Community Public Service Co. v. James

• Decision Date: 18 November 1942
• Docket Number: No. 9320.,9320.
• Citation: 167 S.W.2d 588
• Parties: COMMUNITY PUBLIC SERVICE CO. v. JAMES et al.
• Court: Texas Court of Appeals

167 S.W.2d 588

COMMUNITY PUBLIC SERVICE CO. v. JAMES et al.

No. 9320.

Court of Civil Appeals of Texas. Austin.

November 18, 1942.

Rehearing Denied January 6, 1943.

COPYRIGHT MATERIAL OMITTED

Appeal from 98th Judicial District Court, Travis County; J. D. Moore, Judge.

Action by the Community Public Service Company against Jesse James and others to recover mortgage registration tax paid under protest by plaintiff. From an adverse judgment, plaintiff appeals.

Affirmed.

Bennett L. Smith, of Fort Worth, for appellant.

Gerald C. Mann, Atty. Gen., and Billy Goldberg, Harold McCracken, and Cecil C. Rotsch, Asst. Attys. Gen., for appellees.

McCLENDON, Chief Justice.

Mortgage Registration Tax Law case, Art. 7047e note, Vernon's Ann.Civ.St., Sec. 9, Art. IV of H.B.No.8, Ch. 495, p. 2080, Gen.Laws, 3d Called Sess. 44th Leg.1936, amended in 1939 by S.B. 24, c. 5, p. 630, Gen.Laws, Reg.Sess. 46th Leg., amended in 1941 by S.B. 97, Ch. 16, p. 27, Gen. Laws, 47th Leg.; and repealed in 1941 by H.B. 514, Ch. 449, p. 723, Gen.Laws 47th Leg. The suit which arose under the 1939 amendment was by appellant to recover the tax which it had paid under protest under Art. 7057b, Vernon's Ann. Civ.St. The appeal involves: validity of the law; effect of the repealing act; applicability of Art. 7057b to the suit; and the parties necessary thereto.

The salient features of the law as amended in 1939, stated substantially except where quoted, follow:

The tax was 10¢ on each $100 or fraction thereof over $200 on all obligations secured by lien instruments "which are filed or recorded in the office of the County Clerk under the Registration Laws of this State." Instruments securing obligations of $200 or less were expressly exempted. Instruments included were required to have tax stamps affixed to the amount of the tax before they were permitted to be filed for registration. When part of the lien property was located outside the state, the amount of the tax was based upon the proportionate value of the Texas property. "Except as to renewals or extensions of accrued interest" the tax did not apply to renewal or extension or refunding instruments theretofore stamped, and applied to only one instrument (that of the greater denomination) where several instruments contemporaneously executed secured one obligation. When once stamped an instrument might be recorded in any number of counties without being restamped. The law contained the following exemption clause: "This section shall not apply to instruments, notes, or other obligations taken by or on behalf of the United States or of the State of Texas, or any corporate agency or instrumentality of the United States, or of the State of Texas in carrying out a governmental purpose as expressed in any Act of the Congress of the United States or of the Legislature of the State of Texas, nor * * * to obligations or instruments secured by liens on crops and farm or agricultural products, or to livestock or farm implements, or an abstract of judgment."

With reference to instruments which did not state the amount secured or which showed that part of the lien property was outside the state, it provided that "the County Clerk shall require proof by written affidavits of such facts as may be necessary to determine the amount of the tax due."

Payment of the tax was to be evidenced by stamps provided by the State Treasurer, who was required to keep a supply on hand at all times "for sale to any person upon demand and payment therefor." He was also required upon request to "consign" stamps to the county clerks. The latter were required to keep a supply on hand for sale, and to remit monthly to the Treasurer (State Treasurer) receipts from sales, but were "entitled to retain as fees of office for handling said stamps" 5% of the amount not exceeding $100 in any calendar month.

Appellant, a Delaware corporation doing business in Texas under permit, in March, 1939, executed in Illinois to trustees, residents of that state, a mortgage covering property located in Coryell and other counties in Texas, and in three other states securing negotiable bearer bonds. The mortgage obligated appellant to record it in counties where the property was situated. The Texas property composed 71.7% of the total value of the lien property. The bonds were sold to investment dealers, all nonresidents of Texas. Before filing the mortgage for record appellant conferred with the Treasurer, was informed that the mortgage must be stamped before it could be registered, and the arrangement was made that the requisite amount of stamps would be purchased from the county clerk and paid for by appellant (under protest) by check payable to the joint order of the Treasurer and county clerk, he to endorse the check, transmit it to the Treasurer, who would cash it and deposit the proceeds in the suspense account, all in accordance with the provisions of Art. 7057b. This arrangement was carried out, the stamps were purchased December 10, 1940, and affixed to the mortgage and it was recorded in Coryell county. The suit was filed March 6, 1941, against the Treasurer and Attorney General. The county clerk was, by amendment, made a party defendant November 22, 1941, and signed a waiver of citation filed November 25, 1941.

