Dooley v. City of Detroit, s. 53

• Citation: 121 N.W.2d 724,370 Mich. 194
• Decision Date: 09 May 1963
• Docket Number: 54,Nos. 53,s. 53
• Parties: John F. DOOLEY et al., Plaintiffs and Appellants, Harvey W. Moelke, City of Livonia, a municipal corporation, et al., Plaintiffs-Intervenors, v. CITY OF DETROIT, a municipal corporation of Wayne County, Michigan Defendant and Appellee. Thomas L. POINDEXTER et al., Plaintiffs and Appellants, v. Jerome P. CAVANAGH, Mayor, etc., Defendants and Appellees.
• Court: Michigan Supreme Court

Page 724

121 N.W.2d 724

370 Mich. 194

John F. DOOLEY et al., Plaintiffs and Appellants, Harvey W. Moelke, City of Livonia, a municipal corporation, et al., Plaintiffs-Intervenors, v. CITY OF DETROIT, a municipal corporation of Wayne County, Michigan Defendant and Appellee.

Thomas L. POINDEXTER et al., Plaintiffs and Appellants, v. Jerome P. CAVANAGH, Mayor, etc., Defendants and Appellees.

Nos. 53, 54.

Supreme Court of Michigan.

May 9, 1963.

Richard D. Dunn, Inkster, and Thomas C. Mayer, Detroit, for plaintiffs and appellants, John F. Dooley and others; Platt & Platt, John H. Yoe, Thomas P. Casey, Detroit, of counsel.

Thomas L. Poindexter, Detroit, in pro. per.; Myer Miller, Ralph H. McIntyre, David I. Berris, Morris H. Berris, Detroit, of counsel.

Robert Reese, Corp. Counsel, John H. Witherspoon, Edward M. Welch, Robert D. McClear, John D. O'Hair, Asst. Corp. Counsel, Detroit, for defendants and appellees.

Before the Entire Bench.

SOURIS, Justice (for affirmance).

By today's decision we uphold the validity of Detroit's income tax ordinance. ¹ The only other city in Michigan which previously had attempted to raise revenues for municipal purposes by taxing incomes was Saginaw, whose submission to electors of a proposal authorizing an income tax was declared invalid by this Court in 1952 in House v. City of Saginaw, 334 Mich. 241, 54 N.W.2d 314, for failure of compliance with procedural requirements. The issues presented to us in this appeal are, therefore, issues of first impression.

In 1962, by ordinance adopted by its city council and approved by its mayor, Detroit imposed for municipal purposes a net income tax, at the rate of 1%, upon income earned and income received by residents and non-residents of the city, such taxable income of non-residents being limited, however, to income earned from work done, services rendered, or other business activities conducted in the city and to income received from sale or rental of real and tangible personal property located in the city. Before the ordinance could be implemented, two suits for declaratory and injunctive relief were instituted, one by residents and the other by affected non-residents of the city. Both suits were class actions and other members of the respective classes were accorded opportunity to intervene. The suits were consolidated for hearing below, and later were ordered submitted together for appellate purposes. They were submitted to the chancellor upon stipulations of facts and comprehensive briefs, the chancellor ultimately upholding the validity of the tax and denying the injunctive relief sought. The tax has been collected by the city since July 1, 1962.

Plaintiffs' attacks upon the validity of the income tax ordinance are on three principal fronts. First, they contend that cities have not been granted necessary legislative authority to levy income taxes. Second assuming that cities have been granted such authority, plaintiffs claim Detroit's income tax ordinance violates existing statutory tax rate limitations and restrictions claimed by them to be applicable to municipal income taxes as well as to ad valorem taxes on property. Finally, plaintiffs claim that the income tax ordinance denies them due process of law as guaranteed by our state and federal constitutions.

I.

The Constitution of 1908 authorizes specific, as well as ad valorem taxes, article 10, §§ 3 and 4, but apart from such authorization, it does not explicitly authorize the legislature or cities to impose income taxes, nor does it designate any other specific taxes included in its general grant. For its statutory authority to impose its income tax, the city relies upon § 4i of the home rule cities act, P.A.1909, No. 279, as amended (C.L.1948, § 117.4i(1) [P.A.1957, No. 131; Stat.Ann.1961 Cum.Supp. § 5.2082(1)]). It reads, in its entirety:

'Each city may in its charter provide: * * *

'(1) For laying and collecting rents, tolls and excises;'

Pursuant thereto, Detroit's charter, title III, chapter 1, § 12(m), delegates to its common council authority 'To provide for the laying and collecting of rents, tolls and excises.'

Plaintiffs do not claim that the legislature exceded its powers under article 10, §§ 3 and 4 by permitting cities in § 4i of the home rule cities act to lay and collect excises. Instead, they claim that income taxes are not excises and, in the alternative, that even if such taxes properly may be classified as excises, a far more detailed legislative grant of express authority to tax incomes is required before a city can claim the right to do so.

