Bank of Commerce & Trust Co. v. Senter

Decision Date05 April 1924
Citation260 S.W. 144
PartiesBANK OF COMMERCE & TRUST CO. et al. v. SENTER et al.
CourtTennessee Supreme Court

Consolidated suits by the Bank of Commerce & Trust Company, by the American Trust & Banking Company, by Cain-Sloan & Co., and by the American Snuff Company, respectively, against J. D. Senter and others. From so much of the decree as was adverse to them, the defendants and certain complainants appeal. Affirmed, and causes remanded.

W. E. Norvell, Jr., Bass, Berry & Sims, W. P. Cooper, Thos. H. Malone, and Wm. J. Wade, all of Nashville, for appellants.

F. M. Thompson and W. L. Granbery, both of Nashville, H. N. Leech, of Clarksville, and Chas. C. Trabue, of Nashville, for appellees.


Bank of Commerce & Trust Company, American Trust & Banking Company, and Cain-Sloan & Co. are corporations organized under the laws of Tennessee. The American Snuff Company is a corporation organized under the laws of New Jersey, authorized to do business in this state. All are engaged in business in Tennessee, and each paid the excise tax, imposed by chapter 21, Public Acts of 1923, under protest, and sue to recover it.

They allege in their bills that the act is unconstitutional; if held valid, that they were denied credits and deductions authorized by the act, and illegally charged with certain items of tax by the commissioner of finance and taxation. Upon these allegations they seek recovery of all or of such part of the tax as was illegally exacted. The actions were brought by each complainant against the commissioner of finance and taxation, and the comptroller of the treasury of the state, and as they ask for a decree declaratory of their rights under the Declaratory Judgments Law, the Attorney General is joined as a defendant.

By consent the causes were consolidated and heard before Chancellors Newman and Aust and demurrers filed in each case. Defendants in their demurrer challenge the sufficiency of the bill. They maintain that the Excise Tax Law is valid, deny the right to declaratory relief, and a recovery of any part of the tax paid. The chancellors being of opinion that the statute, chapter 21, Acts of 1923, is valid, sustained the first ground of demurrer, and overruled the second and third which relate to the prayer for declaratory relief, and a recovery of the tax or any part of it.

The defendants, and complainants, other than American Snuff Company, appealed from so much of the decree as was adverse to their contention. The American Snuff Company did not appeal, but maintains that the action of the chancellors in overruling the second and third grounds of demurrer should be affirmed.

Assignments of error by complainants question the constitutionality of chapter 21 of the Acts of 1923: (1) Because it violates article 2, § 28, of the Constitution; (2) because it contravenes article 1, § 8, and article 11, § 8, of the Constitution; (3) because it delegates legislative power to the commissioner of finance and taxation in violation of article 2, §§ 1 and 2, of the Constitution of Tennessee; and (4) because the act is violative of the Fourteenth Amendment to the federal Constitution.

It is insisted under the propositions which relate to and amplify the assignments of error that the act imposes a direct tax without observing the requirements of equality and uniformity as provided in article 2, § 28, and that it violates other constitutional provisions. If it violates the fundamental law as insisted by the complainants, it would be the duty of the court to arrest the enforcement of the act; otherwise it must be sustained. The taxing power is essentially legislative, and by article 2, § 3, of the Constitution, this power is conferred exclusively upon the Legislature. The Legislature has unlimited power to act in its own sphere, except so far as restrained by the Constitution of the state and of the United States. Henley v. State, 98 Tenn. 681, 41 S. W. 352, 1104, 39 L. R. A. 126.

Subject to definite constitutional limitations which may not be overstepped, the right to select the measure and subjects of taxation lies within the discretion of the Legislature, and in passing upon the validity of legislative enactments, as we are here called upon to do, courts do not assume that the Legislature intentionally passed an invalid act, because legislators, as well as judges, are bound by the law, and it is understood that they weighed the constitutionality of the act while it was before them and held it valid. Wherefore it is the rule that every reasonable doubt must be resolved in favor of the act, and the courts cannot adjudge it invalid unless the violation of the Constitution is in their judgment clear, complete, and unmistakable. Henley v. State, 98 Tenn. 680, 41 S. W. 352, 1104, 39 L. R. A. 126; State v. Alabama Fuel Co., 188 Ala. 487, 66 South. 169, L. R. A. 1915A, 185, Ann. Cas. 1916E, 752; Cooley, Const. Lim. (6th Ed.) 218; Black, Const. Law, § 391. These rules of construction must be observed as we proceed to consider the complainants' assignments of error.

