Havens v. Attorney-General

14 A.2d 636, 91 N.H. 115, 1940 N.H. LEXIS 32

• Court: Supreme Court of New Hampshire
• Decided: June 20, 1940
• Docket: No. 3152.
• Status: Published

Opinions

Marble, J.

The statute under review imposes 'a tax “at the rate of fifteen per cent upon the value of all tobacco products sold at retail in this state . . . measured by the usual selling price.” The tax in the opinion of a majority of the court is a sales tax and not an occupation tax as such taxes are defined in Opinion of the Justices, 82 N. H. 561, 563.

The efficient and economical collection of a tax on particular commodities when sold requires some such system of purchasing and affixing stamps as that prescribed by the act in question. The tax is none the less a sales tax because the purchase of stamps in advance of actual sale is required. The ultimate burden of the tax falls upon the consumer, and the tax is not irretrievably paid when the stamps are procured, for the statute itself provides that the Tax Commission “shall redeem any unused, uncancelled stamps presented by any licensed distributor or dealer, at a price equal to the amount paid therefor.”

Since this court has twice declared that sales taxes, though possessing many of the features of excises, may be validly imposed (Opinion of the Justices, 84 N. H. 559, 576; Opinion of the Justices, 88 N. H. 500), the essential inquiry would appear to be whether the selection of tobacco as the subject of the tax is so arbitrary and unreasonable as to violate the legal requirements of classification.

The assumption which underlies much of the plaintiff’s argument that an act of the legislature imposing a tax should be considered primarily as an exemption statute is believed to be wholly without foundation. “No case is to be found holding a tax invalid because of the exemption of other property by either express provision or failure to enumerate it as taxable.” Canaan v. District, 74 N. H. 517, 540.

The tax system of this State is highly selective, and much property remains untaxed. This fact is well ilhistrated by the statutes taxing incomes and franchises. The former (P. L., c. 65) applies only to income derived from dividends and interest, the latter (Laws 1931, c. 124) only to the franchises of gas and electric utilities.

It is true that the decision in Conner v. State, 82 N. H. 126, holding the income-tax law constitutional, does not turn primarily on the question of classification, although counsel in the argument of the case emphasized the fact that “the act taxes only interest and dividend income as distinguished from the returns of business and personal service.” 380 Briefs and Cases, 256. The question receives adequate treatment, however, in Opinion of the Justices, 84 N. H. 559, 569, holding valid the proposed franchise-tax statute, afterward enacted as Laws 1931, c. 124. In the course of that opinion it is said:

“The further contention has been made that the class prescribed is too narrow, that if the franchises of these utilities are taxed other franchises must be. The power of the legislature to classify property as taxable or non-taxable is a broad one, and the validity of its exercise has rarely been called in question. Classification of property by kind has always been recognized as proper. So, too, classification by use is said to be permissible. 1 Cool., Tax., s. 280. So long as there is a reasonable line of demarcation, and there is no attempt to make taxability depend upon a classification of owners, the legislative power in this matter is supreme.”

The line of demarcation between tobacco and other commodities long ago received legislative recognition in this state by the enactment of statutes restricting the sale or gift of tobacco to minors. P. L., c. 379, ss. 19, 20. Indeed, so distinctively does tobacco stand in a class of its own that it is generally considered by economists as an appropriate subject of taxation. “ ... if there is any one point in taxation on which the experience of modern nations is agreed, that point is the fitness of tobacco to be taxed.” Olmsted, “The Tobacco Tax,” 5 Quar. Jour, of Economics, 219.

The statement of the court in Opinion of the Justices, 82 N. H. 561, 563, that there is no constitutional authority for “the imposition of a charge upon the exercise of a common right” has reference to “the ordinary transactions of private life” which “contain no element subject to supervision either under the police power or as things affected with a public use.” Ib.

If the franchises of gas and electric utilities may be selected for taxation while the franchises of other utilities (water companies, for example) and those of all other corporations engaged in the multitudinous activities of business remain untaxed, it is difficult to understand why tobacco cannot be selected for taxation to the exclusion of other commodities.

In short, the conclusion seems inescapable, in view of the wide latitude of discretion which legislatures possess in matters of this kind, that the imposition of the tax in question is neither arbitrary nor unreasonable as those terms are employed with reference to legislation of this character.

In answer to an inquiry by the Senate concerning the taxation of wood and timber, it was said in Opinion of the Justices, 84 N. H. 559, 575: “It appears to us that ... a tax may legally be laid upon wood and timber upon the event of severance. Such a law would include a distinctive class of property, would be imposed upon a certain event and would apply to all similarly situated. The classification would be supported by abundant reasons; and the incidence of the tax would depend upon a characteristic event, not common to other property.”

