Hattiesburg Grocery Co. v. Robertson , 126 Miss. 34 ( 1921 )

Smith, C. J.,

delivered the opinion of the court.

This suit was begun by the appellee in the court of a justice of the peace to recover from the appellant, a corporation, income taxes alleged to be due by it to the state for the years 1914, 1915, 1916, 1917, 1918, 1919. The statement of the cause of action set forth that the appellant had failed to report its income to the assessor for taxation, or to pay the tax thereon, and that the amount of the tax due by it each year was sixteen dollars, ninety-one and two-thirds cents, making a total of one hundred one dollars and fifty cents. The cause was tried upon an agreement in writing that the appellant owes the state an income tax for the years set forth in the appellee’s statement of the cause of action aggregating the amount sued for, provided the statute under which the tax is sought to be collected covers corporations and is valid. The cause reached the court below on appeal from the justice of the peace and judgment was there rendered in favor of the appellee.

Chapter 101, Laws of 1912 (Hemingway’s Code, sections '4933 to 4942, inclusive), under which the tax here in question is sought to be collected, imposes a tax on all incomes with certain exceptions in excess of two thousand, five hundred dollars.

The contentions of counsel for the appellant are that: First, the statute does not impose a tax on corporations; and, second, the statute is void for the reason that it violates sections 112 and 135 of the state Constitution and the due process clause of both the state and federal Constitutions.

First. The tax is imposed “on all annual incomes in excess of two thousand, five hundred dollars,” with no exception in favor of corporations. “Each person” is required to certify to the State Auditor the amount of his income for the previous year in excess of two thousand, five hundred dollars, and section 1590, Code of 1906 (section 1357, Hémingway’s Code), provides that the term “person,” when used in any statute, shall apply to artificial as well as natural persons. There is no merit therefore in the contention that the statute does not impose a tax on the income of corporations.

Second. Section 112 of the state Constitution provides 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, and the contention that the statute is in conflict with that section is based on the assumption: First, that a tax on income is a tax on specific property, from the value of which the income tax must be computed; and, second, that a tax on income derived from property is a tax on the property from which the income was derived.

“Taxes fall naturally into three classes, namely, capitation or poll taxes, taxes on property, and excises. Capitation or poll taxes are taxes of a fixed amount upon all the persons, or upon all the persons of a certain class, resident within a specified territory, without regard to their property or the occupation in which they may be engaged. Taxes on property are taxes assessed on all property or on all property of a certain class located within a certain territory on a specified date in proportion to its value, or in accordance with some other reasonable method of apportionment, the obligation to pay which is absolute and unavoidable and is not based upon any voluntary action of the person assessed. A property tax is ordinarily measured by the amount of property owned by the taxpayer on a given day, and not on the total amount owned by him during the year, and it is ordinarily assessed at stated periods determined in advance, and collected at appointed times. . . . Excises, in their original sense, were something cut off from the price paid on a sale of goods, as a contribution to the support of government. The word has, however, come to have a broader meaning and includes every-form of taxation which is not a burden laid directly upon persons or property; in other words, excise includes every form of charge imposed by public authority for the purpose, of raising revenue upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation.” 26 R. O. L., p. 34.

“Income” is “the gain derived from capital, from labor, or from both combined.” Stratton v. Howbert, 231 U. S. 399, 34 Sup. Ct. 136, 58 L. Ed. 285, and income for any,given period of time is the amount of the gain so derived during the designated period of time. Or, to express it differently :

“All incomes, apart from pensions or certain other fixed allowances, are payments to the owners of some requisite of production in respect of the services rendered by that requisite to the actual production of wealth. Or, put in another way, the monetary value of all goods or services that are produced and sold, after provision has been made for the maintenance and repair of plant, materials, and other elements of the capital fabric, is distributed in various proportions as income to the capitalist, workers, landowners, business men, professional men, whose personal activities or property help to produce this wealth. The wealth itself is real income; the price of it, broken up into various payments to owners of the factors of production, is money income.” Hobson’s Taxation in the New State, p. 13.

