Murray v. Philadelphia

• Decision Date: 14 February 1950
• Citation: 364 Pa. 157,71 A.2d 280
• Parties: MURRAY et al. v. CITY OF PHILADELPHIA et al. SHERIDAN TRANSP. CO. v. CITY OF PHILADELPHIA et al. (Philadelphia Saving Fund Soc., et al., Interveners).
• Court: Pennsylvania Supreme Court

71 A.2d 280

364 Pa. 157

MURRAY et al. v. CITY OF PHILADELPHIA et al.

SHERIDAN TRANSP. CO. v. CITY OF PHILADELPHIA et al. (Philadelphia Saving Fund Soc.,

et al., Interveners).

Supreme Court of Pennsylvania

February 14, 1950

Argued February 7, 1950

Original jurisdiction, in Equity, Nos. 143 and 144, January T., 1950, in cases of Thomas J. Murray et ux. v. City of Philadelphia, Bernard Samuel, Mayor, and W. Frank Marshall Receiver of Taxes and Sheridan Transportation Company v Same. Decree entered sustaining contentions of plaintiffs and interveners.

We must sustain the contentions made on behalf of the plaintiffs and the interveners as stated in this opinion but we shall not at this time issue injunctions against the defendants; we shall assume that defendants will comply. If any question on that subject arises, application may be made. Costs to be paid by the City of Philadelphia.

Albert Barnes Zink, with him George F. Shinehouse Jr., for plaintiffs and interveners.

Abraham Wernick, Assistant City Solicitor, with him Frank F. Truscott, City Solicitor, for defendants.

J. Harry LaBrum, with him Lewis Weinstock and Conlen, LaBrum & Beechwood, for Chamber of Commerce of Philadelphia, amicus curiae.

Charles J. Biddle, with him Leslie M. Swope, David J. Smyth, Townsend, Elliott & Munson and Pepper, Bodine, Stokes & Hamilton, for Philadelphia Saving Fund Society et al., interveners.

Leslie M. Swope, Henry S. Drinker, Howard H. Yocum and Robert M. Blair-Smith, for Investment Bankers Association et al., interveners.

Robert Dechert, with him Francis L. Van Dusen, Carroll R. Wetzel and Barnes, Dechert, Price, Myers & Clark, for Corporate Fiduciaries Association of Philadelphia, amicus curiae.

Floyd W. Tompkins, with him James P. Schellenger, for Associated Hospital Service Employees Credit Union, intervener.

Before MAXEY, C.J., LINN, STERN, STEARNE and JONES, JJ.

OPINION

MR. JUSTICE LINN

We took original jurisdiction of two bills in equity filed against the City of Philadelphia and certain officers of the city praying for decrees restraining threatened enforcement of a revenue ordinance approved December 13, 1939, as amended by an ordinance approved December 9, 1949, imposing income taxes and providing for their collection. The plaintiffs denied the power of the City to levy and collect taxes such as the plaintiffs averred the defendants were threatening to collect. The defendants filed answers admitting the averments of fact and pleading that the legislature had granted the asserted power. Whether the power asserted by the city was conferred by the legislature is the principal question now presented.

The ordinance, prior to the amendment of December 9, 1949, imposed a tax on earned income of individuals and of unincorporated businesses; corporations were excluded. That ordinance was considered in Breitinger v. Philadelphia, 363 Pa. 512, 70 A.2d 640, and in Murray v. Philadelphia, 363 Pa. 524, 70 A.2d 647 (1950). The present suits result from the amendment of December 9, 1949, which, for present purposes, may be said to have attempted to do two things: first, to increase the rate of taxation from 1% to 1 1/4%, and second, to include among the subjects of taxation many subjects that were not taxed by the ordinance before it was amended. The plaintiffs do not challenge the increase in the rate of 1 1/4% for taxes which the city has power to impose, but they deny the power of the city to impose the general income tax imposed by the amendment. The purpose of amending the ordinance was to tax many not taxed before.

Section 3 of the Ordinance provides for the imposition of a tax of 1 1/4% on: "(c)... the net profits earned after January 1, 1949, of businesses... conducted by such residents [of Philadelphia]; on (d) the... net profits earned after January 1, 1949, of businesses... conducted in Philadelphia by non-residents; and (e) at the rate of one and one-quarter per centum on all other net income derived after January 1, 1949, from any source whatsoever not provided for in (a), (b), (c) and (d) by persons who reside in Philadelphia, and non-residents who derive such net income in Philadelphia.

"The tax levied under (a) and (b) herein shall relate to and be imposed upon salaries, wages, commissions and other compensation paid by an employer or on his behalf to any person who is employed by or renders services to him. The tax levied under (c) and (d) herein shall relate to and be imposed on the net profits of any business, profession or enterprise carried on by any person as owner or proprietor, either individually or in association with some other person or persons. The tax levied under (e) herein shall relate to and be imposed upon all other net income derived from any source whatsoever not provided for in (a), (b), (c) and (d) by any person."

