Pauley v. State of California

• Decision Date: 21 December 1934
• Docket Number: No. 7383.,7383.
• Citation: 75 F.2d 120
• Parties: PAULEY v. STATE OF CALIFORNIA.
• Court: U.S. Court of Appeals — Ninth Circuit

75 F.2d 120 (1934)

PAULEY v. STATE OF CALIFORNIA.

No. 7383.

Circuit Court of Appeals, Ninth Circuit.

December 21, 1934.

Joseph J. Rifkind and Geo. A. Elstein, both of Los Angeles, Cal., for appellant.

U. S. Webb, Atty. Gen., State of California, and Bayard Rhone and H. H. Liney, Deputy Attys. Gen., for the State of California.

Before WILBUR, SAWTELLE, and GARRECHT, Circuit Judges.

The following opinion, prepared by SAWTELLE, Circuit Judge, is adopted as the opinion of the court by WILBUR and GARRECHT, Circuit Judges:

During the period involved in the instant case, the Motor Vehicle Fuel Tax Acts of California provided that every distributor should pay a 3-cent license tax on each gallon of motor vehicle fuel sold and distributed in the state. Pursuant to those acts, the state filed its claim against the receivership estate of Producers & Refiners, Inc., Limited. The claim was allowed in the sum of $12,121.71.

The appellee state contends that it has a lien for that amount upon all the property of the Producers & Refiners Company, and to the proceeds from the sale of such property in the possession of the receiver, and that by virtue of the lien it is entitled to priority over all the general unsecured creditors.

The appellant maintains (1) that the statutes above referred to are unconstitutional, and (2) that, even if the acts are constitutional, still the state is not entitled to any priority of payment because no valid lien was created by those statutes.

The amount of the tax is not in dispute. When the appellant receiver rejected the claim, the court below referred the hearing of objections to a special master. The question of the validity of the acts and the priority of any claim thereunder was submitted on briefs, without the introduction of any testimony.

The special master filed his report with the court below recommending that the Motor Vehicle Fuel Tax Acts were valid, and that the state's claim was entitled to priority over all other claims in the receivership estate. The court below confirmed the report of the special master, and the present appeal resulted.

In view of the varied grounds of attack relied upon by the appellant with regard to the legislation in question, we are transcribing in the margin, with some degree of fullness, the pertinent portions of the statutes.¹

The appellant's first assault upon the constitutionality of the acts in question is bottomed on the fact that "the flat sum of three cents per gallon of gasoline * * * is not in proportion to the value of said gasoline. It does not take into consideration the various qualities of gasoline, together with their corresponding deviation in value, nor does it take into consideration the fluctuations in value of gasoline, nor does it take into consideration the value of gasoline at all."

Article 13, § 1, of the Constitution of California provides in part: "All property in the State except as otherwise in this Constitution provided, not exempt under the laws of the United States, shall be taxed in proportion to its value, to be ascertained as provided by law, or as hereinafter provided. The word `property,' as used in this article and section, is hereby declared to include moneys, credits, bonds, stocks, dues, franchises, and all other matters and things, real, personal, and mixed, capable of private ownership. * * *"

The appellant asserts: "The right to engage in a business is a property right, and even though it may be contended that the tax is not a tax upon the property, referring to the gasoline, it must be conceded that it is a tax upon the property, to-wit, the right to engage in the sale and distribution of gasoline."

At the outset, it is to be observed that the legislation in question has been repeatedly held to be constitutional by the courts of California. People v. General Petroleum Corp., 204 Cal. 297, 299, 268 P. 352, 283 P. 60; People v. Sterling Refining Co., 86 Cal. App. 558, 567, 261 P. 1080. See, also, State of California v. Gillis, 69 F.(2d) 746, 748, decided by this court, and affirmed by the Supreme Court of the United States on November 5, 1934, 55 S. Ct. 4, 79 L. Ed. ___. In this connection, however, it should be stated that in none of those cases was there presented the precise constitutional questions that we are here considering.

For a proper solution of the constitutional problems involved in the instant case, it is first necessary to determine the classification to which the statutes in question belong.

