Ludlow-Saylor Wire Co. v. Wollbrinck

BOND, C. J.

I. Plaintiff, a business corporation, during the last half of the calendar year of 1917, earned a net income subject to taxation under an act of the Legislature approved April 12, 1917 (Laws 1917, p. 524, et seq.). Being cited to make a return of its said income, it refused, and brought this suit to enjoin the enforcement of said act as being violative of the State and Federal constitutions, making the assessor of the city of St. Louis a party defendant.

*349 A general demurrer to the petition was sustained; whereupon, plaintiff not pleading further, a judgment dismissing its petition was rendered, from which this appeal was prosecuted.

II. The Federal Act of 1913, taxing incomes, was sustained after an amendment of the Constitution of the United States which excluded “taxes on incomes,” however derived, from the effect of a prior ruling of the Supreme Court of the United States holding that such taxes should not he laid without apportionment among the several states. [Brushaber v. Un. Pac. Ry., 240 U. S. 17 et seq.; Pollock v. Farmers’ Loan & Trust Company, 157 U. S. 1. c. 581; s. c. 158 U. S. 1. c. 637.] The Sixteenth Amendment of the Constitution of the United States, permitting Congress to levy income taxes without apportionment, was a reversal, by organic law, of the ruling of the Supreme Court of the United States to a contrary effect, which had only been made in the first instance by a bare majority of the justices of that court against the weight of the dissent of the present Chief Justice and three'associate Justices. The Federal Income Tax, thus upheld, is the copy from which the various provisions of the act of the Missouri Legislature were “almost bodily” taken.

„ _ The decision of the Supreme Court of the United States, that the Act of Congress taxing incomes was (after the passage of the Sixteenth Amendment of the Federal Constitution) constitutional, is not an authority touching the contention, that the Act of the Missouri Legislature now under review is in violation of the Constitution of the State; since the provisions of the two Constitutions with reference to taxation are not the same. But that decision of the Supreme Court of the United States is persuasive authority that the various provisions of discrimination and classification common to the two acts are not in and of themselves obnoxious to the “due process” clause of the Federal Constitution, since it was held that the Federal act did not offend that safeguard in the Federal ,Constitution.

*350 The pivotal points presented by this appeal are, therefore, whether the Act of the Missouri Legislature had overridden the Constitution of 'the State in the various respects claimed on behalf of plaintiff below and appellant here.

PowatlVe Prefatory to a discussion .of these, it is well to note the true function of the Legislature as the representative of the people, in the enactment of laws for their government, and its true relation to the Constitution of the State. That it is vested, in its representative capacity, with all the primary power of the people, unless fettered by the Constitution, is a proposition which is the corner stone of our State government, and • one whose stability is unquestionable,- and which has been enunciated by this' court whenever the relation of the Legislature to the Constitution was held in judgment. This greater power and amplitude of action is a characteristic distinction between the Legislature, having full authority as the direct representative of the primary power of the people to .enact any and all laws when not restrained by the Constitution, and the Congress of the United States, whose authority to act is confined to the terms of the grant thereof contained in the Federal Constitution.

The1 government of this State is a representative republic in which all the power to make laws in the name and with the authority of the its constituent elements— its citizens en masse — is lodged in the temporary Legislature, subject only to the restraining clauses of the constitutions of the- State and Nation. Upon this principle is founded the inherent power of that body to legislate at will on any subject and to any extent when, in so doing, neither the State nor the national Constitution is overridden. [U. S. Glue Co. v. Town of Oak Creek, 38 U. S. 499; Pitman v. Drabelle, 267 Mo. 1. c. 84; Harris v. Bond Co., 244 Mo. 1. c. 687; McGrew v. Paving Co., 247 Mo. 1. c. 570; Ex parte Roberts, 166 Mo. 1. c. 212; State ex rel. v. Pub. Serv. Com., 270 Mo. 1. c. 559.]

