Hager v. Walker

107 S.W. 254, 128 Ky. 1, 1908 Ky. LEXIS 29

• Court: Court of Appeals of Kentucky
• Decided: January 23, 1908
• Status: Published

Opinion

Opinion op the Court by

Judge Carroll

Affirming.

This action was brought by the several appellees, who were engaged in carrying on the business of real, estate agents in the cities of Covington and Newport, both of which are cities of the second class, and in the city of Ludlow, a city of the fourth class, to enjoin the collection of a license tax imposed upon real estate agents by the revenue act of March 15, 1906. Acts 1906, p. 88, e. 22. Subdivision 4, art. 12, section 1, of this act contains this provision: “Before engaging in any oceupation or selling any article named in this subdivision "of article 12 of this act, the person'desiring to do so shall procure a license and pay the tax thereon, as follows: * * * On each real estate agent in cities of the first, second and third class, twenty-five dollars; same, in each city or town of the fourth, fifth or sixth classes, ten dollars.”

The validity of this statute is assailed principally upon the ground that, although a State tax, it is not uniform throughout the State, as real estate agents outside of cities and towns are not required to pay any license, and the tax upon agents in cities is graduated by the class of the city in which they do business. The statute in question is a revenue measure This point is admitted by the Attorney General, and there can be no doubt about its correctness. The occupation taxed is essentially a harmless one. It has none of the features requiring police regulation, and there is no reason why the police power should be invoked concerning it, so that, in inquiring into the validity of the statute, we will treat it as enacted for revenue purposes.

The sections of the Constitution that are directly involved in the consideration of the questions before us are section 171, declaring that “the General Assembly shall provide by law an annual tax, which with other resources shall be sufficient to defray the estimated expenses of the Commonwealth for each fiscal year. Taxes shall be levied and collected for public purposes only. They shall be uniform upon all property subject to taxation within the territorial limits of the authority levying the tax; and all taxes shall be levied and collected by general laws” — and section 181, reading in part: ‘ ‘ The General Assembly may by general laws only provide for the payment of license fees on franchises, stock used for breeding purposes, the various trades, occupations and professions, or a special or excise tax, and may by general laws dele-' gate the power to counties, towns, cities and other municipal corporations to impose and collect license fees on stock used for breeding purposes, on franchises. trades, occupations and professions.”

. "We do not agree with counsel for appellee that the direction in section 171 that “taxes shall be uniform upon all property subject to taxation within the territorial limits of the authority levying the tax” applies directly or specifically to the license fees that may be levied on franchises, stock used for breeding purposes, trades, occupations, and professions mentioned in section 181. Yet it is entitled to serious consideration as indicating a purpose that all laws imposing taxes shall operate in a uniform manner, to the end that no favoritism can be shown or discrimination be practiced. Section 171 authorizes the imposition of an ad valorem tax upon all the property in the State for State purposes, and in counties, cities, towns, and taxing districts for local purposes. This ad valorem property tax, whether imposed or levied for State, county, municipal, or local purposes, must be uniform-within the territory in which it is imposed. If it be for State purposes, it must be exactly the same in all parts of the State; and uniformity must exist when it is authorized to be levied by local authorities for local purposes. It is very clear that the Legislature has no power to select, classify, or discriminate in the imposition of what we may term a property or ad valorem tax — that is, a tax levied upon all the property in the State — as lack of uniformity in this respect would be a direct violation of section 172, providing in part that “all property not exempted from taxation, by this Constitution shall be assessed for taxation at its fair cash value, estimated at the price it would bring at a fair voluntary sale,” as well as of section 174, providing in part that “all property whether owned by natural persons or corporations shall be taxed in proportion to its value, unless exempted by the Constitution; and all corporate property shall pay the same rate of taxation paid by individual property.” We will therefore proceed to inquire whether or not, and to what extent the rule of uniformity applies to the imposition of license fees on franchises, stock used for breeding purposes, trades, occupations, and professions.

