Alaska Steamship Co. v. Mullaney

• Citation: 180 F.2d 805
• Decision Date: 01 March 1950
• Docket Number: 298.,No. 12,12
• Parties: ALASKA STEAMSHIP CO. v. MULLANEY, Commissioner of Taxation.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

180 F.2d 805 (1950)

ALASKA STEAMSHIP CO. v. MULLANEY, Commissioner of Taxation.

No. 12,298.

United States Court of Appeals Ninth Circuit

March 1, 1950

COPYRIGHT MATERIAL OMITTED

Bogle, Bogle & Gates, Frank L. Mechem, Seattle, Wash., Faulkner, Banfield & Boochever, H. L. Faulkner, Juneau, Alaska, for appellant.

J. Gerald Williams, Attorney General of Alaska, John H. Dimond, Asst. Atty. Gen., for appellee.

John Geisness, Bassett & Geisness, Seattle, Wash., as amicus curiae Sam L. Levinson, Edwin J. Friedman, Levinson & Friedman, Seattle, Wash., as amicus curiae;

Francis R. Kirkham, Harry R. Horrow, Frank H. Roberts, San Francisco, Cal., for Alaska Packers Assn., as amicus curiae. (Pillsbury, Madison & Sutro, San Francisco, Cal., of counsel).

Theron Lamar Caudle, Asst. Atty. Gen., Ellis N. Slack, I. Henry Kutz, Sp. Assts. to the Atty. Gen., (Mastin G. White, Solicitor, Dept. of Interior, Irwin W. Silverman, Chief Counsel, Div. of Territories & Island Possessions, Dept. of the Interior, Washington, D. C., of counsel), for United States as amicus curiae.

Before DENMAN, Chief Judge, ORR and POPE, Circuit Judges.

POPE, Circuit Judge.

The appellant operates a line of vessels for the transportation of freight and passengers between Seattle, Washington, and ports of Alaska. At the time to which this controversy relates, its 12 vessels were manned by 706 seamen all of whom were non-residents of Alaska. It also had 19 resident Alaska shore employees and some Seattle resident shore employees who made extended trips for the Company to Alaska.

On January 22, 1949, an extraordinary session of the Alaska legislature enacted a Net Income Tax Law, Laws 1949, Ex. Sess., c. 3, under the provisions of which the Steamship Company was required to withhold income tax from the wages of its employees. Because some doubt arose respecting the validity of the extraordinary session, the Alaska legislature on March 26, 1949, at its regular session, re-enacted the law with some changes. Laws 1949, c. 115. Section 16 of this Act purported to ratify and confirm all tax withholdings and other administrative steps taken under the former Act.

Appellant began the required withholding of the income taxes from wages paid to all its employees immediately after the enactment of the Act of January 22, 1949, the Act of the extraordinary session. Thereupon the employee members of the Sailors Union of the Pacific obtained an injunction from the United States District Court for the Western District of Washington, Northern Division, which enjoined the Steamship Company from paying any portion of the amounts so withheld to the Territory and required such amounts to be placed in a special fund subject to the further order of the court. After the second Act was passed by the regular session, the court extended the original injunction to the sums withheld under the new Act.

The Steamship Company thus found itself confronted with the demand of the appellee as territorial Commissioner of Taxation for payment of the amounts withheld and also with the injunction restraining such payment. The appellee had not been made a party and did not become a party to the injunction proceedings mentioned. The Steamship Company then brought this action for the purpose of testing the validity of the Alaska Act, alleging that its provisions requiring withholding from wages owing to vessel personnel were null and void and that the Act in its entirety was null and void and without legal effect. The prayer of the complaint was for an injunction restraining the appellee, as territorial Commissioner of Taxation, from collecting the amounts withheld by the Steamship Company from its vessel personnel and for a judgment determining that the entire Act as well as the withholding provisions thereof affecting vessel personnel were null and void. By supplemental complaint the prayer was expanded to ask for relief not only with respect to withholdings from persons employed as vessel personnel but with respect to all other employees of the Steamship Company. After answer filed and trial of the cause in the court below, the court made findings and conclusions in which it concluded that while the extraordinary session which enacted the Statute of January 22, 1949, was not constituted in accordance with law, and the Act of that date therefore invalid, yet the Act of March 26, 1949, was a valid Act which ratified and confirmed the tax withholdings made under the earlier Act. Accordingly, the temporary injunction which had been issued in this suit was vacated and the complaint was dismissed. Upon this appeal the Steamship Company, asserting that in view of the situation in which it finds itself, it is entitled to question the validity of the Alaska Act, says that it should not be required to pay any of the sums heretofore withheld from the wages of its employees or make any further withholding, first, because the Act cannot validly require withholding from the wages of vessel personnel, and second, because the Act in its entirety is both outside the legislative powers of the Alaska legislature and unconstitutional and void upon its face. It is attacked as a denial of the equal protection of the law, as wanting in due process, and as constituting an unconstitutional burden on interstate commerce.

