Mountain Fuel Supply Co. v. Salt Lake City Corp.

Decision Date09 March 1988
Docket NumberNo. 19886,19886
Citation752 P.2d 884
PartiesMOUNTAIN FUEL SUPPLY COMPANY, a corporation, Plaintiff and Appellant, v. SALT LAKE CITY CORPORATION, a body corporate and politic under the laws of the State of Utah, Defendant and Respondent.
CourtUtah Supreme Court

Robert M. McDonald, D. Miles Holman, Salt Lake City, for plaintiff and appellant.

Roger F. Cutler, Salt Lake City, for defendant and respondent.

ZIMMERMAN, Justice:

Mountain Fuel Supply Company appeals from a grant of summary judgment upholding defendant Salt Lake City's utility licensing tax ordinances. Mountain Fuel argues that the measure unreasonably classifies those subject to its provisions and that the resulting tax discriminates unfairly against suppliers of certain energy sources, all in violation of equal protection principles contained in the state and federal constitutions and the Utah Code. In the alternative, Mountain Fuel argues that the measure is a sales or income tax that Salt Lake City ("the City") is not authorized to levy. We reject these arguments and affirm the district court.

In 1977, Salt Lake City adopted a set of ordinances which impose an annual license tax on all suppliers of "telephone, gas or electric energy service." Initially, the tax was calculated as an amount equal to 6 percent of the suppliers' gross revenues from Salt Lake consumers, but it has since been reduced to 4 percent. 1

Mountain Fuel is a public utility with a monopoly on the sale and delivery of natural gas in Salt Lake City. From 1978 to 1983, Mountain Fuel paid under protest $11,072,624.13 in license taxes due under the ordinances in question. The amount represented by these taxes was not borne by the company, but was passed directly through to Mountain Fuel's customers in Salt Lake City pursuant to rules and regulations of the Utah Public Service Commission. Beginning in 1979, Mountain Fuel brought ten separate suits, all later consolidated, seeking to have the city ordinances in question declared invalid and to obtain a refund of the taxes paid under protest. Mountain Fuel's challenge was two-pronged. It first alleged that the tax, although labeled an annual license tax, should more properly be characterized as a sales or income tax, which the City was not statutorily authorized to levy. A second contention was that the tax impermissibly discriminated between sellers of different sources of energy, in violation of the uniformity provisions of section 10-8-80 of the Utah Code and article I, section 24 of the Utah Constitution, as well as the equal protection clause of the federal constitution. U.S. Const. amend. XIV; Utah Const. art. I, § 24; Utah Code Ann. § 10-8-80 (1986).

The City defended by arguing that the tax cannot be viewed as an unauthorized sales or income tax, rather than a statutorily authorized license tax, simply because the amount of the tax is determined by the vendor's gross billings. It further asserted that the classification of those upon whom the tax was to be levied was proper and that the resulting discrimination between those energy suppliers taxed and those not taxed is permitted by relevant state and federal law. Finally, the City raised a res judicata defense, arguing that these identical issues had been decided against Mountain Fuel in Mountain Fuel Supply Co. v. Salt Lake City Corp., No. 192098 (Utah 3d Dist.1970). Both sides moved for summary judgment. In March of 1984, the trial court issued a memorandum decision granting summary judgment for the City. The court held that the tax was neither a sales tax nor an income tax and that the tax was not unreasonably discriminatory; it therefore found no reason to reach the res judicata issue.

On appeal, the positions of the parties are unchanged. Because this appeal presents only questions of law, we review the trial court's rulings for correctness and accord them no particular deference. Scharf v. BMG Corp., 700 P.2d 1068, 1070 (Utah 1985). We first consider Mountain Fuel's contention that the tax ordinances are impermissibly discriminatory in violation of equal protection principles embodied in state and federal law.

The essence of equal protection is that legislative classifications resulting in differing treatment for different persons must be based on actual differences that are reasonably related to the legitimate purposes of the legislation. Malan v. Lewis, 693 P.2d 661, 670 (Utah 1984). Mountain Fuel asserts that the City has acted arbitrarily in defining the class of businesses upon which the tax is imposed because it has treated differently those who are similarly situated with respect to the purposes of the tax. Specifically, Mountain Fuel contends that there is no legitimate justification for imposing the tax only on suppliers of natural gas and electricity and not on suppliers of alternative heating fuels such as coal, firewood, bottled gas, and fuel oil. Mountain Fuel contends that both groups of suppliers are in competition in the heating fuel market and that the City's failure to include the alternative fuel suppliers in the taxed class seriously distorts competition in that market.

