Court Opinion

ID: 9558581
Source: CourtListenerOpinion
Date Created: 2023-08-21 17:13:02.766749+00
Date Added: 2024-06-11T09:09:24.931725
License: Public Domain

Hill, J.
Laws of 1951, Extraordinary Session, chapter 10, having passed the Senate April 3, 1951, and the House April 4, 1951, was approved by the governor April 16, 1951, with *193the exception of certain items which were vetoed. The title of the act is as follows:
“An Act providing for the support of the state government, making appropriations for salaries, operations, maintenance and other expenses of state institutions, departments and offices, for the purchase, condemnation and improvement of land, the construction of buildings and improvements for the various state institutions designated and mentioned, and for emergencies, and for refunds, and for the relief of certain individuals, corporations, counties and municipalities, and for transfers, and for deficiencies, and for appropriation of revolving funds, and for sundry civil expenses of the state government, and for public assistance, and for purposes specified in certain acts of congress, and for miscellaneous purposes, for the fiscal biennium beginning April 1, 1951, and ending March 31, 1953, except as otherwise provided, imposing an excise tax upon corporations, prescribing penalties, and declaring that certain parts of this act shall take effect immediately, and that certain other parts shall take effect May 1, 1951.”
This act will be referred to throughout this opinion as chapter 10.
The act is divided into two parts. The first two sections deal with appropriations. The third section reads:
“The remaining sections of this act shall constitute a new chapter under title 82, R. C. W., and shall be headed Corporation Excise Tax/ ”
And all of the sections thereafter, through § 44, deal with a tax on the net incomes of corporations. Section 1 reads in part as follows:
“. . . (a) Tax on Corporations and Certain Banks. Every bank and corporation other than a federal savings and loan association or national banking association, for the privilege of exercising its corporate franchise in this state or for the privilege of doing business in this state, shall annually pay to the state, in addition to annual license fees, an excise tax according to, or measured by, its net income equal to four per cent of such net income for the preceding calendar year or fiscal year computed and allocated to this state in the manner hereinafter provided. ...” (Italics ours.)
*194The forty-fifth and final section states that the act is necessary for the support of the state government, and provides that the first two sections shall take effect immediately and the remaining sections May 1, 1951.
The above named respondents, as plaintiffs in the trial court, made numerous attacks on the constitutionality of chapter 10.
The trial court contented itself with holding that §§ 3 to 44, both inclusive, of chapter 10, purport to impose a tax upon the property of the respondents and other corporations, which tax is not imposed upon the property of either partnerships or individuals engaged in the same businesses, and for that reason is discriminatory and violates the fourteenth amendment to the state constitution. Art. VII, § 1, as amended. The trial court restrained the enforcement of § § 3 to 44, inclusive.
With this holding of the trial court, we are in accord. It is no longer subject to question in this court that income is property. Art. VII, § 1, of our state constitution, as amended in 1930 (see amendment 14), provides that "... The word ‘property’ as used herein shall mean and include everything, whether tangible or intangible, subject to ownership. . . . ” As said in Culliton v. Chase, 174 Wash. 363, 374, 376, 25 P. (2d) 81:
“It would certainly defy the ingenuity of the most profound lexicographer to formulate a more comprehensive definition of ‘property.’ It is ‘everything, whether tangible or intangible, subject to ownership.’ Income is either property under our fourteenth amendment, or no one owns it. If that is true, any one can use our incomes who has the power to seize or obtain them by foul means. There being no other classifications in our constitution but real and personal property and intangible property, incomes necessarily fall within the category of intangible property. No more positive, precise and compelling language could have been used than was used in those words of our fourteenth amendment. It needs no technical construction to tell what those words mean. The overwhelming weight of judicial authority is that ‘income’ is property and a tax upon income is a tax upon property. . . .
*195“It has been definitely decided in this state that an income tax is a property tax, which should set the question at rest here. Aberdeen Savings & Loan Assn. v. Chase, 157 Wash. 351, 289 Pac. 536, 71 A. L. R. 232.”
The same section of the constitution provides:
“All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax. . . . ” Art. VII, § 1, as amended in 1930 (see amendment 14.)
If the four per cent tax on corporate net incomes is a tax on property, it violates the principle of uniformity in that it levies no tax on the incomes of individuals and copartnerships which may be in competition with corporations required to pay the tax. See Aberdeen Savings & Loan Ass’n v. Chase, 157 Wash. 351, 289 Pac. 536, 290 Pac. 697, 71 A. L. R. 232; Burr, Conrad & Broom, Inc., v. Chase, 157 Wash. 393, 289 Pac. 551; Culliton v. Chase, supra; Petroleum Nav. Co. v. Henneford, 185 Wash. 495, 55 P. (2d) 1056.
