Friedman Bros. v. Mathes

• Decision Date: 22 June 1872
• Citation: 55 Tenn. 488
• Parties: FRIEDMAN BROTHERS et al., v. J. H. MATHES.
• Court: Tennessee Supreme Court

55 Tenn. 488

FRIEDMAN BROTHERS et al.,

v.J. H. MATHES.

Supreme Court of Tennessee.

Jun. 22, 1872.

FROM SHELBY.

Appeal by petitioners from the judgment of the Circuit Court. C. W. HEISKELL, J., January Term, 1872.

ELLETT & PHELAN for plaintiffs.

GID. J. PILLOW, M. P. JARNAGIN and Attorney-General HEISKELL for defendants.

SNEED, J., delivered the opinion of the Court.

This litigation is between a number of commercial firms of Memphis, and the defendant, as tax collector of the privilege tax of Shelby county, to determine the validity of an assessment upon that portion of the capital of the plaintiffs used in the purchase, by them, of merchandise sold to non-residents and sent beyond the limits of the State. The controversy, as initiated in the court below, involves the question of the constitutionality of the entire tax upon the occupation of the merchant, except such as is founded upon the ad valorem principle; but, since a recent decision of this court at Nashville, in the cause of Jenkins v. W. G. Ewin, clerk, declaring the constitutionality of the tax upon the capital used by merchants in the purchase of goods sold within the limits of the State, that question has been abandoned. There are seven different cases involving the same question, which have been heard and considered together. One of these cases is before us by appeal in error from the judgment of the Circuit Court, in favor of the defendant, upon an agreed case--and the six others by appeal in error from a judgment of the Circuit Court, dismissing the plaintiffs' petitions for certiorari and supersedeas. The facts necessary to be considered in all the cases, except as to the amount of assessment, are set forth in the agreed case of Hill, Terry & Mitchell, and are as follows:

1. That said firm of Hill, Terry & Mitchell, are wholesale merchants, doing business in the city of Memphis, as boot and shoe merchants, and that J. Harvey Mathes is the legally authorized and appointed tax collector of all taxes levied on licenses and privileges, in the county of Shelby, for State and county purposes.

2. That the largest stock of goods held on hand by said firm, at any time, from the 11th day of February, 1871, to the 11th day of February, 1872, was one hundred and forty-nine thousand seven hundred and forty-nine dollars.

3. That of this amount--twenty-nine per cent. of the capital, was used in the purchase of goods sold to persons residing in the State of Tennessee, and the balance--or seventy-one per cent. was used in the purchase of merchandise, sold by the said firm, to non-residents of the State of Tennessee, and sent beyond the limits of said State.

4. That for the aforesaid period of one year, between the 11th day of February, 1871, and the 11th day of February, 1872, the said firm had a license to do business as wholesale merchants, and were assessed for the taxes as follows: Ad valorem tax on the whole amount of capital, $1,625; license tax on same, $1,625, making the total assessment $3,250.

5. That of this amount, the said firm has paid as follows: ad valorem tax on the whole amount of capital, $1,625; license tax on 29 per cent. sold in the State, $471.25, making a total of $2,096.25.

6. That the balance of $1,153.75, claimed by the said tax collector, to be still due, is the license tax on the 71 per cent. of the capital used by the firm in the purchase of merchandise sold to non-residents, and sent beyond the limits of the State, which when paid, would constitute the whole amount of tax assessed by the said collector, as the license tax of the said firm under existing laws.

7. That in making its returns, the said firm exhibited to the said tax collector, a statement showing not only the largest amount invested in stock on hand at any one time, but also showing how much thereof was used in the purchase of goods, sold to non-residents and sent beyond the State, and claimed that in determining the amount of tax to be paid for license, the said collector should only assess the said license tax on as much of the capital as was used in the purchase of goods sold to residents of the State, and should not assess any license tax on so much of the capital as was used in the purchase of merchandise sold to non-residents, and sent beyond the State.

