Court Opinion

ID: 9715828
Source: CourtListenerOpinion
Date Created: 2023-08-26 06:15:27.775439+00
Date Added: 2024-06-11T09:54:45.071504
License: Public Domain

Dissenting Opinion
Arterburn, J.
The primary issue here is the right of the state to exercise its taxing power, and whether we should take a stand against further federal encroachment upon state sovereignty. We owe it to the sovereign state of Indiana, its taxpayers, and citizens to take a stand where our convictions are sincere.
Stripped of many confusing and unimportant de*132tails in this case, the right of the State of Indiana to exercise its taxing power turns on the point of whether or not the 1% state gross income tax imposed upon the income received by a utility for generating and delivering electrical energy in this case is a burden on interstate commerce, and thereby encroaches upon an area of federal jurisdiction. We believe that the manufacturing of electrical energy done entirely in Indiana is not part of interstate commerce, and is not a sale in interstate commerce. In this case, the transmission of the electrical energy to a recipient at a state line after its manufacture, but a few feet from the same state line, is such an infinitesimal part of the whole transaction, that to say that feature characterizes the whole transaction as interstate commerce, and thus exempts it from the state tax, is to make the tail wag the dog. The gross income was paid, and received primarily for the manufacturing and production process. Since this took place entirely in the State of Indiana, a gross income tax thereon should be paid by such manufacturer the same as any other manufacturer in Indiana. Indiana Farmers Guide Pub. Co. v. Dept. of Treas. (1940), 217 Ind. 627, 29 N. E. 2d 781; International H. Co. v. Dept. of Treasury (1944), 322 U. S. 340, 88 L. Ed. 1313, 64 S. Ct. 1019, 1030; Dept. of Treasury v. International Harvester Co. (1943), 221 Ind. 416, 47 N. E. 2d 150.
However, even if we assume that this is a transaction in interstate commerce, still, before the tax is prohibited by the Constitution it must be shown to be a burden to the extent that it interferes with such commerce. The facts here belie the argument. The appel-lee corporation generates and furnishes electrical power to Indiana consumers through the Northern Indiana Public Service Company, and also to consumers across the state line in Illinois through the Commonwealth *133Edison Company. As a result of the majority opinion in this case, the Illinois utility and its customers will receive electrical energy manufactured in Indiana free of the tax while the Indiana utility and its customers just across the state line will have to pay the tax. In fact, the exemption of the Illinois Corporation and its customers from the tax gives them a competitive advantage over Indiana consumers of electrical energy coming from the same source. Such a result, instead of eliminating a so-called burden on interstate commerce, creates an inequality and, if anything, it adds a burden, which undeniably affects interstate commerce.
We recognize the United States Supreme Court has said that manufacture and transmission is a “seamless webb.” Such fine words many times are used to avoid more exact thinking. We further know how sensitive that court seems to be to any burden, real or apparent, on interstate commerce. Freeman v. Hewit (1947), 329 U. S. 249, 91 L. Ed. 265, 67 S. Ct. 274; United Fuel Gas Co. v. Hallanan (1921), 257 U. S. 277, 66 L. Ed. 234, 42 S. Ct. 105; Michigan-Wisconsin P. L. Co. v. Calvert (1954), 347 U. S. 157, 98 L. Ed. 583, 74 S. Ct. 396.
On the other hand, we find this same court views with little concern the encroachment and burdens of federal taxation which are placed on the state’s sovereign functions. A federal income tax which taxes all salaries and wages paid by a state government and its instrumentalities beginning at not less than 18% is not considered a burden on the functioning of state government by that court. The state payroll has thereby been increased by not less than 18%. The tax burden of the state could be reduced accordingly were it not for this imposition by the Federal government. Neither is the expense and task of making the deductions from such salaries, the bookkeeping, and remittance of funds *134in connection therewith, admitted to be any burden imposed by the Federal government on the state. This process has continued to the degree where a sovereign state is made a tax collecting agency for the Federal government under the fiction that taxes and the collection thereof is no burden. Helvering v. Gerhardt (1938), 304 U. S. 405, 82 L. Ed. 1427, 58 S. Ct. 969; Graves v. New York (1939), 306 U. S. 466, 83 L. Ed. 927, 59 S. Ct. 595, 120 A. L. R. 1466.
Salaries paid by a state or its instrumentalities are not exempt from federal taxes, yet Congress may exempt federal salaries from state taxes under some type of twisted reasoning that one tax is not a burden on the state while the other is on the Federal government. 8 Ind. L. J. 476 ; 27 Am. Jur., Income Taxes, §§59, 60, pp. 343, 344.
The framers of the Constitution could never have conceived of such perversion of federal power in overriding the sovereignty of independent states. As another among many examples of how absurd this encroachment can become, the United States Supreme Court has held the Federal government may condemn, and take over property owned by a state or its instrumentalities. But, on the other hand, states may not take over federal property even though not used for a governmental function, but used only in a proprietary sense. Oklahoma ex rel. Phillips v. Guy F. Atkinson Co. (1941), 313 U. S. 508, 85 L. Ed. 1487, 61 S. Ct. 1050; United States v. Carmack (1947), 329 U. S. 230, 91 L. Ed. 209, 67 S. Ct. 252; Utah Power & L. Co. v. United States (1917), 243 U. S. 389, 61 L. Ed. 791, 37 S. Ct. 387; Note: 29 Ind. L. J. 206.
The reasoning of the United States Supreme Court is difficult to follow, and is practically impossible to predict. The overreaching of the Federal government *135in the domain of state sovereignty has become so bizarre that I will not stultify myself in any attempt to follow the reasoning upon which it is based.
The “burden” created by the 1% state tax appears to us to be so insignificant and nebulous when compared with the burden of the federal income tax upon the states that it is not worthy of consideration. As long as the Federal government maintains that the assessment and collection of the federal income tax (of not less than 18%) on salaries paid by a state, and that the collection thereof imposed upon a state is no burden on state government, then I shall maintain a 1% gross income tax is no burden on interstate commerce. The citizens of Indiana are entitled to a fair and consistent interpretation of the Constitution without discrimination between the State and Federal government in the area of taxation. What is not an encroachment and burden for one is not an encroachment and burden for the other.
Note. — Reported in 139 N. E. 2d 161.