Sabine v. Gill, Comr. of Revenue

Sea well, J.

The defendant demurs to the complaint on the ground that it does not state a cause of action. Such a demurrer admits the truth of all the allegations of fact and inferences reasonably drawn therefrom.

Ferrell v. Worthington, 226 N. C. 609 , 39 S. E. (2) 812;

Smith *603 v. Smith, 225 N. C. 189 , 34 S. E. (2) 148;

Kemp v. Funderburk, 224 N. C. 353 , 30 S. E. (2) 155. It tests the sufficiency of the allegations in law to present any cause of action for which the plaintiff may demand relief. A fatal defect may occur because of the want of averment of an actionable cause, or because of the pressure of positive allegations showing that the supposed grievance is not actionable. The foregoing summary of facts alleged in the complaint is premised on this rule.

The challenge to the complaint is that the factual situation presented in it does not entitle plaintiff to the exemption she claims by invoking G.S. 105-147 (10) ; and the question is reduced to a matter of statutory construction.

There is no doubt, nothing else appearing, both Virginia and North Carolina could constitutionally tax the income in question,—Virginia (against the active trustees) as the situs of its earning, and, perhaps we might say, the situs of the Virginia trust; and North Carolina (against the beneficiary) as the situs of its reception and residence of the beneficiary.

Guaranty Trust Co. v. Virginia, 305 U. S. 19 , 83 L. Ed. 16 ;

Lawrence v. State Tax Commission, 286 U. S. 276 , 76 L. Ed. 1102 . But the court would still have to consider the question of statutory construction and intent.

Passing, for the moment the interstate feature, double taxation, even within the State, is not ipso facto necessarily obnoxious to the Constitution when the intention to impose it is clear and it is free from discriminatory features, however odious to the taxpayer. But it is not favored; and there is authority that statutes should be so construed as to avoid it when the intent is not clearly expressed. 51 Am. Jur., Taxation, sec. 286, and cases cited.

The plaintiff’s argument, oral and in her brief, has brought to our attention instances in which the administrational practice here has avoided the inequity of double taxation, intrastate, by looking through form to substance,—through the trust to the immediate beneficiary. These we understand to be instances of simple holding or passive trusts. We do not question the correctness or propriety of these rulings. But because of the different relationships involved in the case at bar and in these instances, either as rulings of the Attorney-General or administra-tional interpretations of the taxing laws, they have no bearing upon the question before us except as possibly reflecting a policy worth considering in the field of interstate taxation whither the statute carries us, in its attempt to avoid similar taxation;—to avoid a practice which in most states of the Union is regarded as economically unsound, unduly burdensome, and unfair to those whose business activities cross state lines and provide a taxing situs in each. Many states of the Union have sought to avoid the more pronounced hardships of such double taxation by the enactment of reciprocal laws. Nossamon, Trust Administration and *604 Taxation, sec. 714, and cases cited. The statute under review is of that character, and so is the similar Virginia law. Virginia Tax Code (Appendix, 1942 Virginia Code, Tax Code, Ap., sections 39, 40). The statutes of the several states enacted for this purpose are far from universal in phraseology and scope; Altman and Keesling, Allocation of Income in State Taxation, pp. 195 to 197; and opinions based upon them must be studied with reference to the statutes they interpret. Opinions based upon disparate situations, factual and legal, rarely present rules of universal application, and we sometimes find that enthusiasm of expression has outrun the letter and spirit of the law.

This Court is not empowered to build upon the statute and enlarge the conditions upon which the plaintiff may be afforded relief; and the distance here between the trustees and the beneficiary seems to be too great for the judiciary to close the gap by making them to all intents and purposes one. The statute provides a deduction for individuals and domestic corporations “having an established business in another state” and provides that the net income from “such business or investment may be deducted if such business or investment is in a state that levies a tax upon such net income.”

Therefore, in order to bring herself within the exemption, plaintiff must show (1) that she has a business or investment in the State of Virginia; (2) that the income therefrom is taxable in that state; and (3) that the questioned income is derived from such business or investment. With the last two requirements it may be conceded that the plaintiff has complied; but in number (1) there is a hurdle more difficult to surmount.

The exemption is to “resident individuals and domestic corporations having an established business in another state.” The word “have,” amongst many other meanings, is pertinently defined in the dictionaries as meaning “to hold in possession or control; to hold as property; to own,” Webster; “to hold or possess in ownership ; or own,” Century. And it has been used immemorially to denote the ultimate in possession, control or ownership; “to possess corporally,” Black’s Law Dictionary.

