Montgomery Ward & Co. v. Commissioner of Taxation

• Decision Date: 31 December 1943
• Docket Number: No. 33558.,33558.
• Citation: 216 Minn. 307,12 N.W.2d 625
• Court: Minnesota Supreme Court
• Parties: MONTGOMERY WARD & CO., Inc., v. COMMISSIONER OF TAXATION.

12 N.W.2d 625

216 Minn. 307

MONTGOMERY WARD & CO., Inc., v. COMMISSIONER OF TAXATION.

No. 33558.

Supreme Court of Minnesota.

December 31, 1943.

Certiorari from Board of Tax Appeals.

Proceeding by Commissioner of Taxation against Montgomery Ward & Co., Inc., to determine income tax, wherein an additional income tax of $4,410.03, plus

interest in the sum of $870.98, was assessed for the year ending January 31, 1939. Such order was sustained by the Board of Tax Appeals, and taxpayer brings certiorari.

Writ discharged.

Doherty, Rumble, Butler, Sullivan & Mitchell, of St. Paul, John A. Barr, Henry R. Marshall, and Ralph G. Crandall, all of Chicago, Ill., for relator.

J. A. A. Burnquist, Atty. Gen., P. F. Sherman, Asst. Atty. Gen., for respondent.

Dorsey, Colman, Barker, Scott & Barber and Fowler, Youngquist, Furber, Taney & Johnson, all of Minneapolis, amici curiae.

HENRY M. GALLAGHER, Chief Justice.

Relator, which will hereinafter be referred to as taxpayer, is an Illinois corporation engaged in the general merchandising business. It owns and operates stores in Minnesota and in other states. On July 29, 1942, respondent, the commissioner of taxation for Minnesota, entered an order determining taxpayer's income tax liability for the year ending January 31, 1939, to be $75,606.69, and determining an additional income tax to be owing by the taxpayer in the sum of $4,410.03 plus interest in the sum of $870.98. Taxpayer appealed from this order to the board of tax appeals, which sustained the determination of the commissioner. The case is here on certiorari to review the decision of the board.

The question for determination is whether Ex.Sess.L.1937, c. 49, § 6(c)4,¹ which amends L. 1933, c. 405, § 6, and provides the formula for determining the tax credit to be given corporations, is constitutional. The board determined that it does not offend either the state or the federal constitution.

The provisions of the law here involved read:

"(c) The taxes due under the foregoing computation shall be credited with the following amounts:

* * * * * "4. In the case of a corporation, an amount computed by applying to the tax a fraction equal to one-tenth of the average of the following ratios:

"(a) The ratio of the fair value of tangible property, real, personal and mixed, owned and used by the taxpayer in this state in connection with his trade or business during the income year to the total fair value of such property of the taxpayer owned and used by him in connection with the trade or business everywhere. * * *

"(b) The ratio of the total wages and salaries paid or incurred during the income year in this state to the total wages and salaries paid or incurred during the income year everywhere."

Taxpayer's income tax liability for the year 1939 was determined by the commissioner to be $76,088.08. The Minnesota tangible property ratio was 6.4406 percent, and the Minnesota payroll ratio was 6.2130 percent, making the average, 6.3268 percent. Thus the credit allowed taxpayer was .63268 percent, or the sum of $481.39; and the tax levied for the fiscal year, $75,606.69.

Taxpayer contends that the application of this provision imposes upon it a rate of tax higher than the rate imposed upon other corporations doing business in Minnesota and that it constitutes a tax on property and business operations outside the jurisdiction of the state in violation of U. S. Const. Amend. XIV, the applicable portion of which reads: "nor shall any State deprive any person of life, liberty, or property, without due process of law nor deny to any person within its jurisdiction the equal protection of the laws"; and also in violation of Minn.Const. art. 9, § 1, which provides: "* * * Taxes shall be uniform upon the same class of subjects, * * *." Taxpayer concedes that the uniformity clause of the Minnesota constitution is not more restrictive than the equal protection clause of the Fourteenth Amendment. This court so held in Reed v. Bjornson, 191 Minn. 254, 253 N.W. 102.

