Corn v. Fort

• Decision Date: 13 June 1936
• Citation: 95 S.W.2d 620,170 Tenn. 377
• Parties: CORN et al. v. FORT, Commissioner. WEST KENTUCKY COAL CO. v. SAME.
• Court: Tennessee Supreme Court

95 S.W.2d 620

170 Tenn. 377

CORN et al. v. FORT, Commissioner.

WEST KENTUCKY COAL CO. v. SAME.

Supreme Court of Tennessee.

June 13, 1936

Appeal from Chancery Court, Davidson County; R. B. C. Howell Chancellor.

Bills by C. H. Corn and others and by the West Kentucky Coal Company against Dancey Fort, Commissioner, etc., wherein defendant filed a demurrer.From a decree, complainants and defendant appeal.

Affirmed.

Roy H Beeler, Atty. Gen., and Nat Tipton and Edwin F. Hunt, Asst Attys.Gen., for Commissioner Fort.

DE HAVEN, Justice.

(1) These suits involve the constitutionality of chapter 5, Pub Acts 1935, Extraordinary Session of the General Assembly of the state of Tennessee, which is entitled:

"An Act to provide revenue for the State by the imposition of privilege taxes and to provide ways and means for the collection of such tax."

Section 2 of the act is as follows:

"That for the privilege of engaging in business in corporate form in this State which is expressly hereby declared to be a privilege, there is hereby levied upon all domestic corporations an annual privilege tax, the measure of which is hereinafter set forth.The tax imposed also applies to corporations whose business is being conducted by and through a receivership or trusteeship appointed by any court of competent jurisdiction.

"(b) For the privilege of engaging in business in this State in corporate form, there is hereby imposed upon foreign corporations doing an intrastate business an annual privilege tax to be measured as hereinafter mentioned.

"(c) For the privilege of engaging in business as a partnership, there is hereby levied on all partnerships conducting that type of activity in this State for which corporations may be formed under existing statutes in this State an annual privilege tax measured as hereinafter mentioned.

"(d) For the privilege of doing business in such form in this State, there is hereby levied against common law, business and/or Massachusetts trusts an annual privilege tax for the privilege of doing business in this State in such form."

It is further provided in the act that, "To do business in this State in any of the above mentioned forms is expressly declared to be a privilege," but that nothing in the act shall be applicable to national banks, corporations performing governmental functions of the United States, state of Tennessee, or any political subdivision thereof, or corporations chartered under the general welfare law of the state and not for profit, or to an individual, engaging as such, in any business or line of endeavor.

It is further provided that every corporation and partnership coming within the purview of the act is an "entity," and "shall pay as a privilege tax for the exercise of the privilege hereinabove defined a tax of $0.15 (fifteen cents) on the $100.00, or major fraction thereof, worth of capital invested by such entity in this State."Section 3.

Complainants, in the two above-styled causes, filed their respective bills in the chancery court of Davidson county, seeking a declaration under the provisions of the Declaratory Judgments Law of Tennessee as to their liability for any tax imposed by said act.Complainants, C. H. Corn et al., alleged in their bill that they are partners in the operation of a grist mill, at Franklin, Tenn., which business is conducted under the name of the Lillie Mill Company, and that a large part of the capital of the partnership is invested in wheat, corn, and other grains, the produce of the soil of Tennessee, and in flour, meal, and feed which they have manufactured from such produce, and hold for sale.Complainant, West Kentucky Coal Company, alleges in its bill that it is a corporation organized under the laws of the state of New Jersey, and is engaged in the business of mining and selling coal, with mines in the state of Kentucky, and owning property and doing business in the state of Tennessee, where it is legally domesticated.Both complainants averred that chapter 5, Pub. Acts 1935, Extra Session, is unconstitutional and void as a violation of various provisions of the Constitutions of the state of Tennessee and of the United States, referred to in the bill.

The defendant demurred to the bills, relying on the validity of the act, and also upon the provision contained therein that each section, subsection, and paragraph thereto are severable, and that should any portion of the act be held unconstitutional the same shall not affect the remainder of the act.

The chancellor held the act in question constitutional and valid as applying to corporations, and unconstitutional and invalid as applying to partnerships, being of the opinion that the part of the act applying to partnerships may be elided, leaving a valid franchise tax act as to corporations.To the action of the chancellor in holding the statute unconstitutional in so far as it imposes a tax on partnerships, the defendant excepted, prayed, and was granted an appeal to this court.The complainants also excepted and have filed certain assignments of error.To the action of the chancellor in holding the act constitutional as to corporations, the complainant, West Kentucky Coal Company, excepted, prayed, and was granted an appeal to this court.

