Great Atlantic & Pacific Tea Co. v. Kentucky Tax Com'n

• Decision Date: 21 March 1939
• Citation: 278 Ky. 367,128 S.W.2d 581
• Parties: GREAT ATLANTIC & PACIFIC TEA CO. v. KENTUCKY TAX COMMISSION et al.
• Court: Kentucky Court of Appeals

128 S.W.2d 581

278 Ky. 367

GREAT ATLANTIC & PACIFIC TEA CO. v. KENTUCKY TAX COMMISSION et al.

Court of Appeals of Kentucky

March 21, 1939

Rehearing Denied June 9, 1939.

Appeal from Circuit Court, Franklin County; William B. Ardery Judge.

Action by the Great Atlantic & Pacific Tea Company against the Kentucky Tax Commission and others for judgment declaring certain statute to be unconstitutional and for order directing repayment of tax paid under protest. Judgment for defendants, and plaintiff appeals.

Reversed with directions.

Carroll & McElwain, of Louisville, for appellant.

Hubert Meredith, Atty. Gen., and A. E. Funk, Asst. Atty. Gen., for appellees.

REES Justice.

In this case we are called upon to determine whether chapter 26 of the Acts of the Extraordinary Session of the General Assembly of 1934, as amended in 1936 (3d Ex.Sess. c. 11), is valid. The Act imposes a license tax on retail merchants, graduated according to the number of stores operated in this state. Section 5 of the 1934 Act divided merchants into five classes for the purpose of assessing annual license fees and provided that the fees should be as follows:

"(1) Upon one store the annual license fee shall be two ($2.00) dollars for each such store.

"(2) Upon two stores or more, but not to exceed ten stores, the annual license fee shall be Twenty ($20.00) Dollars for each such additional store.

"(3) Upon each store in excess of ten, but not to exceed twenty-five, the annual license fee shall be Fifty ($50.00) Dollars for each such additional store.

"(4) Upon each store in excess of twenty-five, but not to exceed fifty, the annual license fee shall be One Hundred ($100.00) Dollars for each such additional store.

"(5) Upon each store in excess of fifty the annual license fee shall be One Hundred and Fifty ($150.00) Dollars for each such additional store."

At the Third Extraordinary Session of the General Assembly of 1936, section 5 of the 1934 Act was repealed and reenacted (Ky.St. 1936, § 4202a-17) so as to read as follows:

"Every merchant establishing, operating or maintaining one or more stores, stands or places of business within this State, shall pay annually the license fee hereinafter prescribed for the privilege of opening, establishing, operating or maintaining such stores, stands or places of business. The license fees herein prescribed shall be as follows:

"(1) On one store the flat sum of two dollars ($2.00);

"(2) On all chains of more than one, but not more than five stores, two dollars ($2.00) plus twenty-five dollars ($25.00) for each said store in excess of one;

"(3) On all chains of more than five, but not more than ten stores, one hundred and two dollars ($102.00) plus fifty dollars ($50.00) for each said store in excess of five;

"(4) On all chains of more than ten, but not more than twenty stores, three hundred and fifty-two dollars ($352.00) plus one hundred dollars ($100.00) for each said store in excess of ten;

"(5) On all chains of more than twenty, but not more than fifty stores, one thousand three hundred and fifty-two dollars ($1,352.00) plus two hundred ($200.00) dollars for each store in excess of twenty;

"(6) On all chains of more than fifty, seven thousand three hundred and fifty-two dollars ($7,352.00) plus three hundred dollars ($300.00) for each said store in excess of fifty." Section 1.

The Act as amended is now section 4202a-13 to and including section 4202a-24, Carroll's Kentucky Statutes, 1936 Edition. By Chapter 66, Acts of 1938, the Act was further amended by eliminating the tax of $2 on single stores, but this amendment has no bearing on this appeal.

On July 1, 1936, the appellant owned and operated 200 stores in Kentucky, and it paid, under protest, to the Auditor of Public Accounts, $52,352, the amount of the tax due under the Act as amended. On November 6, 1936, it brought an action in the Franklin circuit court under the Declaratory Judgment Act, section 639a--1 et seq., Civil Code of Practice, against the members of the Kentucky Tax Commission, the Attorney General, and the Auditor of Public Accounts, asking that section 5 of the 1934 Act, as amended by section 1 of the 1936 Act, be declared unconstitutional and void, and that an order be directed to the Auditor of Public Accounts requiring him to issue his warrant on the State Treasury in favor of the plaintiff in the sum of $52,352.