The authority to tax under this section is as far-reaching and as sweeping as language could make it. It would be difficult to find three words that cover wider fields of employment than trades, occupations, and professions. Under its authority to' tax them the General Assembly has the power and the right to tax every business and every individual in the State — the merchant, trader, and banker; the lawyer, minister, and doctor; the mechanic and farmer. Indeed, it would be difficult to mention a person who has not some irade, occupation, or profession, and, if he has, the authority to tax him is granted, and this without respect to the nature or character of the trade, occupation, or profession, or whether it be humble or great, large or small. Nor does the Constitution undertake to place any limitation upon the amount of tax that may be imposed, although it may be conceded that, if it should be so unreasonable or arbitrary as to amount to a confiscation of property or a denial of the right to engage in a particular trade, occupation or profession, the courts would interpose to protect the class of persons affected from this oppressive burden, on the ground that it was a violation of the principles recognized and established in the Bill of Rights, declaring that all men have “the right of seeking and pursuing their safety and happiness” and ‘ ‘ the fight of acquiring and protecting property. ’?

The General Assembly may also grant to counties, towns, cities, and other municipal corporations the authority to exact license fees, and within the territory affected the discretion is as far-reaching as when exercised by general laws for State purposes. And it also seems that, if the power is delegated to those local subdivisions to impose the taxes authorized by this section, the local authorities are invested with the discretion to fix the license fees at any sum, always subject to the limitation that it must not be unreasonable or arbitrary. "We also think that in each class'of these local subdivisions, as in the first, second, third, fourth, and fifth class cities and towns, the local authorities are not required to impose the same amount of tax. Cities of the first class may, to illustrate, charge a license fee to lawyers of $25 a year, and cities of the second class a license fee of $10; and so cities of the third class may charge architects a license fee of $15, and cities of the fourth class a license fee of $5. And this right to impose different fees in cities of different classes may be put upon the ground that the cities and towns of the State are divided by the Constitution into six classes, each class being governed by a set of laws applicable alone to the cities within that class and constituting a separate and distinct governmental agency with a set of laws applicable alone to it. But the license fees imposed upon any particular trade, occupation, or profession in any class of cities must be uniform in the sense that the same fee must be charged every person engaged in the particular trade, occupation, or profession that is taxed. We doubt if it would be seriously contended that the governing authorities in cities of the first class might impose a license tax of $50 upon doctors residing or doing business in one part or locality of the city, and a tax of $25 upon doctors living or doing business in another part or locality. The rule of uniformity in this respect applies equally and alike to every trade,"occupation, and-profession that is singled out for taxation,. We also believe that it is competent for the Legislature under this section by general laws for State purposes, as well as by a general law delegating the power to the municipalities mentioned, to divide trades, occupation’s, and professions into classes, and to impose a different license fee upon each class that the- trade, occupation, or profession may fairly and reasonably be divided into. To illustrate: Dealers in hardware might be divided into wholesale and retail dealers. And trades,- occupations, and professions may be further classified according to the volume of business done by them. Nor is the Ueneral Assembly, either by general laws for State purposes or general law in aid of or for the benefit of municipalities, required to impose the license fees that may be levied upon all trades, occupations, and professions. Any one or more trades, occupations, or professions may be singled out for taxation, and all the others not thus selected be exempted. It will thus be seen that according to our construction of this section it is susceptible of wide and varying application.

The only remaining question, and the vital one in this ease, is whether or not the license fees imposed must be uniform upon the particular trade, occupation, or profession that is singled out for taxation. And, confining our observations to general laws enacted for the purpose of bringing revenue into- the State treasury, we mean “uniform” in the sense that precisely the same license fee must be exacted from every person within the State who is engaged in the trade, occupation, or profession that is taxed, without reference to whether he lives in a sixth-class town or a first-class city, or does business in the country or in a city. We do not believe it was contemplated by this section that the General Assembly might impose a license fee for State purposes upon blacksmiths in one county and exempt blacksmiths in another, or exact a license fee from physicians practicing in one city and exempt physicians practicing in another, or to say that the auctioneer who lived in a sixth-class town should pay a license fee for carrying on his occupation and the auctioneer who lived outside the town limits should be exempt. The- authority to impose these special taxes does not carry with it the right of discrimination and exemption in any class that is dealt with-. . The language, “The General Assembly may by general laws only” provide for this species of revenue, would seem to imply that it was intended that the application of the law should be general, operating equally and alike upon every trade, occupation, and profession that it was designed to reach. If a few, or any number of persons less than all, who- follow a designated trade, occupation, or profession may be exempt, while the others are taxed, the law imposing’ the tax would not be general, but special or local, and forbidden by sections 59 and 60 of the Constitution. This construction is in harmony with the dominant spirit of the Constitution, which provides for uniformity in almost every subject it treats of, among which may be noticed the following, where the idea of uniformity has been carried to its fullest extént, as in the jurisdiction, number, and character of courts, as well as the trial of causes ; in' everything pertaining to the enactment of laws; the punishment of crimes; the regulation of elections; the creation and division of counties; the fees and compensation of public officers; the establishment, government, and classification of cities and towns; the amount of indebtedness that municipalities may create or incur; the regulation and control of railroads, common carriers, and public corporations generally. A weighty reason, too, in favor of uniformity, is the further consideration that it is important that the representatives of the people in the lawmaking department of the government shall all.be directly interested in behalf of their constituents in laws involving the subject of taxation. A member of the Legislature might be willing to vote a tax upon trades, occupations, and professions in other districts than his own, not having his attention specially called to its lack of equality or fairness; and so the matter might be extended to embrace any number less than a majority of the members of the Legislature. But, if the constituents of the member — the people to whom he is immediately responsible — are to bear their share of the burden imposed, they would all be interested in seeing, that it was fairly and equally distributed, and their desires and interests would naturally have their weight. This restrictive influence is not to be underestimated in dealing with questions of • this character.

