Leonard v. Maxwell
| Decision Date | 16 June 1939 |
| Docket Number | 744. |
| Parties | LEONARD v. MAXWELL, Commissioner of Revenue. |
| Court | North Carolina Supreme Court |
[Copyrighted Material Omitted] [Copyrighted Material Omitted]
Civil action to recover sales tax paid under protest, and alleged to have been wrongfully and illegally collected under the Emergency Revenue Act of 1937.
On August 30, 1938, the plaintiff, in response to demand therefor and after hearing, paid to the defendant, under protest, $3.13, being 3% of the gross amount of sales made by the plaintiff as a "retail merchant" during the month of May, 1938, and immediately demanded refund thereof which was declined. In apt time and pursuant to the provisions of the statute, plaintiff brings this action to recover back the tax so paid.
Plaintiff seeks to recover the tax on the ground that Art. V, Schedule E, of the Revenue Act of 1937 (Chap. 127), under which it was collected and paid, is unconstitutional. Liability for the tax is conceded if the act be valid.
The statute is assailed on three grounds: 1. Discrimination, in that it is alleged the statute is not applicable to all "retail merchants" alike; (2) arbitrariness, in that, the maximum tax on the sale of any single article of merchandise is fixed at $15 without any reasonable basis therefor; and, (3) disqualification of members of the General Assembly, for that, no reapportionment was made at the first session after the last general census as required by Art. II, sections 4, 5 and 6 of the Constitution.
Demurrer interposed on the ground that the complaint does not state facts sufficient to constitute a cause of action. Demurrer sustained and from ruling thereon, the plaintiff appeals, assigning error.
Fred M. Parrish and Walter E. Johnston, Jr., both of Winston-Salem, for appellant.
Harry McMullan, Atty. Gen., and L. O. Gregory, Asst. Atty. Gen., for appellee.
The office of a demurrer is to test the sufficiency of a pleading, admitting, for the purpose, the truth of factual averments well stated and such relevant inferences as may be deduced therefrom, but it does not admit any legal inferences or conclusions of law asserted by the pleader. Pearce v. Privette, 213 N.C. 501, 196 S.E. 843; Kirby v. Reynolds, 212 N.C. 271, 193 S.E. 412; Ballinger v. Thomas, 195 N.C. 517, 142 S.E. 761; Manning v. Atlantic & Y. R. Co., 188 N.C. 648, 125 S.E. 555. We must, therefore, look to the allegations of the complaint to ascertain the questions presented.
First. It is alleged that the act in question is void, in that, it purports to levy a 3% tax on the gross sales of every "retail merchant" as therein defined, "for the privilege of engaging or continuing in the business of selling tangible personal property", with the provision that the maximum tax on the sale of any single article of merchandise shall be $15, and, at the same time, numerous "retail merchants" engaged in selling tangible personal property are exempted from its provisions, without any reasonable basis for such exemptions, thus resulting in arbitrary discriminations.
What are the alleged invalidating exemptions appearing on the face of the statute? In summary they follow: Sales of (1) ice, (2) medicines on physician's prescription, or compounded, processed or blended by the druggist, (3) products of farms, forests, mines and waters, when sold by the producers in original or unmanufactured state, (4) fish and sea foods when sold by the fishermen, (5) commercial fertilizers on which inspection tax is paid, and lime and land plaster used for agricultural purposes, (6) public school books on adopted list, (7) used articles taken in trade on sale of new articles and resale of repossessed articles. Exempted also are sales to governments and governmental agencies. Conditional exemptions are allowed on sales of primary and essential articles of food, specifically enumerated, the condition being that the merchant shall keep separate records of such sales.
It is further alleged that certain building materials are arbitrarily exempted from the retail sales tax, and a similar allegation is made in respect of gasoline.
Complaint is also lodged against the following provision:
The statute provides that any retail merchant who shall, by public advertisement, offer to absorb the sales tax, or advertise that the tax is not considered as an element in the price to the consumer, shall be guilty of a misdemeanor.
It is observed in limine that while the plaintiff alleges the tax in question was not added to the purchase price of the merchandise sold, nor collected by him from the purchasers, the statute gave him this right, and he still has a remedy to save himself harmless from any loss by reason of the imposition of the tax. Whether this circumstance takes from the plaintiff the right to challenge the constitutionality of the act was not considered below, nor has it been urged here, State v. Lueders, 214 N.C. 558, 200 S.E. 22, doubtless for the reason that notwithstanding the opportunity afforded the retail merchant to pass the tax on to the consumer, the tax itself is in terms levied on "the privilege of engaging or continuing in the business of selling tangible personal property." Bickett v. State Tax Comm., 177 N.C. 433, 99 S.E. 415.
