O'Connell v. State Board of Equalization

25 P.2d 114, 95 Mont. 91, 1933 Mont. LEXIS 115

• Court: Montana Supreme Court
• Decided: July 19, 1933
• Docket: No. 7,159.
• Status: Published

Opinions

MR. JUSTICE STEWART

delivered the opinion of the court.

This is an original proceeding instituted by Brian D. O’Connell, a taxpayer, against the State Board of Equalization, the members thereof, the Attorney General, county attorney of Lewis and Clark county, and the Governor of the state, as officials charged with the enforcement of Chapter 181 of the Laws of the Twenty-Third Legislative Assembly, approved March 16, 1933. The complaint recites the enactment of the law, that defendants are charged with the execution thereof, and that they are about to proceed to put the same into effect, and will do so unless restrained by this court.

Chapter 181 was designed and enacted as an income tax law. In its general provisions it follows closely the context of the federal income tax law and levies upon “every indi vidual” subject thereto a graduated tax measured by net income. The tax base is ascertained after allowing certain enumerated deductions and exemptions from the gross income from all sources.

It is of historical interest to observe that the legislative assembly of the state of Montana at its twenty-second session in 1931 enacted Chapter 190, creating “The Montana Taxation and Consolidation Commission.” This commission was charged with the duty of examining the taxation system of the state of Montana and was required to make report and findings to the next succeeding legislative assembly. Such examination was made by the commission and report given to the Governor and the Twenty-Third Legislative Assembly. The report recommended the enactment of an income tax law for the state of Montana, and said: “Able lawyers disagree as to the authority of this state to impose such a tax without a constitutional amendment, but we believe after careful analysis of our court decisions and the decisions of courts of other states that such an amendment is not necessary and that the practical thing to do is to go ahead on the assumption that our supreme court will follow the weight of judicial opinion when the issue comes before it and hold that such a tax is not prohibited by our Constitution. The 1931 legislative assembly of the state of Idaho proceeded in this manner and at the same time submitted a constitutional amendment to the people, giving the legislature enlarged powers with reference to tax. The court held a constitutional amendment not necessary. (See Diefendorf v. Gallet, 51 Idaho, 619, 10 Pac. (2d) 307.) ”

The Governor in his message to the Twenty-Third Legislative Assembly called attention to the taxation situation .in the state, and declared that the income tax proposition had passed the experimental stage, and recommended that a sound and carefully drawn income tax law be enacted. In the course of his discussion of the matter, he said: “The supreme court of our sister state, Idaho, has held in a recent case' that it was within the power of the legislature to enact an income tax law without submitting the question to a vote of the people, under a Constitution very similar to our own. If, however, in your opinion a constitutional amendment is required in this case, it should be submitted to the present legislative assembly.”

In conformity with the Governor’s recommendation, Chapter 181, now under consideration, was enacted. In further conformity with his recommendation, the legislature provided for the submission of a constitutional amendment under the terms of Chapter 83 of the Laws 1933. The proposed amendment, by the provisions of the Act of submission, will be voted upon by the people at the general election to be held in November, 1931. If adopted, the new amendment will add to section 1 of Article XII of our Constitution the following provision: “The Legislative Assembly may levy and collect taxes upon incomes of persons, firms and corporations for the purpose of replacing property taxes. These income taxes may be graduated and progressive and shall be distributed to the public schools and to the state government.”

Chapter 181 very closely approximates the Idaho Act (Laws Idaho 1931 [Ex. Sess.], Chap. 2) mentioned in the report of the commission and in the message of the Governor. There is one important difference in the two laws. The Idaho Act imposes the tax directly upon corporations by defining the term “person” (sec. 2) as including a corporation, and the term “taxpayer” as meaning any person subject to a tax imposed by the law (sec. 2). The Montana Act levies the tax upon “every individual” subject thereto (sec. 2), and defines the word “taxpayer” as not including corporations (sec. 1). The Idaho Act requires taxpayers to list dividends received from corporations, but authorizes the deduction thereof in the computation of the tax. The Montana Act requires the inclusion of corporate dividends and makes no provision for a corresponding deduction in the computation of the tax. There are some other variations or differences in the two laws, but generally speaking, they are either characteristic of all income tax laws or unimportant, and are not controlling in the matter now before the court.

