Burr v. Chase

• Court: Washington Supreme Court
• Writing for the Court: BEALS, J.
• Citation: Burr v. Chase, 157 Wash. 393, 289 P. 551 (Wash. 1930)
• Decision Date: 12 June 1930
• Docket Number: 22229.
• Parties: BURR et al. v. CHASE et al., Tax Commission. [*]

289 P. 551

157 Wash. 393

BURR et al. v. CHASE et al., Tax Commission. ^[*]

No. 22229.

Supreme Court of Washington, En Banc.

June 12, 1930

Appeal from Superior Court, Thurston County; John M. Wilson, Judge.

Action by George H. Burr, Conrad & Broom, Inc., and others, against Samuel H. Chase and others, comprising the Tax Commission of the State of Washington. From a judgment dismissing the action, plaintiffs appeal.

Reversed with instructions.

State tax measured by net income, including income from national tax-exempt obligations, held invalid as contravening federal laws.

FULLERTON MILLARD, and HOLCOMB, JJ., dissenting.

Donworth Todd & Holman, George Donworth, Charles T. Donworth, and Todd, Holman & Sprague, all of Seattle, for appellants.

John H. Dunbar and E. W. Anderson, both of Olympia, for respondents.

BEALS J.

This case involves an attack upon chapter 151, p. 380, Session Laws of 1929, similar to that waged in the case of Aberdeen Savings & Loan Association et al. v. Samuel H. Chase et al. (Wash.) 289 P. 536, in which in an action brought by a group of savings and loan associations, we held the act unconstitutional as in violation of the equal protection clause of the Constitution of the United States, and as attempting to tax governmental tax-exempt securities. Reference is made to the opinion referred to for a general statement of the situation involved here.

Plaintiffs are corporations engaged within the state of Washington in the business of dealing in investment securities. They instituted this action on their own behalf and for the benefit of all similar corporations for the purpose of enjoining the enforcement of chapter 151, p. 380, Session Laws of 1929, alleging that the act is in violation of their constitutional rights. Defendants demurred to plaintiffs' complaint on the ground that the same did not state a cause of action. This demurrer having been sustained by the trial court, plaintiffs elected to stand upon their complaint, and a decree was entered dismissing the action, from which plaintiffs appeal.

Appellants allege that they were, during the year 1928, and still are, corporations of the character denominated 'financial corporations' by the act above referred to, and that, pursuant to the provisions of this act, respondents had levied taxes against appellants for the year 1929 aggregating a considerable amount, which taxes respondents were threatening to certify to the several county assessors for collection.

Appellants allege that the total aggregate amount of the capital, surplus, and undivided profits, together with the resources, of the financial corporations doing business in the state of Washington, is approximately $50,000,000, and that corporations similar to appellants employ a total capital of approximately $15,000,000, and that under the act of which they complain appellants and similar financial corporations would be required to pay to the state taxes for the year 1929 in a sum exceeding $200,000; that in the state of Washington there are and were during the year 1928 many individuals and copartnerships engaged in the business of dealing in investment securities exactly as are appellants, and engaged in vigorous competition with appellants; that the business in which appellants are engaged is generally known as that of 'investment banking'; and that in the city of Seattle alone there are five copartnerships carrying on that business, which five copartnerships alone do a business in the state of Washington amounting to hundreds of millions of dollars, and earn large net profits.

Appellants contend that, because these individuals and copartnerships, which are carrying on exactly the same business in which appellants are engaged, are not by the act now before us taxed upon their net income, as the act requires appellants to be taxed, the act is unconstitutional under the Fourteenth Amendment to the Constitution of the United States as denying to appellants the equal protection of the laws.

Appellants, in a second cause of action, allege that in their returns of net income they were required by respondents to include the sums which they had, during the year 1928, received as interest on bonds or securities of the United States, and that the act of 1929 is unconstitutional for the reason that it attempts to tax governmental securities which are by federal law exempt from taxation.

Appellants urge other grounds of attack upon the law, but the conclusion which we reach renders necessary discussion only of the two above referred to.

We are clearly of the opinion that chapter 151, p. 380, Session Laws of 1929, is, as regards appellants, unconstitutional, in that it denies them equal protection of the laws, to which protection they are entitled under the Fourteenth Amendment to the Constitution of the United States. The opinion of the Supreme Court of the United States in the case of Quaker City Cab Co. v. Pennsylvania, 277 U.S. 389, 48 S.Ct. 553, 554, 72 L.Ed. 927, is even more exactly in point in this case than it was in the case of Aberdeen Savings & Loan Association v. Chase, supra, as the direct competition between appellants in their business and private individuals and copartnerships engaged in the same business in the same locality is much more keen and general and applies more directly to the entire business carried on by appellants than does the competition to which the appellants in the case last cited are subjected. The Supreme Court of the United States in the case of Quaker City Cab Co. v. Pennsylvania says:

'Plaintiff in error was subject to competition in its business by individuals and partnerships operating taxicabs. The act does not apply to them, and no tax is imposed on their receipts. Corporations operating taxicabs are not exempted from any of the taxes imposed on natural persons carrying on that business. And every such corporation, whether domestic or foreign, pays a capital stock tax of 5 mills on the actual value of its capital stock and a bonus of one-third of one per cent. on the par value of all stock issued if it be a domestic corporation, and a like rate on its capital employed in Pennsylvania if it be a foreign corporation. Act of July 22, 1931, P. L. 903 (Pa. St. 1920, §§ 20366-20368); section 1, Act of May 3, 1899, P. L. 189 (Pa. St. 1920, § 5686); section 1, Act of May 8, 1901, P. L. 150 (Pa. St. 1920, § 5691). The Supreme Court said that it is immaterial whether individuals engaged in a like taxicab business are subject to the tax here involved, and that corporations may be placed in a class separate from individuals and so taxed.

'The equal protection clause extends to foreign corporations within the jurisdiction of the state, and safeguards to them protection of laws applied equally to all in the same situation. Plaintiff in error is entitled in Pennsylvania to the same protection of equal laws that natural persons within its jurisdiction have a right to demand under like circumstances. Kentucky Finance Corporation v. Paramount Exch., 262 U.S. 544, 550, 43 S.Ct. 636, 67 L.Ed. 1112. The equal protection clause does not detract from the right of the state justly to exert its taxing power or prevent it from adjusting its legislation to differences in situation or forbid classification in that connection, 'but it does require that the classification be not arbitrary, but based on a real and substantial difference having a reasonable relation to the subject of the particular legislation.' Power Co. v. Saunders, 274 U.S. 490, 493, 47 S.Ct. 678, 679, 71 L.Ed. 1165.'

The court in discussing the issues calls attention to the fact that the receipts of incorporated taxicab operators are taxed, while those of natural persons and...