As a further preliminary consideration, it may be noted that the right of classification in matters of taxation was expanded or enlarged by amendment to Art. V, Sec. 3 of the Constitution, adopted at the general election held in November, 1936, and now extends to property for ad valorem as well as franchise purposes, subject to the provision that "The power of taxation shall be exercised in a just and equitable manner." Chap. 248, Pub. Laws 1935. It may also be noted that the requirements of "uniformity", "equal protection", and "due process" are, for all practical purposes, the same under both the State and Federal Constitutions. Clark v. Maxwell, 197 N.C. 604, 150 S.E. 190, affirmed 282 U.S. 811, 51 S.Ct. 211, 75 L.Ed. 726.
It is conceded that the power to impose license or franchise taxes of the character here in question is undoubted, and the right of selection or classification is referred largely to the legislative will, with the limitation that it must be reasonable and not capricious or arbitrary. Belk Bros. Co. v. Maxwell, 215 N.C. 10, 200 S.E. 915; Caldwell Land & Lumber Co. v. Smith, 151 N.C. 70, 65 S.E. 641; Brown-Forman Co. v. Kentucky, 217 U.S. 563, 30 S.Ct. 578, 54 L.Ed. 883.
This discretion in the selection of subjects of taxation extends not only to the classification of trades, callings, business, or occupations to be taxed, but also to the classification of property to be taxed. Bickett v. State Tax Comm., supra; New York Rapid Transit Corp. v. New York, 303 U.S. 573, 58 S.Ct. 721, 82 L.Ed. 1024; State Board of Tax Com'rs v. Jackson, 283 U.S. 527, 51 S.Ct. 540, 75 L.Ed. 1248, 73 A.L.R. 1464, 75 A.L.R. 1536; Kidd v. Alabama, 188 U.S. 730, 23 S.Ct. 401, 47 L.Ed. 669.
These propositions have been established by the decisions:
1. A sales tax or a tax on the business of selling tangible personal property, levied as a license or privilege tax, is within the power of the taxing authority. Great Atlantic & Pac. Tea Co. v. Maxwell. 199 N.C. 433, 154 S.E. 838, affirmed 284 U.S. 575, 52 S.Ct. 26, 76 L.Ed. 500; Lacy v. Packing Co., 134 N.C. 567, 47 S.E. 53, affirmed 200 U.S. 226, 227, 26 S.Ct. 232, 50 L.Ed. 451; State v. French, 109 N.C. 722, 14 S.E. 383, 26 Am.St.Rep. 590; Gatlin v. Tarboro, 78 N.C. 119, 122.
2. In levying a sales tax as a license or privilege tax, the General Assembly may set apart certain trades, callings, or occupations for imposition of the tax and exclude others from its operation. Smith v. Wilkins, 164 N.C. 135, 136, 80 S.E. 168. The tax may be fixed at a flat rate for some, graduated as to others, and withheld from others. State v. Carter, 129 N.C. 560, 40 S.E. 11; State v. Powell, 100 N.C. 525, 526, 6 S.E. 424. One business may be taxed and another left untaxed. Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 57 S.Ct. 868, 81 L.Ed. 1245, 109 A.L.R. 1327.
3. Reasonable selection or classification of the subjects for such taxation may be made by the General Assembly and different rates or different modes and methods of assessment applied to different classes. Rosenbaum v. Newbern, 118 N.C. 83, 24 S.E. 1, 32 L.R.A. 123; State v. Stevenson, 109 N.C. 730, 14 S.E. 385, 26 Am.St.Rep. 595. A wide latitude is accorded the taxing authorities in the selection of subjects for taxation, particularly in respect of occupation taxes. Oliver Iron Mining Co. v. Lord, 262 U.S. 172, 43 S.Ct. 526, 67 L.Ed. 929.
4. The limitation on the legislative discretion is that the classification "must be reasonable, not arbitrary, and must rest upon some ground of difference having a fair and substantial relation to the object of the legislation, so that all persons similarly circumstanced shall be treated alike." Royster Guano Co. v. Virginia, 253 U.S 412, 40 S.Ct. 560, 561, 64 L.Ed. 989. ...
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