Pickelsiiy1er v. Pratt

• Decision Date: 12 November 1941
• Docket Number: No. 15328.,15328.
• Parties: PICKELSIIY1ER. v. PRATT et al.
• Court: South Carolina Supreme Court

17 S.E.2d 524

PICKELSIIY1ER.

v.PRATT et al.

No. 15328.

Supreme Court of South Carolina.

Nov. 12, 1941.

Appeal from Common Pleas Circuit Court of Greenville County; G. Dewey Oxner, Judge.

Action by Otus Pickelsimer, doing business as Greenville Steam Laundry, suing in behalf of himself and certain others in like situations, against S. B. Pratt and others, as the South Carolina Unemployment Compensation Commission and others, challenging the constitutionality of the South Carolina Unemployment Compensation Act. From an adverse judgment, plaintiff appeals.

Affirmed.

The order of Judge Oxner follows: The purpose of this action is to have the court declare unconstitutional the South Carolina Unemployment Compensation Act, which is Act No. 946 of the Acts of 1936 and Act No. 316 of 1939. Plaintiff alleges that said act is unconstitutional because it is in violation of Section 1, Article X; Section 2, Article X; Section 8, Article I; Section 5, Article I; Section 3, Article X; of the Constitution of 1895; and of the Fourteenth Amendment of the Federal Constitution.

Defendants demurred to the complaint on the ground that it does not state facts sufficient to constitute a cause of action in that (1) the act in question is constitutional and (2) the plaintiff has not suffered any injury from the operation of said act. A demurrer to the complaint admits all facts, which are well pleaded, but does not admit allegations of unconstitutionality of a statute which are allegations of law.

It is conceded that the disposition of the demurrer depends entirely upon the constitutionality of said statute.

I shall only refer briefly to the history of this legislation. I shall not enter into a discussion of the economic background which induced and prompted the passage of this and similar legislation throughout the country. This is fully discussed in the cases from other jurisdictions which will be hereinafter referred to.

In 1935 Congress passed what is known as the "Social Security Act." 49 Stat. at Large 620, 42 U.S.C.A. Chapter 7, § 301 et seq. This act is divided into eleven separate titles, but this particular litigation concerns only titles 9 and 3. Under the act, every employer is required each year to pay an excise tax, with respect to individuals in his employ, the tax to be measured by prescribed percentages of the total wages payable by the employer during the calendar year of such employment. An "employer" is one having more than eight persons in his employ. Certain classes, such as agricultural labor, domestic service and some others, are exempt from the operation of the act. If the taxpayer has made contributions to an unemployment fund under a state law, he may credit such contributions against the federal tax, provided the total credit allowed shall not exceed 90 per cent. of the tax against which it is credited.

South Carolina passed its original Unemployment Compensation Act in 1936. It provides for a tax similar to the Federal Unemployment Compensation excise tax and contains appropriate provisions taking advantage of the plan of state-federal cooperation.

The federal act was held constitutional by the United States Supreme Court in the case of Steward Machine Company v. Davis, 301 U.S. 548, 57 S.Ct. 883, 81 L.Ed. 1279, 109 A.L.R. 1293.

It was there held that said tax was an excise tax; that the exemptions under the terms of the act were not so arbitrary as to render the tax violative of the due process requirement of the Fifth Amendment; and that the act may be sustained as a co-operative plan between the state and federal governments to reduce the financial burden of the nation due to unemployment.

Following the passage of the Federal Social Security Act every state, with possibly one or two exceptions, enacted an Unemployment Compensation Law designed to take advantage of the provisions of the federal act. The various state laws have been assailed in court from time to time on the ground of unconstitutionality and in no instance, so far as my investigation discloses, has a court declared such legislation unconstitutional.