The plaintiff attacks the law on the ground that it is unconstitutional because in conflict with sections 1, 9 and 17 of Article XII of our state Constitution, which are as follows: Article XII, section 1: “The necessary revenue for the support and maintenance of the state shall be provided by the legislative assembly, which shall levy a imiform rate of assessment and taxation * * * of all property. * * * ”

Article XII, section 17: “The word property as used in this article is hereby declared to include moneys, credits, bonds, stock, franchises and all matters and things (real, personal and mixed) capable of private ownership, but this shall not be construed so as to authorize the taxation of the stocks of any company or corporation when the property of such company or corporation represented by such stocks is within the state and has been taxed.”

Article XII, section 9: “The rate of taxation on real and personal property for state purposes * * * shall never exceed two (2) mills on each dollar of valuation, unless the proposition to increase such rate * * * shall have been submitted to the people at the general election. * * * ”

The amended complaint' filed subsequent to the argument in this case attacks the constitutionality of the law on the ground “that it seeks to impose an income tax upon individuals, firms, and partnerships and not upon corporations or artificial persons exercising the same function and within the same class of persons and businesses or occupations.”

The complaint asserts that Chapter 181 assumes to change the system of taxation heretofore and now authorized, established and limited by section 1 of Article XII of the Constitution, and it is argued in support of this contention that for forty years last past and prior to the enactment of the chapter the revenues for state purposes were limited to ad valorem taxes and license taxes upon persons and corporations doing business in the state. The Attorney General argues that such an allegation is not correct, in fact or in law, and cites the fact that for at least thirty-six years we have had an inheritance tax law in the state of Montana, and that Article XII of the Constitution does not assume to create or design any system of taxation.

Before entering upon a discussion of the questions here involved, it is important to call attention to the fact that our Constitution is not a grant but a limitation of the powers of the legislature. This court has often noted the fundamental distinction between the Constitution of a state and the Constitution of the United States. The following language is most expressive: “A state legislature is not acting under enumerated or granted powers but rather under inherent powers restricted only by the provisions of the sovereign Constitution. In the matter of legislation, the people through the legislature have' plenary power, except in so far as inhibited by the Constitution, and the person who denies the authority in any given instance must be able to point out distinctly the particular provision of the Constitution which limits or prohibits the power exercised.” (State ex rel. Sam Toi v. French, 17 Mont. 54, 41 Pac. 1078, 30 L. R. A. 415; State v. Camp Sing, 18 Mont. 128, 44 Pac. 516, 56 Am. St. Rep. 551, 32 L. R. A. 635; Missouri River Power Co. v. Steele, 32 Mont. 433, 80 Pac. 1093; Hilger v. Moore, 56 Mont. 146, 182 Pac. 477, 481.)

This court has long indulged every possible presumption in favor of the constitutionality of a legislative Act. In a per curiam opinion in the test case involving the validity of state highway debentures it was said: “At the threshold we bear in mind that every presumption must be indulged in favor of the constitutionality of the Act; every reasonable doubt must be resolved in favor of legislative action.” The question for the court’s determination is not whether it is possible to condemn but whether it is possible to uphold the Act. When two constructions are possible, one which will result in declaring the statute constitutional and the other unconstitutional, the court without hesitation will pronounce in favor of its constitutionality. (State ex rel. Diederichs v. State Highway Commission, 89 Mont. 205, 296 Pac. 1033, 1034.)

This court many years ago approved and announced the rule declared by Judge Cooley that “in case of a statute assailed as unconstitutional we stand committed to the rule that no such enactment will be pronounced invalid unless its nullity is made manifest beyond a reasonable doubt.” (State v. Camp Sing, supra; State ex rel. Campbell v. Stewart, 54 Mont. 504, 171 Pac. 755, Ann. Cas. 1918D, 1101; Hilger v. Moore, supra.)

