State Board of Tax Com Rs of Indiana v. Jackson, 183

Citation51 S.Ct. 540,283 U.S. 527,75 L.Ed. 1248
Decision Date18 May 1931
Docket NumberNo. 183,183
PartiesSTATE BOARD OF TAX COM'RS OF INDIANA et al. v. JACKSON. *
CourtUnited States Supreme Court

Messrs. Joseph W. Hutchinson, George W. Hufsmith, and James M. Ogden, all of Indianapolis, Ind., for appellants.

Messrs. Wm. H. Thompson, of Indianapolis, Ind., and Martin A. Schenck and Clark McKercher, both of New York City, for appellee.

[Argument of Counsel from pages 528-529 intentionally omitted] Mr. Justice ROBERTS delivered the opinion of the Court.

This is an appeal from the decree1 of a specially constituted District Court2 perpetually enjoining the appellants from enforcing against the appellee the provisions of chapter 207 of Acts of 1929 of the General Assembly of the state of Indiana. The appellee, by bill filed on behalf of himself and all others similarly situated, charged that the statute violates the Fourteenth Amendment of the Federal Constitution and two sections of the Constitution of Indiana. It averred, and the answer admitted, that, unless enjoined, appellants would institute prosecutions against appellee under certain sections of the act. After hearing, the District Court entered a perpetual injunction, holding the law offensive to the Federal and to the State Constitution.

The statute provides that it shall be unlawful for any person, firm, association, or corporation, foreign or domestic, to establish or operate any store3 within the state without first obtaining from the appellants a license, which must be renewed annually. It makes the operation of a store without a license a misdemeanor punishable by a fine of not less than $25 nor more than $100 for each day it is so operated.

Section 5 of the act provides:

'Every person,firm , corporation, association or copartnership opening, establishing, operating or maintaining one or more stores or mercantile establishments, within this state, under the same general management, supervision or ownership, shall pay the license fees hereinafter prescribed for the privilege of opening, establishing, operating or maintaining such stores or mercantile establishments. The license fee herein prescribed shall be paid annually, and shall be in addition to the filing fee prescribed in sections 2 and 4 of this act.

'The license fees herein prescribed shall be as follows:

'(1) Upon one store, the annual license fee shall be three dollars for each such store '(2) Upon two stores or more, but not to exceed five stores, the annual license fee shall be ten dollars for each such additional store;

'(3) Upon each store in excess of five, but not to exceed ten, the annual license fee shall be fifteen dollars for each such additional store;

'(4) Upon each store in excess of ten, but not to exceed twenty, the annual license fee shall be twenty dollars for each such additional store;

'(5) Upon each store in excess of twenty the annual license fee shall be twenty-five dollars for each such additional store.'

It is this section which appellee asserts renders the act unconstitutional as applied to him.

The bill of complaint alleges, and it is admitted, that the appellee is engaged in the business of selling groceries, fresh vegetables, and meats at wholesale and retail in Indianapolis, and has been so engaged for more than ten years, has capital invested in his business in excess of $200,000, and annual sales of over $1,000,000. He operates two hundred and twenty-five stores in the said city, and more than five hundred persons, firms, associations, and corporations, foreign and domestic, are engaged in the operation of two or more stores in the state.

The bill charges that the graduation of the tax per store according to the number of stores under a single ownership and management is based on no real difference between a store part of such a group and one individually and separately owned and operated, or between the business transacted in them; that the number of stores conducted by one owner bears no relation to the public health, welfare, or safety, none to the size of the enterprise as a whole, to its capital, its earnings, or its value; that the classification made by the statute is without basis in fact, is unreasonable and arbitrary, and results in depriving him of his property without due process, and denying him the equal protection of the laws.