As án obvious sequence of the power thus vested in the Legislature, the rule is established, in dealing *351 with constitutional restrictions, that they shall not he held to apply, if any reasonable doubt as to their repugnancy to the act under review, can exist in the judicial mind. Under the guidance of these principles, it becomes necessary to inquire in what manner and to what extent the Constitution has restrained the power of the Legislature in the vital matter of providing by taxation for the support of the government of the State. The particular provision of the Constitution relied on to support the errors assigned on this appeal are Sections' 2, 3, 4, 6, 7, and 8 of Article 10 of the Constitution of 1875.

to VaiueItl0n The appellant contends that the act under review (Laws 1917, p. .524, et seq.) in taxing incomes, thereby imposed a tax on property in contravention of Section 4, supra, in that by the terms of the act ^ie ^ax was n°t laid in proportion to value. This precise point, under a substantially similar provision of the Constitution then in existence, was presented for adjudication in Glasgow v. Rowse, 43 Mo. 479, and thus dealt with by Wagner, J., in an opinion concurred in by Bliss and Currier, JJ. In disposing of it the court said:

“The power to tax rests upon necessity, and is inherent in every sovereignty. The Legislature of every State possesses it, whether particularly specified in the Constitution as a grant of power to be exercised or not. In reference to taxation, the Constitution is not so much to be regarded a grant of power as a restriction or limitation of power. . . .

“There are three general classes of direct taxes: capitation, having-' effect solely upon persons; ad valorem, having effect solely upon property; and income, having a mixed effect upon persons and property.

“The argument of the plaintiff’s counsel proceeds on the hypothesis that every species of tax comes within the constitutional prohibition. This' is a mistake. The whole practice of the State has been different, and it has never been challenged, nor could it be, on legal principles.

*352 “The statutes provide for a poll tax, which is iu violation of the ad valorem rule, and is unequal, yet it is clearly within the Constitution. A license is imposed on shows, peddlers, auctioneers, dram-shops and billiard tables, all of which taxes are in violation of the ad valorem principle, but not therefore unconstitutional. The taxes imposed are uniform as to the particular classes, but not in proportion to the taxes assessed on other property.

“The Constitution enjoins a uniform rule as to the imposition of taxes on all property, but does not abridge the power of the Legislature to provide for a revenue from other sources. It was intended to make the burdens of government rest on all property alike — to forbid favoritism and prevent inequality. Outside of the constitutional restriction, the Legislature must be the sole judge of the propriety of taxation, and define the sources of revenue as the exigency of the occasion may require. The income tax was uniform and equal as to the classes upon whom it operated; it did not come within the meaning of the term ‘property’ as used and designated in the Constitution, and I think it was not in conflict with any provision of that instrument.” [Glasgow v. Rowse, 43 Mo. 1. c. 489, 490, 491.]

The reasoning and conclusion of the court in the above case has never been disapproved in this State and has been extensively cited and approved in other states and in text-books, as shown in the brief of respondent. It is predicated upon a distinction made by the court as to the application of the term “property” used in the Constitution. In law and in the broadest sense “property” means “a thing owned,” and is, therefore, applicable to whatever is the subject of legal ownership. It is divisible into different species of property, including physical things, such as lands, goods, money; intangible things, such as franchises, patent rights, copyrights, trade-marks, trade names, business goodwill, rights of action, etc. In short it embraces anything and everything which may belong to a man and in the ownership of which he has a right to be *353 protected by law. Tbe court beld, in effect,; that in directing, as the Constitution does, that taxes on property should be levied according to value, reference was intended to be made to other species of property than that which a person has in his income; that the Constitution did not abridge the power of the Legislature to provide revenue by a taxation of income; that its command was directed to other and distinct classes of property which (on account of their peculiar nature could be measured in value) become the object of taxation independent of the owner, and are susceptible, by proper procedure, to lien or seizure for the enforcement of the tax. The court held that it was property having such a nature and characteristics, and not the mere usufruct of such property, nor the earnings of physical or mental labor, which was referred to in the clause under review and intended thereby to be subjected to taxation according to its value. [City of St. Louis v. Speigel, 75 Mo. 1. c. 146.] In support of this reasoning it is said in Black on Income Taxation (3 Ed.), p. 41, sec. 36:

“A tax on incomes is not a tax on property, and a tax on property does not embrace incomes. . . . For the same reason a tax laid on incomes is different from a tax laid on the property out of which the income arises, and although a statute may tax land at a different rate from that imposed on incomes, it is not therefore in conflict with a constitutional provision that taxation on all species of property must be uniform.” (Italics ours.)