We have observed that Chapter 181, now under consideration, was copied substantially from the Idaho law. This court long ago announced, and has frequently repeated, the principle that, by the adoption of a statute of another state, the construction theretofore placed thereon by the courts of such state is impliedly approved, provided our own statute is silent as to the manner of construction. (State ex rel. Rankin v. State Board of Examiners, 59 Mont. 557, 197 Pac. 988; Territory v. Stears, 2 Mont. 324; Lindley v. Davis, 6 Mont. 453, 13 Pac. 118; First National Bank of Butte v. Bell etc. Min. Co., 8 Mont. 32, 19 Pac. 403; Price v. Bush, 10 Mont. 61, 24 Pac. 749, 9 L. R. A. 467; Stackpole v. Hallahan, 16 Mont. 40, 40 Pac. 80, 28 L. R. A. 502; Murray v. Heinze, 17 Mont. 353, 42 Pac. 1057, 43 Pac. 714; Largey v. Chapman, 18 Mont. 563, 46 Pac. 808; Stadler v. First Nat. Bank, 22 Mont. 190, 56 Pac. 111, 74 Am. St. Rep. 582; Butte & B. Consol. Min. Co. v. Montana Ore Pur. Co., 25 Mont. 41, 63 Pac. 825; Winslow v. Dundom, 46 Mont. 71, 125 Pac. 136; Miller v. Miller, 47 Mont. 150, 131 Pac. 23; Moreland v. Monarch Min. etc. Co., 55 Mont. 419, 178 Pac. 175; Brown v. Roberts, 78 Mont. 301, 254 Pac. 419.)

At the time the legislature considered Chapter 181, it had before it the official report of the Montana taxation and consolidation commission, as well as the message of the Governor. Particular attention was directed not only to the Idaho statute, but to the case of Diefendorf v. Gallet, 51 Idaho, 619, 10 Pac. (2d) 307, 314, construing the Idaho Act. It is not often that knowledge of the fact of construction by the court of another state is so obvious as is the case here. The very fact that the Act was considered by the legislature in the light of the construction placed upon it by the Idaho supreme court is most impressive.

It will be observed that the Idaho court discussed almost every possible objection that could be raised against the law and resolved all of them in favor of the constitutionality of the Act. So -far as these considerations are pertinent to this Act, and wherever reasonably possible, they are controlling. Of course, it cannot be said that the construction of the Act in Idaho would necessarily be binding in this state in the face of different constitutional provisions. In this connection the doctrine announced by the United States Supreme Court in the case involving the constitutionality of the federal corporation license tax law is in point. The court there said: “While the mere declaration contained in a statute that it shall be regarded as a tax of a particular character does not make it such if it is apparent that it cannot be so designated consistently with the meaning and effect of the Act, nevertheless the declaration of the law-making power is entitled to much weight, and in this statute the intention is expressly declared to impose a special excise tax with respect to the carrying on or doing business by such corporation. * * * ” (Flint v. Stone Tracy Co., 220 U. S. 107, 31 Sup. Ct. 342, 346, Ann. Cas. 1912B, 1312, 55 L. Ed. 389.) Here the legislature did not rely alone upon the principle that by adopting the statute from Idaho it adopted the construction thereof, but for the purpose of independently expressing legislative intent it enacted section 31, which reads as follows: “For the purpose of raising revenue, the net income required to be shown on returns under this Act and taken as the basis for determining the tax hereunder shall not be classified or held or construed to be property. And all income, except what has been expressly exempted under the provisions of this Act and income not permitted to be taxed under the Constitution of this state or the Constitution or laws of the United States, shall be included and considered in determining the net income of taxpayers within the provision of this Act.”

This section is taken literally from the Idaho Act, and was construed and sustained by the supreme court of that state in Diefendorf v. Gallet, supra. We do not hesitate to say that the legislative declaration has some persuasive effect, and rightly so. Our Code, section 10520, Revised Codes 1921, and the declaration of this court leave no doubt on the subject. “In the construction of statutes, the intention of the legislature is to be pursued, if possible” (Cottonwood Coal Co. v. Junod, 73 Mont. 392, 226 Pac. 1080), and “when a general and particular provision are inconsistent, the latter is paramount to the former. So a particular intent will control a general that is inconsistent with it.” (Sec. 10520, supra; see, also, Joplin Supply Co. v. West, 149 Mo. App. 78, 130 S. W. 156; Lewis’ Sutherland on Statutory Construction, sec. 368.) Of course, a fundamental fact or constitutional principle cannot be changed or altered or established by legislative construction. This court has often announced that principle, and did so recently in a case involving the declaration of the legislature to the effect that a private business, the gasoline business, could not. be made a public utility by legislative edict. (H. Earl Clack Co. v. Public Service Com., 94 Mont. 488, 22 Pac. (2d) 1056.)