We believe that the fundamental idea of taxation is that the burdens shall be borne equally and alike by all persons, and that no one class shall be taxed for the benefit of another, or one class be discriminated against to the advantage of another, or an exemption allowed one that is not conceded to another. If the General Assembly has power to tax real estate agents living in cities of the first, second, third, fourth, and fifth class, and towns of the sixth class, and to exempt all who do not live or do business in these cities and towns, it has the power, to further select and classify by exempting those who live in towns of the sixth class.; and it would be difficult to draw the line between its power to tax and exempt, or to tax in such an unequal manner as that it would be equivalent to gross discrimination, if not exemption.

The argument for that State that as the Constitution has divided the cities and towns into classes, and that therefore the Legislature under this section may charge license fees dependent upon the class of city or town the person taxed lives in, is not in our opinion sound. The cities and towns were divided into classes distinctly for the purpose of dealing with their local affairs. The classification was not intended for any other purpose, or designed to influence or control legislation for State purposes. It would be extending the effects of classification of municipalities far beyond its legitimate meaning to adjudge that the-Legislature might make the general law a local one by limiting its operation to certain territory. In the Constitution adopted in 1850, and that remained in effect until the adoption of the present Constitution in 1891, the Legislature was left free from constitutional restraint in the matter of taxation. There was no limitation whatever upon its power. Indeed, it is a curious fact, that the word “taxation” is not mentioned in the old Constitution, nor does the word “revenue” appear, except in the section requiring that “all bills for raising revenue shall originate in. the House of Representatives.” Yet in the early case of City of Lexington v. McQuillan, 9 Dana. 513, 35 Am. Dec. 159, decided in 1840, and under a Constitution that was also silent upon this question, the court laid down the following principles that have been accepted without question as sound from that day to this: "When shall a tax be levied? to what amount? shall it be a capitation or property tax? direct or indirect? ad valorem or specific.? and what classes of property are the fittest subjects of taxation? — are all,questions wisely confided by our Constitution to the discretion of the legislative department- * * * But in some other respects, and so far as the power of taxation may be effectual without being thus limited, it is, in our judgment, limited by some of the declared ends and principles of the fundamental law. Among these political ends and. principles, equality, as far as practicable, and security of property against irresponsible power, are eminently conspicuous in our State Constitution. An exact equalization of the burden of taxation is unattainable and Utopian. But still there are well-defined limits within which the practical equality of the Constitution may be preserved, and which, therefore, should be deemed impassable barriers to legislative power. Taxation may not be universal; but it must be general and uniform. Thus, if a capitation tax be laid, none of the class of persons thus taxed can be constitutionally exempt upon any other ground than that of public service; and, if a tax be laid on land, no appropriated land within the limits of the State can be constitutionally exempted, unless the owner be entitled to such immunity in consequence of public service. The Legislature, in the plenitude of its taxing power, cannot have constitutional authority to exact from one citizen, or even one county, the entire revenue for the whole Commonwealth. * * * And, although there may be a discrimination in the subjects of taxation, still persons in the same class and property of the same kind must generally be subjected alike to the same common burden.. This alone is taxation, according to our notion of constitutional taxation in Kentucky.”

