* Headnote 1. Taxation, 37, Cyc., pp. 707, 766; 2. Taxation, 37 Cyc., pp. 746, 747; 3. Constitutional Law, 12 C.J., Section 884; Taxation, 37 Cyc., p. 766; 4. Constitutional Law, 12 C.J., Section 883; Taxation, 37 Cyc., p. 739; 5. Constitutional Law, 12 C.J., Section 133 (Anno); Taxation, 37 Cyc. pp. 1381, 1382 (Anno); 6. Taxation, 37 Cyc., p. 728 (Anno); 7. Commerce, 12 C.J., Section 126 (Anno); 8. Taxation, 37 Cyc., p. 811; 9. Taxation, 37 Cyc., p. 1334; 10. Constitutional Law, 12 C.J., Section 177; Statutes, 36 Cyc., p. 982.
(1) Authorities discussing the question of constitutionality of "income tax" are collated in notes in 27 L.R.A. (N.S.) 864, L.R.A. 1915B, 569; 26 R.C.L., p. 153. (3) The question as to whether income is "property" within constitutional limitations on taxation, see notes 11 A.L.R. 313, 25 A.L.R. 758, 26 R.C.L., pp. 152-154.
The question presented for decision in these cases is the validity vel non of the Income Tax Act (chapter 132, Laws of 1924), by which a tax is imposed on all but certain excepted net incomes from whatever source derived. The ground on which it is claimed that the act is void is that it is in conflict with the Fourteenth Amendment to the federal Constitution and with several sections of the state Constitution, to which, when necessary, reference will be hereinafter specifically made.
As to the provision of section 112 of the state Constitution that "property shall be taxed in proportion to its value," and "shall be assessed for taxes under general laws, and by uniform rules, according to its true value."
The appellees' contention in this connection is that a tax on income derived from property is a tax on the property from which the income is derived, and, as the tax here imposed is on all income, it was, in so far as it affects income from property, a tax on the property from which the income was derived, which property the Constitution permits to be taxed only in proportion and according to its true value.
This contention is ruled by Hattiesburg Grocery Co. v.Robertson, 126 Miss. 34, 88 So. 4, 25 A.L.R. 748, wherein this court, after mature consideration, held that
a tax on income is an excise and is not a tax on the property from which the income may have been derived. As was there pointed out a tax on income from property includes some of the elements both of a tax on property and of a tax on persons, and cannot be classified as strictly a tax on either alone. Property of itself alone cannot produce income, but must be used or dealt with in some way by a person, before gain or income can be derived therefrom, and no definition of income though derived from property, can be framed which does not include the activities of the person by whom it was produced, received, or enjoyed.
A tax, though not eo nomine on property, but which the owner thereof must pay merely because of his ownership of the property (Thompson v. Kreutzer, 112 Miss. 165, 72 So. 891), or because of a special use of property without reference to whether or not revenue or gain is derived therefrom (Thompson v. McLeod,112 Miss. 383, 73 So. 193, L.R.A. 1918C, 893, Ann. Cas. 1918A, 674), is a tax on the property, and should be in proportion and according to the value thereof. But the tax here imposed is not on the ownership or use without gain of property, but is on the revenue which the activities of the owner causes the property to produce. The taxation of such activities is universal, and is the basis of most of our privilege taxes.
In Pollock v. Farmers' Trust Co., 157 U.S. 429, 15 S.Ct. 673, 39 L.Ed. 759, and Id., 158 U.S. 601, 15 S.Ct. 912, 39 L.Ed. 1108, relied on by the appellant in the Hattiesburg Grocery Co. case and by the appellees here, the court recognized the fact that a tax on income is an excise, and the error therein, as in other cases holding that a tax on income from property is a tax on the property from which the income is derived, was caused by the court's referring the income or gain from the property to the property alone, dissociated from the activities of the owner thereof, without which activities there can be no income from property. But it is said that the Hattiesburg
Grocery Company case is not controlling here, for the reason that the act here in question expressly designates the tax imposed by it as one on property, and therefore it should be held to be and dealt with as such. This contention is based on section 5 of the act, which provides:
"The tax imposed by this act is in addition to all other taxes imposed by law, and every tax imposed by this act, and all increases, interests and penalties thereon, in addition to being a tax against the property, business, trade, profession, or occupation, as in this act provided, shall also become from the time it is due and payable, a personal debt from the taxpayer liable to pay the same, to the state of Mississippi."
