Al Means, Inc. v. City of Montgomery

• Decision Date: 28 August 1958
• Docket Number: 3 Div. 813
• Citation: 104 So.2d 816,268 Ala. 31
• Court: Alabama Supreme Court
• Parties: AL MEANS, INC., et al. v. CITY OF MONTGOMERY et al.

Page 816

104 So.2d 816

268 Ala. 31

AL MEANS, INC., et al. v. CITY OF MONTGOMERY et al.

3 Div. 813.

Supreme Court of Alabama.

Aug. 28, 1958.

Hill, Hill, Stovall & Carter, Montgomery, for appellants.

Walter J. Knabe, Drayton N. Hamilton and Knabe & Nachman, Montgomery, for appellees.

SIMPSON, Justice.

This is a class action by merchants of the City of Montgomery challenging the constitutionality of Ordinance No. 34-57, adopted by the City Commission of Montgomery July 9, 1957, and by its terms made effective immediately upon its approval. The proceeding is by two separate bills for declaratory judgment, praying for a declaration of the constitutionality, legality, and effect of that ordinance; a permanent injunction against enforcement of the ordinance; and that the relief prayed for be granted to all members of the class similarly situated. The lower court consolidated the cases and sustained the respondents' demurrers to the bills, and the respondents have appealed from that decree.

The ordinance attacked purports to levy a license upon merchants and other persons who sell articles of merchandise at retail, the amount of the license being computed upon the gross sales of the business. The ordinance is in form and substance somewhat similar to the Alabama Sales Tax statute (Tit. 51, § 752 et seq., Code 1940). Section 5 of the ordinance provides that merchants have the option of absorbing the tax or adding the amount to the sales price of the goods and collecting the same from the purchasers. It is argued by appellants that this is merely a device to denominate the levy as a 'license' rather than a 'sales tax'.

The pleadings reveal that a similar ordinance was previously adopted by the Commission on June 20, 1957, to take effect ten days thereafter and that within the ten days a petition protesting the ordinance was circulated among the voters of the city as provided for by the referendum provisions of Section 13 of the special statute under which the City Government of Montgomery is incorporated [Gen.Acts 1951, Vol. 2, p. 1426; Title 62, § 557(13), Code 1940 (Cum.Supp.)]. After this referendum petition was circulated and filed with the Commission, the Commission repealed that ordinance, and on July 9, 1957, less than ten days after the repealed ordinance was to have become effective, adopted Ordinance 34-57, now under review.

Section One of the ordinance is the definitional section.

Section Two reads as follows:

'There is hereby levied, in addition to all other taxes of every kind now imposed by law, and shall be collected as herein provided, a privilege or license tax against the person on account of the business activities and in the amount to be determined by the application of rates against gross sales or gross receipts, as the case may be, as follows:'

and then lists the firms, persons, and corporations which are to be subject to the tax and the rates to be applied in each case.

Section Three contains a list of exemptions under the tax to which was included the exemption added by an August 6 amendment, giving rise to one of the objections raised by the appellants.

Section Five reads as follows:

'All persons subject to the provisions of this ordinance may add the tax herein levied to the sales price of the goods sold and collect the same from the purchasers, but this section is not mandatory.'

This latter ordinance was made effective immediately upon adoption with no ten-day period intervening. Nor was there a recital in the ordinance that the ordinance was 'for the immediate preservation of the public health or safety' nor a 'statement of its urgency' as required by Section 13 of the statute as a condition under which ordinances were permitted to go into effect without the intervening ten-day period.

Notwithstanding the declared effectiveness of the ordinance, immediately upon its adoption referendum petitions by the requisite number of voters were presented to the City Commission and rejected. Two bills were filed, the first in point of time by a single merchant, and the second by representative merchants. By consent of all parties the two complaints were consolidated, argued and heard as one under the class action. This proceeding attacks the ordinance on many grounds. The material ones are: It does not contain a statement of its urgency and is not for the immediate preservation of the public health or safety; a ten-day or greater period is not allowed between the adoption of the ordinance and its effective date, within which a petition protesting the passage of the ordinance could be presented; it imposes a sales tax which the City Commission is without lawful authority to pass; it constitutes double taxation; it is confiscatory and deprives the complainant of liberty or property without due process of law; it impairs the obligation of contracts.

