State v. Pacific Tel. & Tel. Co.

• Decision Date: 22 June 1938
• Docket Number: 26979.
• Citation: 80 P.2d 780,195 Wash. 244
• Court: Washington Supreme Court
• Parties: STATE v. PACIFIC TELEPHONE & TELEGRAPH CO.

80 P.2d 780

195 Wash. 244

STATE v. PACIFIC TELEPHONE & TELEGRAPH CO.

No. 26979.

Supreme Court of Washington

June 22, 1938

Department 1.

Appeal from Superior Court, Thurston County; John M. Wilson, Judge.

Action by the State of Washington against the Pacific Telephone &amp Telegraph Company to recover penalties and interest claimed to be due under the State Business Tax Act. From a judgment adverse to plaintiff, plaintiff appeals.

Affirmed.

G. W Hamilton, Atty. Gen., and R. G. Sharpe, of Olympia, for the state.

McMicken Rupp & Schweppe and Winlock Miller, Jr., all of Seattle, for respondent.

SIMPSON, Justice.

This is an appeal from a judgment of the superior court denying the state recovery of certain penalties and interest claimed to be due from respondent under the State Business Tax Act chapter 191, p. 869, Laws of 1933.

The state, through the attorney general, alleges in its complaint in the alternative for penalties and interest claimed to be due under chapter 191, Laws of 1933, in the amounts of $94,926.50 or $47,463.25, the alternative amounts being determined by certain calculations upon a twelve per cent and six per cent basis. The twelve per cent basis represents the penalty named in § 10 of the act, and the six per cent charge being based on the theory that the tax was a debt and the state was entitled to the legal rate upon the taxes from their due dates until paid.

In its answer the defendant denied the allegations to which we have just referred.

The action was tried to the court sitting without a jury, and after trial judgment of dismissal was entered. This appeal by the state followed.

The undisputed facts as disclosed by the record are as follows: Respondent is a public utility company engaged in conducting an interstate and intrastate telephone and telegraph business in the state of Washington. August 1, 1933, it became subject to the payment of the tax imposed by the provisions of chapter 191, supra. In September of that year respondent's officers stated to the state tax commission that they believed the law to be unconstitutional and void as to respondent company and would not pay the tax. November 15, 1933, the attorney for respondent told the tax commission that he would bring an action in the state courts to determine the constitutionality of the law but would not seek a temporary injunction until the commission took steps to enforce the provisions of the statute.

At that time the tax commission had not been able to set up any machinery for the administration of the act, nor had it formulated any rule or regulation by which the tax liability of respondent could be determined. Mr. T. J. Jenner, a member of the state tax commission in charge of the administration of chapter 191, Laws of 1933, testified that the enforcement of the act was deferred pending litigation instituted by certain railway companies attacking the validity of the act; that the final decision of the supreme court upholding its validity ( Pacific Tel. & Tel. Co. v. State Tax Commission, 183 Wash. 697, 48 P.2d 938), was not entered until August 13, 1935; and prior to April 13, 1934, the commission had not been able to complete the necessary procedure and adopt appropriate and necessary regulations for the administration of the act, and a determination of the income of the telephone companies.

During October, 1933, the commission, in view of the lack of a formula by which the tax could be determined and also because of the pending litigation instituted by the railway companies, decided that it would not be necessary for respondent to file returns until further notice. June 1, 1934, respondent was notified by the appellant that it should file returns as required by the act. The returns were accordingly filed by the company June 4, 1934, covering the period from August 1, 1933, to and including April 30, 1934.

The tax commission, June 8, 1934, issued a notice to respondent to pay the tax covered by returns already made by the company. Then, in accordance with an arrangement made in October, 1933, to the effect that the respondent would not secure a temporary injunction until such time as the commission should compel the respondent to file a return or pay the tax, the company applied for and was granted a temporary restraining order by the superior court. Thereafter, the trial court decided in favor of the telephone company and granted a permanent order restraining enforcement of chapter 191, supra.

Appellant appealed to this court which reversed the decree of the superior court. Pacific Tel. & Tel. Co. v. State Tax Commission, supra. This respondent then appealed to the supreme court of the United States, which court, March 2, 1936, affirmed our decision. Pacific Tel. & Tel. Co. v. Tax Commission of State of Washington, 297 U.S. 403, 56 S.Ct. 522, 80 L.Ed. 760, 105 A.L.R. 1.

