Citizens Bank of Weston v. City of Weston

• Decision Date: 09 February 2001
• Docket Number: No. 28458.,28458.
• Citation: 544 S.E.2d 72,209 W.Va. 145
• Court: West Virginia Supreme Court
• Parties: The CITIZENS BANK OF WESTON, INC., A West Virginia Corporation, Bennett D. Orvik, M.D., d/b/a Primary Health Care Assoc., and the Sun Lumber Company, A West Virginia Corporation, Plaintiffs Below, Appellants, v. The CITY OF WESTON, A West Virginia Municipal Corporation, Defendant Below, Appellee.

544 S.E.2d 72

209 W.Va. 145

The CITIZENS BANK OF WESTON, INC., A West Virginia Corporation, Bennett D. Orvik, M.D., d/b/a Primary Health Care Assoc., and the Sun Lumber Company, A West Virginia Corporation, Plaintiffs Below, Appellants, v. The CITY OF WESTON, A West Virginia Municipal Corporation, Defendant Below, Appellee.

No. 28458.

Supreme Court of Appeals of West Virginia.

Submitted January 9, 2001.

Decided February 9, 2001.

W.T. Weber, Jr., W.T. Weber, III, Weber & Weber, Weston, for the Appellants.

Michael Clay Smith, Margaret D. Smith, Smith & Smith, Hattiesburg, MS, for the Appellee.

Sandra M. Murphy, Michael E. Caryl, Brian A. Price, Bowles Rice McDavid Graff & Love, PLLC, Charleston, for the Amicus Curiae, The West Virginia Bankers Association.

Dennis R. Vaughan, Jr., James V. Kelsh, Of Counsel, Vaughan Law Firm, Charleston, for the Amicus Curiae, West Virignia Municipal League, Inc.

ALBRIGHT, Justice:

Citizens Bank ("Citizens") et al.¹ appeals from the February 24, 2000, order² of the Circuit Court of Lewis County upholding the Appellee City of Weston's recently enacted Business and Occupation Tax ("B & O tax"). The lower court rejected Appellant's argument that the Weston B & O tax violates the Equal Protection Clause of both the West Virginia Constitution and the United States Constitution.³ After fully examining the issues raised, we conclude that the lower court did not commit error and accordingly, affirm.

I. Factual and Procedural Background

Effective July 1, 1998, the City of Weston ("City") amended its municipal code⁴ to enact an ordinance permitting the assessment of a B & O tax against various city businesses. Under section 27-42 of the Weston ordinance, banking and other financial institutions are to be taxed at a rate of .75% of the "gross income received from interest, premiums, discounts, dividends, service fees or charges, commissions, fines, rents ... royalties, charges for bookkeeping or data processing, receipts from check sales, charges or fees, and receipts from the sale of tangible personal property." The authority for levying a municipal B & O tax comes from West Virginia Code § 8-13-5(a) (1998), which provides that:

(a) Authorization to impose tax.—(1) Whenever any business activity or occupation, for which the state imposed its annual business and occupation or privilege tax under article thirteen [§ 11-13-1 et seq.], chapter eleven of this code, prior to July one, one thousand nine hundred eightyseven, is engaged in or carried on within the corporate limits of any municipality, the governing body thereof shall have plenary power and authority, unless prohibited by general law, to impose a similar business and occupation tax thereon for the use of the municipality.

W.Va.Code § 8-13-5(a) (emphasis supplied).

Citizens filed a declaratory judgment action with the circuit court, seeking to have the B & O tax declared unconstitutional on equal protection grounds. In support of its equal protection argument, Citizens asserted that: (1) the rate setting among the various business classes was performed in an arbitrary and capricious manner and lacked a rational basis; and (2) the B & O tax discriminates against Citizens because a local bank such as Citizens will have to pay⁵ a disproportionate share of the total tax compared to the branch banks (United National Bank and Huntington Bank) located in Weston.⁶ After a bench trial on November 15, 1999, which included the testimony of several experts,⁷ the circuit court upheld the ordinance in its ruling dated February 24, 2000, finding no basis for declaring the Weston B & O tax unconstitutional. Citizens filed motions based on Rules 59 and 52(a), seeking a new trial or, alternatively, an amendment of the findings and judgment of the lower court. By order entered March 22, 2000, the circuit court denied Citizens' motions for relief.

II. Standard of Review

Whether we view the February 22nd or the March 24th order as the order appealed from,⁸ the appropriate standard of review is the same. We recognized in syllabus point one of Chrystal R.M. v. Charlie A.L., 194 W.Va. 138, 459 S.E.2d 415 (1995), that "[w]here the issue on an appeal from the circuit court is clearly a question of law or involving an interpretation of a statute, we apply a de novo standard of review." Our reviewing standard for denial of a new trial motion was articulated in Tennant v. Marion Health Care Foundation, Inc., 194 W.Va. 97, 459 S.E.2d 374 (1995):

We review the rulings of the circuit court concerning a new trial and its conclusion as to the existence of reversible error under an abuse of discretion standard, and we review the circuit court's underlying factual findings under a clearly erroneous standard. Questions of law are subject to a de novo review.

