Lockwood v. Nims

• Decision Date: 22 October 1959
• Docket Number: No. 508,508
• Citation: 98 N.W.2d 753,357 Mich. 517
• Parties: Charles C. LOCKWOOD and Charles P. Lockwood, Plaintiffs, v. Louis M. NIMS, Michigan State Commissioner of Revenue, and Sanford Brown, Michigan State Treasurer, Defendants. * Motion
• Court: Michigan Supreme Court

Page 753

98 N.W.2d 753

357 Mich. 517

Charles C. LOCKWOOD and Charles P. Lockwood, Plaintiffs, v. Louis M. NIMS, Michigan State Commissioner of Revenue, and Sanford Brown, Michigan State Treasurer Defendants. ^*

Motion No. 508.

Supreme Court of Michigan.

Oct. 22, 1959.

Charles C. Lockwood, Detroit, for petitioners.

Paul L. Adams, Atty. Gen., Joseph B. Bilitzke, Deputy Atty. Gen., Samuel J. Torina, Sol. Gen., Lansing, Leon S. Cohan, Asst. Atty. Gen., for intervenor.

Stanton S. Faville, Chief Asst. Atty. Gen., T. Carl Holbrook and William D. Dexter, Asst. Attys. Gen., for defendants by direction of Paul L. Adams, Atty. Gen.

Before the Entire Bench.

SMITH, Justice.

The principal question in this case is the meaning of the constitutional provision that 'at no time shall the legislature levy a sales tax of more than 3%.' ¹

The sales tax came to us in the depths of a great depression in order to provide the means for fulfilling desperate governmental needs. It was a tax easily collected and possessing the power of producing vast revenue. No meal could be consumed without its payment, no shelter built, no clothing purchased without meeting its exaction, and in advance. It fell on all alike, and without regard to want or ability to bear the tax. Vast sums poured into the State treasury. We will, shortly, look to the distribution of these funds, since therein lies the origin of the situation resulting in the controversy before us. But first we look to the other tax here involved, the use tax.

The sales tax, powerful though it was, was vulnerable to avoidance. If the purchase, possibly of an automobile, were made not in Michigan but in a neighboring state the Michigan sales tax would not apply. Thus not only did the State of Michigan lose the tax monies but a Michigan merchant lost the sale. It was a double-edged sword. To meet the threat of avoidance a tax was enacted. The article purchased in another state would be taxed in Michigan by virtue of its use here, and at the same rate as if sold in Michigan in the first place. This was the use tax. Through its enactment the flight across the border was blocked, the Michigan merchant protected in his competitive position, and the State tax funds safeguarded.

These, then, in broad outline, are the 2 taxes before the adoption of the constitutional limitation. We now seek the background and the meaning of the constitutional limitation. It did not come to us as an abstract concept. There was a reason for its passage and the reason is clear from a reading of the history of the times.

The sales tax, as we have seen, was a tax of great revenue potentialities to the State, easily collectible, constantly available, and, for the bulk of our people (with respect to their day-by-day purchases) impossible to evade or avoid. It soon became our leading source of revenue ² but (and here arises our problem) its resources did not long remain subject to legislative discretion. The first constitutional amendment ³ respecting sales tax monies took out of the hands of the legislature the spending of most of the 3 cents paid in. Onehalf of one cent went back to the counties and the other half to school districts. These diversions left 2 cents of the tax, but of those 2 cents almost half in turn, also was earmarked by the same amendment, ⁴ leaving the legislature only a little over one-fifth of the total sales tax monies available for distribution in its discretion. The source was not drying up, but the bulk of the money was no longer available for the general expenses of government. The next proposal for withdrawing these sales-tax funds from legislative jurisdiction went even further. It proposed to remove from legislative control roughly one-half of the relatively meager sum left to it by the first diversion amendment, thus leaving to the legislature for use for general appropriations only one-half cent out of each 3 cents collected in tax. It requires no great acuity to anticipate the next step since the path is worn smooth by constant use. It was simply to increase the tax. We need only glance at the history of our income taxes, our gasoline taxes, and other levies, which, starting as taxes in modest amounts, had risen constantly through the years. The sales tax, said our people, was not to follow this well-worn path of constant increases. It was to be limited to 3 cents on every dollar. 'At no time,' they said, 'shall the legislature levy a sales tax of more than 3%.'

