Morrow v. Henneford

• Decision Date: 06 August 1935
• Docket Number: 25779.
• Citation: 182 Wash. 625,47 P.2d 1016
• Parties: MORROW v. HENNEFORD et al.
• Court: Washington Supreme Court

47 P.2d 1016

182 Wash. 625

MORROW v. HENNEFORD et al.

No. 25779.

Supreme Court of Washington, En Banc.

August 6, 1935

Appeal from Superior Court, Thurston County; John M. Wilson, Judge.

Action by John D. Morrow against H. H. Henneford and others comprising the Washington State Tax Commission. From a judgment for defendants, plaintiff appeals.

Judgment affirmed.

Little & Collett, Robert W. Reid, and Robert L. Flanders, all of Seattle, for appellant.

G. W Hamilton, W. A. Toner, and R. G. Sharpe, all of Olympia, for respondents.

GERAGHTY Justice.

This action was brought by the plaintiff, who conducts a restaurant business in the city of Seattle, to enjoin the members of the state tax commission from enforcing, as against him and others similarly situated, the provisions of title 3, chapter 180, Lsws 1935, p. 721, levying a sales tax. After trial to the court, judgment was entered dismissing the plaintiff's action, and this appeal followed.

The appellant challenges the constitutionality of title 3 upon several grounds, and also charges that the members of the tax commission are, in certain respects, acting in excess of the authority conferred upon them by the act.

We first direct our attention to appellant's contention that the sales tax levied by the act is a direct property tax lacking uniformity in its application, and, therefore, in violation of the Fourteenth Amendment to the Federal Constitution and article 7, § 1, of the State Constitution as revised by its Fourteenth Amendment.

If appellant's contention that the tax is a direct levy upon property is correct, the act is vulnerable to constitutional objection. The respondents contend that the tax is not a direct levy upon property, but, an excise, not controlled by the cited provisions of the Federal and State Constitutions.

An excise tax has been defined as one levied upon the manufacture, sale, or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges. 1 Cooley on Taxation (4th Ed.) § 42.

It is defined by the Supreme Court of the United States to be an inland imposition, sometimes upon the consumption of the commodity and sometimes upon the retail sale; sometimes upon the manufacturer and sometimes upon the vendor. Pacific Insurance Co. v. Soule, 7 Wall. (74 U. S.) 433, 19 L.Ed 95.

In an opinion just handed down by the Supreme Court of Arkansas [ Wiseman v. Phillips, 84 S.W.2d 91, 95], where a statute strikingly similar in detail to the one here under consideration was sustained, the court said: 'What kind of a tax is it? What is it a tax upon? Some of counsel say that it is a property tax, others that it is an occupation tax, and others that it is either a gross income tax or an occupation tax while another says it has all the earmarks of a property tax. Counsel for appellant and those amici curiae supporting that view contend that it is neither a tax on property, an occupation tax, nor a tax on gross income; that it is an excise tax, or privilege tax, and the argument is made with some force that it is a tax upon the right to acquire personal property by purchase for use or consumption. It is generally agreed that unless the tax is prohibited by express language or by necessary implication in the Constitution, it is a valid levy. * * * Decisions of courts of other states generally hold that similar provisions of their Constitutions for equality and uniformity apply only to taxes on property and not to excises and privileges. In 26 R. C. L. p. 225, it is said: 'It is generally held that a constitutional provision requiring taxation to be equal and uniform applies only to taxes on polls and property and has no reference whatever to excises.''

After citing and analyzing numerous authorities, the court announced its conclusion in the following language: 'From these decisions we are bound to conclude that the tax levied by said Act No. 233 is an excise tax or privilege tax that is not prohibited. Whether it is such a tax on the purchase or the sale, or the right to acquire personal property for use or consumption, or whether it is a tax on the transaction, it is unnecessary to determine. Whatever it is and by whatever name it may be called, its character must be determined by its incidents, and its validity must be measured by the Constitution under the rules stated. It is certain that it is not a tax levied upon any one's occupation; therefore, not an occupation tax. The merchant is not taxed. He is a tax collector. The tax is required of the purchaser and the merchant must collect and account for it. The buyer's occupation is not taxed. It is not a pursuit or occupation to buy at retail for use or consumption.' Wiseman v. Phillips (Ark.) 84 S.W.2d 91, 96, decided June 3, 1935, not yet reported [in State Report].

In State ex rel. Stiner v. Yelle, 174 Wash. 402, 25 P.2d 91, 93, in upholding chapter 191, p. 869, Laws 1933, imposing a tax upon the privilege of engaging in business activities, after quoting article 7, § 1, of the State Constitution, we said: 'This being an excise tax, the Legislature, under the Fourteenth Amendment to our State Constitution, has very broad power, and we cannot interfere with that power except for arbitrary action, clear abuse, or constructive fraud appearing on the face of the act or from facts of which we may take judicial knowledge.'

