Court Opinion

ID: 8750271
Source: CourtListenerOpinion
Date Created: 2022-11-26 11:23:36.472904+00
Date Added: 2024-06-11T17:00:55.100238
License: Public Domain

GILBERT, Circuit Judge,
after stating the case as above, delivered the opinion of the court.
The appellants, by their bill, seek to enjoin the enforcement of the income tax law of Hawaii, on the ground that it violates both the organic act of the territory and the Constitution of the United States, in that it contains illegal discriminations, fails to exempt the salaries of judges, and compels taxpayers to furnish evidence against themselves which may result in their criminal prosecution. The only restriction of the powers of the territorial Legislature contained in the organic act is the provision that the “legislative power of the territory shall extend to all rightful subjects of legislation not inconsistent with the Constitution and laws of the United States locally applicable.” There is no express limitation of power in the matter of taxation. The section so quoted is identical with that which has usually been inserted in the organic acts creating territorial governments. It provides, in effect, that the territorial Legislature may not invade the domain of Congress as to subjects of legislation; but, aside from that, it con-cedes to it all the powers of a legislature of the states. Clinton v. *776Englebrecht, 13 Wall. 434, 20 L. Ed. 659; Maynard v. Hill, 125 U. S. 190, 8 Sup. Ct. 723, 31 L. Ed. 654; Cope v. Cope, 137 U. S. 682, 11 Sup. Ct. 222, 34 L. Ed. 832. In Clinton v. Englebrecht it was said:
“The theory upon which the various governments for portions of the territory of the United States have been organized has ever been that of leaving to the inhabitants all the powers of self-government consistent with the supremacy and supervision of national authority, and with certain fundamental principles established by Congress.”
The provision that the legislative power shall extend to “all rightful subjects of legislation” includes, therefore, full and comprehensive power to legislate in the matter of taxation. Section 8, art. 1, of the Constitution, requiring “that all duties, imposts, and excises shall be ■uniform throughout the United States,” can have no application to the powers of taxation of a state or territorial legislature. It is a rule only for taxation by the United States. The decisions of the Supreme Court construing and applying that provision of the Constitution and the most of the discussion thereof found in the opinions filed in Pollock v. Farmers’ Loan & Trust Co., 157 U. S. 429, 15 Sup. Ct. 673, 39 L. Ed. 759, and on rehearing, 158 U. S. 607, 15 Sup. Ct. 912, 39 L. Ed. 1108, so freely quoted from and earnestly relied upon by the appellants, can have no bearing, therefore, upon the present discussion.
It is urged that section 2 of the law makes illegal discriminations in favor of private schools, colleges, commercial colleges, fraternal benefit societies, and fire, life, and marine insurance companies. The corporations so exempted from the income tax are all of the character of corporations usually recognized as proper subjects of exemption from taxation, with the single exception of insurance companies; and, as to those, the act states the reason of their exemption. It is because a tax is imposed on a percentage of their premiums under the authority of another act. In Davidson v. New Orleans, 96 U. S. 97, 24 L. Ed. 616, it was said that the federal Constitution imposes on .the- states no restraint against unequal taxation. But that remark must be construed in the light of subsequent utterances of the court, in which due effect was given to that portion of the fourteenth amendment which forbids a state to deny to citizens within its jurisdiction the equal protection of the laws. The rule is that unequal taxes may not be imposed upon property of the same kind, in the same situation, and used for the same purpose. But the protection afforded by the fourteenth amendment has never been carried to the extent of requiring that the same tax shall be .imposed in the same manner upon every class of property, irrespective of its nature or condition or class. In Kentucky Railroad Tax Cases, 115 U. S. 337, 6 Sup. Ct. 57, 29 L. Ed. 414, the court, after referring to the fact that there was nothing in the Constitution of Kentucky requiring taxes to be levied in a uniform method upon all descriptions of property, remarked:
“The whole matter is left to the discretion of the legislative power, and there is nothing to forbid the classification of property for purposes of taxa • tion and the valuation of different classes by different methods. The rule of equality in respect to the subject only requires the same means and methods to be applied impartially to all the constituents of each class so that the law shall operate equally and uniformly upon all persons in similar circumstances.”
*777In Bells Gap Railroad Company v. Pennsylvania, 134 U. S. 232, 237, 10 Sup. Ct. 533, 33 L. Ed. 892, Mr. Justice Bradley said that the fourteenth amendment was not intended to require a state to adopt an iron rule of taxation. So in State Railroad Tax Cases, 92 U. S. 575, 612, 23 L. Ed. 663, Mr. Justice Miller said:
“Perfect equality and perfect uniformity of taxation, as regards individuals or corporations, or the different classes of property subject to taxation, is a dream unrealized.”
In Home Ins. Co. v. New York, 134 U. S. 594, 606, 10 Sup. Ct. 593, 33 L. Ed. 1025, Mr. Justice Field said:
“But the amendment does not prevent the classification of property for taxation — subjecting one kind of property to one rate of taxation, and another kind of property to a different rate. * * * Nor does the amendment prohibit special legislation.”
