
    MARY D. FREAR v. CHARLES T. WILDER, TAX ASSESSOR FOR THE CITY AND COUNTY OF HONOLULU, TERRITORY OF HAWAII.
    No. 1275.
    Submission Upon Agreed Statement oe Facts.
    Argued September 16, 1920.
    Decided September 27, 1920.
    Coke, C. J., Edings, J., and Circuit Judge DeBolt in Place of Kemp, J., Absent.
    
      Statutes — construction of statutes imposing taxes.
    
    It is a cardinal rule of construction that statutes imposing taxes are to be construed strictly against the government and in favor of the taxpayer and that no person and no property is to be included within their scope unless placed there by clear language.
    
      Same — same.
    It is the established rule not to extend their provisions by implication beyond the clear import of the language used or to enlarge their operation so as to embrace matters not specifically pointed out. In case of doubt they are construed most strongly against the government and in favor of the citizen.
    
      Same — sections 1305 and 1307 R. L. 1915 differentiated.
    
    Sections 1305 and 1307 R. L. 1915 were intended to serve separate and distinct purposes. The first levies an income tax upon the gains, profits and income derived from certain definite and plainly enumerated sources and fixes the rate of taxation, while the latter merely prescribes the method to be pursued by the taxpayer in returning his gross income from which his net taxable income is to be computed.
    
      Girts — gratuities inter vivos not deemed to Be income.
    
    While gifts causa mortis usually fall within the scope of inheritance tax enactments Christmas gifts and other gratuities inter vivos are not deemed to be income and are not taxable as such under any of the existing laws of this Territory.
   OPINION OF THE JUSTICES BY

COKE, C. J.

This cause is liere on a submission on agreed facts. It appears from the record that Mary D. Frear is a resident of Honolulu, Territory of Hawaii, and that Charles T. Wilder is tax assessor for the City and County of Honolulu, Territory of Hatvaii; that on or about the 25th day of December, 1919, Mrs. B. F. Dillingham, mother of said Mary D. Frear, and a resident of said City and County of Honolulu, transferred and delivered personal property of the value of $90,000 to her daughter Mrs. Frear as a Christmas gift of said property and that Mrs. Frear accepted said property as a Christmas gift; that thereafter in making out her general tax return as well as her special tax return to the tax assessor Mrs. Frear set forth the facts showing the receipt by her of said Christmas gift of the value of $90,000 from her mother as aforesaid and claimed that the same was not taxable income under the general income tax laws of the Territory or under thé special income tax laws thereof; that thereafter, in May, 1920, Charles T. Wilder, tax assessor, assessed the income taxes payable by said Mary D. Frear under said laws and included as a part of the income so assessed under each of said laws the value of said Christmas gift of $90,000; that thereafter upon being advised of the action of the assessor Mrs. Frear protested the assessment and thereafter, under protest, with notice that action would be brought to recover the money so paid, she paid to the assessor the sum of $848 as a part of the tax assessed against said Christmas gift of $90,000 under the general income tax laws of the Territory, and further paid the sum of $788 as a part of the tax assessed against said Christmas gift under the special income tax law.

Out of the controversy between the parties two questions are submitted for the decision of the justices of this court, to wit: (1) Whether the value of said gift is taxable income under the general income tax laws of the Territory (Ch. 94 R. L. 1915 and amendments thereto), and (2) Whether the value of said gift is taxable income under the special income tax laws of the Territory of HaAvaii (being Act 117, S. L. 1915, and amendments thereto).