While the inheritance tax law may not create a case exactly in point in all particulars, it is important to observe that this court in the early case of Gelsthorpe v. Furnell, 20 Mont. 299, 51 Pac. 267, 271, 39 L. R. A. 170, considered some of the very constitutional questions here involved and made the following pertinent declaration: “The inherent power of the state gives it the right to ‘lay the tax. * * * The statute is but an exercise and declaration of that power.” Speaking through Mr. Justice Hunt, the court quoted with approval from In re McPherson, 104 N. Y. 306, 10 N. E. 685, 58 Am. Rep. 502, where it was said: “In announcing the doctrine of the constitutionality of such a tax, and of the power of the legislature over the subject of taxation, Judge Earl, speaking for the court in the case just cited, said: ‘We entertain no doubt that such a tax can be constitutionally imposed. The power of the legislature over the subject of taxation, except as limited by constitutional restrictions, is unbounded. It is for that body, in the exercise of its discretion, to select the objects of taxation. It may impose all the taxes upon lands, or all upon personal property, or all upon houses or upon incomes. It may raise revenue by capitation taxes, by special taxes upon carriages, horses, servants, dogs, franchises, and upon every species of property, and upon all kinds of business and trades.’ ” This language used by our own supreme court was applied to the then recently enacted inheritance tax law, but it will be observed that the declaration of the New York court so cited with approval was broader in its application than the mere subject under consideration. Specific mention was made of incomes. And thus it may be said that the learned judge, undoubtedly familiar with our constitutional provisions, had in mind even at that early day that an income tax would not be unconstitutional in the state of Montana.

The first question to be decided is involved in the provisions of sections 1 and 17 of the Constitution, supra. As we have observed, section 1 provides for the levy of a uniform rate of assessment and taxation of all property, and section 17 defines “property.” It is contended that because of these constitutional provisions, income is property and therefore subject to all of the constitutional restrictions involved in the assessment of property.

The section of the Idaho Constitution (Art. VII, sec. 3) under consideration in Diefendorf v. Gallet, supra, provides “the word ‘property’ as herein used shall be defined and classified by law.” The Idaho court in considering the Income Tax Act said: “This entirely unique section of our Constitution * * * completely differentiates this case from all others which we have examined.” That court did proceed, however, to consider the law, and did uphold it on general grounds and aside from the peculiar constitutional provision mentioned.

In this ease the definition of the word ‘‘property” as contained in section 17 of Article XII of our Constitution would present a serious question but for the fact that our supreme court has given consideration to that section. In the case of Hilger v. Moore, supra, Mr. Justice Holloway in a very exhaustive and comprehensive manner attempted to reconcile the different sections on taxation as contained in Article XII. He announced the conclusion that section 17 had no effect in the matter of the classification of property for taxation purposes by the use of the following language: '' The definition of property in section 17 of this same Article was intended as a limitation upon the power of the legislature to extend, by indirection, the exemptions authorized or commanded by-section 2. It cannot have any other purpose.”

In view of what has been said, we do not feel disposed, nor do we think that it is necessary, to enter into a lengthy decision as to the character of the tax imposed by the chapter here under consideration. Plaintiff claims that the tax is a property tax, but, as we have observed, he relies largely upon the definition of the word “property” as found in section 17 of Article XII, supra, to support that contention. The defendants claim that it is an excise tax. We content ourselves with saying that there are reasons why such a tax might be classed as a property tax, and reasons why it should be classed as an excise tax. Yolumes, in fact libraries, have been written in a vain endeavor to accurately classify the income tax. Courts and text-writers have endeavored to argue the world into the belief that the income tax is a property tax. The supreme court of the state of Illinois declared: “The overwhelming weight of judicial authority holds that it is” a property tax. (Bachrach v. Nelson, 349 Ill. 579, 182 N. E. 909, 914.) Other courts are just as emphatic in the claim that it is an excise tax, and the Idaho court after a comprehensive and able discussion of the proposition decided that the Act from which ours is taken did not provide for a property tax, and said: “A tax upon net income is not a tax upon property. Such a tax is an excise tax. The legislature has power to impose this tax.” The cases upon this point are collected in Eliasberg Bros. Mercantile Co. v. Grimes, 204 Ala. 492, 86 So. 56, 11 A. L. R. 300; Hattiesburg Grocery Co. v. Robertson, 126 Miss. 34, 88 So. 4, 25 A. L. R. 748; Featherstone v. Norman, 170 Ga. 370, 153 S. E. 58, 70 A. L. R. 449.

