Arslain v. Alderson

• Decision Date: 13 June 1944
• Docket Number: (No. 9551)
• Citation: 126 W.Va. 880
• Court: West Virginia Supreme Court
• Parties: Peter R. Arslain, d.b.a. Odorless Dry Cleaning Co. et al. v. George P. Alderson, State Tax Commissioner, etc.

126 W.Va. 880

Peter R. Arslain, d.b.a. Odorless Dry Cleaning Co. et al.v. George P. Alderson, State Tax Commissioner, etc.

(No. 9551)

Supreme Court of Appeals of West Virginia.

Submitted April 4, 1944.

Decided June 13, 1944.

1. Commerce

A person engaged in the business of rendering services for hire at a plant or establishment within this State, is not engaged in interstate commerce, and he may be assessed a privilege tax measured by the gross income received, including that derived from persons and sources beyond state boundaries, notwithstanding the incidental interstate transportation of articles of personal property on which the work is done.

2. Taxation

The Legislature has the power to classify businesses or callings, which are subject to a privilege tax, and there is no illegal discrimination where a privilege tax is imposed on a business or calling involving an intrastate activity, and none on an interstate business or service.

3. Taxation

A statute which assesses a tax on the privilege of engaging in various businesses or callings, classifies the subjects of taxation, and provides for an equal and uniform rate for each class, does not create an illegal discrimination as between subjects of taxation in different classifications.

Appeal from Circuit Court, Ohio County.

Bill of complaint by Peter R. Arslain, doing business as Odorless Dry Cleaning Company, and others, against George P. Alderson, State Tax Commissioner, etc., for an injunction inhibiting defendant from collecting the assessed privilege taxes and to have the assessment declared void. From a decree dissolving the temporary injunctions and dismissing plaintiffs' bill, plaintiffs appeal.

Affirmed.

George G. Bailey and McGinley, Paull & Petroplus, for appellants.

Ira J. Partlow, Acting Attorney General, and Kenneth E. Hines, Assistant Attorney General, for appellee.

Lovins, Judge:

The State Tax Commissioner assessed privilege taxes against plaintiffs on the basis of all gross income received by them. This suit challenges the validity of his action as to that part of the gross income received from services furnished persons residing in the State of Ohio.

Peter R. Arslain, Fred Petrel, Ben Resnick, E. J. Shively and White Swan Company, a corporation, filed their bill of complaint in the Circuit Court of Ohio County, in which they prayed an injunction inhibiting the State Tax Commissioner from collecting the assessed taxes and also that the assessment against them be held void.

A temporary injunction restraining the tax commissioner was awarded. Subsequently, Chauncey T. Hatcher on his intervening petition was made a party plaintiff and awarded a temporary injunction, and George P. Alderson, successor of Ernest K. James, as State Tax Commissioner was made a party defendant.

Defendant filed his answer, admitting the facts alleged in the plaintiff's bill of complaint, and also filed a written motion to dissolve the temporary injunctions. No evidence was taken, and after a hearing on the pleadings and on the motion to dissolve, the trial court dissolved the temporary injunctions and dismissed the plaintiff's bill and the intervening petition, and this appeal was granted to review that decree.

The facts are as follows: Plaintiffs are engaged in the business of cleaning, dyeing and repairing wearing apparel and household furnishings at their plants and establishments situate in the City of Wheeling, West Virginia, where all the service is performed except transportation under Class 2 service hereinafter mentioned. They have a common method of doing business. They perform services dealing directly with individuals who desire such service, and also furnish services to other persons engaged in business similar to theirs, who, in turn, deal directly with the public. As a part of the services rendered by them, plaintiffs furnish hangers, garment bags, moth proof bags and the materials necessary for alteration and repair of the wearing apparel and household articles. Two classes of services are furnished by plaintiffs. Class 1 the customer brings the articles to the establishment or plant, and when the same are cleaned or repaired, the customer calls for the articles, pays cash and takes them away; Class 2 plaintiffs' vehicles call for the articles at the homes or establishments of their customers, transport them to plaintiffs' plants and, after the performance of the necessary service, return them to their customers. Persons receiving Class 2 service are charged a higher price therefor than those receiving Class 1 service.

Plaintiffs have a number of customers in the State of Ohio. The wearing apparel and articles of household furnishings are transported from the homes or establishments of customers in the State of Ohio to plaintiffs' plants in the City of Wheeling, where the work is done, and thereafter the garments and other articles are returned to their owners in the State of Ohio.

That part of plaintiffs' income derived from services rendered to residents of the State of Ohio during the years 1934-38, inclusive, was not included in their returns of gross income. The State Tax Commissioner made an additional assessment against plaintiffs because of their failure to include in their returns the amounts so received, advised plaintiffs of his intention to enforce the collection of the assessments so made, and thereafter this suit was instituted.

A number of assignments of error are made by plaintiff, all being grounded on the following: (1) That the assessments of privilege tax measured by the total gross income is unlawful, being a burden on interstate commerce as to that part of the gross income received from customers residing in the State of Ohio; and (2) that the statute under which the taxes were assessed, as well as the assessment thereof, is discriminatory for the following reasons: (a) that persons in this State who sell goods in interstate commerce are not required to pay taxes measured by the gross income derived from such sales: and (b) that persons who sell goods in intrastate commerce at wholesale pay a lesser rate than plaintiffs and other persons engaged in furnishing services on a wholesale basis.

The instant case is to be distinguished from the case of Harper, Executrix, etc. v. Alderson, decided by this Court on March 28, 1944. In the Harper case it was held that persons owning towels, linens and like articles, who deliver such articles to other persons for use, and thereafter reclaim the articles for the purpose of laundering them, is engaged in the business of collecting income from the use of personal property rather than the business of furnishing a service. It was also held that although the articles be laundered and renovated at an establishment in the State of West Virginia that such acts are incidental to the letting of the chattels for hire which was the main purpose of the transaction, that when furnished for use in other states necessitating transportation across a state line, a transaction in interstate commerce resulted and the assessment of privilege tax, as provided in Chapter 86, Acts of the Legislature, 1935, Section 2, subsections-(h) and (i) constituted an impedi- ment to such commerce. In this case the chief object and purpose of the transactions between plaintiffs and their customers is to clean and repair articles belonging to the latter, which services are performed wholly within the State of West Virginia.

The system of dual sovereignty established by the Constitution of the United States and the constitutions of the several states is the origin of the perennial question whether a tax or excise impedes the flow of commerce between the states. The general rule is that a state cannot levy and collect a tax or impost which impedes or has the effect of regulating commerce between the states or between states and foreign countries, or which infringes on the power of Congress over the subject. Gibbons v. Ogden, 9 Wheat. 1, 186, 6 L. Ed. 23; McGoldrick v. Berwind-White Co., 309 U. S. 33, 45, 60 S. Ct. 388, 84 L. Ed. 565. It must first be decided whether the transaction is, in fact, interstate commerce before the constitutional inhibition is applicable. The ramifications of a business of any size of necessity indirectly involve interstate or foreign commerce. The raw materials out of which some articles of commerce are manufactured frequently are produced, and must be transported from, the state where produced to the state where they are finally prepared for sale or consumption. Articles of lasting and permanent nature may be manufactured or produced in one state, and transported to another, where they may be taxed on an ad valorem basis as other property therein.

The problems here presented are not susceptible of determination by a rule of general and inflexible application, as practical rather than logical...