1. We have held that the legislature "has a wide discretion in classifying property for the purposes of taxation, but the classification must be based on differences which furnish a reasonable ground for making a distinction between the several classes. The differences must not be so wanting in substance that the classification results in permitting one to escape a burden imposed on another under substantially similar circumstances and conditions." State v. Minnesota Farmers' Mut. Ins. Co., 145 Minn. 231, 234, 176 N.W. 756, 757; Reed v. Bjornson, 191 Minn. 254, 253 N.W. 102; National Tea Co. v. State, 205 Minn. 443, 286 N.W. 360; State ex rel. Mudeking v. Parr, 109 Minn. 147, 152, 123 N.W. 408, 134 Am.St.Rep. 759; In re Improvement of Third Street, 185 Minn. 170, 240 N.W. 355. The United States Supreme Court has followed substantially the same rule. Louisville G. & E. Co. v. Coleman, 277 U.S. 32, 37, 48 S.Ct. 423, 425, 72 L.Ed. 770, 774. In that case the court said: "* * * In the first place, it may be said generally that the equal protection clause means that the rights of all persons must rest upon the same rule under similar circumstances, * * *. It does not, however, forbid classification; and the power of the state to classify for purposes of taxation is of wide range and flexibility provided always that the classification `must be reasonable, not arbitrary, and must rest upon some ground of difference having a fair and substantial relation to the object of the legislation, so that all persons similarly circumstanced shall be treated alike.'"

This was the idea upheld by Mr. Justice Olson in National Tea Co. v. State, 205 Minn. 443, 447, 286 N.W. 360, 362, supra, in quoting from the Minnesota Farmers Mutual case: "The rule of uniformity, established by the Constitution requires that all similarly situated shall be treated alike."

The legislature may not classify in prescribing a rate of taxation or a rule of valuation. 6 Dunnell, Dig. § 9140; Chicago & N. W. R. Co. v. State, 128 Wis. 553, 648, 108 N.W. 557, 583. It may, however, classify as to the subject matter of taxation. Apartment Operators' Ass'n v. City of Minneapolis, 191 Minn. 365, 254 N.W. 443; Black v. State, 113 Wis. 205, 217, 89 N.W. 522, 526, 90 Am.St.Rep. 853; and, having classified as to subject matter, it may prescribe different rates for different classes. Classification as to subject matter is permissible if there is a reasonable ground for making a distinction (i. e., some substantial difference between the subjects classified) and if the classification made bears a reasonable relation to a permitted end of governmental action. 6 Dunnell, Dig. § 9140; National Tea Co. v. State and State v. Minnesota Farmers' Mut. Ins. Co., supra; State ex rel. Foot v. Bazille, 97 Minn. 11, 106 N.W. 93, 6 L.R. A.,N.S., 732, 7 Ann.Cas. 1056. The difference between the subjects taxed need not be great, and if any reasonable distinction can be found the court should sustain the classification embodied in the law. Louis K. Liggett Co. v. Lee, 288 U.S. 517, 533, 53 S.Ct. 481, 484, 77 L.Ed. 929, 936, 85 A.L.R. 699. The legislature has a broad discretion in determining that classification has a reasonable relation to a governmental purpose, and the courts should not interfere unless there is palpable error. Reed v. Bjornson, 191 Minn. 254, 253 N.W. 102, and State ex rel. Foot v. Bazille, 97 Minn. 11, 106 N.W. 93, 6 L.R.A.,N.S., 732, 7 Ann.Cas. 1056, supra.

Whether a particular classification does or does not deny equal protection of the laws depends upon the peculiar situation presented in each case. In Raymond v. Holm, 165 Minn. 215, 206 N.W. 166, a classification between trucks engaged in commercial freighting on regular-time and route schedules and those engaged in such freighting but not on regular schedules was sustained. In State v. Minnesota Farmers' Mut. Ins. Co., 145 Minn. 231, 176 N.W. 756, supra, this court held that the amount of compensation paid by different insurance companies to any one officer furnished no basis for classification. In Apartment Operators' Ass'n v. City of Minneapolis, 191 Minn. 365, 254 N.W. 443, supra, we upheld a classification which separated homesteads from non-home-steads. In State v. Duluth G. & W. Co., 76 Minn. 96, 78 N.W. 1032, 57 L.R.A. 63, a provision of a special taxing statute permitting deduction of the total amount of the indebtedness of a corporation or association falling within the purview of the statute from the value of its stock was held unconstitutional, in that it resulted in inequality of taxation not only as between the associations themselves falling...