Sims v. Ahrens

• Citation: 271 S.W. 720,167 Ark. 557
• Decision Date: 19 January 1925
• Docket Number: 114
• Parties: SIMS v. AHRENS
• Court: Supreme Court of Arkansas

271 S.W. 720

167 Ark. 557

SIMS v. AHRENS

No. 114

Supreme Court of Arkansas

January 19, 1925

Editorial Note:

This Pagination of this case accurately reflects the pagination of the original published, though it may appears out of sequence.

Appeal from Pulaski Chancery Court; John E. Martineau, Chancellor affirmed.

Decree affirmed.

J. S Utley, Attorney General, and Wm. T. Hammock, Assistant, for appellant.

The income tax designated in the act is separable from other taxes such as per capita, property, occupation, franchise and other privilege taxes. All these other types or methods of taxation have been sustained by our courts, notwithstanding each of them touches upon property rights at some point, and in the payment constitutes a burden directly or indirectly upon the property of the taxpayer. The fact that income may have its source in rents from real estate, interest from money loaned, profits from business, or wages from employment does not stamp a tax on incomes as a property tax. 44 Ark 134; 93 Ark. 613; 98 Ark. 299; 102 Ark. 314; 26 Ark. 523; 27 Ark. 625; 56 Ark. 251; 69 Ark. 555; 77 Ark. 321; 84 Ark. 470; 110 Ark. 204; 117 Ark. 54; 123 Ark. 68; 34 Ark. 166; 38 Ark 514; 106 Ark. 321; 235 U.S. 350.

The contention that the tax is void because laid upon gross receipts of natural persons from occupations that are of common right, was squarely met and held adversely to appellees in Fort Smith v. Scruggs, 70 Ark. 554, and again in Davis v. Hot Springs, 141 Ark. 525-6-9. The same cases decide adversely to the contention that the tax is laid as a property tax in violation of the ad valorem clause of the Constitution. But even if the income tax is found to be a property tax, it does no violence to that clause as alleged, because the tax is laid upon the value of the income and at a uniform rate. See Acts 1923, p. 282, § 1.

The income tax is not an unjust discrimination because laid upon individuals and not upon corporations. We insist that it is an excise laid upon the privilege of enjoying and appropriating the proceeds of property, business and wages; and this being true, it falls within the oft-announced principle that the Legislature may classify for purposes of taxation, and there is no discrimination where the tax applies equally to all coming within the class. 93 Ark. 612; § 1 of the act, supra; 70 Ark. 549; 85 Ark. 464; 217 U.S. 79; 102 Ark. 131; 153 Ark. 114.

The contention that the act fixes a double liability and holds both the taxpayers and the withholding agent for the payment of accruing tax is untenable in the light of the provisions of §§ 4 and 5 of the act. As to the power of the State to impose upon employers the burden of reporting, withholding and paying over tax, as prescribed in the act, see 153 Ark. 125; 76 Ark. U.S. 353; 167 U.S. 461; 217 U.S. 443; 231; U.S. 120; Id. 383; 232 U.S. 58. The tax laid is not a property tax but a tax laid upon incomes. It is clearly within the power of the Legislature because not prohibited by the Constitution. 100 Ark. 549; § 23, art. 2, Constitution; 99 Ark. 1; Id. 100; 93 Ark. 336; 112 Ark. 342; 43 Ark. 527; 86 Tenn. 134.