March 10, 1936, respondent paid to the state of Washington the sum of $689,193.24 in payment of the amount of the business and public utilities tax due under chapter 191, Laws of 1933, and chapter 180, p. 706, Laws of 1935, the former act having been amended by chapter 180, supra. Of the amount paid, $486,959.43 represented the payment of taxes due under chapter 191.

The agreement relative to the payment between respondent and the state tax commission was, that the payment of the sum just mentioned fully satisfied respondent's liability for all amounts claimed to that date. No penalties had ever been assessed by the commission, and no interest was charged. The commission followed the ruling it had previously made and applied to all taxpayers paying delinquent taxes.

This appeal involves the following three questions:

(1) Under chapter 191, Laws of 1933, was the taxpayer liable for 12% penalty on delinquent taxes as to which it had made the statutory return but no payment?

(2) Is the state entitled to legal interest on delinquent taxes for which the taxpayer is personally liable, even though the statute imposing the tax is silent as to interest?

(3) Is the state entitled to legal interest on delinquent taxes, the collection of which the taxpayer has caused to be restrained by writ of injunction, and by supersedeas pending appeal?

Chapter 191, supra, requires certain acts to be performed by the tax commission, some of which are at least discretionary. First, to determine and assess the amount of taxes due; second, to compute and add to the taxes so determined the penalties; and last to notify the taxpayer by mail of the total amount of the tax and added penalties. The tax commission did none of the acts required in order to collect the penalty. It appears from the testimony the tax commission never desired to add or collect either penalty or interest because of the conditions surrounding the enforcement of the act immediately after its passage.

Laws relating to taxation, and the imposition of penalties for derelictions in payment of taxes are construed against the government and in favor of the citizen. Gould v. Gould, 245 U.S. 151, 38 S.Ct. 53, 62 L.Ed. 211; Union Trust Co. v. Spokane County, 145 Wash. 193, 259 P. 9; Weyerhaeuser Timber Co. v. Henneford, 185 Wash. 46, 53 P.2d 308; Millett v. Mullen, 95 Me. 400, 49 A. 871.

The statutory conditions precedent to the imposition of the 12% penalty not having been followed, it cannot be imposed upon respondent.

Appellant next maintains that the respondent is liable for interest upon delinquent taxes even though the statute is silent as to interest for the reason that the tax in question is a debt due the state for the privilege of conducting business.

This contention is based upon Rem.Rev.Stat. § 7299, reading as follows:

'Every loan or forbearance of money, goods, or thing in action shall bear interest at the rate of six per centum per annum where no different rate is agreed to in writing between the parties. * * *'

In view of the cases of New Whatcom v. Roeder, 22 Wash. 570, 61 P. 767, and Henry v. McKay, 164 Wash. 536, 3 P.2d 145, 77 A.L.R. 1025, in which we held that a delinquent tax was not a debt and did not bear interest unless so provided by statute, appellant argues that we were then considering a property tax, and not a privilege tax, contending that a different rule should be applied to the latter.

In order to prove the tax a debt appellant cites § 16 of the act of 1933, which reads as follows:

'Any tax due and unpaid under this act and all increases and penalties thereon shall constitute a debt due the State of Washington and may be collected by court proceedings in the same manner as any other debt in like amount, which remedy shall be in addition to any and all other existing remedies. * * *'

Appellant also relies upon Dingle v. Camp, 121 Wash. 393, 209 P. 853, in support of the proposition that a tax is a debt. However, § 16 of the act, supra, does not provide for the exaction of interest as such, nor does the case relied upon hold that interest may be charged upon a tax due the state.

Appellant argues from the premises just stated that the taxes under consideration are a debt due the state, and being debts they may be collected as such with accrued interest. Persuasive as appellant's argument is we cannot agree that interest may be recovered in an action to collect an occupation tax provided for by the act in question.

While many courts have spoken of the tax as a debt and the statute calls it such, we believe the better view is that the term 'debt' when used relative to taxes does not connote its commonly used or accepted meaning nor did the legislature intend Rem.Rev.Stat. § 7299, to be applicable to taxes, but only to contractual obligations. Designating a tax a 'debt' does not change its character. It remains a tax subject to all rules...