State v. Alabama Fuel & Iron Co.

66 So. 169, 188 Ala. 487, 1914 Ala. LEXIS 282

• Court: Supreme Court of Alabama
• Decided: July 25, 1914
• Status: Published

Opinion

de GRAFFENRIED, J.

We preface this opinion with the following excerpt from Ex parte Bozeman, 183 Ala. 91, 63 South. 201: “It is one of the cax*dinal rules governing the construction of statutes that, when the question as to whether a particular statute is or is not constitutional is reasonably in doubt, then the doubt should be resolved in favor of the constitutionality of the act.—Lovejoy v. City of Montgomery, 61 South. 597; State ex rel. City of Mobile v. Board, etc., Commissioners, 180 Ala. 489, 61 South. 368. The reason for the above rule is that the Legislature which passed the act is presumed to have sat in judgment, while the act was before it upon the question as to whether the Legislature possessed the constitutional power to make such a law. That body passed the act, the law presumes that the judgment of the Legislature was that the act was constitutional. This judgment of the Legislature, while not conclusive upon the courts, is entitled to, and under the above rule must receive, great weight at the hands of the courts. It is a solemn thing for a court to strike down a statute, and, when it does so, its reason therefor should be clear and strong and should lead to the irresistible conclusion that the act is invalid.”

In the case of Davis v. State, 68 Ala. 58, 44 Am. Rep. 128, this court said: “The Legislature has a power which is so transcendent that it cannot be confined within any bounds, either for causes or persons, except such as are written in the organic law.”

From the case of State v. Board of Revenue and Road Commissioners, 180 Ala. 489, 61 South. 368, we quote the following: “He who assails a statute on the ground that it is unconstitutional assumes the burden of vindicating his position beyond a reasonable doubt.”

We refer to the above cases for the purpose of directing attention to the fact that this court has at all times refused to exercise itself about the policy or wisdom of a statute so long as it rests within the scope of legislative authority under the state and federal Constitutions, and that, when a statute is attacked upon constitutional grounds, all reasonable intendments will be resolved in favor of its validity.—State ex rel. Meyer v. Greene, 154 Ala. 254, 46 South. 268; State v. Board of Revenue and Road Commissioners, supra.

1. Section 211 of the Constitution of the state is as follows: “All taxes levied on property in this state shall be assessed in exact proportion to the value of such property, but no tax shall be assessed upon any debt for rent or hire of real or personal property, while owned by the landlord or hirer during the current year of such rental or hire, if such real or personal property be assessed at its full value.”

Section 217 of the Constitution provides that: “The property of private corporations, associations, and individuals of this state shall forever be taxed at the same rate,” etc.

The present revenue law requires, as the prerequisite to the recordation in the probate office of a mortgage, deed of trust, or written contract of conditional sale, the preyament of a privilege tax of 15 cents for each $100 or fraction thereof of indebtedness secured by such mortgage, deed of trust, or written contract of conditional sale, and then declares that there shall be no ad valorem tax collected upon any such instrument, or the debt secured thereby, which shall have paid said privilege tax. The revenue bill, however, levies an ad valorem tax upon “all money lent, solvent credits, or credits of value except such as are secured by mortgage, deed of trust, or written contract of conditional sale, upon which a tax imposed by law has been paid.”

It is contended by appellee, and the trial court so held, that the Legislature has not- the authority, under the above-quoted constitutional provisions, to impose an ad valorem tax upon “all money lent, solvent credits, and credits of value,” and lawfully exempt from suck ad valorem tax “money lent, solvent credits, and credits; of value,” when secured by a recorded mortgage, deed of trust, or written contract of conditional sale. The proposition which appellee announces on this subject was succinctly stated in a dictum in Barnes v. Moragne, 145 Ala. 313, 41 South. 947, and which is in the following language: “It will not be doubted that the Legislature in the exercise of its authority or power to classify the subjects of taxation, may exempt £all moneyed capital (that is,.money lent, solvent credits, and other credits of value), from an ad valorem tax. These subjects may be well classified as one, but it would be an arbitrary and unjust classification to subject that species of solvent credits which are not secured by recorded instruments to a property tax and exempt those secured by recorded instruments. This, in our opinion, as said above, cannot be constitutionally done.”

