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Keywords

tax lawdue process

statutecorporationappellant

Related Cases

Welch v. Henry, 305 U.S. 134, 59 S.Ct. 121, 83 L.Ed. 87, 118 A.L.R. 1142, 21 A.F.T.R. 973, 1939-1 C.B. 411

Facts

Earle S. Welch, a resident of Wisconsin, received a gross income of $13,383.26 in 1933, primarily from dividends. Under the Wisconsin tax law, these dividends were deductible from gross income, resulting in no taxable net income for Welch for that year. However, in 1935, the Wisconsin legislature enacted a new tax law imposing a tax on dividends received in 1933, which Welch paid under protest, leading to this legal challenge.

Appellant, a resident of Wisconsin, received in 1933 gross income of $13,383.26, of which $12,156.10 was dividends received from corporations whose ‘principal business' was ‘attributable to Wisconsin’ within the meaning of the taxing statute.

Issue

The main legal issue is whether the Wisconsin tax imposed on corporate dividends received in 1933, at different rates and without the same deductions allowed for other types of income, infringes the equal protection and due process clauses of the Fourteenth Amendment.

The question is whether Section 6 transgresses the prohibition of the Fourteenth Amendment, U.S.C.A.Const. Amend. 14.

Rule

The court applied the principle that taxation classifications must have a reasonable relation to a legitimate governmental purpose and that retroactive taxation is permissible if it does not violate due process.

Any classification of taxation is permissible which has reasonable relation to a legitimate end of governmental action.

Analysis

The court found that the Wisconsin legislature's decision to tax dividends differently from other income was not arbitrary or capricious, as it aimed to address a specific need for revenue during an emergency. The court noted that the classification of dividends as a distinct category for taxation was historically justified and did not constitute a denial of equal protection.

We think that the selection of such income for taxation at rates and with deductions not shown to be unrelated to an equitable distribution of the tax burden is not a denial of the equal protection commanded by the Fourteenth Amendment, U.S.C.A.Const. Amend. 14.

Conclusion

The U.S. Supreme Court affirmed the judgment of the Supreme Court of Wisconsin, upholding the tax on dividends as constitutional and not in violation of the Fourteenth Amendment.

The Supreme Court of Wisconsin, 223 Wis. 319, 271 N.W. 68, 72 thought that the present tax might ‘approach or reach the limit of permissible retroactivity’, we cannot say that it exceeds it.

Who won?

The prevailing party in this case was the State of Wisconsin, as the court upheld the validity of the tax imposed on dividends.

The Supreme Court of Wisconsin has said: ‘Expense for relief of the unemployed is on no different footing than any other governmental expense.'

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