Jensen v. Henneford ( 1936 )

If the authority of Culliton v. Chase, 174 Wn. 363,25 P.2d 81, stood unimpaired, I should feel bound, under the rule ofstare decisis, to acquiesce in the decision in the instant case. But, since that case was decided, this court has handed down four decisions which, to my mind, destroy its authority as a precedent. Indeed, these later decisions undermine the very theory upon which Culliton v. Chase, supra, was decided. It will be remembered that the court there held that net income was property, and that a law providing for a graduated tax upon such incomes transgressed the uniformity clause of the fourteenth amendment to the state constitution.

In State ex rel. Stiner v. Yelle, 174 Wn. 402,25 P.2d 91, the court upheld the highly discriminatory occupation tax act (chapter 191, Laws of 1933, p. 869), on the ground that the imposition exacted was an excise. The tax exacted by that act is levied on gross income. So, necessarily, the theory of the decision is that gross income is not property. Now, what tangible difference there may be between net income and grossincome, which endows the one with the character of property and not the other, I have never been able to see. There are, however, obvious differences in the effect of taxes levied upon them.

The tax on gross income is the most oppressive kind of tribute a state may exact from its citizens. It falls with equal rigor on the rich and the poor alike. It is exacted without regard to the benefits the citizen may derive from the privilege of engaging in business. Whether the privilege proves an asset or a liability, a boon or a burden, he must pay on gross receipts without regard to costs of operation. Such a tax may, and frequently does, mean the difference in profit and loss in the enterprise.

On the other hand, a graduated tax, levied on net income, falls only on those who most enjoy the protection of the state. It is, of all taxes, the least oppressive. For it is measured solely by ability to pay. It is borne in direct ratio with the benefits derived under the constitutional guarantees of life, liberty and property (and the pursuit of happiness).

This tax on gross income was again upheld in Supply LaundryCo. v. Jenner, 178 Wn. 72, 34 P.2d 363, the court saying that the exaction

". . . was an excise tax, and not a property tax, and that, therefore, the uniformity clause contained in the fourteenth amendment to our constitution . . . did not apply."

Now we come to the sales tax. (Title III, chapter 180, Laws 1935, p. 721.) This act was first before the court in Morrow v.Henneford, 182 Wn. 625, 47 P.2d 1016. It was there held, in accord with the weight of authority, that the tax was

". . . an excise, not required to be apportioned, and therefore not obnoxious to the cited provisions of the state and Federal constitutions."

Now, that tax is not levied against the seller of property. It is levied against the purchaser. The seller merely acts as tax collector — the agent of the state. Morrow v. Henneford, supra. The amount of the tax is added to the purchase price of the specific article bought. I am thoroughly in accord with the view that such a tax is an excise. But I am unable to comprehend the reasoning which underlies the holding, on the one hand, that such a tax is not a property tax, and, on the other hand, that a tax on net income is a property tax.

The sales tax operates directly upon specific, tangible property — property not only susceptible of ownership but to manual possession. While, on the other hand, a tax on net income operates upon an intangible, inchoate right — susceptible, indeed, to ownership, but not susceptible to manual possession. The concept "income" is something that may be grasped by the mind but not with the hand. It may be transformed into something susceptible to manual possession — money, stocks, bonds, automobiles, etc. But then it loses its identity as "income" and becomes "property" in the sense that that term is used in the fourteenth amendment.

In Vancouver Oil Co. v. Henneford, 183 Wn. 317,49 P.2d 14, the court had before it another phase of the sales tax act — the so-called compensating tax. (Title IV, chapter 180, Laws 1935, p. 726.) The effect of this provision is to levy a tax on one who purchases property outside the state and uses it within the state. Such a one is required to pay the same amount in taxes as though he had bought the property within the state. The tax is defined as "a tax or excise for the privilege of using within this state an article purchased" without the state. (See, Title IV, §§ 31, 32, chapter 180, Laws 1935, p. 726.) In the case last cited, the court upheld this tax as an excise, in face of the contention that it was a direct levy on specific, tangible property, saying:

"With reference to the first contention, that is, that the tax is a property tax, little need be said, because this contention is covered by what is said in the recent case of Morrow v.Henneford, 182 Wn. 625, 47 P.2d 1016, where it was held that the tax provided for in chapter 180 was an excise tax, and not a property tax."

Now, if it may be said that a tax levied "for the privilege ofusing . . . any article of tangible personal property" is not a property tax, I fail to see how, in reason, it may be said that a tax, levied on the privilege of using so intangible a thing as net income, is a property tax. If the one is an excise, the other is more clearly such.

In face of these four decisions, the case of Culliton v. Chase, supra, has, as authority for the proposition thatnet income is property and that a graduated tax thereon violates the fourteenth amendment, lost its force as completely as if it had been flatly overruled. Consequently, I feel at liberty to adhere to the views set out in the dissenting opinion in that case.

I therefore dissent.

TOLMAN and GERAGHTY, JJ., concur with BLAKE, J.