School Dist. of Kansas City v. Smith

• Decision Date: 17 December 1937
• Docket Number: No. 35304.,35304.
• Citation: 111 S.W.2d 167
• Parties: THE SCHOOL DISTRICT OF KANSAS CITY, Appellant, v. FORREST SMITH, State Auditor, and Roy McKITTRICK, Attorney General.
• Court: Missouri Supreme Court

111 S.W.2d 167

THE SCHOOL DISTRICT OF KANSAS CITY, Appellant, v. FORREST SMITH, State Auditor, and Roy McKITTRICK, Attorney General.

No. 35304.

Supreme Court of Missouri.

Division Two, December 17, 1937.^*

Appeal from Cole Circuit Court. — Hon. G. Sevier, Judge.

REVERSED AND REMANDED.

H.L. McCune, Blatchford Downing and McCune, Caldwell & Downing for appellant.

(1) The petition states facts sufficient to constitute a cause of action. (a) The Supreme Court of Missouri has adopted the doctrine that taxing laws are not applicable to the State or its governmental agencies in the absence of express specific provision in the taxing act that they should so apply. State ex rel. Mo. Portland Cement Co. v. Smith, 90 S.W. (2d) 405. (b) The plaintiff, school district, is such a state agency fulfilling strictly governmental functions as to be exempt from the scope of the Emergency Revenue Act of 1935. Art. 16, Chap. 57, R.S. 1929, sec. 9515; State ex inf. v. Henderson, 145 Mo. 329; State ex rel. v. Gordon, 231 Mo. 547; State ex inf. v. Whittle, 333 Mo. 709; Clinton v. Henry County, 115 Mo. 557; City of Edina to Use of Pioneer Trust Co. v. School Dist. of Edina, 305 Mo. 452; Thogmartin v. Nevada School Dist., 189 Mo. App. 10; Normandy Consolidated School Dist. v. Wellston Sewer Dist., 77 S.W. (2d) 477. The rule of exemption is especially applicable where as here a major purpose of the act is to provide funds for the operation of the schools of the State. (c) The fact that the sales tax may be an excise tax does not operate to destroy the applicability of the general rule of exemption of governmental instrumentalities and subject the school district to payment thereof. Independent School Dist. v. Pfost, 4 Pac. (2d) 893, 84 A.L.R. 820; State ex rel. Mo. Portland Cement Co. v. Smith, 90 S.W. (2d) 405; State ex rel. v. Gordon, 231 Mo. 547; State ex rel. v. Henderson, 145 Mo. 329; Thogmartin v. Nevada School Dist., 189 Mo. App. 10. (d) The collection of the sales tax from the school district would constitute a diversion of school funds contrary to constitutional and long-standing statutory provisions. Art. XI, Secs. 6, 7, 8, Mo. Const.; Art. X, Secs. 11, 12, 19, Mo. Const.; Secs. 9233, 9555-9557, R.S. 1929; Cochran v. Wilson, 287 Mo. 210; Lincoln University v. Hackman, 295 Mo. 118; Normandy Consolidated School Dist. v. Wellston Sewer Dist., 77 S.W. (2d) 477. (e) The use by a building contractor of materials and supplies in construction or repair of a building which materials are thereby incorporated into the realty, is not a sale at retail within the meaning of the Emergency Revenue Act of 1935, and special Rule 13 promulgated by the State Auditor relating to owners, contractors and subcontractors is invalid. State v. Christhilf, 185 Atl. 456; Boyer-Campbell Co. v. Fry, 260 N.W. 165; State v. Watts Kearny & Sons, 181 La. 554, 160 So. 77; 23 R.C.L., p. 1233, sec. 49; Bradley Supply Co. v. Ames, 359 Ill. 162, 194 N.E. 272. (2) Plaintiff has capacity to maintain the action. Sec. 9515, R.S. 1929; Emergency Revenue Act of 1935, S.L. p. 411; City of Covington v. State Tax Comm., 77 S.W. (2d) 386; Wiseman v. Phillips, 84 S.W. (2d) 96.

Roy McKittrick, Attorney General, Olliver W. Nolen and Russell Stone, Assistant Attorneys General, for respondents.

