277 U.S. 32 (1928), 70, Louisville Gas & Electric Company v. Coleman

Docket Nº:No. 70
Citation:277 U.S. 32, 48 S.Ct. 423, 72 L.Ed. 770
Party Name:Louisville Gas & Electric Company v. Coleman
Case Date:April 30, 1928
Court:United States Supreme Court
 
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277 U.S. 32 (1928)

48 S.Ct. 423, 72 L.Ed. 770

Louisville Gas & Electric Company

v.

Coleman

No. 70

United States Supreme Court

April 30, 1928

Argued October 26, 1927

Reargued February 29, 1928

ERROR TO THE COURT OF APPEALS OF KENTUCKY

Syllabus

1. A statute of Kentucky, where the recording of mortgages is essential to the protection of mortgagees against bona fide purchasers and creditors, conditions the recording of mortgages not maturing within five years upon the payment of a tax of 20¢ for each $100 of value secured, but mortgages maturing within that period it exempts entirely. Held that the tax is void under the equal protection clause of the Fourteenth Amendment. Pp. 35-38.

2. The equal protection clause means that the rights of all persons must rest upon the same rule under similar circumstances. It applies to the exercise of all the powers of the state which can affect the individual or his property, including the power of taxation. P. 37.

3. Classification must always rest upon some difference which bears a reasonable and just relation to the act in respect of which the classification is proposed. Id.

4. Discriminations of an unusual character especially suggest careful consideration to determine whether they are obnoxious to this constitutional provision. Id.

5. In the application of the equal protection clause to the tax here in question, it is immaterial whether it be called a privilege tax or a property tax. P. 38.

6. The time within which the indebtedness secured by a mortgage is to be paid may be a proper element in fixing the amount of a tax for recording it, but this classification cannot be used to justify taxing some, while others, under circumstances identical in all respects save taxable value, are entirely exempt. Id.

7. Owing to the character and quasi-public purposes of building and loan associations in Kentucky, the provision of the statute in question exempting them from payment of the recording tax is not violative of the equal protection clause. P. 40.

13 Ky. 762 reversed.

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Error to a judgment of the Court of Appeals of Kentucky which affirmed a judgment dismissing an action to recover money exacted as a tax on the recording of a deed of trust.

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SUTHERLAND, J., lead opinion

MR. JUSTICE SUTHERLAND delivered the opinion of the Court.

The plaintiff in error, a Kentucky corporation, executed a deed of trust of property in that state to secure bonds amounting in the aggregate to $150,000,000, of which $18,805,000 were issued, bearing date November 1, 1922, and maturing November 1, 1952. The deed was presented to the clerk of the Jefferson County Court for record, and payment made of the lawful recording fee required by the state statute, but the clerk refused to record the deed unless plaintiff in error paid to him a tax of 20 cents on each $100 of the $18,805,000, as required by § 4019a9 of the Kentucky Statutes, Carroll's Edition 1922, the pertinent portions of which follow:

A tax of twenty cents (20¢) is hereby imposed upon each one hundred dollars ($100.00) or fraction thereof of indebtedness which is, or may be, in any contingency secured by any mortgage of property in this state, which mortgage shall be lodged for record after this act goes into effect where the indebtedness does not mature within five years. . . . Provided, however, the provisions of this section shall not apply to mortgages executed to building and loan associations.

It is provided by another Kentucky statute that no deed or deed of trust or mortgage shall be valid against a purchaser for a valuable consideration without notice thereof or against creditors until such deed or mortgage shall be lodged for record. Ky.Stats. § 496. In view of this statute, plaintiff in error concluded that it was absolutely necessary to place the deed of trust of record,

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and thereupon, unwillingly and under protest, paid the amount demanded in addition to the lawful recording fee.

Subsequently, plaintiff in error brought this action in the proper state court to recover the amount of the tax so paid upon the ground that the quoted provisions of § 4019a9 were contrary to the Kentucky Constitution requiring uniformity of taxes upon all property of the same class, and upon the further ground that these provisions denied the equal protection of the law and deprived plaintiff in error of its property without due process of law, in contravention of the Fourteenth Amendment of the federal Constitution. A demurrer to the petition was sustained by the court of first instance, and the petition dismissed. Upon appeal to the state court of appeals, the judgment was affirmed, sub nom. Louisville Gas & Electric Co. v. Shanks, Auditor, 213 Ky. 762, [48 S.Ct. 425] upon the authority of Middendorf v. Goodale, 202 Ky. 118.

