State Ex Rel. Knox v. Gulf, M. & N., R. ( 1925 )

I dissent from the majority opinion. Four years ago I joined with Judge SYKES in a dissenting opinion in Hattiesburg GroceryCo. v. Robertson, 126 Miss. 655, 89 So. 369, in which we held that, as long as section 112 of our Constitution stood, there could be no income tax law in this state taxing income derived from real and personal property. After the most thorough reconsideration of the question of which I am capable, I am still of that opinion. The majority opinion in the present case, in so far as it holds that the income tax statute under consideration does not violate section 112 of the Constitution, is founded upon the majority opinion in that case. In my judgment the foundations of the Hattiesburg Grocery Co. case are weak. One of the cases principally relied on and cited as supporting the opinion in that case is Pollock v. Farmers' Loan Trust Co.,157 U.S. 429, 15 S. Ct. 673, 39 L. Ed. 759. This case decided exactly the converse of what that case did. The only cases referred to in the Hattiesburg Grocery Co. case as sustaining it, which in fact do sustain the opinion, are the Missouri and Georgia cases; the reasoning in both of which in my opinion is weak and unsound.

Section 4 of the income statute under consideration provides for the taxation of the entire net income. Section 6 provides, among other things, the basis for ascertaining gain derived or loss sustained from the sale or disposition of real and personal property, which is to go to make up the income. The act is not open to construction as to what is taxed. It is all net income derived from any source whatsoever and includes profits made from the sale or other disposition of both real and personal property.

The right to acquire, own, and enjoy real and personal property is a natural right. It is one of the rights reserved to the people by section 32 of our Constitution. The legislature can neither take it away nor materially impair it. It is not a privilege granted to the citizen by the legislative branch of the government which may be taxed as such. The net income from real and personal property is the original and sole source of the existence of its value. It has no other value. Its very fundamentals consist of the rents, issues, and profits therefrom. Except for the rents, issues, and profits, it would be dead property; it would be worthless. The income statute is a revenue measure pure and simple. It is not an occupation tax so far as real and personal property is concerned. It is not a license law imposing a privilege tax on that character of property, for there is no pretense of an exercise of police power involved. In Thompson v. Kreutzer, 112 Miss. 165, 72 So. 891, it was said that:

"A tax on a thing is a tax on all its essential attributes; and a tax on an essential attribute of a thing is a tax on the thing itself. So that a tax on a thing owned is necessarily a tax on the right of ownership thereof."

The simple question is whether a tax on the only attribute of a thing which gives it value is a tax on the thing itself. It seems that to ask that question is to answer it. Here we have a tax on the net income from real and personal property; the only attribute which gives gives value to such property. This position is sustained by the Hylton Case, 3 U.S. (3 Dall.) 171, 1 L. Ed. 556; Brushaber Case, 240 U.S. 1, 36 S. Ct. 236, 60 L. Ed. 500, L.R.A. 1917D, 414, Ann. Cas. 1917B, 713; Eisner v. Macomber,252 U.S. 205, 40 S. Ct. 192, 64 L. Ed. 528, 9 A.L.R. 1570; In reOpinion of the Justices, 220 Mass. 613, 108 N.E. 570; EliasbergBros. v. Grimes, 204 Ala. 492, 80 So. 56, 11 A.L.R. 300;Thompson, Auditor, v. McLeod, 112 Miss. 383, 73 So. 193, L.R.A. 1918C, 893, Ann. Cas. 1918A, 674.

I deem it hardly necessary to say that it is conceded by counsel for the state, and by the majority opinion, in effect, that, if a tax on net income derived from real and personal property is a direct tax on the property itself, such a tax violates section 112 of our Constitution.