With slight changes in phraseology, this language can be applied to sustain the tax in question. It includes a distinctive class of property. It applies to all similarly situated. The classification is supported by abundant reasons: tobacco for human consumption is not a necessity, and its fitness as a subject of taxation has been generally recognized. The incidence of the tax depends upon a characteristic event, a sale, which has been held to be a proper criterion for determining the incidence of a tax.

“The adoption of a tax rate differing from the average rate throughout the state is proper” (Opinion of the Justices, 88 N. H. 500, 505) and the exemption of tobacco used for insecticides and other agricultural purposes is not unreasonable (lb., 511). “ . . . the legislature, under the broad powers which it enjoys of selecting and classifying subjects for taxation, may very well relieve the farmer from a tax imposed upon those” who make a different use of the commodity taxed. Wisconsin &c. Association v. Commission, 207 Wis. 664, 673.

The method of determining the value is eminently practical, and there is nothing to indicate that the Tax Commission, whose duty it is to administer the act, cannot ascertain the usual selling price of tobacco products with reasonable accuracy. The fact that no deduction is made for the Federal excise tax paid by the manufacturers is unimportant. The retailer does not pay the Federal tax “except as it is included in the price charged by the wholesaler.” Annotation 110 A. L. R. 1485, 1491, citing People v. Werner, 364 Ill. 594.

Nor is the provision allowing the distributor a discount on the purchase of stamps discriminatory in any substantial sense. It is obviously designed to meet the objection raised in Opinion of the Justices, 88 N. H. 500, 503, that the taxpayer cannot be made the collector of the tax without adequate compensation. There are other grounds, however, on which the provisions may be sustained. It is stated as a fact in the reserved case that licensed distributors supply ninety-five per cent of the tobacco products sold at retail in the State. As suggested by defendants’ counsel: “The discount to distributors may also be sustained as a reasonable method of preventing evasion of the tax. There are approximately 4,904 retail outlets of tobacco products in the State and only 109 wholesale out lets or distribution centers, including 12 operated by chain systems. The five per cent discount tends ‘to encourage distributors to affix such stamps’. . . and, in so doing, reduces the number of outlets which the Tax Commission must supervise closely. By reducing the number of persons handling the stamps, the opportunities for fraud and evasion are also reduced, and the efficiency of supervi on is increased.”

The separate stores or vending machines of a chain organization are treated as retail outlets, and each must be operated under a dealer’s license. The organization itself, because of the extent of its business and the method by which it distributes products from a central supply station to the individual units of the system, is properly classed as a distributor.

The slight “fractional departure” from the established rate of fifteen per cent occasioned by the use of stamps of “denominations of not less than one-half cent” is too trifling to merit serious consideration. “The question of equality is a practical one.” Keene v. Roxbury, 81 N. H. 332, 338.

The license fee which dealers are required to pay is uniform and nominal. It differs radically from the tax prescribed by the proposed act of 1927 (House Bill No. 180, pp. 30-34) to which plaintiff’s counsel refer in their brief. The bill in question sought to impose on the retailer a “license tax” ranging from $2.50 to $75, depending on the size of the community in which he did business. This was deemed to constitute an occupation tax. Opinion of the Justices, 82 N. H. 561.

Registration of dealers is essential to the proper administration of the law, and the fee required by the present statute covers hardly more than the clerical expense involved. It is not a tax. State v. Forcier, 65 N. H. 42. The sale of unstamped tobacco is made punishable by fine or imprisonment or both. Inspection is facilitated by reason of the license requirements and some measure of protection against unlawful competition is thereby afforded law-abiding licensees. Under these circumstances the nominal fee of one dollar charged the dealer for his license is unobjectionable.

The fact that the plaintiff may have suffered some loss of profits through diminished business because certain customers are buying cheaper products is of no materiality. “Taxes in themselves are economic charges which must be paid in some way by the person affected. They must either come from the surplus of the taxpayer, or the burden must be passed on to those with whom the taxpayer has economic relations. Except in pure theory it seems impossible to have a single uniform system of taxation affecting all alike. The state in seeking objects for taxation must act selectively, placing the burden here, and exempting from it there.” 23 Cornell Law Quar. 45. The expedient distribution of that burden, within constitutional limitations, is the task of the legislature, and it is the “universally accepted doctrine” that no legislative act shall be declared unconstitutional “except upon unescapable grounds.” Musgrove v. Parker, 84 N. H. 550, 551. In the opinion of a majority of the court no such grounds exist in the present case.

Petition dismissed.

Branch and Woodbury, JJ., concurred.