Source: https://supreme.justia.com/cases/federal/us/291/619/
Timestamp: 2019-04-21 04:35:34+00:00

Document:
1. A tax imposed by a city upon the gross receipts of a private corporation, engaged in the business of furnishing electric light and power to consumers for hire, cannot be adjudged violative of the equal protection clause of the Fourteenth Amendment merely because the city, under authority from the state, engages in the same kind of business, in active competition with the private corporation. P. 291 U. S. 623.
2. With respect to such business and its taxation, the city and the private corporation are clearly to be classed in different categories, for reasons that are in no way affected by calling the city's activity "proprietary," instead of "governmental." P. 291 U. S. 624.
3. The Fourteenth Amendment does not protect private business from the risk of competition with business carried on by the state in the exercise of its reserved power. P. 291 U. S. 625.
4. Objection to the vagueness and uncertainty of a tax as defined by a municipal ordinance held obviated by its practical construction in this case by a competent administrative officer with the approval of the state court. Pacific Telephone & Telegraph Co. v. Seattle, ante, p. 291 U. S. 300. P. 291 U. S. 626.
5. Surrender of the power of taxation is not implied in a contract by a city granting to a public utility the license or franchise to use the streets for a term of years, and a later ordinance exacting payment of an annual tax on the gross receipts of the utility company as a condition precedent to its use of the streets does not impair the obligation of the contract. P. 291 U. S. 627.
172 Wash. 668, 21 P. 2d 727, affirmed.
Appeal from the affirmance of a judgment dismissing the complaint of the Power & Light Company on demurrer, in a suit to recover the amount of a gross receipts tax paid to the state, and to enjoin future collections.
This is an appeal under § 237 of the Judicial Code from a judgment of the Supreme Court of Washington, 172 Wash. 668, 21 P.2d 727, 728, sustaining a municipal license or excise tax, assailed by appellant as infringing the Fourteenth Amendment and the contract clause of the Federal Constitution.
and power to consumers. The tax is 3% of the gross income from the business "in the city" during the fiscal year next preceding the tax year for which the license is required. The suit, brought to recover an installment of the tax already paid and to enjoin the collection of future installments, was heard and decided upon demurrer to appellant's complaint.
"The city has not allocated, and probably cannot allocate, any of the revenues of its power and light business to the payment of such a tax. Bonds have been issued in excess of $30,000,000 against the revenues from that business, and those bonds are a prior lien on the entire income from it -- taking precedence even over operating charges. Conceding that the city's light and power revenues could be subjected to the tax, no machinery is set up in the ordinance to accomplish such an end. Furthermore, in making up its budget for 1932, no provision was made for the levy of general taxes to cover the excise provided for in the ordinance. So the problem must be met as though § 6 had been omitted from the ordinance. . . . [P. 671.]"
Whether by this statement the Court intended to decide that the city could not lawfully pay the tax, or assumed that to be the case for the purpose of the decision it is unnecessary to determine, for appellant further insists that, even though the tax were paid by the city to itself, it would impose no actual burden.
Asserting that no effective tax is imposed with respect to the business carried on by the city, appellant argues that the taxation of its competing business is a denial of equal protection and deprives it of its property without due process. The tax is also assailed because the measure of it is vague and uncertain and because, by imposing a license tax upon the privilege of doing the business, the ordinance impairs appellant's franchise contract which gave it the right to conduct the business.
fund to the other, or how far the general fund raised by taxation may be used otherwise, either directly or indirectly, to aid the city's electric lighting business. We do not attempt to resolve these questions here. Decision that the city is not authorized by existing law to aid its light fund by taxation, without disposing of the constitutional question decided by the state court, would entail the decision of other questions, arising under the equal protection and contract clauses, not raised or considered in the case. Moreover, the appellant insists that, in any case, payment of the tax would neither relieve appellant of its burden nor impose a comparable burden on the city, since the same hand would both pay and receive the tax, and there is no constitutional limitation on the power of the city to use the tax when collected for the maintenance of the city's business. Standard Oil Co. v. City of Lincoln, 114 Neb. 245, 207 N.W. 172, 208 N.W. 962, aff'd per curiam, 275 U.S. 504. All the questions thus suggested are met and disposed of by decision of the constitutional question which the state court decided and which we decide here.
contention is, in effect, that the city, by virtue of the Fourteenth Amendment, upon entering the business, forfeited its power to tax any competitor.
