Craig v. E.H. Taylor, Jr., & Sons

• Decision Date: 17 June 1921
• Citation: 192 Ky. 36,232 S.W. 395
• Parties: CRAIG, AUDITOR, ET AL. v. E. H. TAYLOR, JR., & SONS.
• Court: Kentucky Court of Appeals

232 S.W. 395

192 Ky. 36

CRAIG, AUDITOR, ET AL. v. E. H. TAYLOR, JR., & SONS.

Court of Appeals of Kentucky.

June 17, 1921

Dissenting Opinion, June 24, 1921.

Appeal from Circuit Court, Franklin County.

Action by E. H. Taylor, Jr., & Sons against John J. Craig, Auditor and others, to enjoin the collection of a tax. From a judgment perpetually enjoining the enforcement of the tax defendants appeal. Affirmed.

Sampson J., dissenting.

Chas. I. Dawson, Atty. Gen., for appellants.

Hazelrigg & Hazelrigg, of Frankfort, for appellee.

QUIN J.

At its 1920 session the General Assembly of this state enacted a statute imposing a so-called license tax of 50 cents per gallon upon every person engaged in the business of manufacturing distilled spirits, and in the business of owning and storing such spirits in bonded warehouses in the state and in removing same therefrom for any purpose. Acts 1920, c. 13, p. 27. It is made the duty of the warehouseman to collect this tax, which, however, is not payable until the liquor is removed from bond or is transferred under bond out of the state.

For a number of years prior to wartime prohibition appellee was engaged in the manufacture, storage, and sale of bourbon whisky. Through the sale and delivery of warehouse receipts appellee disposed of all the liquor made by it, but in warehouses which it maintains it is holding a vast quantity of whisky for its customers. It likewise maintains a bottling house for the purpose of bottling such of the goods in storage as may be desired by the owners.

In this action it was sought to enjoin appellants from the collection of the tax imposed under the act aforesaid. Upon final hearing the circuit court held the act to be unconstitutional and void, and perpetually enjoined the enforcement of same.

Of the many points ably briefed by counsel we deem it necessary to consider but one, viz., whether the tax is an occupation or a property tax. The determination of this question disposes of the appeal. It is conceded by appellants that as an ad valorem tax it cannot be sustained, and though called an annual tax it was not intended to be such. Unless, therefore, we conclude it is an occupation or excise tax, the judgment below must be affirmed.

It is the contention of appellants that the legislative purpose was to impose one occupational tax on the entire business of distilling, owning, storing, and removing whisky from bonded warehouses. All the liquor affected by the present action was distilled prior to 1920, but it is argued that this in no wise affects the validity of the act. If not a tax on the one occupation of distilling, owning, and storing in bonded warehouses, it is nevertheless, says counsel, sustainable as a tax on the business of owning and storing. In the brief it is said that whisky is stored for certain definite purposes; such, for example, as to permit it to age so that it might be bottled in bond, to have it cared for by some responsible person, and to enable the owner to defer the payment of government taxes until the goods are withdrawn from storage.

Section 181 of the Constitution authorizes the imposition of license, occupation, or excise taxes by general law.

In Greene, Auditor, v. E. H. Taylor, Jr., & Sons, 184 Ky. 739, 212 S.W. 925, this court had under consideration an act of May, 1917 (Ky. Stats. Supp. 1918, § 4214a1), which provides that every corporation, etc., engaged in the business or occupation of manufacturing distilled spirits, and every owner or proprietor of a bonded warehouse in this state in which such spirits were stored, should, in addition to the taxes then imposed by law, pay a license tax to the commonwealth of two cents on every proof gallon of said spirits which is liable for tax to the federal government. The tax imposed by this act was held not to be a property tax but a license tax, regulated as to its amount by the volume of business done by the corporation for the privilege of engaging in the business of manufacturing double stamped spirits.

In Raydure v. Board of Supervisors of Estill County, 183 Ky. 84, 209 S.W. 19, a like conclusion was reached in regard to a statute imposing a license tax on the occupation of engaging in the business of producing oil; and in Strater Bros. Tobacco Co. v. Commonwealth, 117 Ky. 604, 78 S.W. 871, 25 Ky. Law Rep. 1717, as to a license tax on tobacco factories where the natural leaf was converted by manufacture into cigars, cigarettes, etc.

