Graham Paper Co. v. Gehner

• Decision Date: 08 February 1933
• Docket Number: 30326
• Citation: 59 S.W.2d 49,332 Mo. 155
• Parties: Graham Paper Company v. Fred Gehner et al., Appellants
• Court: Missouri Supreme Court

59 S.W.2d 49

332 Mo. 155

Graham Paper Company v. Fred Gehner et al., Appellants

No. 30326

Supreme Court of Missouri

February 8, 1933

Appeal from Circuit Court of City of St. Louis; Hon. M. A Sale, Judge.

Reversed.

Stratton Shartel, Attorney-General, for appellants; Otto & Potter and Smith B. Atwood of counsel.

(1) The Income Tax Law of 1927 (Laws 1927, p. 475, et seq.), in so far as it purports to be operative prior to its effective date, is retrospective and void. Art. II, Sec. 15, Mo Constitution; Smith v. Dirckx, 283 Mo. 188, 223 S.W 104; State ex rel. v. Southwestern Bell Tel. Co., 292 S.W. 1037. (2) The Income Tax Law of 1921 (Laws 1921, First Ex. Sess., p. 187, et seq.) not having been effectively repealed until July 3, 1927, was operative and in full force and effect until that date. Being in effect, it imposed a liability upon respondent corporations to pay a tax upon income from all sources during that period. (3) Said Income Tax Law of 1927, in so far as it purports to relieve respondents from the liability, above referred to, is unconstitutional and void. Art. IV, Sec. 51, Mo. Constitution. (4) It is a cardinal rule of statutory construction that of two possible constructions of a legislative act, the one constitutional and the other unconstitutional, the former construction will be adopted in spite of the literal wording of the act. Hence, it must be taken that the Legislature of 1927 has effectively divided the calendar year 1927 for the purpose of computing the income tax over that period. This, certain General Assemblies have been held effectively to have done in State ex rel. v. Southwestern Bell Tel. Co., 292 S.W. 1037; Smith v. Dirckx, 283 Mo. 188, 223 S.W. 104.

Lewis, Rice, Tucker, Allen & Chubb for Graham Paper Company.

Nagel, Kirby & Shepley and Harry W. Kroeger for T. J. Moss Tie Company.

(1) The 1927 Missouri income tax law by its terms was made to apply to income accruing during the entire calendar year 1927. R. S. 1919, sec. 13106, as amended by Laws 1927, p. 476; see, also, repealing clause, Laws 1927, p. 475. (2) Under the 1927 income tax law, Missouri corporations were required to report themselves liable for, and to pay, a tax on only such portion of their net incomes which accrued from sources within this State, or such a reasonable proportion of their total net incomes as represented the amounts of such net incomes earned within this State as compared with their total net incomes. R. S. 1919, sec. 13106, as amended by Laws 1927, p. 476; R. S. 1919, sec. 13108, as amended by Laws 1927, p. 478. (3) The 1927 Missouri income tax law should be interpreted as applying to all income received by taxpayers during the calendar year 1927, and, when so interpreted, is not in violation of Section 15, Article II, of the Constitution of the State of Missouri, which forbids the enactment of laws retrospective in operation, because (a) Said constitutional provision is a part of the Bill of Rights promulgated for the protection of private citizens and does not constitute a defense available to the State. 12 C. J. 1087; State ex rel. Koeln, Collector, v. Southwestern Bell Tel. Co., 316 Mo. 1008; Jefferson City Gas Light Co. v. Clark, 95 U.S. 655; Lewis v. Turner, 40 Ga. 416; People v. Haverstraw Board of Education, 126 A.D. 414, affirmed 193 N.Y. 601; Davis v. Dawes, 4 Watts & Sargeant (Pa.) 401; Demoville v. Davidson County, 87 Tenn. 214. (b) Even though the State may avail itself of the protection of said constitutional provision in a proper case, the 1927 Missouri income tax law does not impair any vested right of the State, either in the income of taxpayers or in any tax accruing thereon, and is not in violation of said constitutional provision under the general doctrine that a statute, in order to be so violative, must not only be retrospective, but must impair existing vested rights. State ex rel. v. Marion County, 128 Mo. 427; Vanata v. Johnson, 170 Mo. 269; Gladney v. Sydnor, 172 Mo. 318. (c) Even though an income tax law passed during a calendar year and made applicable to the entire calendar year might be violative of said constitutional provision as to individuals so far as it increases the burdens of taxation on income already accrued, it does not follow that it is violative of said constitutional provision, in so far as it decreases the burdens of taxation, for a statute may be operative at different times in respect to different persons or matters affected by it. State ex rel. v. Kansas City, 310 Mo. 542. (4) The 1927 Missouri income tax law should be interpreted as applying to all income received by taxpayers during the calendar year 1927 and when so interpreted is not in violation of Section 51 of Article IV of the Constitution of the State of Missouri, which denies the power of the General Assembly to release or extinguish an indebtedness, liability or obligation to the State, because: (a) Said constitutional provision is limited in its application to dealing with "any individual or corporation," and does not apply to general laws affecting all persons of a class alike. (b) The taxpayer was not, on July 3, 1927, the effective date of the 1927 Missouri income tax law and of the repeal of the pre-existing law, "indebted" to the State for a tax. City of Carondelet v. Picot, 38 Mo. 125; State ex rel. v. Trust Co., 209 Mo. 490; New Jersey v. Anderson, 203 U.S. 483; Forest City Mfg. Co. v. Levy, 33 S.W.2d 984. (c) Nor was the taxpayer on said date "liable" or under "obligation" for a tax within the meaning of said constitutional provision for the reason that on said date the State's claim, if any, was merely inchoate. State ex rel. v. Academy of Science, 13 Mo.App. 213; State v. Pioneer Oil & Refining Co., 292 S.W. 869. (5) The 1927 Missouri income tax law, although enacted during the calendar year, applied to, and was operative upon, income accruing during the entire calendar year 1927, except to the extent that it imposed unconstitutional burdens on the taxpayer, and the pre-existing law applied to no part of said calendar year. Smith v. Dirckx, 283 Mo. 188; Stouffer v. Crawford, 248 S.W. 581.