This declaration that the tax-imposed by the act is against the property is qualified by the words "as in this act provided," and as hereinbefore set forth the tax for which the act provides is on property only in the sense that property from which income is derived is one of the elements which enters into the production of such income, and therefore is not on property within the meaning of section 112 of the Constitution. Moreover "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." Flint v. Stone Tracy Co.,220 U.S. 107, 31 S.Ct. 342, 35 L.Ed. 389, Ann. Cas. 1912B, 1312.
The appellees do not contend that a tax on income is a tax on property in the sense that it is a tax on the money or property which constitutes the gain or revenue of a person and on the aggregate of which the amount of his income is determined. That it is not such a tax, see Hattiesburg Grocery Co. v.Robertson, 126 Miss. 55, 88 So. 4, 25 A.L.R. 748; Pollock v.Farmers' Loan Trust Co., 157 U.S. 429, 15 S.Ct. 673, 39 L.Ed. 759; Id., 158 U.S. 601, 15 S.Ct. 912, 39 L.Ed. 1108; Brushaber
v. Union P.R. Co., 240 U.S. 1, 36 S.Ct. 236, 60 L.Ed. 493, L.R.A. 1917D, 414, Ann. Cas. 1917B, 713.
As to the equality clause of section 112 of the state Constitution and the equal protection of the law clause of the Fourteenth Amendment to the Federal Constitution:
Free access — add to your briefcase to read the full text and ask questions with AI
* Headnote 1. Taxation, 37, Cyc., pp. 707, 766; 2. Taxation, 37 Cyc., pp. 746, 747; 3. Constitutional Law, 12 C.J., Section 884; Taxation, 37 Cyc., p. 766; 4. Constitutional Law, 12 C.J., Section 883; Taxation, 37 Cyc., p. 739; 5. Constitutional Law, 12 C.J., Section 133 (Anno); Taxation, 37 Cyc. pp. 1381, 1382 (Anno); 6. Taxation, 37 Cyc., p. 728 (Anno); 7. Commerce, 12 C.J., Section 126 (Anno); 8. Taxation, 37 Cyc., p. 811; 9. Taxation, 37 Cyc., p. 1334; 10. Constitutional Law, 12 C.J., Section 177; Statutes, 36 Cyc., p. 982.
(1) Authorities discussing the question of constitutionality of "income tax" are collated in notes in 27 L.R.A. (N.S.) 864, L.R.A. 1915B, 569; 26 R.C.L., p. 153. (3) The question as to whether income is "property" within constitutional limitations on taxation, see notes 11 A.L.R. 313, 25 A.L.R. 758, 26 R.C.L., pp. 152-154.
The question presented for decision in these cases is the validity vel non of the Income Tax Act (chapter 132, Laws of 1924), by which a tax is imposed on all but certain excepted net incomes from whatever source derived. The ground on which it is claimed that the act is void is that it is in conflict with the Fourteenth Amendment to the federal Constitution and with several sections of the state Constitution, to which, when necessary, reference will be hereinafter specifically made.
As to the provision of section 112 of the state Constitution that "property shall be taxed in proportion to its value," and "shall be assessed for taxes under general laws, and by uniform rules, according to its true value."
The appellees' contention in this connection is that a tax on income derived from property is a tax on the property from which the income is derived, and, as the tax here imposed is on all income, it was, in so far as it affects income from property, a tax on the property from which the income was derived, which property the Constitution permits to be taxed only in proportion and according to its true value.
This contention is ruled by Hattiesburg Grocery Co. v.Robertson, 126 Miss. 34, 88 So. 4, 25 A.L.R. 748, wherein this court, after mature consideration, held that
a tax on income is an excise and is not a tax on the property from which the income may have been derived. As was there pointed out a tax on income from property includes some of the elements both of a tax on property and of a tax on persons, and cannot be classified as strictly a tax on either alone. Property of itself alone cannot produce income, but must be used or dealt with in some way by a person, before gain or income can be derived therefrom, and no definition of income though derived from property, can be framed which does not include the activities of the person by whom it was produced, received, or enjoyed.
