Davis v. Ogden City

• Decision Date: 24 October 1950
• Docket Number: No. 7241,7241
• Parties: John C. DAVIS, Attorney at Law, for himself and all other duty licensed and active practicing attorneys and counsellors at law, similarly situated, within the State of Utah, Plaintiff, v. OGDEN CITY, Utah, a Municipal Corporation, and Clyde M. Webber, Ogden City Recorder, Defendants.
• Court: Utah Supreme Court

Page 412

223 P.2d 412

118 Utah 401

John C. DAVIS, Attorney at Law, for himself and all other duty licensed and active practicing attorneys and counsellors at law, similarly situated within the State of Utah Plaintiff, v. OGDEN CITY, Utah, a Municipal Corporation, and Clyde M Webber, Ogden City Recorder, Defendants.

No. 7241.

Supreme Court of Utah.

Oct. 24, 1950.

L. O. Thomas, Salt Lake City, Derrah B. Van Dyke, Stuart P. Dobbs, Ogden, for plaintiff.

George S. Barker, Paul Thatcher, Ogden, for defendants.

George A. Critchlow, Salt Lake City, George W. Worthen, Provo, amici curiae on petition for rehearing.

On Petition for Rehearing

Rehearing denied.

PRATT, C. J., and WADE, J., dissent.

WOLFE, Justice (concurring in the order denying the Petition for Rehearing).

I express below my reasons for denying the petition for rehearing in this case. I have considered the new point raised by the briefs in support of the petition for rehearing. This being a case of prime importance to large groups of our citizens, we should not take refuge in the rule that points not raised in the original hearing will not be considered. As stated in Garner v. Thomas et al., 94 Utah 295 at page 299, 78 P.2d 529, that rule is one designed for the orderly administration of the disposal of points on appeal but is not as the law of Medes and Persians. There may be exceptions, and this is one of them.

Point I in Davis' brief on petition for rehearing asserts that the Ogden City Ordinance was passed without regard to the limitation on excise taxes contained in Section 3, Article XIII of the Constitution of Utah.

Section 3, Article XIII contains the following: '* * * No excise tax rate based upon income shall exceed four per cent of net income. The rate limitations herein contained for taxes based on income and for taxes on intangible property shall be effective until January 1, 1937, and thereafter until changed by law by a vote of the majority of the members elected to each house of the Legislature.'

The brief proceeds under Point I with:

(A) The tax imposed by the Ogden Ordinance is an excise tax. (B) The tax is based on income. (C) The constitutional limitation above quoted applies to municipal taxes. For the purposes of this discussion, I think we may admit these three propositions.

I pass from these three propositions to D, E, F and G, all of which will be discussed in part together because they all pertain to the propositions that this tax imposed by the ordinance is unconstitutional because it brings about, when fitted in with Section 3, Article XIII, an unconstitutional discrimination. In order to inform the reader as to the propositions contained in the brief of Davis, the petitioner, I quote the four propositions hereunder before each argument but before doing so, address myself to a general discussion of the office performed by Section 3, Article XIII.

Section 3, Article XIII, puts a ceiling on the amount of excise tax which, based on income, may be collected. The ceiling is 4% of the net income. Laying aside what constitutes net income and how figured, it appears that in any case the tax figured at twenty cents per thousand of gross income must not exceed 4% of net income. For illustration, if a company grosses $1,000,000 from sales, the excise tax laid by this ordinance would be $200.00 (1000 times 20 cents). But if the net income, for instance, were $4000.00, the company having expended much money on advertising, the tax could not exceed $160 (4% of $4000). More illustrations are set out hereunder.

Here arises at once a query which I doubt need at this time be answered. Is not the 4% excise tax the limit of the total excise taxes which may be based on income whether state and/or city? If for example the 4% is all taken up by state excise taxes would there then be room left for the imposing of any further license tax by a city and, if not, which takes precedence? Also arises the question whether Section 3, Article XIII applies to other than state excise taxes.

These queries, which even though we assume for the purposes of this discussion that Section 3, Article XIII applies to excise taxes imposed by municipalities, need not trouble us except perhaps as they may enter incidentally into the ratio decidendi.

