104 So. 689 | Miss. | 1925
Lead Opinion
(1) Authorities discussing the question of constitutionality of "income tax" are collated in notes in 27 L.R.A. (N.S.) 864, L.R.A. 1915B, 569; 26 R.C.L., p. 153. (3) The question as to whether income is "property" within constitutional limitations on taxation, see notes 11 A.L.R. 313, 25 A.L.R. 758, 26 R.C.L., pp. 152-154. The question presented for decision in these cases is the validity vel non of the Income Tax Act (chapter 132, Laws of 1924), by which a tax is imposed on all but certain excepted net incomes from whatever source derived. The ground on which it is claimed that the act is void is that it is in conflict with the Fourteenth Amendment to the federal Constitution and with several sections of the state Constitution, to which, when necessary, reference will be hereinafter specifically made.
As to the provision of section 112 of the state Constitution that "property shall be taxed in proportion to its value," and "shall be assessed for taxes under general laws, and by uniform rules, according to its true value."
The appellees' contention in this connection is that a tax on income derived from property is a tax on the property from which the income is derived, and, as the tax here imposed is on all income, it was, in so far as it affects income from property, a tax on the property from which the income was derived, which property the Constitution permits to be taxed only in proportion and according to its true value.
This contention is ruled by Hattiesburg Grocery Co. v.Robertson,
A tax, though not eo nomine on property, but which the owner thereof must pay merely because of his ownership of the property (Thompson v. Kreutzer,
In Pollock v. Farmers' Trust Co.,
"The tax imposed by this act is in addition to all other taxes imposed by law, and every tax imposed by this act, and all increases, interests and penalties thereon, in addition to being a tax against the property, business, trade, profession, or occupation, as in this act provided, shall also become from the time it is due and payable, a personal debt from the taxpayer liable to pay the same, to the state of Mississippi."
This declaration that the tax-imposed by the act is against the property is qualified by the words "as in this act provided," and as hereinbefore set forth the tax for which the act provides is on property only in the sense that property from which income is derived is one of the elements which enters into the production of such income, and therefore is not on property within the meaning of section 112 of the Constitution. Moreover "the mere declaration contained in a statute that it shall be regarded as a tax of a particular character does not make it such if it is apparent that it cannot be so designated consistently with the meaning and effect of the act." Flint v. Stone Tracy Co.,
The appellees do not contend that a tax on income is a tax on property in the sense that it is a tax on the money or property which constitutes the gain or revenue of a person and on the aggregate of which the amount of his income is determined. That it is not such a tax, see Hattiesburg Grocery Co. v.Robertson,
As to the equality clause of section 112 of the state Constitution and the equal protection of the law clause of the Fourteenth Amendment to the Federal Constitution:
The grounds on which it is claimed the act violates the equality provisions of the state and Federal Constitutions are: (1) That all incomes are not taxed therein at the same rate, but the rate is graduated according to the amount of the income; and (2) that by section 18 of the act the income of certain designated corporations is exempted from the tax imposed therein.
Assuming that the equality clause of section 112 of the state Constitution applies to taxes for general purposes other than to such as are ad valorem, it is well settled that the legislature may make a reasonable classification of the subjects of taxation, and, if all of the same class are taxed alike, the equality clauses of both the state and Federal Constitutions are complied with. Holberg v. Town of Macon,
The reasonableness of such a classification is in the first instance for the determination of the legislature, and the requirement therefore does not mean that the classification must be reasonable "according to the judgment of reviewing judges, but that the court must be able to see that the legislators could regard it as reasonable and proper without doing violence to common sense." People v. Mensching,
"That there should be, as nearly as practicable, equality of sacrifice among the various taxpayers, and that a tax levied at a uniform or proportional rate can rarely, if ever, produce equality of sacrifice; that one per cent. of a small income, which just suffices to support its owner, is a far larger relative contribution to the public treasury than one per cent. of an income so large that it cannot be exhausted by its owner, except by means of lavish and extravagant expenditures." State
v. Frear,
In Knowlton v. Moore,
"The review which we have made exhibits the fact that taxes imposed with reference to the ability of the person upon whom the burden is placed to bear the same have been levied from the foundation of the government. So, also, some authoritative thinkers, and a number of economic writers, contend that a progressive tax is more just and equal than a proportional one. In the absence of constitutional limitation, the question whether it is or is not is legislative and not judicial."
