National Linen Service Corp. v. State Tax Commission

• Decision Date: 31 January 1939
• Docket Number: 3 Div. 267.
• Citation: 186 So. 478,237 Ala. 360
• Parties: NATIONAL LINEN SERVICE CORPORATION v STATE TAX COMMISSION.
• Court: Alabama Supreme Court

186 So. 478

237 Ala. 360

NATIONAL LINEN SERVICE CORPORATION v STATE TAX COMMISSION.

3 Div. 267.

Supreme Court of Alabama

January 31, 1939

Rehearing Denied Feb. 21, 1939.

Appeal from Circuit Court, Montgomery County; Walter B. Jones Judge.

Bill for a declaratory judgment by the National Linen Service Corporation against the State Tax Commission, to determine the constitutionality of a provision of the Sales Tax Act Gen.Acts Sp.Sess. 1936-37, pp. 125, 126, § 2(d). From an adverse decree, complainant appeals.

Affirmed.

THOMAS and GARDNER, JJ., dissenting on rehearing.

The tax imposed by statute levying a tax of 2 per cent. on fair market value of goods brought into state by any consumer on which tax levied by statute has not been paid is not a "property tax," and statute does not violate constitutional provision limiting rate of ad valorem taxes. Gen.Acts 1936-37, Sp.Sess., p. 126, § 2(d); Const.1901, §§ 211, 214, 217.

The bill is in substance as follows:

Complainant is a Delaware Corporation, qualified to do business in Alabama. Complainant is engaged in the linen supply business, that is, the rental of towels, barber coats, gowns, caps, napkins, tablecloths and like articles, to its customers at a stipulated price, not selling or passing title to any of said articles. Complainant maintains laundry equipment at designated points in Alabama, which it employs to launder the articles rented to its customers. Through its main office in Atlanta, Georgia, complainant purchases a considerable portion of the linens and supplies employed in its Alabama offices, and these supplies are shipped directly from the manufacturer to said Alabama offices. In some instances the main office purchases unfinished materials and processes same in its plant in Atlanta, and the finished products are shipped to its Alabama offices. Practically all of the supplies imported or brought by complainant into the State of Alabama are actually turned over to its customers, in the usual course of its business, within and prior to twenty-four hours after said goods have reached the confines of the state.

Prior to the filing of this bill the State Tax Commission advised the complainant that it was required to pay the two per cent. sales tax upon the fair market value of said materials and supplies imported or brought into the State, by virtue of subdivision d, Section 2 of the Sales Tax Act.

Complainant alleges that said subdivision is not applicable to it and that complainant is not subject to said tax, and further that the same is invalid, void and unconstitutional for that it constitutes a tax upon interstate commerce and a burden thereon; and that it violates Section 214 of the Constitution of Alabama, being an ad valorem tax or property tax in excess of the rate or amount allowed.

The prayer is for a declaratory decree or judgment stating whether or not complainant is subject to the tax and whether or not said tax is illegal, void and unconstitutional. Respondent answered, joining in the prayer for declaratory judgment.

The trial court rendered a decree holding complainant subject to the tax and that tax was constitutional.

A. Berkowitz, Jas. L. Permutt, Benners, Burr, McKamy & Forman, and Frontis H. Moore, all of Birmingham, for appellant.

A. A. Carmichael, Atty. Gen., Jas. L. Screws and Wm. H. Loeb, Asst. Attys. Gen., and Jack Crenshaw, of Montgomery, for appellee.

BOULDIN Justice.

This cause raises the question of the constitutionality of Section 2(d) of the Sales Tax Law of Alabama, Gen.Acts Special Session, 1936-37, p. 125, 126.

Subdivision (d) reads: "A situs is hereby declared to exist for the purpose of this Act and there is hereby levied a tax of two per cent on the fair market value of goods, wares and merchandise, motor vehicles, radio receiving sets, phonograph mechanisms, and all articles of trade imported or brought into this State by any consumer on which the tax herein levied has not been paid; provided, said goods, wares and merchandise have terminated their movement into the State of Alabama and the original package in which they were imported has been broken and they have been within the confines of the State of Alabama for a period of more than twenty-four hours prior to their consumption by the importer thereof."

Appellant challenges this provision as in violation of the Commerce Clause of the Constitution of the United States; and upon the further ground this is a tax on property, and in violation of Section 214 of the State Constitution limiting the rate of ad valorem taxes in Alabama.