The Emergency Revenue Act of 1935 (Sales Tax Act, p. 411 et seq.) does not specifically nor impliedly exempt the political subdivisions of the State. The Kansas City School District is not a state-wide agency or a subordinate branch of the executive department of the State department. Secs. 3, 45, Laws 1935, pp. 416, 426; State ex rel. Mo. Portland Cement Co. v. Smith, 90 S.W. (2d) 405; City of Louisville v. Cromwell, 27 S.W. (2d) 377; Independent School Dist. v. Pfost, 51 Idaho, 240; Prockett v. Salt Lake Co., 270 Pac. 734, 72 Utah, 337; Oklahoma G. & E. Co. v. Okla. Tax Comm., 58 Pac. (2d) 124; City of Covington v. Tax Commission, 77 S.W. (2d) 386; City of Ardmore v. State, 32 Pac. (2d) 728. Kansas City School District is a political subdivision of the State and not a State agency or instrumentality of the entire State. Its functions are purely local and not state-wide. State ex inf. McKittrick v. Whittle, 333 Mo. 709; City of Greenville v. Query, 166 S.C. 281; State v. Board of Co. Comm., 51 Pac. (2d) 35; City of Covington v. State Tax Comm., 77 S.W. (2d) 386. The title of the Emergency Revenue Act of the Laws of Missouri, 1935, page 411 et seq., does not indicate in any way that the Legislature intended to exempt schools and other political subdivisions of the State. Okla. Gas & Electric Co. v. Okla. Tax Comm., 58 Pac. (2d) 124; Laws 1935, p. 411. The Emergency Revenue Act of 1935 imposes an excise tax and not a property tax; hence there is no violation of Sections 6, 7 and 8, Article 11, and Sections 11, 12 and 19 of Article 10 of the Constitution of Missouri. State ex rel. Mo. Portland Cement Co. v. Smith, 90 S.W. (2d) 405; State Tax Commission v. City of Logan, 54 Pac. (2d) 1197; City of Portland v. Kozer, 217 Pac. 836; Fisher's Blend Station v. Tax Comm. of Washington, 45 Pac. (2d) 942. The building contractor is the seller within the meaning of the act. The school district is the user and consumer within the meaning of the act. Bradley v. Ames, 359 Ill. 162; State ex rel. Mo. Portland Cement Co. v. Smith, 90 S.W. (2d) 406; Wiseman v. Gillioz, 96 S.W. (2d) 459.

BOHLING, C.

This is an action under the Declaratory Judgment Act (Laws 1935, pp. 218-220) to determine whether or not the Revenue Act of 1935, commonly known as the 1935 Sales Tax Act (Laws 1935, pp. 411-426), imposes an excise tax on transactions to which the School District of Kansas City (any ruling embracing school districts generally) is a party; and, if so, on tangible personal property, such as flooring, roofing material, etc., becoming part of the realty, acquired under a building construction contract with a contractor at a definite lump sum contract price, covering the building materials, labor, overhead, profit, etc., necessary for the construction work.

The court sustained the joint demurrer of the Attorney General and the State Auditor to plaintiff's petition; and, plaintiff declining to plead further, judgment went accordingly.

The State officials say that, under said Sales Tax Act, plaintiff's controversy is with the retailer and the building contractor (hereinafter, for convenience, designated seller); that said act does not permit either of said officials to institute a direct action against a purchaser of tangible personal property but only against the seller; that any controversy on the part of said State officials would involve the liability of the seller for the tax; and, hence, plaintiff, the purchaser, may not maintain the action against said defendants, citing Sections 29 and 38 of said act. They thus briefly present this issue for our determination. The tax is imposed upon "the sale, service or transaction;" and the "seller, ... is directed to collect the tax from the purchaser ..." "at the time of making ... such sale... ." and is made responsible for its collection and remittance (Sec. 5), under rules and regulations to be made, promulgated and enforced by the State Auditor to facilitate an accounting for and the payment of said tax (Sec. 6). [1] The tax is made a debt due the State; and in case of a failure to pay, the State Auditor and Attorney General, in their respective official capacities and in the name of the State, are directed to institute and prosecute appropriate actions to force payment (Secs. 29, 30, 38), the remedies specifically provided by the act being cumulative and not subject to the rules of law relating to the election of remedies (Sec. 31). [2] The purchaser is the taxpayer and the seller, although responsible, is the agent or conduit through which the State seeks to facilitate the accounting for and the collection of the tax. [See City of Covington v. State Tax Commission, 257 Ky. 84, 90, 77 S.W. (2d) 386, 389; Wiseman v. Phillips, 191 Ark. 63, 84 S.W. (2d) 91, 96.] Issues presented by plaintiff's petition embrace the constitutionality of the act if construed as applicable to school districts; and the Declaratory Judgment Act (Laws 1935, p. 219, sec. 11) provides that when a statute is alleged to be unconstitutional the Attorney General shall be served with a copy of the proceeding and be entitled to be heard. We rule the point against defendants.

[3] The remaining issues presented, briefed and argued by the litigants are not grounds for demurrer (Sec. 770, R.S. 1929, Mo. Stat. Ann., p. 1000). The School District maintains that said act does not and the State officials maintain that it does impose the tax under the facts alleged in plaintiff's petition. The trial court sustained the demurre...