In Pacific Express Co. v. Seibert, 142 U. S. 339, 351, 12 Sup. Ct. 250, 35 L. Ed. 1035, the court not only approved the doctrine of the cases above cited, but said that a system which imposes the same taxation upon every species of property, irrespective of its nature or condition or class, “will be destructive of the principle of uniformity and equality of taxation, and of a just adaptation of property to its burdens.” In Western Union Telegraph Co. v. Indiana, 165 U. S. 304, 17 Sup. Ct. 345, 41 L. Ed. 725, it was held that, in enforcing the collection of taxes, one rule may be adopted in respect to the admitted use of one kind of property, and another rule in respect to the admitted use of another, in order that all may be compelled to bear their proper share of the burdens of government. In W. W. Cargill Co. v. Minnesota, 180 U. S. 452, 21 Sup. Ct. 423, 45 L. Ed. 618, it was held that a state law requiring a license in respect of elevators and warehouses situated on the right of way of a railroad at points other than its terminal, without requiring such license in respect of elevators and warehouses differently situated, was not a classification so unreasonable as to amount to a denial of the equal protection of the laws.
It is contended that the exemption of incomes to the extent of $1,000 is an illegal discrimination. The power of state legislatures to grant reasonable exemptions from taxation is undisputed. It has been upheld on grounds of enlightened public policy — a public policy which seeks to exclude from taxation the living expenses of the average family, and thus to enable the poor man to escape becoming a public burden. It rests upon the theory that the exemption results in ultimate benefit to the taxpayer, which compensates him for the additional burden of taxation which he is thereby called upon to bear. It does not apply to corporations, for the reason that they have no corresponding expense. But the exemption must be reasonable and impartial, and must be extended to all who are similarly situated. It is urged that the exemption in question is unreasonable. If the power to make exemptions be once conceded, the amount of the exemption is largely within the discretion of the legislature — a discretion which is not subject to review in the courts unless it be clearly shown to have been abused. In the discussion of the national income tax law in Pollock v. Farmers’ Loan & Trust Co., 157 U. S. 429, 15 Sup. Ct. 673, 39 L. Ed. 759, Mr. Justice Field thought that the exemption of *778incomes to the extent of $4,000 was a discrimination that vitiated the whole legislation; but Mr. Justice Harlan and Mr. Justice Brown, on the rehearing of that case (158 U. S. 675, 694,15 Sup. Ct. 912, 39 L. Ed. 1108), were of the opinion that the exemption was not unreasonable. The national income tax law of August 5, 1861 (12 Stat. 309), exempted incomes of $800, and those of July 1, 1862, and June 30, 1864 (12 Stat. 473, and 13 Stat. 281), each exempted $600. In no case to which our attention has been directed was question ever made of the validity of those exemptions. When we regard the general policy of such exemptions and their purpose, and consider the annual expenses of maintaining the average family, we are unable to discover any ground for holding that an exemption of incomes to the extent of $1,000 from an income tax law is unreasonable, or that its allowance is an abuse of legislative discretion.
It is contended that the act violates section 1, art. 3, of the Constitution, in that it does not expressly exempt the salaries of judicial of-, ficers, and that it violates the fourth and fifth amendments, in that by section 6 it authorizes unreasonable search and seizure of private papers, and compels the taxpayer, in a criminal case, to furnish evidence against himself. As to both of these objections, it may be said that, if the act is unconstitutional in the respects referred to, it does not follow that the whole law is thereby invalidated. The provisions of the Constitution so referred to stand as limitations of the power of the territorial Legislature to tax the salaries of judges, to authorize unreasonable searches, and to enforce the production of evidence, and those limitations must be read into the terms o.f any law that deals with those subjects. If by virtue of the Constitution the salaries of judges are exempt, that exemption operates upon the income tax law with the same effect as if it had been expressed therein. If the act authorizes unreasonable search, or requires the production of evidence, in violation of the fourth and fifth amendments, the taxpayer may invoke the protection of those amendments whenever he shall be called upon to submit to the search or to produce the evidence. The law in other respects is not rendered invalid either by the failure of the Legislature to exempt a salary which by the Constitution is exempt, nor by incorporating therein unconstitutional provisional remedies for the better enforcement of the law. The tax law is still enforceable without the aid of such remedies. In Allen v. Louisiana City, 103 U. S. 80, 26 L. Ed. 318, it was said:
“It is an elementary principle that the same statute may be in part constitutional and in part unconstitutional, and that, if the parts are wholly independent of each other, that which is constitutional may stand, while that which is unconstitutional will be rejected. * * * The point to be determined in all such cases is whether the unconstitutional provisions are so connected with the general scope of the law as to make it impossible, if they are stricken out, to give effect to what appears to have been the intent of the Legislature.”
In Huntington v. Worthen, 120 U. S. 97, 7 Sup. Ct. 471, 30 L. Ed. 588, a part only of a taxation law of Arkansas was held unconstitutional. The court said:
“The statute declared that,- in making its statement of the value of its property, the railroad should omit certain items. That clause being held *779Invalid, the rest remained unaffected, and could not he fully carried out. An exemption which was invalid was alone taken from it. It is only when different clauses of an act are so dependent upon each other that it is evident that the Legislature would not have enacted one of them without the other —as when the two things provided are necessary parts of one system — that the whole act will fall with the invalidity of one clause.”
Upon a careful consideration of the act and of the averments of the bill, we discover no ground for enjoining the collection of the tax, and find, therefore, no equity in the bill. The act was undoubtedly intended toi remedy the depletion of the revenues of the territory which is described in the bill. It contains no evidence of an intention to unjustly or unfairly discriminate. It places the burden of taxation upon the points of strongest resistance, where it is easiest borne. The same objections to the law that are here urged were presented to the Supreme Court of Hawaii Territory in Robertson v. Pratt, 13 Hawaii, 590, and the law was sustained by the majority of the court. There being no equity in the bill, it becomes unnecessary to consider the other grounds of demurrer.
The decree of the District Court dismissing the bill is affirmed.