Cook v. Wilson

• Decision Date: 02 April 1945
• Docket Number: No. 4 - 7527.,4 - 7527.
• Citation: 187 S.W.2d 7
• Parties: COOK, Commissioner of Revenues, v. WILSON et al.
• Court: Arkansas Supreme Court

187 S.W.2d 7

COOK, Commissioner of Revenues, v.WILSON et al.

No. 4 - 7527.

Supreme Court of Arkansas.

April 2, 1945.

Rehearing Denied May 12, 1945.

COPYRIGHT MATERIAL OMITTED

Appeal from Chancery Court, Garland County; Sam W. Garratt, Chancellor.

Suit by Warren W. Wilson and others against the Sheriff of Garland county to enjoin defendant from serving execution issued on certificate filed by Commissioner of Revenues for state severance tax and penalty, wherein Otho A. Cook, Commissioner of Revenues, intervened as defendant and sought to sustain the tax. From an adverse decree, the Commissioner of Revenues appeals.

Affirmed in part, and in part reversed and rendered.

Herrn Northcutt, of Little Rock, for appellant.

Murphy & Wood, of Hot Springs, for appellees.

McFADDIN, Justice.

The question presented is whether the State may collect from the purchaser and severer the severance tax on timber cut from lands belonging to the United States in a national forest.

Appellees are partners trading under the firm name of Wilson Lumber Company; and at various times they have severed timber in the United States national forest under "Timber Sale Agreement" with the United States Department of Agriculture.One such agreement was introduced; it is quite lengthy, but the salient provisions are: (1) The "purchaser"(appellees) agreed to purchase from a certain area in the national forest "all of the dead timber standing or down and all of the live timber marked or designated for cutting by a forest officer, merchantable as hereinafter defined for saw logs."(2) Merchantable live timber was to be marked for cutting by paint spots.(3) The purchaser agreed to deposit certain sums of money with the United States depository, to be credited against the purchase of the timber in the agreement; and the purchase price was $10.35 per thousand feet board measure.(4) After the timber was cut, the logs were to be arranged for scaling as often as a minimum of 350 logs was available; and when scaled, and the price of the particular lot determined, then the price of that lot was to be charged against the deposit made by the purchaser to the depository as previously mentioned.(5) The agreement recited that "the title to all timber included in this agreement shall remain in the United States until it has been paid for, and scaled, measured or counted."And, furthermore, that "no timber shall be cut until paid for, nor removed from the place or places agreed upon for scaling until scaled, measured, or counted by a forest officer."(6) In addition to cutting, removing, and paying for the merchantable timber, the purchaser was also, under supervision of the forest officer, to cut and remove all dead or diseased timber, and dispose of it, from the acreage involved in the contract; and the purchaser was to participate, by payments and/or man power, in fighting forest fires.The logging camp and details of operation were prescribed in the contract.The purchaser, furthermore, made a fidelity bond for the faithful performance of the contract.

The Commissioner of Revenues filed his certificate in Garland County(Sec. 13384, Pope's Digest) claiming that the appellees owed the State of Arkansas the severance tax (and penalty) on the timber cut and removed by the appellees from the national forest under the said timber sale agreement.The appellees filed suit in the Garland Chancery Court to enjoin the Sheriff from serving execution issued on the certificate, and appellees claimed immunity from the tax because the timber came from lands of the national forest.The State Commissioner of Revenues intervened as a defendant in the suit, and sought to sustain the tax.The Chancery Court denied the claim of the State to collect the severance tax, and this appeal challenges that decree and presents the points herein discussed.

I.Was the Arkansas Severance Tax Law Intended to Apply to Persons Severing Timber from Lands of the United States in a National Forest?We answer this question in the affirmative.The original severance tax act was ActNo. 118 of 1923.It has been frequently amended, and some of the amendatory acts are: ActNo. 283 of 1929, ActsNos. 116 and 138 of 1933, and ActNo. 158 of 1937.The Act, with amendments, may be found in Section 13371 et seq. of Pope's Digest.Briefly, the Act: (1) levies a tax on the business of severing timber (Section 13371); (2) requires the severer or "producer" to obtain a permit from the State, and make regular reports (Section 13372); (3) provides that the tax shall remain a lien on each unit of production, and the tools and equipment used in the severing (Sections 13372and13376); (4) requires the reporting taxpayer to withhold the tax from the proceeds of the severed products (Section 13382); (5) provides that the severed resources shall not be removed until the tax is paid (Section 13386).