Appellants urge that this is not a tax on property, but that it is an excise tax on every corporation “. . . for the privilege of exercising its corporate franchise in this state or for the privilege of doing business in this state,” and that, as an excise tax, it is not subject to the constitutional requirement of uniformity.
The legislature has labeled the tax in question a corporate excise tax. Appellants, in all honesty, concede that a tax is not necessarily an excise tax because the legislature has so labeled it, and they say on p. 36 of their brief:
“The validity of the corporate tax depends upon whether the tax is, in fact, an excise or privilege tax, or a mere property tax masquerading as an excise.”
We dealt with a similar question in Jensen v. Henneford, 185 Wash. 209, 53 P. (2d) 607, when the 1935 legislature bad provided for a three per cent tax on net incomes of all residents in the state, with a surtax of four per cent on all net incomes in excess of $4,000, which tax, the legislature had declared, was “for the privilege of receiving income . . . while enjoying the protection of its [the state of Washing*196ton’s] laws.” Answering the contention that that was an excise tax and not subject to the rule of uniformity, this court said (p. 217):
“It is true that the legislature has so labeled the 1935 act. But the legislative body cannot change the real nature and purpose of an act by giving it a different title or by declaring its nature and purpose to be otherwise, any more than a man can transform his character by changing his attire or assuming a different name. The legislature may declare its intended purpose in an act, but it is for the courts to declare the nature and effect of the act. The character of a tax is determined by its incidents, not by its name. Aberdeen Savings & Loan Ass’n v. Chase, 157 Wash. 351, 289 Pac. 536, 290 Pac. 697, 71 A. L. R 232; Culliton v. Chase, 174 Wash. 363, 25 P. (2d) 81; Dawson v. Kentucky Distilleries & Warehouse Co., 255 U. S. 288, 41 S. Ct. 272, 65 L. Ed. 638; Macallen Co. v. Massachusetts, 279 U. S. 620, 49 S. Ct. 432, 73 L. Ed. 870, 65 A. L. R 866; Educational Films Corp. v. Ward, 282 U. S. 379, 51 S. Ct. 170, 75 L. Ed. 42, 71 A. L. R 1226; Stewart Dry Goods Co. v. Lewis, 294 U. S. 550, 55 S. Ct. 525, 79 L. Ed. 539.”
A study of the Laws of 1935, chapter 180, §§ 159 to 210, both inclusive, another four per cent tax on corporate net incomes, declared unconstitutional in Petroleum Nav. Co. v. Henneford, supra, reveals many parallels. That tax, too, was to be levied, as by § 7 here, against practically every corporation, “. . . for the privilege of exercising its corporate franchise in this state or for the privilege of doing business in this state. ...” Laws of 1935, chapter 180, § 161. We there said, “The determinative question is whether the tax imposed is an excise or a property tax.” We concluded that it was a property tax, and that the property of corporations may not be subjected to a tax that is not imposed upon the property of copartners and individuals.
We have no hesitancy in saying that an analysis of the present act convinces us that the tax is a mere property tax “masquerading as an excise.” It is geared throughout to the Federal income tax legislation as it relates to corporations. It has no reference to income from the various business activities on which the business and occupation *197tax, a true excise tax, is based, but taxes almost any income from almost every source. After studying this act in its entirety, we conclude that the tax is levied because the corporation has net income, not because it does any business in this state or exercises its corporate franchise; conversely, if it has done a million dollars worth of business in this state but has no net income, it would not be subject to taxation under this act.
We recognize the right to levy an excise tax on the privilege of doing business or exercising corporate franchises and to base that tax on income; but the tax must be, “in truth, levied for the exercise of a substantive privilege granted or permitted by the state.” Jensen v. Henneford, supra.
What we have said heretofore is in support of the ruling of the trial court, which we affirm. But there is still another reason why the so-called “corporation excise tax” must of necessity be held to be unconstitutional, even if it were, in truth, an excise tax.
Art. I, § 12, of our state constitution reads as follows:
“No law shall be passed granting to any citizen, class of citizens, or corporation, other than municipal, privileges or immunities which, upon the same terms, shall not equally belong to all citizens or corporations.”
