Eliasberg Bros. Mercantile Co. v. Grimes

Citation86 So. 56,204 Ala. 492
Decision Date24 April 1920
Docket Number2 Div. 712
PartiesELIASBERG BROS. MERCANTILE CO. v. GRIMES.
CourtAlabama Supreme Court

Rehearing Denied June 30, 1920

Appeal from Circuit Court, Dallas County; B.M. Miller, Judge.

Bill by W.C. Grimes against Eliasberg Bros. Mercantile Company to enjoin or restrain from certifying to the state tax officials the salary earned by said Grimes as an employé of respondent. From a decree granting the relief prayed, respondents appeal. Affirmed.

Anderson C.J., and McClellan, J., dissenting.

Keith &amp Wilkinson, of Selma, J.Q. Smith, Atty. Gen., and Lawrence E Brown and Henry P. White, Asst. Attys. Gen., for appellants.

Hugh Mallory, of Selma, R.B. Evins, of Greensboro, and Ray Rushton, J.J. Mayfield, and H.F. Crenshaw, all of Montgomery, for appellee.

SOMERVILLE J.

The question of decisive importance presented by this appeal is whether or not the graduated tax of from 2 to 4 per centum imposed upon incomes by the Revenue Act of 1919 (Gen.Acts 1919, pp. 374-395) is in violation of section 214 of the Constitution of Alabama, which declares:

"The Legislature shall not have the power to levy in any one year a greater rate of taxation than sixty-five one-hundredths of one per centum on the value of the taxable property within this state."

The solution of the major question obviously depends upon two constituent inquiries: (1) Is income "property" in the ordinary legal sense of the word? And, (2) if so, is it embraced within the meaning of the word "property" as used in this constitutional limitation?

In his very recent work on Federal Income anti Profits Taxes, Mr. Holmes, quoting the language of the Supreme Court of Massachusetts in Tax Com'r v. Putnam, 227 Mass. 522, 116 N.E. 904, L.R.A.1917F, 806, says:

"In its ordinary and popular meaning 'income' is the amount of actual wealth which comes to a person during a given period of time. At any single moment a person scarcely can be said to have income. The word in most, if not all, connections, involves time as an essential element in its measurement or definition. It thus is differentiated from capital or investment, which commonly means the amount of wealth which a person has on a fixed date. Income may be derived from capital invested or in use, from labor, from the exercise of skill, ingenuity, or sound judgment, or from a combination of any or all of these factors. One of the most recent of its definitions is 'the gain derived from capital, from labor, or from both combined' ( Stratton's Independence v. Howbert, 231 U.S. 399; Doyle v. Mitchell Bros., 247 U.S. 179)."

It is clear therefore that while "income" is a complex conception of elements and units which may be, and usually are, acquired, and used or disposed of at different times, its elements and units are in the most literal sense wealth and property--none the less so because their possession is transient and their identity easily and quickly lost. But instability of possession and identity cannot destroy their character as "property" merely because they render impracticable their assessment in the ordinary way as property owned or possessed at the beginning of the tax year. This was clearly pointed out by Judge Stone in Board of Revenue v. Gas Light Co., 64 Ala. 269, 275:

"Property, real or personal, owned on the 1st day of January, is required to be given in by the owner for assessment and taxation that year. It is assessed to the then owner. The rule as to salaries, gains, incomes, is different. The tax on these is given in, assessed and paid, the year after they accrue. This for the obvious reason that they cannot be known till then. *** In this way it may, and does often, happen that taxes apparently double are paid in one year, and rightfully paid, on the same property; once, for the year preceding the assessment, as a gain or profit, and a second time as being the owner of it on the first day of the year in which it is assessed" [italics supplied].

In its strictest legal sense the term "property" is applicable to the exclusive right of the owner with respect to the use, control, and disposition of something which is capable of ownership. But in its more general and popular sense it is applicable to the thing itself. 6 Words and Phrases, pp. 5693-5699. In this sense "property" includes everything which goes to make up one's wealth or estate. Carlton v. Carlton, 72 Me. 115, 116, 39 Am.Rep. 307. In Greene v. Knox, 175 N.Y. 432, 67 N.E. 910, it was held that the salary of an office is property within the protection of constitutional provisions; and a teacher's salary was so held in Hibbard v. State, 65 Ohio St. 574, 64 N.E. 109, 58 L.R.A. 654.

