State ex rel Botkin v. Welsh

CourtSupreme Court of South Dakota
Citation251 N.W. 189,61 S.D. 593
Docket Number7606
PartiesSTATE OF SOUTH DAKOTA ex rel W. C. BOTKIN, et al., Plaintiffs, v. W.C. WELSH, Director of Taxation of the State of South Dakota, et al., Defendants.
Decision Date01 December 1933
Original Proceeding


M.Q. Sharpe, Kennebec, SD

E.E. Wagner, Pierre, SD

Attorneys for Plaintiffs.

R.F. Drewry, B.D. Mintener, Assistant Attorneys General, Pierre, SD

Attorneys for Defendants.

Opinion Filed Dec 1, 1933


This is an original proceeding instituted in this court upon an order to show cause procured by the relator in behalf of himself and all others similarly situated seeking to determine the constitutionality of chapter 184, Laws 1933, commonly spoken of as the Gross Income Tax Law. At the outset defendants, while conceding that this court has jurisdiction if it sees fit to exercise the same, urge nevertheless that this court should in its discretion refuse to entertain the matter and dismiss the proceeding. In just what cases and under just what circumstances a court, primarily appellate, ought, in its discretion, to exercise the original jurisdiction constitutionally conferred upon it has been frequently dealt with in the decisions. The broad general principles which should control the exercise of such discretion are not unduly difficult of statement though the application of such principles to every individual case is not always so free from doubt. In the instant proceeding the attorney general of this state is made a party defendant. The complaint does not specifically allege that he was requested to institute the proceeding, but it is freely admitted upon the oral argument that any such request addressed to him would have been entirely futile. The statute in question purports by its terms directly to affect every citizen of this state who receives money from any source whatever and all non-residents who receive money from sources within the state. The act by its own terms announces that it is an emergency revenue measure and this court has held (State ex rel Botkin v. Morrison [1933] 249 N.W. 563) that it was not subject to the referendum. In anticipation of proceeds to be derived from the operation of the act the state tax commission has refrained from making at the time specified by law any general property levy whatsoever for state purposes. Exactions under the law are daily being imposed upon large numbers of citizens by withholdings from their gross receipts at the source thereof. The sovereign prerogative of the state and the financial support of the state government are involved, as are likewise the direct financial interests of practically every citizen. Indeed it is difficult to conceive of a case where the state and its citizens could be more vitally interested in having the general constitutionality or unconstitutionality of a statute determined by a court of last resort at the earliest possible moment. The case seems clearly one where we ought, conformably to principles heretofore enunciated by this court, and in accordance with the previous practice of this court, to entertain jurisdiction, and in fact we think we would be derelict in our duty should we refuse so to do. See Everitt v. Bd. County Comrs. Hughes County (1890) 47 N.W. 296; Stavig v. Van Camp (1923) 192 N.W. 760; White Eagle Oil & Ref. Co. v. Gunderson (1925) 43 ALR 397. Cf. also State ex rel Bolens v. Frear (1912) 148 Wis. 456, LRA 1915B, 569, 606, Ann. Cas. 1913A, 1147; State ex rel Atwood v. Johnson (1919) 170 Wis. 218, 7 ALR 1617; St. ex rel Time Ins. Co. v. Smith (1924) 184 Wis. 455, 200 N.W. 65; People ex rel Kocourek v. City of Chicago (1901) 193 Ill. 507, 58 LRA 833; Gramling v. Maxwell (DC 1931) 52 F2d 256.

The portions of the act principally essential for consideration are the title and the first five sections thereof, which are as follows:

“An Act Entitled, An Act Imposing a Tax on Gross Incomes, Providing Generally for the Levy, Assessment, Collection and Distribution Thereof, for Regulatory Measures for the Enforcement of the Act, Providing for Exemptions, Imposing Penalties for Violations of the Provisions of the Act and Repealing Sections 7922 of the 1919 Revised Code of South Dakota, and Chapter 107 of the Session Laws of South Dakota of 1919.

“Be It Enacted by the Legislature of the State of South Dakota:

Section 1. Definitions. Unless otherwise specifically provided, when used in this act

(a) The term ‘Person’ means an individual or a natural person, a trust or estate, any co-partnership, firm, corporation, joint adventure, association, fiduciary or other entity however composed, and any corporation or combination acting as a unit, and the plural as well as the singular number.