It is undoubtedly time that a debt secured by a mortgage is a credit. If it is owing by a solvent party or is fully secured, it is a solvent credit. Such a solvent credit is clearly within the general definition of “solvent credits,” just as a horse is within the general definition of the word “animal.” There is, however, a distinct line of cleavage between debts which are secured hv mortgages and debts which are not so secured. There is also a distinct line of cleavage between debts which are secured by recorded mortgages and those which are not so secured. The law recognizes the difference between debts which-are evidenced by negotiable instruments and those which are not; those which are evidenced by accounts stated and those which are not; those which are evidenced by a writing and those which rest in parol. The term “solvent credits” is broad enough to cover debts which are secured and those which are unsecured; debts which are negotiable and those which are non-negotiable; debts which are evidenced by writings and those which rest in parol. In other words, this term is broad enough to cover all solvent choses in action; and yet we know that embraced within this broad term are instruments of many distinct classes, and that there are many textbooks written by eminent law writers which are devoted exclusively to an eludication of the laws which govern the distinct classes to which such instruments belong. There are volumes which are devoted exclusively to the discussion of the laws referable to negotiable instruments, volumes which are devoted to the discussion of the laws referable to mortgages, and volumes to the discussion of the laws pertaining to the general subject of bills and notes. Debts secured by recorded mortgages, deeds of trust, and written contracts of conditional sale are necessarily in a class to themselves. The recordation of the instruments securing them places them in that class. Indeed, many of the decisions of courts of last resort and many of the statutes of our various states are devoted exclusively to declaring the rights, privileges and liabilities of the holders of this class of securities.

2. We have nothing to do, as we have already said, with the wisdom or policy of the Legislature in passing this law. Money is a bird of passage, and it .usually finds a resting place at those points where it feels assured of safety. The unpopularity of the tax gatherer is proverbial, and the disposition to regard taxes as a burden is inherent. The efforts of the state to attract foreign capital find expression in many of our statutes, and it may be that the Legislature, for the purpose of inducing the holders of such capital to readily lend their money to such of our citizens as desire it and to induce those of our citizens who have been accustomed to adopt methods of escaping taxation to place their money in the hands of those who are willing to use it in their business, adopted this privilege tax with its accompanying exemption in subservience to a wise public policy. Indeed, the history of the state, since the adoption of the statute, has indicated that the reasons which actuated the Legislature in adopting the act were good and sufficient. . To use the language of the Supreme Court of Minnesota:

“It is a notorious fact that the owners of securities in the form of bonds and notes have not been in the habit of paying their proportionate share of the taxes. This has been due in a measure to the ease with which the existence of such property can be concealed from the tax officials. But when the owner of a note takes a mortgage on real estate as security, and places it upon the public records, he exposes his ownership — at least, his obsten'sible ownership — and enables the assessor to reach him. The perfect security afforded by a good real estate mortgage makes it necessary for the owner to accept a low rate of interest, and the adequate net returns, after paying taxes in the ordinary way, often result in practical confiscation. The owner is thus tempted to seek some devious method for escaping taxation, in order that he may be on an equality with the owner of an unsecured note or bond, which rests undiscovered in a safety deposit vault. The mortgage is therefore taken in the name of a non-resident, or the money is sent to another state, and there loaned in the name of the true owner. Experience has shown that it is very difficult, if not impossible, to fairly and successfully tax this kind of property under the system ordinarly applied to personal property. This practical difficulty alone furnishes a basis for a classification, and justifies the Legislature in devising a. special method for the taxation of the subjects of that class. To a certain extent the method provided in the statute under consideration recognizes the justice of the claim that taxing mortgages according to the ordinary methods results in inequality and injustice, and constitutes a constant temptation to fraud, whereby the honest and the innocent are made to suffer. By requiring a registration tax, every mortgage security pays a moderate tax, and this, in the judgment of the Legislature, is preferable to the certain uncertainties of the old system.” —Mutual, etc., Co. v. Martin, Co., 116 N. W. 572, 573, 574.

3. Recorded mortgages, deeds of trust, and written contracts evidencing conditional sales are exempt from taxation in the state. These instruments are required to pay for the privilege of being recorded, and they cannot be recorded without paying for the privilege. That the state has the right to exact this toll for the privilege is questioned by no one. That the state has the right to exempt all property of a particular kind from taxation is a proposition which is too firmly fixed in the jurisprudence of the state to now admit of question. What our Constitution requires is that: “Whenever the Legislature levies a tax on property, the rate must be in exact proportion to the value of such property; and that, if a tax is imposed on any species of property, all property belonging to that species must be taxed at the same rate, whether it belongs to an individual, an association of persons, or to a private corporation.”—State Bank v. Board of Revenue, 91 Ala. 217, 8 South. 852.