A tax, though not eo nomine on property, but which the owner thereof must pay merely because of his ownership of the property (Thompson v. Kreutzer, 112 Miss. 165, 72 So. 891), or because of a special use of property without reference to whether or not revenue or gain is derived therefrom (Thompson v. McLeod,112 Miss. 383, 73 So. 193, L.R.A. 1918C, 893, Ann. Cas. 1918A, 674), is a tax on the property, and should be in proportion and according to the value thereof. But the tax here imposed is not on the ownership or use without gain of property, but is on the revenue which the activities of the owner causes the property to produce. The taxation of such activities is universal, and is the basis of most of our privilege taxes.
In Pollock v. Farmers' Trust Co., 157 U.S. 429, 15 S.Ct. 673, 39 L.Ed. 759, and Id., 158 U.S. 601, 15 S.Ct. 912, 39 L.Ed. 1108, relied on by the appellant in the Hattiesburg Grocery Co. case and by the appellees here, the court recognized the fact that a tax on income is an excise, and the error therein, as in other cases holding that a tax on income from property is a tax on the property from which the income is derived, was caused by the court's referring the income or gain from the property to the property alone, dissociated from the activities of the owner thereof, without which activities there can be no income from property. But it is said that the Hattiesburg
Grocery Company case is not controlling here, for the reason that the act here in question expressly designates the tax imposed by it as one on property, and therefore it should be held to be and dealt with as such. This contention is based on section 5 of the act, which provides:
"The tax imposed by this act is in addition to all other taxes imposed by law, and every tax imposed by this act, and all increases, interests and penalties thereon, in addition to being a tax against the property, business, trade, profession, or occupation, as in this act provided, shall also become from the time it is due and payable, a personal debt from the taxpayer liable to pay the same, to the state of Mississippi."
This declaration that the tax-imposed by the act is against the property is qualified by the words "as in this act provided," and as hereinbefore set forth the tax for which the act provides is on property only in the sense that property from which income is derived is one of the elements which enters into the production of such income, and therefore is not on property within the meaning of section 112 of the Constitution. Moreover "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." Flint v. Stone Tracy Co.,220 U.S. 107, 31 S.Ct. 342, 35 L.Ed. 389, Ann. Cas. 1912B, 1312.
The appellees do not contend that a tax on income is a tax on property in the sense that it is a tax on the money or property which constitutes the gain or revenue of a person and on the aggregate of which the amount of his income is determined. That it is not such a tax, see Hattiesburg Grocery Co. v.Robertson, 126 Miss. 55, 88 So. 4, 25 A.L.R. 748; Pollock v.Farmers' Loan Trust Co., 157 U.S. 429, 15 S.Ct. 673, 39 L.Ed. 759; Id., 158 U.S. 601, 15 S.Ct. 912, 39 L.Ed. 1108; Brushaber
v. Union P.R. Co., 240 U.S. 1, 36 S.Ct. 236, 60 L.Ed. 493, L.R.A. 1917D, 414, Ann. Cas. 1917B, 713.
As to the equality clause of section 112 of the state Constitution and the equal protection of the law clause of the Fourteenth Amendment to the Federal Constitution:
The grounds on which it is claimed the act violates the equality provisions of the state and Federal Constitutions are: (1) That all incomes are not taxed therein at the same rate, but the rate is graduated according to the amount of the income; and (2) that by section 18 of the act the income of certain designated corporations is exempted from the tax imposed therein.
Assuming that the equality clause of section 112 of the state Constitution applies to taxes for general purposes other than to such as are ad valorem, it is well settled that the legislature may make a reasonable classification of the subjects of taxation, and, if all of the same class are taxed alike, the equality clauses of both the state and Federal Constitutions are complied with. Holberg v. Town of Macon, 55 Miss. 112; VicksburgBank v. Worrell, Tax Collector, 67 Miss. 47, 7 So. 219;Clarksdale Ins. Agency v. Cole, 87 Miss. 637, 40 So. 228;State v. Lawrence, 108 Miss. 291, 66 So. 745, Ann. Cas. 1917E, 322; City of Jackson v. Mississippi Fire InsuranceCo., 132 Miss. 415, 95 So. 845; Bell's Gap R. Co. v.Pennsylvania, 134 U.S. 232, 10 S.Ct. 533, 33 L.Ed. 892; 4 Cooley on Taxation (4th Ed.) 704-717. See, also, authority cited under the next subdivision hereof.