When this argument is viewed in the light of the fact that a graduated tax on income has been held by the supreme court of the United States not to violate the principle of equality in taxation, and the further fact that such a tax is expressly authorized by the Constitutions of a number of our sister states, and "has been approved for many years by many of the most enlightened governments of the world, and has the sanction of many of the most thoughtful economists," it would be difficult to say *104
that such a tax, and the necessary classification of income therefore, is unreasonable, to say nothing of its being impossible to so regard it without doing violence to common sense. See, also, Magoun v. Illinois Trust Savings Bank,
It is true that the Magoun, Billings, Knowlton, and Stebbins cases deal with graduated inheritance taxes, and it may be, as it is said, that the inheritance of property is not a right but is a privilege which the state may confer or withhold at its pleasure, and that, in conferring the privilege, it may attach such conditions thereto as it may see fit. Nevertheless it will not do to say that they are not in point and controlling here, for the reason that it is beyond dispute, and was pointed out in the Magoun case that, when the state confers a privilege, it must "not fail to treat `all alike under like circumstances and conditions, both in the privilege conferred and the liabilities imposed.'" The fallacy in the argument that these cases apply only to inheritance taxes and not to other excises has been at least twice exposed by the supreme court of the United States.Clark v. Titusville and Knowlton v. Moore, supra. In the Clark case the court, in dealing with objections to a graduated sales tax, among other things, said:
"These objections are but the expression of the effect of classification by amount, and have been made before and considered before by this court, and the judgment has been adverse to the contention of plaintiff in error. . . . Classification by amount came up for consideration *105
and decision in Magoun v. Illinois Trust Sav. Bank,
The court then proceeded to show the relevancy of the Magoun case and to apply the rule announced by it to the tax with which it was then dealing.
In the Brushaber case, wherein the graduated feature of the present federal income tax was attacked on the ground that it violated the fundamental principle of equality in taxation, the court, in overruling the objections, said:
"That its absolute want of foundation in reason was plainly pointed out in Knowlton v. Moore,
Moreover, the graduated inheritance tax under consideration inKnowlton v. Moore was imposed, not by a state, but by the federal government, and, as the right to inherit property is conferred by a state and not by the Federal government it cannot be said that the Federal government which imposed the tax there under consideration could have conferred or withheld the right to inherit the property there taxed at its pleasure, and therefore that case is not in point and controlling here. Nor can it be said that, as the equal protection of the law clause of the Fourteenth Amendment does not apply to the Federal government, that case is not in point here, for the question which the court was there called on to decide was whether the graduated feature of the tax produced inequality in taxation — the exact question it would *106 have had to decide if the tax had been imposed by a state and challenged on the ground that it deprived the complainant of the equal protection of the law.
In so far as the principle of equality is concerned, there is no difference between a graduated income tax and a graduated privilege tax, and an examination of the privilege tax laws of this state for many years back discloses that the great majority of them are graduated according to an appropriate standard, and in Insurance Agency v. Cole,
Section 18 of the act provides that it shall apply to all corporations except —
"(1) That the following organizations shall be exempt from taxation under this act: labor, agricultural, horticultural, mutual savings banks, fraternal orders, cemetery companies, religious, charitable or scientific associations, business leagues, chambers of commerce, boards of trade, civic leagues, social clubs, farmers fruit growers or like associations, Federal land banks and farm loan associations, when organized and operated for public purposes and when no part of the income inures to the benefit of any private stockholder or member, and national banks and state banks and domestic mutual building and loan associations organized under the laws of the state of Mississippi."