“The purpose and scope of this constitutional limitation upon the taxing power has been frequently considered by this court, and the substance of our decisions is that it was designed to secure uniformity and equality by the enforcement of an ad valorem system of taxation and to prohibit arbitrary or capricious modes of taxation without regard to value.—Moog v. Randolph, 77 Ala. 597, 602; W. U. Telegraph Co. v. State Board, etc., 80 Ala. 273, 275, 60 Am. Rep. 99; Assessment Board v. A. & C. R. R. Co., 59 Ala. 551; Mayor of Mobile v. Stonewall Insurance Co., 53 Ala. 570. This does not mean that all property must be taxed.—Moog v. Randolph, supra; State Bank v. Board of Revenue, 91 Ala. 217, 223, 8 South. 852. Nor does it prohibit exemptions from taxation or such classification of property as are not purely arbitrary, capricious, or without the semblance of reason.”—State v. Birmingham Southern R. R. Co., 182 Ala. 475, 62 South 77.

“The paramount difficulty is as to when the courts can properly interpose to declare a statute void, because of its taxing a particular class of property, upon a principle which seems to violate the rule of relative uniformity designed by the Constitution. ‘It is only when statutes are passed,' says Bigelow, C. J., in Commonwealth v. Savings Bank, 5 Allen [Mass.] 436, ‘which impose taxes on false and unjust principles, or operate to produce gross inequality, so that they cannot be deemed, in any just sense, proportional in their effect on those who are to bear the public charges, that courts can interpose and arrest the course of legislation by declaring such enactments void.’ This proposition, in my opinion, is correct, in .a modified sense; but there can be no excuse for the interference of the courts, unless this inequality— whether manifest by a system of exemptions or classifications — is not only oppressive in its operation, but is so glaring as that it can be judicially declared to be founded on arbitrary and capricious principles, without the just semblance of reason. In such a case, the system would cease to be taxation, and become governmental spoliation, thus trespassing on the boundary line of eminent domain, which is a right that cannot be exercised under tbe provisions of our Constitution, without first paying to the citizen a just compensation for his property taken by the state.—New Orleans & Selma R. R. Co. v. Jones, 68 Ala. 48. No law can be upheld which carries on its face the patent fact that its intention was confiscation under the guise of taxation.—Cooley on Tax. 128. Where the precise line of distinction exists, is often a question of great complexity and of difficult solution. Neither any fixed rule of reason nor the authorities furnish us any definite or clearly defined principle upon which to settle an accurate rule for all cases.—S. & N. Railroad Co. v. Morris, 65 Ala. 193; State v. Indianapolis, 69 Ind. 375, 35 Am. Rep. 223; Knowlton v. Supervisors, 9 Wis. 410; Burroughs on Tax. p. 32, § 34; Wells v. City of Weston, 22 Me. 385, 66 Am. Dec. 627; State v. Fosdick, 21 La. Ann. 434; In Matter of Town of Flatbush, 60 N. Y. 398; State v. Ogden, 10 La. Ann. 402. Subject to the above limitation, I do not see how the courts can circumscribe the legislative power to select the proper subjects of taxation, and to classify them upon principles which to them seem just. There must, of necessity, be left a liberal scope for the free exercise of this presumably wise discretion. It is said by Judge C'ooley, in his work on Constitutional Limitations: ‘The constitutional requirement of equality and uniformity only extends to such subjects of taxation as the Legislature shall determine to be properly subject to the burden. The power to determine the persons and the objects to be taxed is trusted exclusively to the legislative department; but over all these objects the burden must be spread, or it will be unequal and unlawful as to such ás are selected to make the payment.’—Coooley, Const. Lim. (5th Ed.) p. 638 (515).”—Moog v. Randolph, 77 Ala. 597, 603. 604.

It seems unnecessary for us to pursue this subject further. It seems plain that this statute is constitutional. To use the language of the Supreme Court of the United States in Farmers’ & Mechanics’ Savings Bank v. State of Minnesota, 232 U. S. 516, 34 Sup. Ct. 354, 58 L. Ed. -: “In lieu of further discussion we refer to the oft-quoted language employed by Mr. Justice Bradley, speaking for the Supreme Court of the United States in Bell’s Gap R. Co. v. Penn., 134 U. S. 232, 237, 10 Sup. Ct. 533, 33 L. E. 892, 895.”

And, we cite, in support of the above conclusion, the following cases to which our attention has been called ini .briefs of counsel for appellant: Mich. Cent. R. R. Co. v. Powers, 201 U. S. 245, 26 Sup. Ct. 459, 50 L. Ed. 744; N. Y. ex rel. Hatch v. Reardon, 204 U. S. 152, 27 Sup. Ct. 188, 51 L. Ed. 415, 9 Ann. Cas. 736; Louisa Kidd, as Ex’x, v. State of Alabama, 188 U. S. 730, 23 Sup. Ct. 401, 47 L. Ed. 669.