In conducting the business by state authority, the city is exercising a part of the sovereign power of the state which the Constitution has not curtailed. The decisions of this Court leave no doubt that a state may, in the public interest, constitutionally engage in a business commonly carried on by private enterprise, levy a tax to support it, Green v. Frazier, 253 U. S. 233; Jones v. Portland, 245 U. S. 217, and compete with private interests engaged in a like activity, Standard Oil Co. v. City of Lincoln, supra; Madera Waterworks v. Madera, 228 U. S. 454; Helena Water Works Co. v. Helena, 195 U. S. 383.
We need not stop to inquire whether the equal protection clause was designed to protect the citizen from advantages retained by the sovereign, or to point out the extraordinary implications of appellant's argument when applied to expansions of government activities which have become commonplace. It is enough for present purposes that the equal protection clause does not forbid discrimination with respect to things that are different. The distinctions between the taxing sovereign and its taxpayers are many and obvious. The private corporation, whatever its public duties, carries on its business for private profit, and is subject to the obligation, common to all, to contribute to the expense of government by paying taxes. The municipality, which is enabled to function only because it is a tax gatherer, may acquire property or conduct a business in the interest of the public welfare, and its gains, if any, must be used for public ends. Hence, equal protection does not require a city to abstain from taxing the business of a corporation organized for profit merely because, in the public interest, the municipality has acquired like property or conducts a like business.
These differences are not lessened, nor the constitutional exaction of uniformity increased, because the city competes with a business which it taxes. Compare Springfield Gas & Electric Co. v. Springfield, 257 U. S. 66; Hollis v. Kutz, 255 U. S. 452; Emergency Fleet Corp. v. Western Union, 275 U. S. 415. The state may tax different types of taxpayers differently even though they compete. State Board of Tax Commissioners v. Jackson, 283 U. S. 527; Alaska Fish Salting & By-Products Co. v. Smith, 255 U. S. 44; Hammond Packing Co. v. Montana, 233 U. S. 331; Quong Wing v. Kirkendall, 223 U. S. 59. It could not plausibly be argued that a private nonprofit corporation distributing electric current to consumers at cost could not be exempted from taxes borne by others serving the same wants. Compare Louisville Gas & Electric Co. v. Coleman, 277 U. S. 32, 277 U. S. 40; German Alliance Insurance Co. v. Kansas, 233 U. S. 389, 233 U. S. 418; Citizens' Telephone Co. v. Fuller, 229 U. S. 322. A business which, in private hands, might be exempted from taxation because not conducted for private profit is no less privileged because its capital is supplied by the government which controls it in the public interest. These considerations are in no way affected by calling the city's activity "proprietary," instead of "governmental." Compare South Carolina v. United States, 199 U. S. 437, with Murray v. Wilson Distilling Co., 213 U. S. 151, and Metcalf & Eddy v. Mitchell, 269 U. S. 514.
does not. Helena Water Works Co. v. Helena, supra; Vicksburg v. Henson, 231 U. S. 259. The Fourteenth Amendment does not purport to protect property from every injurious or oppressive action by a state, Memphis Gas Co. v. Shelby County, 109 U. S. 398, 109 U. S. 400; St. Louis v. United Railways Co., 210 U. S. 266, 210 U. S. 276, nor can it relieve property of congenital defects, Madera Waterworks v. Madera, supra, 228 U. S. 456. It does not preclude competition, however drastic, between private enterprises or prevent unequal taxation of competitors who are different. Those were risks which appellant took when it entered the field. No articulate principle is suggested calling for the conclusion that the appellant is not subject to the same risks because the competing business is carried on by the state in the exercise of a power which has been constitutionally reserved to it from the beginning.
