Homestake Min. Co. v. Johnson, s. 14734

• Decision Date: 04 September 1985
• Docket Number: 14755,Nos. 14734,s. 14734
• Citation: 374 N.W.2d 357
• Parties: HOMESTAKE MINING COMPANY, a corporation, Plaintiff and Appellee, v. R. Van JOHNSON, Secretary of Revenue, State of South Dakota and the State of South Dakota, Defendants and Appellants.
• Court: South Dakota Supreme Court

Page 357

374 N.W.2d 357

HOMESTAKE MINING COMPANY, a corporation, Plaintiff and Appellee, v. R. Van JOHNSON, Secretary of Revenue, State of South Dakota and the State of South Dakota, Defendants and Appellants.

Nos. 14734, 14755.

Supreme Court of South Dakota.

Argued May 22, 1985.

Decided Sept. 4, 1985.

A.P. Fuller of Amundson & Fuller, Lead, for plaintiff and appellee; George A. Bangs of Bangs, McCullen, Butler, Foye & Simmons, Rapid City, on brief.

John Dewell, Asst. Atty. Gen., Pierre, for defendants and appellants; Mark V. Meierhenry, Atty. Gen., Pierre, on brief.

HENDERSON, Justice.

ACTION

This appeal questions the constitutionality of the mineral severance tax imposed by SDCL ch. 10-39. The trial court held SDCL 10-39-53 to be an invalid discrimination violating South Dakota Constitution Article VI, §§ 17 and 18, and the Fourteenth Amendment to the United States Constitution and not to be in violation of any other Constitutional provision. The trial court then extended the exemption in SDCL 10-39-53 to Homestake Mining Company. From all determinations adverse to each, both parties now appeal. We affirm in part and reverse in part.

FACTS

Homestake Mining Company is a California corporation which operates the Homestake gold mine located in Lead, South Dakota. This mine has operated in Lead since 1876. It is the largest producer of gold in North America and the only mining operation of great consequence in the state.

Mining operations have been the object of some form of taxation since 1935. The rate of taxation has varied over the years until 1970 when the tax was repealed. A net profits tax was enacted in 1975. In 1980, this tax was changed from a 4% variable tax to a 5% tax on the first $10,000,000 net profits to 15% on net profits over $100,000,000. In 1981, the legislature repealed the net tax and enacted the statutes here in question. These statutes "imposed a severance tax of six percent of the gross yield from the sale of precious metals severed in this state." SDCL 10-39-43. Gross yield is defined as the "total receipts from the sale of precious metals severed in this state." SDCL 10-39-44. An exemption was provided in SDCL 10-39-53, which exempted the application of the provisions of SDCL ch. 10-39 "to any person severing less than one thousand ounces of precious metals in any one calendar year." There is no dispute that Homestake is the only person or mining operation exceeding this 1,000 ounce exemption. In fact, all other persons and mining operations combined, fail to come close to exceeding this limit.

SDCL 10-39-55 also amended the time frame for the reporting period between the 1980 net tax and the 1981 gross tax. It required the filing of a statement on July 31, 1981, showing the gross yield for the period of January 1, 1981, through June 30, 1981. It also required payment of the new gross tax but allowed as a setoff previously paid estimated taxes under the 1980 statute. These statutes did not contain an emergency clause or declaration and were not passed by a two-thirds majority of both legislative houses.

On July 31, 1981, Homestake filed suit and, by an amended complaint, alleged four causes of action. The first cause of action alleged: The statutes violated South Dakota Constitution Article XI, § 13, by "increasing the rate of taxation on the Mine's income or sales without a two-thirds vote of all the members of each branch of the Legislature ...." The second cause of action alleged: The statutes violated South Dakota Constitution Article III, § 22, because they took "effect on January 1, 1981 without a declaration of emergency and without a two-thirds vote of all the members of each branch of the Legislature." The third cause of action alleged: The statutes violated the Fourteenth Amendment to the United States Constitution and South Dakota Constitution Article VI, §§ 17 and 18, by "imposing on Plaintiff alone unfair, unjust, arbitrary, unequal, discriminatory and confiscatory taxes ...." Homestake's fourth and final cause of action alleged: The statutes burdened interstate commerce in violation of Article 1, § 8, of the United States Constitution by imposing

an unapportioned tax on gross receipts from interstate sales of minerals mined in the State that is disproportional and not fairly related to: Plaintiff's activities in the State, the services provided to Plaintiff by the State and the value of the minerals mined ....

