Vilas v. State Bd. of Assessment & Review

• Decision Date: 11 May 1937
• Docket Number: No. 43903.,43903.
• Citation: 223 Iowa 604,273 N.W. 338
• Parties: VILAS v. IOWA STATE BOARD OF ASSESSMENT AND REVIEW et al.
• Court: Iowa Supreme Court

223 Iowa 604

273 N.W. 338

VILAS

v.IOWA STATE BOARD OF ASSESSMENT AND REVIEW et al.

No. 43903.

Supreme Court of Iowa.

May 11, 1937.

Appeal from District Court, Buena Vista County; James De Land, Judge.

Bert Vilas commenced this action in equity for an injunction to restrain the Iowa State Board of Assessment and Review, and the members thereof, from collecting from him alleged deficiency in income tax for the year 1934, alleging that chapter 82 of the laws of the 45th General Assembly, Extra Session (Iowa Income and Sales Tax Law), was unconstitutional. Defendants filed answer. There was a trial, at which evidence was offered, and the lower court dismissed plaintiff's petition and entered judgment for costs. Vilas appealed. Opinion states the facts.

Affirmed.Charles E. Pendleton, of Storm Lake, for appellant.

John H. Mitchell, Atty. Gen., Z. Z. White, Co. Atty. of Buena Vista County, of Storm Lake, and Clair E. Hamilton, of Winterset, for appellees.

MITCHELL, Justice.

Bert Vilas and his son, doing business as a copartnership under the firm name of Vilas & Son, are engaged in the produce business at Storm Lake, Holstein, and Sioux Center. Each of the partners filed an individual income tax return, as provided by chapter 82 of the Acts of the 45th Gen.Assem.(Ex.Sess.). Bert Vilas reported that he owed a tax of $40.33. The theory upon which his individual return was prepared was that he was not required to file a return or pay income tax on account of his share of any of the profits received by the partnership from business carried on outside the state of Iowa. The Iowa State Board of Assessment and Review, not being satisfied with the individual return or the partnership return, audited the books of the partnership. Upon this audit being made, it was shown that the net income of the partnership for the taxable year was $30,722.31, which, added to each partner's salary deducted, made a total of $35,447.31. Of this amount Bert Vilas received $2,400 in salary and 75 per cent. of the profits of the business. His share of the net profits of the partnership was $23,041.73, which, added to his salary already received, made $25,441.73 as his distributive share of the partnership profits. The board therefore made an additional assessment against Bert Vilas in the sum of $1,032.22, together with penalty of $51.61, and interest from April 1, 1935. A notice of the additional assessment was forwarded to him, as provided by the act, but he refused to pay the additional assessment and commenced this action to enjoin the collection of the tax, claiming that the income tax was unconstitutional and that it violated not only the Constitution of the state of Iowa, but also the Federal Constitution. The Iowa State Board of Assessment and Review, and its members, filed answer. There was a trial, at which evidence was offered and arguments were made. The lower court dismissed the petition and rendered judgment against plaintiff for the costs. Being dissatisfied, he has appealed.

[1] It is the claim of the appellant that the income tax as passed by the Legislature of Iowa is unconstitutional. There is one rule of construction of statutes universally recognized which we must keep in mind. Every legislative act is presumed to be constitutional and every intendment must be indulged in by the courts in favor of its validity. A statute will not be declared unconstitutional unless it is so clearly and plainly in contravention of the constitutional limitations and its guarantees as to leave no reasonable doubt as to its unconstitutionality. If there be a doubt, the courts will declare the act constitutional. With that thought in mind, we proceed to discuss the various interesting questions raised.

I. It is strenuously argued that chapter 82 of the Acts of the 45th Gen.Assem., Extra Session, is lacking in uniformity, discriminates against appellant, and is in violation of section 6 of article I of the Constitution of Iowa, which is as follows:

“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.”

Bert Vilas and his son are individuals who conduct their business as a copartnership. The discrimination of which they complain is as follows:

(1) Section 28 of the act exempts corporations from paying any income tax upon that part of their business attributable to trade, sales, or business outside the boundaries of the state, although individuals, partnerships, and fiduciaries are granted no such exemption; (2) the graduate rate provided for in section 5 of the said chapter is not uniform, as required by section 6 of article 1 of our Constitution; (3) corporations are taxed at the rate of 2 per cent. on their net income under section 28 of the said chapter, yet individuals, partnerships, and fiduciaries who may be engaged in the same line of business are taxed at 5 per cent. as soon as their net income reaches $5,000.