True, there is an established business and an investment in the State of Virginia, but it belongs to the estate and not to the plaintiff or those like situated under the will. The latter, including the plaintiff, are neither legal nor equitable owners. The Virginia trustees are in the administration of an active trust, not a mere passive or holding trust. Under the will and orders of the court they were put into a partnership with Virginia partners; and the partnership property, including the business itself and whatever good will it may have, consists of a portion of the estate which is committed to them. Incidentally we may say that wide powers are given to the trustees to alter the form of the estate’s *605 investment wben necessary to do so. And, by the will, the whole remainder of the estate, of which this business happens to be a part, is put under obligation to the particular plaintiff here only for the period of her natural life. Not only is the income produced in Virginia by the activities of the trustees under the will using what is still the property of the estate, but under the will and the decrees of the court’ it does not leave the hands of the trustees until it is transmitted to a co-executor and trustee, the Commercial National Bank of Charlotte, in the State of North Carolina, and distributed by it. The trusteeship is far from a mere agency which might lend itself more readily to the concept of constructive holding or receipt from an agent. While the plaintiff has a legal right to the income, its character as a trust fund does not cease until so produced and distributed. It is an intangible which belongs to the trust estate and becomes hers only by distribution.

Blodgett v. Silberman, 277 U. S. 1 , 72 L. Ed. 749 ;

Latta v. Jenkins, 200 N. C. 255 , 156 S. E. 857 .

We are reminded in appellee’s brief that the burden is on the taxpayer to show that she conies within the exemption or exception, Henderson v. Gill, ante, 313, 49 S. E. (2) 754;

Valentine v. Gill, 223 N. C. 396 , 27 S. E. (2) 2 :

Benson v. Johnston County, 209 N. C. 751 , 185 S. E. 6 ; and it is also true that the taxing law as to its coverage must be construed more strictly in favor of the taxpayer; and it seems to be especially pertinent to the problem under consideration that the state is never presumed to surrender or relinquish its taxing power unless the intention “to relinquish it is declared in clear and unambiguous terms admitting of no other reasonable construction.” 51 Am. Jur., Taxation, sec. 526, and cases cited.

On analytical approach these rules are not in conflict; and from all of them, considering the need of clarity and precision in the taxing laws, we must assume that the Legislature chose adequate words and terms to express its intent,—subject, of course, to judicial construction, but not to judicial amendment. In this instance had the Legislature so intended they might have immunized those in like situation with the plaintiff by exempting all income derived from a foreign established business or 'investment taxable at its situs.

Indeed, in its further reference the statute uses the term “derive,”—but it has already tagged the “established business or investment” as being that of the taxpayer who seeks the benefit of exemption; and this, we think, is an essential part of the classification or definition. If, on the principle contended for, we once go beyond the language of the law, the step by step rationalization of the statute might easily imperil legitimate revenues of the State not offensive to the policy which the reciprocal statutes under consideration seek to promote;

Guaranty Trust Co. v. Virginia, supra; Lawrence v. State Tax Commission, supra;

thus building up a “jurisdiction of concepts,” rather than *606 one of law.

Schubert v. Schubert Wagon Co., 249 N. Y. 253 , 164 N. E. 42 , 64 A. L. R. 293.

The plaintiff in this case lias no such right in the established business or investment from which the revenue is derived and is not so related to it as would justify the Court in ignoring the trusteeship, which not only has the legal title, but the active custody, control and operation of the property and facilities which produced the income which the plaintiff received as a resident of the State.

The ably contested question of permissible statutory definition makes it appropriate to re-examine the limitations placed upon the Court in that respect:

In re Poindexter, 221 N. C. 246 . 20 S. E. (2) 49, 140 A. L. R. 1138;

Randall v. R. R. Co., 107 N. C. 748 , 12 S. E. 605 ;

Norman v. Ausbon, 193 N. C. 791 , 138 S. E. 162 ;

S. v. Whitehurst, 212 N. C. 300 , 193 S. E. 657 ;

Rice v. Panel Co., 199 N. C. 154 , 154 S. E. 69 ; 50 Am. Jur., sec. 228, p. 212. We do not feel that the Court may take up where the lawmakers left off.

For these reasons we are of the opinion that the plaintiff has not brought herself within the exemption provided in the cited statute and that this affirmatively appears from the allegations in the complaint.

The demurrer was properly sustained, and the judgment must be Affirmed.