Schmitt v. Nord

• Decision Date: 23 June 1947
• Docket Number: 8869.
• Parties: SCHMITT v. NORD.
• Court: South Dakota Supreme Court

27 N.W.2d 910

71 S.D. 575

SCHMITT v. NORD.

No. 8869.

Supreme Court of South Dakota

June 23, 1947

George T. Mickelson, Atty. Gen., and Benj. D Mintener, Asst. Atty. Gen., for defendants and appellants.

Danforth & Bleeker, of Mitchell, and McFarland & Sellars, of Washington, D.C., for plaintiff and respondent.

SMITH, Judge.

This is an appeal from a judgment which restrains the defendants, as officers of the state, from enforcing SDC Chapter 57.40 originally enacted as Ch. 258, Laws of 1931, on the ground that the enactment is repugnant to provisions of the Federal and State Constitutions.

Sections SDC 57.4001 and 57.4003 read as follows:

'There is levied and assessed and shall be collected and paid to the State Treasurer a tax of ten cents upon each pound of butter substitute sold in South Dakota to consumers, to be paid prior to or at the time of the sale and delivery to the consumer. Before any package containing such substitute for butter is delivered to the consumer or offered or exposed or kept for sale in open cartons or removed from such cartons each package shall have securely affixed thereto suitable stamp or stamps denoting the tax thereon. The display or possession by any dealer of any package, except in original unopened cartons or other containers, which do not bear the required stamp or stamps, shall constitute prima facie evidence of violation of this section. Such stamps shall be properly affixed and cancelled prior to such display or removal for consumption, under such regulations as the State Treasurer shall prescribe. When such substitutes for butter are sold by a retail dealer, to consumers in cartons or other original unopened containers, said stamps, properly cancelled, may be affixed to each such original unopened carton or container and not to each package contained therein.' SDC 57.4001.

'The money received by the State Treasurer from the stamp taxes herein imposed shall be credited by the State Treasurer to the general fund of the state. From the total amount of taxes to be raised by levy against real and personal property a reduction shall be made equal to the amount of the taxes collected annually under the provisions of this chapter, and the balance only, after such reduction has been made, shall be levied against such real and personal property. It shall be and is made mandatory on all officers concerned to make such reductions.' SDC 57.4003.

The remaining sections of the act deal with preparation and distribution of the stamps (57.4002), enforcement (57.4004), and penalties (57.9936, 57.9937).

The plaintiff, since prior to 1931, has owned and operated a grocery at Alexandria. His complaint alleges, and his proof tends to show, that the tax prevented and discouraged the purchases of oleomargarine at his store and destroyed what had been a profitable department of his retail business.

Viewing the act as a revenue measure, it was urged that because the differences between butter and oleomargarine are insufficient to justify separate classification, the statutes in operation subject plaintiff to unequal and non-uniform taxation contrary to Article 6, § 17, of the Constitution of South Dakota and the Fourteenth Amendment to the Constitution of the United States. The trial court sustained this contention of the plaintiff.

The act as a whole indicates that it is aimed at dealers in butter substitutes and reflects an intention to lay an excise tax upon the privilege or occupation of selling butter substitutes to consumers. State ex rel. Botkin v. Welsh, 61 S.D. 593, 251 N.W. 189; In re Watson, 17 S.D. 486, 97 N.W 463, 2 Ann.Cas. 321; State ex rel. Sioux Falls Motor Co. v. Welsh, 65 S.D. 68, 270 N.W. 852; and Barnes v. Stout, 65 S.D. 592, 276 N.W. 920. We so construe it. It is a settled principle, dealing with such occupational or privilege taxes, that if the classification is justified, the cited constitutional provisions are satisfied if equal treatment is accorded all within the class. State ex rel. Botkin v. Welsh, supra. We turn to the matter of classification.

A short answer to the contention that the classification is not justified seems adequate in view of the undisputed facts and the settled state of the law.

Plaintiff is engaged in the business of selling oleomargarine which conforms to the standards promulgated as of September 6, 1941, under the Federal Food, Drug, and Cosmetic Act of 1938, 21 U.S.C.A. § 301 et seq. Although the product plaintiff sells and butter are both foods and the one is used as a substitute for the other, they are essentially different. The one is the product of the factory while the other stems from the cow and very largely from our great dairy industry. It must be conceded the legislature could reasonably conclude that the costs which go into the butter sold to consumers in our state embrace a substantial contribution to state revenues, while the costs which enter into the production of oleomargarine sold to our consumers include but a very slight contribution to state revenues. Further, it could, we think, reasonably conclude that the fiscal interests of the state would be served by encouraging our dairy industry.