The power of the state to confer exemptions from taxation of this character is settled by a long line of decisions extending from Mississippi Mills v. Cook,
As to section 79 of the state Constitution: *107
This section provides that the right of redemption from all sales of real estate for the nonpayment of taxes shall exist "on conditions to be prescribed by law." Section 30 of the act provides that the property of a defaulting taxpayer may be levied on and sold by the sheriff for the payment of any tax due by him under the act, but fails to prescribe the conditions on which land may be redeemed from such a sale. This section of the Constitution is self-executing, and the failure of the legislature to prescribe the conditions on which the right of redemption shall be exercised does not invalidate the statute.Union Savings Bank Trust Co. v. City of Jackson,
As to section 135 of the state Constitution:
This section creates the office of tax assessor, and the appellees' contention is that the ascertainment of the amount of a person's income for the purpose of taxing it is an assessment thereof, and can be made, under this section of the Constitution, only by the regular tax assessor. This objection to the statute was disposed of in Enochs v. State, 133 Miss. at page 143, 97 So. 537, wherein it was said:
"The implied requirement of section 135 of the state Constitution, that taxes shall be assessed by the assessor and collected by the sheriff, one of whose duties is to collect taxes (as heretofore construed by this court), has no application to privilege taxes, but only to such as can only be fixed by an assessment of, and is primarily a charge against, property" — citing State v. Adler,
An income tax as hereinbefore pointed out is an excise and not a property tax.
As to the commerce clause of the Federal Constitution:
The income of the Gulf, Mobile Northern Railroad Company is derived from both inter- and intra-state commerce, and its contention is that a tax by the state on that portion of its income derived from interstate commerce *108
is a burden on such commerce within the meaning of this clause of the Federal Constitution. If the tax were on gross income a serious question would be here presented, but it is not on gross, but on net, income, and a tax on net income, derived in whole or in part from interstate commerce, is not a burden thereon within the meaning of this clause of the Federal Constitution, as pointed out by the supreme court of the United States in GlueCompany v. Oak Creek,
As to the extraterritorial effect of the act:
The tax imposed on residents of the state and on domestic corporations is on the whole of their income, whether derived from business within or without the state, and the contention is that the tax is void in so far as it covers income derived from business without the state. The question here presented was ruled against the appellees by the supreme court of the United States in Maguire v. Trefry,
As to the due process of law clause of the state and Federal Constitutions:
Section 30 of the act provides:
"If any tax imposed by this act or any portion of such tax be not paid within sixty days after the same becomes due, the commissioner shall issue a warrant under official seal directed to the sheriff of any county of the state commanding him to levy upon and sell the real and personal property of the person owning the same, found within his county for the payment of the amount thereof. . . . and in the same manner prescribed by law in respect to executions issued against property upon judgments or attachment proceedings, of a court of record." *109
The contention of the appellees is that a sale of property under this provision of the act deprives the owner thereof without due process of law. Why it should have that effect is not apparent, and the contention is without merit.
The remaining contentions of the appellees may be disposed of together. They are that section 36 and the following provisions of other sections of the act conflict with either the state or Federal Constitutions: (1) The method prescribed by section 6 for ascertaining the gain, profit, or income from a sale or disposition of property acquired on or before the passage of the act; (2) the provision of section 11 that income shall include gains or profits from the sale of property; (3) the provision of paragraph 10 of section 12 that "in the case of a non-resident this deduction shall be allowed only as to contributions or gifts made to domestic corporations, or to such vocational or rehabilitation fund;" (4) the provisions of section 15 that certain facts "may be determined by processes or formulas of general apportionment prescribed by the commissioner with the approval of the Governor."
It is not necessary for us to determine the validity vel non of any of these provisions of the act, for the reason that it does not appear from the record that any of them affect the income of these appellees and all of them, if invalid, may be stricken from the act without effect on the validity of the remainder thereof, both under the general rule for construing statutes, and the express provision therefor in section 42 of the act.
The court below having dismissed the action on the theory that the act is void, the judgment must be reversed.
Reversed and remanded.
Concurrence Opinion
The income tax law in this state was upheld and declared valid by this court in the case of Hattiesburg Grocery Co. v.Robertson,
The income tax law in the instant case is the same in principle and purpose as the income tax law passed upon and held valid in the Hattiesburg case, supra. It is not a property tax, but is an excise income tax. This has been already decided, and is too plain for discussion.
The principal difference between the present Income Tax Act and that in the Hattiesburg case is the graduating feature, or progressive rate of tax on net incomes. This feature of the law is obnoxious to my sense of equal and just taxation, but nearly all of the courts, including the supreme court of the United States, hold that the progressive rate is valid and proper, on the ground that it taxes equally all net incomes within the same class. I cannot go contrary to a principle so well settled by the courts of our country, including our own court, with reference to excise or privilege taxes. (See the majority opinion by the Chief Justice as to cases cited.)