Whether income is received in the form of money or other property, the property .so received is taxable as such and if in existence on the 1st day of February is taxed under the general revenue laws. But a tax on income to be paid by the recipient thereof without reference to whether he has invested, spent, or wasted it, as is the tax here in question, is not on the specific property from which the income was received irrespective of the person of the recipient, neither is a tax on the person irrespective of property; for no definition of income can be framed under which it can be dissociated from the activities of the person who produced or received it, so that a tax on income necessarily includes among its elements the production or receipt of property. (State v. Wisconsin Tax Commission, 166 Wis. 287, 163 N. W. 639, 165 N. W. 470), and to that extent is a tax on the performance of an act resulting in gain to the person performing it, and the rule is, and was when section 112 of the state Constitution was adopted, that when the tax is imposed on the performance of an act, it will not be classified as a tax on property, although it is proportioned in amounts to the value of the property used in connection with or produced by the act which is taxed.

Income is necessarily the product of the joint effórts of the state and the recipient of the income, the state furnishing the protection necessary to enable the recipient to-produce, receive, and enjoy it, and a tax thereon in the last analysis is simply a portion cut from the income and appropriated by the state as its share thereof, and, while a tax on income includes some of the elements both of a tax on property and of a tax on persons, it cannot be classified as strictly a tax on either, for it is generieally and necessarily an excise, and should be enforced as such unless and until so to do would accomplish the result which section 112 of the Constitution was adopted to prevent, which is to prevent discrimination in the taxation of property, so that all property shall bear its due proportion of the burdens of government. Adams v. Miss. State Bank, 75 Miss. 701, 23 So. 395; Adams v. Bank of Oxford, 78 Miss. 532, 29 So. 402; Chicago, etc., R. Co. v. Robertson, 122 Miss. 417, 84 So. 449. The section contains no language even remotely indicating that its purpose is to withdraw from the legislature the power to tax any species of property or any of the activities of persons who enjoy the protection of the state’s laws, but such would be its effect if a tax on the income derived from property should be held to be necessarily a tax on the property from which the income was derived; for it would then necessarily follow that a tax on specific property derived as gain from other property, on- the value of which income must be computed, would also be a tax on the property from which it was derived. So that the property derived as gain from other property would be exempt from taxation until the form thereof is so changed that it can no longer be classified as property derived as gain from other property. Such a result is manifestly not within the purpose of the section, and we do not understand counsel for the appellant to so contend.

This was the theory on which the case of Pollock v. Farmers’ Loan & Trust Co., 157 U. S. 429, 15 Sup. Ct. 673, 39 L. Ed. 759, and 158 U. S. 601, 15 Sup. Ct. 912, 39 L. Ed. 1108, was decided, for, as pointed out in Brushaber v. Union P. R. Co., 240 U. S. 1, 36 Sup. Ct. 236, 60 L. Ed. 493, Ann. Cas. 1917B, 713, L. R. A. 1917D, 414:

“The contusion reached in the Pollock Case did not in any degree involve holding that income taxes generically and necessarily came within the class of direct taxes on property, but, on the contrary, recognized the fact that taxation on income was in its nature an excise entitled to be enforced as such unless and until it was concluded that to enforce it would amount to accomplishing the result which the requirement as to apportionment of direct taxation was adopted to prevent, in which case the duty would arise to disregard form and consider substance alone, and hence subject the tax to the regulation as-to apportionment which otherwise as an excise would not apply to it. Nothing could serve to make this clearer than to recall that in the Pollock Case, in so far as the law taxed incomes from other classes of property than real estate and invested personal property, that is, income from ‘professions, trades, employments, or vocations,’ ... its validity was recognized; indeed, it ivas expressly declared that no dispute was made upon that subject, and attention was called to the fact that taxes on such income had been sustained as excise taxes in the past.”

The case of Railroad v. Robertson, 122 Miss. 417, 84 So. 449, is not only not in conflict, blit, on the contrary, is in accord herewith. The tax there under consideration was on specific property not to be otherwise taxed, and the rate of taxation was not only different from that imposed on other property, but the amount of the tax was to be computed, not on the value of the property taxed, but the income derived herefrom. To have held such a tax not to be on property would have been not only to disregard the express purpose of the statute, but to permit that to be done which section 112 of the Constitution was adopted to prevent. The power of the legislature to impose an income tax was in no way involved in the decision of that case, as the court in its opinion was careful to point out.