The petition was in five paragraphs. In paragraph 1 the plaintiff alleged that it was a merchant as defined in section 1 of the Act of 1934 (Ky.St.l936, § 4202a-13), and was engaged in the business of selling goods, wares, and merchandise, and particularly food stuffs, in various stores in the state of Kentucky, and that on July 1, 1936, it was the owner and operator of 200 stores. It alleged that there were other merchants in the state of Kentucky having larger gross sales and gross receipts than the plaintiff, and, also having larger net receipts and net income than the plaintiff, who, by virtue of the fact that they owned and operated only one store within the state of Kentucky, paid an annual license tax under the act of only $2; that section 5 of the Act of 1934, as amended by section 1 of the Act of 1936, constituted an unreasonable, arbitrary, and unlawful classification and discrimination in favor of those merchants operating a single store or operating only a few stores; that the classification of merchants, as defined in the Act, into the five groups named therein was arbitrary, unreasonable, and capricious; and that section 5 of the Act as amended was unconstitutional and in contravention of the provisions of the Constitution of the state of Kentucky, and particularly sections 1, 2, 13, and 26 of the Bill of Rights thereof, and also sections 59, 171 and 181a thereof. Paragraph 2 alleged that section 5 of the Act as amended is unconstitutional in that the rates of taxation provided therein are arbitrary and unreasonable and unjustly discriminatory against the appellant as a merchant owning and operating more than 50 stores in favor of other merchants owning and operating a single store or less than 50 stores. Paragraph 3 alleged that sections 5 and 12 of the Act as amended (Ky.St.1936, §§ 4202a-17, 4202a-24) are unconstitutional in that the taxes therein provided for are unreasonable, arbitrary, and confiscatory as applied to the plaintiff and all other merchants owning and operating more than 50 stores within the state of Kentucky. Paragraph 4 charged that section 2 of the amendatory act, repealing the credits theretofore allowable against the merchants license tax, was invalid as constituting double taxation against the appellant. Paragraph 5 sought the recovery of the sum of $52,352 which had been paid by the plaintiff on July 1, 1936.

On March 11, 1937, an amended petition was filed in which it was alleged that the plaintiff had operated its stores in the state of Kentucky for the fiscal year ending February 28, 1937, at a loss. On September 6, 1937, a second amended petition was filed showing that plaintiff had paid the further sum of $49,652, on account of the merchants license tax, on July 1, 1937, and the recovery of this sum was sought. On February 19, 1938, a third amended petition was filed amending paragraph 3 of the original petition. It was alleged that, aside from the plaintiff, the Kroger Grocery & Baking Company was the only other merchant owning and operating more than 50 stores within the state of Kentucky; that for the years 1935 and 1936 the Kroger Grocery & Baking Company suffered a net loss from the operation of its stores in Kentucky; and that the merchants license tax was unreasonable, arbitrary, and confiscatory as to both the plaintiff and the Kroger Grocery & Baking Company, which were the only merchants within the classification. Demurrers to the petition as amended and each paragraph thereof were sustained, and, the plaintiff having declined to plead further, its petition as amended was dismissed. The circuit court adjudged that section 5 of the challenged act was not unconstitutional; that it did not provide an unreasonable or an arbitrary classification of merchants for the purpose of taxation; and that the tax was not confiscatory.

On this appeal, four grounds are urged for a reversal of the judgment; (1) Section 5 of the 1934 Act as amended is unconstitutional as being an unreasonable and arbitrary classification of those engaged in the trade or occupation of a merchant for the purpose of taxation; (2) it is unconstitutional in that the taxes therein imposed are unreasonable, arbitrary and confiscatory as applied to the appellant and all other merchants owning and operating more than 50 stores within the state of Kentucky; (3) it is unconstitutional in that the rates of taxation are arbitrary and unreasonable and unjustly discriminatory against the appellant as a merchant owning and operating more than 50 stores in favor of other merchants owning and operating a single store or less than 50 stores; and (4) section 12 of the 1934 Act as amended (Ky.St.1936, § 4202a-24), repealing credits theretofore allowable against the merchants license tax, is invalid as constituting double taxation against the appellant, particularly in view of section 4189-7, Kentucky Statutes 1930, allowing similar credits against the corporate license tax.

Since we have concluded that ground 1 must be sustained, it is unnecessary to consider the other grounds relied upon for a reversal of the judgment further than to say that in our opinion paragraphs 2 and 3 of the petition each stated a cause of action and the demurrers thereto should have been overruled, and upon the filing of an answer traversing the averments thereof proof should have been heard on the...