[2] The very questions here raised have lately been before the Supreme Court of the United States. We quote from the decision in the case of Lawrence v. State Tax Commission of Mississippi, 286 U.S. 276, 52 S.Ct. 556, 76 L.Ed. 1102, 87 A.L.R. 374, 376, as follows:

“Appellant, a citizen and resident of Mississippi, brought the present suit to set aside the assessment of a tax upon so much of his net income for 1929 as arose from the construction by him of public highways in the state of Tennessee. The taxing statute was challenged on the ground that in so far as it imposes a tax on income derived wholly from activities carried on outside the state, it deprived appellant of property without due process of law, and that in exempting corporations, which were his competitors, from a tax on income derived from like activities carried on outside the state, it denied to him the equal protection of the laws.

The obligation of one domiciled within a state to pay taxes there, arises from the unilateral action of the state government in the exercise of the most plenary of sovereign powers, that to raise revenue to defray the expenses of government and to distribute its burdens equably among those who enjoy its benefits. Hence, domicile in itself establishes a basis for taxation. Enjoyment of the privileges of residence within the state, and the attendant right to invoke the protection of its laws, are inseparable from the responsibility for sharing the costs of government. See Fidelity & Columbia Trust Co. v. Louisville, 245 U.S. 54, 58, 38 S.Ct. 40, 62 L.Ed. 145 [148], L.R.A.1918C, 124;Maguire v. Trefry, 253 U.S. 12, 14, 17, 40 S.Ct. 417, 64 L.Ed. 739 [750, 751];Kirtland v. Hotchkiss, 100 U.S. 491, 498, 25 L.Ed. 558 [562];Shaffer v. Carter, 252 U.S. 37, 50, 40 S.Ct. 221, 64 L.Ed. 445 [455].”

And at page 283 of 286 U.S., at page 558 of 52 S.Ct., at page 1107 of 76 L.Ed., at page 379 of 87 A.L.R. of that opinion we read:

“The statute relieves domestic corporations from the tax only in so far as their income is derived from activities carried on outside the state. The appellant is thus compelled to pay a tax from which his competitors, if domestic corporations, are relieved, and this, it is urged, is so plainly arbitrary as to infringe the equal protection clause.

But, as there is no constitutional requirement that a system of taxation should be uniform as applied to individuals and corporations, regardless of the circumstances in which it operates, acceptance of this contention would relieve the appellant from the burden which rests on him to overcome the presumption of facts supporting constitutionality, which attaches to all legislative acts, and would require us to assume that there is no state of facts reasonably to be conceived which could afford a rational basis for distinguishing, for taxation purposes, between income of individuals and that of domestic corporations, derived from business carried on without the state. Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 78, 79, 31 S.Ct. 337, 55 L.Ed. 369 [377, 378], Ann.Cas.1912C, 160;Rast v. Van Deman & Lewis Co., 240 U.S. 342, 357, 36 S.Ct. 370, 60 L.Ed. 679 [687], L.R.A.1917A, 421, Ann.Cas.1917B, 455;O'Gorman & Young, Inc., v. Hartford Fire Ins. Co., 282 U.S. 251, 257, 258, 51 S.Ct. 130, 75 L.Ed. 324 [327, 328], 72 A.L.R. 1163].

What the local conditions are in Mississippi and its neighboring states with respect to businesses like the present, carried on across state lines by individuals and corporations, does not appear. How the statutory provisions now in question are related to others by which a permissible divergence in state policy with respect to the taxation of corporations and of individuals may be effected is not shown. See General American Tank Car Corp. v. Day, 270 U.S. 367, 373, 46 S.Ct. 234, 70 L.Ed. 635 [638];Interstate Busses Corp. v. Blodgett, 276 U.S. 245, 251, 48 S.Ct. 230, 72 L.Ed. 551 [554];Farmers' & Mechanics' Sav. Bank v. Minnesota, 232 U.S. 516, 529 et seq., 34 S.Ct. 354, 58 L.Ed. 706 [712]. We cannot say that investigation in these fields would not disclose a basis for the legislation which would lead reasonable men to conclude that there is just ground for the difference here made. The existence, unchallenged, of differences between the taxation of incomes of individuals and of corporations in every federal revenue act since the adoption of the Sixteenth Amendment, demonstrates that there may be.”

And so in the case at bar the appellant has offered no competent evidence to show that there is any discrimination as between him, as an individual, and any domestic corporation conducting a like business in the same territory. The fact that some of the adjoining states have a lower income tax rate than Iowa does not sustain the assertion that the Iowa law is discriminatory against its own residents. There are certain taxes which domestic corporations must pay that...