This court makes no laws, nor does it repeal any; the legislature has the sole power in this regard. A court has only the authority and duty to pass upon the validity of the laws made by the legislature, and construe and apply them as written, and that is true, regardless of whether such laws are wise, or unwise, or obnoxious or popular. If any law is undesirable and oppressive, the remedy is to have the legislature repeal it; the courts cannot annul the expressed will of the legislature if the law is valid under the Constitution.
Dissenting Opinion
I dissent from the majority opinion. Four years ago I joined with Judge SYKES in a dissenting opinion in Hattiesburg GroceryCo. v. Robertson,
Section 4 of the income statute under consideration provides for the taxation of the entire net income. Section 6 provides, among other things, the basis for ascertaining gain derived or loss sustained from the sale or disposition of real and personal property, which is to go to make up the income. The act is not open to construction as to what is taxed. It is all net income derived from any source whatsoever and includes profits made from the sale or other disposition of both real and personal property.
The right to acquire, own, and enjoy real and personal property is a natural right. It is one of the rights reserved to the people by section 32 of our Constitution. The legislature can neither take it away nor materially impair it. It is not a privilege granted to the citizen by the legislative branch of the government which may be taxed as such. The net income from real and personal property is the original and sole source of the existence of its value. It has no other value. Its very fundamentals consist of the rents, issues, and profits therefrom. Except for the rents, issues, and profits, it *112
would be dead property; it would be worthless. The income statute is a revenue measure pure and simple. It is not an occupation tax so far as real and personal property is concerned. It is not a license law imposing a privilege tax on that character of property, for there is no pretense of an exercise of police power involved. In Thompson v. Kreutzer,
"A tax on a thing is a tax on all its essential attributes; and a tax on an essential attribute of a thing is a tax on the thing itself. So that a tax on a thing owned is necessarily a tax on the right of ownership thereof."
The simple question is whether a tax on the only attribute of a thing which gives it value is a tax on the thing itself. It seems that to ask that question is to answer it. Here we have a tax on the net income from real and personal property; the only attribute which gives gives value to such property. This position is sustained by the Hylton Case, 3 U.S. (3 Dall.) 171, 1 L. Ed. 556; Brushaber Case,
I deem it hardly necessary to say that it is conceded by counsel for the state, and by the majority opinion, in effect, that, if a tax on net income derived from real and personal property is a direct tax on the property itself, such a tax violates section 112 of our Constitution.
In my judgment the Hattiesburg Grocery Co. case is not only unsound but most mischievous in its effects, and ought to be overruled. The overruling of the Hattiesburg Grocery Co. case would not leave this court without authority in this state to stand upon, for Thompson v. McLeod, supra, and that case are squarely in conflict, as *113 it appears to me. And furthermore, the opinion in the Hattiesburg Grocery Co. case neither criticized nor overruled the McLeod case. In the latter case, chapter 110 of the Laws of 1912 was under consideration, which was "an act to levy and collect and enforce the payment of an annual privilege tax or occupation fee upon all persons, associations of persons, or business firms and corporations, pursuing the business of extracting turpentine from standing trees," and fixing a tax of one-fourth of one cent per year for each cup or box used in extracting the turpentine. The court held that the tax, although called a privilege or occupation tax, was not such, but was in truth and in fact a property tax on the land of which the pine trees were a part, and violated section 112 of our Constitution requiring uniformity and equality in taxation. In discussing the question there involved, the court used in part this language:
"It is conceded by counsel for the state that, if the tax here attempted to be imposed is a property tax, the act imposing it is unconstitutional and void. In following the rule, so frequently announced by the courts, of looking through the form to the substance, it is manifest that the tax exacted by the act under review operates, and can only operate, as a property tax, and is really not a privilege tax. We are not called upon to place any limitation upon the right of the state to exact licenses or impose privilege taxes that are really such and to require the taxes as a condition precedent to the right to do business within the confines of our commonwealth. We do not question the right of the state, also, to measure a privilege tax by the volume or amount of business done. . . . Here the legislature attempts to say to the citizen:
"`Although we recognize that you are the lawful lessee or owner of standing pine trees, which produce, when tapped, an annual product of resin, and although we have demanded and you have paid your full share of taxes upon these standing pine trees and the soil which *114 continually feeds them, nevertheless thou shalt not lay ax to the tree to extract the natural gum without subjecting any property which you have in the state of Mississippi to an additional tax of one-fourth of a cent for each box you cut.'