In Bullitt v. City of Paducah, 3 S. W. 802, 8 Ky. Law Rep. 870, decided before the present Constitution, the city was authorized by its charter to collect a license upon certain occupations and professions, among them being attorneys at law. In adjudging the right of the Legislature to authorize the imposition of such tax the court said: “It is well settled that a license upon any trade, profession, or calling may be imposed under legislative authority. It is in effect a tax on the profession or calling, and must be levied on all alike in the trade or profession singled out for fixation.” In Smith v. City of Louisville, 6 S. W. 911, 9 Ky. Law Rep. 779, in passing on the validity of aJi ordinance authorizing the imposition of a tax upon vehicles and classifying them according to the number of animals used in their transportation, the court, in sustaining the validity of the ordinance, said: “It operates upon all alike. There is no distinction of persons. Every one using one horse to his vehicle is taxed alike, and so of each class. The tax is uniform as to each subject of the given class.” In Rankin v. City of Henderson, 7 S. W. 174, 9 Ky. Law Rep. 861, it was said: “That the Legislature has the right to classify and impose a license tax on trades is well settled, and that such a tax, when imposed, is not reqi lired to apply to all kinds of business pursuits is equally certain. Those pursuing like occupations must be taxed in the same manner or in proportion to the amount of business conducted.. We perceive, thej efore, no valid objection to this legislation, as it app ies alike to all of. the classes to be taxed. ’ ’ In Simrall v. City of Covington, 90 Ky. 444, 12 Ky. Law Rep. 404, 14 S. W. 369, 9 L. R. A. 556, 29 Am. St. Rep. 398, where an ordinance imposing a tax upon insm mce agents was before the court, it was said: “In tris State we have no constitutional provision as to tai ation eo nomine; but it is a settled constitutional rule, declared by oft-repeated decision of this court, that every tax must be certain, universal, and, so far as practicable, equal and uniform. Burdens cannot constitutionally be imposed upon particular individ uals, while others of the same class or locality, who hive rendered no public service, are exempt.” In Schuster v. City of Louisville, 89 S. W. 689, 28 Ky. Law Rep. 588, it was said: “While the municipal legislad are may, under the amendment., classify personal ]i roperty and levy a tax ad valorem on some personal property, and tax other personal property on the 'basis of the income, licenses, or franchises, the tax must be uniform within the territorial limits of the authority levying the tax; and under the guise of substituting one method of assessment for another the burdo a which should fall upon all equally must not be shifted so as to throw upon some more of the common burden than their proper share.”

The authorities we have cited arose in cases involving fcixation for municipal purposes; but they illustrate the rule, that is firmly embodied in the principles of ci institutional law that have always obtained in this State, that taxation must be uniform and equal as; x? early as it is practicable to. make it so, and that, although the Legislature may single .out certain, species of property, classes of persons, and trades, occupations, and professions, dealing with each class separately, yet the burden upon every person in the class thus selected must be the same. If it is imposed upon the person, it must be equal and uniform; and SO' if it is graduated according to the amount of business done. The power to tax according to the volume of business done has been upheld by this court in Strater Bros. Tobacco Co. v. Commonwealth, 117 Ky. 604, 25 Ky. Law Rep. 1717, 78 S. W. 871, and here" again the principle of uniformity was applied; the court saying: “We do not think the tax is lacking in the quality of uniformity. It is the same on each person or corporation which manufactures the same quantity of tobacco. The Legislature had the right to impose a graduated license tax. The larger manufacturer is required to pay more than the smaller one, based upon the value of the product manufactured. ” And so in Brown-Foreman Co. v. Comth., 125 Ky. 402, 101 S. W. 321, 30 Ky. Law Rep. 793, where the tax was levied upon the volume of business done.