(b) ‘Corporation’ includes the term corporations organized and created under the laws of this state, any other state or foreign country, associations, joint stock companies, mutual companies and insurance companies.

(c) The term ‘Domestic’ when applied to a corporation, partnership or association, means created and organized in the State of South Dakota under the laws of the State of South Dakota and transacting some part of its business within this state.

(d) The term ‘Foreign’ when applied to a corporation, partnership or other association, means a corporation, partnership or other association which is not domestic.

(e) The term ‘taxpayer’ means any person, as defined by this Act, subject to a tax imposed by this Act.

(f) The term ‘Tax Year’ or ‘Taxable Year’ means either the calendar year or the taxpayer’s fiscal year when permission is obtained from the Director of Taxation to use same as the tax period in lieu of the calendar year.

(g) The term ‘Gross Income’ means the aggregate sum in value, or its equivalent, passing in any transaction of business, as compensation for personal service, and from trade, business, commerce, sales and the value proceeding or accruing from the sale of tangible property, real or personal, or service, or both, and all receipts, actual or accrued, by reason of the investment of capital of the business engaged in, including interest, discounts, rentals, royalties, dividends, fees, wages, salaries, commissions or other emoluments, however designated, without any deduction on account of the cost of property sold, the cost of materials used, labor costs, interest or discount paid, or any other expense whatsoever; and without any deduction on account of losses; provided, however, that when credit is extended for the whole, or any part of the consideration proceeding from any business transaction, such credit receivable shall not be deemed to constitute gross receipts or gross income until collected. Provided, further, that upon the sale of any property or commodity, delivered out of the state, the freight or transportation cost, actually paid thereon, shall not be deemed gross income. Provided further, that cash discounts, allowed and taken on sales, shall not be included as gross income; and further provided, that goods, wares or merchandise, or the value thereof, returned by customers when the sale price is refunded, either in cash or credit, shall not be deemed included in gross receipts or income. Interest accruing after this Act becomes effective and received upon any indebtedness, loan or deposit of money, security or investment, and discounts charged, when collected, shall constitute gross receipts. The payment of any obligation for borrowed money, whether such obligation be evidenced by note, bond, or other instrument, or not, and the withdrawal of deposits, shall not, as to the principal of such obligation, constitute gross receipts or income. Gasoline, cigarette and malt taxes, imposed by the laws of this state, shall remain in full force and effect, but the amount of such taxes paid by the taxpayer shall not be deemed gross income; the receipt of money or property by assignment for the benefit of creditors or as trustees upon the creation of a trust, or the pledge of property for security, shall not be deemed gross income. The receipts of capital by a corporation, co-partnership, firm or joint adventure, for sale of stock in such corporation, copartnership, firm or joint adventure, or contributions to capital by the members of any other organizations, shall not be deemed gross income, but any sums received in excess of the amount of such capital shall be taxable as gross income. Proceeds accruing or proceeding from subsequent transactions in the stock of such corporations or organizations, or in the interests of shares of the members of any organization shall be taxable.

(h) The term ‘Wholesale’ shall include any person doing a regularly organized wholesale business known to the trade as such, selling only to registered retail merchants or jobbers, and also, persons engaged in acquiring and assembling by purchase from others, articles and commodities of trade, commerce and production within the state, for the purpose of resale and selling and marketing or shipping the same in bulk; but such terms shall be applied only to such activities as are wholesale in their character as such term is ordinarily used and understood.

(i) The term ‘Manufacturer’ shall mean persons engaging, or continuing within the state in the business of manufacturing, compounding, processing, producing or preparing for sale, profit or use, either as a finished or partly finished product, any article, substance, product or commodity, the production of which the manufacturer is calculated for sale at wholesale, or for further processing and manufacture.

(j) The term ‘Includes’ and ‘Including,’ when used in a definition contained herein, shall not be deemed to exclude other things otherwise within the meaning of the term defined.

Section 2. That from and after the 1st day of July, 1933, there is hereby annually levied upon every person, individual, firm, co-partnership, joint adventure, association, corporation, trust, estate or other group or...

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