Martin v. Wolfford

• Decision Date: 23 June 1937
• Citation: 269 Ky. 411,107 S.W.2d 267
• Parties: MARTIN, Com'r of Revenue, v. WOLFFORD.
• Court: Kentucky Court of Appeals

107 S.W.2d 267

269 Ky. 411

MARTIN, Com'r of Revenue, v. WOLFFORD.

Special Court of Appeals of Kentucky.

June 23, 1937

Appeal from Circuit Court, Franklin County.

Action by G. W. E. Wolfford against James W. Martin, as Commissioner of Revenue, etc. From a judgment for plaintiff, defendant appeals.

Reversed and remanded, with directions.

Hubert Meredith, Atty. Gen., and A. E. Funk, Asst. Atty. Gen., for appellant.

Robert T. Caldwell, of Ashland, for appellee.

CAMMACK Special Chief Justice.

Appellee G. W. E. Wolfford, instituted this action in the Franklin circuit court on April 20, 1937, and sought an injunction against the defendants, James W. Martin, Commissioner of Revenue, etc., to prevent them from enforcing penalties against him because of his failure to file an income tax report in accordance with the Kentucky Income Tax Law passed at a special session of the Legislature in 1936 (Acts 1936 3d.Ex.Sess., c. 7), and approved by the Governor May 8, 1936 and being sections 4281b-1 to and including 4281b-39 Carroll's Kentucky Statutes 1936 Revision. Appellee alleged that said act is unconstitutional in so far as it affects his salary as circuit judge, because of its contravention of sections 161 and 235 of the Constitution of Kentucky. Defendants demurred to the petition, which was heard by the court and overruled. They declined to plead further, and a judgment was rendered granting the injunction to appellee, and adjudging said act unconstitutional so far as it affected appellee's salary. Defendants excepted to the ruling of the court, prayed an appeal, and the action is here for the purpose of review by this court.

The question for determination is whether or not the Kentucky Income Tax Law diminishes the salary of a circuit judge in violation of sections 161 and 235 of the Constitution of Kentucky.

Section 4281b-14, Carroll's Kentucky Statutes annotated, Baldwin's 1936 Revision, provides: "A tax is hereby annually levied for each taxable year upon every resident individual of this State upon his entire net income as herein defined for purposes of taxation (subject to exemptions provided in section 13 [section 4281b-13])."

Appellee contends that his salary will be diminished by the operation of the income tax act. The commonwealth asserts that the income tax does not attach to his salary, neither does it violate section 161 nor section 235 of the Kentucky Constitution; that appellee should report his salary as circuit judge with any other income that he may have received in 1936, and pay an income tax upon his net income for that year, after deducting credits for such exemptions as he may be entitled to under this act.

This court, in an opinion rendered on the 23d day of June, 1937, in the case of Reynolds Metal Company et al. v. James W. Martin, Commissioner of Revenue et al., 269 Ky. 378, 107 S.W.2d 251, decided that the income tax is not a property tax, and that the Kentucky Income Tax Law is constitutional.

Section 4281b-14 admits of no uncertainty. It was the intention of the Legislature to include all public officers whether state, city, county, town, or municipal.

Section 161 of the Constitution provides: "The compensation of any city, county, town, or municipal officer shall not be changed after his election or appointment, or during his term of office."

Section 235 provides: "Salaries of public officers shall not be changed during the terms for which they were elected."

The Legislature of the Commonwealth of Kentucky has not enacted an income tax law heretofore, therefore no cases appear in this state which bear directly upon the question involved in this appeal. Congress of the United States and Legislatures of several states have enacted income tax statutes, so we must consider a few opinions of the Supreme Court of the United States and the courts of last resort of some of the states to ascertain the trend of these courts on this question.

Attention is directed to the recent case (decided in 1915) of State ex rel. Wickham v. Nygaard, 159 Wis. 396, 150 N.W. 513, 516, Ann.Cas.1917A, 1065. The Supreme Court of Wisconsin in that case was dealing directly with the salaries of public officers, as affected by the income tax law of that state.

Section 26 of article 4 of the Wisconsin Constitution contains this provision: "Nor shall the compensation of any public officer be increased or diminished during his term of office."

