State v. Toomey

• Decision Date: 18 March 1959
• Docket Number: No. 9603,9603
• Citation: 335 P.2d 1051,135 Mont. 35
• Parties: The STATE of Montana, Plaintiff and Respondent, v. Edmond G. TOOMEY, Defendant and Appellant.
• Court: Montana Supreme Court

Page 1051

335 P.2d 1051

135 Mont. 35

The STATE of Montana, Plaintiff and Respondent, v. Edmond G. TOOMEY, Defendant and Appellant.

No. 9603.

Supreme Court of Montana.

Submitted Jan. 14, 1958.

Decided May 23, 1958.

Rehearing Denied March 18, 1959.

M. J. Hughes, Edmond G. Toomey, Ralph J. Anderson, Helena, Edmond G. Toomey and Ralph J. Anderson, argued orally, for appellant.

H. O. Vralsted, Tax Counsel, Board of Equalization, Helena, for respondent.

HARRISON, Chief Justice.

This is an appeal by Edmond G. Toomey from a judgment and decree in favor of the State upon five causes of action, each being for income tax upon income earned by the appellant in the years 1939, 1940, 1941, 1942 and 1943; the judgment in each cause of action providing that the amount of tax be doubled, and adding one per centum per month or fraction of a month from April 15 of each year, commencing with the year 1940 with respect to the first cause of action, through April 15, 1944, with respect to the fifth cause of action, until paid.

The State, in each cause of action, imposed the tax upon the income of appellant for each of the years in question under Chapter 204 of the Revised Codes of Montana, 1935, and acts amendatory thereof, which now appears as Chapter 49 of Title 84 of the Revised Codes of Montana, 1947.

It is the appellant's contention that Chapter 204 of the Revised Codes of Montana, 1935, and amendments, was during each of the applicable years, and now is, unconstitutional and void under the applicable provisions of (a) the Constitution of Montana, and (b) the United States Constitution.

In its complaint the State alleged that appellant filed his duly verified income tax return in each of the years, 1940, 1941, 1942, 1943 and 1944, but that he did not pay the amount of the tax or any part thereof, and there was still due and owing to the State the whole of the tax upon the income reported in the years heretofore specified, together with additional impositions (the amount of the tax doubled, plus one per centum for each month or fraction of a month from the time the tax was originally due to the date of payment).

Appellant answered, admitting he filed the returns for the years in question, but denying that any tax was due and owing the State. By way of further defense to each and all of the causes of action, the defendant alleged that the State is without right to proceed by this action, otherwise or at all, as set out in its complaint and the defendant is not indebted to the State and is not subject to any legal obligation, duty or liability to recognize, pay or discharge the asserted claim of the State, for the reason that said alleged personal income tax statute, as an attempt to exert the taxing power of the State, is unconstitutional, null and void, in that it violates: (a) The Constitution of the United States, particularly the provisions of section 2 of Article IV thereof, respecting the privileges and immunities of defendant as a citizen of the State, as guaranteed against State action by section 1 of the Fourteenth Amendment, and in that the act violated both the equal protection clause and due process clause of the Fourteenth Amendment to the Constitution of the United States; and (b) The Constitution of Montana, and particularly the provisions of sections 1a, 7, 11, and 18 of Article XII and section 27 of Article III, of said State Constitution.

At the trial of the action, in addition to the facts admitted in his answer by appellant, it was adduced that the State of Montana, through the State Board of Equalization, had collected both property and income taxes in the years 1939, 1940 and 1941, but that from 1941 through June 30, 1944, the State collected no property taxes, but did collect income taxes for those years.

In its findings of fact and conclusions of law, the district court decided that the State had sustained each and every material allegation in its complaint by sufficient competent evidence to entitle it to the relief demanded; that defendant's answer was without merit; and that he was entitled to no relief whatsoever. The district court entered its judgment and decree in accordance with its conclusions of law and findings of fact. From this judgment the defendant has appealed.

Although the defendant, in his brief, has set out fourteen points upon which he contends this court may find Montana's 'Income Tax Law' unconstitutional, which points ultimately resolve themselves into a paraphrase of defendant's answer, he has confined his argument in his brief to only two major points: (1) 'Under all recognized rules of interpretation and construction section 1a of Article XII of the Constitution of Montana conditions the exercise of the legislative power to tax incomes upon (1) The exercise of that power upon each the incomes of (a) persons, (b) firms, and (c) corporations, and (2) The use of such power for the purpose of replacing property taxes.'