The appellant relies principally upon Stewart Dry Goods Co. v. Lewis, 55 S.Ct. 525, 528, 79 L.Ed. 1054. In that case the court held unconstitutional a statute of Kentucky imposing a graduated gross sales tax. The tax was held to be invalid not because it was one upon sales, but because the rate of tax was increased as the volume of sales increased. The statute was held to be 'unjustifiably unequal, whimsical, and arbitrary, as much so as would be a tax on tangible personal property, say cattle, stepped up in rate on each additional animal owned by the taxpayer, or a tax on land similarly graduated according to the number of parcels owned.' That the court did not condemn a flat tax, such as we have here, in abundantly evidenced by a reading of the opinion.

In the course of its opinion, the court, referring to the suggestion that the advalorem property tax laid on Kentucky merchants bore more heavily upon the little dealer than upon his bigger competitor, said: 'This fact may indeed be a proper reason for adjusting the tax burden so as better to reflect the fruits of the enterprise; but it can afford no excuse for an arbitrary and unequal imposition as between persons similarly circumstanced. The record fails to show that an income tax or a flat tax on sales would not accomplish the desired end. The adoption of laws of the latter description by many of the states is a practical confirmation of the view that they are effective measures.' (Italics ours.)

In a footnote to the opinion reference is made to the large number of states where legislation of this description, presumably valid, has been enacted.

The court's holding was interpreted by Judge Cardozo in his dissenting opinion as follows: 'The prevailing opinion commits the court to a holding that a tax upon gross sales, if laid upon a graduated basis, is always and inevitably a denial of the equal protection of the laws, no matter how slight the gradient or moderate the tax.'

Manifestly, this case is not applicable to the statute Before us, where the rate of levy is uniform.

In Bromley v. McCaughn, 280 U.S. 124, 50 S.Ct. 46, 47, 74 L.Ed. 226, the court held that a tax imposed upon transfers of property by gift is not a direct tax, but an excise on the exercise of one of the powers incident to ownership, and need not be apportioned. The court said:

'Whatever may be the precise line which sets off direct taxes from others, we need not now determine. While taxes levied upon or collected from persons because of their general ownership of property may be taken to be direct, Pollock v. Farmers' Loan & Trust Company, 157 U.S. 429, 15 S.Ct. 673, 39 L.Ed. 759; Id., 158 U.S. 601, 15 S.Ct. 912, 39 L.Ed. 1108, this court has consistently held, almost from the foundation of the government, that a tax imposed upon a particular use of property or the exercise of a single power over property incidental to ownership, is an excise which need not be apportioned, and it is enough for present purposes that this tax is of the latter class. Hylton v. United States, supra [3 Dall. 171, 1 L.Ed. 556]; cf. Veazie Bank v. Fenno, 8 Wall. 533, 19 L.Ed. 482; Thomas v. United States, 192 U.S. 363, 370, 24 S.Ct. 305, 48 L.Ed. 481; Billings v. United States, 232 U.S. 261, 34 S.Ct. 421, 58 L.Ed. 596; Nicol v. Ames, supra [173 U.S. 509, 19 S.Ct. 522, 43 L.Ed. 786]; Patton v. Brady, 184 U.S. 608, 22 S.Ct. 493, 46 L.Ed. 713; McCray v. United States, 195 U.S. 27, 24 S.Ct. 769, 49 L.Ed. 78, 1 Ann. Cas. 561; Scholey v. Rew, 23 Wall. 331, 23 L.Ed. 99; Knowlton v. Moore, supra [178 U.S. 41, 20 S.Ct. 747, 44 L.Ed. 969]. See, also, Flint v. Stone Tracy Co., 220 U.S. 107, 31 S.Ct. 342, 55 L.Ed. 389, Ann. Cas. 1912B, 1312; Spreckels Sugar Refining Co. v. McClain, 192 U.S. 397, 24 S.Ct. 376, 48 L.Ed. 496; Stratton's Independence v. Howbert, 231 U.S. 399, 34 S.Ct. 136, 58 L.Ed. 285; Doyle v. Mitchell Brothers Co., 247 U.S. 179, 183, 38 S.Ct. 467, 62 L.Ed. 1054; Stanton v. Baltic Mining Co., 240 U.S. 103, 114, 36 S.Ct. 278, 60 L.Ed. 546.

'It is a tax laid only upon the exercise of a single one of those powers incident to ownership, the power to give the property owned to another. Under this statute all the other rights and powers which collectively constitute property or ownership may be fully enjoyed free of the tax. So far as the constitutional power to tax is concerned, it would be difficult to...