In my judgment the Hattiesburg Grocery Co. case is not only unsound but most mischievous in its effects, and ought to be overruled. The overruling of the Hattiesburg Grocery Co. case would not leave this court without authority in this state to stand upon, for Thompson v. McLeod, supra, and that case are squarely in conflict, as it appears to me. And furthermore, the opinion in the Hattiesburg Grocery Co. case neither criticized nor overruled the McLeod case. In the latter case, chapter 110 of the Laws of 1912 was under consideration, which was "an act to levy and collect and enforce the payment of an annual privilege tax or occupation fee upon all persons, associations of persons, or business firms and corporations, pursuing the business of extracting turpentine from standing trees," and fixing a tax of one-fourth of one cent per year for each cup or box used in extracting the turpentine. The court held that the tax, although called a privilege or occupation tax, was not such, but was in truth and in fact a property tax on the land of which the pine trees were a part, and violated section 112 of our Constitution requiring uniformity and equality in taxation. In discussing the question there involved, the court used in part this language:

"It is conceded by counsel for the state that, if the tax here attempted to be imposed is a property tax, the act imposing it is unconstitutional and void. In following the rule, so frequently announced by the courts, of looking through the form to the substance, it is manifest that the tax exacted by the act under review operates, and can only operate, as a property tax, and is really not a privilege tax. We are not called upon to place any limitation upon the right of the state to exact licenses or impose privilege taxes that are really such and to require the taxes as a condition precedent to the right to do business within the confines of our commonwealth. We do not question the right of the state, also, to measure a privilege tax by the volume or amount of business done. . . . Here the legislature attempts to say to the citizen:

"`Although we recognize that you are the lawful lessee or owner of standing pine trees, which produce, when tapped, an annual product of resin, and although we have demanded and you have paid your full share of taxes upon these standing pine trees and the soil which continually feeds them, nevertheless thou shalt not lay ax to the tree to extract the natural gum without subjecting any property which you have in the state of Mississippi to an additional tax of one-fourth of a cent for each box you cut.'

"This act strikes down the inherent right of the property owner to lay hand upon his own property. Every owner of a pine tree enjoys the same natural right to extract gum from the tree as the owner of a vineyard has to pluck his own grapes. It would be the same thing to require a privilege tax as a precedent right of the owner to pull the ripe pecans from his pecan orchard or to enjoy a drink of pure water from the cool spring of the old homestead. . . . If the tax here questioned can lawfully be imposed, then the legislature of our state, in a desperate search for revenue, can effectually brush aside the essential feature of equality and uniformity demanded by the Constitution. The provision that property shall be taxed in proportion to its value would be nullified, and the integrity of the Constitution itself destroyed."

What is the difference in principle in taxing the turpentine extracted from pine trees and the income derived from real and personal property? If there is any, it is beyond my capacity to see it. They are both income. For illustration, a tax is sought to be levied by the state on the turpentine extracted by a person from the trees on his land, or on the means used in extracting the turpentine — it does not make any difference which. The court holds that to be a direct tax on the land itself and therefore violative of section 112 of our Constitution. On the other hand, the state seeks to tax the income from cotton and corn and other agricultural products of the landowner. The court holds that to be an excise tax and not a property tax on the land. There is no sort of refinement by which the Hattiesburg Grocery Co. and the McLeod cases can be reconciled. Either the Hattiesburg Grocery Co. case or the McLeod case is right. Both cannot be right.

If the statute, so far as it levies a tax upon the net income from real and personal property, were held unconstitutional, the whole act would have to go down, for that part of it is not separable from the balance. The scheme left would be a monstrosity. No legislature would have enacted it.

However, as it appears to me there is a radical difference between the income tax statute upheld in the Hattiesburg Grocery Co. case and the one under consideration here, and that is to be found in section 5 of the latter, which provides, in substance, so far as land and personal property are concerned, that the tax on the income therefrom shall be a charge or lien against the property from which it is derived. The statute simply means that it shall be a tax on the real and personal property; the amount of the tax to be measured by the net income therefrom. In other words, instead of basing the tax on the assessed value of the real and personal property, it is based on the net income therefrom, but it is made just as much a charge against the property itself as if it had been based on the assessed value thereof. As I view it, this provision in the statute is simply a bald statement in effect that the tax is a direct tax on the real and personal property itself.

Good-bye section 112, this is the last of you. The framers of our Constitution by your adoption thought they were affording the taxpayers of the state some security against unjust and unequal taxation. They were mistaken. Little by little you have been whittled away by the courts until there was little left. By this stroke that small remaining vestige has been swept away. Now by giving each scheme of taxation a new name, property may be taxed times without number. It is all in the name. The state now, without let or hindrance from the Constitution may fill its insatiate tax maw to overflowing.

McGOWEN, J., concurs in this dissent.