The error in the cases cited by counsel for the appellant holding that an income tax must be classified as a tax on property results from dissociating gains derived from capital, or from labor, or from both, wholly from the activities relative thereto of the person taxed, and looking alone to the specific property which constitutes the gain so derived. In one of these cases, Eliasberg v. Grimes (Ala.), 86 So. 56, the court summarized its reasons for holding an income tax to be a tax on property as follows:

“Money or any other thing of value, acquired as gain dr profit from capital or labor, is property; in the aggregate these acquisitions constitute income; and, in accordance with the axiom that the whole includes all of its parts, income includes property and nothing but property, and therefore is itself property.”

The privilege tax cases of Thompson v. Kreutzer, 112 Miss. 165, 72 So. 891; Thompson v. McLeod, 112 Miss. 383, 73 So. 193, L. R. A. 1918C, 893, Ann. Cas. 1918A, 674, and Dawson v. Kentucky Distillery & Warehouse Co., 254 U. S. —, 41 Sup. Ct. 272, 65 L. Ed. —, are not in conflict herewith. In the first the tax was not on the acquisition of property, but ivas on the right to own property to be paid annually as long as the person taxed should continue to own it, without reference to the use to ivhich he might put it. In the second the tax as construed by the court was on the right to use and enjoy property without reference to whether or not the owner derived a revenue or gain therefrom. In the third the tax was upon all whisky withdrawn from bond or transferred in bond from Kentucky to a point outside that state, and, as set forth in the court’s opinion:

“The thing really taxed is the act of the owner in taking his property out of storage into his own possession (absolute or qualified), for the purpose of making some one of the only uses of which it is capable; i. e., consumption, sale, or keeping for future consumption or sale. . . . The whole value of the whisky depends upon the owner’s right to get it from the place where the law has compelled him to put it, and to tax the right is to tax the value.”

The views hereinbefore expressed are supported by 26 R. C. L., pp. 35 and 141 et seq.; Brushaber v. Union P. R. Co., 240 U. S. 1, 36 Sup. Ct. 236, 60 L. Ed. 493, Ann. Cas. 1917B, 713, L. R. A. 1917D, 414; Glasgow v. Rowse, 43 Mo. 479; Ludlow v. Wollbrinck, 275 Mo. 339, 205 S. W. 196; Waring v. Savannah, 60 Ga. 93; Purnell v. Page, 133 N. C. 125, 45 S. E. 534; State v. Philadelphia, etc., R. Co., 45 Md. 361, 24 Am. Rep. 511.

Third. Section 135 of the State Constitution creates the office of county tax assessor, and the contention that the statute violates that section is based ,on the assumption that, when a person has an income in excess of two thousand, five hundred dollars and fails to report it, the Auditor is charged with the duty of ascertaining its amount and assessing it for taxation, thereby discharging a duty which under the Constitution should be discharged by the county tax assessor, and the contention that it also violates the due process clause of the state and federal Constitution is based on the further assumption that in making this assessment the Auditor proceeds without notice to the person from whom the tax is to be collected. The statute imposes no such duty on the Auditor; consequently, we are not called on to determine whether or not the legislature has the power to impose such duty on him. The duties imposed on the Auditor are to certify to the tax collector the amount of tax due on the income reported to him by each person, and to coerce, in some way not clearly pointed out, persons who have failed to give in their income for taxation, into so doing.

The only method provided by the statute for ascertaining a person’s income is for a return thereof to be made to the auditor under oath by the person himself either voluntarily or under compulsion, and it is on this return alone that the amount of the tax due on his income by the person who made the return is to be computed.

The appellant, as hereinbefore stated, did not report his income to the Assessor for taxation as required by the statute, but no objection to a recovery by the appellee on that ground is here made by counsel for the appellant, and all such objections, we presume, were intended to be waived by the agreement on which the cause was tried in the court below.

Affirmed.