Hart v. Department of Revenue

333 Mich. 248 (1952)

52 N.W.2d 685

HART v. DEPARTMENT OF REVENUE.

Docket No. 89, Calendar No. 45,365.

Supreme Court of Michigan.

Decided April 7, 1952.

Kelly, Kelly & Kelly, for plaintiffs.

Frank G. Millard, Attorney General, Edmund E. Shepherd, Solicitor General, and T. Carl Holbrook and William D. Dexter, Assistants Attorney General, for defendants.

BUTZEL, J.

Plaintiffs, copartners doing business as the Century Finance Company, purchased promissory notes from the holders thereof at a discount and for less than the face amounts of the principal or balances due on such notes, and when and if paid, realized a profit over and above the amounts paid for the notes. Notwithstanding their claim that they were not legally liable for an intangible tax of $2,103.21 for such discounts or profits realized from this source over a period of 3 years, they paid additional assessments for the disputed amounts, and brought suit for the recovery of the amounts so paid against the State, the department of revenue and its commissioner. All parties moved for a summary judgment, only a question of law being involved. The trial judge rendered judgment in favor of defendants and plaintiffs appeal.

The following part of what we shall term the intangibles tax act, PA 1939, No 301, as amended (CL *250 1948, § 205.131 et seq. [Stat Ann 1950 Rev § 7.556(1) et seq.]), provides:

"Sec. 1. That when used in this act: * * *

"(b) The term `intangible personal property' means: Moneys on hand or on deposit or in transit, shares of stock, and other units of interest, in corporations, joint stock companies, and other associations conducted for profit (not, however, including the interest of a partner under a partnership agreement); securities which constitute a part of an issue of similar securities, such as bonds, certificates of indebtedness, debentures, notes, and certificates of deposit therefor; annuities; accounts and notes receivable, land contracts receivable, real estate and chattel mortgages receivable, conditional sale contracts receivable, and other obligations for the payment of money; equitable interest in any of the foregoing classes of intangible personal property, including interest of beneficiaries under trusts whether created inter vivos or by will; and any and all other credits and evidences of indebtedness; whether such intangible personal property is secured or unsecured. * * *

"(d) The term `income' includes: (1) Interest received upon intangible personal property; (2) dividends and other distributions, whether in the form of cash or property, to the extent that they represent the yield of intangible personal property; and (3) all other earnings or yield of intangible personal property regardless of the name by which designated: Provided, that for the purpose of computing the tax imposed under this act, the gross income, including taxes, charges and other deductions which may be made therefrom, shall be the basis upon which the tax shall be measured. * * *

"(j) The term `face value' means the amount appearing on the face of the instrument or other written record evidencing the intangible personal property, or in case there is no instrument or other written record, then the amount shall be determined by other evidence satisfactory to the commission, reduced *251 by payments, if any, which have been made thereon.

"Sec. 2. * * * For the calendar year 1940, and for each year thereafter or portion thereof there is hereby levied upon each resident or nonresident owner of intangible personal property not hereinafter exempted having a situs within this State, and there shall be collected from such owner an annual specific tax on the privilege of ownership of each item of such property owned by him. Except as hereinafter provided the tax on income-producing intangible personal property shall be 3 per cent. of the income but in no event less than 1/10 of 1 per cent. of the face or par value of each item (or in the case of corporate stock or other evidence of corporate ownership having no par or face value, of the average per share contribution to capital, surplus and other funds in consideration of which all of the then outstanding shares of stock of the same class of such corporation shall have been issued). Except as hereinafter provided the tax on nonincome-producing intangible personal property shall be 1/10 of 1 per cent. of said face, par or contributed value."

Under the wording of the law, does it cover these discounts or profits for which plaintiffs have been obliged to pay the intangible tax? Under authority of section 12 of the act, the department of revenue adopted rules which would include such discounts as earnings or yield. It needs no citation of authority that under the rule-making power an administrative-board may not extend the scope of a tax statute so as to include a tax on discounts if the statute does not expressly provide for such tax. It is also a principle of law that the scope of tax laws may not be extended by implication or forced construction. In re Dodge Bros., 241 Mich 665; Standard Oil Co. v. State of Michigan, 283 Mich 85. In the latter case we quoted from Gould v. Gould, 245 US 151 (38 S Ct 53, 62 L ed 211), as follows:

*252 "In the interpretation of statutes levying taxes, it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt they are construed most strongly against the government, and in favor of the citizen."

So as to avoid any question, it should be stated that this case does not involve the discounting of interest-bearing notes, where the interest in the form of a discount is paid in advance, nor does it cover cases where a form of contract is used in the purchase of accounts receivable for the purpose of covering up the exaction of interest in excess of the rate permitted by law. Abeloff v. Ohio Finance Co., 313 Mich 568. The notes in the instant case bore interest. There was an absolute sale at a discount or at a profit if plaintiffs collected an amount in excess of the purchase price. The transactions were complete at the time of the purchase. The notes could not bring in more than their face amount at the time of purchase. No earnings or yield were realized from the notes after the purchase, except the interest on them. Had plaintiffs purchased shares of stock and subsequently they had gone up in value, and then sold, we do not believe defendants would have claimed the earnings or yield had been realized from the stock itself. The same is true if interest-bearing bonds had been purchased for less than their face value, and we believe it is true of the notes which were purchased for less than their face amounts.

The trial court in coming to its conclusions held that the department of revenue in setting up its rules and regulations was justified in defining discounts as bearing part of earned income. To this we cannot subscribe.

The judgment is reversed and the case remanded to the trial court with directions to enter a judgment *253 for plaintiffs for the undisputed amount claimed by them and interest from time of payment. A public question being involved, no costs are allowed.

NORTH, C.J., and DETHMERS, CARR, BUSHNELL, SHARPE, BOYLES, and REID, JJ., concurred.