National Tea Co. v. State

• Decision Date: 16 June 1939
• Docket Number: 31948,31949.
• Citation: 286 N.W. 360,205 Minn. 443
• Parties: NATIONAL TEA CO. v. STATE. ALLIED STORES CORPORATION v. SAME.
• Court: Minnesota Supreme Court

286 N.W. 360

205 Minn. 443

NATIONAL TEA CO. v. STATE.

ALLIED STORES CORPORATION v. SAME.

Nos. 31948, 31949.

Supreme Court of Minnesota.

June 16, 1939

Appeal from District Court, Ramsey County; Richard D. O'Brien Judge.

Actions by the National Tea Company and by the Allied Stores Corporation against the State of Minnesota to recover chain store taxes paid to the State under protest. From judgments in favor of the plaintiffs in each action, the State of Minnesota appeals.

Judgment affirmed.

A gross sales tax which classified chain store owners for the imposition of a varying rate of taxation, solely by reference to the volume of their transactions, violated the equal protection provision of the Federal Constitution and the section of the State Constitution providing that taxes shall be uniform on the same class of subjects. Mason's Minn.St.Supp.1936, §§ 5887-1 et seq., 5887-11, 5887-11a (M.S.A. § 328.01 et seq.); Mason's Minn.St.Supp. 1938, §§ 5887-18a to 5887-18t; (M.S.A. §§ 328.01 to 328.15); U.S.C.A.Const. Amend. 14, § 1; M.S.A.Const. art. 9, § 1.

Syllabus by the Court .

1. The provisions of U.S.Const. Amend. XIV, § 1, U.S.C.A., that ‘ No. State shall * * * deny to any person within its jurisdiction the equal protection of the laws,’ and of Minn.Const. art. 9, § 1, that ‘ Taxes shall be uniform upon the same class of subjects,’ impose identical restrictions upon the legislative power of the state in respect to classification for purposes of taxation.

2. The power of the state to classify for taxation is of wide range and flexibility, provided always that the classification be reasonable, not arbitrary. The attempted classification must always rest upon some difference which bears a reasonable and just relation to the act in respect to which the classification is proposed, and can never be made arbitrarily and without any such basis.

3. A gross sales tax which classifies chain store owners for the imposition of a varying rate of taxation solely by reference to the volume of their transactions denies the equal protection provision of U.S.Const. Amend. XIV, and is likewise violative of Minn.Const. art. 9, § 1.

J. A. A. Burnquist, Atty. Gen., and Matthias N Orfield, Sp. Atty., of St. Paul, for the State.

Doherty, Rumble, Butler, Sullivan & Mitchell, of St. Paul, for respondents.

JULIUS J. OLSON, Justice.

Two cases are here upon the state's appeals from judgments rendered upon separate findings made by the court in each case. As both cases involve identical questions of law and to a controlling extent, identical questions of fact, we shall discuss only the National Tea Company case and shall refer to it as plaintiff and to the state as defendant.

An action was brought by plaintiff pursuant to the provisions of L.1933, c. 213 (3 Mason Minn.St.1936 Supp. §§ 5887-1 to 5887-18), as amended by Ex.Sess.L.1933-1934, c. 16 (3 Mason Minn.St.1936 Supp. §§ 5887-11, 5887-11a), to recover from defendant certain amounts of ‘ chain store taxes,’ so-called, paid to the state under protest. There is no question about the procedural remedy having been taken in full compliance with the mentioned act. The legal problem presented is limited to the constitutionality of the chain store tax only insofar as it relates to that portion of the act which sought to impose a gross sales tax graduated according to volume of gross sales [§ 2(b)]. Plaintiff contested both features of the act in the court below. The court held the gross sales portion of the tax to be void, but upheld the specific tax [§ 2(a)]. It also determined the two elements entering into the tax imposed to be severable so that the ‘ specific amount’ of the tax [§ 2(a)] survived the striking down of the ‘ gross sales' portion thereof. Plaintiff has not appealed, so there is no issue here as to the validity of the ‘ specific’ chain store part of the tax. The question is not whether chain store owners may, for taxation purposes, be validly classified separately from single store owners, but whether the imposition of a graduated gross sales tax upon all those engaged in conducting chain stores is discriminatory as between such owners, thus violating the constitutional requirement of uniformity.

