McCaw v. Tax Comm'r Hawai`i

• Decision Date: 14 May 1953
• Docket Number: NO. 2898.,2898.
• Citation: 40 Haw. 121
• Parties: J. ELROY MCCAW AND JOHN D. KEATING v. THE TAX COMMISSIONER OF THE TERRITORY OF HAWAII, EARL W. FASE.
• Court: Hawaii Supreme Court

40 Haw. 121

J. ELROY MCCAW AND JOHN D. KEATING

v.THE TAX COMMISSIONER OF THE TERRITORY OF HAWAII, EARL W. FASE.

NO. 2898.

Supreme Court of the Territory of Hawai‘i.

Argued September 8, 1952.

Decided May 14, 1953.

ERROR TO CIRCUIT COURT FIRST CIRCUIT, HON. W. C. MOORE, JUDGE.

Syllabus by the Court

The necessity and justification for and the validity of enactment of the Communications Act of 1934 by the Congress, under the “Commerce Clause” of the Constitution of the United States, and the quantum and scope of the powers by the Act granted or delegated to the Federal Communications Commission, are so well recognized that there can not be any question that the regulation of radio broadcasting is a federal function, with consequent preclusion of any right by a State or organized Territory to interfere therewith.

Granting that the power of control and regulation of radio broadcasting has been preempted by the Congress, it is not a corollary thereto that the Congress has likewise, or incidentally, preempted the power of taxation with respect to communications, inclusive of radio broadcasting; and in the absence of positive and comprehensive action by the Congress in the latter field, a State or organized Territory is not precluded from taxation of the business of a radio broadcasting station having situs therein.

Assessment of the so-called “gross income tax” of the Territory of Hawaii upon receipts from the business of a broadcasting station having situs within the Territory, neither involves nor results in contravention of exercised federal constitutional power under the “Commerce Clause,” if the tax be assessed either: (a) upon gross receipts wholly from business properly classified as “intrastate,” or (b) upon gross receipts from the portion properly classifiable as the “intrastate” business--if separable and apportionable and properly apportioned--of the general business which may include both that classifiable as “intrastate,” and that as “interstate,” and provided, in the latter case “(b),” that the assessed tax be not such as would proximately cause discontinuance of, or be an undue burden upon, the “interstate” operations of the broadcasting station.

Neither distance at which emanations are receivable, nor classification for control and regulation, but the sphere of actual commercial value, is the criterion for determination of whether broadcasting is “intrastate,” or “interstate,” and accordingly is within or without the purview of the “Commerce Clause” and the scope of exercised federal power thereunder otherwise than for control and regulation. Assessment of Territory's gross income tax is rightful and valid upon receipts of local station from local business.

[40 Haw. 178]

D. N. Ingman ( D. Davis with him on the briefs) for complainants-plaintiffs in error.

Rhoda V. Lewis, Deputy Attorney General (also on the briefs), for tax commissioner, respondent-defendant in error.

TOWSE, C. J., LE BARON, J., AND CIRCUIT JUDGE RICE IN PLACE OF STAINBACK, J., DISQUALIFIED.

OPINION OF THE COURT BY CIRCUIT JUDGE RICE.

The issue for determination in this case has been as to the validity of assessments of taxes--also interest and penalties with respect thereto--by the tax commissioner of the Territory of Hawaii, pursuant to chapter 101 of the Revised Laws of Hawaii 1945, upon gross receipts from radio broadcasting by a station, KPOA, having its situs in Honolulu and operating under license by the Federal Communications Commission.

The owners of KPOA have asserted--presented evidence in the court below and have cited authorities for the purpose of showing--that all radio broadcasting, and particularly all that of said station, is interstate commerce; that Congress has preempted the subject matter of radio broadcasting to the exclusion of state and territorial taxation and the assessments made by the tax commissioner as aforesaid were unconstitutional and invalid.

On the other hand, the tax commissioner has alleged--and presented evidence in the court below for the purpose of showing--as the material facts, that the gross receipts assessed for taxation were derived from the transmission to the public in the Territory of Hawaii; that KPOA does not reach an audience outside the Territory of Hawaii with effective and satisfactory service that is of commercial significance in the sale of radio time; that sponsors purchasing radio time on KPOA have not done so with a view to reaching an audience outside the Territory of Hawaii; that to reach an audience without the Territory a short-wave relay must be employed; that the tax commissioner excluded from the tax assessments receipts from programs transmitted by short-wave relays; that the taxed receipts were from and the source thereof was the transmission of KPOA broadcasts to the radio audience in the Territory; and has cited authorities to show that the tax was lawful.