Such was the decision in Madera Waterworks v. Madera, supra, where this Court pointed out that, in the absence of any contract restriction, the Fourteenth Amendment does not prevent a city from conducting a public waterworks in competition with private business or preclude taxation of the private business to help its rival to succeed. See also Springfield Gas & Electric Co. v. Springfield, supra. Such must be our decision now.
given to the ordinance by an administrative officer competent to give it, which the state court has upheld. It is thus apparent that the ordinance, as construed, is sufficiently definite to enable the appellant to comply with it, and, as appellant's return for taxation and the method of computing the tax are not disclosed by the record, no constitutional infirmity in the ordinance is revealed. See Edelman v. Boeing Air Transport, Inc., 289 U. S. 249; Pacific Telephone & Telegraph Co. v. City of Seattle, supra.
3. Appellant asserts a contract under its franchise to use the streets of the city for the purpose of carrying on its business for an unexpired term of years. It argues that the franchise is a contract license to carry on the business, and that the exaction of a tax as a condition precedent to the enjoyment of the license will operate to destroy the privilege granted by the franchise. This argument was made and answered in Memphis Gas Co. v. Shelby County, 109 U. S. 398, and in St. Louis v. United Railways Co., 210 U. S. 266. Surrender of the state's power to tax the privilege is not to be implied from the grant of it. Hence, appellant took its franchise subject to the power of the state to tax the granted privilege in common with all other privileges and property in the state. Without a clearly expressed obligation on the part of the city to surrender that power, the contract clause does not limit it. See Wiggins Ferry Co. v. East St. Louis, 107 U. S. 365; New Orleans City & Lake R. Co. v. New Orleans, 143 U. S. 192; Postal Telegraph Cable Co. v. Charleston, 153 U. S. 692; cf. Knoxville Water Co. v. Knoxville, 200 U. S. 22.
MR. JUSTICE VAN DEVANTER, specially concurring.
1. The ordinance contravenes the equal protection clause of the Fourteenth Amendment to the Constitution of the United States in that it lays the tax on the appellant's electric light and power business, but not on the like and competing business of the city.
2. The ordinance offends the due process clause of that Amendment in that it prescribes severe penalties and liabilities for nonpayment of the tax, and yet defines "gross income," on which the tax is to be computed, so vaguely that the amount of the tax cannot be ascertained with reasonable certainty.
The assault is confined to this taxing ordinance. Other ordinances, some provisions in the city's charter, and still other enactments have a real bearing on the matter, but their validity under the Constitution of the United States is not called in question.
I agree that the second and third grounds of the assault must be held untenable for the reasons stated in the opinion, and I further agree that the first ground must fail -- but for reasons essentially different from those which the opinion announces.
circumstances which surrounded its adoption and in which it is to be applied.
"shall, as far as permitted by law, be applicable to the City of Seattle, except that said City shall not, as a taxpayer, be required to conform to the other provisions of this ordinance"
-- the "other provisions" obviously being those which require sworn returns, application for license, etc.
The electric light and power business of the appellant and the like business of the city have been and are highly competitive, and the the only ones in the field. Both had their inception in ordinances adopted in 1902 -- the one under which the city entered the field being a little older than the one granting the franchise under which the plaintiff has proceeded. Both businesses have been greatly extended and enlarged in relative keeping with the growth of the city.
and power business, and obtains therefrom electric current needed for street lighting and other municipal purposes. For this current, the city, in its governmental capacity, pays each year a sum which is determined after a public hearing in which all who are interested are given an opportunity to participate. The payment is effected by transferring money from the city's tax-supported general fund, which is devoted to government uses, to the separate fund into which the revenues of the proprietary light and power business are required to be paid. The amount to be paid for such current in 1932 was given in the city's budget as $438.750.
