General Const. Co. v. Fisher

• Decision Date: 31 December 1934
• Parties: GENERAL CONST. CO. v. FISHER et al.
• Court: Oregon Supreme Court

39 P.2d 358

149 Or. 84

GENERAL CONST. CO. v. FISHER et al.

Supreme Court of Oregon

December 31, 1934

In Banc.

Appeal from Circuit Court, Multnomah County; Louis P. Hewitt, Judge.

Complaint by the General Construction Company against Earl L. Fisher and others, State Tax Commissioners, and another. Judgment for defendants, and plaintiff appeals.

Affirmed.

W. S Greathouse, of Seattle, Wash. (Eggerman & Rosling, of Seattle, Wash., on the brief), for appellant.

Willis S. Moore, Asst. Atty. Gen. (I. H. Van Winkle, Atty. Gen., on the brief), for respondents.

CAMPBELL, Justice.

Plaintiff a corporation, organized under the laws of the state of Washington, is engaged in the general contracting business. It is duly qualified to do business in the state of Oregon and maintains an office and a resident agent in the city of Portland. On June 16, 1928, it entered into a contract with the United States government to furnish labor and material for the construction of the Owyhee Dam and irrigation works in connection with the Owyhee irrigation project in Eastern Oregon, and shortly thereafter proceeded with the work called for in said contract. There was a further contract between the same parties in connection with the same work, dated January 20, 1932. The work was being done through the Department of the Interior of the United States by virtue of the laws of the United States and the state of Oregon relating to reclamation and irrigation of arid lands in the state of Oregon. The only net income received by plaintiff from its operations in Oregon for the years 1929, 1930, 1931 and 1932, was derived from the contracts with the United States government in the construction of the said irrigation project. The Oregon tax commission exacted from plaintiff the sum of $28,108.83 on April 29, 1933, the sum of $15,391.56 on May 15, 1933, and the sum of $38,549.89 on November 15, 1933, being the tax levied upon the income of plaintiff from its operations in Oregon during the years 1929, 1930, 1931, and 1932, required by the laws of Oregon (chapter 427, Oregon Laws 1929, p. 617, as amended by Oregon Laws 1931, p. 434, c. 273). These taxes were paid under protest, and, as plaintiff alleges in its complaint, to prevent levy being made on certain machinery and equipment necessarily used by it in performing its contract with the United States government.

Within one year from the time of filing its tax return, plaintiff applied to the tax commission for a revision of its tax. Upon its application the tax commission held a hearing, and on November 10, 1933, entered an order denying any revision of said tax.

On December 9, 1933, plaintiff filed its complaint in the instant case to recover said amount of taxes paid with interest thereon from the date of payment. The complaint, in addition to the above facts, alleged that the Oregon Excise Law (chapter 427, Oregon Laws 1929, p. 617 [Oregon Code 1930, § 69-1301 to § 69-1330, inclusive], as amended by chapter 273, Oregon Laws 1931, p. 434) imposing said tax, so far as it attempts to levy a tax on plaintiff's income derived from its operations under contract with the federal government, is unconstitutional and void as being: (1) An impairment of the obligations of a contract (article 1, § 10, United States Constitution; article 1, § 21, Oregon Constitution); (2) an unwarranted tax upon the functions of the federal government; (3) as granting unreasonable and arbitrary exemptions to certain corporations and associations in violation of article 1, § 20, article 1, § 32, and article 9, § 1, of the Oregon Constitution.

Defendants filed a demurrer to the complaint on the grounds that it failed to state facts sufficient to constitute a cause of action. The demurrer was sustained, and plaintiff refused to further plead. Judgment was thereupon entered in favor of defendants. Plaintiff appeals.

The questions presented by the brief of appellant are: Does the imposition of an excise tax by the state on the privilege of doing business at a profit within the state, based on the net income derived by a general contractor from its operations within the state, under federal contracts, impair the obligation of such contracts? Is the levying of such a tax an unwarranted interference with a function of the federal government? The other questions are not presented by appellant's brief, and, under rule 12 of this court, no further notice need be taken thereof.

In 1929 the Legislature of the State of Oregon enacted what is known as the "Excise Tax of 1929," Laws 1929, p. 617, § 6 (Code 1930, § 69-1306), which, as amended by Oregon Laws 1931, p. 436, c. 273, § 4, is as follows: "Every mercantile, manufacturing and business corporation doing or authorized to do business within this state, except as hereinafter provided, shall annually pay to this state, for the privilege of carrying on or doing of business by it within this state, an excise tax according to or measured by its net income, to be computed in the manner hereinafter provided, at the rate of 5 per cent upon the basis of its net income for the year 1930, and at the rate of 8 per cent upon the basis of its net income for the year 1931 and for each year thereafter. Each corporation mentioned in this section shall be entitled to an offset against said tax in the amount of taxes assessed to and paid by it upon its personal property located in this state, but the offset shall not exceed 90 per cent of the said tax. Any corporation, entitled to the offset provided herein, shall attach to its return the official receipts for the personal property taxes which are used as such offset. The offset provided in this section shall not include any personal property taxes due prior to January 1, 1929. In any event each taxpayer named in sections 69-1303, 69-1304 and 69-1306, Oregon Code 1930, shall pay annually to the state, for the said privilege, a minimum tax of $25; provided, that from and after December 31, 1931, such minimum tax shall be $10."

The act also defines what is meant by net income, and how the net income may be ascertained. From the gross income of the corporation the law permits the deduction of:

"(a) All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on business, including a reasonable allowance for salaries or other compensation for personal services actually rendered, and rentals or other payments required to be made as a condition to the continued use or possession for the business purposes of property to which the taxpayer has not taken or is not taking title or in which it has no equity.

"(b) All interest or returns paid or accrued during the taxable year on indebtedness. The interest deduction upon deposits or withdrawable shares in building and loan associations savings and loan associations and mutual savings banks shall not include the income on nonwithdrawable shares, nor amounts credited to undivided profits or surplus or contingent fund. The net income of each such bank or association, as rendered under this act, shall not be less than the total amount so credited, or required by law to be credited, in the taxable year to such undivided profits, surplus and contingent fund.

"(c) Except as otherwise provided in this act, taxes paid or accrued during the taxable year, other than taxes paid to the state under this act, and other than taxes on income or profits paid or accrued within the taxable year imposed by (1) the United States, (2) any foreign country, (3) this state or any state or territory or taxing subdivision thereof and other than taxes assessed against local benefits of a kind tending to increase the value of the property assessed, and other than property assessed, and other than property taxes, on account of which an offset for credit is allowed by section 69-1306, Oregon Code...