The following opinion was filed April 9, 1914:
ViNJE, J.
The demurrer to the complaint raises a number of important questions relative to the construction of our Income Tax Law. Some of these questions, it is deemed, can be briefly, yet adequately, stated in abstract form.
1. In the case of a going corporation engaged exclusively in-mining and marketing ore from its property, are ordinary dividends declared by its directors taxable as income without .reference to how much of them is derived from capital and how much from profit in the strict sense of those terms ? In. the present case the complaint alleges that if the reasonable value of the ore in the mine, together with the cost of mining and marketing, is deducted from the amount received forth e ore, there remains no profit or income from the business, of the corporation, hence it is claimed the corporation is distributing only its capital among its stockholders in the form of dividends.
The subject of what constitutes income in the technical or-true economic sense of the word is an interesting one, and also one upon which few economists and courts agree. Fortunately we are not called upon to enter that wide and somewhat vague field in the present inquiry. The word “income*”' [464]*464as used in tbe constitutional amendment and in the statute enacted in pursuance thereof, must be held to have been used in its common, ordinary meaning, and not in its strict, technical, or true economic sense. For it is a familiar rule of construction that ordinary words used in constitutions and statutes must be given their usual and common significance if such meaning harmonizes with the evident intent of the language employed and with the purpose to be accomplished. Ordinary dividends declared by going corporations, including mining corporations, are and always have, in the common acceptation of the term, been regarded as income, spoken of and understood' to be such by people generally. It was therefore competent for the legislature to declare as income all dividends or profits derived from stock or from the purchase and sale of any property or other valuables acquired within three years previous.
To give the term “income” its technical meaning would not only violate the evident intent of the constitutional amendment and of the legislature, but it would practically render the'Income Tax Act impossible of administration. The task of tracing dividends declared by all sorts of corporations to their source to determine how much came from capital and how much from ineome, strictly speaking, or how much from an enhancement of capital value, would be colossal in the amount of labor required, perplexing in character, and productive of almost endless litigation. No such construction should be given it unless absolutely demanded by the language ■of the act. On the contrary, its language requires that the word “income” be given its general and usual meaning. It follows that ordinary dividends declared by a going corporation, including mining corporations, will be conclusively presumed as against stockholders to be from earnings or profits for purposes of income taxation. Howes, Income & Principal, 18; Black, Income Taxes, sec. 41; Comm. v. Ocean Oil Co. 59 Pa. St. 61. This does not debar corporations from [465]*465declaring dividends in cancellation of stock liability where they are in fact distributing capital. Whether such dividends are taxable need not now be decided. The dividends received by plaintiff from the Pewabic Company, which was engaged in mining and marketing iron ore, were properly taxed as income.
2. If dividends are taxable as income, can the stockholder, under sec. 1087m — 4, sub. (a), (b), deduct therefrom the depreciation in the value of the stock caused by such distribution of dividends? Sub. (a) refers to the cost of carrying on the business from which the income is derived, and that is clearly not applicable. Sub. (b) provides for a deduction of losses during the year not compensated for by insurance or otherwise. In the first place, the distribution of dividends is not a loss within the meaning of the statute. In the second place, the book value of stock equals the value of the capital of the corporation plus the value of its undistributed surplus or profits. The depreciation in the book value of its stock is therefore in direct proportion to the distribution of surplus, and if that were allowed to be deducted there would be no income, for the book value of each share of stock before distribution exceeds its book value after distribution exactly by the amount distributed to it. ISTo deductions can therefore be made.
3. Are dividends declared and distributed during 1911 by a going mining corporation out of surplus on hand prior to January 1, 1911, when the Income Tax Law went into effect, taxable as income for 1911 ? An affirmative answer must be given to this question, because the statute (sec. 1087m — -1) provides that “there shall be assessed, 'levied, collected and paid a tax upon incomes received during the year ending December 31, 1911.” The plaintiff received this income during 1911. It was immaterial when it was earned by the corporation. As a stockholder he acquired no right to it until it was distributed in the form of a dividend. The profits of a [466]*466corporation become income to stockholders when distributed as dividends, but not before. Miller v. Payne, 150 Wis. 354, 136 N. W. 811; Will of Pabst, 146 Wis. 330, 131 N. W. 739; Gibbons v. Mahon, 136 U. S. 549, 10 Sup. Ct. 1057; Hyatt v. Allen, 56 N. Y. 553; Minot v. Paine, 99 Mass. 101.
4. The total net income of the Pewabic Company for 1911 was $109,332. Its total net income in Wisconsin was $7,853 or 7.184 per cent, of its entire net income. Plaintiff was allowed a deduction on his dividends of 7.184 per cent. This-was correct. Sec. 1087m — 4, sub. (c), must be construed.as meaning a proportionate and not a total deduction of dividends when only a part of the income of a corporation is-assessed in this state. Such must be held to be the legislative-intent in order to do equity and avoid double taxation or no taxation. State ex rel. M., St. P. & S. S. M. R. Co. v. Railroad Comm. 137 Wis. 80, 85, 117 N. W. 846; Second Ward Sav. Bank v. Leuch, 155 Wis. 493, 144 N. W. 1119. That this is the correct construction is made clear by the amendment of 1913, which expressly so provides.
