Arthur v. Johnston

• Decision Date: 07 December 1937
• Docket Number: 14579.
• Parties: ARTHUR v. JOHNSTON, Governor, et al.
• Court: South Carolina Supreme Court

194 S.E. 151

185 S.C. 324

ARTHUR v. JOHNSTON, Governor, et al.

No. 14579.

Supreme Court of South Carolina

December 7, 1937

Action in the original jurisdiction of the Supreme Court by Charles D. Arthur against Olin D. Johnston, Governor of the state of South Carolina, and E. P. Miller, Treasurer, for an injunction.

Injunction denied, and petition dismissed.

Robinson & Robinson, of Columbia, for petitioner.

John M Daniel, Atty. Gen., and J. Ivey Humphrey and M. J. Hough Asst. Attys. Gen., for respondents.

BAKER Justice.

The petitioner commenced his action in the original jurisdiction of this court alleging that Act No. 339 of the published Acts of 1937, 40 St. at Large, p. 541, is unconstitutional, in that (a) it relates to more than one subject in contravention of section 17 of article 3 of the Constitution of the state; and (b) it authorizes the respondents, as Governor and Treasurer, respectively, of the state, to issue state certificates of indebtedness and notes for the purpose of financing the construction of buildings at certain state institutions of higher learning, without securing the approval of the electors of the state in contravention of section 11 of article 10 of the Constitution.

The petition sets forth, on information and belief, that respondents in their official capacities pursuant to the provisions of such act are preparing to issue certificates of indebtedness and notes in the sum of $1,350,000, for the purpose of turning the same over to the institutions of higher learning in South Carolina as provided in section 10, article 1, of the act, from the proceeds of which certain buildings are to be erected; and prayed that respondents be permanently enjoined from the issuance of the certificates of indebtedness.

Upon this petition, the Chief Justice granted permission to the petitioner to institute this proceeding in the original jurisdiction of this court, and ordered respondents to show cause before the entire court why the prayer of the petition should not be granted.

The respondents, by way of return to the order, demurred to the petition upon the grounds: First, the petition does not state facts sufficient to constitute a cause of action, in that there are no allegations of facts alleged which entitle petitioner to the relief demanded. Second, the petition shows upon its face that the acts of the respondents are in pursuance of authority of a valid legislative enactment.

In the able brief presented on behalf of the petitioner, reference is made to the leading cases heretofore coming before this court involving acts of the Legislature where it was alleged that such acts contravened section 11 of article 10 of the Constitution, which prohibits the increase of the public debt without first submitting the question to the qualified electors of the state. And the argument is made, in the light of these cases, that the act under discussion contravenes section 11 of article 10, upon the ground that the statute does not make provision for the payment of the obligation from a special fund, derived from the revenues of the special enterprise or project promoted by the act, which special fund may reasonably be expected to meet the obligations without resort to the levy of a property tax.

This limitation, however, is not sustained by the cases cited and relied upon. It is true that in some of the cases the fund was derived from the revenue of the special enterprise or project promoted by the act, but this is not true as to others, and with reference to some of them, it would only be true indirectly.

In the case of Sullivan v. City Council of Charleston, 133 S.C. 189, 133 S.E. 340, which was decided by the court en banc, the special fund was not derived from the revenues of any special enterprise or project, but, on the contrary, the same was derived from general property taxes which had previously been levied and remained uncollected. Hence, the act involved in that case was much more far reaching than that involved in the case at bar. The certificates authorized to be issued by the city, representing past-due and unpaid taxes, not only were guaranteed by the municipality and provision was made for a special levy to supply any deficiency, but an annual levy was authorized to pay the interest on the certificates.

Here the proposal is to set aside a part of the income tax, the amount of which has already been fixed by the law and presumably is reasonably sufficient to take care of the proposed certificates. It will be observed that no new income tax is levied for this purpose, but the income tax already levied is allocated as the fund out of which these certificates are to be paid.

Mr. Justice Cothran relies on this case in his opinion in Briggs v. Greenville County, 137 S.C. 288, 135 S.E. 153, 161, and he makes this statement as to the effect of this decision, to wit:

"The guaranty of the city of Charleston of the certificates of indebtedness was an absolute guaranty of payment, upon which the city would become primarily liable at the time of the maturity of the certificates. The holder of a certificate would not, in the event of nonpayment of the certificates at maturity, have to look to the past- due and unpaid taxes upon which the certificates were predicated. Moreover, it appears from the act that the city could, 'in the event, at any time, sufficient of the said due and unpaid taxes have not been collected to meet the payment * * * at the time such guarantee provides for payment, * * * forthwith levy and collect a tax' to pay the certificates, i. e., the city could, if it foresaw an insufficiency in the collections of back taxes, levy the new tax prior to the time of maturity of the certificates. It is noteworthy also that the interest on the certificates was to be paid out of a new tax. Furthermore, we wish to call attention to the provision in the act directing the city to make the certificates payable at such time as in the opinion of the city it was probable that the collection of the back taxes would enable the city to pay the certificates. Similar provisions are to be found in the Greenville Bond Act and in the General Bond Act.

From the foregoing review of the decisions, it is obvious that the present case cannot be distinguished from the previous cases upon the ground that the obligations here in question are payable primarily out of an ad valorem tax."

Section 13 of article 1 of the act under discussion is as follows:

"For the purposes of Article 1 of this Act it is hereby determined and found that the revenue referred to in Section 11 of said Article is and will be sufficient to pay all State Certificates of Indebtedness authorized herein, both as to principal and interest, as they respectively become due."

As was said in the case of Briggs v. Greenville County, supra, quoted with approval in State ex rel. Richards v. Moorer, 152 S.C. 455, 150 S.E. 269: "The underlying purpose of the constitutional provisions concerning the creation of state debt was that they should serve as a limit of taxation-as a protection to taxpayers, and especially those whose property might be subjected to taxation."

It certainly cannot be contended that an income tax is an ad valorem tax. An ad valorem tax is, of course, a property tax. Black's Law Dictionary defines it as follows: "The term 'ad valorem tax' is as well defined and fixed as any other used in political economy or legislation, and simply means a tax or duty upon the value of the article or thing subject to taxation."

See also, 2 C.J.S., Ad Valorem, 496. It is true that in the case of Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 15 S.Ct. 673, 39 L.Ed. 759, the Supreme Court of the United States held that an income tax was a direct tax in the sense of the Federal Constitution, although this had been a very much mooted question about which there was great difference of opinion. Certainly it is not a direct tax in the ordinary meaning of that expression. But aside from this, it is manifestly not an ad valorem tax or a...