This statute enacted under the title "An Act To further provide for the general revenue of the State of Alabama," etc., by Section 2, levies, or purports to levy, privilege or license taxes on specified business activities on a basis of a per centum on gross sales, or gross receipts as the case may be. Such business activities are listed in subdivision (a) to (e) inclusive. We summarize here as follows:

(a) On persons engaged in the business of selling tangible personal property at retail.

(b) On persons in the business of selling any automotive vehicle. A special reduced per centum is prescribed for this tax.

(c) On persons in the business of conducting places of amusement or entertainment.

(d) Copied above.

(e) On salesmen and solicitors for the sale of merchandise located without this State directly to consumers in this State.

Taxing statutes are to be construed strictly against the State and in favor of the taxpayer. But this does not impinge upon the all prevailing rule that a statute is to be construed in accordance with its real intent and meaning, and. not so strictly as to defeat the legislative purpose. 61 C.J. 168; Pappanastos v. State Tax Commission, 235 Ala. 50, 177 So. 158.

Another well known rule intervenes in dealing with the constitutionality of a statute. It should be construed, if reasonably capable of such construction, so as to uphold the statute, to give it a field of operation within constitutional bounds, not to strike down as an abortive attempt to legislate. Henry v. McCormack Bros. Motor Car Co., 232 Ala. 196, 167 So. 256; State v. Alabama Fuel & Iron Co., 188 Ala. 487, 66 So. 169, L.R.A.1915A, 185, Ann.Cas.1916E, 752.

Whether the tax imposed by Section 2 (d) above, is violative of the Commerce Clause of the Federal Constitution, U.S.C.A.Const. art. 1, § 8, cl. 3, is as of course, a Federal question, upon which the decisions of the United States Supreme Court are controlling.

As early as Hinson v. Lott, 8 Wall. 148, 19 L.Ed. 387, a case originating in Alabama, it was declared in general terms that if the State Taxing Act "institutes no legislation which discriminates against the products of sister States, but merely subjects them to the same rate of taxation which similar articles pay that are manufactured within the State, we do not see in it an attempt to regulate commerce, but an appropriate and legitimate exercise of the taxing power of the States." [Page 153.]

In Henneford v. Silas Mason Co., 300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814, the court considered a tax upon the use of machinery brought into a State where the tax system also levied a tax of equal burden on retail sales, as under our statute. Whether the tax in question was deemed a property tax or an excise tax was deemed unimportant. Emphasis was put on the fact that retail dealers in the State were enabled to compete on equal terms with retail dealers in other States free from the burden of such tax, and also the hazard of loss of revenue by tempting consumers to place their orders in other States and thus escape the payment of the local sales tax.

Appellee, in brief, well suggests that a vital inquiry is whether the State is powerless to frame a tax system of this character without discriminating against its own citizens by inviting outside competition free from such tax burden, and at the same time depleting its own revenues to be derived from the local retail business.

In the recent case of Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 58 S.Ct. 546, 82 L.Ed. 823, 115 A.L.R. 944, the Supreme Court reviewed the decisions relating to various forms of State taxation as affecting interstate commerce. Omitting the many cases cited to the principles announced, and referring the reader to that decision for supporting authority, we cannot better state the law applicable to the instant case than to quote several excerpts from that opinion. Says the Court, opinion by Justice Stone [page 548]: "It was not the purpose of the commerce clause to relieve those engaged in interstate commerce from their just share of state tax burden even though it increases the cost of doing the business. 'Even interstate business must pay its way."'

After enumerating various taxes which add to the expense of carrying on interstate business, and so burden it, but are not for that reason prohibited, the opinion proceeds:

"On the other hand, local taxes, measured by gross receipts from interstate commerce, have often been pronounced unconstitutional. The vice characteristic of those which have been held invalid is that they have placed on the commerce burdens of such a nature as to be capable in point of substance, of being imposed *** with equal right by every state which the commerce touches, merely because interstate commerce is being done, so that without the protection of the commerce clause it would bear cumulative burdens not imposed on local commerce.

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"Taxation measured by gross receipts from interstate commerce has been sustained when fairly apportioned to the commerce carried on within the taxing state *** and in other cases has been rejected only because the apportionment was found to be inadequate or...