The title of each of the two acts (Act 2964 and Act 2965) describes the legislation as designed "to regulate and license the business of producing, refining or distributing gasoline," etc. The Supreme Court of California has definitely classified these statutes as levying "an excise or occupation tax" or a "license tax," and has declared that the title of the acts was so apt as to "satisfy even the most hypercritical mind." People v. Ventura Refining Co., 204 Cal. 286, 294, 297, 268 P. 347, 283 P. 60; People v. General Petroleum Corp., supra, 204 Cal. at pages 299 and 300, 268 P. 352, 283 P. 60; People v. Richfield Oil Co., 204 Cal. 301, 304, 268 P. 353. See, also, People v. Sterling Refining Co., supra, 86 Cal. App. at pages 563, and 567, 261 P. 1080; George E. Breece Lumber Co. v. Mirabal, 34 N. M. 643, 287 P. 699, 700, 701, 84 A. L. R. 827, affirmed George E. Breece Lumber Co. v. Asplund, 283 U. S. 788, 51 S. Ct. 352, 75 L. Ed. 1415.

A license-tax is an "excise," or a "privilege" or "occupation" tax. Within the meaning of the constitutional provision that we are now discussing, it is not a "property" tax. The Supreme Court of California has repeatedly so held.

In City and County of San Francisco v. Pacific Tel. & Tel. Co., 166 Cal. 244, 249, 135 P. 971, 974, the court said: "It is true that a license tax upon an occupation or business is not a tax upon property, even though, by constitutional or statutory definition, franchises are included in the meaning of the word `property.' This is clearly decided in City of Los Angeles v. Los Angeles Independent Gas Co., 152 Cal. 765, 93 P. 1006."

The appellant seeks to distinguish the Los Angeles Case, cited supra, from the case at bar, on the ground that the former involved a city license tax for a flat sum, "and not a tax for revenue purposes," as in the instant case. But the levying of a flat sum as a license tax, "regardless of business done," is even less a proportioning to value than is a tax measured by the number of gallons of fuel sold. And in its statement that the tax in the Los Angeles Case was not a revenue measure, the appellant is in error; for there the Supreme Court plainly said, at page 769 of 152 Cal., 93 P. 1006, 1007: "The tax here levied is not an exercise of the police power, but of the power of taxation. * * *"

The essential difference between a privilege tax and a property tax was elaborated by the state Supreme Court, in the case of Pacific Gas & Electric Co. v. Roberts, 168 Cal. 420, 430, 143 P. 700, 703: "The essential difference between an ad valorem tax and any form of privilege tax is that the ad valorem tax is based upon the value of the property, tangible or intangible. The privilege tax need not be based upon such value at all. Privilege taxes themselves fall into two general classes: the first, a tax upon that intangible thing known as the right to conduct business; and the second, a tax upon specific personal property as a condition of the right to use it generally or for some specific purpose. * * * Thus such a tax may be imposed upon the right to conduct the business of a taxicab company, and again a tax may be imposed upon each taxicab, to be paid before that particular piece of personal property may be employed in the business. Of course, as in the case of every tax, and upon whatsoever form or kind of property it may be laid, in its essence, it is a tax upon the owner of the property." (Italics our own.)

Referring to a "corporation license tax," the Supreme Court of California has classified such a measure as a "privilege" tax, saying, in the case of Kaiser Land & Fruit Co. v. Curry, 155 Cal. 638, 653, 654, 103 P. 341, 347: "It is substantially the purchase price which the state has seen fit to charge for the continuance of the privilege of being and acting as a corporation. Although this privilege had already been granted to plaintiff and all other existing corporations, it had been granted subject to the power reserved by the state, to be exercised by general laws, of revocation, or the imposition of new charges therefor, or new conditions upon which it might be enjoyed. The charge is in no sense a tax upon the thing granted, as is the tax imposed under section 1, art. 13. It is a mere license fee charged for the privilege, and is not a tax upon property at all, and the requirements of section 1, art. 13, of the Constitution do not apply thereto. Many cases cited."

It is worthy of note that in the foregoing case, the "license tax" was "proportioned to the amount of the authorized capital stock of the corporation," just as in the instant case, the amount of the "license tax" is proportioned to the amount of gasoline sold. Yet in that case, the court held that the "license fee" "was not a tax upon property at all."

In 1876 when the case of City of Santa Barbara v. Stearns, 51 Cal. 499, 501, was decided, the Constitution of 1849 was in effect in California. Section 13 of article 11 of that organic law read as follows: "Taxation shall be equal and uniform throughout the State. All property in this State shall be taxed in proportion to its value, to be ascertained as directed by law. * * *"

It will thus be seen that the pertinent provision of the Constitution was substantially the same as the one in force at the present time, save that there was then no attempt to define the word "property." With such a provision before it, the Supreme Court of the state said: "A license charge or fee for the...