J. Elroy McCaw and John D. Keating, complainants, herein referred to as such, who, in copartnership, registered as such under the laws of the Territory of Hawaii and doing business under the name and style of Island Broadcasting Company, owned and operated KPOA, Honolulu,--instituted the action against the tax commissioner of the Territory of Hawaii--herein referred to as the tax commissioner--in the circuit court, first circuit, Territory of Hawaii, under law number 21340, pursuant to section 1475 of the Revised Laws of Hawaii 1945, and on May 3, 1951, therein filed an amended complaint, to recover the sum of $7,637.33 paid under protest on March 21, 1951. The record in this court does not include the original complaint, so does not show when the suit was commenced; however, it is conceded by the tax commissioner that the suit was commenced within the period of thirty days after the protested payment, as provided by said section 1575.

The tax commissioner filed his answer interposing a general denial. He also filed a counterclaim asserting that for the period to and including July 31, 1950, the period involved--as shown by exhibit “B” of the amended complaint--he had made under said chapter 101 of the Revised Laws of Hawaii 1945 four assessments specified in the counterclaim; that the payment under protest covered one assessment and part of another; the counterclaim being for the balance of the partially paid assessment together with two small earlier assessments which also were unpaid.

Complainants filed a replication, interposing a general denial to the counterclaim and giving notice, under rule 4 of the said circuit court, first circuit, Territory of Hawaii, of intention to rely on the defenses of illegality and unconstitutionality.

Following denial by the trial court of a stay of proceedings in the application to this court for the writ of prohibition which was denied in number 2881, 39 Haw. 157, the case came on for trial, without jury, before and by Honorable Willson C. Moore, then judge of the fourth division of said territorial circuit court, and evidence was received January 3, 1952, to January 11, 1952, inclusive.

At the outset of the trial the parties had submitted to the trial court memoranda of law and the trial court heard argument on January 14, 1952. On January 15, 1952, the trial judge, from the bench, made pronouncements--since referred to as an “oral decision”--wherein he expressed conclusions determinative of the case in favor of the tax commissioner and against the complainants.

The trial judge had held that a material question for decision was as to the area in which the KPOA broadcasts had commercial value and ruled that this turned upon the area in which the broadcasts of the station were received with such intensity and dependability for pleasurable listening as to be of value for commercial purposes. He found that reception outside the Territory was not sufficiently dependable for commercial purposes.

The trial judge had also propounded, for decision by the court, himself, the question: “What does this broadcast company make its money out of?” He concluded that, except for short-wave relays, complainants made their money from their broadcasting to the Hawaiian audience and that, upon the facts, KPOA was distinguishable from a station on the mainland so situated as to have reception sufficiently constant in another State or Territory to be of commercial value.

Noting that the tax is one of general application to all business in the Territory, the trial judge held that, in view of the source of the receipts of KPOA taxed, the Territory was not precluded from taxing same; and, further, that complainants had not shown that the tax was such a burden as to interfere with their operations--relating to or affecting or being in the course of business of and broadcasting by their station KPOA--and concluded that the tax was valid.

Findings and conclusions proposed by the tax commissioner, which had been served and filed on January 11, 1952, were, at the conclusion of the trial, to wit, in pronouncements from the bench on January 15, 1952, approved by the trial court, and the submission of a written decision by the prevailing party was directed. Following a hearing upon the form of decision, a written decision was entered and filed on January 28, 1952. It incorporated by reference the prior pronouncements by the trial judge, or so-called “oral decision,” and set forth the findings and conclusions that had been requested and approved, together with other findings and conclusions announced from the bench.

On January 31, 1952, the judgment was presented, signed and filed.

Section 10107, Revised Laws of Hawaii 1945, with respect to such a trial as was had, without jury, requires that:

“In such case the court shall hear and decide the cause, both as to the facts and the law, and its decision shall be rendered in writing stating its reason therefor.” * * *

Because of such statutory provision, the prior oral pronouncements by the judge were merely informative to the parties of the...