Professor Robert C. Brown in closing a very able article in the “Minnesota Law Review” of January, 1933, entitled “The Nature of the Income Tax,” after discussing at length the analogies between the income tax and the other forms of taxation, closed his article with this declaration: “All of these analogies are helpful in the solution of the unsettled practical problem as to the application of, and limitations of, income taxes; but it is important to remember that they are merely analogies and useful only as such. The analogy should never be allowed to blind us to the real nature of the income tax or cause us to forget that these practical problems must be solved in the light of that nature. The fundamental nature of the income tax is in short that it is an income tax and nothing else. ’ ’

It is not necessary for us to declare the exact nature of the income tax under consideration. It is apparent' that the legislature of the state of Montana intended to enact an income tax and did not intend that it should be considered as a property tax law. It is also apparent that the legislature, by the adoption of the statute from the state of Idaho, took the statute with the Idaho construction, which was to the effect that it was an excise tax. It is also further apparent that, if the definition of “property” contained in section 17 of Article XII is to be given the effect as expressed by this court in Hilger v. Moore, supra, then the argument of the plaintiff that the Act imposes a property tax falls to the ground.

It is important to note that, if section 17, supra, does not limit the legislature in the particular under consideration, then the general power of the legislature to enact legislation, as discussed earlier in this opinion, comes into effect, and the legislature, in the absence of the restriction, was just as free in that particular as was the Idaho legislature under its permissive constitutional authority. In that event the legislature was free to enact Chapter 181, and it follows that the provisions of section 1 and section 17 of Article XII are not prohibitive, because the same degree of uniformity is not required in the case of an excise tax or in the case of an income tax statute that is required in one providing for a levy upon “property.” (Hale v. County Treasurer, 82 Mont. 98, 265 Pac. 6; Quong Wing v. Kirkendall, 39 Mont. 64, 101 Pac. 250; Id., 223 U. S. 59, 32 Sup. Ct. 192, 56 L. Ed. 350.)

It is likewise apparent that section 9 of Article XII, having to do with the rate of taxation, is not involved under the construction heretofore announced; the rates provided for in Chapter 181 are progressive and graduated. What is said in Hilger v. Moore, supra, is persuasive here. (See, also, Diefendorf v. Gallet, supra; Featherstone v. Norman, 170 Ga. 370, 153 S. E. 58, 70 A. L. R. 449; Stanley v. Gates, 179 Ark. 886, 19 S. W. (2d) 1000; 70 A. L. R. 468, and note.)

It is further urged that the Act is unconstitutional in that it contravenes the equal protection of the law clause of the fourteenth amendment of the federal Constitution. It provides for a tax upon the net income of individuals, but exempts corporations from its operation. It is claimed that this exemption renders the tax void under the above clause in that it discriminates against individuals.

The Supreme Court of the United States, in interpreting the equality clause of the fourteenth amendment has said that the amendment was not intended to compel the states to adopt an iron rule of equal taxation (Branson v. Bush, 251 U. S. 182, 40 Sup. Ct. 113, 64 L. Ed. 215), and that inequalities which result, not from hostile discriminations, but occasionally and incidentally in the application of a system that is not arbitrary in its classification are not sufficient to defeat the particular law (Maxwell v. Bugbee, 250 U. S. 525, 40 Sup. Ct. 2, 63 L. Ed. 1124); further, that the state has a wide range of discretion in exercising its right to select the differences upon which the classification shall be based (Citizens’ Telephone Co. v. Fuller, 229 U. S. 322, 33 Sup. Ct. 833, 57 L. Ed. 1206).