5. The dividends received from the Calumet & Arizona Mining Company were taxable for the same reason as were-the Pewabic dividends. So were also the dividends received from the Superior & Pittsburg Copper Company. The fact that the latter company had distributed its stock in exchange: for stock in the Calumet & Arizona Mining Company did not affect the character of the dividends -declared by it after the exchange had taken place. The capital of the corporation passed by the exchange of stock, the surplus moneys or profits on hand were distributed in the form of dividends and taxable as such.
6. Prior to 1911 plaintiff purchased certain bonds for which he paid a premium and on which bonds he received interest during 1911. The right is claimed to annually deduct from the interest received a pro rata share of such pre[467]*467miums in order tliat capital may be kept unimpaired and that it be not taxed as income.
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The following opinion was filed April 9, 1914:
ViNJE, J.
The demurrer to the complaint raises a number of important questions relative to the construction of our Income Tax Law. Some of these questions, it is deemed, can be briefly, yet adequately, stated in abstract form.
1. In the case of a going corporation engaged exclusively in-mining and marketing ore from its property, are ordinary dividends declared by its directors taxable as income without .reference to how much of them is derived from capital and how much from profit in the strict sense of those terms ? In. the present case the complaint alleges that if the reasonable value of the ore in the mine, together with the cost of mining and marketing, is deducted from the amount received forth e ore, there remains no profit or income from the business, of the corporation, hence it is claimed the corporation is distributing only its capital among its stockholders in the form of dividends.
The subject of what constitutes income in the technical or-true economic sense of the word is an interesting one, and also one upon which few economists and courts agree. Fortunately we are not called upon to enter that wide and somewhat vague field in the present inquiry. The word “income*”' [464]*464as used in tbe constitutional amendment and in the statute enacted in pursuance thereof, must be held to have been used in its common, ordinary meaning, and not in its strict, technical, or true economic sense. For it is a familiar rule of construction that ordinary words used in constitutions and statutes must be given their usual and common significance if such meaning harmonizes with the evident intent of the language employed and with the purpose to be accomplished. Ordinary dividends declared by going corporations, including mining corporations, are and always have, in the common acceptation of the term, been regarded as income, spoken of and understood' to be such by people generally. It was therefore competent for the legislature to declare as income all dividends or profits derived from stock or from the purchase and sale of any property or other valuables acquired within three years previous.
To give the term “income” its technical meaning would not only violate the evident intent of the constitutional amendment and of the legislature, but it would practically render the'Income Tax Act impossible of administration. The task of tracing dividends declared by all sorts of corporations to their source to determine how much came from capital and how much from ineome, strictly speaking, or how much from an enhancement of capital value, would be colossal in the amount of labor required, perplexing in character, and productive of almost endless litigation. No such construction should be given it unless absolutely demanded by the language ■of the act. On the contrary, its language requires that the word “income” be given its general and usual meaning. It follows that ordinary dividends declared by a going corporation, including mining corporations, will be conclusively presumed as against stockholders to be from earnings or profits for purposes of income taxation. Howes, Income & Principal, 18; Black, Income Taxes, sec. 41; Comm. v. Ocean Oil Co. 59 Pa. St. 61. This does not debar corporations from [465]*465declaring dividends in cancellation of stock liability where they are in fact distributing capital. Whether such dividends are taxable need not now be decided. The dividends received by plaintiff from the Pewabic Company, which was engaged in mining and marketing iron ore, were properly taxed as income.
2. If dividends are taxable as income, can the stockholder, under sec. 1087m — 4, sub. (a), (b), deduct therefrom the depreciation in the value of the stock caused by such distribution of dividends? Sub. (a) refers to the cost of carrying on the business from which the income is derived, and that is clearly not applicable. Sub. (b) provides for a deduction of losses during the year not compensated for by insurance or otherwise. In the first place, the distribution of dividends is not a loss within the meaning of the statute. In the second place, the book value of stock equals the value of the capital of the corporation plus the value of its undistributed surplus or profits. The depreciation in the book value of its stock is therefore in direct proportion to the distribution of surplus, and if that were allowed to be deducted there would be no income, for the book value of each share of stock before distribution exceeds its book value after distribution exactly by the amount distributed to it. ISTo deductions can therefore be made.
3. Are dividends declared and distributed during 1911 by a going mining corporation out of surplus on hand prior to January 1, 1911, when the Income Tax Law went into effect, taxable as income for 1911 ? An affirmative answer must be given to this question, because the statute (sec. 1087m — -1) provides that “there shall be assessed, 'levied, collected and paid a tax upon incomes received during the year ending December 31, 1911.” The plaintiff received this income during 1911. It was immaterial when it was earned by the corporation. As a stockholder he acquired no right to it until it was distributed in the form of a dividend. The profits of a [466]*466corporation become income to stockholders when distributed as dividends, but not before. Miller v. Payne, 150 Wis. 354, 136 N. W. 811; Will of Pabst, 146 Wis. 330, 131 N. W. 739; Gibbons v. Mahon, 136 U. S. 549, 10 Sup. Ct. 1057; Hyatt v. Allen, 56 N. Y. 553; Minot v. Paine, 99 Mass. 101.