The Act contains only two exemptions, to wit: (1)Section 13374 provides that the Act shall not apply to any individual owner of timber "who occasionally severs or cuts from his own premises such stocks, logs, poles or other forest products as are utilized by him in the construction or repair of his own structures or improvements, the purpose of this clause being to exempt therefrom such severers as utilize forest products to their own personal use and not for sale, commercial gain or profit."(2)Section 13375 provides an exemption "that no tax herein levied shall apply to the producer of switch ties, who hews out or makes such ties entirely by hand."

These are the only two exemptions found in the Severance Tax Law.The listing of these two exemptions necessarily excludes all other exemptions under the well-known rule of expressio unius est exclusio alterius.St. Louis, I. M. & S. Ry. v. Branch, 45 Ark. 524;Chisholm v. Crye, 83 Ark. 495, 104 S.W. 167;25 C.J. 220;59 C.J. 984, 50 Am. Juris. 455.We reach the conclusion that the Act levies a uniform tax on the business of severing timber in all instances except the two exemptions mentioned, and therefore it was the intent of the Legislature to apply the law to all other cases; and the tax would apply to the case at bar, as the transaction here involved does not come within either exemption.

II.Does the Immunity of a Federal Government Instrumentality Inure to the Benefit of the Appellees?It is fundamental that the Federal Government and its instrumentalities are exempt from state taxation.McCulloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579;Osborn v. Bank of U.S., 9 Wheat. 738, 6 L.Ed. 204;Thomson v. Union P. R. Co., 9 Wall. 579, 19 L.Ed. 792;Weston v. City Council of Charleston, 2 Pet. 449, 7 L.Ed. 481;Pollock v. Farmers' Loan & Trust Co., 157 U. S. 429, 15 S.Ct. 673, 39 L.Ed. 759.On the other hand, the tax immunity does not inure to a person, firm, or corporation merely because such claimant has a contract with, or a grant from, the Federal Government.Graves v. People of State of New York ex rel. O'Keefe, 306 U.S. 466, 59 S.Ct. 595, 83 L.Ed. 927, 120 A.L.R. 1466;James v. Dravo Contracting Co., 302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155, 114 A.L.R. 318;Silas Mason Co. v. Tax Commission of State of Washington, 302 U.S. 186, 58 S.Ct. 233, 82 L.Ed. 187;State of Alabama v. King, 314 U. S. 1, 62 S.Ct. 43, 86 L.Ed. 3;Penn Dairies v. Milk Control Commission of Pennsylvania, 318 U.S. 261, 63 S.Ct. 617, 87 L.Ed. 748;Fox Film Co. v. Doyal, 286 U.S. 123, 52 S.Ct. 546, 76 L.Ed. 1010.

Prior to James v. Dravo Contracting Co., supra, decided December 6, 1937, a tax like the one at bar might not have been sustained, because in Graves v. Texas Co., 298 U.S. 393, 56 S.Ct. 818, 80 L.Ed. 1236, and other cases, any effort to levy a tax that would ultimately fall on the Federal Government had been defeated.As was said by Mr. Justice Roberts in his dissenting opinion in James v. Dravo Contracting Co., supra, that case marked a radical departure from previous decisions.So we start with James v. Dravo Contracting Co., supra, and the companion case of Silas Mason Co. v. Washington, 302 U.S. 186, 58 S.Ct. 233, 82 L.Ed. 187, decided on the same day, as the beginning of the present rule of taxation in a case like the one at bar; and this rule is emphasized by Alabama v. King, supra, decided November 10, 1941.

In James v. Dravo Contracting Co., supra, the Supreme Court of the United States upheld the Gross Sales and Income Tax Law of West Virginia, Code, § 11-13-1 et seq., which levied an annual privilege tax "on account of the business and other activities."The tax was on the business of contracting, and was 2% of the gross income.The Dravo Contracting Company was a Pennsylvania corporation domesticated in West Virginia, and engaged in four contracts with the United States for the construction of locks and dams on the Ohio and Kanawha Rivers.The Supreme Court of the United States said that there were two questions: (1) Whether the State had territorial jurisdiction to impose the tax, and (2) whether the tax was invalid as laying a burden on the operations of the Federal Government.

(1) As to territorial jurisdiction, the Court held that the State of West Virginia still had the right of taxation on activities located on the lands acquired by the United States by purchase or condemnation for the purpose of the improvement, reasoning: that even though the State of West Virginia had agreed to the United States Government's acquisition of title to the land, nevertheless, the State of West Virginia still retained its residuum of legislative jurisdiction; and that the United States held lands within the State for public purposes, but that ownership did not withdraw the lands from the jurisdiction of the State.Emphasis was placed on the terms of cession.It was pointed out that the State, in reserving the right to issue process, did not lose the right to tax an independent contractor; and that the Dravo Contracting Company was an independent contractor, and could be...