Opinion
May 4, 1934.
July 13, 1934.
Taxation — Interest-bearing deposits in banks — Exemption from local taxation — Constitutional Law — Selection and classification of subjects for taxation — Act of May 17, 1913 P.L. 507, as amended by Act of April 21, 1933, P.L. 54.
The selection and classification of subjects for taxation are, generally speaking, exclusively within the control of the Legislature. If the selection or classification is neither capricious nor arbitrary and rests upon some reasonable consideration or difference or policy there is no denial of the equal protection of the law.
Interest-bearing deposits which help maintain a sound banking system for the convenience and protection of the thrifty and for the stimulation and extension of credits are distinguishable from all other kinds of interest-bearing accounts which benefit their owners only.
The Act of April 21, 1933, P.L. 54, amending the Act of June 15, 1913, P.L. 507, which exempts interest-bearing deposits in banks from local taxation is constitutional.
Public officers — County commissioners — Right of commissioners to contest constitutionality of an Act of Assembly.
County commissioners may contest the constitutionality of an Act of Assembly which if valid takes away from them a source of taxes formerly given to them.
Appeal No. 310, April T., 1934, by County of Allegheny from decree of O.C., Allegheny County, January T., 1934, No. 15, in the case of Estate of James Donnelly, deceased.
Before TREXLER, P.J., KELLER, CUNNINGHAM, BALDRIGE, STADTFELD, PARKER and JAMES, JJ. Affirmed.
Exceptions to an audit in a decedent's estate. Before TRIMBLE, P.J., MITCHELL and CHALFANT, JJ.
The facts are stated in the following opinion of the court below:
Counsel for the estate of the decedent, admitting that an interest-bearing bank deposit would have been taxable for 1934 in the sum of $88.06 under the first section of the Act of 1913, P.L. 507, first deny the right of the county commissioners to contest the constitutionality of an amending act which exempts interest-bearing deposits in banks from taxation but, if that proposition is untenable, they argue that the amending act is constitutional and that the tax is uncollectible.
The first section of the Act of 1913, P.L. 507, authorizes county commissioners to levy taxes on certain tangible and intangible personal property, including as a class of taxable subjects "accounts bearing interest" which, in an amending Act of 1933, P.L. 54, are restricted by omitting from the class "interest-bearing accounts in any bank or banking institution, savings institution, or trust company," resulting in their complete exemption, along with other banking assets exempt under the Act of 1913, from direct levy by county commissioners if the Act of 1913 is constitutional.
The right of county commissioners to submit to the courts the constitutionality of the amending act is challenged without merit. Their duties are more than ministerial: Corpus Juris, Vol. 15, p. 456. That authority states that they have a wide or at least a reasonable discretion. They operate under a county code established by the Legislature in the Act of 1929, P.L. 1273, which provides that the corporate power of each county shall be vested in a board of county commissioners: Article II, section 23. They are authorized to create indebtedness which cannot be assumed by the State of Pennsylvania: Article IX, Sec. 9. They are authorized by the Legislature to levy and collect taxes and from these collections the bonds which they have issued must be paid. In Commonwealth v. Mathues, 210 Pa. 372, the whole subject was extensively reviewed and the state treasurer, a high constitutional officer of the Commonwealth and entrusted with the funds of the State, was permitted to raise the question of the constitutionality of an act which required the payment of money from the State Treasury. In Dupuy v. Johns, 261 Pa. 40, the right was not denied. In the instant case the county commissioners, also constitutional officers, are defending the counties' right to a source of taxes heretofore given to them by the State involving $800,000 annually. They are alleging that the Act of Assembly which, if valid, takes this away from the County of Allegheny, is unconstitutional. Of course, they can not whimsically question acts of the Legislature but they have discretion and, when they exercise it reasonably, they are within their rights. The statute directly affects the local government which the county commissioners are chosen to uphold against all unconstitutional acts of the Legislature. The local government committed to them is interested in the result of this litigation. They are proceeding in an orderly manner by invoking the court to decide whether the Legislature has granted an exemption from taxation contrary to the provisions of the Constitution of the State. In no sense can this litigation be considered as an attack upon the sovereign rights of the State by its agent. Whether the State is sovereign in this particular matter may be properly submitted to the courts by the county through the commissioners.
The commissioners claim that the amending Act of 1933 is unconstitutional because the act does not apply to interest-bearing accounts in any bank or banking institution, savings institution, or trust company. The first section of the Act of 1913 did not permit a levy for local taxation on bank notes or notes discounted or negotiated by any bank or banking institution, savings institution, or trust company, nor on loans, shares of stock, or other securities, held by bankers or brokers solely for trading purposes, nor on accounts or debit balances owing by customers of bankers or brokers in the usual course of business. By including the interest-bearing accounts in the amending Act of 1933, the State has declared its policy with respect to exemptions from local levies on accounts which are for the mutual benefit of the banks and the depositors.