"The revenues to be received under the plan proposed . . . do not partake of the character of general funds, nor can the general fund be invaded if they are not sufficient,"
"The city, in meeting functions that are called governmental, is taking [water] from the city . . . in its proprietary capacity; therefore the general fund of the city may be charged, and the special fund credited, with a reasonable charge for the water used [by the city], when it is so provided in the ordinance. The city, as a governmental entity, stands in the same relation to the system as a private citizen who is patronizing it."
make loans from one of these funds to another which is insolvent, or to make contributions or permanent diversions from one to another, and that attempted infractions of these restrictions may be prevented by injunction. Asia v. Seattle, 119 Wash. 674, 679, 680, 206 P. 366; Griffin v. Tacoma, 49 Wash. 524, 529, 95 P. 1107; Uhler v. Olympia, 87 Wash. 1, 7, 151 P. 117, 152 P. 998; Von Herberg v. Seattle, 157 Wash. 141, 147, 150, 151, 288 P. 646.
Since 1916, the city has financed the extension and development of its electric light and power business by issuing and selling revenue bonds, without submitting the matter to the electorate or creating an indebtedness on the part of the city. The total of such bonds outstanding at the end of 1931 was approximately $32,000,000. By law and by their own terms, these bonds are payable only from a bond fund specially created from revenues derived by the city from its electric light and power business.
"such pledge constitutes a charge upon such gross revenues prior and superior to all other charges whatsoever, including charges for maintenance and operation."
Counsel for the city, while not questioning the allegation in other respects, insist that, under the applicable law, the pledge is not of the gross revenues, but, at most, is only of what remains after paying costs of maintenance and operation, and that the tax in question, if laid on the city's business pursuant to the ordinance, may be paid from the gross revenues like other costs of maintenance and operation.
"In creating any such special fund or funds, the common council or other corporate authorities of such city or town shall have due regard to the cost of operation and maintenance of the plant or system as constructed or added to, and to any proportion or part of the revenue previously pledged as a fund for the payment of bonds, warrants, or other indebtedness, and shall not set aside into such special fund a greater amount or proportion of the revenue and proceeds than in their judgment will be available over and above such cost of maintenance and operation and the amount or proportion, if any, of the revenue so previously pledged."
The charter of the city also contains a provision, § 18 (Fifteenth), enabling the city to establish, operate, and maintain a plant or system for furnishing electric power and light for industrial, individual, and municipal uses, "and to provide and secure payment therefor in whole or in part by net earnings therefrom."
"We accordingly express no opinion upon the question of whether or not wages and operating expenses of the street railway must be paid before the application of any money in the street railway fund to the payment of the bonds evidencing the purchase price of the system."
the city understood that, if the entire gross revenue from the business was pledged, it might be for that reason unable to pay out any part of the revenue for another purpose. It also is easy to perceive that the appellant, by reason of its interest in the street railroad revenue bonds, may have regarded the present suit as a suitable vehicle for getting its contention respecting such a pledge before a court and possibly establishing indirectly what it had been unable to establish through its earlier and direct efforts. Certainly the appellant could not reasonably have expected to enhance its chances of success in the present suit by introducing such a contention respecting the pledge given in support of the electric light and power revenue bonds.
