State Revenue Commission v. National Biscuit Co.

Bell, J.

The first question propounded by the Court of Appeals is answered as follows: (1) In the administration of the income-tax act of August 32, 1929 (Ga. L. 1929, p. 92), the State Bevenue Commission should construe the provisions of the act so as to allow deductions for payments of the State income-taxes as imposed by the act itself. (2) Such a construction would not be “unreasonable and erroneous as being impracticable or mathematically impossible to enforce or administér.” The act contains, among others, the following provisions:

“An act to provide for levying and, collecting a tax on net incomes in this State, to provide how returns shall be made, how the tax shall be paid, and to fix penalties for violation hereof; and for other purposes.

“ Section 1. On the net income of every person, firm, or corporation residing or doing business in .this State, except insurance companies which pay to the State a tax upon premium income, after making such deductions as. are allowed by the laws of the United States in the system by them adopted for determining net incomes and such increases and deductions as are hereinafter provided for in determining a proper taxable income, there shall be levied and collected by the State of Georgia an income tax similar to that of the United States, but at the rate and- according to the scale hereinafter set forth; the same to be returned, calculated, ascertained, and paid according to the system and rules hereinafter set forth.

“Section 2. Whenever any such person, firm, or corporation residing or doing business in this State makes an income-tax return to the United States, or is legally bound so to do, such person being hereinafter briefly referred to, for convenience, as a taxpayer, it shall be his duty to make at the same time a like return to the State of Georgia and file the same with the State Tax Commissioner for the purpose of a State tax on income. Such duplicate return shall furnish the same information as is contained in his return to the United States, shall be made on a blank form to be furnished by the tax-commissioner, and shall ascertain the taxable net income in the same way as in the return to the United States; but before ascertaining the net income taxable by the State, the following changes shall be made:

"1. To the amount ascertained under the laws of the United States as the net income taxable by the United States, there shall be added in said return the gross amount of any salary received by the taxpayer during the tax year, or accrued to him during said period as a public official or employee of the State, or of any county, municipal corporation, or other political division thereof, and the net amount of any fees, perquisites, or other emolument from said sources or any of them, paid to him during the same period for official compensation, except in the cases of the Governor of the State and of the several Judges of the Supreme Court, the Court of Appeals, and the Superior Court, who shall not be required to include their salaries paid or accruing for any term existing at the time of the passage of this act.

"2. From the amount so ascertained as the taxable net income shall be deducted any salary paid to the taxpayer by the United States or accrued to him from the same source as an official salary for any service rendered by him to the United States, and any and all interest paid to him on any bond or bonds or other obligation of the United States.

"If neither of the changes indicated by subparagraphs 1 and 2 above is made, the net income taxable by the State of Georgia shall be the same as that taxable by the United States, and the tax payable thereon to the State of Georgia shall be one third of that payable to the United States. But in case the net taxable income be changed as the result of complying with subparagraphs 1 or 2 above, the tax payable to the State shall be increased or reduced so as to be one third of what would have been payable to the United States under their laws upon such increased or reduced taxable net income.

"Section 3. Any person, firm, or corporation who makes no income-tax return to the United States because of having no sufficient income taxable by the United States to call for such return under the laws of the United States, but who would have such sufficient income if his salary, fees or perquisites from the State or subdivision thereof were taxable by the United States, shall be liable and is hereby required to make to the State of Georgia an original return on the same or similar form as would be used in making a duplicate return as required in section 2 of this act, indicating in some appropriate way whether the same is an original return. In such case the tax liability to the State shall be one third of what it would be to the United States if said income were by them taxable.

“In any case where a non-resident corporation having an office and doing business in this State makes its' income-tax return in some other State, such corporation shall malee an original return to the Tax Commissioner of Georgia, confined to its business done in this State, upon like principles as are in this section above provided.