The first question submitted turns upon the construction of the provisions of chapter 94 R. L. 1915, and particularly upon the construction of sections 1305 and 1307 of said chapter. These sections are as follows:

“Sec'. 1305. Rate on person’s income. There shall be levied, assessed, collected and paid annually upon the gains, profits and income over and above fifteen hundred dollars, derived by every person residing in the Territory of HaAvaii, from all property owned, and every business, trade, profession, employment or vocation, carried on in the Territory, and by every person residing Avithout the Territory from all property owned, and every business, trade, profession, employment or vocation carried on in the Territory, and by eArerv servant or officer of the Territory, Avherever residing, a, tax of two per cent, on the amount so derived during the taxation period as herein defined. * * *
“Sec. 1307. Income includes Avhat. In estimating the gains, profits and income of any person or corporation, there shall be included all income derived from interest upon notes, bonds and other securities, except such bonds of the Territory , of HaAvaii or of municipalities created by this Territory, the principal and interest of which are by the law of their issuance exempt from all taxation; profits realized within the taxation period from sales of real estate, including leaseholds purchased Avithin two years; dividends upon the stock of any corporation; the amount of all premiums on bonds, notes or coupons; the amount of sales of all moAvable property, less the amount expended in the purchase or production of the same, and in the case of a person not including any part thereof consumed directly by him or his family; money and the Aralue of all personal property acquired by gift or inheritance, and all other gains, profits and income derived from any source whatsoever during said taxation period.”

The attorney general, representing the tax assessor, argues most forcibly in his able brief that the use of the expression “In estimating the gains, profits and income of any person” etc., to be found in section 1307, embodies the idea of the calculation of a tax and that by the construction of the two sections together it is conclusively shown that gifts inter vivos are included within the taxing provisions of the law. While on the other hand counsel for Mrs. Frear contend wdtli equal emphasis that by section 1305 alone has the legislature exercised its power to levy a tax and that it has done so by definitely and clearly designating the kind and quality of income upon which a tax is imposed; that is to say, upon “the gains, profits and income over and above $1500 derived by every person in the Territory from all property owned, and every business, trade, profession, employment or Avocation carried on in the Territory” and that as a gift inter vivos is not included Avithin any of the enumerated sources from which taxable gains, profits and income are derived, therefore such a gift is not-within the purview of the statute. It is further urged in behalf of Mrs. Frear that section 1307 merely sets forth and designates the method of estimating the gross profits to be included in the return of the taxpayer as required by section 1310.

Of course if these two sections may properly be construed in the manner contended for by the attoimey general it folloAvs that income springing from sources not contemplated in section 1305 is subject to the income tax levied by virtue of that section. Section 1307 leAfies no tax and only by implication can it be held that the gains, profits and income from all the sources enumerated therein are taxable under section 1305. It is a cardinal rule of construction that a statute imposing taxes is to be construed strictly against the government and in favor of the taxpayers and that no person and no property is to be included within its scope unless placed there by clear language of the statute. (Sutherland Statutory Construction p. 462; Black’s Federal Income Taxes, Sec. 27.) “In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt they are construed most strongly against the government and in favor of the citizen.” Gould v. Gould, 245 U. S. 151, where it is held that alimony paid monthly to a divorced wife under a decree of court is not taxable as income under the federal income tax act of October 3, 1913. See numerous authorities cited in the Gould case and also Minister v. Bishop & Co., 3 Haw. 793, 794; Apokaa Sug. Co. v. Wilder, 21 Haw. 571; Haiku Sug. Co. v. Johnstone, 249 Fed. 103.

We cannot concur in the statement of the attorney general that all of the items required to be returned under the provisions of section 1307 are taxable income. Dividends on the stock of corporations are required to be returned under the provisions of that section but under the following section that income is exempt from taxation if the taxation of two per cent, has been assessed upon the net profits of the corporation. The salaries received by the members of this court must be returned under the provisions of section 1307 but they are universally recognized as being nontaxable by virtue of the provisions of section 80 of the Organic Act.

It is manifest to ns that section 1305 and section 1307 were intended to serve separate and distinct purposes. The first levies an income tax upon gains, profits and income derived from certain definite and plainly enurnerated sources and fixes the rate of taxation, while the latter merely prescribes the method to be pursued by the taxpayer in returning his gross income from Avhich his net taxable income is to be computed.

