes, for a period of four years. Held, the property, although municipally-owned, not being held or used for any governmental or …

Revenue Financing Of Public Enterprises, E. H. Foley Jr.

Michigan Law Review

Courts have been slow to take judicial notice of the growing needs of local communities. Legislatures have restrained municipal corporations from engaging in business enterprises upon the assumption that the object was mere hope of gain, that the investment of municipal funds in such enterprises was simply a speculation, or that the effect was to divert municipal corporations from their legitimate ends and to poach upon the preserves of private enterprise. Novel municipal undertakings have been feared as an entering wedge of state socialism or governmental paternalism. Even when the instrumentality of private adventure was disposed to leave a need …

Municipal Corporations - Effect Upon Collection Of Tort Judgments Of Constitutional And Statutory Limitations On Indebtedness And Taxing Powers, Michigan Law Review

Michigan Law Review

In an effort to protect the taxpayer from the extravagance of municipal officials, two types of restrictions, in the main, have been imposed: those limiting the power to contract debts, and those restricting the power to levy taxes. Frequently in an effort to recover and collect a judgment against the city, one or the other of these restrictions is met. Courts seem to hold unanimously that debt limitations apply to the city's obligations in contract and not in tort, but they are divided as to the effect of tax limitations upon collection of a tort judgment. As an example of …

Taxation Of Undistributed Corporate Profits, John B. Martin Jr.

Michigan Law Review

The legislation proposed by President Roosevelt in his message of March 3, 1936, to prevent automatic avoidance of taxation by non-distribution of corporate profits, does not represent a new and previously unheard of system of taxation. It embraces, on the contrary, the gist of proposals made by various individuals and organizations extending back as far as the year 1864 when Congress passed, a Revenue Act providing that "gains and profits of all companies, whether incorporated or partnership . . . shall be included in estimating the annual gains, profits, or income of any person entitled to the same, whether divided …

Taxation - Exemption Of Federal Instrumentality From State Gasoline Tax

Michigan Law Review

An Alabama statute provided that "Every distributor, refiner, retail dealer or storer of gasoline . . . shall pay an excise tax . . . upon the selling, distributing, storing or withdrawing from storage in this State for any use, gasoline . . . ." The plaintiff, a private corporation, sold gasoline to the United States for use in performing governmental functions without reporting it for taxation. When the state demanded payment, the plaintiff brought this suit to restrain collection. Held (Justices Cardozo and Brandeis dissenting), the operation of the statute violates the constitutional principle safeguarding the federal government against …

Constitutional Law-Police Power -Validity Of Compulsory Unemployment Insurance Act

Michigan Law Review

Complainants asked for a declaratory judgment that the New York Unemployment Insurance Act is unconstitutional. They contended that the law, providing for the payment of limited unemployment benefits out of a fund raised by a uniform payroll tax imposed on all employers, takes property without due process of law. Held, that the law is valid, violating neither the state nor the Federal Constitution. W. H. H. Chamberlain, Inc. v. Andrews, 271 N. Y. 1, 2 N. E. (2d) 22 (1936).

Constitutional Law - Franchise Tax - Burden Upon Interstate And Foreign Commerce - Due Process - Equal Protection Of The Laws

Michigan Law Review

The state of California adopted a franchise tax which was based upon the corporations' net income apportioned according to "that portion which is derived from business done within the State." When this was construed to include not merely the income from intrastate business alone, but rather the income from both this and from all interstate and foreign business attributable to California, its enforcement was resisted upon the grounds that (1) so construed it was repugnant to the commerce clause upon the theory that it burdened interstate and foreign commerce, (2) it violated the due process clause upon the theory that …

Constitutional Law - Interstate Commerce - State Occupation Tax On Operation Of Radio Broadcasting Station

Michigan Law Review

A domestic corporation, owning and operating two radio stations, both broadcasting well beyond the state's borders, sought to enjoin the enforcement of an annual occupation tax equal to one per cent of gross income from business within the state. It was admitted that while a state might impose a property tax on a business engaged only in interstate commerce or a tax solely to support regulation in the exercise of the state's police power, an unapportioned gross income tax on a business engaged in intrastate and interstate commerce would be an unconstitutional burden on interstate commerce, although a net income …

Municipal Corporations-Power Of Congress To Pass Act For Readjustment Of Municipal Debts

Michigan Law Review

In 1934, Congress amended the National Bankruptcy Act so as to authorize any municipality or other political subdivision of any state to effect a readjustment of its debts by proceedings in courts of bankruptcy. A water district in Texas petitioned the United States District Court asking for a readjustment of its obligations. After the dismissal of the proceedings in the District Court, but before the reversal of the decision by the Court of Appeals, the state legislature of Texas passed an act empowering municipalities and other political subdivisions to proceed under the federal statute. Held, that the municipal debt …

Federal Gross Estate Tax-Constitutionality-Revocable Transfers By Way Of Trust

Michigan Law Review

Five recent decisions of the United States Supreme Court, together with a decision of the United States Court of Appeals for the Third Circuit, have considerably changed some of the currently accepted theories regarding the taxability under the Federal Estate Tax of transfers reserving various degrees of control to donors, both with respect to what may be considered to be a sufficient reserved control and what the constitutional limits on the taxing power may be. Some perplexing questions have been settled by these decisions while others quite as vexing seem to have been raised and left for future determination.