The mentioned act became effective July 1, 1933, and was repealed July 24, 1937, by Ex.Sess.L.1937, c. 93 (3 Mason Minn.St.1938 Supp. §§ 5887-18a to 5887-18t). That enactment re-enacted the specific tax feature, advancing the rates, but omitted that portion relating to gross sales taxes. The present action resulted in judgment for the recovery of the amounts paid for the last six months of 1933 and for the entire year 1934 insofar as payment included taxes based upon gross sales.

Much testimony was taken. The record is voluminous. There are numerous exhibits. Counsel have ably summarized the facts so that our work has been much simplified. Their briefs have gone into every phase of the subject with commendable thoroughness, for all of which they deserve and are gratefully given due credit.

The trial court made extensive findings, amended later on motion. These bespeak careful and conscientious study on its part.

The act selects as the class to be taxed under it the owners of chain retail stores. That classification is not here open to question. The gross sales portion of the act in effect divides chain store merchants into 11 different classes based upon their volume of gross sales and imposes a different rate upon every such class. The different owners are taxed at different rates for performing the same acts, selling the same kind of merchandise, and at identical prices. The ‘ gross sales' during the taxable period is the only measure applied.

Plaintiff's stores exist generally throughout the state and are operated in both large and small cities and towns. They are in direct competition with stores in the same line of business operated by other chains, by members of voluntary chains, and by owners of single stores. Generally speaking, plaintiff's stores are found to be competing with all three types of operation. The competing chains are of various sizes as measured by either number of stores or aggregate gross sales. As a consequence these competitors have been subject to and have paid taxes under the act at various rates both as to the specific and gross tax sales features. This finding is especially important:

‘ Thus an analysis of the taxes paid by the plaintiff and twenty-two of its principal chain competitors for the year 1934 shows that the gross sales tax average or composite rates paid by the competitors varies from .05 per cent to .85 per cent as compared with the rate of .87 per cent paid by plaintiff. The maximum rates varied from 1/20 of one per cent to one per cent, the latter being the maximum rate paid by plaintiff. * * *

‘ The gross sales tax is laid as an excise upon individual sales. As each sale is made liability for tax upon that sale arises. Different sales, however, take different rates, though they be of identical articles or merchandise and be made in identical manner. The rate upon any sale depends upon the number and size of sales already made in the current year. The Act therefore taxes different persons at different rates for the privilege of doing the same act, and taxes the same person at different rates for the exercise of the same privilege at different times, depending upon the number of times it has previously been exercised in a given year.’

In this state, as elsewhere, so the court found, ‘ there is no constant or uniform relation between volume of gross sales and amount of rate of net profit. There are wide variations in the profit margins as between different kinds of business and different kinds of merchandise; also wide differences in the rate of net profit made by different concerns in the same line of business for any given period; also wide variations in the rate of profit made by the same concern or concerns in any given line of business from year to year and from time to time.’

The court concluded that in the light of the foregoing findings (here much abbreviated but we think of controlling importance)-‘ the gross sales tax is arbitrary, unreasonable, unequal, and discriminatory, and the classification of chain store systems or concerns according to the volume of their gross sales (resulting from the graduation of the gross sales tax rates) is without relation to the purpose of the Act and without relation to the value of the privilege for which the tax is enacted, and the imposition of the tax, so far as measured by Section 2(b) of the Act is in violation of Article 9, Section 1,’ of our constitution, ‘ and in violation of Article XIV, Section 1, of the Amendments to the Constitution of the United States, U.S.C.A., and is therefore void.’

1. Under U.S.Const.Amend. XIV, § 1, it is provided that, ‘ No State shall * * * deny to any person within its jurisdiction the equal protection of the laws.’ Minn.Const. art. 9, § 1, provides: ‘ Taxes shall be uniform upon the same class of subjects, * * *.’ In Reed v. Bjornson, 191 Minn. 254, 253 N.W. 102, we held that these provisions of the Federal and State Constitutions impose identical restrictions upon the legislative power of the state in respect to classification for purposes of taxation.

2. Our cases hold (and that is the general rule) 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....