Tolerton & Warfield Co. v. Iowa State Bd. of Assessment and Review

• Citation: 270 N.W. 427,222 Iowa 908
• Decision Date: 15 December 1936
• Docket Number: 43417.
• Parties: TOLERTON & WARFIELD CO. v. IOWA STATE BOARD OF ASSESSMENT AND REVIEW et al. (STOUP et al., Interveners).
• Court: Iowa Supreme Court

270 N.W. 427

222 Iowa 908

TOLERTON & WARFIELD CO. v. IOWA STATE BOARD OF ASSESSMENT AND REVIEW et al. (STOUP et al., Interveners).

No. 43417.

Supreme Court of Iowa.

December 15, 1936

Appeal from District Court, Polk County; F. S. Shankland, Judge.

This is an action in equity to enjoin the Iowa State Board of Assessment and Review and the individual members thereof and Leo J. Wegman, Treasurer of State, from enforcing the Iowa Chain Store Tax Act of 1935, on the grounds that the act is void for uncertainty and violative of article 1, §§ 1, 6, and article 3, § 30, of the Iowa Constitution, and the Fourteenth Amendment to the Constitution of the United States. The defense was a general denial and plea of misjoinder on the part of the Treasurer of State. The lower court held the act valid, and plaintiff and interveners have appealed.

Affirmed in part, reversed in part, and remanded.

Milchrist, Schmidt & Marshall, of Sioux City, for appellants.

Edward L. O'Connor, Atty. Gen., Clair E. Hamilton, Asst. Atty Gen., and Frank F. Messer, John Connolly, Jr., and Irvin Schlesinger, Sp. Asst. Attys. Gen., for appellees.

HAMILTON, Justice.

The Forty-Sixth General Assembly of Iowa enacted a law known as the " Chain Store Tax Act of 1935," which became effective as a law on May 8, 1935, by publication, as provided by law. Chapter 75, Laws 46th General Assembly also appears as chapter 329-G1, §§ 6943-g1 to 6943-g20, inclusive Code of Iowa, 1935. The plaintiff, Tolerton & Warfield Company, a corporation, with its principal place of business at Sioux City, Iowa, engaged in the business of operating a chain of grocery stores under the name of " Council Oak Stores," fifty of which are located in the State of Iowa, and one other store or service station, or a total of 51 stores in this state, on the 17th day of June, 1935, brought this action in equity on its own behalf and on behalf of all other persons or groups acting as a unit as defined by said law, praying for an order restraining and enjoining the Iowa State Board of Assessment and Review and its individual members and officers, and Leo J. Wegman, Treasurer of the State of Iowa, from the collection of said tax, asking that a temporary writ issue until the case could be determined on its merits, and that upon final hearing the court is asked to determine that said act is unconstitutional as violative of

(a) Article 1, § 6, and article 3, § 30, of the Constitution of the State of Iowa;

(b) Article 3, §§ 26 and 29, of the Constitution of the State of Iowa;

(c) Fourteenth Amendment to the Constitution of the United States.

On July 1, 1935, interveners, R. T. Stoup and George J. Schaefer, a copartnership, operating a chain of three café s in Sioux City, Iowa, under the firm name and style of Stoup & Schaefer, joined with plaintiff in asking the same relief. On July 10, 1935, on stipulation of parties, the court entered an order requiring the State Treasurer to segregate and hold said fund or tax collected intact and apart from other funds belonging to the state, pending the determination of the suit and until further order of the court, meanwhile payment of the tax to be without prejudice to any of the parties. On August 21, 1935, answer was filed, admitting certain allegations of the petition and specifically denying said act was unconstitutional. Trial to the court was begun on October 21, 1935, and continued from day to day until concluded, and the cause was submitted, and on November 9, 1935, the court entered of record his written findings and conclusions, holding the act valid, and on November 20, 1935, decree was entered of record accordingly, from which findings, conclusions, and decree of the court plaintiff and interveners have appealed to this court.

The issues as set forth in appellants' brief are as follows:

" I. It is vague, incomplete, defective, unworkable and incapable of enforcement in that:

(a) It is impossible to determine what constituted a ‘ Chain Store,’ as set out in section 2(g); and

(b) It is impossible to determine whether the tax is intended to be cumulative or non-cumulative, under section 4 (a).

II.

The act denies equal protection of the laws, as defined by the Fourteenth Amendment of the United States Constitution, and article 1, §§ 1 and 6, and article 3, § 30, of the Constitution of the State of Iowa, by reason of:

(a) An unreasonable classification on the basis of:

(1) The form of business organization, in that it distinguishes between the voluntary and integrated chains.

(2) The nature of the articles dealt in, exempting such as farm products, coal, ice, lumber, grain, feed and building materials.

(3) Whether a restaurant is connected or not connected with a hotel.

(4) Whether a business is located in an incorporated or unincorporated town and all stores are within six miles of each other.

(b) An unreasonable classification, on the basis of: (1) A graduated per centum of gross sales within the doctrine of Stewart Dry Goods Company v. Lewis, 294 U.S. 550, 55 S.Ct. 525, 79 L.Ed. 1054.

