Marshall v. South Carolina Tax Comm'n, No. 14013.

• Court: United States State Supreme Court of South Carolina
• Writing for the Court: PHILIP H. STOLL, Acting Associate Justice
• Citation: 182 S.E. 96
• Parties: MARSHALL. v. SOUTH CAROLINA TAX COMMISSION et al.
• Docket Number: No. 14013.
• Decision Date: 06 March 1935

182 S.E. 96

MARSHALL.
v.
SOUTH CAROLINA TAX COMMISSION et al.

No. 14013.

Supreme Court of South Carolina.

March 6, 1935.

[182 S.E. 97]

Appeal from Common Pleas Circuit Court of Charleston County; Wm. H. Grimball, Judge.

Suit by Trapier K. Marshall against the South Carolina Tax Commission and Walter G. Query and others, Commissioners. Judgment for defendants, and plaintiff appeals.

Affirmed.

The order of Judge Grimball follows:

This action was brought by the plaintiff against South Carolina Tax Commission and W. G. Query, J. P. Derham, and F. C. Robinson, as individuals, who compose South Carolina Tax Commission. Plaintiff paid a tax under protest, which tax is levied under section 8, subdivision (e), of Act No. 406, approved the 31st day of May, 1933 (38 St. at Large, p. 572). The defendants Query, Derham, and Robinson demur to the complaint upon the ground that it fails to state facts sufficient to constitute a cause of action as to them. There is no question as to these individual defendants acting in good faith and in pursuance of the statute above cited. They have certainly acted with color of authority of law and, for that reason, are not liable to the taxpayer in this case for any error of fact or law they may have committed. Western Union Telegraph Company v. Query et al., 144 S. C. 234, 142 S E, 509.

However, in no event would the action lie against them, as it appears, upon con sideration of the whole case, that South Carolina Tax Commission, composed of its individual members, have collected this tax which is sought to be recovered under an act of the Legislature, which, as will hereinafter appear, is without constitutional defect. For the above reasons, the demurrer on the part of the individual defendants is sustained.

The complaint states the cause of action in the alternative, to which South Carolina Tax Commission demurs. One alternative is that should it be a property tax, it is violative of certain provisions of both Federal and State Constitutions.

It is very clear to my mind that this is not a property tax. It is true that section 8, subdivision (e), providing when the tax should become effective, refers to taxes on incomes and intangibles. If the word "intangibles" was intended by the Legislature to refer to the provision of subdivision (e) of the section which imposes a tax of 5 per cent, on all dividends and interest in excess of $100, it nevertheless does not change the character, operation, or effect of the tax. It makes no. difference what name the Legislature called it, or what label it placed upon this tax; the character of the tax will be determined by its operation and effect. Educational Films Corp. of America v. Ward, Atty. Gen. of N. Y., 282 U. S. 379, 51 S. Ct. 170, 171, 75 L. Ed. 400, 71 A. L. R. 1226; Shaffer v. Carter, 252 U. S. 37, 40 S. Ct. 221, 64 L. Ed. 445; Lawrence et al. v. State Tax Commission of Miss., 286 U. S. 276, 52 S. Ct. 556, 76 L. Ed. 1102, 87 A. L. R. 374; Macallen Co. v. Commonwealth of Mass., 279 U. S. 620, 49 S. Ct. 432, 73 L. Ed. 874, 65 A. L. R. 866.

No descriptive epithet can make a tax upon the net receipts of a business of the whole year the same as one upon the property located on a particular day of the year within the area of the taxing district.

The tax in question is very clearly a tax upon income, which income is derived from certain intangible property. It is not a tax upon the intangible property itself. If an interest-bearing security or a stock in fact pay no interest or dividends, there is no tax; yet if this tax were intended to be upon the intangible property itself, there would be some tax-according to value, regardless of whether any interest was earned or dividend paid during the year.

[182 S.E. 98]

I do not think it desirable to dwell further upon the nature and character of this tax. It is so clearly a tax upon a certain kind of income that we may lay on one side all considerations of the objections to it on the ground that it is a property tax.

Upon argument of the case before me, it was stated by plaintiff's attorney that this action was brought under section 2469, Code of Laws, 1932, vol. 2, which provides that income taxes may be paid under protest and suit brought to recover. If this tax should be decided to be a property tax, the court would be without jurisdiction to entertain this suit, as in such case it would be a suit against the state without the permission of the state having been given to be sued. It will be noted that the above section of the Code provides only for payment of income taxes under protest and suit brought to recover. It includes no other tax. Ware Shoals Mfg. Co. v. Jones, 78 S. C. 211, 58 S. E. 811, decided September 21, 1907; Santee River Cypress Lumber Co. v. Query, 168 S. C. 112, 167 S. E. 22, decided December 8, 1932.

It therefore follows that if this is a property tax the courts are without jurisdiction to entertain the suit to recover it.

The tax for which recovery in this suit is sought is clearly an income tax, and, being such, we will consider in detail the several constitutional grounds upon which the act of the Legislature is challenged.

It is alleged that the act is unconstitutional as violative of section 1, article 10, of the Constitution of South Carolina, which provides "that the General Assembly may provide for a graduated tax on incomes." I do not think the Legislature is limited and restricted by the Constitution to imposing a graduated tax on incomes. It may subject incomes to a tax which is not graduated if it sees fit to do so. However, the tax complained of is graduated. It is graduated in accordance with the amount of interest and dividends received by the taxpayer. It is not a flat sum upon each person receiving interest and dividends. It is true that the rate of the tax is not graduated, but the graduation is based upon the varying amounts of dividends and interest received. Article 10, § 1, of the Constitution of the State, among other things provides: "That the General Assembly may provide for a graduated tax on incomes, and for a graduated license on occupations and business."

For years the Legislature has regarded a tax at a fixed rate payable upon the amount of sales as being a graduated license on occupations and business, to wit: The tax on sellers of gasoline is graduated at the rate of 6 cents per gallon on the number of gallons sold, and so it is with che business license tax on sellers of tobacco, candy, ammunitions, etc. In order to comply with the provision of the Constitution as to graduation, it is not necessary that the rate of the tax shall be graduated. The Constitution is satisfied if the amount of the tax be graduated in accordance with the amount of the income.

"The determination of the amount of income that shall be wholly exempted and the method and ratio of graduation were left by the Constitution to the discretion of the Legislature, and with the exercise of that discretion the courts have no concern. Necessarily the exercise of such a discretion must to some extent be arbitrary." Alderman v. Wells, 85 S. C....