"This act strikes down the inherent right of the property owner to lay hand upon his own property. Every owner of a pine tree enjoys the same natural right to extract gum from the tree as the owner of a vineyard has to pluck his own grapes. It would be the same thing to require a privilege tax as a precedent right of the owner to pull the ripe pecans from his pecan orchard or to enjoy a drink of pure water from the cool spring of the old homestead. . . . If the tax here questioned can lawfully be imposed, then the legislature of our state, in a desperate search for revenue, can effectually brush aside the essential feature of equality and uniformity demanded by the Constitution. The provision that property shall be taxed in proportion to its value would be nullified, and the integrity of the Constitution itself destroyed."
What is the difference in principle in taxing the turpentine extracted from pine trees and the income derived from real and personal property? If there is any, it is beyond my capacity to see it. They are both income. For illustration, a tax is sought to be levied by the state on the turpentine extracted by a person from the trees on his land, or on the means used in extracting the turpentine — it does not make any difference which. The court holds that to be a direct tax on the land itself and therefore violative of section 112 of our Constitution. On the other hand, the state seeks to tax the income from cotton and corn and other agricultural products of the landowner. The court holds that to be an excise tax and not a property tax on the land. There is no sort of refinement by which the Hattiesburg Grocery Co. and the McLeod cases can be reconciled. Either the Hattiesburg *115 Grocery Co. case or the McLeod case is right. Both cannot be right.
If the statute, so far as it levies a tax upon the net income from real and personal property, were held unconstitutional, the whole act would have to go down, for that part of it is not separable from the balance. The scheme left would be a monstrosity. No legislature would have enacted it.
However, as it appears to me there is a radical difference between the income tax statute upheld in the Hattiesburg Grocery Co. case and the one under consideration here, and that is to be found in section 5 of the latter, which provides, in substance, so far as land and personal property are concerned, that the tax on the income therefrom shall be a charge or lien against the property from which it is derived. The statute simply means that it shall be a tax on the real and personal property; the amount of the tax to be measured by the net income therefrom. In other words, instead of basing the tax on the assessed value of the real and personal property, it is based on the net income therefrom, but it is made just as much a charge against the property itself as if it had been based on the assessed value thereof. As I view it, this provision in the statute is simply a bald statement in effect that the tax is a direct tax on the real and personal property itself.
Good-bye section 112, this is the last of you. The framers of our Constitution by your adoption thought they were affording the taxpayers of the state some security against unjust and unequal taxation. They were mistaken. Little by little you have been whittled away by the courts until there was little left. By this stroke that small remaining vestige has been swept away. Now by giving each scheme of taxation a new name, property may be taxed times without number. It is all in the name. The state now, without let or hindrance from the Constitution may fill its insatiate tax maw to overflowing.
McGOWEN, J., concurs in this dissent. *116
Dissenting Opinion
When we held this income tax law constitutional as being an excise and not a property tax, I had serious doubts as to the correctness of this holding, but at that time those doubts did not arise to a degree of certainty which impelled me to dissent. Upon a re-examination of the authorities and a careful analysis of our opinion I have come to the conclusion that we erred, and that the suggestion of error should be sustained.
In my judgment this is a property tax, and as such is violative of section 112 of the Constitution. It is a property tax, because it taxes incomes derived or received from property, real, personal, and mixed; and the unconstitutional tax on property cannot be separated from the tax derived from incomes, professions, callings, and vocations. In the opinion in this case it is said that: "No definition of income can be framed under which it can be dissociated from the activities of the person who produced or received it, so that a tax on income necessarily includes among its elements the production or receipt of property, . . . and to that extent is a tax on the performance of an act resulting in gain to the person performing it, and the rule is, . . . that when the tax is imposed on the performance of an act, it will not be classified as a tax on property, although it is proportioned in amounts to the value of the property used in connection with or produced by the act which is taxed." 88 So. 5.