In the court below appellants defended on the grounds that the statute was an exercise of the police power and was also a revenue measure which levied an ordinary occupation tax. They offered no evidence to sustain the first ground mentioned, and do not press it here. They now stand only upon the power of the Legislature in prescribing an occupation tax, to classify businesses, so long as its action is not unreasonable and arbitrary. They say that the act fulfills the constitutional requirement that, in so classifying, the lawmaking body shall apply the same means and methods to all persons of the same class, so that the law will operate equally and uniformly, and all similarly circumstanced will be treated alike. The District Court held that the statute failed to conform to this standard.

The act adopts a different measure of taxation for stores known as chain stores, from that applied to those owned and operated as individual units. Evidence was offered by the appellee intended to demonstrate that there are no substantial or significant differences between the business and operation of the two kinds of stores, such as would justify the classification, and by the appellants to prove the existence of such differences.

The District Court failed to make findings of fact and law as now required by Equity Rule 70 1/2 (28 USCA § 723), but contented itself with a partial summary of the facts and certain genral conclusions of law. Had the rule been in force at the time of the trial, we should feel constrained to remand the case with directions to make such findings. We shall, in the circumstances, summarize the proofs.

In addition to the facts averred in the bill, above set forth, the appellee offered uncontradicted evidence on the following points. Of the retail stores of the country ap- proximately 63 per cent. are independent or community stores, 16 per cent. are department stores, 12 per cent. are chain stores, and 4 per cent. are mail order houses. Several department stores in Indianapolis doing a much larger business than the appellee pay a tax of only $3 as contrasted with his tax of $5,443, although their business is highly competitive with that of chain stores. Persons owning a greater number of stores, and with more money invested, in a business similar to that of appellee, but having only one store in Indiana, pay $3 because they have but one store in the state. Large numbers of stores independently owned and controlled are members of associations or 'voluntary chains' under which co-operative buying is conducted for the group, but each of them is required to pay a license fee of only $3. The mere addition of a new unit or store to an existing chain of stores does not increase the sales more than arithmetically. The additional unit has its own expenses, and the volume of sales of the former stores in the chain, to which it constitutes an addition, is not increased by adding it.

The appellants produced evidence to prove that there are many points of difference between chain stores and independently owned units. These consist in quantity buying, which involves the application of the mass process to distribution, comparable to the mass method used in production; buying for cash and obtaining the advantage of a cash discount; skill in buying, so as not to overbuy, and at the same time keep the stores stocked with products suitable in size, style, and quality for the neighborhood customers who patronize them; warehousing of goods and distributing from a single warehouse to numerous stores; abundant supply of capital, whereby advantage may be taken of opportunities for establishment of new units; a pricing and sales policy different from that of the indi- vidual store, involving slightly lower prices; a greater turnover, and constant analysis of the turnover to ascertain relative profits on varying items; unified and therefore cheaper and better advertising for the entire chain in a given locality; standard forms of display for the promotion of sales; superior management and method; concentration of management in the special lines of goods handled by the chain; special accounting methods; standardization of store management, sales policies, and goods sold.

The appellants' evidence indicated that all of these advantages are interrelated and interdependent in the chain store business. The witnesses conceded that some of them may be found in large independent grocery or drug stores or the like, but they did not, as appellee claims, state that all of them combined exist therein, as in chain stores.

The record shows that the chain store has many features and advantages which definitely distinguish it from the individual store dealing in the same commodities. With respect to associations of individual stores for purposes of co-operative buying, exchange of ideas as to advertising, sales methods, etc., it need only be remarked that these are voluntary groups, and that series of independent units cannot, in the nature of things, be as efficiently and successfully integrated as a chain under a single ownership and management.

But the appellee in proof and argument drew a comparison between the chain store and the department store which he insists exhibits the classification of the statute as illusory and arbitrary. He proved that there are two department stores in Indianapolis, each doing a business in excess of $8,000,000 a year, one having 124 and the other 86 separate departments, and tha und er the law each pays a tax of only $3. He uses these facts to give point to his assertion that a store is not a unit of value. This argument ignores the...

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