The ordinance was amended in several respects on August 6, 1957, the more relevant change being with respect to certain sales made to non-residents for use and consumption outside the City of Montgomery to the list of exemptions in Section Three of the ordinance. We quote from the ordinance:

'There are, however, exempted from the provisions of this ordinance and from the computation of the amount of the tax levied, assessed or payable under this ordinance the following: * * *

'v. The gross proceeds of sales of tangible personal property which meet all of the following requirements and conditions, to wit:

'(A) (1) Sales which arise from orders initiated outside of the City of Montgomery and its police jurisdiction by a person who is a non-resident of the City of Montgomery and its police jurisdiction at the time of such orders '(2) Sales to a person who is a non-resident of the City of Montgomery or its police jurisdiction;

'(3) The tangible personal property so sold shall be used or consumed by such person entirely outside of the City of Montgomery or its police jurisdiction.'

An amended bill with proper prayer for relief was filed after the amendment of the ordinance which, in addition to the grounds of attack mentioned in the original bill, challenged the ordinance as discriminatory 'in that it does not apply to all persons equally and denies to your complainants and others similarly situated the equal protection of the laws and particularly in that it sets up unreasonable and completely arbitrary standards of application and exemption'.

No question has been raised as to the nature of the suit as a class action or that it is for declaratory judgment, but we think the action is proper to bring the ordinance under review. See Equity Rule 31, Tit. 7, Appendix, Code 1940; City of Birmingham v. Fairview Home Owners Association, 259 Ala. 500, 66 So.2d 775; Code 1940, Tit. 7, §§ 156 and 157.

This case is here on an appeal from a ruling sustaining demurrer to the bill seeking a declaration of rights. Both parties wish the basic legal questions decided on this appeal so we will proceed to do so and declare the rights involved. Atkins v. Curtis, 259 Ala. 311, 66 So.2d 455; Evers v. City of Dadeville, 258 Ala. 53, 61 So.2d 78; Mobile Battle House v. City of Mobile, 262 Ala. 270, 78 So.2d 642.

This case, as indicated, concerns the validity of the aforesaid taxing ordinance of the City Commission of Montgomery. Some pertinent legal principles will be adverted to: The State may delegate its power to municipal corporations to license occupations within the limits of the city co-extensive with the power of the State to do so and this power is limited only by the due process and equal protection provisions of the Constitution. Smalley v. City of Oneonta, 253 Ala. 663, 46 So.2d 201, and cases there cited. Specific authority has been conferred upon municipal corporations to impose a license tax upon businesses conducted within its borders by Code 1940, Tit. 37, § 735. Municipal legislative power is delegated power derived from and part of the legislative power of the State. And the power of a municipality to license business or occupation can be exercised only where it is plainly conferred by the State, either in express terms or by necessary implication. It will not be inferred from terms of uncertain import. Alabama Gas Co. v. City of Montgomery, 249 Ala. 257, 30 So.2d 651. Taxing statutes are to be strictly construed against the taxing power. Gotlieb v. City of Birmingham, 243 Ala. 579, 11 So.2d 363. This rule is alike applicable to municipal taxing ordinances. Gotlieb v. City of Birmingham, supra; Anderson v. City of Birmingham, 205 Ala. 604, 88 So. 900. Where express power to levy and collect a particular tax is conferred, the power to levy and collect other taxes is excluded. Decatur Transit v. City of Gadsden, 249 Ala. 314, 31 So.2d 339.

The appellants therefore point out that municipalities are thus prohibited from levying any form of sales tax, since such a power is not expressly conferred upon cities. The appellants allege in their pleading that the ordinance in question is in reality a sales tax and therefore invalid. But on oral argument and in their briefs on appeal the appellants seem to have conceded that this case falls within the principles declared in Evers v. City of Dadeville, supra, which upheld the right of the City of Dadeville to impose a tax upon retail sales based upon gross receipts of a business under its authority to enact licenses. The key factor which was noted in that opinion was that the ordinance there considered provided that the tax could be absorbed by the merchant at his option. The state sales tax law requires that it be paid by the consumer and not so absorbed by the merchant. It is clear that under the decisions of this Court the substantive validity of the Montgomery ordinance must be upheld in so far as its characterization as a municipal license ordinance is concerned. Evers v. City of Dadeville, supra; Mobile Battle House v. City of Mobile, 262 Ala. 270, 78 So.2d 642. See Nachman v. State Tax...