Chapter 10, § 38, subd. (h), allows a credit on the tax payable for any fiscal year under this act, of fifty per cent of the amount of the business and occupation tax paid for such fiscal year. By the definition contained in § 5, subd. (a) (6), a fiscal year is “an accounting period of twelve months ending on the last day of any month other than December.” (Italics ours.) It is clear that this credit is a special privilege granted to corporations doing business on a fiscal year basis and denied to those doing business on a calendar year basis. That such a classification is arbitrary, and that the result is a violation of Art. I, § 12, is likewise clear. State ex rel. Bacich v. Huse, 187 Wash. 75, 59 P. (2d) 1101; State v. Inland Empire Refineries, Inc., 3 Wn. (2d) 651, 101 P. (2d) 975; Texas Co. v. Cohn, 8 Wn. (2d) 360, 112 P. (2d) 522.
*198Another constitutional question is raised which must be determined here, and that is whether the entire act is unconstitutional because it violates Art. II, § 19, of our state constitution, which reads: “No bill shall embrace more than one subject, and that is to be expressed in the title.”
This provision contains two prohibitions: (1) No bill shall embrace more than one subject (the purpose of which is to avoid hodgepodge and “logrolling” legislation); and (2) no bill shall have a subject which is not expressed in the title (the purpose of which is to notify the members of the legislature and the public of the subject matter of the proposed legislation).
We have in some cases dealing with the second prohibition declared unconstitutional so much of the act as dealt with subjects not covered by the title, and upheld that portion of the act the subject of which was expressed in the title. In those cases it was said that the purpose of the title is to inform the members of the legislature and the public as to the subject of the proposed legislation, and that any subject matter not covered by the title may be stricken from the act without affecting those matters covered by the title unless they are inextricably intertwined.
In the present case, which falls within the first prohibition, i.e., no bill shall embrace more than one subject, the title tells the legislature and the public what the subject matter of the legislation is and makes it clear that it is dual in character, and in such a case we cannot see on what basis it can be said that one subject and not the other represents the legislative purpose.
We have here a situation in which neither the appropriation bill, §§ 1 and 2, nor the corporation income tax bill, §§ 3 to 44, standing on its own merits, could pass the legislature in the special session, but when the proponents of these measures combined their interests, both were enacted into Laws of 1951, Ex. Ses., chapter 10. (Whether or not the corporation income tax is unconstitutional for some other reason is not material to our consideration of whether chapter 10, taken as a whole, violates Art. II, § 19, of the *199constitution.) This is the clearest possible illustration of the kind of “logrolling,” the “you-scratch-my-back-and-I’ll scratch-yours” situation that the constitutional provision was designed to prevent.
In the case of Commonwealth v. Barnett, 199 Pa. 161, 48 Atl. 976, the supreme court of that state clearly stated the evils that prevailed prior to the adoption of such a constitutional provision, saying, in reference to legislative bills containing different subjects:
“. . . Such bills, popularly called ‘omnibus’ bills, became a crying evil, not only from the confusion and distraction of the legislative mind by the jumbling together of incongruous subjects, but still more by the facility they afforded to corrupt combinations of minorities with different interests to force the passage of bills with provisions which could never succeed if they stood on their separate merits. So common was this practice that it got a popular name, universally understood as log rolling. A still more objectional practice grew up of putting what is known as a ‘rider,’ that is a new and unrelated enactment or provision on the appropriation bills, and thus coercing the executive to approve obnoxious legislation or bring the wheels of the government to a stop for want of funds.”
Judge Cooley,, speaking for the Michigan supreme court in People ex rel. Drake v. Mahaney, 13 Mich. 481, 494, said:
“. . . The history and purpose of this constitutional provision are too well understood to require any elucidation at our hands. The practice of bringing together into one bill subjects diverse in their nature and having no necessary connection, with a view to combine in their favor the advocates of all, and thus secure the passage of several measures, no one of which could succeed upon its own merits, was one both corruptive of the legislator and dangerous to the state.”
The appellants urge, however, that the appropriations portion of the act can be upheld even if there are two subjects in the title and in the act.
The distinction between cases where an act contains provisions that are not covered by the title and where the title itself contains more than one subject, is well expressed in Public Service Co. v. Recktenwald, 290 Ill. 314, 318, 125 N. E. 271:
*200“The constitutional provision that no act shall embrace more than one subject, which shall be expressed in the title, prohibits the passage of an act containing provisions not fairly embraced in the title and any such provisions are void, and it also prohibits the passage of an act relating to different subjects expressed in the title, in which case the whole act is void.”
