Chesapeake & Potomac Tel. Co. of Va. v. City of Newport News

• Decision Date: 17 January 1955
• Docket Number: No. 4284,4284
• Citation: 85 S.E.2d 345,196 Va. 627
• Court: Virginia Supreme Court
• Parties: THE CHESAPEAKE AND POTOMAC TELEPHONE COMPANY OF VIRGINIA v. CITY OF NEWPORT NEWS. Record

Page 345

85 S.E.2d 345

196 Va. 627

THE CHESAPEAKE AND POTOMAC TELEPHONE COMPANY OF VIRGINIA v. CITY OF NEWPORT NEWS.

Record No. 4284.

Supreme Court of Appeals of Virginia

January 17, 1955.

Leigh D. Williams, W. R. C. Cocke, Harry H. Holt, Jr. and H. H. Walker Lewis, for the plaintiff in error.

Harry L. Nachman and Bert A. Nachman, for the defendant in error.

JUDGE: SPRATLEY

SPRATLEY, J., delivered the opinion of the court.

The plaintiff, The Chesapeake and Potomac Telephone Company of Virginia, is now and has been for many years operating its telephone business, both in interstate and intrastate commerce, within the City of Newport News, Virginia. The franchise under which it formerly operated expired December 31, 1950. That franchise required no payment of money to the City; but expressly reserved to the City the right to impose any lawful tax. By ordinance, the City imposed an annual license tax of $2,000, plus $1.00 per pole, and $1.00 per one hundred feet of conduit.

In October, 1950, negotiations were conducted by representatives of the City and the local manager of the Telephone Company with reference to a new franchise. The negotiators were unable to reach an agreement as to its terms and provisions, especially with regard to the character and amount of the annual license tax proposed to be imposed by the City. In January, 1951, the City Manager of Newport News had prepared a new franchise, which he recommended for adoption by the City Council. This franchise was considered by the Council at several of its meetings and at conferences held with representatives of the Telephone Company, prior to the adoption of the City's annual budget and appropriations ordinance for the fiscal year beginning May 1, 1951, and ending April 30, 1952; but its adoption was deferred.

On April 2, 1951, during the period of the negotiations with the Telephone Company, the City adopted on ordinance imposing license taxes for the year beginning May 1, 1951, thereby effecting a general increase of 10% in such taxes. This resulted in increasing the annual license tax of the Telephone Company to $4,321.85, consisting of a flat license of $2200.00, plus $1.10 per pole and $1.10 for each one hundred feet of conduit. The license tax in the increased amount was paid by the Telephone Company on April 27, 1951, and a license was issued to it for the year beginning May 1, 1951.

On April 30, 1951, still unable to reach an agreement with the Telephone Company as to the terms of a franchise, the City Council adopted an emergency ordinance amending Section 103 of the above ordinance imposing taxes on licenses for municipal purposes for the year commencing May 1, 1951. That amended ordinance, the subject of the controversy here, reads as follows:

'An Ordinance to Amend and Re-ordain Section 103 of an Ordinance Imposing Taxes on Licenses for Municipal Purposes for the year Commencing May 1, 1951, and For Each Year Thereafter, as Amended:

'Be It Ordained by the Council of the City of Newport News that Section 103 of an ordinance imposing taxes on licenses for municipal purposes for the year commencing May 1st, 1951, and for each subsequent year thereafter, and until further provisions are made, the following occupations, employment, professions and business transactions shall be deemed privileges, and shall not be pursued within the limits of the city without license, and the payment annually of the tax on each designated occupation, employment, profession or business respectively, be, and the same hereby is, amended and re-ordained to read as follows:

'Section 103. Telephone Companies.

'On each and every telephone company conducting a telephone exchange in this city and using and occupying the streets, avenues, and alleys in the city, and constructing and maintaining the works of the telephone company, or any part thereof, along, over and under the said streets, avenues and alleys in the city * * * three percent (3%) of the gross receipts from local telephone exchange service within the city, received by such company for the business done in said city for the preceding year ending April 30th, prior to each license year, and this amount shall include any and all amounts paid by such company as a merchant's license tax to said city. In determining the gross income, it shall be based on the business done exclusively in this city and shall not include business done to and from points without this State, and shall not include any business done for the Government of the United States, its officers or agents.