4. The total net income of the Pewabic Company for 1911 was $109,332. Its total net income in Wisconsin was $7,853 or 7.184 per cent, of its entire net income. Plaintiff was allowed a deduction on his dividends of 7.184 per cent. This-was correct. Sec. 1087m — 4, sub. (c), must be construed.as meaning a proportionate and not a total deduction of dividends when only a part of the income of a corporation is-assessed in this state. Such must be held to be the legislative-intent in order to do equity and avoid double taxation or no taxation. State ex rel. M., St. P. & S. S. M. R. Co. v. Railroad Comm. 137 Wis. 80, 85, 117 N. W. 846; Second Ward Sav. Bank v. Leuch, 155 Wis. 493, 144 N. W. 1119. That this is the correct construction is made clear by the amendment of 1913, which expressly so provides.
5. The dividends received from the Calumet & Arizona Mining Company were taxable for the same reason as were-the Pewabic dividends. So were also the dividends received from the Superior & Pittsburg Copper Company. The fact that the latter company had distributed its stock in exchange: for stock in the Calumet & Arizona Mining Company did not affect the character of the dividends -declared by it after the exchange had taken place. The capital of the corporation passed by the exchange of stock, the surplus moneys or profits on hand were distributed in the form of dividends and taxable as such.
6. Prior to 1911 plaintiff purchased certain bonds for which he paid a premium and on which bonds he received interest during 1911. The right is claimed to annually deduct from the interest received a pro rata share of such pre[467]*467miums in order tliat capital may be kept unimpaired and that it be not taxed as income. Here again we meet the question of the technical and common meaning of “income.” The statute provides that the term “income” shall include “all interest derived from money loaned or invested in notes, mortgages, bonds or other evidence'of debt of any kind whatsoever.” Sec. 1087m — 2, sub. 2, (b). It takes no account of the profits of the investment, and contemplates no deduction from the amount of interest received based upon the purchase price of the security bought. It is a matter of common knowledge that stocks and bonds are constantly bought both above and below par. To make the deduction claimed either by way of amortization of premiums or by way of deduction under sec. 1087m — 4, sub. (b), as a “loss actually sustained within the year and not compensated by insurance or otherwise,” or under sec. 1087m — 4, sub. (a), as a depreciation of the property from which the income is derived, would require the taxing officers to deal with the constantly fluctuating values of stocks, bonds, and other securities and determine such values from time to time. Non constat that plaintiff may not sell his bonds at a greater premium than he paid before they mature. If deductions were made when bought above par, additions should be made when purchased below par. Such a rule would be as burdensome in the administration of the law as tracing dividends to their source and was plainly not contemplated by the statute, which declares that all interest on bonds should be income.
7. Eor the year 1911 plaintiff paid a personal property tax of $3,292.26 and for the year 1912 he paid a personal property tax of $734.98. His income tax on his income for the year 1911 was $6,051.16. Against this he claimed the right to offset his personal property tax of $3,292.26 for the year 1911. This he was not allowed to do, but his personal property tax of $734.98 for the year 1912 was offset against his [468]*468income tax for the year 1911. In refusing to offset plaintiff’s personal property tax for 1911 against his income tax for that year the taxing officers erred. The statute provides:
Eor the appellant there was a brief by Daniel W. Iloan>. city attorney, and Max Schoetz, Jr., assistant city attorney, and oral argument by Mr. Schoetz.
[468]*468“Any person who shall have paid a tax on his personal property during any year shall he permitted to present the receipt therefor to, and have the same accepted hy, the tax collector to its full amount in payment of taxes due upon the income of such person during said year.” Sec. 1087m — 26.
Plaintiff’s personal property tax of $3,292.26 was a tax on his personal property for and during the year 1911. His income tax of $6,051.16 was a tax on his income for 1911. The former tax may be offset against the latter. The payment of a personal property tax “during any year” is a payment of the tax for the year which the property is assessed, and payment due upon income "during said year" means the income tax for the same year. It is the year for which the taxes accrue and not the time of payment that is specified in the statute. Any other construction, were there room for construction, would lead to double taxation on much personal property for the year 1911. Both an income tax and a .personal property tax would have to be paid on it. This the legislature provided against by allowing the latter to be offset against the former for that year as well as for subsequent-years.
By the Court.- — Order affirmed, and cause remanded for further proceedings in accordance with this opinion.
Baenes', J., dissents.
The appellant moved for a rehearing. In addition to-briefs for the respective parties, a statement in support of the motion Avas submitted by the Wisconsin Tax Commission. The motion Avas granted October 6, 1914, and the cause was reargued on December 12, 1914.
Thos. E. Lyons, on behalf of the Wisconsin Tax Commission.
Oeo.,D. Van Lyhe, respondent, in fro. per.