Accounts bearing interest may be generally indicated as manufacturers', mechanics', merchants', professional, and bank. Are they so related that there is no difference between an interest-bearing bank account and the others? If such an account can be identified as an entity, as we shall see, it differs from them and may be taken out of the class without creating an unlawful exemption. Commonwealth v. Lukens, 312 Pa. 220, sustains a taxing act classifying collectively all devices for the transportation of freight, passengers, baggage, or oil except taxicabs, motor buses, and motor omnibuses. The court said: "Is there such a difference between the entity taxed and the one not levied upon with relation to the act in respect to which the classification is proposed as to justify the Legislature in fixing the classes which it did? If there is, the statutory provision is valid, if not, it is void." There must be no lack of uniformity in classification and there must be a real distinction between the objects; the legislative judgment is binding upon the courts unless they can point out that the classification adopted is purely fanciful and arbitrary and no substantial or logical basis exists therefor; there may be a variety of differences in taxation of proposed businesses, trades, callings or occupations; discrimination in favor of certain classes does not make an act arbitrary if it is founded upon a reasonable distinction; and the selection and classification of subjects for taxation are, generally speaking, exclusively within the control of the Legislature, the only restriction being that there must be no discrimination between the members of the same class.
Another review of the legislative power to classify subjects of taxation is Commonwealth v. Girard Insurance Company, 305 Pa. 558, where a tax upon gross premiums received by all insurance companies, except those doing business on the mutual plan, was sustained upon authority of State Board of Tax Commissioners of Indiana v. Jackson, 283 U.S. 527, 539: "The fact that a statute discriminates in favor of a certain class does not make it arbitrary, if the discrimination is founded upon a reasonable distinction. ...... A very wide discretion must be conceded the legislative power of the state in the class of trades, callings, businesses, or occupations which may be subject to special forms of regulation or taxation through an excise or license tax. If the selection or classification is neither capricious nor arbitrary and rests upon some reasonable consideration or difference or policy there is no denial of the equal protection of the law. It is not the function of this court ...... to consider the propriety or justness of the tax. ...... Our duty is to sustain the classification adopted by the Legislature if there are substantial differences between the occupations separately classified. Such differences need not be great."
The State has authorized an elaborate banking system which it supervises for the benefit of all the people. As part of that system the depositor may receive interest. The deposits are necessary for the success of the banking system. Without them, few banks would last a day. The maintenance of a sound banking system by the State for the convenience and protection of the thrifty and for the stimulation and extension of credits, made possible by encouraging depositors to open and keep non-taxable interest-bearing accounts, is a public policy of the State of Pennsylvania and this of itself identifies a bank account as a separate and distinct entity from the merchant's account and distinguished from all other kinds of interest-bearing accounts, with their great variety in conditions of payment, which benefit their owners only.
Counsel for the Commissioners argue that all accounts bearing interest are of one class and that the additional exemptive provision of the Act of 1933 must be declared unconstitutional. We are referred to the Appeal of Fox and Wife, 112 Pa. 337, and Quaker City Cab Company v. Pennsylvania, 277 U.S. 389; the first illustrating an unlawful exemption of notes or bills for work or labor done from the class designated as promissory notes or penal or single bills; and the second, to individuals doing the same kind of business as transportation companies which were required to pay a tax on their gross receipts. In each of these and similar cases, attempts by the Legislature to exempt specimens of indistinguishable subjects of a class were declared void.
The Legislature did not exceed its power by exempting from local taxation depositors' accounts bearing interest in banks. The State, by the highest judicial authority, had the right to give effect to its public policy to relieve from local taxation bank deposits bearing interest when these accounts are distinguishable by the benefit which they afford to the banking system from all trade and professional and individually beneficial accounts bearing interest.
There is some argument about the loss of revenue to the county, directly and indirectly. The courts have nothing to do with this question. It is exclusively legislative: Commonwealth v. Lukens, supra.
The claim of the County of Allegheny that it may tax the interest-bearing accounts in banks belonging to the decedent's estate for the year 1934 will be refused. Let a decree be entered accordingly.
DECREE
And now to wit, January 31, 1934, the account in this case having been filed and confirmed nisi and having been examined and audited by the court, upon consideration thereof it is decreed that the account be confirmed absolutely, and that the funds in the hands of the accountant, to wit, $21,814.47, be paid in accordance with the schedule of distribution hereto attached and made part hereof unless exceptions are filed within ten days.
Per Curiam,
TRIMBLE, P.J.
The court dismissed the exceptions. County of Allegheny appealed.
Error assigned, among others, was the decree of the court.
Thomas E. Whitten, Assistant County Solicitor, and with him J.P. Fife, County Solicitor, and John H. Lauer, for appellant.
George E. Alter, and with him A.C. Teplitz, Arthur M. Scully and Edwin W. Smith, for appellees.
Argued May 4, 1934.
The decree is affirmed on the opinion of TRIMBLE, President Judge of the orphans' court. The appellant is to pay the costs.