Daube v. Oklahoma Tax Com'n

• Decision Date: 23 May 1944
• Docket Number: 31625.
• Citation: Daube v. Oklahoma Tax Com'n, 152 P.2d 687, 194 Okla. 487, 1944 OK 218 (Okla. 1944)
• Parties: DAUBE v. OKLAHOMA TAX COMMISSION.
• Court: Oklahoma Supreme Court

152 P.2d 687

194 Okla. 487, 1944 OK 218

DAUBE v. OKLAHOMA TAX COMMISSION.

No. 31625.

Supreme Court of Oklahoma

May 23, 1944

Rehearing Denied Sept. 12, 1944.

Application for Leave to File Second Petition for Rehearing Denied Nov 14, 1944.

Syllabus by the Court.

The gift tax law, 68 O.S.1941 §§ 1041-1047, amended, 68 O.S.Supp.1943 §§ 1043, 1045, providing for a graduated rate of taxation on gifts, is not violative of the uniformity clause of the State Constitution, sec. 5, art. 10, or of the due process and equal protection clauses of the Federal Constitution, Amend. 14.

Appeal from District Court, Oklahoma County; Albert C. Hunt, Judge.

Action by Samuel Daube against Oklahoma Tax Commission to recover the amount of gift tax paid under protest. From a judgment of dismissal, plaintiff appeals.

Affirmed.

Geo. N Otey and R. Rhys Evans, both of Ardmore, for plaintiff in error.

E. L Mitchell and A. L. Herr, both of Oklahoma City, for defendant in error.

GIBSON Vice Chief Justice.

This action was instituted in district court by a taxpayer against Oklahoma Tax Commission to recover the amount of a gift tax paid under protest.

Plaintiff stood on his petition after demurrer thereto was sustained and now appeals from the judgment of dismissal.

The gift, valued at approximately $100,000, was made in the year 1942 while the so-called Gift Tax Law of 1941 was in force, ch. 22a, Title 68, S.L.1941, 68 O.S.1941 §§ 1041-1047; amended, 68 O.S.Supp.1943 §§ 1043, 1045. The tax charged and collected amounted to $3,698.46.

The petition attacked the constitutionality of the act. That is the only question presented by the appeal.

The principal objections to the act as voiced by the plaintiff are that the attempt therein to levy a graduated gift tax violates that portion of section 5, article 10, Constitution, which requires that taxes shall be uniform on the same class of subjects. And further, that the power granted the Legislature by section 12, of said article 10, to provide for special forms of taxation does not include the power to levy a graduated gift tax, but that said section when considered and construed along with section 5, supra, actually denies that power to the Legislature in view of the rule that the expression of one thing is the exclusion of another, or implies the exclusion of another.

Section 12 specifically authorizes certain types of graduated taxes, but graduated gift taxes are not included therein. The section reads as follows:

"The Legislature shall have power to provide for the levy and collection of license, franchise, gross revenue, excise, income, collateral and direct inheritance, legacy, and succession taxes; also graduated income taxes, graduated collateral and direct inheritance taxes, graduated legacy and succession taxes; also stamp, registration, production or other specific taxes."

Section 2 of the Act, 68 O.S.1941 § 1042, provides for an increased rate of taxation with the increasing value of the gifts; that is, a progressive tax, with a changed rate for different specified values.

The question is whether the Legislature may classify gifts according to value for the purpose of taxation.

Plaintiff says that gifts, if taxable at all, constitute a distinct subject of taxation, and by reason of their inherent nature can constitute but a single classification, not subject to numerous reclassifications based upon value. That so to reclassify, it is said, destroys uniformity which is guarded against by section 5, supra.

The Legislature is not to be prevented from classifying property for purposes of taxation, and it may value different classes by different means or methods. Sec. 22, art. 10, Const. But that section applies to property and not to subjects that cannot be classed as property. However, the State has the inherent power to classify its subjects of taxation whether for the purpose of levying a property tax or an excise tax. That would include the power to classify gifts as a subject of taxation; in fact the Constitution, section 12, supra, authorizes the Legislature to provide for the levy and collection of excise taxes in general. That would seem to include the power to provide for the levy and collection of taxes on gifts inter vivos. And the Constitution says that the State may select its subjects of taxation, sec. 13, art. 10. That is merely the recognition of an inherent sovereign power. 61 C.J. 76.

Our statute imposes the tax "upon the transfer *** of property by gift." 68 O.S.1941, § 1041. That can be nothing other than an excise upon the privilege of so transferring property.

Gifts, other than gifts causa mortis, had never been made the subject of taxation in English speaking countries until Congress passed the Revenue Act of 1924, 26 U.S.C.A. Int.Rev.Acts, page 1 et seq. See 112 A.L.R. 1448, annotation. But gifts inter vivos are now generally regarded as proper subjects of taxation; and the Supreme Court of the United States has approved the graduated rate feature. See Bromley v. McCaughn, 280 U.S. 124, 50 S.Ct. 46, 74 L.Ed. 226; also 112 A.L.R. 1448, 1449. The purpose of the gift tax, in the opinion of the same court, was "largely to prevent evasion of the estate tax by gifts inter vivos, and evasion of the income tax by the splitting up of fortunes and the consequent diminution of surtaxes." Untermyer v. Anderson, 276 U.S. 440, 48 S.Ct. 353, 356, 72 L.Ed. 645.

But we are not justified in saying that our own gift tax law was enacted for any purpose other than as a revenue measure.

Our Constitution contains no specific provision against the levying of a graduated rate of taxation on gifts or any other subject of taxation. Nor does it specifically authorize such a rate on gifts. Though section 12 provides for the levy of excise taxes in general, and a graduated rate in particular on income, collateral and direct inheritance, legacy and succession taxes, it is silent as to a graduated levy on gifts inter vivos.

It follows that such levies must come within the powers of the Legislature unless the classification on the basis of value alone is fictitious, and an arbitrary exercise of the power granted by section 22, supra, to classify property for purposes of taxation and to value different classes by different means and methods. If the classification is unreal and without substantial basis the graduated levy applied to such fictitious classes would be unjustified and void in the face of the requirement that taxes shall be uniform on the same class of subjects, sec. 5, supra.

With respect to excises, the ability of the taxpayer to pay the tax is generally recognized as a substantial ground for classification of subjects for the purpose of graduated rates or levies. Knowlton v. Moore, 178 U.S. 41, 20 S.Ct. 747, 774, 44 L.Ed. 969. In that case the court said: "The review which we have made exhibits the fact that taxes imposed with reference to the ability of the person upon whom the burden is placed to bear the same have been levied from the foundation of the government. So, also, some authoritative thinkers, and a number of economic writers, contend that a progressive tax is more just and equal than a proportional one. In the absence of constitutional limitation, the question whether it is or is not is legislative and not judicial."

And the Supreme Court of South Dakota looks upon the classification as one of individuals and not of rights, privileges or property. In the case In re McKennan's Estate, 27 S.D. 136, 130 N.W. 33, 33 L.R.A.,N.S., 620, Ann.Cas.1913D, 745, the court held:

"As to inheritance and excise tax laws, the constitutional requirement of equality and uniformity is satisfied, if there is equality and uniformity between the individuals constituting each class

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