The sections of the Act to which it will be necessary to make special reference are set forth in the margin.¹ The general scheme of the Alaska Act was to incorporate by reference the Internal Revenue Code of the United States "as now in effect or hereafter amended", by levying upon individuals, fiduciaries, corporations and banks, a tax equal to ten per cent of the income tax payable by the taxpayer for the same taxable year to the United States; the taxpayer being given the option to pay a tax equal to ten per cent of that portion of his total federal tax which would be ascertained by application of an apportionment formula designed to determine the portion of the federal tax attributable to sources within and without the territory. With respect to those employees whose sole income in Alaska consists of wages or salary, the tax levied is an amount equal to ten per cent of the amount withheld by the employer under the federal Act, such ten per cent to be withheld by the employer for Alaska. With respect to the Alaska personnel of vessels engaged in Alaska trade, the tax levied was to apply to the portion of the voyage pay earned in the waters of Alaska. The administration of the Act and collection of the tax was delegated to the territorial Tax Commissioner. Rules and regulations promulgated by the United States Commissioner of Internal Revenue were to be regarded as regulations by the territorial Commissioner under the Act until the territorial Commissioner should promulgate specific regulations in lieu thereof. The Tax Commissioner was vested with a general authority to make and publish all necessary rules and regulations for the assessment and collection of any tax imposed by the Act and specifically empowered to promulgate apportionment rules and regulations. The Act contained a separability clause to the effect that if any provision of the Act be held invalid the remainder of the Act should not be affected thereby.

Counsel who represented the various Seamen's Unions in procuring the injunction mentioned, and counsel representing Alaska Packers Association, filed briefs as friends of the court in support of the appellant's attack upon the validity of the territorial Act. The United States, through the Attorney General, the Solicitor for the Department of the Interior, and the Chief Counsel for the Division of Island Possessions of the Department of the Interior, has filed a brief as amicus curiae in support of the position of the appellee. We now proceed to consider separately the various attacks made upon the Act in question.

1. That the Act of the special session was invalid because the session was not properly constituted, and withholdings from wages made under that Act were not validated by the Act of the regular session.

The trial court held that the extraordinary session of the territorial legislature which convened on January 6, 1949, and passed the first of the two acts here involved was not a lawfully constituted session of the legislature because it was composed in part of members who had been elected in October, 1948, but whose terms would not commence until the convening of the regular session of the legislature on January 27, 1949. Accordingly, it held that the original enactment of January 22 was invalid, but that since the invalidity went to the composition of the legislature, and not to its legislative powers, the Act of March 26, 1949, passed by the regular session could properly and did validly ratify, confirm and make valid the withholdings which had been made pursuant to the earlier Act. We consider it unnecessary to inquire into the validity of the earlier enactment, since the power of the legislature to levy a tax and make its operation retroactive cannot be questioned. Welch v. Henry, 305 U.S. 134, 59 S.Ct. 121, 83 L.Ed. 87, 118 A.L.R. 1142. That this retroactive effect was accomplished through a ratification of an earlier invalid enactment would not, in our opinion, negative the power of the legislature to ratify and validate the questioned withholdings.

2. That the withholding provisions of the Act are invalid as applied to the wages of vessel personnel.

The only impact of the statute upon the Steamship Company of which complaint is made, is its withholding requirement. We do not understand that there is any question as to the right of the Company to raise the question of the statute's validity so far as its own employees are concerned. If the amounts required to be withheld cannot validly be deducted from the employees, then the Company would be liable to the employees for these amounts. We conclude that the Company has standing to challenge this...