The ruling of the court is also in keeping with what is said'in 37 Cyc., p. 759, 6:

“A tax may be levied on income derived from property in the shape of rent or otherwise, although the property yielding the income is also subjected to taxation; and this does not violate the rule against double taxation, because the two interests or species of property are distinct and severable.” (Italics ours.)

*354 In consonance with, these distinctions the court held, in Glasgow v. Rowse (43 Mo. supra) that the term “property” in the Constitution did not apply to that species of ownership enjoined by the possessor of an income, and hence the Legislature was no more restricted in taxing incomes than it or its subordinate agencies are restricted in laying occupation and other taxes relating to the activities or personalty of the individual taxed; indeed, the fact that the act in question is a tax upon the owner of an income 4s distinctly recognized and. stated in Section 2 of the act, which uses these words; “the net income of a taxable person”^ (italics ours) defining it. It may be that the construction of the word “property” which has appeared as definitive of the subject of ad valorem taxation in all of the three constitutions of this State when originally made, was not in full accord with the broadest possible meaning of that term, in that literally it might include every species of property. But that was not a compellable view, and the restricted construction (which excluded from its purview personal earnings and incomes) had been affixed to this term six years prior to the adoption of the Constitution of 1875 and the'-principle of that construction has since been applied in sustaining taxes of a similar nature, although levied without proportioning the taxation to the value of the thing taxed. Instances are: Express Co. v. City of St. Joseph, 66 Mo. 675, which was a case of the taxation of the gross receipts of an express company; Kansas City v. Whipple, 136 Mo. 1. c. 478, in which the same principle covers poll taxes; City of St. Louis v. Sternberg, 69 Mo. 1. c. 301, and City of Aurora v. McGannon, 138 Mo. 38, license and occupation taxes; City of St. Louis v. McCann, 157 Mo. 1. c. 301, real estate agents, and City of Richmond v. Creel, 253 Mo. 1. c. 257, trade and professional taxes. This distinction has been clearly noted by Walker, J., in a recent case. [See St. Louis v. United Rys. Co., 263 Mo. 1. c. 449.]

*355 CodnsPtrued“words. *354 It is apparent, therefore, that when the Constitution of 1875 was adopted, the word “property” as the basis *355 for taxation, proportioned to value, had acquired a fixed and definite meaning preclusive of personal incomes, occupations, privileges and similar sources of revenue. The rule is firmly settled that the adoption in a later constitution of the words and context of another, which had been construed by a court of last resort, is presumed (in the absence of a contrary intention) to have been done to give the adopted words their adjudicated meaning. [6 R. C. L., p. 54, sec. 49, and cases cited.] It was the evident intent, therefore, of the Constitution of 1875, Section 4, supra, to use the word • “property” in the-same sense and meaning which it had been held to carry when used in a similar section in two prior constitutions. [Jenkins v. Ewin, 8 Heisk. 456; 12 Corpus Juris., 706, and cases cited under note ten; Sanders v. Anchor Line, 97 Mo. 1. c. 30, 31; Ex parte Durbin, 102 Mo. l. c. 103.]

Propertyand III. The cases from other jurisdictions cited in appellant’s brief, holding that income is property and that a taxation of income from land or invested personalty, is, in effect, a taxation of the thing producing the income, do not militate in any sense the conclusions expressed herein. That income is property because it is an own-able thing, is a matter of simple - apprehension which has been affirmed under the definition of property above stated. That it is, “in effect,” a taxation of the labor or capital which produced it, may be conceded, since by reaction it affects the value of the thing or things from which it is derived. But none of these considerations alter the fact that incomes- are distinguishable from the tangible or intangible property yielding them, nor do they affect the established law in Missouri, that incomes are thus connoted by our Constitution and decisions. These recognize incomes as one of the classes entering into the concept of property not required- to be taxed in proportion to value, and, therefore, not falling within the designation of property which the Legislature is forbidden to tax except in that way; and (as a conse *356 qnence of the plenary power of that body to raise revenue at will, absent a constitutional prohibition) falling wholly within the scope of the authority of the Legislature to impose taxes for the sustenance of the State without measuring its impose by ,the value of the thing taxed. Taxation of incomes,.therefore, does not offend Section 4 of Article 10 of the Constitution of 1875.