The cases generally support the statement frqm 1 Cooley on Constitutional Limitatitons (8th ed.) 308:
“But if the title to the act actually indicates, and the act itself actually embraces, two distinct objects, when the constitution says it shall embrace but one, the whole act must be treated as void, from the manifest impossibility in the court choosing between the two, and holding the act valid as to the one and void as to the other.”
As the supreme court of Pennsylvania said in Yardley Mills Co., Inc., v. Bogardus, 321 Pa. 581, 185 Atl. 218, it is impossible to select arbitrarily one of several unrelated subjects included in the title and say that it is constitutional to the exclusion of the others.
Particular attention is directed to Jackson v. State ex rel. South Bend Motor Bus Co., 194 Ind. 248, 258, 142 N. E. 423, where it was said:
“It is contended, on behalf of appellants, that even if the act in question does contain two unrelated subjects, yet the court may determine that one of those subjects can stand and the other be held as void, the contention being, that the part of the act relating to motor vehicles should be allowed to stand as valid, and the part relating to inheritance taxes treated as void. This is not permissible where the act, both in its title and in the body, treats of two different subjects. An act of such a character is absolutely void, because it is in direct conflict with the Constitution.
“The Constitution does provide that if only one subject is embraced in the title, then any subject not expressed in the title that is embraced in the body of the act, may be rejected, and the part that is expressed in the title be allowed to stand; but that is not the case here, both subjects being in the title and the body. In such a case the courts' cannot choose between the two subjects and eliminate one of them. . . .
*201“The rule, that the whole act is void if both the title and the body of the act embrace two unrelated subjects, is sustained by the following additional authorities: 1 Sutherland, Statutory Construction, § 144; Oxnard Beet Sugar Co. v. State, supra, [73 Neb. 57, 102 N. W. 80, 105 N. W. 716]; Sutter v. People’s Gas Light Co., supra, [284 Ill. 634, 120 N. E. 562]; Skinner v. Wilhelm (1886), 63 Mich. 568, 30 N. W. 311; Cote v. Village of Highland Park, supra [173 Mich. 201, 139 N. W. 69]; Builders’, etc., Co. v. Lucas & Co. (1898), 119 Ala. 202, 24 So. 416; State v. Ferguson (1900), 104 La. 249, 28 So. 917, 81 Am. St. 123; Simms v. Sawyers, supra [ 85 W. Va. 245, 101 S. E. 467]; 25 R. C. L. 836, and cases cited.”
The Indiana court continued (p. 260):
“To support his contention that the subjects of this act may be separated by the court and one subject be allowed to stand and one stricken out, the attorney-general cites two cases, namely, Reilly v. Knapp (1919), 105 Kans. 565, 185 Pac. 47, and State v. Lancaster County (1885), 17 Nebr. 85, 22 N. W. 228. . . .
“These are the only two cases found which can in any way be claimed as supporting the contention made that we can separate this act and hold one part valid and the other invalid.
“The unanimous holding of all the authorities, unless the two cases above referred to can be classed as exceptions, is, where the act contains two separate subjects, in both the title and body, it cannot be separated by the courts.”
Conceding that the exceptions may be somewhat more numerous than indicated by the Indiana case just quoted, the seeming departures from the rule are usually based either on a holding that the constitutional provision is directory and not mandatory or the court’s claimed ability to discern what the legislature would have done if the two subjects had been before it on their individual merits. We have found no case where, with a comparable legislative history, both measures having failed of passage when standing on their own merits but having passed the legislature when tied together (a “United we stand; divided we fall” proposition), any court has been willing to say that one should stand and the other fall. ■
*202Another frequently cited case stating the majority rule is Simms v. Sawyers, 85 W. Va. 245, 255, 101 S. E. 467, where the court said:
“Having come to the conclusion that the constitutional provision invoked here is mandatory, and that the act in question violates that provision, can any of the provisions of this act stand? It will be noticed that both of the subjects of legislation covered by the act are included within its title If the title only embraced one particular subject of legislation and the act was broader than the title, including an additional subject, under the constitutional provision invoked, so much of the act as was not covered by the title would be void, and that part of it included within the title would be valid, but where the title includes both subjects of legislation embraced in the act, the whole act must fall for the very sufficient reason that it is improper for the Court to choose between the two.”
