Standard Lumber Co. v. Pierce
Decision Date | 16 September 1924 |
Citation | 228 P. 812,112 Or. 314 |
Parties | STANDARD LUMBER CO. v. PIERCE ET AL. |
Court | Oregon Supreme Court |
In Banc.
Appeal from Circuit Court, Marion County; Geo. G. Bingham and Percy R. Kelly, Judges.
Suit by the Standard Lumber Company against Walter M. Pierce and others, constituting the State Tax Commission of Oregon, and I. H. Van Winkle, Attorney General. From a decree for plaintiff, defendants appeal. Reversed and dismissed.
M. H. McKey, of Salem, and L. A. Liljeqvist, of Portland (I. H. Van Winkle, Atty. Gen., on the brief), for appellants.
Alfred A. Hampson and George L. Buland, both of Portland (Dey Hampson & Nelson and Geo. S. Shepherd, all of Portland, on the brief), for respondent.
The plaintiff, an Oregon corporation, instituted this suit against the members of the state tax commission and the Attorney General, to secure a permanent injunction against those officers, restraining them from proceeding under chapter 279, Laws of 1923, known as the "Income Tax Act," to compel plaintiff to file a return thereunder or to pay any or all of the taxes imposed thereby, and generally to restrain the defendants from enforcing the act mentioned.
By its complaint, plaintiff charges that the Income Tax Act violates both the state and federal Constitutions. The facts alleged in the complaint are directed chiefly at two provisions of the act, both of which it is claimed offend against constitutional inhibitions. In its brief upon appeal plaintiff states its contentions in respect to the provisions mentioned, substantially as follows: (1) That the system of graduated rates adopted by the act which imposes upon the taxpayer a rate of taxation that progresses and becomes larger with the increase in the amount of his taxable income is an arbitrary and capricious method of classification, both with respect to corporations and individuals, in violation of the Fourteenth Amendment to the federal Constitution, and is violative of the requirements of the state Constitution that all taxation shall be uniform on the same class of subjects. (2) That the proviso attached to section 3 of article 2 of the act, hereinafter set out, which permits a corporation to deduct from its net income the amount of dividends declared and paid to residents of the state of Oregon (a right which is not accorded with respect to corporate dividends paid to nonresidents), is discriminatory in an arbitrary and capricious manner between corporations having nonresident stockholders and corporations not having nonresident stockholders, and also discriminates against nonresident stockholders as individuals in favor of resident stockholders as individuals, in that the former are subject to double base rates of taxation and higher graduated rates of taxation, with respect to said dividends, than the latter, thus denying to corporations such as the plaintiff the equal protection of the laws guaranteed by the Fourteenth Amendment to the Federal Constitution, and denying to nonresident stockholders of such a corporation the privileges and immunities accorded to the citizens of Oregon, in violation of section 2 of article 4 of the federal Constitution.
Defendants interposed a demurrer to plaintiff's complaint, based upon the grounds, among others, that the court was without jurisdiction to entertain the cause, and that the complaint did not state facts sufficient to constitute a cause of suit against the defendants, or any of them, which demurrer was sustained by the circuit court. Thereupon the defendants, with permission of the court, filed an answer admitting the allegations of the complaint that are material to the objections raised by plaintiff to the constitutional validity of the Income Tax Act. Defendants admitted, among other things, that they purposed and threatened to collect a tax from all persons liable under said Income Tax Act, in accordance with the statute and the regulations adopted, pursuant to its authority; also that they contemplated and threatened, on the failure or refusal of any person to comply with all the requirements of the act, to use all of the remedies provided in said act for the collection of the tax or taxes imposed thereby. The cause was submitted to the circuit court upon the pleadings, supplemented by the following stipulation:
"(6) It is further stipulated that all courts entertaining jurisdiction of this cause may take judicial notice of the income tax regulations as the same have been printed by the state printing department of the state of Oregon in a certain pamphlet of 128 pages, containing 220 articles, which regulations were affirmed by the state tax commission of Oregon under date of January 24, 1924."
The circuit court held that the proviso attached to section 3 of article 2 of the act discriminated against corporations having nonresident stockholders in violation of the Constitution of the United States. A decree in conformity to the prayer of its complaint was awarded to plaintiff. Defendants appeal, and in this court, contest all of the contentions urged by plaintiff in the circuit court.
Defendants assume, that the jurisdiction of equity to entertain this suit is questionable, but they do not argue the point in their brief. Controlling decisions afford frequent examples of the exercise of equitable jurisdiction to prevent the collection of an unauthorized tax, at the suit of a taxpayer threatened with the collection of the tax. The number of such decisions is very large. The following citations will illustrate the principle upon which the jurisdiction of equity is invoked in such cases. Kellaher v. City of Portland, 57 Or. 575, 580, 110 P. 492, 112 P. 1076, and earlier Oregon cases cited therein; Shaffer v. Carter, 252 U.S. 37, 40 S.Ct. 221, 64 L.Ed. 445; Greene v. Louisville & I. R. Co., 244 U.S. 499, 37 S.Ct. 673, 61 L.Ed. 1281, Ann. Cas. 1917E, 88; Travis v. Yale & Towne Mfg. Co., 252 U.S. 60, 40 S.Ct. 228, 64 L.Ed. 461. Those cases abundantly establish the right of plaintiff to obtain a consideration of his alleged grievances by a court of equity.
We will first consider the attack made by plaintiff upon the section of the Income Tax Act, wherein incomes taxable under the act are classified, and the recipients of such incomes subjected to a tax thereon, at rates which increase progressively as the amount of taxable incomes increases.
As above stated, plaintiff asserts that the above-mentioned feature of the Income Tax Act, constitutes an arbitrary and capricious method of classification, in violation of the Fourteenth Amendment to the Constitution of the United States, and also violates the requirements of the state Constitution (art. 9, § 1), declaring that all taxation shall be uniform upon the same class of subjects.
The Oregon Income Tax Act is patterned after the federal act bearing the same designation, and like its model contains comprehensive directions for computing, levying, and collecting the taxes imposed by the act, and to that end provides for the imposition of heavy penalties, both civil and criminal upon any taxpayer who fails to file a return of income, or pay a tax at the time required by or under the provisions of the act. The income tax act contains, among others, the following provisions:
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