The state court of appeals, in disposing of the contention that the statute violated the state constitution, held that the tax imposed was not a property tax, but a privilege tax -- that is, a tax imposed upon the privilege of recording mortgages, etc., the payment of which, it was said, was entirely optional with the owners or holders thereof. This determination of the state court, insofar as it affects the challenge under the state constitution, we accept as conclusive, in accordance with the well settled rule. Merchants' & Mfrs. Nat. Bank v. Pennsylvania, 167 U.S. 461, 462. But the state court further held that the statute was not in conflict with the equal protection clause of the Fourteenth Amendment, and this presents a different question calling for our independent consideration and decision.

The contention on behalf of plaintiff in error is that the equal protection clause is contravened by the provisions exempting from the operation of the tax, first, indebtedness which does not mature within five years,

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and second, mortgages executed to building and loan associations.

The equal protection clause, like the due process of law clause, is not susceptible of exact delimitation. No definite rule in respect of either, which automatically will solve the question in specific instances can be formulated. Certain general principles, however, have been established in the light of which the cases, as they arise, are to be considered. In the first place, it may be said generally that the equal protection clause means that the rights of all persons must rest upon the same rule under similar circumstances, Kentucky Railroad Tax Cases, 115 U.S. 321, 337; Magoun v. Illinois Trust & Savings Bank, 170 U.S. 283, 293, and that it applies to the exercise of all the powers of the state which can affect the individual or his property, including the power of taxation, County of Santa Clara v. Southern Pac. R. Co., 18 F. 385, 388-399; Railroad Tax Cases, 13 F. 722, 733. It does not, however, forbid classification, and the power of the state to classify for purposes of taxation is of wide range and flexibility, provided always that the classification

must be reasonable, not arbitrary, and must rest upon some ground of difference having a fair and substantial relation to the object of the legislation, so that all persons similarly circumstanced shall be treated alike.

Royster Guano Co. v. Virginia, 253 U.S. 412, 415; Air-way Corp. v. Day, 266 U.S. 71, 85; Schlesinger v. Wisconsin, 270 U.S. 230, 240. That is to say, mere difference is not enough; the attempted classification

must always rest upon some difference which bears a reasonable and just relation to the act in respect to which the classification is proposed, and can never be made arbitrarily and without any such basis.

Gulf, Colorado & Santa Fe Ry. v. Ellis, 165 U.S. 150, 155. Discriminations of an unusual character especially suggest careful consideration to determine whether they are obnoxious to the constitutional

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provision. Compare Martin v. District of Columbia, 205 U.S. 135, 139; Bell's Gap R. Co. v. Pennsylvania, 134 U.S. 232, 237.

While, for the purpose of determining whether the statute assailed violates the federal Constitution, we are not bound by the characterization of the tax by the state court, St. Louis Cotton Compress Co. v. Arkansas, 260 U.S. 346, 348, the matter is here of little importance. The application of the equal protection clause does not depend upon what name is given to the tax. Whether the tax now in question be called a privilege tax or a property tax, it falls in effect upon one indebtedness and not upon another where the sum of each is the same; where both are incurred by corporations or both by natural persons; where the percentage of interest to be paid is the same; where the mortgage security is identical in all respects; where, in short, the only difference well may be that one is payable in 60 months and the other in 59 months. No doubt the state may take into consideration as an element in fixing the amount of the as an element in fixing the amount of the to be paid, for, since the tax is a flat sum covering the entire life of the lien, the privilege of recording the short-time lien and that of recording the long time lien have different taxable values. But classification good for one purpose may be bad for another, and it does not follow that, because the state may classify for the purpose of proportioning the tax, it may adopt the same classification to the end that some shall bear a burden of taxation from which others, under circumstances identical in all respects save in respect of the matter of value, are entirely exempt.

Here, it seems clear that a circumstance which affects only taxable values has been made the basis of a classification under which one is compelled to pay a tax for the enjoyment of a necessary privilege which, aside from the...

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