Section 2 defines "person" as "every natural person, copartnership, fiduciary, association or corporation." It defines "resident" as "an individual, copartnership, association, corporation, or other entity domiciled in the City of Philadelphia."

A number of parties were allowed to intervene. ^[1] The cases were heard together and will be disposed of in one opinion. We are aware of the importance, to the city and to the taxpayers, of the questions involved and have considered them in the light of the arguments presented on behalf of the city and of all parties and interveners. We are all in agreement with the conclusion which we have reached.

The city agrees that it cannot impose the challenged taxes unless it can find the power to do so in the Sterling Act. ^[2] This statute empowers City Council "to levy, assess and collect... taxes on persons, transactions, occupations, privileges, subjects and personal property, within the limits of such city... except that... council shall not have authority... [to tax] a privilege, transaction, subject or occupation, or on personal property, which is now or may hereafter become subject to a State tax or license fee."

As the decision must turn on the interpretation required to be given to that statute, we shall repeat the rules of interpretation that must be applied. In Breitinger v. Phila., 363 Pa. 512, 514, 70 A.2d 640 (1950), we said: "Two fundamental principles should be kept in mind in considering the ordinance and its administration. The first measures the city's power to tax; the second prescribes strict construction. We said, in Hillman Coal & Coke Co. v. Jenner Twp. et al., 300 Pa. 108, 112, 150 A. 293 (1930), '"it is a principle universally declared and admitted that municipal corporations can levy no taxes, general or special, upon inhabitants, or their property, unless the power be plainly and unmistakably conferred": 4 Dillon on Municipal Corp. 2398. And the grant of such right is to be strictly construed, and not extended by implication: Com. v. P.R.T. Co., 287 Pa. 190 [134 A. 455 (1926)].' See Rieck-McJunkin Dairy Company Mercantile Assessment Case, 156 Pa.Super. 9, 12, 39 A.2d 259 (1944)." In Scranton v. O'Malley Mfg. Co., 341 Pa. 200, 19 A.2d 269, (1941) the rule of strict construction was stated as follows: "Tax statutes should receive a strict construction: Boyd et al. v. Hood et al., 57 Pa. 98 [1868]. In cases of doubt the construction should be against the government: Gould v. Gould, 245 U.S. 151, 153, 38 S.Ct. 53 [1917]; U.S. v. Merriam, 263 U.S. 179, 188, 44 S.Ct. 69 [1923]; Com. v. P.R.T. Co., 287 Pa. 190, 196, 134 A. 455 [1926]. While it is the duty of every citizen to bear his just share in supporting the government, he cannot be compelled to do so except in a way provided by a statute." See also Callery's Appeal, 272 Pa. 255, 272, 116 A. 222 (1922); Com. v. P.R.T. Co., 287 Pa. 70, 74, 134 A. 452 (1926); Arbuckle's Estate, 324 Pa. 501, 505, 188 A. 758 (1936); Krause's Estate, 325 Pa. 479, 483, 191 A. 162 (1937).

In ascertaining the scope of the taxing power conferred, the court must deal with the realities of the situation and may not be misled by ambiguous words used to describe taxes in other contexts. It is often said that taxation is a practical matter, frequently arbitrary and illogical, and that words used to describe taxes in one context are not always used in the same sense nor with the same meaning in another. ^[3] We must, therefore, understand what was intended by the Sterling Act in which the words to be defined were used.

The legislative prohibition "that such council shall not have authority" to tax anything "which is now or may hereafter become subject to a State tax or license fee" was intended t prevent double taxation of the same thing; in other words, the city was instructed that it could not tax subjects taxed by the state. The right of the state was paramount. If, therefore, the tax proposed to be collected pursuant to the amended ordinance results in such double taxation, it is unauthorized and must be restrained. So much was conceded at the argument by counsel for the city.

In determining whether double taxation results, whether the city tax conflicts with that imposed by the state, the practical operation of the two taxes is controlling as against mere difference in terminology from time to time employed in describing taxes in various cases. This is illustrated by Arrott's Estate, ^[4] 322 Pa. 367, 185 A. 697 (1936). See also Com. v. Union Trust Co., 345 Pa. 298, 307-8, 27 A.2d 15 (1942).

The plaintiffs, Mr. and Mrs. Murray, receive dividends from domestic corporations ^[5] that pay a capital stock tax pursuant to the Act of June 1, 1889, P.L. 420, as amended, 72 PS 1871, and, therefore, contend that such income so being taxed by the State, is not a subject which the Sterling Act allows the city also to tax.

For years it has been the law that the state tax on...