“ Section 4. It shall be the right of any taxpayer making return of income for taxation by the State, to attach or add to such return any claim such taxpayer may choose to make as to any item or items included in his return to the United States which he conceives to be exempt from taxation by the State of Georgia. In such case it shall be the duty of the taxpaj^er so making return to make a clear and distinct statement of all relevant facts connected with such claim, and to make a clear statement of the reasons why he conceives such item to be not taxable by the State. And there shall be deducted any amount that may be derived from incomes of any such persons or- companies as the State of Georgia is prohibited from taxing under the Constitution of the United States. . ..

“Section 14. The tax-commissioner shall have power and authority to make all necessary regulations for carrying out the provisions of this act, provided the same are not in conflict with the provisions of this act and do not affect any substantive legal right of the taxpayer resulting therefrom.” Other provisions of the act will be noticed as occasion may require in this opinion.

For the purposes of this case it may be stated in general terms that the Federal act, adopted as the pattern of the Georgia act, provided that, in computing net taxable income, taxes paid or accrued to a State during the taxable year should be deducted from the gross income, but that Federal taxes paid or accrued during the year could not be so deducted. U. S. C. A. title 26, § 955. With the exception of two possible changes expressly mentioned, the Georgia act specifically declares, in section 2, that “the net income taxable by the State of Georgia shall be the same as that taxable by the United States, and the tax payable thereon to the State of Georgia shall be one third of that payable to the United States.” These changes or exceptions are stated in paragraphs 1 and 2 of the same section, and are not material in this case. It is further declared, however, that if the net taxable income should be changed as a result of complying with either of these subparagraphs, then “the tax payable to the State shall be increased or reduced so as to be one third of what would have been payable to the United States under their laws upon such increased or reduced taxable net income.” The question here is whether the taxpayer in making his return to the State of Georgia should be allowed to deduct State taxes and not Federal taxes, in accordance with the Federal rule, or whether the deductions should be reversed in his return to the State. According to the plain and unambiguous language of the Georgia statute, the Lax deductions must be the same as under the Federal law. That is to say, the taxpayer may deduct taxes paid or accrued to the State of Georgia, but can not deduct Federal taxes. This conclusion is absolutely demanded, in view of the statement in definite mathematical terms that the tax payable to the State of Georgia shall be one third of that payable to the United States. We do not overlook the fact that the act provides for an income-tax “like” or “similar” to that of the United States, to this extent employing words of uncertain meaning. It is further provided that a “duplicate” return shall be made to the State, furnishing the same information as is contained in the return to the United States, and that the tax-commissioner shall ascertain the taxable net income in the same way, subject o'nly to the two possible changes referred to in section 2. By these and other provisions, any vagueness or uncertainty that might otherwise inhere in the words “like” and “similar” is clearly explained and removed, so far as the question here to be decided is concerned.

It is true that the act discloses that some other exceptions besides those expressly mentioned in section 2 might be forced into the equation (compare §§ 3, 4, 6), with the result that the final liability might not in all cases be absolutely one third of the amount payable to the Federal government; but such other possible exceptions do not affect the intended base proportion of one third, and do not change the meaning as to deductions for taxes.

As to the tax items, the taxpayer is allowed only such deductions as he may take under the Federal law; that is, he may deduct State tax, but not Federal. There is no principle of law, constitutional or otherwise, which required the State to allow deduction of Federal taxes; and so, upon the question here involved, there is no occasion for inclining to a different construction in order to give. the act a constitutional effect. Gorham Mfg. Co. v. Travis, 274 Fed. 975 (5). The rule that statutes enacted for the collection of taxes should be construed most strongly against the government and in favor of the citizen (Case-Fowler Lumber Co. v. Winslett, 168 Ga. 808 (2), 149 S. E. 211) does not apply where the statute is so clear and direct as not to require interpretation.

As to possible variations from the Federal act besides those specifically mentioned in section 2, we may say, first, that as to persons doing business in several States, including the State of Georgia, and making a return to the Federal government, it would not have been sufficient to file a duplicate return with the tax-commissioner of this State; but in such case the commissioner could have required a statement of the business done in this State, with the applicable deductions, so as to give effect to the other mandatory provisions of the act. See, in this connection, sections 3 and 14.

