Aberdeen Sav. & Loan Ass'n v. Chase

• Decision Date: 12 June 1930
• Docket Number: 22228.
• Citation: 289 P. 536,157 Wash. 351
• Court: Washington Supreme Court
• Parties: ABERDEEN SAVINGS & LOAN ASS'N et al. v. CHASE et al., Tax Commission. [*]

289 P. 536

157 Wash. 351

ABERDEEN SAVINGS & LOAN ASS'N et al. v. CHASE et al., Tax Commission. ^[*]

No. 22228.

Supreme Court of Washington, En Banc.

June 12, 1930

Appeal from Superior Court, Thurston County; John M. Wilson, Judge.

Suit by the Aberdeen Savings & Loan Association and others against Samuel H. Chase and others, as members of the Tax Commission of the state of Washington. From a judgment dismissing the action, plaintiffs appeal.

Reversed with instructions.

See also, Burr v. Chase, 289 P. 551.

HOLCOMB FULLERTON, and MILLARD, JJ., dissenting.

Grinstead, Laube, Laughlin & Lichty, of Seattle, and Henderson, Carnahan & Thompson, of Tacoma, for appellants.

John H. Dunbar and E. W. Anderson, both of Olympia, for respondents.

BEALS J.

Plaintiff Aberdeen Savings & Loan Association and sixty-two other savings and loan associations, doing business in this state, and organized under the provisions of chapter 1, title 21, Rem. Comp. Stat. (section 3716 et seq.), and acts amendatory thereto brought this action against the members of the state tax commission, seeking to enjoin the enforcement as against plaintiffs of chapter 151, p. 380, Session Laws of 1929, providing for a tax measured by income upon banks and financial corporations, plaintiffs praying in the alternative for relief against certain alleged threatened illegal applications of the act by defendants.

To plaintiffs' complaint defendants demurred. The demurrer having been sustained by the trial court, plaintiffs elected to stand upon their complaint, and from a judgment dismissing the action they appeal.

In their complaint appellants allege that, prior to the convening of the Legislature in January, 1929, the system of taxation which had theretofore been in effect in this state had been seriously affected by litigation which had been instituted by certain of the railroad and banking corporations for the purpose of procuring relief against alleged excessive, unjust, and discriminatory taxes levied against their respective properties, which litigation threatened to seriously impair the revenues of the state, and also of the counties and other municipal corporations. Appellants quote at length from the messages of the Governor to the state Legislature, and set forth certain proceedings of the Legislature, had with a view to some readjustment of the laws having for their object the raising of revenue.

Chapter 151, p. 380, Laws of 1929, against which act this attack is waged, attempts to provide, as expressed in its title, 'for a tax measured by income upon banks and financial corporations,' provides for the assessment and collection thereof, and for certain offsets or deductions to be considered in determining the amount of taxes due from institutions liable to pay the same. Corporations organized to do 'a savings and loan or building and loan' business are expressly named in the act as subject to the provisions thereof. The terms 'gross income,' 'net income,' and 'financial corporation' are in the act defined as follows:

'The term 'gross income,' as herein used, includes gains, profits and income derived from business of whatever kind and in whatever form paid; gains, profits or income from dealings in real or personal property; gains, profits or income received as compensation for services, as interest, rents, commissions, brokerage or other fees or otherwise received in carrying on such business; all interest received from federal, state, municipal or other bonds, and, except as hereinafter otherwise provided, all dividends received on stocks: Provided, That the premium income of insurance companies shall not be included in gross income.

'If the gross income is derived from business done in part within and part without the State of Washington, gross income means that portion of the income derived from business done within this state, to be ascertained and allocated in such manner as will fairly determine the gross income derived from business done within the state. The commission shall have power to prescribe such rules and regulations as will, in its opinion, carry out the direction and detail of this provision.

'The term 'net income,' as herein used, means the gross income less the deductions allowed.'

'The term 'financial corporation' shall include any corporation, other than a bank, engaged within the state of Washington in the business of acting in any representative or trust capacity; or in the business of a savings and loan or building and loan society or association; industrial loan company, or finance company; or in the business of buying, selling, discounting, or dealing in stocks, bonds, debentures, bills of exchange, warrants, notes and/or other evidence of debt; or in the loaning, collecting and reloaning of money.' Section 1.

After the section of the act containing definitions of the terms therein used, the act continues:

'Sec. 2. Every national banking association, located or doing business within this state, shall annually pay to the state, in addition to all other taxes or charges, a tax according to or measured by its net income, to be computed in the manner hereinafter provided, at the rate of five per cent. upon the basis of its net income for the next preceding fiscal or calendar year.

'Sec. 3. Every bank, other than a national banking association, doing business within this state, shall annually pay to the state, in addition to all other taxes or charges, for the privilege of exercising its corporate franchise within this state, a tax according to or measured by its net income, to be computed in the manner hereinafter provided, at the rate of five per cent. upon the basis of its net income for the next preceding fiscal or calendar year.

'Sec. 4. Every financial corporation doing business within this state shall annually pay to the state, in addition to all other taxes or charges, for the privilege of exercising its corporate franchise within this state, a tax according to or measured by its net income, to be computed in the manner hereinafter provided, at the rate of five per cent. upon the basis of its net income for the next preceding fiscal or calendar year.

'Sec. 5. If the entire business of a bank or corporation is done within this state the tax shall be based upon its entire net income; and if the entire business of such bank or corporation is not done within this state the tax shall be based upon that portion thereof which is derived from business done within this state, as herein provided. * * *

'Sec. 24. The commission shall between the first day of May and the first day of July in each calendar year, from the reports filed with it or from other information in its possession, determine the net income of each bank and corporation as the basis of computing the tax provided for in this act. Such basis shall not be increased beyond the amount of net income shown by the taxpayer's return unless the commission shall give ten days' notice in writing by registered mail to the taxpayer of the amount to which it is proposed to increase such basis of computation, and of the time and place when and where such taxpayer will be heard by the commission in opposition to such proposed increase.

'Sec. 25. The commission shall on or before the first day of September next thereafter prepare and transmit to the assessor of each county within the state an assessment roll for such county and shall place upon such assessment roll the name of each bank and corporation liable to a tax for the taxable year for which such assessment roll is prepared, and having its principal office or place of business within the county for which such assessment roll is prepared.

'The commission shall also enter upon such assessment roll opposite to or in connection with the name of each bank or corporation the name or designation of the city, town, township, school district and other taxing districts within said county in which said taxpayer has its principal office or place of business together with the net income or basis for the computation of the tax as determined by the commission and the amount of the tax due and payable as computed by it.

'The assessor of such county shall enter upon the tax rolls of the county the name of each bank and corporation and the amount of such tax due from it as shown by such assessment roll. * * *

'Sec. 27. All taxes collected or paid under the provisions of this act shall be for the use of the state and of the county, city, town, school district, municipality or other taxing district in which the bank or corporation has its principal office or place of business and shall be by said county treasurer distributed in the manner and in the same proportions as provided by law for the distribution of taxes upon personal property.'

Appellants contend that the act of the Legislature which they attack in this proceeding violates the Constitution of the United States and the Constitution of the state of Washington. Constitutional provisions upon which appellants rely are the following:

Constitution of the United States, art. 1, § 10, par. 1: 'No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.'

Fourteenth Amendment to the Constitution of the United States, section 1: 'All persons born or naturalized in the United States and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No state shall make or enforce any law which shall abridge the privileges or...