Before considering the merits, it is appropriate to compare the standards to be applied in determining the validity of the ordinances under the uniform operation of the laws provisions in section 10-8-80 of the Code and article I, section 24 of the Utah Constitution with that applicable under the equal protection clause of the fourteenth amendment to the United States Constitution.

Section 10-8-80 of the Code empowers cities to levy licensing taxes so long as such "taxes shall be uniform in respect to the class upon which they are imposed." 2 Here, there is no question that the tax literally complies with this provision, because it is uniform with respect to all upon whom it is imposed. However, if that were all the provision meant, it would be tautological and purposeless. Therefore, we conclude that the word "class" must have been intended to refer to a group of persons or things with similar objective characteristics. Section 10-8-80, then, requires that we judge the uniformity of the City's legislative classification by examining the characteristics of the members of the class. See Continental Bank & Trust v. Farmington City, 599 P.2d 1242, 1245 (Utah 1979); Salt Lake City v. Utah Light & Ry. Co., 45 Utah 50, 60-63, 142 P. 1067, 1070-71 (1914).

An identical concept is embodied in article I, section 24 of the Utah Constitution, which provides: "All laws of a general nature shall have uniform operation." See Malan v. Lewis, 693 P.2d at 670. To date, our cases have not recognized any distinction between the uniformity concepts embodied in the statute and the constitution. See, e.g., Salt Lake City v. Utah Light & Ry. Co., 45 Utah at 60, 142 P. at 1070. We can discern no reason to read section 10-8-80 of the Code as imposing a more rigorous standard for reviewing the reasonableness of this license tax classification than the language of the constitution requires for reviewing any other type of legislation. See 2A N. Singer & C. Sands, Sutherland Statutory Construction § 45.11 (4th ed. 1984). Therefore, we conclude that if article I, section 24 is satisfied, so is the uniformity requirement of section 10-8-80.

The next question is the degree of congruence between the standard by which a classification is judged under article I, section 24 and that mandated by the equal protection clause of the fourteenth amendment to the federal constitution.

While the language of the state constitution requires "uniform operation" of the laws, the federal constitution speaks of "equal protection of the laws." Compare Utah Const. art. I, § 24 with U.S. Const. amend. XIV, § 1. We have previously stated, "Although their language is dissimilar, these provisions embody the same general principle." Malan v. Lewis, 693 P.2d at 669. The basic concept of both provisions is the settled concern of the law that the legislature be restrained from the fundamentally unfair practice of creating classifications that result in different treatment being given persons who are, in fact, similarly situated, all of which redounds to the detriment of some of those so classified.

With respect to economic regulations which do not affect fundamental rights or discriminate on a suspect basis, 3 the standard of judicial review under the federal equal protection provision has been phrased as whether "the classification bears a rational relationship to an end of government which is not prohibited by the Constitution." Nowak, Rotunda & Young, Constitutional Law ch. 16, § I, at 591 (2d ed. 1983); see, e.g., New York Rapid Transit Corp. v. New York, 303 U.S. 573, 578, 58 S.Ct. 721, 724, 82 L.Ed. 1024 (1938) (utility excise tax reasonably related to object of the legislation). This Court has used nearly identical language in applying the uniform operation of the laws provision of the Utah Constitution, article I, section 24, see, e.g., Baker v. Matheson, 607 P.2d 233, 243-45 (Utah 1979), and has stated that in many circumstances the state and federal provisions are to be considered equivalent. Id. at 243 n. 4; Liedtke v. Schettler, 649 P.2d 80, 81 n. 1 (Utah 1982). And we have previously observed that when matters of economic regulation are involved, including tax measures, both federal and state constitutional provisions have been applied so as to give broad deference to legislative classifications. Baker, 607 P.2d at 244; see Menlove v. Salt Lake County, 18 Utah 2d 203, 209, 418 P.2d 227, 231 (1966); State v. Taylor, 541 P.2d 1124, 1125-26 (Utah 1975).

However, having observed that equivalent language is used to state the test applied under the federal and state constitutional provisions does not end our inquiry. We must also look closely at how the tests have actually been applied. Such a review leads to the conclusion that the similarity in the stated standards under the two provisions does not amount to...

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