The Supreme Court, in Brown-Forman Co. v. Kentucky, 217 U.S. 563, 30 S.Ct. 578, 54 L.Ed. 883, held that a statute imposing a tax on persons engaged in rectifying whisky was an occupation tax. But the tax imposed by the 1920 act has none of the incidents of an occupation tax.

The right to impose a license tax on the manufacture or distillation of spirits is not before us, since all the whisky owned by appellants has been disposed of. We are concerned only with the question as to whether the ownership or storage of spirits in a bonded warehouse is an "occupation," as that term is used in our Constitution. As generally understood and defined, "occupation" means the business in which one is employed, or perhaps it implies his trade or calling. Varied are the occupations in which one may be engaged. As illustrated by the authorities above referred to, the designation includes such as the manufacture of tobacco, the distillation and rectifying of whisky, etc. The mere right to own and hold property cannot be made the subject of excises, since the levying of a tax by reason of ownership of property is to tax the property.

This principle has been applied to the mere ownership of timber ( Thompson v. Kreutzer, 112 Miss. 165, 72 So. 891), and to devoting it to a turpentine orchard, the use for which it was most available (Thompson v. McLeod, 112 Miss. 383, 73 So. 193, L.R.A. 1918C, 893, Ann.Cas. 1918A, 674).

Greene v. Kentenia Corporation, 175 Ky. 661, 194 S.W. 820, relied upon by appellants, does not support a contrary doctrine. In that case appellee was held liable for the license taxes imposed by Ky. Stats. §§ 4189a and 4189d, inclusive, where it had invested its capital in land in this state with the expectation of realizing a profit thereon. And this, notwithstanding the fact that the property was not being used for mining, timber, or agricultural purposes. But the tax was sustained on the ground the state had the right to impose the terms and conditions upon which the corporation might exercise the privileges for which it was organized, or engage in business as such, and that the purchase and ownership of the property was in the prosecution of its active business. Furthermore, the statutes referred to applied to corporations owning property or doing business in this state.

We have no such case here. The alleged business of owning and storing of whisky in bond is not made taxable by the act, as whisky stored in bond is free of the tax so long as it remains in the state, and any sale or disposition of whisky in storage before its removal from bond or transfer under bond out of the state relieves the owner of the obligation to pay the tax. Nor is the tax one imposed upon the business of owning, storing, or removing whisky from bond, since the tax would be payable if the whisky had been removed from the warehouse immediately after the approval of the act.

Then, again, the tax is not upon the business of removing liquor owned. A single transaction does not constitute engaging in business, within the contemplaton of the statute, be it that of buying and selling whisky or in the business of otherwise using it, as the tax is payable in respect to any lot of whisky removed. Thus we find that the tax is in reality one upon the act of removal from bonded warehouses within the state.

But, as said in J. & A. Frieberg Co. v. Dawson et al., 274 F. 420:

"The thing really taxed is the act of the owner in taking his property out of storage into his own possession (absolute or qualified) for the purpose of making some one of the only uses of which it is capable, i. e., consumption, sale, or keeping it for future consumption or sale. * * * The whole value of the whisky depends upon the owner's right to get it from the place where the law has compelled him to put it, and to tax the right is to tax the value."

The opinion in the foregoing case was that of three federal judges upon a hearing under section 266 of the Judicial Code (U. S. Comp. St. § 1243), and in which the same act of 1920 involved here was held to be unconstitutional. This conclusion was affirmed on appeal to the Supreme Court in Dawson et al. v. J. & A. Freiberg Co., 255 U.S. 288, 41 S.Ct. 272, 65 L.Ed. 638.

It is significant that of those who have had occasion to construe this statute, two district judges, one circuit judge and the members of the Supreme Court, twelve judges in all, concur in the opinion that the tax is not sustainable as an occupation or excise tax, and is none other than a tax on the property itself, and as such is unconstitutional.

The question raised by this appeal being one of local law, our construction of same is controlling, and, while the opinion of such eminent authority as the foregoing is not binding on this court, it is highly persuasive, is entitled to great weight, and the reasons given for the conclusions reached accord exactly with the view entertained by us, considering it as an original proposition.

The character of the tax is determinable by its incidents, not its name. It cannot be made an occupation or license tax by calling it so. United States v. Emery, Bird, Thayer Realty Co., 237 U.S. 28, 35 S.Ct. 499, 59 L.Ed. 825. Indeed, it is manifest the Legislature considered that the tax was in fact a property tax, i. e., one...