Lantz v. Hanna

• Decision Date: 10 June 1922
• Docket Number: 24,093
• Citation: 207 P. 767,111 Kan. 461
• Parties: J. B. LANTZ, Appellant, v. R. B. HANNA et al., Appellees
• Court: Kansas Supreme Court

207 P. 767

111 Kan. 461

J. B. LANTZ, Appellant, v. R. B. HANNA et al., Appellees

No. 24,093

Supreme Court of Kansas

June 10, 1922

Decided January, 1922.

Appeal from Cowley district court; OLIVER P. FULLER, judge.

Judgment reversed and cause remanded.

SYLLABUS

SYLLABUS BY THE COURT.

TAXATION--Provision of Section 11163, Gen. Stat. 1915, Relating to Taxation of United States Bonds Unconstitutional. The portion of section 11163 of the General Statutes of 1915 which provides that where bonds of the United States have been purchased during the year preceding March 1, a sum shall be listed for taxation as money on hand on March 1, computed by dividing the value of the bonds by twelve, and multiplying the quotient by the number of months of the year remaining after deducting the time the bonds were owned, violates the constitutional principles of equality and uniformity in property taxation in this state, denies purchasers of government bonds the equal protection of the laws guaranteed by the federal constitution, and violates the federal statute exempting bonds of the federal government from state taxation.

Ward Wright, of Arkansas City, and S. C. Bloss, of Winfield, for the appellant.

Richard J. Hopkins, attorney-general, E. W. Clausen, assistant attorney-general, and Ellis Fink, county attorney, for the appellees.

OPINION

BURCH, J.:

The action was one to recover taxes paid under protest. A demurrer to the plaintiff's petition was sustained, and he appeals.

In this state, March 1 is taxing day. In March, 1919, the plaintiff duly listed for taxation all property subject to taxes which he owned on March 1. At that time he was operating for oil in Texas. His operations were financed by another, under an arrangement that he should receive a percentage of the net profits. On August 8, 1919, all property which the plaintiff was operating, including operating equipment, was sold, and he received, as his share of the profits, more than one million dollars. Anticipating the sale, the plaintiff had arranged to invest his prospective profits in bonds of the United States. On August 8, within a matter of moments after receiving his profits, he purchased First Liberty Loan bonds of the par value of one million dollars, for which he paid $ 997,200. In May, 1920, the assessor coerced the plaintiff to list his investment in government bonds as of March 1, under section 11163 of the General Statutes of 1915, which reads as follows:

"All property shall be listed and valued as on the first day of March in the year in which the same is assessed, and the transfer or sale of any taxable personal property subsequently to the first day of March shall not authorize any person to omit the same from his list, although such list be not made until after the sale or transfer of such property; but all such property shall be listed for taxation in the same manner as if no sale or transfer thereof had been made. But where bonds of the United States have been purchased by any person during the year prior to the first day of March, where property is required to be listed as of that day, the value of such bonds in money shall be divided by twelve, and the quotient shall be multiplied by the number of months or fractional parts of months remaining after deducting the time which such bonds were owned, and such product shall be listed as money on hand on the first day of March by the party."

Having paid, under protest, the first half of the taxes levied pursuant to such listing, the plaintiff sued to recover the money, amounting to $ 7,446.65.

The plaintiff contends the statute deprives him of the equal protection of the law, contrary to the guaranty of the federal constitution, and violates the constitutional principles of equality and uniformity in property taxation in this state, by arbitrariness of classification.

When the constitution of this state was adopted, the theory of taxation was the theory of reciprocal protection and duty to support. (Washburn College v. Comm'rs of Shawnee Co., 8 Kan. 344.) The theory which now prevails is the faculty theory. (The City of Hutchinson v. Stewart, 105 Kan. 734, 746, 185 P. 740.) The constitution stands in the way of full application of the modern theory, but the change in theory is not of practical consequence in this case. In the case of Wheeler v. Weightman, 96 Kan. 50, 149 P. 977, the court critically examined all cases previously decided, and stated the following conclusions respecting taxation of property:

"The essentials are that each man in city, county, and state is interested in maintaining the state and local governments. The protection which they afford and the duty to maintain them are reciprocal. The burden of supporting them should be borne equally by all, and this equality consists in each one contributing in proportion to the amount of his property. To this end all property in the state must be listed and valued for the purpose of taxation, the rate of assessment and taxation to be uniform and equal throughout the jurisdiction levying the tax. The imposition of taxes upon selected classes of property to the exclusion of others, and the exemption of selected classes to the exclusion of others, constitute invidious discriminations which destroy uniformity." (p. 58.)

In the same opinion the subject of exemption from taxation was fully considered, and the following conclusions were stated:

"An exemption from taxation, granted through favoritism or other arbitrary motive, of property not benefiting the public in any way different from other property of the state, could not be sustained even although the financial effect of the exemption might not be appreciably felt.

"'It is difficult to conceive of a justifiable exemption law which should select single individuals or corporations, or single articles of property, and, taking them out of the class to which they belong, make them the subject of capricious legislative favor. Such favoritism could make no pretense to equality; it would lack the semblance of legitimate tax legislation.' (1 Cooley on Taxation, 3d ed., p. 381.)" (p. 61.)

Within constitutional limitations, and limitations imposed by paramount federal law, the legislature has full discretion in the formulation of its scheme of taxation. Since the tax law must be a general law, perfect uniformity and equality are impossible, and it is unavoidable that some persons should be affected differently from others. In this instance, however, money invested in a single kind of tax-exempt security is taxed, while money invested in all other kinds is not taxed. The inequality is not incidental, but results from invidious discrimination between classes of tax-exempt securities, and between bonds of the United States and securities issued under the laws of this state, produced by revision of the tax law in 1907:

"No person shall be required to list for taxation any state, county, city, school-district and municipal bonds of the state of Kansas, or other evidences of indebtedness of municipal corporation[s] of this state." (Laws 1907, ch. 408, § 15, Gen. Stat. 1915, § 11302.)

There is no difference in principle between this case and the case of Graham v. Comm'rs of Chautauqua Co., 31 Kan. 473, 2 P. 549, in which one kind of property, brought into the state after March 1, was taxed, while other kinds were not taxed; or the case of M. & M. Rly. Co. v. Champlin, Treas., 37 Kan. 682, 16 P. 222, in which property of residents of a township was subjected to taxation, without taxing the property of others; or the case of In re Page, 60 Kan. 842, 58 P. 478, in which some insurance policies were taxed, and not others; or the case of Hamilton v. Wilson, 61 Kan. 511, 59 P. 1069, in which some kinds of judgments were taxed, and not others.

It is said the term "bonds of the United States" was used in a generic sense, and the state tax commission interprets the statute as applying to all obligations of the United States. When the statute took effect (March 11 1876), the term had a definite legal meaning, which accorded with its popular meaning, and applied to a single class of obligations. The legislature could not have been ignorant of the existence of the federal statute of 1864, which appears as section 3701 of the Revised Statutes of the United States (revision of June 22, 1874,...