Evans v. McCabe

• Decision Date: 23 July 1932
• Citation: 52 S.W.2d 159,164 Tenn. 672
• Parties: EVANS et al. v. McCABE, Commissioner of Finance, etc.
• Court: Tennessee Supreme Court

52 S.W.2d 159

164 Tenn. 672

EVANS et al. v. McCABE, Commissioner of Finance, etc.

Supreme Court of Tennessee.

July 23, 1932

Appeal from Chancery Court, Davidson County; R. B. C. Howell, Judge.

Suit by L. C. Evans and others against Charles M. McCabe Commissioner of Finance and Taxation. From decree rendered Charles M. McCabe, Commissioner of Finance and Taxation appeals.

Affirmed.

John R Aust and Charles L. Cornelius, both of Nashville, for plaintiffs.

L. D. Smith, Roy H. Beeler, and Myles P. O'Connor, all of Nashville, for defendant.

GREEN C.J.

This suit involves the constitutionality of chapter 21 of the Public Acts of the 2d Extra Session of 1931. With certain exemptions, the act provides for a graduated income tax upon incomes of all sorts. The chancellor held the act to be invalid under section 28 of article 2 of the Constitution of the state, and the commissioner of finance and taxation has appealed.

It is to be conceded that the power to tax is a sovereign power and that a state's power to tax is only restrained by the limitations of the Constitution of that state and of the Constitution of the United States.

We reproduce the material portion of section 28 of article 2 as follows:

"All property, real, personal or mixed, shall be taxed, but the Legislature may except such as may be held by the State, by counties, cities or towns, and used exclusively for public or corporation purposes, and such as may be held and used for purposes purely religious, charitable, scientific, literary or educational, and shall except one thousand dollars' worth of personal property in the hands of each tax-payer, and the direct product of the soil in the hands of the producer and his immediate vendee. All property shall be taxed according to its value, that value to be ascertained in such manner as the Legislature shall direct, so that taxes shall be equal and uniform throughout the State. No one species of property from which a tax may be collected shall be taxed higher than any other species of property of the same value. But the Legislature shall have power to tax Merchants, Peddlers, and privileges, in such manner as they may from time to time direct. The portion of a Merchant's Capital used in the purchase of Merchandise sold by him to non-residents and sent beyond the State, shall not be taxed at a rate higher than the ad valorem tax on property. The Legislature shall have the power to levy a tax upon incomes derived from stocks and bonds that are not taxed ad valorem."

A perusal of the foregoing will disclose, as this court has previously said, that "in reference to the powers of general taxation in this State, the only limitation upon the discretion is in the principle of equality." Friedman Bros. v. Mathes, 55 Tenn. (8 Heisk.) 488, 492.

This limitation as to general taxation was lacking in an earlier Constitution--the Constitution of 1834. The provision of that Constitution (article 2, § 28) was in these words:

"All lands liable to taxation, held by deed, grant, or entry, town-lots, bank-stock, slaves between the ages of twelve and fifty years, and such other property as the legislature may from time to time deem expedient, shall be taxable. All property shall be taxed according to its value; that value to be ascertained in such manner as the legislature shall direct, so that the same shall be equal and uniform throughout the State. No one species of property from which a tax may be collected shall be taxed higher than any other species of property of equal value. But the legislature shall have power to tax merchants, pedlars [peddlers], and privileges, in such manner as they may, from time to time, direct."

Many abuses grew up incident to the exercise of legislative discretion as to the objects of taxation, and in 1870 the Constitutional Convention undertook to make general taxation universal and equal. So broad was the language of section 28 of article 2 that it was deemed necessary to qualify it in certain particulars. We have the word of two contemporary judges, speaking for this court, that the clause, "But the legislature shall have power to tax merchants, peddlers, and privileges, in such manner as they may, from time to time, direct," was included in that section by way of exception.

In Jenkins v. Ewin, 55 Tenn. (8 Heisk.) 456, 478, Chief Justice Nicholson, who had been the president of the Constitutional Convention, said that the language just quoted would seem at first view to confer upon the Legislature the power to tax merchants, peddlers, and privileges. He added, however, its true object was to indicate that the power to tax merchants, peddlers, and privileges was not to be understood as inhibited by the restriction as to the taxation of property. He continued:

"The word 'but' is significant of the purpose intended to be accomplished; it indicates that what follows is an exception to that which had gone before, and is not to be controlled by it."

In Friedman Bros. v. Mathes, supra, 8 Heisk. (55 Tenn.) 493, Judge Sneed, referring to the language quoted, said that "this proviso was intended as a palpable discrimination against the occupations and classes therein mentioned," and that "the power of taxation as to them, is left to the sound discretion of the legislative department."

A proviso and an exception are substantially the same. Lewis' Sutherland, Statutory Construction, § 352.

In Shields v. Williams, 159 Tenn. 349, 366, 19 S.W.2d 261, 264, we expressed the opinion that the clause of section 28, article 2, "The Legislature shall have power to levy a tax upon incomes derived from stocks and bonds that are not taxed ad valorem," was an exception to preceding clauses of section 28. Whatever be the nature of an income tax, further consideration confirms this conclusion. It is easier than the conclusion announced by the court as to the privilege tax clause.

The imperative mood is dropped, as in the privilege tax clause. The language is, not that the Legislature shall levy a tax upon such incomes, but shall have power to levy the tax.

If the income tax is a property tax, the authority to discriminate between incomes arising from particular stocks and bonds and incomes arising from other sources makes of the income tax clause an exception to the equality and uniformity clause. If the income tax is a privilege tax, the authority to tax incomes upon prescribed conditions makes of the clause an exception to the unconditional and unlimited authority to tax privileges generally.

Many years ago in the Supreme Court of the United States, the question arose as to whether the power to regulate navigation was included in the power which the federal Constitution gave to Congress to regulate commerce (article 1, § 8, subd. 3). Certain sections of the federal Constitution impose restrictions upon the power with respect to navigation. We have the authority of Chief Justice Marshall for the following:

"It is a rule of construction, acknowledged by all, that the exceptions from a power mark its extent; for it would be absurd, as well as useless, to except from a granted power, that which was not granted--that which the words of the grant could not comprehend. If, then, there are in the constitution plain exceptions from the power over navigation, plain inhibitions to the exercise of that power in a particular way, it is a proof that those who made these exceptions, and prescribed these inhibitions, understood the power to which they applied as being granted." Gibbons v. Ogden, 9 Wheat. 1, 191, 6 L.Ed. 23.

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