Now as to whether the ordinance will work an unconstitutional discrimination: I gave above one illustration where a business grossing a million dollars a year made a net of $4000. At this point I call attention to the word 'rate' in the line reading '* * * No excise tax rate based upon income shall exceed four per cent of net income.' It does not read '* * * no excise tax * * * based upon income shall exceed 4% of the net income.' The word 'rate' usually connotes a proportion. A levy on tangible property is the rate or proportion of the assessed value--so many mills or cents on the dollar which applies equally throughout a certain category or tax bracket--it being fixed. I have difficulty in applying the word 'rate' to this constitutional provision. I think the drafters of that amendent must have meant 'no excise tax [i.e., the result of an applied rate] based on income shall exceed 4% of the net income.' I have so interpreted the language.

Also I should state at this point that constitutionality must be measured against the 5th and 14th Amendments of the Federal Constitution, and not the equal protection of our state constitution, because as far as discrimination under our constitution is concerned, it would seem that if the people themselves put in the state constitution the factor which makes the discrimination, to wit, the variable ceiling which brings about the dissimilarity in the application of law or ordinance in excise tax cases, no complaint will be heard because the discrimination was part of the basic law.

But under the Federal Constitution the only way that one business with a gross income equal or less than another would pay a greater tax is because it had a larger net than the other business. Section 3 of Article XIII really announces a variable ceiling and this variable ceiling applied to the ordinance may result in businesses with the same or less gross than other businesses paying a greater tax.

To proceed then with several more examples. If in the above illustration the net income were $5000 instead of $4000, 20cents on each one thousand dollars of the million dollars would exactly equal the 4% on the said net income of $5000. If the net income were $6000, the excise tax of 20cents per $1000 would of course still be $200 but 4% of $6000 is $240 but since $200 does not exceed $240 the total of the $200 is payable.

If the gross should be $10,000,000 the 20cents per $1000 would equal 20cents X 10,000 or $2,000. In such case the $700 ceiling and not the 4% on net income ceiling would first limit the tax. If the business made no money or lost money then 4% of nothing would be nothing and the excise tax could not exceed nothing which would of course mean that nothing need be paid.

I see nothing in Point ID which leads to the conclusion that if some taxes when figured on the gross would exceed 4% of the net income, the ordinance would be invalid. Certainly the 4% net is only a ceiling. Each taxpayer may apply that ceiling if it is applicable to his tax. It means, however, that each taxpayer in order to take advantage of the ceiling may have to disclose his net and hence all his expenses and deductions by which he arrives at that net. It may be that there should be an end of reports and returns that a taxpayer need make and an end to the number of authorities to which he must reveal the details of his business and his income and expenses, but the remedy I think is political.

Can we point to a situation where some businesses (and I include professions among businesses in this discussion) which have a less or equal gross income than other businesses, yet pay more taxes than those other businesses under the ordinance? Of course this will be true as shown above if they have a net which exceeds the net of other businesses having the same gross. They may have the same gross and yet pay different amounts in taxes. But I doubt if they are 'similarly situated' if they take in the same gross but different net incomes. Take the illustration of the $1,000,000 gross. One business spends more than that for advertising and has a loss. Another with exactly the same gross with good will established in exactly the same type and kind of business, let us say the manufacture and sale of shoe polish, has a net income of $60,000. The one would, under the ordinance, pay no excise tax, the other would pay $200, the tax under the ordinance being considerably under the ceiling of 4% of a net of $60,000 which is $2,400. I do not think the fact that one makes sufficient net so that the constitutional ceiling is not reached by the gross income tax in his case while the other makes so little or no net so to make the constitutional ceiling of 4% of net applicable to him works an unconstitutional discrimination. The very fact that they have different net incomes makes them, as to this ceiling, dissimilarly situated. The fact that the ceiling varies according to the net income makes a dissimilarity as far as discrimination is concerned. The ceiling works in favor of the party who has the lowest net and hence has gotten the least benefit from his gross income.

Among those comparatively few who must pay this ordinance imposed tax and who have a net, 4% of which is greater than 2/100 of one percent (20cents per each thousand dollars of gross) of their gross, there may be some variation in the tax among those who have exactly or substantially the same gross. Take for instance the two cases I presented where there is a gross of $1,000,000 but having different nets all under $5000. The one with $3000 net would pay $120; the one with $4000 would pay $160, and the one with $5000 net would pay $200. One with $2000 net...