It is not enough to solve the problem before us, simply to compare the 2 taxes as they have been applied in the past, and to observe the differences originally existing between them. There is no argument whatever on the point that the sales tax and the use tax had their origins as 2 separate taxes, easily distinguishable and so sustainable. The cases so holding we need not even discuss. If the taxes had been kept so separated this case would not be before us. It is the fitting of the 2 together that has given rise to our problem, just as it is the fitting of the cartridge to the gun that creates the dangerous weapon.

Nor is it helpful that we review decisions of other jurisdictions, passing upon various phases of sales and use taxation and their relation to interstate commerce. They are not in point. Thus in the case of Henneford v. Silas Mason Co., 300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814, relied upon by defendants, the challenge to the application of the use tax of the State of Washington to a purchase made in a foreign state was made under the interstate commerce clause of the Federal constitution. Likewise, in McLeod v. J. E. Dilworth Co., 322 U.S. 327, 64 S.Ct. 1023, 88 L.Ed. 1304, the problem involved the taxability in Arkansas of purchases made out-state. But, again, we would not be sitting in this case upon such facts. The very essence of the case before us is that the purchase was not made in a foreign state but in our own. Moreover, none of the language relied upon by defendants involves a specific state constitutional prohibition against an increase in the sales tax. Thus there is actually no precedent whatever for what has been done. What we must rule upon is actually a three-cornered problem, involving sales tax, use tax, and specific constitutional prohibition applicable to this type of taxation.

Has the recent 'use' tax amendment, P.A.1959, c. 263, taken in conjunction with the existing sales tax, offended the constitutional prohibition? We will go at once to the core of the controversy, a retail purchase, over the counter, of tangible personal property in a Michigan community. The first matter to observe is that this purchase, made within this State, in this manner, still is subject to a 3% sales tax. Thus far nothing has been added. The constitutional limitation has been observed. But, according to the recent amendment, a 'use' tax of 1% must also now be paid. Does its payment serve to protect the merchant from the competition of an outstate dealer in similar commodities? Obviously not. The seller is a Michigan merchant. Does its payment reimburse the State treasury for a tax payment otherwise payable but lost? Again, no. The sales tax has already been paid. This is something added. Added for what? What is being taxed, not already taxed under the sales tax?

We will look at the words of the law itself. It is contended that the amendment levies the 1% increase upon different persons, a different subject, and by a different measure than does the sales tax.

As to persons and subject, those arguing that the constitutional prohibition on increasing the sales tax does not apply, rely on the following language quoted from the 1% increase amendment:

'Sec. 3. There is hereby levied upon and there shall be collected from every person in this state a specific tax for the privilege of using, storing or consuming tangible personal property in this state, which tax shall be equal to 4% of the price of such property, except that the tax shall equal only 1% of the price of such property when acquired in a transaction on which a tax is payable under the provisions of Act No. 167 of the Public Acts of 1933, as amended, being sections 205.51 to 205.78 of the Compiled Laws of 1948, and to such tax there shall be added penalties and interest where applicable as hereinafter provided.'

'Sec. 6. Every person storing, using or consuming tangible personal property or services, the storage, use or consumption of which is subject to the tax imposed by this act, * * * shall, on or before the fifteenth day of each calendar month file with the department a return for the preceding calendar month in such form as may be prescribed by the department, showing the price of each such purchase of tangible personal property or services during such preceding month, and such other information as the department may deem necessary for the proper administration of this act. At the same time each such person shall pay to the department the amount of tax imposed by this act with respect to the purchases covered by such return. Returns shall be signed by the person liable for the tax, or his duly authorized agent if the return is prepared by any person other than the taxpayer, said return shall also be signed by such person and show his address.

'Sec. 7. Each consumer storing, using or otherwise consuming in this state tangible personal property or services purchased for or subsequently converted to such purpose or purposes shall be liable for the tax imposed by this act, and such liability shall not be extinguished until the tax has been paid to the department.'

This language standing alone purports to levy the increase upon every user of personal property in Michigan, and purports to require every user to make a monthly report on all purchases of personal property during the preceding calendar month showing every purchase and its price, and to accompany this report with his tax payment.

To give stated effect to this...