8. The said tax collector refused to so assess the said tax, and demanded payment in the full sum of $1,625 for license tax, that being an amount equal to the ad valorem tax on the whole capital of said firm, and refused to issue licenses to said firm, but by agreement, received the foregoing amounts tendered by the said firm, and gave his receipt therefor, with the stipulation and agreement, that the said partial payment ws not received as a full settlement of the State and county tax against said firm, and should in no way bar or delay legal proceedings for the collection of the same; further payments having been refused by the said firm.

We understand that all other questions involved in the proceedings by certiorari are abandoned, except the legality of assessment upon the capital used in the purchase of merchandise sold to non-residents, and sent beyond the limits of the State. And in the argument of that question, two propositions are insisted upon by the counsel for the defendant. First, that the assessment is valid under the law; and second, that if the same be held to be illegal, that the writ of certiorari is not the remedy by which the plaintiffs can be relieved.

Upon the first question we have no difficulty, and must pronounce any law which authorizes a tax greater than the ad valorem tax upon that portion of the merchants capital, used in the purchase of merchandise which is sold to nonresidents, and sent beyond the limits of the State, as unconstitutional and void.

The taxing power is an essential incident of sovereignty. The only limitations upon it must be sought in the organic law. It is not conferred by constitutions--but we look to them only for the limitation upon it. If they do not exist in the Constitution they do not exist at all, and the State is left to measure the exercise of this tremendous power by its necessities alone. It may create its own sources of revenue, and determine at discretion what shall be taxable and what not taxable--if the organic law itself has not restricted this discretion. In reference to the powers of general taxation in this State, the only limitation upon the discretion is in the principle of equality. But there are certain occupations which, it seems, are beyond the protection of this principle, which, upon policy, can only be defended upon the argument that the burthens should fall not alone upon actual values, but upon profits. And the discrimination against capital thus invested, can only be justified on account of what may be termed its productive versatility, as contrasted with other species of taxable property. And the credit of the merchant is part and parcel of his capital in the sense of the Constitution. Thus, the investment of the farmer, whose capital is in his hands, yields in its sluggish per centum but a tithe perhaps, of the actual profit which might accrue, if that capital were invested in active and successful merchandise. And hence, the framers of the Constitution of 1834 and 1870 alike, in providing that all property shall be taxed according to its value--that the taxes shall be equal and uniform--and that no one species of property shall be taxed higher than any other species of property of the same value, have distinctly announced the principle of equality, as to the taxation of capital invested in land and other property, but have quite as distinctly discriminated against capital invested in merchandise, by the blunt provision to that section: “but the Legislature shall have power to tax merchants, peddlers and privileges, in such manner as they may from time to time direct.” In a case already referred to, it has recently been held by this court, 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. Under this proviso, the Legislature has authorized an assessment upon the capital of merchants, used in the purchase of merchandise sold in this State, upon the ad valorem principle, and upon the occupation also to the same extent. To this extent the plaintiffs have yielded the controversy, and now only controvert the right to impose the occupation tax upon that portion of their capital used in the purchase of goods sold by them to non-residents, and sent beyond the limits of the State. They admit the validity of the ad valorem assessment upon the whole capital, and the occupation tax upon so much of it as is used in the purchase of goods sold within the limits of the State, and this portion of the tax they have paid. The provision under which they claim this exemption is founded in a wise policy. The taxes imposed upon the merchant must come back to him at last from the consumers of his goods, in the shape of enlarged profits. And the policy was to enable our own merchants to compete successfully in the sale of merchandise to non-residents, by alleviating the burthens upon it. To that end it is provided in the same section, and immediately following the power to tax the occupation, that “the portion of the merchant's capital, used in the purchase of goods sold by him to non-residents, and sent beyond the State, shall not be taxed at a rate higher than the ad valorem tax upon property:” Const., art. 2, sec. 28. It is a rule of interpretation, said Marshall, C. J., that the exception of a particular thing from general words, proves that in the opinion of the law-giver, the thing excepted would be within the general clause had the exception not been made, and this rule is quite as applicable to the Constitution as to other instruments: Brown v. Maryland, 12...