Appellant has briefed the case under three points which urge the following substantially stated contentions:

1. The law imposes a property tax and is unconstitutional as applied in this case in that it is upon bonds or a mortgage owned and held outside and by nonresidents of Texas.

2. The law was repealed without a saving clause "and must be treated as though it never existed except as to transactions past and closed."

3. The law imposes double and discriminatory taxes and violates thereby the uniform taxation provisions of the Texas Constitution, Art. VIII, Secs. 1 and 2 Vernon's Ann.St., and the equal protection clause of the 14th Amendment to the Federal Constitution.

Appellees urge three counter points contending that:

1. The tax imposed is an excise tax on the privilege of recording the mortgage in Texas, and therefore the situs of the secured bonds is immaterial.

2. The tax became due and payable December 10, 1940, and the liability was not extinguished by subsequent (1941) repeal of the law.

3. The tax was not violative of the invoked State and Federal constitutional provisions.

Appellees also present two cross assignments asserting error of the trial court in not dismissing the suit because:

1. The county clerk was a necessary party defendant and was not made a party within 90 days after the tax was paid as required by Art. 7057b.

2. The tax was not paid to the head of a state department, and the suit was therefore not maintainable under Art. 7057b.

The tax in issue is not a property tax but an excise tax levied upon the privilege of admitting the included lien instruments to record under the registration laws of this state. City of Abilene v. Fryar, Tex.Civ.App., 143 S.W.2d 654. Regardless of the conflict (whether apparent or real) among decisions of other states construing similar tax levies, and conceding, arguendo, as appellant contends that this holding in the Fryar case is dictum, we have no substantial doubt as to its correctness. The issue whether a particular tax falls within the classification of a property or excise tax, as applied to an almost infinite variety of tax laws in the several states, has been a fruitful source of litigation, resulting in many conflicts of decision among courts of last resort. A recent standard text (33 Amr. Jur., p. 326) states the distinguishing features of the two classes of taxes thus: "In the main, the distinction between a property tax and a license or privilege tax imposed for revenue is that the function of the property tax is to raise revenue by virtue of the fact that the property is within the jurisdiction of the taxing power, and no condition or restriction is imposed thereby upon the use of the property taxed, while the license or privilege tax, even though also passed to raise revenue, is imposed upon the right to exercise a privilege, and its payment is made a condition to the exercise, or continuance in the exercise, of the privilege, business, or vocation involved."

Quoting further from the same text: "Although license taxes usually affect property, and are sometimes made to depend upon the kind or amount of property employed, it is generally considered that a license tax is not a property tax, and that the two are distinguishable."

Many illustrations might be cited of taxes classified as excise taxes the burden of which directly falls upon property. A very apt one is our gross production tax (a severance tax) the burden of which falls upon the owner of the property produced in proportion to the extent of his ownership. See Group No. 1 Oil Corp. v. Sheppard, Tex.Civ.App., 89 S.W.2d 1021, error refused, and Trustees of Cook's Estate v. Sheppard, Tex.Civ.App., 89 S.W.2d 1021, 1026, error refused, affirmed by Federal Supreme Court in Barwise v. Sheppard, 299 U.S. 33, 57 S.Ct. 70, 81 L.Ed. 23; also Sheppard v. Stanolind Oil & Gas Co., Tex. Civ.App., 125 S.W.2d 643. That tax could be upheld only as an excise as distinguished from a property tax, but the burden was laid upon the owner of the property (and therefore upon the property itself), resulting in an exemption of so much of the tax as would fall upon the royalty and bonus interests of the State. Severance taxes are quite generally held to be excise taxes, although there is some authority to the contrary. See 33 Am.Jur., p. 327 and notes 3 and 4.

Similarly: inheritance taxes in which the tax burden falls directly upon the owner of property and which are assessed upon a valuation basis, are practically universally held to be excise taxes. State v. Hogg, 123 Tex. 568, 70 S.W.2d 699, 72 S.W.2d 593. Use taxes are also generally so classified, as for example our automobile license tax. For all...