Again, certain classes of income might be taxable only by the Federal government, such as dividends from shares of stock in a national bank (State Revenue Commission v. Hawkins, 48 Ga. App. 414 (172 S. E. 845)), and this would, of course, make it impossible for the State to demand exactly one third of the amount of the tax payable to the United States. Other similar obstacles might arise to prevent that result. Conditions of this character, however, would merely place a barrier, pro tanto, against the execution of the legislative intent, and would not obscure such intention as otherwise clearly expressed. Moreover, contingencies of this kind were expressly provided for in section 4.

To recapitulate: The act, in terms clear and unmistakable, provides as a basic standard that “the net income taxable by the State of Georgia shall be the same as that taxable by the United States, and the tax payable thereon shall be one third of that payable to the United States.” § 2. This means that Federal taxes can not be deducted, but that State tax may be, the Federal rule as adopted by this State having in terms so provided. The Georgia act provides for qualifications, it is true; but these relate to the manner of making returns and to items “exempt from taxation by the State of Georgia,” with other possible variations, none of which affect the basic rule as expressed in section 2. The nature of the contemplated changes and exceptions can not be misunderstood when the act is carefully studied as a whole. It is respectfully submitted that not one line or word can be taken as changing the basic rule that Federal taxes can not be deducted, nor as affording the slightest reasonable ground for such a contention. Upon the question of whether Federal, as opposed to State taxes, may be deducted, the act as a whole is as plain as words can make it, and is not open to construction.

What is said above accords with decisions in South Carolina, Connecticut, and Massachusetts, where statutes like ours (but not identical) were respectively enacted. Lancaster Cotton Mills v. South Carolina Revenue Commission, 132 S. C. 466 (129 S. E. 429); Singer Mfg. Co. v. Gilpatric, 98 Conn. 192 (118 Atl. 919); American Printing Co. v. Commonwealth, 231 Mass. 237 (120 N. E. 686). On the question whether it would be “impracticable and mathematically impossible” to make deductions of the State income-tax, we can not perceive any such difficulty. The tax to be deducted is not that which is due or to become due on the return as made, but is the tax which was paid or which accrued during the taxable year covered by the return. In re Russell Milling Co., 1 B. T. A. 194; People ex rel. Seligman v. Gilchrist, 215 App. Div. 166 (213 N. Y. S. 181). This is the rule (not, perhaps, without exception)' to be applied under the act of 1929, by which the tax is neither due nor payable during the taxable year. If an exception would arise under the Georgia law in case the books of a taxpayer are kept on an accrual basis, with a reserve for such taxes as might be finally due for a given year, as apparently permitted by the Federal law (Aluminum Co. v. Routzahn, 282 U. S. 92, 51 Sup. Ct. 11), even this would not make the law unreasonable and incapable of enforcement upon the ground that the deductions would be “impracticable and mathematically impossible” of application. Otherwise a taxpayer could defeat both the State and the Federal law by the mere adoption of an accrual system of bookkeeping. A taxpayer could not adopt a permitted system and thereafter claim that because he had done so the act was indefinite as to a particular matter or should be construed differently as to items to be deducted. Nor would the clarity of tbe situation be improved by reversing the rule as to deductible tax items. Nothing to the contrary of this statement was held in either U. S. v. Anderson, 269 U. S. 422 (46 Sup. Ct. 131), or in Uncasville Mfg. Co. v. Commissioner, 55 Fed. (2d) 893. In any view, the calculation is not impossible, if difficult. "We deem it unnecessary to demonstrate this statement by a calculation in this opinion. Finally, it may be said that difficulty, or even impossibility, if existing in this regard, would not upset the legislative scheme in its entirety; and therefore the intention of the legislature should be enforced so far as possible, with advantage to the taxpayer in case of doubt as to the proper legal method of calculation. Under this act there is no doubt as to the class of deductions to be allowed with respect to taxes, however these deductions may be calculated. The Federal taxes could not be deducted; the State tax could and should be.