4. While the Legislature, in the exercise of that reasonable latitude with respect to the classification of properties for taxation, and in the exercise of its reasonable powers of exempting properties from taxation— powers which all well-considered cases concede it to possess — had the undoubted right to require a privilege tax of all mortgages, deeds of trust, and written evidences of contracts of conditional sales, for their recordation, and to exempt such recorded instruments from an ad valorem tax, the imposition by the Legislature of an ad valorem tax upon all solvent credits not included in the above classification was not only not discriminatory, but it was, in fact, an effort on the part of the Legislature to meet the letter and the spirit of our Constitution, which intends, in so far as a healthy policy will permit, equality in taxation. Success in business is not the usual attainment of the average man. While human progress, the success of commercial and industrial enterprises, the moral and intellectual development of mankind, and the constant trend of human effort towards the attainment of the high purposes of the future are largely dependent upon the activities and intelligence of the average man, history indicates that success in business will probably not come to him. The property of the average man is open to the eyes of him who gathers taxes for the state. If he is a farmer, his fortunte consists in his lands, his animals, and his farming utensils. If he is a merchant, it consists in his home and in the contents of his modest store. It would, seem, therefore, in justice to this, the great predominating class in the state, that those who are so highly favored as to possess solvent credits, not covered by some classification which, out of respect to a policy which the Legislature has ■deemed wise and just, entitles them to exemption from taxation, should be required to discover them to those who assess taxes for the state and to pay an ad valorem tax on them. The law is the exponent of a square deal, and, in requiring such solvent credits to be listed for taxation, the Legislature has simply responded to the demand which the doctrine of “the equality of burden” placed upon it. This act was a legislative effort to meet the letter and the spirit of the Constitution, which the appellee, in this proceeding, claims was violated.

5. There is one case in our reports (Barnes v. Moragne, 145 Ala. 313, 41 South. 947), and to which we •have already referred, which contains expressions which are in direct conflict with the views above expressed.

In Hooper v. State, 141 Ala. 111, 37 South. 662, this court, speaking through Haralson, J., said: “By the act of March 3, 1903, ‘To provide for the revenue of the state’ (Acts 1903, p. 184), said last-named act amended said subdivision 7 of section 3911 by providing for what is- termed ‘privilege taxes’ on mortgages, deeds of trust, or instruments in the nature of a mortgage, to secure the payment of any debt, and made no reference to taxation of solvent credits (Acts 1903, p. 227). Said subdivision was omitted and thereby repealed.”

A careful examination of the opinion in Hooper v. State, supra, will show that this court; in that case expressly declared that for the tax year commencing on October 1, 1903, and ending on September 30, 1904, there was no law in this state authorizing the assessment of “all money lent, solvent credits, or credits of value, except as are secured by mortgage, deed of trust, or written, con tract of conditional sale, upon which a tax imposed by law has been paid.” The assessment of the solvent credit which this court had under consideration in Barnes v. Moragne, supra, is shown by the summary of the facts set out by the reporter and by the original record on file in this court to have been made during a period when this state levied no ad valorem taxes upon solvent credits, and when it had no law authorizing such an assessment. The statement of the court in Barnes v. Moragne, supra, that the act which we now have under consideration was unconstitutional was a gratuity and is, of course, to be treated as mere dictum. The opinion in Barnes v. Moragne, supra, cannot be accepted as an authoritative declaration by this court upon the question in hand, and, while it may have been calculated to mislead, the decision does not fall within the protection of the doctrine of stare decisis. There was no necessity or occasion for a decision of the question (the question was not presented by the facts), and for that reason the opinion on the point under discussion was not a decision by this court, within the meaning of the doctrine of stare decisis. — In re Woodruff, 96 Fed. 317, 321.

6. This opinion has been prepared after the determination of this case by the full court. The case has been painstakingly and. carefully briefed by counsel on both sides. We have not undertaken in this opinion to review or to cite the numerous authorities to which counsel have referred us. To do so would unduly lengthen an opinion which has been arrived at after the most careful consideration by the whole court of the cases to which we have .been referred and which shed light upon the questions which we have above discussed. These authorities will be perpetuated by the reporter, and a candid examination of them will, we think, demonstrate, beyond doubt, the integrity of our position.

This opinion is written simply for the purpose (without needless review or citation of authorities) of stating in a plain way the law, to the end that our officers and people may no longer be in doubt as to the obligations of the taxpayer to the state.

The rulings of the trial court were not in accordance Avith the above views, and the judgment of the trial court is therefore reversed, and the cause is remanded to the trial court- for further proceedings in accordance with the views aboAre expressed.

Reversed and remanded.

All the Justices concur, except Anderson, O'. J., Aidio dissents.