III.

The Act is confiscatory and in violation of Article 1, §§ 1 and 6, and article 3, § 30, of the Constitution of the State of Iowa."

In passing upon the constitutionality of an act of the Legislature, certain well-defined principles must be kept in mind. These are familiar to the legal profession and have been so often stated that we will not repeat them. They may be found in the following authorities: Tenth Amendment, U.S. Constitution; McGuire v. Chicago Railway Co., 131 Iowa 340, 349, 108 N.W. 902, 33 L.R.A.(N.S.) 706; Stewart v. Board of Supervisors, 30 Iowa 9, 13, 1 Am.Rep. 238; Loftus v. Dept. of Agriculture, 211 Iowa 566, 232 N.W. 412; State v. Fairmont Creamery Co., 153 Iowa 702, 706, 133 N.W. 895, 42 L.R.A.(N.S.) 821; State v. Manning, 220 Iowa 525, 530, 259 N.W. 213; Priest v. Whitney Loan & Trust Co., 219 Iowa 1281, 1286, 261 N.W. 374.

The Iowa Chain Store Tax Act just underwent its first constitutional test through the Federal District Court, composed of three judges (Great Atlantic & Pacific Tea Co. v. Valentine, 12 F.Supp. 760), with the result that section 4 (b) of the act was declared unconstitutional as violative of the Fourteenth Amendment to the Federal Constitution, and a similar provision (section 6, article 1) of our State Constitution. This decision was affirmed by the Supreme Court of the United States (57 S.Ct. 56, 81 L.Ed. __ ) upon authority of Stewart Dry Goods Co. v. Lewis, 294 U.S. 550, 55 S.Ct. 525, 79 L.Ed. 1054. This pronouncement of the highest court in the land as to matters involving the Federal Constitution is binding upon the state court, and following that decision we are compelled to hold section 4 (b) of said act unconstitutional for the reasons announced in the opinion of the United States District Court, 12 F.Supp. 760, 767, supra.

This leaves little of a legal, controversial nature for this court's determination. The unit tax provisions contained in this section 4 (a) of the act must be upheld as a valid exercise of the power of the Legislature in imposing an occupational tax on persons engaged in a particular system of doing business. State Board of Tax Com'rs v. Jackson, 283 U.S. 527, 51 S.Ct. 540, 543, 75 L.Ed. 1248, 73 A.L.R. 1464; Liggett Co. v. Lee, 288 U.S. 517, 53 S.Ct. 481, 77 L.Ed. 929, 85 A.L.R. 699; Fox v. Standard Oil Co. (W.Va.) 294 U.S. 87, 55 S.Ct. 333, 79 L.Ed. 780. These cases announce no new principle of law as applied to a tax on business as such. It is but the application of an old principle long recognized in this state. Scottish U. & N. Ins. Co. v. Herriott, 109 Iowa 606, 80 N.W. 665, 77 Am.St.Rep. 548; McAunich v. Railroad Co., 20 Iowa 338; Primghar State Bank v. Rerick, 96 Iowa 238, 64 N.W. 801; Warren v. Henly, 31 Iowa 31; Herriott v. Potter, 115 Iowa 648, 652, 89 N.W. 91.

In the case State ex rel. Welsh v. Darling, 216 Iowa 553, 246 N.W. 390, 391, 88 A.L.R. 218, the court had under consideration section 6 of article 1 of our State Constitution, which provides that: " All laws of a general nature shall have a uniform operation; the General Assembly shall not grant to any citizen, or class of citizens, privileges or immunities, which, upon the same terms shall not equally belong to all citizens." Justice Stevens in the opinion states: " Classification, to meet the requirements of the Constitution, must be based upon something substantial-something which distinguishes one class from another in such a way as to suggest the reasonable necessity for legislation based upon such classification. [Citing a long list of cases.] * * * Necessarily, therefore, the Legislature exercises a wide discretion in the determination of classifications as a basis of legislative enactments."

The same rule with reference to classification of property for taxation is recognized in the Jackson Case, supra wherein the United States court says: " The power of taxation is fundamental to the very existence of the government of the states. The restriction that it shall not be so exercised as to deny to any the equal protection of the laws does not compel the adoption of an iron rule of equal taxation, nor prevent variety or differences in taxation, or discretion in the selection of subjects, or the classification for taxation of properties, businesses, trades, callings, or occupations. Bell's Gap R. Co. v. Pennsylvania, 134 U.S. 232, 10 S.Ct. 533, 33 L.Ed. 892; Southwestern Oil Co. v. Texas, 217 U.S. 114, 30 S.Ct. 496, 54 L.Ed. 688; Brown-Forman Co. v. Kentucky, 217 U.S. 563, 30 S.Ct. 578, 54 L.Ed. 883. The fact that a statute discriminates in favor of a certain class does not make it arbitrary, if the discrimination is founded upon a reasonable distinction, American Sugar Ref. Co. v. Louisiana,...