City of Louisville v. Cromwell, Treasurer

• Decision Date: 16 May 1930
• Parties: City of Louisville et al. v. Cromwell, Treasurer, et al.
• Court: United States State Supreme Court — District of Kentucky

233 Ky. 828

City of Louisville et al. v. Cromwell, Treasurer, et al.

Court of Appeals of Kentucky.

Decided March 28, 1930.

As Modified, on Denial of Rehearing, May 16, 1930.

1. Licenses. — Since Constitution, sec. 170, exempting public property used for public purposes from taxation, refers only to ad valorem taxes, and has no application to license, franchise, occupation, or excise taxes authorized to be levied and collected under section 181, city was not exempt from payment of tax imposed on gasoline pursuant to provisions of Acts 1928, c. 127, sec. 1 (Ky. Stats., sec. 4224b-1), in view of provision of Constitution, sec. 3, to effect that no property shall be exempt from taxation except as provided therein.

2. Taxation. — In determining asserted rights of exemption from taxation, the language of instrument conferring the exemption must be strictly construed, since the right is one carved out for benefit of claimant and which is not enjoyed by inhabitants generally, and is therefore a species of conferred special privilege which must be clearly stated and set forth.

3. Licenses. — Where public agencies intrusted with administration of Acts 1928, c. 127, sec. 1 (Ky. Stats., sec. 4224b-1), had construed statutes so as not to allow exemption to municipalities and other public subdivisions from payment of tax, failure of Legislature with such interpretation publicly known to enact any amendment excusing such governmental agencies from paying tax evidenced legislative construction of provisions of Constitution, sec. 170, exempting public property from taxation.

Appeal from Franklin Circuit Court.

WM. G. DEARING, WM. T. BASKETT and JOHN E. TARRANT for appellants.

J.W. CAMMACK, Attorney General, and CLIFFORD E. SMITH and GEO. H. MITCHELL, Assistant Attorneys General, for appellees.

OPINION OF THE COURT BY CHIEF JUSTICE THOMAS

Affirming.

Section 3 of our Constitution says in part, "No property shall be exempt from taxation except as provided in this constitution;" and section 170 of the same instrument also says in part, "There shall be exempt from taxation public property used for public purposes. . . institutions of purely public charity. . . ."

Section 4224b-1, which is a part of chapter 127, p. 427, of the Session Acts of 1928, enacts in part: "A state tax of five (5) cents per gallon is hereby imposed on all gasoline, as defined herein, sold in this Commonwealth at wholesale, as the words `at wholesale' are hereinafter defined. No other excise or license tax shall be levied or assessed on gasoline by the State or any county, city, town or other district. The tax hereby provided for. . . . shall be paid by said person, firm, association or corporation into the general fund of the State Treasury in the manner and within the time hereinafter specified. The words `at wholesale' as used in this act, shall be held and construed to mean and include any and all sales made for the purpose of resale or distribution, or for use, and, as well, the gasoline furnished or supplied for distribution within this State, whether the distributor be the same person who so furnished the same, his agent or employee, or another person; and also to mean and include any person who shall purchase or obtain gasoline without the State and sell or distribute or use the same within the State."

This declaratory judgment action was filed in the Franklin circuit court by the appellant and plaintiff below, city of Louisville, against the wholesale dealer with whom it had a contract to furnish it gasoline to be used in its various motor transportation vehicles in the performance of its purely governmental functions, and against certain state officers having duties to perform with reference to the collection of the gasoline tax, for the purpose of having it determined whether plaintiff was and is exempt from the payment of that tax under the provisions of section 170 of the Constitution supra. A demurrer to the petition as amended, filed by the official defendants, was sustained, and, plaintiff declining to plead further, its petition was dismissed, and all of which was upon the ground that plaintiff was not entitled to the exemption contended for by it; and, to reverse that judgment, it and its wholesole dealer, who also insisted on the exemption, prosecute this appeal.

