The Pacific commercial advertiser. [volume] (Honolulu, Hawaiian Islands) 1885-1921, 1903-02-20
.HAWAII'S
INCOME TAX
Why the Law Was
Sustained on
Appeal.
The Synopsis of Judge
GiIbert'S Late
Decision.
If Law Authorizes One TO Make
Unreasonable Search There
Is a Remedy.

SAN FRANCISCO, February 10
Judge Gilbert of the United States Cir
cult Court of Appeals handed down a
decision yesterday affirming the decree
of the district court of Hawaii in dis
missing the suit of W. C. Peacock and
sixty other merchants of Hawaii
against j. W. Pratt, assessor and coll
iIectog of taxes for the division of Ho-
noluIu, as a test case on the validity of
the Hawaiian income tax. This brings
to an end the protracted struggle
against the tax measure which was en-
acted by the Territorial Legislature in
the spring session of 1901.
In 1886 the Legislature of the republic
of Hawaii enacted statute imposing
an income tax of l per cent annually
with the provision that incomes not
exceeding s., 900 should be exempt, while
those not exceeding $4,000 should be
taxed only on the excess over $4,000,
and incomes exceeding $4,000 should be
assessed without exemption.
Bv the enactment of the Territorial
| legislature in 1901 the old measure was
radically changed. An income tax or
2 per cent was levied upon all incomes
exceeding $1,000 Besides this a 2 per
/ cent tax was levied on the net proht
of all corporations doing business IN the
Territory, no matter where they We're
created and organized
| Against this measure the aggregation
of merchants carried their fight, claim
ling that it violated the Organic Act of
the Territory and the constitution of
the United States. The plaintiffs de-
tclare that the measure contained illegal
determinations, failed to exempt the
salaries of judges and compelled tax
PAYERS to furnish evidence against
themselves which might result in GRIM
inal prosecution.
JUDGE GILBERT'S SUMMARY.
When the case was carried to the
Hawaiian district court demurrer was
interposed by the counselors Tor the
government upon the ground that the
complainants had an adequate remedy
at law. since the disputed measure pro-
vided for a tax appeal court. The as
trict court sustained the demurrer ano
| dismissed the case. 1t was then ap-
pealed to the court of appellate juris-
diction now in session at San Francisco
In his decision Judge Gilbert makes
aspects of the question upon which ne
bases his deductions:
1.-THE appellants in their bill claim
1 that the income tax law of Hawai-
l violates both the Organic Act OF the
| Territory and the constitution or the
United States.
1.-The only restriction of the power;
| of the Territorial Legislature contain
ed in the Organic Act is the provision
1 that the legislative power of the Terri
| tory shall extend to all rightful sub
| jects of legislation not inconsistent
with the constitution and laws of the
| United States There is no express
| limitation of power in the matter OF
l taxation"
| In the case of Clinton VS.. Englobrech
/ it was said: 1.-The theory upon which
the various governments for portions o.
the territory of the United States have
been organized has ever been that o.
leaving TO the inhabitants all the pow
ers of self-government consistent witt
the supremacy and supervision of ma
tional authority and with certain fun
damentaI PRINCIPLES established by Con.
gress' The provision that the legis-
lative power shall extend to all rightfu
subjects of legislation includes, there
fore full and comprehensive power tc
legislate in the matter of taxation.
It is urged that section 2 of the in
| come tax law makes illegal discrimina-
tions in favor of private schools, col
leges, commercial colleges. fraternal
benefit societies and fire, life and ma
rine insurance companies. But these
corporations are all of a nature usually
recognized as proper subjects of exemp-
ton from taxation with the exception
of insurance companies, and the act
states the reason of their exemption.
ILLEGAL DISCRIMINATION.
It is claimed that the exemption of
incomes to the extent of $1,000 Is an IL
legal discrimination. The power of
State Legislatures TO grant reasona Die
exemptions from taxation is undlsput-
ed 1t has been upheld on grounds Of
enlightened public policy, "a public pol
icy which seeks TO exclude from tax
alton the living expenses Of the average
family and thus enable the poor man to
escape becoming a public burden.
It rests upon the theory that the ex-
emption results in ultimate benefit to
the taxpayer. which cornpensates him
Tor the additional burden of taxation
which he is thereby called on to bear.
1t does not apply to corporations for
the reason that they have no CORE
spending expense.
II is claimed that the act In question
violates the fourth and fifth amend
ments in that it authorizes unreasOn-
able search and seizure Of private pa
pers and compels the taxpayer in a
criminal case 10 furnish evidence
against himself. II the act authorizes
unreasonable search or requires the
production OF evidence in violation OF
the amendments, the taxpayer may in
woke the protection OF those amend