Exemptions. IV. From what has been said as to the division of “property” into its component classes and the limitation of that term under the Constitution to tangible specific lands and personalty as the basis for taxation ad valorem, it follows that the excluded classes of property embracing incomes, etc., are not within the regulative provisions of the Constitution (Secs. 6, 7, Art. 10) specifying what “property” shall be exempt from taxation.

Kates Neither are the revenues proposed by the present act measured by Section 8 of Article 10, since that pro-also relates to the limitation “of the tax on property,” which term, as has been shown, whenever used in the clauses of the Constitution, does not embrace incomes. Indeed, the only contention of the .learned brief for appellant as to the application of Sections 6, 7, and 8 of Article 10, is predicated upon the theory (which has been shown to be untenable under the settled construction of that term in this State) that the word “property” does embrace incomes.

ofniTaxes.ty V. It is, however, further insisted by appellant that “whether the Missouri income tax is technically a tax on property or not,” it is a void enactment because not uniform as required by Section 3 of -Article 10 Of the Constitution. Realizing the cul de sac into which that position runs on account of the clear, distinct and emphatic statement c*f the rule by this court In Banc that Section 3 of Article 10 of the Constitution does not proscribe uniformity as to any other subject-matters of taxation, except property in the constitutional sense affixed to *357 that term (St. Louis v. United Rys., 263 Mo. 1. c. 449), appellant insists that the ruling in question is obiter and error.

Without for a moment conceding this attack upon the ruling in question to be sound or correct, and for the argument only, taking it for granted that Section 3 of Article 10 of the Constitution is applicable to any and all of the subjects of taxation which the Legislature or its agencies may employ for the purpose of raising revenue, still, there is no merit whatever in the contention of appellant that the section in question is violated by the provisions of the Income Tax Law of Missouri now under review.

The Constitution (Section 3, Art. 10) provides “taxes may be levied and collected for public purposes, only; They shall be uniform upon the same class of subjects,” etc. By necessary implication this constitutional provision recognizes the power of the Legislature to classify the subjects falling within its restriction, and only requires that the tax shall be uniform upon the classified persons, or the classified subjects of taxation. In the Missouri act under review, persons, corporations and entities are distinguished and classified. The act also provides a classification as to the amount, of the portion of the net income of each class of persons, corporations or entities, which is subject to taxation therein. The act further provides for the payment of an identical rate of taxation upon each of the classifications of income subject to its burden, and that each person, corporation or entity shall pay the same tax which is paid by every other person, corporation or entity belonging to the same class. That the Legislature had the power to create such classification is implied by the very terms of the provision of the Constitution (Sec. 3, Art 10) that taxes thereunder shall be uniform upon the same class of subjects. Necessarily this language would be meaningless unless interpreted to empower the Legislature to create distinct classes of “subjects.” In the act under review it is not even contended (conceding the power to levy the tax) that *358 the provisions distinguishing the persons and grading the tax to he paid in accordance with such distinctions, are not founded in reason, in justice and for the utility of the public — the true criteria which should govern all legislative action. ' Indeed the essential justice of the various classifications of the act seems to be evident. Practically identical gradations of tax, classifications of persons, etc., are contained in the Federal act which is the pattern of the Missouri law, and are set forth in the discriminations found to exist in the acts of many other states of the Union and the most enlightened nations of the world.

Independently, therefore, of the application of the rule, which would exscind the subject-matter of the Missouri act from the control of Section 3 of Article .10 of the Constitution (St. Louis v. U. Rys. Co., 263 Mo., supra), the classifications and gradations of incomes subject to tax under the act under review were within the proper cognizance of the Legislature, which had unrestricted power to enact it under the settled construction of the relevant clauses of the Constitution by the Supreme Court of this State.