The Supreme Court of the United States, in the case of Carmichael v. Southern Coal & Coke Company, reported in 301 U.S. 495, 57 S.Ct. 868, 81 L.Ed. 1245, 109 A.L.R. 1327, upheld the constitutionality of the Alabama Unemployment Compensation Act. The various state acts are almost identical in their language for the reason that they were all passed in order to qualify for the advantages offered by the federal government in the Social Security Act. In the foregoing case the Supreme Court held that the classification in levying the tax only upon those employers of eight or more employees was a reasonable one and clearly constitutional. It recognized the principle that the Legislature may make distinction of degree having a rational basis and that a tax was constitutional if it applied alike to all members of a class. The court held that the Alabama Act did not violate the Fourteenth Amendment of the Federal Constitution and that it did not contravene the constitutional prohibition against taking property without due process of law or of denying the equal protection of the law. The Alabama act was upheld by its Supreme Court in the case of Beeland Wholesale Company v. Kaufman, 234 Ala. 249, 174 So. 516; the Arkansas Act by its Supreme Court in the case of Buckstaff Bath House Co. v. McKinley, 198 Ark. 91, 127 S.W.2d 802; the California Act by its Supreme Court in the case of Gillum v. Johnson, 7 Cal.2d 744, 62 P.2d 1037, 63 P.2d 810, 108 A.L.R. 595; the Massachusetts act by its Supreme Court in the case of Howes Bros. Co. v. Massachusetts Unemployment Compensation Commission, 296 Mass. 275, 5 N.E.2d 720; the Mississippi Act by its Supreme Court in the case of Tatum v. Wheeless, 180 Miss. 800, 178 So. 95; the New York act by its Supreme Court in the case of Chamberlin, Inc., v. Andrews, 271 N.Y. 1, 2 N.E.2d 22, 106 A.L.R. 1519; the Tennessee act by its Supreme Court in the case of Southern Photo Co. v. Gore, 173 Tenn. 69, 114 S.W.2d 796; the Utah act by its Supreme Court in the case of Globe Grain & Milling Company v. Industrial Commission, 98 Utah 36, 91 P. 2d 512 and the North Carolina act by its Supreme Court in several cases.

It will thus be seen that there is a remarkable unanimity of opinion among the various jurisdictions--that the entire unemployment compensation system is constitutional and is a proper exercise of both the taxing and police powers of the several states for the purpose of stabilization and reduction of unemployment.

In the consideration of the attack made by the plaintiff upon this act, it is well to bear in mind that the supreme legislative power is vested in the General Assembly; that the provisions in the State Constitution are not a grant, but a limitation of legislative power; and that every presumption must be indulged in favor of the constitutionality of an act of the Legislature. To justify a court in declaring an act unconstitutional, such must appear beyond a reasonable doubt. Citation of authority to support the foregoing fundamental rules of constitutional construction is unnecessary.

The various grounds of attack advanced by the plaintiff upon this act will now be considered.

Section 1, Article X, provides in part: "The General Assembly shall provide by law for a uniform and equal rate of assessment and taxation, and shall prescribe regulations to secure a just valuation for taxation of all property, real, personal and possessory."

Article I, Section 5, relates to due process and equal protection of the law. These two sections may be considered together.

Plaintiff alleges that the act in question violates Section 1, Article X, in two particulars: (1) It exempts those having less than eight employees. (2) The so-called experience rating provision of Section 7(c) (3) II (b) of the Act allows employers to pay a smaller tax beginning in 1942 provided their employment records are good.

It may be pointed out that all employers under the act pay unemployment compensa-tion contributions based on the same rate of taxation for the years 1936 through 1941. In short, there is no graduated tax in effect at present nor can there be until 1942. Beginning in 1942, there will be a graduated unemployment compensation tax based on the employment records of the employers who are liable. Employers will thereupon be classified according to their records over a five-year period. All members of each class will be taxed alike. Such classification is designed to carry out the avowed purpose of the act as set out in Section 2 thereof. Obviously, the experience rating method is reasonable and fair. It is not based on fancy or whim. It will encourage stability of employment and reduce unemployment.

It seems to be well established in this State that the provisions of Section 1, Article X, apply only to ad valorem taxes on property and that this section does not apply to a license tax. Among the many cases sustaining this construction is that of Gregg Dyeing Company v. Query, 166 S.C. 117, 164 S.E. 588. Also see the case of Wingfield v. South Carolina Tax Commission, 147 S.C. 116, 144 S.E. 846. It has been uniformly held by courts of other jurisdictions that this tax in controversy is an excise tax.

In the Gregg case, supra [166 S.C. 117, 164 S.E. 595], the court said: "In South Carolina, neither the Constitution of 1868 nor 1895 expressly or impliedly makes reference to excise taxes, though their existence must naturally be assumed to have been known to the framers of these instruments. The lack of restriction in them on the inherent power of the Legislature to impose such taxes affords ground for the conclusion that the power was purposely left unrestricted while the mode of exercising other taxing powers was provided for."

In the Wingfield case, supra [147 S.C. 116, 144 S.E. 852], the court said:

"Regardless of whether constitutional provisions as to equality and uniformity are...