J. C. Marshall, for appellant.

This tax, in so far as it is not laid on the use of property, must be conceded to be a privilege tax. A tax on gross receipts such as this is necessarily a privilege tax, and the amount of such receipts is the measure of the value of the privilege. 31 L. R. A. 41; 45 Md. 361; 80 Ala. 99, 60 Am. Rep. 99; 35 S.E. 73; C. & M. Digest, §§ 9967-8; 119 Ark. 314; 160 Ark. 17. The effect and result must be looked to, and not the name, to determine the character of the tax. 128 Ark. 505; 153 Ark. 114. The Constitution of 1874, art. 16, § 2, limits taxation for State purposes (1) to taxes on property, and (2) to taxes on privileges. This clause was taken almost verbatim from the Constitution of 1836, and, under both, it has been uniformly held that the provision for taxing privileges limits the State only, not its subdivisions, such as cities and towns. 2 Ark. 291; 13 Ark. 752; 44 Ark. 134; 58 Ark. 609; 153 Ark. 114. From these cases it is seen that occupations which are of common right are not privileges, and cannot be taxed by the State, because this clause by limiting the State tax to privileges necessarily excludes taxes on all occupations which are not privileges. Since the act taxes all pursuits or means of earning money of every kind, all must be privileges, or otherwise the act is void. 160 Ark. 17; 70 Ark. 529; 153 Ark. 114. Since, also, all occupations are here sought to be taxed by the State, and the tax on all such occupations as are not privileges is void, the entire act is void, because the void and the valid parts cannot be separated. The word "privilege," as applied to occupations is limited to those which are subject to police regulation. 27 Ark. 629; 43 Ark. 82. A common-law right is not the creature of a license law. 61 Ark. 486. A license implying a privilege cannot possibly exist with reference to something which is right, free and open to all. 49 L. R. A. (Ill.) 412. See also 107 U.S. 365. The right to follow any of the common occupations of life or to earn one's living in any innocent vocation without let or hindrance is an inalienable right, secured to all those living under our form of government by the liberty, property and happiness clauses of our national and State constitutions. 170 P. 1; 111 U.S. 757; 70 L. R. A. 724; 34 L. R. A. (N. S.) 894; 7 R. C. L. 55; 56 L. R. A. 558; 24 Id. 195; 48 Id. 265; 27 L. R. A. (N. S.) 357; 34 Id. 433. The tax, in so far as it is levied on receipts from the use of property, such as rents on realty or personalty, or interest on money loaned, is a property tax, and void (a) because it is levied only on natural persons; (b) it is not levied on an ad valorem basis, and (c) it carries the amount of the tax beyond the constitutional limits for property taxes. 153 Ark. 114; 2 Ark. 291; 157 U.S. 429; 158 U.S. 601; 72 So. 891; (Miss.) 112 Miss. 383. The act is void because it discriminates against natural persons by exempting corporations. 85 Ark. 509, and cases cited; Judge Wood's discussion of the discrimination feature in the Severance Tax case, 160 Ark. 17.

Archer Wheatley, Basil Baker, Arthur L. Adams and Horace Sloan, filed a brief as amici curiae.

SMITH J. HART, J. concurring. Mr. Justice HUMPHREYS concurs in the concurring opinion. WOOD, J., on rehearing. SMITH, J., dissenting. MCCULLOCH, C. J., concurs in the opinion of Judge SMITH.

OPINION

SMITH, J.

This appeal involves the constitutionality of act 345 of the Acts of the General Assembly of 1923. General Acts 1923, p. 282.

The title to this act is as follows: "An act to be entitled, an act to levy a sale or gross income tax of one-tenth of one per centum, or one dollar ($ 1) on each one thousand ($ 1,000) dollars, on the gross incomes of every resident of the State of Arkansas and by natural persons not residents of this State who shall have received one thousand dollars or more per annum from and after March 31, 1923, to be levied and collected annually, beginning April 1, 1924, for the sole use and benefit of the public schools of Arkansas, and for other purposes."

A portion of § 1 of this act reads as follows: "A tax is hereby imposed upon every resident of the State of Arkansas, which shall be levied, collected and paid annually upon and with respect to his or her entire gross income as herein defined, at rates as follows: One-tenth of one per centum, or one dollar on each one thousand dollars, and at that rate of one-tenth of one per cent. on each and every dollar over and above one thousand dollars from the gross income from all property owned and from every business, trade, profession or occupation carried on in this State, and a like tax is hereby imposed and shall be levied and collected and paid annually to the State Comptroller of this State by natural persons not residents of this State."

Section 2 of the act defines the term "gross income," as employed in § 1 of the act, as follows: "The term 'gross income' includes gains, profits and income derived from salaries, wages or compensation for personal service, of whatever kind and in whatever form paid, or from professions, vocations, trades, business, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities or the transaction of any business carried on for gain or profit, or gains, or profits, and income derived from any source whatever, including gains or profits or incomes derived through estates or trusts by the beneficiaries thereof, whether as distributed or as distributable shares, income from property acquired by gift, bequest, devise or descent. The amount of all such items shall be included in the gross income for the taxable year in which received by the taxpayer."

The appellees in this case, who were the plaintiffs below, are residents and citizens of this State, and have earned incomes upon which they will be required to pay taxes if the act under review is valid. The income of one plaintiff had been earned as a manager of an insurance company; that of another from rents received on real estate; a third earned wages as a locomotive engineer; while the fourth had derived profits from his business as a merchant, and these plaintiffs seek by this suit to enjoin the State Comptroller from attempting to enforce the payment of the tax imposed by act 345 on their respective incomes. The court below held the act unconstitutional, and granted the relief prayed, and this appeal is prosecuted to reverse that decree.

It is quite obvious that the incomes of the plaintiffs are subject to the tax, if ...