The reasonableness of such a classification is in the first instance for the determination of the legislature, and the requirement therefore does not mean that the classification must be reasonable "according to the judgment of reviewing judges, but that the court must be able to see that the legislators could regard it as reasonable and proper without doing violence to common sense." People v. Mensching, 187 N.Y. 8, 79 N.E. 884, 10 L.R.A. (N.S.) 625, 10 Ann. Cas. 101; City of Jackson
v. Mississippi Fire Insurance Co., 132 Miss. 415, 95 So. 845. The question for decision then is, Is the classification here made of income reasonable, or can it be so regarded without doing violence to common sense? The argument on which such a classification is based is:
"That there should be, as nearly as practicable, equality of sacrifice among the various taxpayers, and that a tax levied at a uniform or proportional rate can rarely, if ever, produce equality of sacrifice; that one per cent. of a small income, which just suffices to support its owner, is a far larger relative contribution to the public treasury than one per cent. of an income so large that it cannot be exhausted by its owner, except by means of lavish and extravagant expenditures." State
v. Frear, 148 Wis. 456, 505, 134 N.W. 673, 688, L.R.A. 1915B, 569, at page 591 (Ann. Cas. 1913A, 114).
In Knowlton v. Moore, 178 U.S. 41, at page 109, 20 S.Ct. 747, 774, 44 L.Ed. 969, at page 996, wherein the court was dealing with a graduated inheritance tax, it was said:
"The review which we have made exhibits the fact that taxes imposed with reference to the ability of the person upon whom the burden is placed to bear the same have been levied from the foundation of the government. So, also, some authoritative thinkers, and a number of economic writers, contend that a progressive tax is more just and equal than a proportional one. In the absence of constitutional limitation, the question whether it is or is not is legislative and not judicial."
When this argument is viewed in the light of the fact that a graduated tax on income has been held by the supreme court of the United States not to violate the principle of equality in taxation, and the further fact that such a tax is expressly authorized by the Constitutions of a number of our sister states, and "has been approved for many years by many of the most enlightened governments of the world, and has the sanction of many of the most thoughtful economists," it would be difficult to say
that such a tax, and the necessary classification of income therefore, is unreasonable, to say nothing of its being impossible to so regard it without doing violence to common sense. See, also, Magoun v. Illinois Trust Savings Bank,170 U.S. 283, 18 S.Ct. 594, 42 L.Ed. 1037; Billings v.Illinois, 188 U.S. 97, 23 S.Ct. 272, 47 L.Ed. 400; Clark v.Titusville, 184 U.S. 329, 22 S.Ct. 382, 46 L.Ed. 569;Brushaber v. Union P.R. Co., 240 U.S. 1, 36 S.Ct. 236, 60 L.Ed. 493, L.R.A. 1917D, 414, Ann. Cas. 1917B, 713; Tyree RealtyCo. v. Anderson, 240 U.S. 115, 36 S.Ct. 281, 60 L.Ed. 554;Stebbins v. Riley, 45 S.Ct. 424, 69 L.Ed. ___; Alderman v.Wells, 85 S.C. 507, 67 S.E. 781, 27 L.R.A. (N.S.) 864, 21 Ann. Cas. 193; 4 Cooley on Taxation (4th Ed.) 3487; 26 R.C.L. 152.