Appellants rely upon Gruen v. State Tax Commission, 35 Wn. (2d) 1, 211 P. (2d) 651, in which we upheld a title which read:
“An Act providing for the payment of a bonus to veterans of World War II from the proceeds of a bond issue repayable from the excise taxes on cigarettes as herein provided for; making an appropriation and providing penalties.”
The question as to title discussed in that case was whether the title was broad enough to cover the subject matter of the act, not whether there were two unrelated subjects in the title. Those who were opposing the validity of the statute then in question took the position that a debt within the constitutional debt limitation was created by the bonds issued thereunder; and the constitution provides that when a debt is created under Art. VIII, § 3, of the constitution, the law creating it shall provide ways and means for payment of interest and discharge of the principal. There is an obvious, though somewhat generally disregarded, connection between a debt and the means of paying it, and the two subjects in such a case are not distinct but properly related.
It is suggested but not strongly urged by the appellants that the severability clause, chapter 10, § 42, would' permit *203the entire tax measure to be severed if it be held that there are two unrelated subjects in the title and in the act.
If the court cannot choose between two unrelated subjects and eliminate one of them when Art. II, § 19, is violated, a severability clause cannot enable it to make such a choice. The only plausible argument that could be made as to the effect of the severability clause would be on another phase of the case, i.e., that § 38, subd. (h), might be severed and the rest of the socalled corporate excise tax be upheld. That argument meets a stone wall in Jensen v. Henneford, 185 Wash. 209, 53 P. (2d) 607, and State v. Inland Empire Refineries, Inc., 3 Wn. (2d) 651, 101 P. (2d) 975.
Finally, it is urged upon us that to declare the appropriations act unconstitutional would throw the fiscal affairs of the state into chaos.
In the debate on substitute house bill No. 1, which became chapter 10, both houses of the legislature were informed that their course in joining the appropriations bill and the so-called corporate excise tax into one bill was fraught with danger, and that, if enacted, it would be a violation of Art. II, § 19, of the constitution. They chose to disregard that warning.
The West Virginia court, in the case of Simms v. Sawyers, supra, used a quotation from Shakespeare (Merchant of Venice, act IV, scene 1) to answer the argument of subsequent financial chaos, saying that if it were to avoid its clear duty because of a claimed expediency,
“ ‘ ’Twill be recorded for a precedent, And many an error, by the same example, Will rush into the State: it cannot be.’ ”
It is our 'view that chapter 10 of the Laws of 1951, Ex. Ses., contains two unrelated subjects in the title and in the act, and is unconstitutional and void in its entirety.
Respondents assert that chapter 10 is unconstitutional for the further reason that the legislature flagrantly violated Art. II, § 38, of the constitution, which reads as follows:
“No amendment to any bill shall be allowed which shall change the scope and object of the bill.”
*204Appellants do not deny that this constitutional provision was violated. Their position, briefly stated, is: “So what? There isn’t anything the court can do about it because, under its repeated decisions, there is no way it can know what happened.”
That is the position always taken in argument when a question (not now before us) is raised concerning the validity of legislation enacted in a regular session after the sixtieth day. Art. II, § 12. It may or may not be, as argued, that the limitations of Art. II, §§12 and 38, are binding only upon the legislative conscience, and that the courts must perpetually remain in ignorance of what everybody else in the state knows. We refrain from any consideration of this further constitutional question urged upon us by the respondents, and of the “So what” answer of the appellants, as being unnecessary to the disposition of the present appeal.
Summarizing, we hold:
(1) The so-called “corporate excise tax” is in truth and fact not an excise tax but a tax on property, i.e., income, and, as the property of corporations may not be subjected to a tax not imposed upon the property of competing copartners and individuals, it violates the uniformity provision of our state constitution. Art. VII, § 1, as amended in 1930 (amendment 14).
(2) In the light of the definition of what constitutes a fiscal year, § 38, subd. (h) makes the corporate income tax provided by chapter 10 discriminatory against corporations doing business on a calendar year basis, and it is therefore unconstitutional. Art. I, § 12, state constitution.
(3) Chapter 10 contains two unrelated subjects in the title and in the act and violates the constitutional provision that no bill shall embrace more than one subject. Art. II, §19.
(3-a) When an act contains two unrelated subjects in the title and in the act, the whole act is void, as the court cannot choose between the two.
We affirm the judgments of the trial court enjoining the enforcement of the Laws of 1951, Extraordinary Session, *205chapter 10, §§ 3 to 44, inclusive, and hold that chapter 10 is unconstitutional in its entirety.
Schwellenbach, C. J., Hamley, Donworth, and Weaver, JJ., concur.