Court Opinion

ID: 3997082
Source: CourtListenerOpinion
Date Created: 2016-07-06 10:55:04.261228+00
Date Added: 2024-06-11T14:18:45.989863
License: Public Domain

We are vitally interested in the growth and prosperity of savings and loan associations and of savings bank establishments. The burdens by taxation upon those institutions are matters of deep concern, for they vitally affect thousands of people possessed of small means. As to appellants who are dealers in investment securities, we are not so much concerned, inasmuch as they can pass on the burdens of taxation to their more opulent customers who constitute, as to them, "ultimate consumers."
However, if these decisions become the law because of a supposed infringement of the Federal constitution existing in the statute before us, the lawmakers of this state, henceforth, practically, will be inhibited from enacting any taxing system except by laying all the burdens directly upon property within the state. *Page 375 
Because the decisions are so far-reaching in that respect, as well as erroneous, and because they are unfortunate in another respect, namely, that decisions involving the validity of legislation as affected by the Federal constitution, when decided adversely to the state, cannot be taken by the state to the United States supreme court for review, but if decided otherwise, other parties could — I cannot concur.
The prevailing decisions are based upon the erroneous premise that, "notwithstanding the legislative declaration, the tax is not in truth and in fact an excise or corporate privilege tax." The majority surely have not carefully studied the nature of excise taxes. They were long ago defined as:
"Taxes laid upon the manufacture, sale, or consumption of commodities within the country, upon licenses to pursue certain occupations and upon corporate privileges." Cooley on Constitutional Limitations (7th ed.) 680.
In Flint v. Stone Tracy Co., 220 U.S. 107, a Federal corporation tax (36 Stat. 11, 112-117, c. 6), although laid upon corporations created by the states and the tax not apportioned between the states, as required by a Federal constitutional provision for direct taxes, was held to be an excise and valid. It was also there held that there is a substantial difference between business as carried on in the manner specified in the act and as carried on by partnerships and individuals to justify the classification; that there are distinct advantages in carrying on business in the manner specified in the corporation tax law over carrying it on by partnerships and individuals, and it is this privilege which is the subject of the tax, etc.
The Federal act, by its terms, imposed "a special excise tax with respect to the carrying on or doing *Page 376 
business" (by corporations), the tax to be assessed upon net income received "from all sources."
In the debate in Congress leading to the enactment of the above corporation tax act, Senator Elihu Root said:
"My own state has for many years grouped all corporations within its borders, with certain specific exceptions, in a class upon the revenues of which it imposes a tax imposed on no other members of the community. And it is a late day for us to be told that there is no right in the United States to adopt this old familiar, general basis of classification for the purpose of imposing an excise tax. It is founded upon reason, sir, and not alone upon authority." 44 Cong. Rec. 4005-4006.
That Congress has no more power or right to declare and adopt subterfuges to evade constitutional limitations than has the state legislature, is undeniable.
The majority rely largely upon the decisions of the supreme court in Quaker City Cab Co. v. Pennsylvania, 277 U.S. 389, andMacallen Co. v. Massachusetts, 279 U.S. 620.
A vast variety of state taxation laws have been before that court, and in many of them there are subtle distinctions and in some of them apparent subterfuges. In the last cited case, that court went behind the last legislation before it and examined legislation that had existed in Massachusetts theretofore, and discovered that there was a patent attempt to evade Federal laws and decisions in the later legislation. In the Quaker City CabCo., case, supra, as was said by the court, the Pennsylvania law imposed a tax upon the gross receipts of corporations engaged in the taxicab business for hire, and not upon individuals engaged in the same business. The court said that: *Page 377 
"`The real subject of the tax is the gross receipts of a company engaged in the transportation of freight or passengers. .. .'"
It was, therefore, obviously and concededly, a direct tax, which same tax was not levied upon individuals engaged in the same business.
Chapter 151, Laws of 1929, p. 380, with which we are concerned, contains no such defects. It is apparent from an examination of it that it was carefully drawn to comply with the Federal decisions relating to such taxation so as to avoid conflict with the Federal constitution and the delegated power to tax national banks granted to the states.
"The power of taxation rests upon necessity and is inherent in every independent state. It is as extensive as the range of subjects over which the government extends; it is absolute and unlimited, in the absence of constitutional limitations and restraints, and carries with it the power to embarrass and destroy. Post. Tel Co. v. Charleston, 153 U.S. 692; McCrary v.United States, 195 U.S. 27." Tanner v. Little, 208 Fed. 605.
The above pronouncement of the law by Judge Rudkin in the district court was approved and confirmed by the supreme court inTanner v. Little, 240 U.S. 369.
Chapter 151, supra, is not only declared by the legislature to be an excise law or tax upon corporate privileges, all of which are created by the state and exist by its grace, but the law is intrinsically nothing else than a law imposing excises.Flint v. Stone Tracy Co., supra. The very existences of these appellants in corporate form are privileges conferred by the state. Provident Institution v. Massachusetts, 6 Wall. (U.S.) 611; Hamilton Co. v. Massachusetts, 6 Wall. (U.S.) 632; BalticMining Co. v. Massachusetts, 231 U.S. 68; Alpha Portland CementCo. v. Massachusetts, 268 U.S. 203. *Page 378 
In Northwestern Mutual Life Ins. Co. v. Wisconsin,275 U.S. 136, the validity of an excise measured by net income, including that from tax-exempt securities of the United States, was recognized. It was also held in that case that a state tax on domestic insurance companies, called an annual license fee, consisting of three per cent annually of the gross income of the corporation, save rents from land otherwise taxed and premiums, was void pro tanto, only where the income was in part interest from United States bonds. But here the majority hold the entire taxing scheme void, upon the corporate state franchises, based upon the net income, and if income derived from interest from United States bonds should be exempted, that could be shown and claimed in the returns of the tax payers to the assessing officers for exclusion in making up their net incomes. Such decision by the majority would not strike down the entire act. Possibly, this court would be compelled to sustain such a contention. The distinction between net income and gross income as the measure of a tax is well established. Peck  Co. v.Lowe, 247 U.S. 165; United States Glue Co. v. Oak Creek,247 U.S. 321.
The majority have not fully comprehended the precise import of the Quaker City Cab Co., and the Macallen cases, supra. To be properly understood, they should have been analyzed and compared with the decisive and other illustrative cases.
That court seems to have adhered consistently to the principle that either the Federal or state governments may constitutionally impose an excise tax on corporations for the privilege of doing business in corporate form, and measure the tax by the property or net income of the corporation, including the tax-exempt securities of the other or income derived from them. The QuakerCity Cab Co. and the Macallen *Page 379 
cases did not overrule any of the former cases, and do not seem to have departed from or modified them, but to have found refined distinctions which were decided by a closely divided court.
It is not incumbent upon us to stretch for reasons and grounds to grant immunity for infringements of the Federal constitution where there may be even some doubt. In this instance, there seems to be little doubt. There are more doubtful questions arising under our own constitutional provisions, especially as to the validity of §§ 24, 25 and 27 of chapter 151, supra. Even those, in my opinion, could be resolved in favor of the validity of the act without doing any violence to well established legal principles or precedents.
The trial judge very ably analyzed all the legal propositions involved herein in a most competent way, in his memorandum opinion, with which I am in general accord.
Were it not for the urgency of an early decision by the court upon this legislation, I should desire to extend my discussion further upon the points touched, and also upon the validity of the legislation under our state constitution. Inasmuch as the majority have disregarded the effect of our own constitution upon the act, I shall also pass the questions.
For the foregoing reasons, very inadequately stated, I dissent. The judgments of the lower court should be affirmed.