It is true that the Magoun, Billings, Knowlton, and Stebbins cases deal with graduated inheritance taxes, and it may be, as it is said, that the inheritance of property is not a right but is a privilege which the state may confer or withhold at its pleasure, and that, in conferring the privilege, it may attach such conditions thereto as it may see fit. Nevertheless it will not do to say that they are not in point and controlling here, for the reason that it is beyond dispute, and was pointed out in the Magoun case that, when the state confers a privilege, it must "not fail to treat `all alike under like circumstances and conditions, both in the privilege conferred and the liabilities imposed.'" The fallacy in the argument that these cases apply only to inheritance taxes and not to other excises has been at least twice exposed by the supreme court of the United States.Clark v. Titusville and Knowlton v. Moore, supra. In the Clark case the court, in dealing with objections to a graduated sales tax, among other things, said:
"These objections are but the expression of the effect of classification by amount, and have been made before and considered before by this court, and the judgment has been adverse to the contention of plaintiff in error. . . . Classification by amount came up for consideration
and decision in Magoun v. Illinois Trust Sav. Bank,170 U.S. 283, 42 L.Ed. 1037, 18 Sup. Ct. Rep. 594, and was sustained. That case, plaintiff in error recognizes, may be urged against his contention, and attempts to limit its decision to the power of a state over inheritances, and to explain by that power, not only the taxes imposed, but the discriminations which were claimed to have resulted from grading the taxes by the amount of the legacy. This, we think, is a misunderstanding of the opinion."
The court then proceeded to show the relevancy of the Magoun case and to apply the rule announced by it to the tax with which it was then dealing.
In the Brushaber case, wherein the graduated feature of the present federal income tax was attacked on the ground that it violated the fundamental principle of equality in taxation, the court, in overruling the objections, said:
"That its absolute want of foundation in reason was plainly pointed out in Knowlton v. Moore, 178 U.S. 41, 44 L.Ed. 969, 20 Sup. Ct. Rep. 747, and the right to urge it was necessarily foreclosed by the ruling in that case made."
Moreover, the graduated inheritance tax under consideration inKnowlton v. Moore was imposed, not by a state, but by the federal government, and, as the right to inherit property is conferred by a state and not by the Federal government it cannot be said that the Federal government which imposed the tax there under consideration could have conferred or withheld the right to inherit the property there taxed at its pleasure, and therefore that case is not in point and controlling here. Nor can it be said that, as the equal protection of the law clause of the Fourteenth Amendment does not apply to the Federal government, that case is not in point here, for the question which the court was there called on to decide was whether the graduated feature of the tax produced inequality in taxation — the exact question it would
have had to decide if the tax had been imposed by a state and challenged on the ground that it deprived the complainant of the equal protection of the law.
In so far as the principle of equality is concerned, there is no difference between a graduated income tax and a graduated privilege tax, and an examination of the privilege tax laws of this state for many years back discloses that the great majority of them are graduated according to an appropriate standard, and in Insurance Agency v. Cole, 87 Miss. 637, 40 So. 228, this court, in upholding a privilege tax, pointed out that it was "graduated by a standard fixed by the legislature," and said that "all of the same class are taxed alike, and this fulfills the requirement of the law."
Section 18 of the act provides that it shall apply to all corporations except —
"(1) That the following organizations shall be exempt from taxation under this act: labor, agricultural, horticultural, mutual savings banks, fraternal orders, cemetery companies, religious, charitable or scientific associations, business leagues, chambers of commerce, boards of trade, civic leagues, social clubs, farmers fruit growers or like associations, Federal land banks and farm loan associations, when organized and operated for public purposes and when no part of the income inures to the benefit of any private stockholder or member, and national banks and state banks and domestic mutual building and loan associations organized under the laws of the state of Mississippi."
The power of the state to confer exemptions from taxation of this character is settled by a long line of decisions extending from Mississippi Mills v. Cook, 56 Miss. 63, to City ofJackson v. Mississippi Fire Insurance Co., 132 Miss. 415, 95 So. 845. Moreover, if this exemption should be void, it may be stricken from the act without affecting the remainder thereof.Adams v. Standard Oil Co., 97 Miss. 879, 53 So. 692; section 42 of the act.
As to section 79 of the state Constitution:
This section provides that the right of redemption from all sales of real estate for the nonpayment of taxes shall exist "on conditions to be prescribed by law." Section 30 of the act provides that the property of a defaulting taxpayer may be levied on and sold by the sheriff for the payment of any tax due by him under the act, but fails to prescribe the conditions on which land may be redeemed from such a sale. This section of the Constitution is self-executing, and the failure of the legislature to prescribe the conditions on which the right of redemption shall be exercised does not invalidate the statute.Union Savings Bank Trust Co. v. City of Jackson, 122 Miss. 557, 84 So. 388.