This provision of the Constitution embodies the same principle as do sections 161 and 235 of the Constitution of Kentucky.

The Wisconsin income tax law (St. 1913, § 1087m2, par. (c) provides that: "All wages, salaries or fees derived from services; provided, that compensation to public officers for public service shall not be computed as a part of the taxable income in such cases where the taxation thereof would be repugnant to the constitution."

Section 1 of article 8 of the Wisconsin Constitution has these words: "Taxes may also be imposed on incomes."

That provision is similar to the following provision in section 174, Constitution of Kentucky, which states: "Nothing in this Constitution shall be construed to prevent the general assembly from providing for taxation based on income, licenses or franchises."

The court in the Nygaard opinion stated: "The latter [meaning the Constitution] says taxes may be 'imposed on incomes.' We are not at liberty to rewrite this clause so as to read that taxes may be 'imposed on incomes, except where the income consists of a salary received by a public officer.' We perceive very little room for construction, and, if a doubtful question were involved, it should not be resolved against the exercise of the taxing power by the state."

The Wisconsin Supreme Court in this case decided that the salaries of public officers should be reported in their income tax returns.

The Supreme Court of Missouri had before it in the case of Taylor v. Gehner, etc., 329 Mo. 511, 45 S.W.2d 59, 60, 82 A.L.R. 986, the same question involved in this case. Section 33, article 6, of the Constitution of Missouri is similar to sections 161 and 235 of the Constitution of Kentucky. The respondent Gehner was circuit judge, and received a salary of $5,500. The court announced that: "Taxes are proportional contributions imposed by the state upon individuals for the support of government and for all public needs. The power to tax is not granted by the Constitution; it is inherent in the Legislature. There are no restrictions or limitations upon the power, except such as are expressly imposed by the State and Federal Constitutions. *** 'Nothing in the purpose of this clause of the Constitution to indicate that the judges were to be a privileged class, free from bearing their share of the cost of the institutions upon which their well-being if not their life, depends."'

The identical question before this court on this appeal was involved in the case of Poorman v. State Board of Equalization, 99 Mont. 543, 45 P.2d 307, 312. Section 29, article 8, Montana Constitution, provides: "The justices of the supreme court and the judges of the district courts shall each be paid quarterly by the state, a salary, which shall not be increased or diminished during the terms for which they shall have been respectively elected."

The Montana constitutional provision is like unto sections 161 and 235 of the Constitution of Kentucky. The Montana Supreme Court, construing the question involved on this appeal, announced: "This 'tax on income,' then, is not levied upon property at all, but upon 'the acquisitions' of the taxpayer, regardless of the source, and, although 'salaries' figure in the computation of 'gross income,' that the tax in certain instances reaches salaries is but incidental--an individual's salary is not even used as a yard stick for the measurement of such a tax. The constitutional prohibition against diminution of salaries cannot be evaded by any device conceived, however skillfully camouflaged, to take away from, or withhold from, an officer a part of the salary to which he is entitled during the term for which he was elected or appointed; but it is idle to say that because of this prohibition an official can refuse to pay any species of tax whatever from his acquisitions by way of salary. *** Every time such an official has the tank of his car filled with gasoline, he pays a state and a federal tax from his salary, and every time he purchases a package of cigarettes or attends a moving picture show *** he pays a federal tax from his salary, and would certainly lose an argument with the merchant or the proprietor of the show house to the effect that the tax could not be collected from him." The Montana Supreme Court was dealing with a very pathetic state of facts in the Poorman Case, because Judge Poorman had served long, honorably, and ably upon the Supreme Court Bench of that state, and when he died he was a very poor man, and had only a small estate from which to pay his income tax. The court in a well-considered opinion held that his estate was liable to pay an income tax.

This is a tax "upon every resident individual of this State." Section 4281b-14. "Individual" is defined: "All natural persons whether married or unmarried, and also all trusts, estates and fiduciaries acting for other persons." Subsection (d), section 4281b-1. This tax is a "personal debt" against the taxpayer, section 4281b-33; and if not paid when due the taxpayer becomes liable to the commonwealth for penalty and interest, section 4281b-34. It is not a lien against his income or his property. The ordinary legal processes to collect debts by individuals are open to the commonwealth to collect this tax.

If this were a tax levied against the salary of a public official,...