Burgess v. State of California

YORK, P. J.

Plaintiff by the instant action seeks a refund of California personal income taxes paid for the calendar years 1935, 1936, 1937 and 1938, the basis of the suit being that this State has improperly refused to allow her a credit against the taxes payable to this State for the amount of taxes paid by her to the Dominion of Canada. The facts herein are stipulated, and may be summarized as follows: During each of the taxable years here involved, plaintiff, a resident of Los Angeles County, was a beneficiary of two trusts created and administered in the Dominion of Canada, the corpus of which consisted of Canadian

[413]

property. At the close of each quarterly period, the trustees prepared and filed with the Canadian Inspector of Income Tax a prescribed form of return, and withhheld and paid a tax of five per cent upon the difference between the income received by the trusts during the quarterly period and the expenses of the trusts for the same period, said expenses including “trustees’ and bookkeeping fees, safe deposit rental charges, other bank charges, stationery and postage.” After the close of the calendar year, said trustees prepared and filed an income tax return therefor and reported therein the income, expenses and taxes which were equivalent to the amounts theretofore reported quarterly.

In her California personal income tax return for the years 1935, 1936, 1937 and 1938, plaintiff reported as taxable income the net income from each of said trusts, and in 1935 and 1936, she claimed as a credit against her tax liability in this State, the amount of the five per cent tax paid to Canada. By a notice of deficiency, defendant Franchise Tax Commissioner disallowed said credit, but permitted the Canadian tax to be taken as a deduction from gross income. Plaintiff paid the deficiency thus assessed, but in view of the action of said commissioner, she did not claim the Canadian tax as a credit in her 1937 and 1938 returns. Upon denial of her claims for refunds for all four years, plaintiff instituted the instant action.

The trial court found in favor of plaintiff and entered judgment for $1,225.62 “California personal income taxes and interest overpaid for the calendar years 1935, 1936, 1937 and 1938.”

Defendant commissioner prosecutes this appeal from the judgment upon the theory that section 25(a) of the California Personal Income Tax Act of 1935 (Stats. 1935, pp. 1090, 1117), Deering’s Gen. Laws, Act 8494, and the amendment thereto of 1937 (Stats 1937, pp. 1831, 1855) contemplate a credit “only for a