Davis v. Smith , 197 Ga. 95 ( 1943 )

While in Penick v.Foster, 129 Ga. 217 (supra), the question was the power to tax municipal bonds, there designated as "instrumentalities of the government which creates the municipal corporation," the immunity declared seems not to have been based upon the fact that bonds were such an instrumentality, but rather upon the fact that such an instrumentality evidenced a government obligation, and that this immunity "is necessary in order that the functions of government be not unduly impeded." While the rule announced in the Penick case has by no means been universally adopted, it has been recognized in California, Louisiana, Michigan, Nebraska, South Carolina, South Dakota, and Tennessee. See especially Drollv. Furnas County, 108 Neb. 85 (187 N.W. 876, 26 A.L.R. 543), holding that warrants issued by a subdivision of the State are government instrumentalities, and as such are untaxable; Stratisv. Andreson, 254 Mass. 536 (150 N.E. 832, 44 A.L.R. 567).

These rulings are not based upon any constitutional or statutory provision, but are grounded on the principle that the power to tax is the power to destroy, and that any levy of tax on a government obligation tends to impair the credit of the sovereign and to impede the execution of its authorized functions. As I understand it, the word "instrumentality" has no special, narrow significance; the fundamental basis of all of the above decisions being that the obligation is that of the sovereign government or of a subordinate branch thereof. The reasoning employed in thePenick case, that if bonds were permitted to be taxed, the governmental authority issuing them could not sell them nearly so advantageously, would apply with equal or greater force in the making of contracts, if bidders are to be subjected to taxation on the sovereign's certificates of indebtedness.

The conclusion reached in this dissent is based, not only on the rule recognized by the court of last resort in the State of New York, in People ex rel. Astoria Light Co. v. Cantor (supra), dealt with but disapproved in the majority opinion, but as I see it, is the necessary sequence of what was said by the Supreme Court of the United States, through its Chief Justice, in Banks v. Mayor, 74 U.S. (7 Wall.) 16, 21, 23, where the court, dealing with certificates of indebtedness, seems to have planted its holding squarely upon the fact that an authorized debt of the sovereign is not taxable; and that such certificates, even for indebtedness already incurred, stand upon precisely the same footing as bonds issued for the purpose of obtaining funds to be thereafter expended. In that decision the court used the following language: "Evidence of indebtedness of the United States. . . sometimes called stock or stocks, but recently better known as bonds or obligations, have uniformly been held by this court not to be liable to taxation under State legislation. . . No one affirms that the power of the government to borrow, or the action of the government in borrowing, is subject to taxation by the States. . . An attempt was made . . to establish a distinction between the bonds of the government expressed for loans of money and the certificates of indebtedness for which the exemption was claimed. The argument was ingenious, but failed to convince us that such a distinction can be maintained. It may be admitted that these certificates were issued in payment of supplies and in satisfaction of demands of public creditors. But we fail to perceive either that there is a solid distinction between certificates of indebtedness issued for money borrowed and given to creditors, and certificates of indebtedness issued directly to creditors in payment of their demands; or that such certificates, issued as a means of executing constitutional powers of the government other than of borrowing money, are not as much beyond control and limitation by the States through taxation, as bonds or other obligations issued for loans of money. . . The certificates of indebtedness . . were received instead of money at a time when full money payment for supplies was impossible, and . . are as much beyond the taxing power of the States as the operations themselves in furtherance of which they were issued."

In Hibernia Savings Society v. San Francisco, 200 U.S. 310,313, 314, the ruling just quoted was cited with approval, and the rule that certificates for past expenditures stand on the same footing as bonds seems to have been fully recognized, although the court held that mere warrants issued for "immediate" payment, being no more than checks or money, did not come within the rule.

The effect of the majority ruling would seem to be far-reaching. So far as I am aware, it will for the first time subject to taxation in this State a vast number of governmental obligations issued or owing by the various governmental agencies. It appears to me that if bonds issued by the State or one of its subordinate divisions, for the purpose of borrowing money, are non-taxable, a fortiori should an obligation, issued by any one of the authorized governmental agencies, where payment is in default, be non-taxable; since the impairment of credit or other impeding of governmental functions may be even greater than that resulting from the taxing of bonds. The results of the majority holding, both on the State or its subordinate divisions or governmental agencies, and affecting large groups of persons to whom it may be necessary in times of financial stress to issue certificates, scrip, or other obligations in lieu of cash, may be so injurious as to seriously and literally impede the functions of government.