In the Opinion of the Justices, 220 Mass. 613, 624, 108 N.E. 570, 574, it was said:

"A tax upon the income of property is in reality a tax upon the property itself. Income derived from property is also property. Property by income produces its kind; that is, it produces property and not something different."

In Boyd v. City of Selma, 96 Ala. 144, 148, 11 So. 393, 394 (16 L.R.A. 729), this court said:

"In its general or ordinary significance the term 'personal property' embraces all objects and rights which are capable of ownership, except freehold estates in land, and incorporeal [86 So. 58] hereditaments issuing thereout or exercisable within the same."

In section 2, Code 1852, the words "personal property" are defined as including "money, goods, chattels, things in action, and evidences of debt, deeds and conveyances." This definition, substantially unchanged, is retained in all subsequent Codes, including that of 1907.

To summarize: Money or any other thing of value, acquired as gain or profit from capital or labor, is property; in the aggregate these acquisitions constitute income; and, in accordance with the axiom that the whole includes all of its parts, income includes property and nothing but property, and therefore is itself property. This conclusion is so clear that we cannot regard it as debatable, and we have discussed the question at such length chiefly out of deference to the learned counsel for the state, who have undertaken to refute it upon reason and upon cited authority. If there is anywhere a lingering doubt upon this question it will be instantly dispelled by reading the opinions in Ludlow, etc., Co. v. Wollbrinck, 275 Mo. 339, 205 S.W. 196, 202, and in State v. Pinder (Del.) 108 A. 43, where it is fully discussed, both upon principle and authority. As pointed out by counsel, the Supreme Court of Georgia, in the case of Waring v. Mayor, etc., of Savannah, 60 Ga. 93, has declared that income is not property until it is invested, or placed in a bank or locked up at home; and this conclusion is based upon the theory that--

"Property is a tree; income is the fruit; labor is a tree; income, the fruit; capital, the tree; income, the fruit; *** but so long as it is fruit merely, and plucked to eat, and consumed in the eating, it is no tree, and will produce itself no fruit."

With all due respect to the court which approved such reasoning--and we note that Judge Bleckley concurred dubitante--we are unable to appreciate its relevancy or its value. Investing, or depositing, or locking up what is received as income, changes not its character, but merely its use; and the notion that a tree is property, while its fruit is not, cannot be sustained upon any principle of logic or common sense. The opinion refers to the earlier case of Mayor, etc., of Savannah v. Hartridge, 8 Ga. 23, as holding that income is not property, but an examination of that case shows that it merely held that a legislative grant of power to the city of Savannah to raise money "by tax and assessment upon all real and personal estate within the corporate limits of the city" did not include the power to lay a tax on occupations or incomes which had never been taxed by the state. That decision was clearly correct. In both of the Georgia cases referred to above it must be noted also that the tax under consideration was an excise tax on receipts from a business or occupation, and there is a palpable confusion of thought and of terms. Practically all courts and text-writers are agreed that an excise tax, being a tax on business or occupation, however measured, is not a tax on property. Our own court in particular has always carefully distinguished these two subjects of taxation, as we shall hereafter show.

We come now to a consideration of the second question, viz., does the term "property," as used in section 214 of the Constitution, include incomes, as defined and taxed by the Revenue Act of 1919, so as to subject their taxation to the limitation therein prescribed?

The general principles which should govern courts in interpreting and construing constitutional provisions have been often stated and need not be now repeated. For present purposes it will suffice to recall what was said in W.U. T. Co. v. State Board, 80 Ala. 273, 275 (60 Am.Rep. 99), as pertinent to the present inquiry:

"Having been taught by experience that no legislative power is more liable to oppressive use than the taxing power, and having suffered evils by resting it too broadly on discretion, the people have shown, in the history of the successive constitutions, a progressive policy to restrain the power of the legislative department in this respect, and to remedy existing, and guard against apprehended, evils, by imposing limitations consistent with the public needs and the public safety. The just expositor, in interpreting the constitutional mandates and inhibitions, will consult the changes that have been made from time to time, the causes which produced them, and the mischief intended to be remedied. The words used should be allowed such operation and force as will reasonably
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