the Great Atlantic & Pacific Tea Company v. Erwin M. Harvey, Tax Commissioner

• Decision Date: 14 March 1935
• Parties: THE GREAT ATLANTIC & PACIFIC TEA COMPANY ET AL. v. ERWIN M. HARVEY, TAX COMMISSIONER ET AL
• Court: Vermont Supreme Court

177 A. 423

107 Vt. 215

THE GREAT ATLANTIC & PACIFIC TEA COMPANY ET AL. v. ERWIN M. HARVEY, TAX COMMISSIONER ET AL

Supreme Court of Vermont

March 14, 1935

February Term, 1935.

Taxation---Gross Sales Tax---Constitutional Law---Equality Clause of Federal Constitution and Proportional Clause in Vermont Constitution as of Same Effect so far as Classification for Taxation Is Concerned.

1. "Gross Retail Sales Tax Act," imposing graduated tax on gross sales of retail merchants operating or maintaining any store or stores under common ownership or management, wherein rates ranged from 1/8th of 1% to 4% based on classification as to amount of such gross sales, and increasing within limits of such classification with increase of gross sales, held unconstitutional and void as against Fourteenth Amendment to federal Constitution relating to equal protection of laws, classification being arbitrary and unjustily discriminatory; and so-called remedial act of 1934 (Special Session of 1934, Act No. 3) providing that, if rate of taxation provided by any clause of section 1124 of Public Laws should be deemed confiscatory after hearing in any court of competent jurisdiction, retail merchant should be liable to pay graduated tax only up to highest rate specified which taken in connection with rest of said tax, is not confiscatory as to him, not affecting question, which is one of classification and not confiscation.

2. Equality clause of federal Constitution (Fourteenth Amendment) and proportional clause of Vermont Constitution (Ch. I, Art. 9) are in effect the same so far as question of classification for taxation is concerned.

APPEAL IN CHANCERY. By bill in equity plaintiffs sought to enjoin Erwin M. Harvey, commissioner of taxes for the State of Vermont, and Lawrence C. Jones, Attorney General of the State, and their successors in office, from enforcing attempting, or undertaking to enforce the so-called "Gross Retail Sales Tax Act" (P. L. Ch. 46, /n /n 1123 to 1140, inclusive)) against the plaintiffs, their officers, directors, and agents, and further praying the court to hold the act unconstitutional as in violation of both the Constitutions of the State and of the United States. A temporary injunction was issued in accordance with the prayer of the bill. Thereafter the defendants filed a demurrer, and, subsequently the Legislature having passed a so-called "remedial act" (Special Session of 1934, Act No. 3), defendants filed amended demurrer, hearing on which was held after the September Term, 1934, Washington County, Sturtevant, Chancellor. Decree overruling demurrer, adjudging act in question unconstitutional, and granting injunction sought by bill. The defendants appealed. The opinion states further facts as to the case. Decree affirmed, and cause remanded.

Decree affirmed, and cause remanded.

Walter S. Fenton for the plaintiffs (Fenton, Wing & Morse and Sullivan & Cromwell, of New York, of counsel for The Great Atlantic & Pacific Tea Co.; and Fenton, Wing & Morse, and Putnam, Bell, Dutch & Santry, of Boston, of counsel for First National Stores, Inc.)

Lawrence C. Jones, Attorney General (Guy M. Page and Seymour P. Edgerton of counsel) for the defendants.

Present: POWERS, C. J., MOULTON, THOMPSON, and SHERBURNE, JJ., and BUTTLES, Supr. J.

OPINION

MOULTON

This is a proceeding in equity by which it is sought permanently to enjoin Erwin M. Harvey, the commissioner of taxes of the State of Vermont, and Lawrence C. Jones, the Attorney General of the State, and their successors in office, from enforcing, attempting, or undertaking to enforce, or taking any steps whatsoever to enforce the provisions of No. 24 of the Acts of 1933 (now P. L. Chapter 46, § § 1123 to 1140, inclusive) against the plaintiffs, their officers, directors and agents, and further praying the court to decree the said act to be unconstitutional, null and void and of no force or effect whatsoever, and contrary to and in violation of the Constitutions of the State of Vermont and of the United States of America.