(2)Article 2, section 28, of the Constitution of the state of Tennessee, provides, in part, as follows: "But the Legislature shall have power to tax Merchants, Peddlers and privileges, in such manner as they may from time to time direct."A privilege is whatever business, pursuit, occupation, or vocation, affecting the public, the Legislature chooses to declare and tax as such.Mabry v. Tarver,20 Tenn.(1 Humph.)94;Jenkins v. Ewin,55 Tenn. (8 Heisk.) 456, 475;Burke v. Memphis,94 Tenn. 692, 30 S.W. 742;Seven Springs Water Co. v. Kennedy,156 Tenn. 1, 299 S.W. 792, 56 A.L.R. 496;Allen v. Pullman's Palace Car Co.,191 U.S. 171, 178, 24 S.Ct. 39, 48 L.Ed. 134, 138.The term "privilege," as used in article 2, section 28 of the Constitution, refers to the activity or occupation and not to the character of the person or entity that pursues the activity or occupation.Bank of Commerce & Trust Co. v. Senter,149 Tenn. 569, 582, 260 S.W. 144.The tax is upon the privilege itself.Mayes v. Erwin,27 Tenn.(8 Humph.) 290, 293, and not upon the form in which the business is conducted.

The tax imposed by chapter 5, Pub. Acts 1935, Extra Session, is upon the privilege of doing business in this state as a corporation, trust, or partnership.The application of the tax is made to depend on the character of the entity engaged in business, and not on the character of the business pursued.

This court, in Bank of Commerce & Trust Co. v. Senter,149 Tenn. 569, 260 S.W. 144, has expressly determined that the right to do business in Tennessee in corporate form is a taxable privilege.This conclusion follows from the nature of a corporation and the manner of its creation.No corporation can exist without the consent or grant of the sovereign.Since a corporation can exist only subject to the will of the sovereign, its right to exist or to do business in corporate form is subject to such terms and restrictions as the state may place upon the right, including the payment of such taxes as the sovereign may exact for the privilege of existing or of doing business.The right of a corporation to engage in intrastate business, within a state, depends solely upon the will of the state.The state, having the power to exclude entirely, has the power to impose as a condition the payment of a license fee.Camden Fire Ins. Ass'n v. Haston,153 Tenn. 675, 284 S.W. 905;Maine v. Grand Trunk R. Co.,142 U.S. 217, 12 S.Ct. 121, 163, 35 L.Ed. 994;Ashley v. Ryan,153 U.S. 436, 14 S.Ct. 865, 38 L.Ed. 773.

The act here in question undertakes to impose a tax on partnerships engaged in that type of business for which corporations may be formed, for the privilege of doing business in that form, but excludes from its operation individuals, engaged as such, in any business or line of endeavor.

The elements and considerations sufficient to support the validity of a franchise tax on corporations for the privilege of doing business in that form within a state are wholly absent in the case of an individual, or simple and unlimited partnerships.They hold no franchise or special privilege conferred by the sovereign not belonging to citizens generally of common right.The right of individuals to combine their activities, as partners, is independent and antecedent to government.

The power of taxation is not conferred upon the Legislature by the Constitution; it passes under the general designation of "legislative power or authority."There is no limitation upon the Legislature as to the amounts or objects of taxation, except that found in the restrictions and prohibitions of the Constitution.Jenkins v. Ewin,55 Tenn. (8 Heisk.) 456, 475;City of Chattanooga v Nashville, C. & St. L. RailroadCo., 75 Tenn.(7 Lea) 561, 566.While the Legislature has a wide range of discretion in the matter of imposing privilege taxes, it cannot arbitrarily exclude one set of individuals from the operation of a privilege tax and include another set.The act here in question excludes from its operation individuals, engaging as such, in any business, but includes two or more individuals who have agreed to join their efforts, as partners, in a common enterprise.There exists some reason for imposing the tax on corporations, as hereinbefore shown, but we can see no substantial reason for imposing this tax on a simple partnership, composed of individuals, and exempting the single individuals, who may, perhaps, be engaged in the same kind of business as the partnership.The classification is...