The Reduction Of Income Taxes Through The Use Of Trusts, William C. Warren

Michigan Law Review

Obviously the draftsmen of the first Revenue Act under the Sixteenth Amendment could not foresee every possibility of tax avoidance and adequately prevent such avoidance by express statutory provisions. Since the enactment of the Revenue Act of 1913, Congress has made constant efforts in each succeeding Revenue Act to close the loopholes discovered by tax lawyers. The success of these efforts has been most remarkable, particularly in comparison with the similar efforts of England under her income tax laws. Indeed, it may fairly be said that the enactment. of the Gift Tax Act in 1932 wrote the final chapter of …

The Federal Spending Power And State Rights, John W. Holmes

Michigan Law Review

The cry for constitutional change, that dwindled to a small voice with the repeal of Prohibition, has risen to a new pitch following decapitation of the AAA by the United States Supreme Court in United States v. Butler. Burgeoning in Congress is a portentous, if unorganized, attack upon the Supreme Court's power of judicial review.

It seems timely, therefore, to inquire how far the current conception of the Supreme Court as an obstacle to the exercise of legislative power by the central government is justified, and to canvass the extent of the need, if any, for curtailment of the …

Taxation-Right Of Federal Taxpayer To Question Validity Of A Federal Tax-Effect Of Section 3224 Of The United States Revised Statutes

Michigan Law Review

Quite apart from the merits of the controversy, the recent decision of the Supreme Court in the Hoosac Mills case presented the interesting problem of the taxpayer's standing in court to question the validity of a federal tax. The problem is really twofold. First, may the taxpayer enjoin the collection of the tax? Second, assuming that he may not, what steps must he take before he can get a refund of the amount that he has paid?

Taxation - Immunity Of State Officers From Federal Income Tax-Trustees Operating Boston Elevated Railway Company As State Officers

Michigan Law Review

A state law provided for public operation of the Boston Elevated Railway Company, with a board of trustees appointed by the governor with the advice and consent of the council. The salaries of the trustees were received from the company. The trustees were to manage and operate the company, having "possession of said properties in behalf of the Commonwealth." They were to fix rates of fare that would insure sufficient income to meet the cost of service including, in addition to operating expenses, specified rates of return on the investment. If the rates were insufficient for this purpose the deficit …

Corporations-State Privilege Taxes-Valuation Of Property To Determine Surplus

Michigan Law Review

Various bases have been evolved in this country for computing corporation privilege taxes. Of special interest is the fact that seven states have made corporate surplus together with capital the basis for such taxes - Louisiana, Michigan, Mississippi, Missouri, North Carolina, Ohio, and Texas. The statutes of these states adopt either the gross value or the net value of the assets of corporations as the foundation of the tax, depending upon whether or not liabilities may be deducted. In fixing the amount of such a tax, some valuation of corporate property to determine the corporation's surplus is necessary.

Taxation - Assessment For Property Taxes

Michigan Law Review

In 1926 the plaintiff purchased a lot with the building thereon for $41,000 and expended $ 10,000 in the improvement of the premises. In the same year the property was leased for a period of fifteen years under an agreement that the rent was to be $6,000 for the first five years, $8,000 for the second five, and $10,000 for the third. Plaintiff objected to the tax assessment of $68,660 for the years 1929, 1930, 1931, and 1932 on the grounds that the court based its valuation on (1) actual earnings instead of earning capacity, and on (2) gross, as …

Taxation - Delinquency Statute - Constitutionality Of Provision Remitting Back Taxes

Michigan Law Review

Mandamus proceedings were begun to compel a county auditor to accept four-fifths of the taxes as originally assessed on certain land in full payment and discharge of those taxes for the years 1929 and 1930, in accord with the tax remission provision of Minnesota Laws 1933, c. 414, sec.1. Held, that allowing discharge of past taxes during the redemption period by payment of a fraction of those originally assessed was contrary to the uniformity clause of the state constitution as an unreasonable and arbitrary classification, since it resulted in allowing a lower tax rate to delinquent taxpayers than was …

Taxation - Power Of Appointment - Effect Of Refusal By Appointee Who Is Given Same Share In Default Of Appointment

Michigan Law Review

The donee of a power of appointment exercised it by will in favor of the persons who would have taken exactly the same interests in default of appointment, and who declared their election to decline the appointment and take by the provision in default of appointment in the will of the donor. Suit was brought for additional federal estate taxes covering the property to which the power applied, under a statute levying such a tax upon "any property passing under a general power of appointment exercised by the decedent . . . by will . . . . " Held …

Taxation - Constitutionality Of Graduated Sales Taxes

Michigan Law Review

A Kentucky statute of 1930 levied a tax on gross retail sales at rates varying from 1/20 of one per cent on gross sales up to $400,000 per year, to one per cent on all gross sales over $1,000,000 annually. For the purpose of this tax all retail stores under the same ownership, operation or control, directly or indirectly, were treated as a unit; hence, the heavier rates of the tax fell upon the chain stores and large department stores. A group of chain and department stores sought to enjoin the collection of the tax, as contrary to the state …

Taxation-State Taxes Upon Federal Instrumentalities-Who May Raise Question Of Unconstitutionality

Michigan Law Review

In connection with the performance of a contract with the federal government, the plaintiff corporation was required to pay a state sales tax on lumber, cement, steel and other materials used in the construction work. An action was brought to enjoin the collection of the tax and to have it declared unconstitutional as impeding and hampering the federal government in the performance of its governmental functions, and as depriving the plaintiff of its property without due process of law. Held, the plaintiff is not a proper party to raise the question of the constitutionality of the tax: first, because …

Taxation - Federal Income Tax - Discharge Of Legal Obligation By Creation Of Trust For Alimony As Basis For Taxation Of Settlor

Michigan Law Review

A trust estate was created by a husband in accordance with a divorce decree, the income therefrom being paid to the wife in lieu of alimony. Provision was made for reversion of the estate on death of the wife and for payment of surplus income to the husband during the duration of the trust. Held, that the benefit arising from the discharge of a legal obligation constituted sufficient basis for trucing the trust income to the settlor. Willcuts v. Douglas, (C. C. A. 8th, 1934) 73 F. (2d) 130.