Neither can wé assent to the contention of appellant that Section 32 of the act in question is violative of Section 3 of Article 10 of the Constitution. The Legislature might well create a class consisting of persons whose income taxes exceeded those paid on their real and personal property; for the reason that persons belonging to such a class occupy a relation of support to the State, reasonably distinguishable from others who pay taxes only on their incomes. Hence, by taxing the former to the extent their income taxation exceeded their property taxation, the Legislature intended to distribute with greater equality and justice the different burdens imposed on the whole body of taxpayers and designed also to encourage and foster the payment of taxes on tangible and specific. property by assigning such taxpayers to a distinct class in the imposition of income taxes, that being a subject of taxation within the control of the Legislature, except that, in any event, a tax on *359 income must bear equally upon every person belonging to tbe same class. This, equality of burden, among the members of any of the different classes recognized in the act, applies to those forming the class designated in Section 32 of the Act under review. And that section is, therefore, not obnoxious to Section 3, Article 10 of the Constitution.

Neither had the Legislature surrendered the power to tax the property of corporations by the act under review. The thing taxed in this act is not, as has been shown, the “property” of a corporation in the adjudicated meaning of that word when employed in the Constitution.

Nor is there any logical basis for the further contention of appellant that the Income Tax Law contravenes the Fourteenth Amendment of the Constitution of the United States. In speaking of the relationship of the Nation to the States, as to the exercise of the taxing power by the latter, the Supreme Court of the United States said:

“There is.no general supervision on the part of the Nation over State taxation; and in respect to the latter, the State has, speaking generally, the freedom of a sovereign both as to objects and methods.” [Michigan Central Railroad Co. v. Powers, 201 U. S. 245; Bell’s Gap Railroad v. Pennsylvania, 134 U. S. 232; Davidson v. New Orleans, 96 U. S. 97; State ex rel. Bolens v. Frear, 148 Wis. 456; Alderman v. Wells, 85 S. C. 507.]

statute VI. The conclusion reached in this case is fraught with the greatest significance and import to the people of the State whose representatives, in the enactment in question, achieved a marked advance in the improvement of the fiscal policy, upon the proper adaptation of which depends the entire wellbeing and support of the commonwealth, the growth and development of its industrial system and the sustenance and stability of the State government, as well as the proper and wholesome functioning of its varied organs and departments. We have approached *360 the question with a full sense of its momentous import and our duty to resolve, if reasonably possible, every doubt in favor of the validity of the law designed for the betterment of the people and to provide sustenance for the conduct of the government. That we have been able to reach this result compatibly with the restraints of the Constitution is a matter of profound satisfaction. Our organic law was framed in the nineteenth century, and was necessarily narrowed in its perspective by the environing conditions of contemporary life. The framers of that instrument were not prophets and were unable, therefore, to forecast future conditions which must arise “in the shifting attitude of human affairs” in the growth of the world, or from new demands of social justice under the complex conditions of a more refined and developed civilization.

The measure which we have been considering is an embodiment in concrete form of the postulate of social science that the revenues of a State should flow equally from all its varied sources of wealth, forming an ample reservoir of power for governmental action and affording the means essential to accomplish the great ends for which the commonwealth was established, relating to the care and education of its youth, the nceessities of internal improvement, the support of its charities, the conservation of the morals and property of its people and the due enforcement of its laws. In the act under review the Legislature performed, with rare intelligence and fidelity to the trust imposed on them by the people, an act of prescient statesmanship, without contravening any of the limitations imposed on their action by the Constitution of the State. We therefore hold the act to be valid.

The judgment of the trial court is, therefore affirmed.

It fe so ordered. Walker, Blair and Graves, JJ., concur; Blair, J., in paragraphs 1, 2,,3, 4, 5 and result; Faris, J., dissents, in separate opinion, in which Wood-son, J., joins; Williams, J., dissents, and concurs in portions of the dissenting opinion of Faris, J.