As to section 135 of the state Constitution:
This section creates the office of tax assessor, and the appellees' contention is that the ascertainment of the amount of a person's income for the purpose of taxing it is an assessment thereof, and can be made, under this section of the Constitution, only by the regular tax assessor. This objection to the statute was disposed of in Enochs v. State, 133 Miss. at page 143, 97 So. 537, wherein it was said:
"The implied requirement of section 135 of the state Constitution, that taxes shall be assessed by the assessor and collected by the sheriff, one of whose duties is to collect taxes (as heretofore construed by this court), has no application to privilege taxes, but only to such as can only be fixed by an assessment of, and is primarily a charge against, property" — citing State v. Adler, 68 Miss. 487, 9 So. 645; Thibodeaux
v. State, 69 Miss. 683, 13 So. 352.
An income tax as hereinbefore pointed out is an excise and not a property tax.
As to the commerce clause of the Federal Constitution:
The income of the Gulf, Mobile Northern Railroad Company is derived from both inter- and intra-state commerce, and its contention is that a tax by the state on that portion of its income derived from interstate commerce
is a burden on such commerce within the meaning of this clause of the Federal Constitution. If the tax were on gross income a serious question would be here presented, but it is not on gross, but on net, income, and a tax on net income, derived in whole or in part from interstate commerce, is not a burden thereon within the meaning of this clause of the Federal Constitution, as pointed out by the supreme court of the United States in GlueCompany v. Oak Creek, 247 U.S. 321, 38 S.Ct. 499, 62 L.Ed. 1135, Ann. Cas. 1918E, 748; Underwood Typewriter Co. v.Chamberlain, 254 U.S. 113, 41 S.Ct. 45, 65 L.Ed. 169; Shaffer
v. Carter, 252 U.S. 36, 40 S.Ct. 221, 64 L.Ed. 445; AtlanticCoast Line R. Co. v. Daughton, 262 U.S. 413, 43 S.Ct. 620, 67 L.Ed. 1051.
As to the extraterritorial effect of the act:
The tax imposed on residents of the state and on domestic corporations is on the whole of their income, whether derived from business within or without the state, and the contention is that the tax is void in so far as it covers income derived from business without the state. The question here presented was ruled against the appellees by the supreme court of the United States in Maguire v. Trefry, 253 U.S. 12, 40 S.Ct. 417, 64 L.Ed. 739, and Shaffer v. Carter, 252 U.S. 37, 40 S.Ct. 221, 64 L.Ed. 445.
As to the due process of law clause of the state and Federal Constitutions:
Section 30 of the act provides:
"If any tax imposed by this act or any portion of such tax be not paid within sixty days after the same becomes due, the commissioner shall issue a warrant under official seal directed to the sheriff of any county of the state commanding him to levy upon and sell the real and personal property of the person owning the same, found within his county for the payment of the amount thereof. . . . and in the same manner prescribed by law in respect to executions issued against property upon judgments or attachment proceedings, of a court of record."
The contention of the appellees is that a sale of property under this provision of the act deprives the owner thereof without due process of law. Why it should have that effect is not apparent, and the contention is without merit.
The remaining contentions of the appellees may be disposed of together. They are that section 36 and the following provisions of other sections of the act conflict with either the state or Federal Constitutions: (1) The method prescribed by section 6 for ascertaining the gain, profit, or income from a sale or disposition of property acquired on or before the passage of the act; (2) the provision of section 11 that income shall include gains or profits from the sale of property; (3) the provision of paragraph 10 of section 12 that "in the case of a non-resident this deduction shall be allowed only as to contributions or gifts made to domestic corporations, or to such vocational or rehabilitation fund;" (4) the provisions of section 15 that certain facts "may be determined by processes or formulas of general apportionment prescribed by the commissioner with the approval of the Governor."
It is not necessary for us to determine the validity vel non
of any of these provisions of the act, for the reason that it does not appear from the record that any of them affect the income of these appellees and all of them, if invalid, may be stricken from the act without effect on the validity of the remainder thereof, both under the general rule for construing statutes, and the express provision therefor in section 42 of the act.
The court below having dismissed the action on the theory that the act is void, the judgment must be reversed.
Reversed and remanded.