It seems to be the universal rule, and which is admitted by counsel for both sides in this case, that exemption from taxation is a matter of grace, to be granted or withheld by the sovereignty levying and collecting the tax either by constitutional or statutory provisions. If the Constitution is entirely silent on the subject, thereby placing no restrictions on the Legislature, the latter may legally grant exemptions in the form of a duly enacted statute, and which principles are necessarily true and result from the power to prescribe what property shall be taxed, since the exercise of that power implies also the power "to prescribe what property shall be exempt, and in the absence of a special constitutional provision to the contrary, the legislature may exempt such classes of property (or persons) from taxation as in its opinion the public policy of the state requires." 26 R.C.L. 297, sec. 262. We repeat, the above statement of the law is everywhere recognized, and we need not incumber this opinion with further citations in its support, since it inheres in the very fundamental principles of self-government which acknowledge no superior authority over the people who compose it, and, unless they in their fundamental charter or Constitution have prescribed otherwise, the legislature in the exercise of the power delegated to it may provide for such exemptions from taxation as it sees proper.

However, sections 3 and 170 of our Constitution do contain restrictions upon the power and authority of the Legislature to grant exemptions from taxation. Section 3 of that instrument expressly inhibits such exemptions, except such as may be prescribed in other parts of that instrument, and the only other part in it referring thereto is section 170. Unless, therefore, the right to the exemption claimed by plaintiff is given by the latter section of the Constitution, it clearly has none, and in which event the judgment appealed from was and is correct and should be affirmed.

It is the contention of the defendants representing the commonwealth, which reap the entire benefit of the taxation involved, that section 170 of the Constitution applies and refers to only ad valorem taxes levied upon the assessed valuation of property of the owner, and, being so, its provisions exempt the public property of municipal corporations, of which plaintiff is one, and that it has no application whatever to license, franchise, occupation, or excise taxes authorized to be levied and collected under section 181 of the Constitution; while plaintiff contends to the contrary, and which presents the sole question for determination.

The general rule applicable to asserted rights of exemption from taxation is that the language of the instrument conferring the exemption must be strictly construed, since the right is a carved out one for the benefit of the claimant and which is not enjoyed by the inhabitants generally, and it is therefore a species of conferred special privilege which must be clearly stated and set forth before it will be given. 26 R.C.L. 313, sec. 274, and Cooley on Taxation (4th Ed.) vol. 2, p. 1403, sec. 672. All other writers and courts when dealing with the subject apply the general rule as so stated, but Mr. Cooley, on page 1414, sec. 673, of his same work, says that, while some jurisdictions apply such strict construction rule to exemptions of municipal property, "the better rule is that strict construction of exemptions statutes apply to exemptions of property held in private ownership, but not to exemptions of public property." In support of the application of the strict construction rule to such property, the learned author cites the case of Board of Directors of Stimson Memorial Library v. Board of Review of Union County, 248 Ill. 590, 94 N.E. 153, and, in support of the nonapplicability of the strict construction rule to such property, he cites the cases of Pasadena v. Los Angeles County, 182 Cal. 171, 187 P. 418, State v. City of Columbia, 115 S.C. 108, 104 S.E. 337, and Commonwealth v. City of Richmond, 116 Va. 69, 81 S.E. 69, L.R.A. 1915A, 1118. In this case it is unnecessary for us to determine the seeming conflict in that regard, or to adjudge which one of the two holdings we will adopt, since, if we should align ourselves with courts holding to the latter construction (i.e., that it should not prevail as to exemptions from taxation of municipal property), then we would still be bound by the interpretation of this court as to the character of taxes referred to and included in section 170 of our Constitution, wherein only is found the right to the exemption claimed by plaintiff in this case.

Preliminary to references to former opinions of this court bearing upon the question, it might be appropriate to state generally that taxes are divided into various sorts and kinds, outstanding among which are ad valorem taxes, while others are franchise and license taxes, excise taxes, special taxes, and other subdivisions or classifications unnecessary to mention. Independently of any prior interpretation of section 170 of our Constitution, its language and that of its sections 171, 172, and 174 would appear to exclusively deal with only ad valorem taxes, and the language of section 170, under which the right claimed here is asserted, is with reference to a tax levied upon property, for it says, "There shall be exempt from taxation public property used for public purposes." In the next section (171) the General Assembly is required to provide for an annual tax to be collected for public purposes only, which "shall be uniform upon all property of the same class subject to...