Opinion
December 31, 1928.
1. INCOME TAX: Personal: Rents. The Federal income tax is a personal tax imposed on the net income of the individual. It is not a tax levied on income at its source. It is not a tax imposed, in whole or in part, upon the income, rents and profits arising from demised real estate.
2. ____: Covenant in Lease: Forfeiture. A covenant in a lease that "the lessee will pay all taxes, levies, charges and assessments assessed, levied or imposed upon the income, rents and profits arising from" certain demised premises, does not impose on the lessee an obligation to pay the Federal income tax levied on the rents accruing to lessor under the lease, and failure to pay such tax does not authorize the lessor to declare a forfeiture of the lease. A Federal income tax is a personal tax imposed upon the net income of the individual, and does not fall within the terms of such covenant.
Corpus Juris-Cyc. References: Landlord and Tenant, 36 C.J., Section 755, p. 116, n. 99.
Appeal from Circuit Court of City of St. Louis. — Hon. Franklin Miller, Judge.
AFFIRMED.
McDonald Just for appellants.
The motion for judgment on the pleadings should have been overruled, because the tax covenant in the lease is a clear undertaking by respondent to pay the income tax of its lessor arising from the rents received from the leased premises, irrespective of the nature of that tax. Under the authorities, the provision of the lease placed the obligation upon lessee. Suter v. Jordan Marsh Co., 225 Mass. 34; Kimball v. Cotting, 229 Mass. 541; Philadelphia City Ry. v. Transit Co., 263 Pa. 561; Philadelphia Railroad Co. v. Ry. Co., 265 Pa. 325; Erlich v. Brogan, 262 Pa. 362; Republic Bldg. Co. v. Gaertner, 256 S.W. 1111; Elliott v. Winn, 305 Mo. 105; Urquhart v. Marion Hotel Co., 128 Ark. 287; Park Bldg. Co. v. Yost, 208 Mich. 349; Young v. Athletic Club, 310 Ill. 75; Brainard v. New York Central, 242 N.Y. 125; Pollock v. Trust Co., 157 U.S. 429; Brown v. Maryland, 12 Wheat. 444; Weston v. Charleston, 2 Pet. 449; Dobbins v. Commissioners, 16 Pet. 435; Alney v. California, 24 How. 169; Railroad Co. v. Jackson, 7 Wall. 262; Cook v. Pennsylvania, 97 U.S. 566; Philadelphia Steamship Co. v. Penn, 122 U.S. 326; Leloup v. Mobile, 127 U.S. 640; Knowlton v. Moore, 178 U.S. 41; Patton v. Brady, 184 U.S. 608; Thomas v. United States, 192 U.S. 363; Spreckels Sugar Refining Co. v. McClair, 192 U.S. 397; Pacific Ins. Co. v. Soule, 7 Wall. 433; Flint v. Stone Tracy Co., 220 U.S. 107; Wm. E. Peck Co. v. Lowe, 247 U.S. 165; U.S. Glue Co. v. Oak Creek, 247 U.S. 321; Evans v. Gore, 253 U.S. 245.
Isaac H. Lionberger for respondent.