OPINION

Sturgis, C.

Injunction to restrain the collection of certain income tax for 1927. The controversy arises from the different construction placed by the parties hereto on the amendment of 1927 to the income tax law, Laws 1927, page 475. This amendment was passed and approved March 23, 1927, and, under the Constitution, went into effect July 3, 1927. The principal object of the amendment was to change the basis of income taxes levied against and to be paid by corporations from the whole net income of corporations except that derived from interstate commerce to the net income derived from all sources within this State, including a reasonable proportion apportioned to this State from the net income derived partially within and partially without the State. The rate of taxation was continued at one per cent. By this amendment of 1927, supra, Section 13106, Revised Statutes 1919, the one in controversy, was made to read:

"Section 13106. Rates to be levied -- when: There shall . . . be levied, assessed and collected for the calendar year 1927, and annually thereafter, and paid by every individual, . . . and by every corporation, joint stock company or association, . . . an annual tax of one per cent upon the taxpayer's entire net income from all sources within this state, including a reasonable proportion apportioned to this state of net income derived from business partially within and partially without the state which cannot be definitely allocated."

The plaintiff, a Missouri corporation, is located in St. Louis and its business for 1927 was partially within and partially without this State. The facts are not in dispute. The total net income of plaintiff for 1927 was agreed upon. The reasonable proportion of this net income for that year apportioned to this State under the above statute was agreed upon, to-wit, 42.47 per cent of the total net income earned should be taxed here, the balance of 57.53 per cent being foreign business and the income therefrom not taxable here. It is plaintiff's insistence that under the express terms of the statute above quoted, "for the calendar year 1927," the net income for the entire year of 1927 should be apportioned in this way and it should be required to pay only 42.47 per cent of such entire net income. The entire net income for the year in question was agreed to be $ 568,470.48, of which $ 241,429.41 was properly this State's share of such income, and on this amount, and no more, plaintiff was willing to pay the income tax of one per cent. On this basis plaintiff offered to pay $ 2,414.29 for its income tax for 1927. The defendant taxing officials objected to this method of computing the tax and refused to accept this amount in full payment. They base their objection to the method of computation on the fact that the amendment of 1927, called the new law, did not go into effect till July 3, 1927, and the part of the year 1927 prior to that date approximately one-half, was governed by the old law which required that the tax for that period be computed at one per cent of the entire net income, just as the tax for 1926 and prior years had been computed, and that no deduction for the first half of 1927 should be made from the net income for that period because of a large part of plaintiff's business being transacted outside of this State or partly within and partly without this State. In other words, defendants insist that the income tax should be computed under the old law for the first half of the year 1927 and under the new or amended law for the last half of that year. It was agreed that if so computed, the net taxable income would be increased $ 163,520 and...