Id. at 104, 459 S.E.2d at 381. Under either of these standards, a de novo standard of review applies to the issue of the constitutionality of the B & O tax ordinance.

III. Discussion

The level of scrutiny required to analyze equal protection challenges that involve economic rights was articulated in syllabus point four of Gibson v. West Virginia Department of Highways, 185 W.Va. 214, 406 S.E.2d 440 (1991):

"`Where economic rights are concerned, we look to see whether the classification is a rational one based on social, economic, historic or geographic factors, whether it bears a reasonable relationship to a proper governmental purpose, and whether all persons within the class are treated equally. Where such classification is rational and bears the requisite reasonable relationship, the statute does not violate Section 10 of Article III of the West Virginia Constitution, which is our equal protection clause.' Syllabus Point 7, [as modified,] Atchinson v. Erwin, , 302 S.E.2d 78 (1983)." Syllabus Point 4, as modified, Hartsock-Flesher Candy Co. v. Wheeling Wholesale Grocery Co., 174 W.Va. 538, 328 S.E.2d 144 (1984).

We stated in Lewis v. Canaan Valley Resorts, Inc., 185 W.Va. 684, 408 S.E.2d 634 (1991), that "classifications, including those which involve economic rights, are subjected to the least level of scrutiny, the traditional equal protection concept that the legislative classification will be upheld if it is reasonably related to the achievement of a legitimate state purpose." Id. at 691, 408 S.E.2d at 641. This is in accord with federal law, which similarly subjects equal protection challenges involving economic interests to the "rational relationship" test. See San Antonio Indep. Sch. Dist. v. Rodriguez, 411 U.S. 1, 93 S.Ct 1278, 36 L.Ed.2d 16 (1973); accord FCC v. Beach Communications, Inc., 508 U.S. 307, 313, 113 S.Ct. 2096, 124 L.Ed.2d 211 (1993).

In syllabus point one of Town of Burnsville v. Kwik-Pik, Inc., 185 W.Va. 696, 408 S.E.2d 646 (1991), we held that:

The rules for construing statutes also apply to the interpretation of municipal ordinances. There is generally a presumption that an ordinance is valid when it appears that its subject matter is within a municipality's power and it has been lawfully adopted. The burden of proof is on the person asserting that the ordinance is invalid.

Against these principles, we examine the equal protection arguments raised by Citizens.⁹

A. Rate-Setting and Rate-to-Class Structuring

Citizens contends that the Weston B & O tax should not be upheld because the rate setting among the various business classes was performed arbitrarily and capriciously and because the rate setting lacks a rational basis. At the center of this contention is Citizens' claim that the inclusion of the term "similar" in West Virginia Code § 8-13-5(a) requires any municipality that institutes a B & O tax to follow the exact same rate-setting and rate-to-class structure that was imposed by the state under its B & O tax system prior to its repeal on July 1, 1987.¹⁰ Reasoning in a circular fashion, Citizens states: "The rate-to-class comparison with the State's pre-1987 B & O Tax is the crux of the test [sic] whether Weston's B & O Tax is similar to the State's pre-1987 B & O Tax as required by W.Va.Code § 8-13-5(a)."

Upon a review of the various statutory versions of both West Virginia Code §§ 11-13-1¹¹ (former statute authorizing state B & O tax) and 8-13-5,¹² we cannot reach the conclusion that the statutory term "similar" is in fact a requirement that any B & O tax enacted by a municipality must be identical with regard to rates and rate-to-class structure as the state B & O tax in effect prior to July 1, 1987. We find no basis for accepting Citizens' position that the insertion of the explanatory language referencing the pre-July 1, 1987, state B & O tax governs how municipalities structure their B & O taxes. The term "similar," as it is used in West Virginia Code § 8-13-5(a), does not refer to rates in effect at any given time. Instead, that term merely refers to the nature of the tax—a privilege tax on the exercise of certain businesses. Accordingly, we hold that in granting municipalities the authority to impose a "similar" B & O tax through the provisions of West Virginia Code § 8-13-5(a), the Legislature did not require that the tax imposed by municipalities be identical in rate and structure to the state B & O tax in effect prior to July 1, 1987.

This Court's decision in Kwik-Pik provides analogous support for our interpretation of the term "similar." Like Citizens, the defendant business in Kwik-Pik relied on the term "similar" in asserting that the Burnsville B & O ordinance was invalid because it lacked exemptions identical to those previously provided under the state B & O tax scheme and because the interest and penalty provisions did not parallel those of the former state B & O tax. This Court rejected both of these arguments, finding that the Legislature did not insert those requirements in the language of West Virginia Code § 8-13-5 and that the term "similar" did not require municipal B & O taxes which mirrored the former state B & O tax. 185...