(2) 'The O'Connell and Mills cases [infra] should be re-examined and their utterances with respect to the equal protection of the laws rejected.'

In accordance with rules which this court has held themselves bound by, we will not discuss any issue which learned counsel have failed to argue, and will confine the decision of this case to the points raised in defendant's brief.

Background. The Montana Income Tax Law found its genesis in Chapter 181, Laws of 1933, and became effective by its terms on March 16, 1933, it remained substantially unchanged until the Thirty-Fourth Legislative Assembly made extensive changes therein in 1955, by a series of Acts found in Chapters 58, 103, 163, 246 and 260, Session Laws of the Thirty-Fourth Legislative Assembly, and in 1957, Chapters 138, 211, 212, 227, 228 and 233, Session Laws of the Thirty-Fifth Legislative Assembly.

The 'income tax' amendment (Article XII, section 1a) to the Montana Constitution was enacted by the people of the State of Montana at the general election of November 6, 1934, and proclaimed effective by the governor on December 6, 1934.

Before the enactment of Article XII, section 1a, the Supreme Court of Montana held Chapter 181, Laws of 1933, valid under the constitutional provisions existing in 1933, in O'Connell v. State Board of Equalization, decided July 19, 1933, 95 Mont. 91, 25 P.2d 114, and in Mills v. State Board of Equalization, decided May 12, 1934, 97 Mont. 13, 33 P.2d 563.

In the O'Connell case, there were two principal objections to the validity of Chapter 181: First, the act taxed 'property' as defined by Article XII, section 17, Constitution of Montana, and therefore because of the graduated and progressive features of the tax, conflicted with Article XII, section 1 of our Constitution requiring the Legislature to levy a uniform rate of assessment and taxation on all property, and also conflicted with Article XII, section 9, forbidding the rate of taxation on real and personal property for state purposes to exceed two mills on each dollar of valuation, unless the proposed increase in tax rate were submitted to the people at a general election; and Second, Chapter 181 Laws of 1933, violated the equal protection laws of the Constitution of the United States because it operated upon the net income of individuals while corporations engaged in similar lines of endeavor were exempted from the tax entirely.

In answering the first objection, this court held that an income tax is not a tax on property for the following reasons: (1) Our Constitution is not a grant but a limitation of power; (2) The Legislature had expressed its intention that the income tax should 'not be classified or held or construed to be property'; (3) The Enactment was borrowed from Idaho's law, and since the Idaho court had construed their 'income tax' law not to be one on property it is presumed Montana borrowed the law with the Idaho construction; (4) The Constitutional definition of 'property' (Article XII, section 17, Mont.Constitution) did not include income; (5) The Montana Legislature, insofar as not expressly prohibited from action by the Montana or United States Constitutions, had the general power to enact an income tax act; and (6) The Constitutional provisions invoked by protestants of the law did not (since they referred to 'property' and income is not property) prohibit the Legislature from enacting Chapter 181.

As to the second objection, this court held that there was a reasonable basis for the separate classification of individuals and corporations for income tax purposes, and therefore the law was not vulnerable to attack under the Fourteenth Amendment to the Federal Constitution.

In the Mills case, supra, 97 Mont. 13, 33 P.2d 563, the court (1) Reaffirmed its holding in the O'Connell case that income is not property, that a tax upon incomes is not a tax on property, and that therefore Chapter 181 did not violate sections 1, 9 and 17 of Article XII of the Montana Constitution; (2) Held that the failure of Chapter 181 to levy an income tax upon corporations, as well as individuals (in the absence of the 1934 amendment to the Constitution), did not amount to a suspension or relinquishment of the right to tax corporations and thus did not violate section 7, Article XII, Constitution of Montana; (3) Held that the State Board of Equalization had authority to construe Chapter 181 as retrospective in its operation because the language of the act showed that it was the intention of the Legislature to make the act retrospective in its operation there being no special constitutional limitation prohibiting retrospective legislation, except section 13 of Article XV, which had no application; (4) Held that the provisions of Chapter 181 providing for the deposit of a portion of the income tax collections to a state emergency relief fund, did not violate section 5 of Article X and section 4 of Article XII making it the duty of the counties to provide for the sustenance of persons who were unable...