The rule, with its limitations, is well stated in the ease of Franklin v. Carter, (C. C. A.) 51 Fed. (2d) 345, 346, in the following language: “The principles which govern the application of the equal protection clause to the power of taxation by the states are well settled. Such power is essential to the existence of the government of a state. (State Board of Tax Commrs. v. Jackson, 283 U. S. 527, 51 Sup. Ct. 540, 75 L. Ed. 1248, 73 A. L. R. 1464; Ohio Oil Co. v. Conway, 281 U. S. 146, 159, 50 Sup. Ct. 310, 74 L. Ed. 775.) Such clause does not compel a state to adopt an iron rule of equal taxation; nor require it to resort to close distinctions or to maintain a precise, scientific uniformity with reference to composition, use or value; nor prevent it from exercising a broad discretion in the classification of properties, businesses, trades, callings or occupations for the purpose of taxation. (State Board of Tax Commrs. v. Jackson, supra; Ohio Oil Co. v. Conway, supra; Bell’s Gap R. Co. v. Pennsylvania, 134 U. S. 232, 237, 10 Sup. Ct. 533, 33 L. Ed. 892; Southwestern Oil Co. v. Texas, 217 U. S. 114, 122, 30 Sup. Ct. 496, 54 L. Ed. 688; Brown-Forman Co. v. Kentucky, 217 U. S. 563, 572, 573, 30 Sup. Ct. 578, 54 L. Ed. 883; Smith v. Cahoon, 283 U. S. 553, 51 Sup. Ct. 582, 75 L. Ed. 1264.) However, there is a point beyond which a state cannot go without violating the equal protection clause. While a state may classify broadly the subjects of taxation, in doing so it must proceed upon a rational basis. It is not at liberty to resort to a classification that is palpably arbitrary. The classification ‘must rest upon some ground of difference having a fair and substantial relation to the object of the legislation, so that all persons in similar circumstances shall be treated alike.’ (Ohio Oil Co. v. Conway, supra, page 160 of 281 U. S. 50 Sup. Ct. 310; Royster Guano Co. v. Virginia, 253 U. S. 412, 415, 40 Sup. Ct. 560, 64 L. Ed. 989; Louisville Gas Co. v. Coleman, 277 U. S. 32, 37, 48 Sup. Ct. 423, 72 L. Ed. 770; Air-Way Corp. v. Day, 266 U. S. 71, 85, 45 Sup. Ct. 12, 69 L. Ed. 169; Schlesinger v. Wisconsin, 270 U. S. 230, 240, 46 Sup. Ct. 260, 70 L. Ed. 557, 43 A. L. R. 1224; Quaker City Cab Co. v. Pennsylvania, 277 U. S. 389, 400, 48 Sup. Ct. 553, 72 L. Ed. 927; Sneed v. Shaffer Oil & Ref. Co., (C. C. A.) 35 Fed. (2d) 21, 24; Smith v. Cahoon, supra.)”

The supreme court of this state stated the law relative to the taxing power of the state, as limited by the equal protection of the law clause of the federal Constitution, in the case of Eilger v. Moore, supra. The conclusions there reached are similar to those stated above; and in two very recent eases the court said: “Discrimination merely is not inhibited, for it is recognized that there are discriminations which the best interests of society require. * * * Any classification is permissible which has a reasonable relation to some permitted end of government action.” (Bank of Miles City v. Custer County, 93 Mont. 291, 19 Pac. (2d) 885, 887; compare Merchants’ Nat. Bank v. Dawson County, 93 Mont. 310, 19 Pac. (2d) 892.)

