Barhorst v. City of St. Louis

• Decision Date: 11 December 1967
• Docket Number: No. 52268,52268
• Parties: Frank BARHORST et al., Appellants, v. The CITY OF ST. LOUIS, a Municipal Corporation, et al., Respondents.
• Court: Missouri Supreme Court

Page 843

423 S.W.2d 843

Frank BARHORST et al., Appellants, v. The CITY OF ST. LOUIS, a Municipal Corporation, et al., Respondents.

No. 52268.

Supreme Court of Missouri, En Banc.

Dec. 11, 1967.

As Modified Feb. 12, 1968.

Rehearing Denied Feb. 12, 1968.

Grove G. Sweet, Sweet, Schwarz & McGhee, St. Louis, for plaintiffs-appellants.

Thomas F. McGuire, City Counselor, Aubrey B. Hamilton, Assoc. City Counselor, Raymond A. Bruntrager, St. Louis, for defendants-respondents.

SEILER, Judge.

Plaintiffs, consisting of twenty-eight individuals and one corporation, instituted this action for a declaratory judgment challenging the constitutionality of (1) the enabling legislation for what is known as the 'St. Louis earning tax,' act approved April 21, 1954, Laws 1953, 2nd Ex.Sess., p. 14, now Secs. 92.110 to 92.200, RSMo 1959, V.A.M.S.; (2) the provision of the Charter of the City of St. Louis authorizing the earnings tax; and (3) the St. Louis ordinances imposing the tax. The trial court sustained defendants' motion to dismiss the petition and plaintiffs have appealed.

The individual plaintiffs may be classified into two groups: (1) nonresidents of the City of St. Louis who have earned wages or received other compensation for services performed in said city, and (2) residents of the City of St. Louis who have earned wages or received other compensation for services performed either in or outside the said city. The corporate plaintiff had profits from its activities within the said city.

Plaintiffs first assert that the St. Louis ordinance, together with the provision of the Charter of the City of St. Louis and Secs. 92.110 to 92.200, Supp. RSMo 1965, V.A.M.S., are unconstitutional 'in selecting earned income as the subject of taxation, to the exclusion of unearned income such as rents, dividends, interest and the like,' because they thereby adopt 'an arbitrary and unreasonable classification' in violation of Sec. 3, Art. X, 1945 Constitution, V.A.M.S., ('Taxes * * * shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax.'), and the equal protection clause of the Fourteenth Amendment to the Constitution of the United States.

Sec. 92.210, Supp. RSMo 1965, V.A.M.S., provides that certain charter cities, which include the City of St. Louis, are 'hereby authorized to levy and collect, by ordinance for general revenue purposes, an earnings tax on the salaries, wages, commissions and other compensation earned by its residents; on the salaries, wages, commissions and other compensation earned by nonresidents of the city for work done or services performed or rendered in the city; on the net profits of associations, businesses or other activities conducted by residents; on the net profits of associations, businesses or other activities conducted in the city by nonresidents; and on the net profits earned by all corporations as the result of work done or services performed or rendered and business or other activities conducted in the city.' Neither the enabling act, the Charter provision, nor the ordinance authorizes the imposition of an earning tax on what has been termed 'unearned income'. The ordinance does not purport to impose such a tax.

Although statements of the general principles applicable to this contention of plaintiffs may be found in numerous Missouri and other cases, a complete and inclusive statement is set forth in 84 C.J.S. Taxation § 36, as follows:

'As a general rule, within constitutional limitations, the state has power to classify persons or property for purposes of taxation, and the exercise of such power is not forbidden by the constitutional requirement that taxation be uniform and equal. So the legislature may arrange and divide the various subjects of taxation into distinct classes and impose different rates on the several classes, or tax one class to the exclusion of the others, without violating the requirement of equality and uniformity, and it may exercise wide discretion in selecting and classifying the subjects of taxation, provided the tax is uniform on all members of the same class, and provided the classification of the subjects of taxation is reasonable and provided the classification of the subjects of taxation, as has been held, is not arbitrary.'

See also the statement of this rule in State ex rel. Transport Manufacturing & Equipment Co. v. Bates, 359 Mo. 1002, 224 S.W.2d 996, 1000.