In my judgment this conclusion of the court is contrary to previous decisions of this court. In the case of Thompson,Auditor, v. Kreutzer,
"Property may also be, and in the section of the Constitution here under consideration is, used to signify `things owned.' In order that a thing may be owned, some one must, of course, have a right to the ownership thereof. A tax on a thing is a tax on all its essential attributes; and a tax on an essential attribute of a thing is a tax on the thing itself. So that a tax on a thing owned is necessarily a tax on the right of ownership thereof; and a tax on the right of ownership of a thing is necessarily a tax on the thing itself. No definition of property can be framed which does not include the right of ownership. Consequently, no tax can be imposed on the right of ownership which is not also a tax on property."
As I construe this case it means that by virtue of the ownership of property one has the right of possession, enjoying, and using this property in every lawful manner in which he sees proper, and that as a necessary incident to the ownership of this property he has the right to rent, lease, or cultivate the property, if it be land, and that all of these rights are mere incidents of ownership, and that necessarily a tax on the income received from this property is a tax on its user, and therefore a tax on the property itself. It is in reality a tax on the ownership of the property because by virtue of this ownership certain acts are necessarily required of the owner. Necessarily *96 he has to pay taxes or lose his property and a provident owner necessarily wishes to use this property either for himself for his personal enjoyment or in order to derive some income therefrom. The provident owner, the good citizen, necessarily wants to make his property productive and wherever property is providently used some income is necessarily derived therefrom, and the right to receive this income is but an incident of the ownership of the property. A tax upon this right is indirectly a burden and a tax upon the property itself. Aside from the ownership of homes, nearly all of the property owned is owned for the purpose of deriving a revenue therefrom. If the owner of property were inactive, the property would be a mere barren waste, and its ownership would be a detriment to the state. All provident ownership of property in my judgment necessarily contemplates the exercise of activity by virtue of this ownership.
The same doctrine enunciated in the Kreutzer case was reiterated in that of Thompson, Auditor, v. McLeod,
In other words, the privilege tax in this case was the activity of the person in extracting turpentine from standing trees. The privilege tax in the instant case is the mere, if I may use the expression, inactive activity of the person to receive his rents or profits from his real or personal property. Certainly the activity of applying an ax to a pine tree is much greater than the mere passive receptivity of one in receiving the rents, issues, and profits from his property. And the court in the McLeod case says: "It requires no refinement to observe at once that *97 this is an additional burden of taxation, operating, not indirectly, but directly, upon complainant's property."
It will be noted that the opinion in the McLeod case refers to the Pollock Case,
From a careful consideration of the opinions of this court in the three above-named cases I am satisfied that the opinion in this case is contrary to the reasoning in those cases and in direct conflict with them.
Coming now to a consideration of the decisions of other courts: The following quotation from the case of Pollock v. TrustCo.,
If land is the profit thereof, then tax on this income of profit is necessarily a tax on land. The Pollock cases hold that a tax received as income from property is a property tax because the burden placed upon the income by a tax, looking through form to substance, is a burden placed upon the property itself from which the income is derived, and is therefore a property tax. *98
The Brushaber Case,
The later case of Eisner v. Macomber,
In the Opinion of the Justices,
In fact our attention has only been called to the decisions of two courts which hold to a contrary opinion, namely, those of Georgia and Missouri. These cases are reviewed and criticised in the Alabama opinions, supra. In fact from a later opinion of the supreme court of Missouri it seems that that court doubts very much the wisdom of its former holdings. In the case ofState v. Koeln, 278 Mo. 28, 211 S.W. 31, in the concurring opinion of Justice GRAVES, he states: "The idea that an `income tax' is, in fact and in law, a tax on property, and therefore violative of our Constitution, rises before us as Banquo's ghost."
I would like for this ghost to be confined to the territorial limits of Missouri, but from the opinion of my brethren his territorial jurisdiction has now been enlarged to include Mississippi.
In conclusion I wish to say that under the above decision the owner of property, as an incident of his ownership, has the undoubted right to receive the income from *99 this property. That the mere reception of this income is not engaging in any trade, occupation, or calling and that a tax upon this right is a tax upon the property itself and therefore is a property tax, and is violative of section 112 of the Constitution. In my judgment the suggestion of error should be sustained, and the law declared unconstitutional.
ANDERSON, J., joins me in the dissenting views herein expressed.