The sole question in this case, so far as the equal protection clause is concerned, is whether there is any reasonable basis for the separate classification of individuals and corporations for income tax purposes. It has been held that there is a reasonable basis for the exemption of corporations in a net income tax law. (Franklin v. Carter, supra, where the supreme court of the United States denied the petition for a writ of certiorari, 284 U. S. 664, 52 Sup. Ct. 40, 76 L. Ed. 562; Conner v. State, 82 N. H. 126, 130 Atl. 357.) These cases proceed upon the theory that a tax laid upon the income of individuals ultimately results in a taxation of the income of corporations, since a major portion of the earnings of corporations are distributed as dividends to individuals. As was said in Redfield v. Fisher, 135 Or. 180, 292 Pac. 813, 295 Pac. 461, 73 A. L. R. 721, corporations may pile up surpluses by other means than cash dividends. However, under the provisions of Chapter 181, Laws 1933, we are unable to see how any great proportion of the earnings of a corporation could forever escape taxation. Stock dividends are not taxable as such but they become taxable if they are in anywise converted into income. (Chap. 181, sec. 7, subd. 2 (g).) We might note in passing that the Oregon laws under consideration in the Red- field Case, supra, in which it was held that a corporate exemption in an income tax law rendered the Act void, contained no such provision. In the absence of proof we cannot concede that any appreciable proportion of corporate earnings will forever escape taxation.

It is urged that the Act discriminates in favor of nonresident owners of corporate stock, and likewise that corporate earnings going to nonresidents are not taxable, and that therefore the reasons given in Franklin v. Carter and Conner v. State, supra, for holding the corporate exemptions nondiscriminatory do not apply. This contention is based upon the interpretation placed upon section 7, subdivision 3, of the Act, which reads: “In the case of taxpayers other than residents, gross income includes only the gross income from sources within this state, but shall not include annuities, interest on bank deposits * * * or dividends on stock of corporations; except to the extent that such annuities * * * or stocks shall be a part of income from any business, trade, profession or occupation carried on in this state.”

The criticism is that the exception to the exclusion mentioned refers to “stocks” instead of “dividends on stock.” There is no merit in this criticism. The criticised clause is ineptly drawn, but its meaning is clear; the antecedent of “such” is the list of exempted classes of income, and consequently the exception refers to dividends on stocks, and not the stocks themselves. Any other interpretation would render this portion of the Act meaningless. The stocks themselves, if taxable, would be taxed as other property is taxed; they would not come within the provisions of the income tax law at all.

It is further urged that the Act must fall because therein is found no provision for determining the names and residences of nonresident stockholders. This contention is answered by section 29 of the Act, which vests the state board with authority “to make such rules and regulations and to require such facts and information to be reported as it may deem necessary to. enforce the provisions of this Act.”

The supreme court of the United States, in the case of Lawrence v. State Tax Commission, 286 U. S. 276, 52 Sup. Ct. 556, 558, 76 L. Ed. 1102, sanctioned the efforts of a legislature to avoid double taxation by exempting corporations from taxation under an income tax law. The law there in question evidently taxed the income of residents earned without the state, and exempted corporations from its operation. The court in holding that there was a reasonable basis for the classification said: “Apart from other considerations which may have led to the present legislation as an integral part of the state system of taxation of the income of corporations, one which affords a rational basis for the distinction made, is the fact that the state has adopted generally a policy of avoiding, double taxation of the same economic interest in corporate income, by taxing either the income of the corporation or the dividends of its stockholders, but not both. * * * In the case of corporate income and dividends attributable to business done outside the state and received by stockholders of domestic corporations, the stockholders are taxed, and not the corporation. That was held in Franklin v. Carter, (C. C. A.) 51 Fed. (2d) 345, to be a sufficient ground for upholding a statute of Oklahoma, assailed as denying the equal protection of the laws, which had substantially the same features as the present statute. (See, also, Conner v. State, 82 N. H. 126, 132, 130 Atl. 357.)” It will be noted that in this case the Supreme Court of the United States distinguished the case of Quaker City Cab Co. v. Pennsylvania, 277 U. S. 389, 48 Sup. Ct. 553, 72 L. Ed. 927, upon which plaintiff in this case has placed reliance.

It has been urged that the corporate license tax is a counterpart of the income tax on individuals, and that for that reason no discrimination is effected by the Income Tax Act. The corporation license tax is levied upon corporations for the privilege of doing business in the corporate character. The individual, of course, enjoys that privilege as a natural right. (See Equitable Life Assur. Co. v. Hart, 55 Mont. 76, 173 Pac. 1062.) However, it is within the power of the legislature to consider the aggregate of all taxes imposed when determining the justice of excluding from a tax a particular group. It was so held in Louis K. Liggett Co. v. Lee, 288 U. S. 517, 53 Sup. Ct. 481, 486, 77 L. Ed. 929, wherein it was said: “But, in view of the imposition of taxes on the operation of filling stations by other Acts, pursuant to the legislature’s power of classification, we cannot declare their exemption from the tax laid by the Chain Store Act offensive to the guaranties of the Fourteenth Amendment.”