After entertaining a motion for summary judgment, the trial court granted the State summary judgment on the first and second causes of action. After a trial on the remaining allegations, the trial court determined the statutes to be in general compliance with the requirements of the State and Federal Constitutions, but held the 1,000 ounce tax exemption provision, SDCL 10-39-53, to be an invalid discrimination by not providing "the same privileges to Homestake as it does to other precious metal producers" and thus providing for "unequal taxation." Instead of severing the 1,000 ounce exemption provision, or declaring the entire chapter invalid, the trial court extended the 1,000 ounce tax exemption to Homestake. In so doing, the trial court noted this approach may appear novel, but also noted the same principle had been applied in Quong Ham Wah Co. v. Industrial Accident Comm'n, 184 Cal. 26, 192 P. 1021, 12 A.L.R. 1190 (1920). The trial court further ordered "the State to reimburse Homestake for the gross tax paid on the first one thousand ounces of precious metal upon which it paid the gross tax each year since the [statutes] went into effect." In the Judgment, this amount was listed as $69,433.96 in principal and $16,792.68 in prejudgment interest.

DECISION

I. DOES THE 1,000 OUNCE EXEMPTION CONTAINED IN SDCL 10-39-53 VIO

LATE THE EQUAL PROTECTION CLAUSE AND THE UNIFORMITY, EQUALITY, AND PRIVILEGES AND IMMUNITIES CLAUSES OF THE FEDERAL AND STATE CONSTITUTIONS? THE TRIAL COURT HELD THAT IT DID, BUT WE HOLD THAT IT DOES NOT.

The United States Constitution Article XIV, § 1, provides in relevant part:

No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States, nor shall any state deprive any person of life, liberty or property, without due process of law, nor deny to any person within its jurisdiction the equal protection of the laws.[ ¹

South Dakota Constitution Article VI, § 18, also provides: "No law shall be passed granting to any citizen, class of citizens or corporation, privileges or immunities which upon the same terms shall not equally belong to all citizens or corporations." South Dakota Constitution Article VI, § 17, further states: "No tax or duty shall be imposed without the consent of the people or their representatives in the Legislature, and all taxation shall be equal and uniform."

We initially note that although this Court has stated that the latter portion of South Dakota Constitution Article VI, § 17, has been obliterated from the Constitution by the amendment of South Dakota Constitution Article XI, § 2, see Wheelon v. South Dakota Land Settlement Bd., 43 S.D. 551, 563, 181 N.W. 359, 363, 14 A.L.R. 1145, 1151 (1921); Peterson Oil Co. v. Frary, 46 S.D. 258, 266, 192 N.W. 366, 369 (1923), and Commercial State Bank v. Wilson, 53 S.D. 82, 85, 220 N.W. 152, 154 (1928), this Court has later held that "so far as concerns taxes other than property taxes, section 17, art. 6, was in no manner affected by the 1918 amendment of section 2, art. 11. It is just as valid and just as much a part of the Constitution as ever it was." State ex rel. Botkin v. Welsh, 61 S.D. 593, 640, 251 N.W. 189, 209 (1933).

We also initially note that when considering a statute's constitutionality, it is presumed valid, Direct Auto Buying Service, Inc. v. Welch, 308 N.W.2d 570, 572 (S.D.1981), and should be upheld unless clearly and unmistakably unconstitutional. In re T.L.J., 303 N.W.2d 800, 808 (S.D.1981).

On this issue, the State contends the legislature has wide discretion in enacting tax statutes, Allied Stores of Ohio v. Bowers, 358 U.S. 522, 526, 79 S.Ct. 437, 440, 3 L.Ed.2d 480, 484 (1959), and may classify and subclassify the objects of a tax if the classification is not arbitrary and unreasonable, State v. Black Hills Transp. Co., 71 S.D. 28, 32, 20 N.W.2d 683, 685 (1945), and all persons within the same class are taxed alike. Fox v. Standard Oil Co., 294 U.S. 87, 101, 55 S.Ct. 333, 339, 79 L.Ed. 780, 790 (1935). The State further contends, in substance, that because large concerns have different economic power than small concerns, the former may be taxed at a higher rate than the latter, as long as all taxpayers of the same size are taxed alike. Fox, 294 U.S. at 100-01, 55 S.Ct. at 338-39, 79 L.Ed. at 789-90; Stewart Dry Goods Co. v. Lewis, 294 U.S. 550, 569, 55 S.Ct. 525, 533, 79 L.Ed. 1055, 1064 (1935) (Cardozo, J., dissenting). The State thus asserts that since the statutes set the classes at those severing more or less than 1,000 ounces in a calendar year, and taxes all persons in those separate classes the same, the statutes are not an invalid discrimination. The State maintains the classification or subclassification is reasonable and is based on the frequency and character of the extraction which are permissible considerations for the legislature. Black Hills Transp., 71 S.D. at 35, 20 N.W.2d at 686; Continental Baking Co. v. Woodring, 286 U.S. 352, 373, 52 S.Ct. 595, 602, 76 L.Ed. 1155, 1167, 81 A.L.R. 1402, 1415 (1932).

Homestake contends the trial court's ruling on equal protection was correct and in support of its proposition, Homestake cites Stewart Dry Goods Co. v. Lewis, 294 U.S. 550, 55 S.Ct. 525, 79 L.Ed. 1054 and Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 103 S.Ct. 1365, 75 L.Ed.2d 295 (1983). Homestake asserts that in Stewart, the Supreme Court determined a variance in the rate of tax for doing the same identical act, i.e., selling...