"The city, in its proprietary capacity, is in competition with appellant in the power and light business. The possible consequences to appellant if it is subjected to an excise of 3% on its gross revenues while its competitor escapes the burden are too obvious for discussion. Evidently having such consequences in mind, the city council, by virtue of § 6 of the ordinance, has undertaken to subject the city's power and light business to the tax imposed upon persons and corporations engaging in that business. This is merely a more or less friendly gesture. The city has not allocated, and probably cannot allocate, any of the revenues of its power and light business to the payment of such a tax. Bonds have been issued in excess of $30,000,000 against the revenues from that business, and those bonds are a prior lien on the entire income from it -- taking precedence even over operating charges. [P. 671.] "
Counsel differ widely respecting so much of this excerpt as speaks of the existing pledge as an obstacle to applying the tax to the city's business. Counsel for the city say this statement rests only on an allegation in the appellant's complaint, and was made in the absence of a full presentation of the matter and without intention to render a decision thereon, and they present arguments and citations giving color to their assertion. On the other hand, counsel for the appellant insist the statement is decisive, and point to its letter as justifying them in so insisting. It is obvious that the statement, when separately considered, makes strongly for the latter view; but, when it is read in connection with prior decisions, which it does not mention, and with charter and statutory provisions, which are not noticed, there arises a real doubt whether it was made as a decisive utterance or as a recital of what was alleged and only assumed to be true. [Footnote 4] This is a matter on which only the state court can speak with ultimate authority, and as its solution, as will appear later on, is not essential for present purposes, it properly may be put to one side. When this is done, the appellant's charge of unreasonable discrimination amounting to a denial of equal protection needs to be examined with three suggested views of the existing pledge in mind -- one treating it as including only the net revenues from the city's business, as the city asserts, another treating it as including the entire gross revenues, but subject to payment therefrom of any tax lawfully imposed on the city's business, and still another treating it as including the entire gross revenues and preventing, by reason of the contract clause of the Constitution, payment therefrom of the tax named in the ordinance, as the appellant insists.
The ordinance, in § 6, provides that the tax "shall, as far as permitted by law, be applicable" to the city's proprietary business. Unless the pledge be in the way, it is plain that there is no legal obstacle to carrying this provision into effect. [Footnote 5] The state court does not suggest the presence of any other obstacle, and counsel for the appellant do not show that there is any. On the other hand, counsel for the city concede that the ordinance imposes the tax on the city's business, and assert the city's willingness to pay the tax out of the gross revenues from that business.
the city's business just as on the other, and that the charge of unreasonable discrimination is without any basis.
Twichell v. Seattle, 106 Wash. 32, 179 P. 127; Old Colony Trust Co. v. Seattle, 271 U. S. 426.
Puget Sound Power & Light Co. v. Seattle, 284 F. 659; Von Herberg v. Seattle, 27 F.2d 457; Puget Sound Power & Light Co. v. Von Herberg, 278 U.S. 644; Puget Sound Power & Light Co. v. Seattle, 29 F.2d 254.
Twichell v. Seattle, 106 Wash. 32, 179 P. 127; Asia v. Seattle, 119 Wash. 674, 206 P. 366; Von Herberg v. Seattle, 157 Wash. 141, 288 P. 646.
Inaccurate statements of counsel sometimes lead to erroneous assumptions by courts. Langford v. Monteith, 102 U. S. 145, 102 U. S. 147.
Louisville v. Commonwealth, 1 Duv. 295; Commonwealth v. Makibben, 90 Ky. 384, 14 S.W. 372; Clark v. Louisville Water Co., 90 Ky. 515, 14 S.W. 502 (aff'd, 143 U. S. 143 U.S. 1); Newport v. Commonwealth, 106 Ky. 434, 50 S.W. 845, 51 S.W. 433; Covington v. Commonwealth, 107 Ky. 680, 39 S.W. 836 (aff'd, 173 U. S. 173 U.S. 231); Western Saving Fund Society v. Philadelphia, 31 Pa. 175, 183; Chadwick v. Maginnes, 94 Pa. 117; Erie County v. Commissioners, 113 Pa. 368, 6 A. 138; Vilas v. Manila, 220 U. S. 345, 220 U. S. 356. And see Atlantic & N.C. R. Co. v. Commissioners, 75 N.C. 474; South Carolina v. United States, 199 U. S. 437; Los Angeles v. Los Angeles Gas & Electric Corp., 251 U. S. 32; Bank of United States v. Planters Bank, 9 Wheat. 904, 22 U. S. 907; Curran v. Arkansas, 15 How. 304, 56 U. S. 309.
Raley & Brothers v. Richardson, 264 U. S. 157; Packer Corp. v. Utah, 285 U. S. 105, 285 U. S. 109; Des Moines National Bank v. Fairweather, 263 U. S. 103, 263 U. S. 116-117; Union Bank & Trust Co. v. Phelps, 288 U. S. 181, 288 U. S. 187.

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