'Each Company at the time of making application for its license, shall file with the Commissioner of the Revenue of this city, a sworn statement, and also verified by oath of its agent in this city, should it have one, showing the amount of gross receipts or collections, and obligations taken therefor for the license year ending April 30th, previous to that which it desires a license, and the percentage tax should be paid thereon.

'It being necessary for the usual daily financial operation of the municipal government, an emergency is set forth and declared to exist, pursuant to Section 55 of the Charter of the City of Newport News, and this ordinance shall be in effect from the date of its passage.' (Emphasis added.)

Subsequent to May 1, 1951, the Commissioner of Revenue of the City forwarded a license questionnaire to the Telephone Company, and not receiving an answer, made an arbitrary assessment against the Company in the sum of $19,130.49 on August 4, 1951. It appeared from the evidence that plaintiff's gross receipts on local exchange service in the City for the year May 1, 1950-April 30, 1951, amounted to $637,683. The assessed value of the real and personal property of the plaintiff in the City is $1,077,532, an assessment made by the State Corporation Commission in the application of State-wide equalizing factors at 40% of the true value of such properties. The facilities of the plaintiff serve both the City of Newport News and the City of Warwick. According to plaintiff's record, its net income, before local taxes, attributable to its local service in Newport News, during the year ending April 30, 1951, amounted to $97,796.

On May 14, 1951, the City Council adopted a resolution authorizing the publication of a proposed franchise ordinance. The terms of the franchise were substantially the same as those submitted to the Council on January 8th, and to the Telephone Company on January 11, 1951. It provided for the payment to the City of 3% of the 'gross receipts from local telephone exchange service within the City,' and that the grantee should not be exempted 'from any license or pole taxes or other taxes and assessments that may be lawfully levied * * *.' It required the Telephone Company to furnish the City with certain free space on its poles and conduits, and certain free telephone service. The proposed franchise was advertised for sale; but no bids were received.

Thereafter, when the City sought to collect the tax imposed by the ordinance, the plaintiff instituted this proceeding in equity. It sought to have the ordinance declared unconstitutional and void, and prayed for an injunction to restrain any interference with its business and operations as a public service corporation. The City filed a demurrer to the bill, raising the question of equity jurisdiction. The trial court sustained the demurrer and dismissed the bill. On appeal we upheld the trial court in sustaining the demurrer; but held that there was an adequate remedy at law, and remanded the case to be tried on the law side of the trial court and treated as an application for the correction of an erroneous assessment under § 58-1145 of the Code of Virginia, 1950. The Chesapeake and Potomac Telephone Company of Virginia v. City of Newport News, 194 Va. 409, 73 S.E. (2d) 394.

Following the remand, the City filed an answer and the case was tried on its merits on May 27, 1953. Upon a consideration of the evidence, the trial court entered an order upholding the validity of the ordinance, and dismissed the Telephone Company's application for relief. This appeal brings up for review the validity of that ruling.

There are fifteen assignments of error, which are included in the general contentions next enumerated.

The Telephone Company contends that: (1) the City does not have the power either under the statutes or under its charter to tax its gross receipts; (2) that the ordinance violates the constitutional and statutory plan for the taxation of public service corporations in Virginia; (3) that if considered a privilege tax, it contravenes the Commerce Clause of the United States Constitution; (4) that the tax imposed is arbitrary, excessive and discriminatory, and deprives the Telephone Company of the equal protection of the law in violation of the Fourteenth Amendment of the United States Constitution; (5) that the ordinance does not comply with the terms of the City charter; and (6) that the ordinance is not a bona fide tax measure enacted in compliance with the terms of the charter of the City, but was adopted for an ulterior purpose beyond the power of the City Council. In addition, it complains of the admission of certain evidence.

The first question is whether the City had the power and right under its charter and relevant statutes to subject the plaintiff to the license tax imposed by the ordinance.

The City relies upon Sections 104 and 105 of its charter and § 58-266.1 of Virginia Code, 1950.

Section 104 ¹ of the City Charter authorizes the Council of the City to levy taxes 'annually' by assessments 'on all subjects not withheld from city taxation by the state and such subjects as have been, or may be, segregated to the city by the state, for the purpose of taxation, * * *,' and 'in such manner as it shall deem expedient (in accordance with the laws of this state, and of the United States); * * *.' Both the method of assessment and the...