Thus, in this case, while the* corporation license tax is not essentially a counterpart of the income tax, it was within the power of the legislature to bear it in mind in exempting corporations from the operation of the net income tax law. The primary test relates, after all, to the extent of the tax burden imposed, and not to the particular character of the taxes, and, unless the individual can point out clearly that the imposition of an income tax upon him is arbitrary in the light of all of the taxation statutes, he must fail.

There is, however, justification to be found for the exclusion of corporations from the operation of this Act. A corporation is but a group of individuals banded together for the purpose of conducting a business for profit. Whether termed profit, returns from the business, earnings, production or what not, the accretion of capital invested constitutes an “income,” which is, in the ordinary course of the business, passed on to the individuals forming the artificial person, as dividends on their stock. When the state imposes an excise or license tax upon all corporations, based upon gross earnings, net earnings, production or volume of business transacted, it is taxing the “income” of the corporation. On the other hand, individual income may be derived from a variety of sources; an individual may enjoy a magnificent “income” without engaging in any sort of business; he may derive his income, in whole or in part, from dividends paid on stock held in corporations. On such income, the corporation license tax, based on earnings, and the tax levied against the income derived from dividends, constitute a double taxation against the individuals owning corporate stock; if the corporation were included in the income tax law, the taxation would treble. These matters were properly considered by the legislature in determining the policy to be adopted, with which the courts are not concerned.

As the tax is not on property, but in the nature of an excise, the fact that the corporation license tax would not, in all eases, equal the tax on an income of like proportions, is immaterial; nevertheless, in such cases, the difference may be eliminated by the double taxation of the right to engage in the business and of the incomes of the stockholders, who, after all, are the corporation. The discrimination, if any there be, does not render the Aet unconstitutional. (Glasgow v. Rowse, 43 Mo. 479; Alderman v. Wells, 85 S. C. 507, 67 S. E. 781, 21 Ann. Cas. 193, 27 L. R. A. (n. s.) 864.)

It is argued by the plaintiff that the submission of an income tax amendment to our Constitution (Chap. 83, Laws 1933) evidences the belief that an income tax law could not constitutionally be enacted without a change of the Constitution. The proposal to be submitted to the people is designed to amend section 1 of Article XII, by adding a new section to authorize an income tax as hereinbefore quoted. The procedure involved in the passage of Chapter 181 and in the submission of the proposed constitutional amendment by Chapter 83 of the Laws of 1933, had its inspiration in the Idaho situation. In the opinion upholding the Idaho statute (Diefendorf v. Gallet, supra), the court considered a similar assignment in the following words: “Suggestion is made that at the same session at which the Income Tax Law was enacted the legislature passed a resolution submitting a constitutional amendment to a vote of the people at the general election of 1932 (see Laws 1931 [Ex. Sess.], p. 63), thereby acknowledging that income is property. The premise does not justify the conclusion. The act of submitting a constitutional amendment has no bearing upon the legal implications surrounding the present income tax law, regardless of whatever opinion the members of the legislature may have had. Nor may we speculate upon the motives or purposes of the legislature, which is outside of our domain. The present law purports to raise revenues for state purposes only, whereas the proposed amendment authorizes the imposition of a tax on incomes, sales, privileges, and occupations, for state, county, and municipal purposes. It also provides for a limitation upon taxation of incomes, goes much further than does the present income tax law. No precedent has been cited upon the proposition and we know of none. ’ ’

We do not believe that the submission of the constitutional amendment in this instance has any real bearing upon the subject, and certainly does not adversely affect the principles involved.

It is not necessary to discuss the other objections asserted against Chapter 181. They all involve questions which have been decided by the federal courts and courts of the various states where income tax laws have been sustained. If the law itself is constitutional these objections are of little importance.

For the reason stated, the injunction is denied.

Associate Justices Matthews and Anderson concur.