The power to classify for tax purposes is primarily in the legislature and not in the courts, and laws should not be declared invalid unless it clearly appears that they transgress some constitutional provision. Aetna Cas. & Sur. Co. v. Smith, 36 Del.Ch. 391, 131 A.2d 168. There is no fixed standard or 'precise yardstick' as to reasonableness of classification, Conard v. State, 2 Terry, Del., 107, 16 A.2d 121, but the classification cannot be "palpably arbitrary." State ex rel. Transport Manufacturing & Equipment Co. v. Bates, supra. It is not necessary that the court perceive the precise legislative reason for the classification, and the legislature is not required to preamble or label its classification for tax purposes, or disclose the principles on which they are made. It is sufficient if the court, on review, may find them supported by 'justifiable reasoning.' 84 C.J.S. Taxation § 36 at p. 121.

The issue thus becomes whether the classification by the legislature of 'salaries, wages, commissions and other compensation earned,' without including 'unearned' income from 'rent, dividends, and interest and the like' (to use plaintiffs' language), is so unreasonable and arbitrary as to fail to meet constitutional standards.

Plaintiffs cite no case precisely in point which supports their position. They rely primarily on the Bates case cited above, and cite several other cases in which general principles are stated. We reach the conclusion that the classification of 'salaries, wages, commissions and other compensation earned' for purposes of a city earnings tax has a reasonable basis and is not arbitrary. Rent, dividends, and interest are derived primarily from property already subject to a city tax if within the jurisdiction, and a classification to avoid double taxation has been recognized as constitutionally sound, In re Miller's Estate, 239 Wis. 551, 2 N.W.2d 256, 139 A.L.R. 1056. It was stated in Colchensky v. Oklahoma Tax Commission, 184 Okl. 207, 86 P.2d 329, 'That the Legislature had the right to classify and place in different classes incomes derived from tangible and intangible sources has not been questioned and cannot be denied.'

The only case we have found that might be considered to be substantially in point is Marshall v. South Carolina Tax Commission, 178 S.C. 57, 182 S.E. 96, 98. In that case the tax was placed on income received from interest and dividends but not on income received from personal or professional service. The court said this: 'The complaint also alleges that the act makes a hostile and arbitrary discrimination against persons whose income is received from interest and dividends and in favor of persons whose income is received from other sources, and thus creates an illegal classification. I do not think this objection sound. The Legislature has exceedingly broad powers in classifying subjects for taxation. * * * I think it is sufficient to say that the Legislature may put in one class and tax differently persons who receive interest and dividends from those who earn an income otherwise, that is, by personal or professional service. The plaintiff must be able to satisfy the court that the classification has its origin in nothing better than whim and fantasy and tyrannical exercise of arbitrary power, before the tax in question will be stricken down.' For these reasons we conclude that the classification in this case meets constitutional requirements and limitations.

Plaintiffs next assert that the earnings tax is arbitrary and void in that it 'unreasonably discriminates between resident individual taxpayers and resident corporate taxpayers' because it taxes the 'entire earned income of the individual, but only that earned in the City by the corporation.'

As to resident individuals the tax is imposed on compensation earned for services performed within and without the city. The tax as to corporations is imposed on 'the net profits * * * as a result of work done or services performed or rendered, and business or other activities conducted in the city.'

Plaintiffs cite only Quaker City Cab Co. v. Commonwealth of Pennsylvania, 277 U.S. 389, 48 S.Ct. 553, 72 L.Ed. 927. We do not consider that case to be in point and controlling. There a tax was placed on the gross receipts of every transportation company only if owned by corporations but not if owned by individual or partnerships, and the tax was held to be discriminatory. That case presents no analogy between the classification there and the classification in this case. "The burden is on the one attacking the legislative arrangement to negative every conceivable basis which might support it," Walters v. City of St. Louis, banc, 364 Mo. 56, 259 S.W.2d 377, and plaintiffs have not done so in this case.

However, it is our conclusion that the classification is not subject to constitutional objections. It was expressly held in the Walters case, cited above, and in Walters v. City of St. Louis, 347 U.S. 231, 236, 74 S.Ct. 505, 509, 98 L.Ed. 660, 665, that a classification for tax purposes of earned income by individuals as against net profits of corporations was a reasonable and valid classification. In the latter case it was said: '* * * (T)he ordinance classifies incomes for taxation according to their sources, one category consisting of salary and wage income and the other of profits from self-employment or business enterprise. Classification of earned income as against earned profits is not uncommon * * * (i)t is a classification employed extensively in...