We are not unmindful that there are expressions contained in the opinions of this court in Halstead v. Pratt, 14 Haw. 38 and Wilder v. Haw’n Trust Co., 20 Haw. 589, which indicate that gifts are subject to taxation under sections 1305 and 1307. In the Halstead-Pratt case the question here involved was in no wise at issue and the court turned aside from the record in the case to remark that “We presume that, construing all parts of the act together, section 3 (now section 1307) may be regarded as enlarging section 1 (now section 1305) so as to include inheritances.” In the Wilder-Haw’n Trust Co. case it appears that no question was raised respecting the legality of the tax imposed, the sole question being whether it should be paid by the trustee of the estate or by the annuitant. The court took it upon itself to say that “Under section 1280” (now section 1307) “income shall include money and the value of all personal property acquired by gift or inheritance.” If it may be proper to construe those opinions as holding that a gift inter vivos is subject to income tax under the laws of the Territory, to that extent we are not in accord with them.

All that has been said may with perhaps greater force be repeated in the consideration of the second question involved, that is, Whether a gift is taxable under the special income tax laws of the Territory, the same being Act 117 S. L. 1915 and amendments thereto. The portions of these laws which are germane to the question under consideration read as follows:

“Section 1. Rate on person’s income. In addition to the tax of tAvo per cent., authorized to be levied, assessed and collected upon the gains, profits, and incomes of persons in the Territory of Hawaii under the provisions of chapter 94 of the Revised Laws of Hawaii, 1915, there shall be levied, assessed and collected annually upon the gains, profits and incomes over and above six thousand dollars ($6,000.00) derived by every person residing in the Territory of Hawaii, from all property owned, and every business, trade, profession, employment or vocation carried on in the Territory, and by every person residing without the Territory, from all property owned, and every business, profession, employment or vocation carried on in the Territory, and by every servant or officer of the Territory, wherever residing, a tax of -two per cent., on the amount so derived during the taxation periods defined by this Act; provided, hoAvever, that such tax shall not be levied or assessed upon money and the value of personal property acquired by will or inheritance otherwise taxed as such.” (Sec. 1, Act 117 S. L. 1915 as amended by Sec. 1 Act 206 S. L. 1919.)
“Section 4. Other provisions of law applicable. All of the provisions of sections 1307 to 1316 of the Revised Láws of Hawaii, 1915, both inclusive, in so far as the same are consistent Avith this Act and may be used in furtherance of the purposes thereof, shall apply to this Act as fully as though incorporated herein.” (Act 117 S. L. 1915.)

It is to be observed that gifts are not included within any of the provisions of either of the foregoing sections and while section 1307 is by reference incorporated into the section last above quoted yet we have already determined that section 1307 leAi.es no tax upon gifts inter vivos.

Speaking generally of the subject under consideration it may be stated that while gifts causa mortis, that is, gifts made in contemplation of death, usually fall within the scope of inheritance tax enactments (as they do in this Territory. See Sec. 1323 R. L. 1915), Christmas gifts and other gratuities inter vivos are not deemed to be income. Indeed the usual and accepted import of the word “income” in no wise denotes a gift. (See Black’s Federal Income Taxes, Sec. 49.) The Federal Revenue Act of 1918, section 213, specifically exempts from taxation tlie value of property acquired by gift and tbe treasury department in construing tbe purpose and effect of tbe earlier Federal Income Tax Act, tbat is, tbe act of 1913, held tbat “Tbe value of property acquired by gift is not subject to income tax.” (See Treasury Decision No. 2090, December 14, 1914.) Hence it may be said tbat tbe cheerful giver is still beloved and tbat tribute shall not be laid upon bis generosity. Much less shall it be doubly taxed as contended for by tbe government in this case.

U. E. Wild (Frear,' Prosser, Anderson & Marcs on tbe brief) for Mary D. Frear.

Tbe Attorney General for tbe Tax Assessor submitted tbe case upon tbe brief.

We conclude, therefore, that the value of tbe Christmas gift to Mrs. Frear from her mother is not taxable under tbe general income tax laws of the Territory, tbat is, chapter 94 R. L. 1915 and amendments thereof, and neither is tbe value thereof taxable under tbe special income tax laws of tbe Territory, being Act 117 S. L. 1915, and amendments thereof.

Judgment will be entered conformably to tbe views herein expressed.  