The covenant of the lease which requires the lessee to pay all taxes levied upon the property demised, the improvements thereon or the income derived therefrom, does not require the lessee to pay the lessor's Federal income tax, because: (1) The tax is levied upon the income of a taxable person, after certain deductions and allowances shall have been made and after such net income shall have passed into his possession and become available for his expenditure. It is an excise tax and not a tax in rem. Elliott v. Winn, 305 Mo. 105; State ex rel. v. Tax Comm., 166 Wis. 287; Knowlton v. Moore, 178 U.S. 41; Plumer v. Collier, 178 U.S. 115; Flint v. Stone Co., 220 U.S. 107; Peck v. Lowe Co., 247 U.S. 165; Greiner v. Llewellyn, 258 U.S. 384; Hump Mfg. Co. v. Emerson, 258 U.S. 289; Wire Co. v. Woolbrink, 275 Mo. 341. (2) The covenant omits the words relating to income "derived by the lessee." As the covenant is to be construed contra proferentem, these words cannot be added to its meaning. The lessee now pays the income tax levied upon its own rentals from the improvements required to be erected by it; and the covenant should not be so construed, in the absence of plain words requiring such a construction, as to compel it to pay the lessor's tax also. Haight v. Railroad Co., 6 Wall. 15; Canal Co. v. Coal Co., 8 Wall. 276; Insurance Co. v. Wright, 68 U.S. 465; Garrison v. United States, 74 U.S. 688; Young v. Ill. Athl. Assn., 319 Ill. 75; Brainerd v. N.Y. Cent. Railway Co., 242 N.Y. 125; Codman v. Am. Piano Co., 229 Mass. 285; Urquhart v. Hotel Co., 194 S.W. 1. (3) The tax varies in amount from four per cent to seventy per cent, increasing from a minimum to a maximum, and for the purpose of estimation all sources are indiscriminately included; so that what special part of an income shall pay four per cent and what part a higher rate, cannot be ascertained. Penn. Cement Co. v. Constr. Co., 274 F. 1003.
This is an appeal from the Circuit Court of the City of St. Louis. Appellants state their case as follows:
"The amended petition is for an injunction to restrain defendants jointly and severally from declaring a forfeiture of a lease and making entry which they threaten because plaintiff refuses to pay the United States income tax levied on the rents accruing to lessor thereunder.
"The amended petition alleges that on March 30, 1906, respondent, Mrs. Morrison, leased to respondent, Hanover Investment Company, for a ninety-nine-year term, premises at the northeast corner of Eleventh and Olive Streets in St. Louis; that on April 11, 1911, the Investment Company leased the same premises to the respondent for ninety-three years, eleven months and thirty days; that each lease contained this covenant:
"`Said lessee covenants that it will pay as and when they mature and become payable all taxes, levies, charges and assessments, general and special, assessed, levied or imposed on said demised realty and all improvements thereon, or upon the income, rents or profits arising therefrom during the term of this lease, . . . whether imposed by city, state or other lawful authority.'
"The demurrer of appellants having been overruled, they filed an answer admitting the allegations as to the time, parties and terms of the two leases described in the amended petition and the covenant above quoted, and `admit that defendants claim that plaintiff is obligated by the terms of its said lease to pay the income tax upon the rent received by plaintiff's lessor under said lease, and that defendants have threatened and do threaten to forfeit plaintiff's lease by reason of plaintiff's failure and refusal to comply with its said obligation.' The plaintiff (respondent) filed a motion for judgment on the pleadings on the ground that the answer of the defendants `contains admissions showing that the plaintiff is entitled to the relief prayed for in the petition.'
"The motion for judgment on the pleadings was sustained, and after due motions appeal is brought by defendants to this court.
"There is thus before the court the single issue of law whether the United States income tax for which the lessors are liable upon the rents reserved under the lease is included among the obligations for taxes assumed by lessee by the above quoted lease provision."
For the purposes of this case, the covenant is: that the lessee will pay "all taxes, levies, charges and assessments . . . assessed, levied or imposed . . . upon the income, rents and profits arising therefrom (the demised real estate)." The Federal income tax is a personal tax imposed upon the net income of the individual, that is, the combined income from all sources less certain deductions and exemptions. It is not a tax levied on income at its source. Lessors' income tax does not therefore fall within the terms of the covenant; it is not a tax imposed in whole, or even in part, "upon the income, rents and profits," arising from the demised premises. The points urged by appellants, and the authorities they cite, in support of a contrary construction have all been fully considered in Elliott v. Winn, 305 Mo. 105, 264 S.W. 391, and Riesenberg v. Primary Realty Co., 258 S.W. 23, cited with approval in the Elliott case; no good purpose would be subserved by reiterating what is there said. On the authority of those cases the judgment of the circuit court is affirmed. All concur.