Section 28 of article 2 of the Constitution definitely indicates two objects and two modes of taxation. The object of the first class is property taxed equally and uniformly upon its value, and the object of the second is privileges classified and taxed according to the sound discretion of the Legislature. Taxation of the privilege is upon the occupation or activity carried on amid the social, economic, and industrial environment, under protection of the state. Phillips v. Lewis, 3 Tenn. Cas. 230. Without the opportunity and protection afforded by the state, none of those classed and taxed as privileges could exist; every element that enters into the composition of a civilized state supplies them sustenance and strength; and it is often true that the visible property attendant upon the exercise of the privilege is inconsequential as compared to the earnings or profits flowing from the licensed activity or occupation.

Excising the result of an occupation or activity in the modern state may be likened to the ancient custom of huntsmen sharing with the dispensing gods of bounty a small portion of the captured game.

In Railroad Co. v. Harris, 99 Tenn. 701, 43 S. W. 119, 53 L. R. A. 921, the court said:

"The Constitution of the state (article II, § 28) recognizes only two general kinds of taxation — ad valorem and privilege. These cover the whole domain of taxation, and beyond these the Legislature may not go in the imposition of taxes. Memphis v. Memphis City Bank, 91 Tenn. 588; Reelfoot Lake Levee District v. Dawson, 97 Tenn. 151, 168, 169. In respect of the subjects of the latter kind the legislative discretion has a very comprehensive range. At the least, any occupation, business, employment, or the like affecting the public, may be classed and taxed as a privilege. Turnpike Cases, 92 Tenn. 372; Kurth v. State, 86 Tenn. 135; Jenkins v. Ewin, 8 Heisk. 456; Wiltse v. State, Ib. 544; State v. Schlier, 3 Heisk. 281; Columbia v. Guest, 3 Head, 414; Robertson v. Hennegar, 5 Sneed, 258; French v. Baker, 4 Sneed, 193; Mabry v. Tarver, 1 Hum. 94."

It is not open to controversy that the Legislature could impose a privilege tax upon corporations and their occupations and activities, but admitting as much it is insisted by complainants that the term "excise" used to characterize the tax is insufficient to accomplish such purpose, because it may mean an income tax or a privilege tax. The case of Pollock v. Farmers' Loan & Tr. Co., 157 U. S. 429, 15 Sup. Ct. 673, 39 L. Ed. 759, and Id., 158 U. S. 601, 15 Sup. Ct. 912, 39 L. Ed. 1108, is cited to sustain the insistence. This case presented the question of whether the tax upon the income from real estate and personal property was a direct tax within the meaning of article 1, § 9, par. 4, of the Constitution of the United States. A distinction was recognized between taxes derived from ownership of property, which was held to be a direct tax as distinguished from the excise upon a particular privilege under article 1, § 8, of the Constitution of the United States. In the language of Chief Justice Fuller in his opinion upon the first hearing, "an annual tax upon the annual value or annual user of real estate appears to us the same in substance as an annual tax on the real estate, which would be paid out of the rent or income," and the conclusion of that case was that such a tax was not an excise tax but a direct tax. The term "excise tax" was never applied to direct taxation. It is synonymous with "privilege tax," and the two are often used interchangeably. Ohio Tax Cases, 232 U. S. 592, 34 Sup. Ct. 372, 58 L. Ed. 737; Cooley on Taxation (3d Ed.) 31.

In 26 Ruling Case Law, p. 34, it is said:

"Excises, in their original sense, were something cut off from the price paid on a sale of goods, as a contribution to the support of government. The word has, however, come to have a broader meaning and includes every form of taxation which is not a burden laid directly upon persons or property; in other words, excise includes every form of charge imposed by public authority for the purpose of raising revenue upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation. The obligation to pay an excise is based upon the voluntary action of the person taxed in performing the act, enjoying the privilege or engaging in the occupation which is subject of the excise and the element of absolute and unavoidable demand is lacking."

In Flint v. Stone Tracy Co., 220 U. S. 145, 31 Sup. Ct. 346, 55 L. Ed. 389, Ann. Cas. 1912B, 1312, it is said:

"While the mere declaration contained in a statute that it shall be regarded as a tax of a particular character does not make it such if it is apparent that it cannot be so designated consistently with the meaning and effect of the act, nevertheless the...

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