The second question propounded by the Court of Appeals is answered in the affirmative. This must necessarily follow from what has been said in the preceding division. On the question whether the Federal or the State tax should be deducted, the statute is so plain and unambiguous as to leave no possible room for interpretation; and in such case an administrative officer can not change the law by any rule or regulation. Contemporaneous construction is an available aid and may be considered by the courts only where the language of the statute is ambiguous and susceptible of more than one reasonable interpretation. Houghton v. Payne, 194 U. S. 88 (24 Sup. Ct. 590); United States v. Missouri Pacific Railroad Co., 278 U. S. 269 (7) (49 Sup. Ct. 133). By section 14 of the act under consideration, the tax commissioner was given authority “to make all necessary regulations for carrying out the provisions of this act, .provided the same are not in conflict with the provisions of this act and do not affect any substantive legal right of the taxpayer resulting therefrom.” The commissioner was not authorized to make any rule or regulation contrary to the clear and positive meaning of the act, and could make no interpretation whereby the Federal instead of the State tax might be deducted. Upon this question the clear language of the act was the only rule to be followed. Deductions should be the same as under the Federal law. In these circumstances there could be no estoppel in favor of the taxpayer. Walker v. Whitehead, 43 Ga. 538. Georgia Railroad Co. v. Wright, 124 Ga. 596 (10, 13) (53 S. E. 251). If the taxpayer has made an unauthorized deduction of Federal taxes instead of deducting the State tax, and has thus reduced the amount of the tax legally payable to the State, he has merely received an advantage, and no element of estoppel exists. Peyton v. Stephens, 130 Ga. 338 (50 S. E. 563, 124 Am. St. R. 170); Bank of Lumpkin v. Bank of Stewart County, 20 Ga. App. 1 (2) (92 S. E. 778). In such case, no interpretation, rule, or conduct of the tax-commissioner in conflict with the plain mandate of the law could be invoked to prevent final collection of the amount due. “Powers of all public .officers are defined by' law, and all persons must take notice thereof. The public can not be estopped by the acts of any officer done in the exercise of a power not conferred.” Civil Code (1910), § 303. Where a statute is susceptible of one and only one construction, this court can not adopt a different construction merely to relieve parties of some real or imagined hardship; but if the law is valid, we can only apply it in “the form into which it was finally adopted as a statute by the lawmaking body.” Standard Steel Works Co. v. Williams, 155 Ga. 177, 181 (116 S. E. 636). The fact that various officers, whether judicial or administrative, may have construed the act differently does not show that the language is obscure and ambiguous. Neither is this proved by the circumstance that the Justices of this court are now divided on the question. If this were not true, it would follow as a matter of law that in every case where the clarity or obscurity of a statute is the decisive question and the court is divided thereon, those who deem it to be obscure would ipso facto control the opinion of all others, with the result that the court as a whole should then so decide, notwithstanding a majority may be convinced that the act is plain. A court does not and should not decide cases in this manner.

Nothing said in this opinion is to be taken as any reflection upon the memory of the faithful and efficient tax-commissioner who made the unauthorized interpretation and ruling. No man is free from error.

The third and fourth questions will be answered together. The third question and the first clause of the fourth question are both' answered in the affirmative. The second or last clause of the fourth question is answered in the negative. By section 15 of the act of 1929 it was provided that if a taxpayer has failed or neglected to make a return, and if, after notice by the tax-commissioner so to do, he shall “ continue so to fail and refuse, the tax-commissioner shall give to such taxpayer notice that on a day to be named he will assess the tax from the best information obtainable and after giving the taxpayer opportunity to be heard.” As seen above, section 14 conferred authority upon the tax-commissioner to make all necessary rules and regulations for carrying out the provisions of the act; that is, for enforcing it.