The Act in question is known as the "Gross Retail Sales Tax Act," and its provisions so far as material to this controversy are as follows:

"Sec. 1123. Definition. The words retail merchant,' as used in this chapter, shall mean and include every person, firm, association, copartnership or corporation opening, establishing, operating or maintaining any store or group of stores under common ownership or management whether through stock ownership, stock control or otherwise for the purpose of and selling goods, wares or merchandise at retail in this state, except those exclusively engaged in gardening or farming and selling in this state their own products.

"Sec. 1124. Computation of the tax. Each retail merchant shall pay an annual license tax for the opening, establishing, operating or maintaining of any such store or stores, determined by computing the tax on the amount of gross sales as follows:

"One-eighth of one per cent on the gross sales from fifty thousand dollars to one hundred thousand dollars; one-fourth of one per cent from one hundred thousand dollars to two hundred thousand dollars; one-half of one per cent from two hundred thousand dollars to five hundred thousand dollars; one per cent from five hundred thousand dollars to seven hundred and fifty thousand dollars; one and one-half per cent from seven hundred and fifty thousand dollars to one million dollars; two per cent from one million dollars to one million two hundred and fifty thousand dollars: two and one-half per cent from one million two hundred fifty thousand dollars to one million five hundred thousand dollars; three per cent from one million five hundred thousand dollars to one million seven hundred and fifty thousand dollars; three and one-half per cent from one million seven hundred and fifty thousand dollars to two million dollars and four per cent on all sales above two million dollars."

Sections 1126 and 1129 provide for exemptions and credits, including the deduction of certain taxes paid the State or municipality, automobile registrations, and gasoline taxes.

The bill of complaint was originally brought by the Great Atlantic & Pacific Tea Company, a corporation organized under and in accordance with the laws of the state of New Jersey and duly authorized under the laws of Vermont to do business herein as a foreign corporation, and its material allegations are as follows:

The plaintiff is engaged in the business of selling at retail in Vermont groceries, meat, fruit, vegetables, poultry, and other food products, together with other incidental articles and operates and conducts fifty-eight retail stores within the State, in direct competition with various other retail stores dealing in the same kind and class of goods and merchandise which in many instances have a larger volume of gross sales per annum than the store of the plaintiff situated in the same community. Owing to the exemptions and deductions allowed by the act, such individual competing stores pay little or no tax while the gross sales of the plaintiff's stores when combined and aggregated subject each of the plaintiff's stores to taxation at the very highest rates provided under the graduated scale, and the plaintiff is obliged to pay a tax on the goods sold by each single store operated by it at a rate at least thirty-two times as high as that imposed upon its competitors in the same locality; and being subjected to a tax of four per cent on nearly thirty-five per cent of the volume of its merchandise when sold. It is alleged that the gross sales of the several members of the various cooperative associations of retail merchants which enjoy all of the benefits and advantages possessed by the plaintiff in the purchase and sale of merchandise, and whose individual gross sales are comparable to the sales of a great number of the plaintiff's stores when considered separately, and are as great or greater in volume if their sales were combined, pay little or no tax under the act. It is further alleged that by reason of the credit deductions and arbitrary exemption of $ 50,000 more than ninety-five per cent of the retail merchants in the State are wholly exempted from payment of any tax whatever under the act, and substantially all of the retail merchants having annual gross sales of less than $ 150,000 pay nothing thereunder. There are very few retail merchants having gross sales exceeding $ 100,000, and the annual gross sales of substantially eighty-five per cent of all retail merchants in the State are less than $ 50,000, and the act was intentionally designed and framed so as to exempt more than ninety-five per cent of the retail merchants and oppressively to tax a very few having gross sales in excess of $ 500,000. It is alleged that the margin of net profits in the retail grocery and meat business is very low compared to the gross volume of sales, and that in general the net profit from the conduct of a retail grocery and meat business does not exceed two and a half per cent, and that as a matter of actual experience the net profit is less than two per cent, and that for ten or twelve years past there has been a steady and consistent downward trend in the net profit on gross sales of such merchandise in Vermont and elsewhere; that the retail meat and grocery business is of a highly competitive character, and therefore a larger volume of sales is essential because of the low margin of profit in order to secure a fair return on the capital invested, but that as the volume of sales increases the additional cost and expense and the augmented investment necessary in handling a greater...