In the case before us no account is taken of the amount of business done, nor is it pretended that the lack of uniformity and equality in the tax imposed was made to depend upon the quantity of business transacted by the real estate agents taxed. .The General Assembly,' doubtless proceeding upon the idea that the real estate agents in large cities transacted a larger business than those engaged in smaller cities, imposed a heavier tax upon them; but this tax was not fixed with reference, so far as the act' shows, to the amount of business done. It may,, be and probably is, true that some real estate agents in large cities do a larger business than real estate agents in smaller places; but it does not necessarily follow that there are not real estate agents in fourth-class cities who do a larger business than real estate agents in second, or third, or even first class cities. It might also safely be said that there are many agents who do not live in, or have a place of business in, any city or town, who do a mere profitable business than many agents who have their places of business in cities or towns. The vice in the law is that, in undertaking to single out for taxation the occupation of real estate agents, it not only taxes them in unequal amounts, depending upon the- place in the State where they do business, but also exempts entirely other real estate agents, thus plainly discriminating, against real estate agents who live or have a place of business in a city or town, in favor of those who do not live and have no place of business in a city or town.

It is insisted for the State that a license fee or tax imposed for State purposes may be graduated alone by the population of the city or county in which such business may be conducted, or by the fact that the person from whom the fee is exacted resides or does business in one city or another, or in 'this county or that one; but, as we have endeavored to point out, classification cannot be made on these lines. The purpose of this opinion is not to limit or restrict in any respect the power of the Legislature given to it under the section of the Constitution in question, or to deny to it the right to classify, divide; and select, in any reasonable manner it chooses, trades, occupations, or professions for taxation, or to prevent it from exempting entirely any one or more trades, occupations, or professions, but only to declare that, when any trade, occupation, or profession is 'selected for taxation, the tax levied upon it, or the license fee exacted from-persons engaged in it, must be equal and uniform throughout the State, whether the tax be upon the individual -or the business. • . . . -

It is everywhere recognized-that .it-is impossible-.. to produce exact uniformity of taxation. Absolute equality is unattainable. As said by Justice Miller in Taylor v. Secor, 92 U. S. 575, 23 L. Ed. 663: “Perfect equality and perfect uniformity of taxation, as regards individuals or corporations, or tbe different classes of property subject to taxation, is a dream unrealized.” The nearest attempt to equality in taxation is the income tax, or a tax based upon the amount or volume of business done, or an ad valorem tax .upon property,, .which exacts from every one the same per cent, upon property owned by him. But there should be no two opinions that* an act that arbitrarily singles out for taxation a certain class of persons, and exempts some of them altogether, is unfair and unequal. It must be kept in mind that in the consideration of this question 'we are dealing with a subject that dpes not fall within the purview of the police power of the State, and is not touched by its comprehensive and yet undefined reach. What we have said has no application to a condition that might arise when this power is invoked as authority for the exaction of a license fee, or the levy of a tax, or the classification or exemption of persons engaged in occupations, pursuits, or business that may fairly and reasonably come within the police power of the State, as places where liquor is sold, or circuses, theaters, or other amusements are carried on.

In considering this case we have not been unmindful that it is’ everywhere conceded that the power to lay taxes .is the' highest attribute of sovereignty, the exercise óf which is confided alone to the lawmaking department- of the government, and that the* courts are reluctant to interfere with the discretion vested in the representatives of the people in imposing taxes that are necessary to. sustain the government. Especially is this true of a property or ad valorem tax operating equally and upon all property within the territory affected. The amount of tax that shall he thus imposed, if uniform and not restrained by constitutional provisions, is vested exclusively in the legislative department of the State, and entirely beyond the power of the courts to control. People v. Commissioners of New York City, 67 U. S. 620, 17 L. Ed. 451; Union Pacific R. Co. v. W. S. Penniston, 85 U. S. 5, 21 L. Ed. 787. But this unlimited freedom from judicial control does not extend to taxes imposed upon trades, occupations, or professions. Bells Gap R. Co. v. Pennsylvania, 134 U. S. 232, 10 Sup. Ct. 533, 33 L. Ed. 892; Connolly v. Union Sewer Pipe Co., 184 U. S. 540, 22 Sup. Ct. 431, 46 L. Ed. 679. And the courts, when the question comes to them, have the undisputed right to determine whether or not a legislative act is in violation of the Constitution, although its purpose may be the raising of revenue, Thierman Co. v. Commonwealth, 97 S. W. 366, 30 Ky. Law Rep. 72; Ragland v. Anderson, 125 Ky. 141, 100 S. W. 865, 30 Ky. Law Rep. 1199.

Entertaining the opinion that the act being considered is violative of the Constitution for the reasons stated, the judgment of the lower court so declaring must he affirmed.