It would be unreasonable to say that the tax-commissioner could make an assessment in- the event of the failure or refusal to make a return, but could not do so where the return as made was erroneous and did not reflect the full amount due and payable under the law. The lawmaking body evidently did not intend' to leave the tax-commissioner powerless where a return was in fact made, but where it was incorrect and deficient under the law. Undoubtedly, it was the legislative intent that the taxes prescribed by the act should be paid, and it was expressly made the duty of the tax-commissioner to enforce the law. In several decisions this court has stated broadly that public officers have only such powers as are granted to them by law, and “take nothing by implication” (Baggerly v. Bainbridge State Bank, 160 Ga. 556, 561 (128 S. E. 766), and cit.); but a statement so sweeping could hardly be taken as excluding any possible exception or qualification. In Throop on Public Officers, § 542, it is stated: “The rule respecting such powers is, that, in addition to the powers expressly given by statute to an officer or a board of officers, he or it has, by implication, such additional powers as are necessary for the due and efficient exercise of the powers expressly granted, or as may be fairly implied from the statute granting the express powers.” See also State v. Younkin, 119 Kan. 74 (196 Pac. 620); Reliance Mfg. Co. v. Board, 161 Ky. 135 (170 S. W. 941); State v. Hackmann, 276 Mo. 110 (207 S. W. 64); State v. Hildebrant, 93 Ohio St. 1 (112 N. E. 138); 46 C. J. 1032, and cit. This principle as to implied powers has been recognized by this court. In Georgia Railroad Co. v. Hutchinson, 125 Ga. 762 (3), 770 (54 S. E. 725), it was said: “Whenever the duty is imposed on a tax-collector to collect a tax, that officer, by necessary implication, has the power to issue his process to compel the enforcement of the tax by levy on the property of the delinquent taxpayer.” See also Touchstone v. Gormley, 178 Ga. 130 (172 S. E. 335). Under the income-tax act of 1929, the power of the tax-commissioner to make assessments was not confined to cases where no return whatever was made, but, by necessary implication, such power extended to deficiencies on returns actually made but not complying with the law. This ruling does not conflict with the decision in Staten v. Savannah &c. Railroad Co., 111 Ga. 803 (36 S. E. 938). By section 63 of the income-tax act of 1931, the act of 1929 was kept in force for the purpose of assessment and collection of all taxes due thereunder. Section 79 of the reorganization act (Ga. L. 1931, p. 32) provided that the State Revenue Commission (as created by section 78) shall have “all the powers and perform the duties now vested in the State tax-commissioner.” By section 80 of the same act it was declared that “in the case of any tax due the State or any tax assessed by the State Revenue Commission, whether specifically provided for in the act levying the tax or not, the commission is empowered to issue a writ of fieri facias” therefor. Under these statutes the revenue commission,, by following the procedure therein prescribed, was empowered to make an assessment for a deficiency even though a return had been made, and was also authorized to issue execution for the amount of the tax due. Moreover, under the section last quoted, it might be questioned whether an assessment was really necessary, the language being that an execution could be issued “in the case of any tax due.” But we do not here decide that question.

Questions 5 and 6 are each answered in the negative. Under section 35 of the income-tax act of March 31, 1931 (Ga. L. Ex. Sess. 1931, p. 50), the tax-commissioner could determine a deficiency in respect of a tax imposed by this act or “any prior act.” By section 39 it was provided that if any tax imposed by this act “or any prior act” is not paid within a prescribed time, execution may be issued therefor, together with interest and penalties. But the act of 1931, effective January 1 of that year, repealed and superseded the act of 1929, with the result that where a taxpayer had adopted a fiscal year basis, both acts would be applicable in part to the fiscal year ending in 1931, although a single return would be made. See §§ 20, 32, 33. Upon a proper construction, the act of 1931, so far as it relates to penalties, does not apply to deficiencies under the act of 1929, except for a fiscal year in which both acts were in part operative. Accordingly, the question whether a penalty could be imposed in this case must be determined solely by the act of 1929, the only pertinent provision of which is contained in section 15. Under that provision, a penalty could be demanded only where there was a failure to make a return, and could not be imposed where a bona fide return was in fact made, even though it may have proved to be an erroneous and deficient return. Penalties are not favored, and a statute imposing a penalty must be strictly construed — even more strictly than a statute conferring powers upon a public officer. Accordingly, under the facts stated in the fifth and sixth questions, the penalty could not be collected under either act.

The request for a reargument is denied. We have carefully considered the numerous and thorough briefs, as well as all cases cited therein, although many of such authorities are not discusesed or referred to in this opinion. We do not deem additional argument necessary.

All the Justices concur, except