It is our conclusion that Detroit's income tax is an excise and that the statutory authority relied upon to support its levy is legally sufficient. There was a time in the recent history of this nation when respected authorities insisted that income is property, at least for some purposes, and that a tax upon net income is thereby a property tax subject to at least some of the constitutional limitations imposed upon such taxes. See Pollock v. Farmers' Loan & Trust Company (1895), 158 U.S. 601, 15 S.Ct. 912, 39 L.Ed. 1108; see, also, E. Blythe Stason, 'The Fifteen Mill Tax Amendment Limitation,' 31 Mich.L.R. 371, 379 (1933). However, contrary views were early expressed, as Dean Stason acknowledged in his article. Ludlow-Saylor Wire Co. v. Wollbrinck (1918), 275 Mo. 339, 205 S.W. 196; Hattiesburg Grocery Company v. Robertson (1921), 126 Miss. 655, 89 So. 369; Sims v. Ahrens (1925), 167 Ark. 557, 271 S.W. 720; and Featherstone v. Norman (1930), 170 Ga. 370, 153 S.E. 58, 70 A.L.R. 449. Today, however, it is generally said that income taxes are excises and not property taxes. See 16 McQuillin, Municipal Corporations (3rd ed), § 44.193; Brown, 'The Nature of the Income Tax,' 17 Minn.L.R. 127; and Hale v. Iowa State Board of Assessment and Review (1937), 302 U.S. 95, 58 S.Ct. 102, 82 L.Ed. 72. Mr. Justice Cardozo, in the Hale case, 302 U.S. 104-105, 58 S.Ct. 105, 82 L.Ed. 72, noted that '[m]any, perhaps most, courts hold that a net income tax is to be classified as an excise.' He also took occasion, 302 U.S. at 107, 58 S.Ct. at 106, 82 L.Ed. 72, to repeat the Supreme Court's earlier clarification of the Pollock decision by referring to and quoting from Brushaber v. Union Pacific cific R. Co. (1916), 240 U.S. 1, 36 S.Ct. 236, 60 L.Ed. 493:

'In line with that conception of the Pollock Case is Brushaber v. Union Pacific R. R. Co., supra, where the court pointed out (240 U.S. 1, at pages 16, 17, 36 S.Ct. 236, 241, 60 L.Ed. 493, L.R.A.1917D, 414, Ann.Cas.1917B, 713) that 'the conclusion reached in the Pollock Case did not in any degree involve holding that income taxes generically and necessarily came within the class of direct taxes on property,' but that to the contrary such taxes were enforceable as excises except to the extent that violence might thus be done to the spirit and intent of the rule governing apportionment.'

Significantly, Justice Cardozo, 302 U.S. at 106-107, 58 S.Ct. at 105-106, 82 L.Ed. 72, also referred to People of State of New York ex rel. Cohn v. Graves (1937), 300 U.S. 308, 57 S.Ct. 466, 81 L.Ed. 666, 108 A.L.R. 721, decided at the term preceding decision in Hale. In Cohn, where it was claimed New York's income tax as applied to a resident's income from rents of land and interest on bonds was in substance and effect a tax on property, Mr. Justice Stone wrote for the Court, 300 U.S. at p. 314, 57 S.Ct. at p. 468, 81 L.Ed. 666, that:

'Neither analysis of the two types of taxes, nor consideration of the bases upon which the power to impose them rests, supports the contention that a tax on income is a tax on the land which produces it. The incidence of a tax on income differs from that of a tax on property. Neither tax is dependent upon the possession by the taxpayer of the subject of the other. His income may be taxed, although he owns no property, and his property may be taxed although it produces no income. The two taxes are measured by different standards, the one by the amount of income received over a period of time, the other by the value of the property at a particular date. Income is taxed but once; the same property may be taxed recurrently. The tax on each is predicated upon different governmental benefits; the protection offered to the property in one state does not extend to the receipt and enjoyment of income from it in another.'

More recent decisions from other jurisdictions in which courts have characterized income taxes as excises are: Reynolds Metal Co. v. Martin (1937), 269 Ky. 378, 107 S.W.2d 251; Vilas v. Iowa State Board of Assessment and Review (1937), 223 Iowa 604, 273 N.W. 338; Monteith Bros. Co. v. Department of Treasury of Indiana (1939), 215 Ind. 428, 19 N.E.2d 1010; Forrester v. Culpepper (1942), 194 Ga. 744, 22 S.E.2d 595; Herman v. Mayor and City Council of Baltimore (1947), 189 Md. 191, 55 A.2d 491, 173 A.L.R. 1310; Carter Carburetor Corp. v. City of St. Louis (1947), 356 Mo. 646, 203 S.W.2d 438; Gross Income Tax Division v. Bartlett (1950), 228 Ind. 505, 93 N.E.2d 174, appeal dismissed, 340 U.S. 924, 71 S.Ct. 499, 95 L.Ed. 667; Canary v. Oklahoma Tax Commission (1956), 295 P.2d 281 (Okl.); California Company v. State of Colorado (1959), 141 Colo. 288, 348 P.2d 382; and Central Lincoln People's Utility District v. Stewart (1960), 221 Or. 398, 351 P.2d 694.

In this state we have never before reached the ultimate question whether an income tax is an excise. In House v. City of Saginaw, supra, as noted above, our decision was based upon a procedural flaw in submission to the people of a proposal to amend the city's charter to provide for a city income tax and, therefore, it was unnecessary even to consider the nature of the tax proposed. However, in at least one decision of this Court we determined that a tax on income, the federal income tax, was not a tax on property. In Park Building Co. v. George P. Yost Fur Co., 208 Mich. 349, 175 N.W. 431, a lessee...