The test to be applied to the act is the same under both constitutions. Is the classification reasonable, and does it bear some relation to the subject in hand, are the questions to be answered. State ex rel. Botkin v. Welsh, supra. The legislature is clothed with a broad discretion in dealing with the intensely practical problem of providing adequate public revenues. If its ultimate decisions are based on reason, they may rest on very narrow distinctions. The facts stated demonstrate that the classification is valid because founded upon differences related to state revenue. Cf. Great Northern Railway Co. v. Whitfield, 65 S.D. 173, 272 N.W. 787, 111 A.L.R. 1475; and Montgomery Ward & Co. v. Commissioner of Taxation, 216 Minn. 307, 12 N.W.2d 625. The precise classification has been upheld by the United States Supreme Court. Magnano Co. v. Hamilton, 292 U.S. 40, 54 S.Ct. 599, 78 L.Ed. 1109. And see Southwestern Oil Co. v. State of Texas, 217 U.S. 114, 30 S.Ct. 496, 54 L.Ed. 688; Heisler v. Thomas Colliery Co., 260 U.S. 245, 43 S.Ct. 83, 67 L.Ed. 237; and Ohio Oil Co. v. Conway, 281 U.S. 146, 50 S.Ct. 310, 74 L.Ed. 775.

The trial court sustained a further contention of plaintiff that although the challenged enactment was a revenue measure in form, it was motivated by a primary legislative purpose to curtail and prohibit the manufacture, sale and consumption of oleomargarine and was therefore repugnant to the Fifth and Fourteenth Amendments to the Constitution of the United States, and to sections 1 and 2 of Article VI of the Constitution of South Dakota.

This phase of the decision of the trial court is in the teeth of the holding of the Supreme Court of the United States in the case of Magnano Co. v. Hamilton, supra, wherein that court sustained the validity of a similar statute of the State of Washington, and of many other pronouncements of that court which establish the principle that if an act appears on its face to be constitutional, to inquire into the motives of the legislative body for the purpose of declaring it unconstitutional is beyond the competency of the courts. Sonzinsky v. United States, 300 U.S. 506, 57 S.Ct. 554, 81 L.Ed. 772; Henneford v. Silas Mason Co., 300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814; and McCray v. United States, 195 U.S. 27, 24 S.Ct. 769, 49 L.Ed. 78, 1 Ann.Cas. 561.

In Sonzinsky v. United States, supra, where the National Firearms Act, 26 U.S.C.A. (1934 Ed.) § 1132 et seq., 26 U.S.C.A. Int.Rev. Code, §§ 2700, 2720 et seq., was under attack, the contention was that 'the present levy is not a true tax, but a penalty imposed for the purpose of suppressing traffic in a certain noxious type of firearms, the local regulation of which is reserved to the states because not granted to the national government.' [300 U.S. 506, 57 S.Ct. 555.] This contention rested on the amount of the tax.

The court said:

'On its face it is only a taxing measure, and we are asked to say that the tax, by virtue of its deterrent effect on the activities taxed, operates as a regulation which is beyond the congressional power.

'Every tax is in some measure regulatory. To some extent it interposes an economic impediment to the activity taxed as compared with others not taxed. But a tax is not any the less a tax because it has regulatory effect. (Citing cases); and it has long been established that an Act of Congress which on its face purports to be an exercise of the taxing power is not any the less so because the tax is burdensome or tends to restrict or suppress the thing taxed. (Citing cases).

'Inquiry into the hidden motives which may move Congress to exercise a power constitutionally conferred upon it is beyond the competency of courts. (Citations) They will not undertake, by collateral inquiry as to the measure of the regulatory effect of a tax, to ascribe to Congress an attempt, under the guise of taxation, to exercise another power denied by the Federal Constitution.' (Citations)

In Henneford v. Silas Mason Co., supra, the attack was upon a statute of the state of Washington imposing a use tax. The court said [300 U.S. 577, 57 S.Ct. 528]: 'We are told that a tax upon the use, even though not unlawful by force of its effects alone, is vitiated by the motives that led to its adoption. These motives cause it to be stigmatized as equivalent to a protective tariff. But motives alone will seldom, if ever, invalidate a tax that apart from its motives would be recognized as lawful.'

In McCray v United States, supra, the contention was that an Act of Congress, Aug. 2, 1886, § 8, 24 Stat. 210, as amended, 26 U.S.C.A. ...