Opinion
December 31, 1932.
1. TAXATION: Income: "Property." An income tax is not a tax on property as the term is used in Section 3, 4, 6, 7 and 9, Article 10 of the Constitution of Missouri.
2. TAXATION: Income: Graduated Income Tax. A statute providing for a graduated progressive income tax is not in violation of the uniformity provisions of the State Constitution nor retrospective in its operation nor in violation of the due process clause and other provisions of the Fourteenth Amendment of the Federal Constitution.
3. TAXATION: Statutes: Contingent Operation. A statute imposing a progressive graduated income tax with a provision that if the rates fixed "be hereafter for any reason declared invalid or inoperative" a different uniform rate should apply, is not unconstitutional as a delegation of legislative and judicial power, because the alternative depends upon a contingency that has not happened and may never happen.
Appeal from Jackson Circuit Court. — Hon. Darius A. Brown, Judge.
AFFIRMED.
W.A. Harnsberger, John L. Gaylord and John I. Williamson for appellant.
(1) Section 10115, R.S. 1929, as amended in 1931 (new Sec. 10115, Acts 1931, p. 366) conflicts with Section 3 of Article 10 of the Missouri Constitution and is therefore void because lacking uniformity. Sec. 3, Art. 10, Missouri Constitution; Sec. 10115, Acts of 1931; Anderson's Law Dictionary; 39 Cyc. 685; State ex rel. v. Switzler, 143 Mo. 333; State v. Bengsch, 170 Mo. 115; Wire Co. v. Wollbrinck, 275 Mo. 357; Acts of 1931, pp. 366-7; State ex rel. v. Shipman, 234 S.W. 62; Independence v. Gates, 110 Mo. 382. (2) The Income Tax Act as amended is invalid because in conflict with Section 4, of Article 10, of the Constitution. Sec. 4, Art. 10, Mo. Const.; Wilson v. Beckwith, 140 Mo. 359; 50 C.J. 729; Pollock v. Farmers Loan Trust Co., 157 U.S. 596; Wire Co. v. Wollbrinck, 275 Mo. 355. (3) The Act of 1917, as amended, is in conflict with Sections 6 and 7, Article 10, Constitution of Missouri, and is, therefore, void. Secs. 6 and 7, Art. 10, Mo. Const.; Income Tax Act, 1917, p. 527; State ex rel. v. Shipman, 234 S.W. 63. (4) The Act of 1917, as amended, is void because it is in violation of Section 9, of Article 10, of the Missouri Constitution. Sec. 9, Art. 10, Mo. Const.; 12 C.J. 215. (5) The subdivision of the general subject of taxes on incomes into seven classes, based solely upon a difference in the amounts of the income in each class, is arbitrary, unreasonable and capricious, and therefore, void. State ex rel. v. Switzler, 143 Mo. 332. (6) The Income Tax Act of 1917, as amended, is in violation of the Fourteenth Amendment to the Constitution of the United States, in that it deprives plaintiff of his property without due process of law and denies him the equal protection of the law. Smith v. Cahoon, 283 U.S. 566; A. P. Tea Co. v. Maxwell, 154 S.E. 841; Clark v. Maxwell, 150 S.E. 192; Opinions of the Justices, 165 N.E. 900. (7) The Act of 1931 provides that if the rates therein fixed "be hereafter for any reason declared invalid or inoperative, then . . . for the portion of the year, 1931, after June 30, 1931," the two per cent rate shall apply. The amendment thereby becomes contingently retroactive and is a delegation of both legislative and judicial power. Sec. 10134, R.S. 1929; State v. St. Louis, 2 S.W.2d 725; Nally v. Home Ins. Co., 250 Mo. 459; Merchants Exchange v. Knott, 212 Mo. 636; Mitchell, etc. v. State, 134 Ala. 409; State ex rel. v. Ashbrook, 154 Mo. 393.
Stratton Shartel, Attorney-General, Henry H. Stern and Denton Dunn, Assistant Attorneys-General, Martin, Scheuffler Carbaugh, Norwin D. Houser, Paul C. Sprinkle and Inghram D. Hook for respondent.
"Brief History of Income Taxation," by Charles R. Metzger, American Bar Assn. Journal, Nov., 1927, Vol. XIII, No. 11, p. 662; Laws 1865, p. 112; Glasgow v. Rowse, 43 Mo. 479; Ludlow-Saylor Wire Co. v. Wollbrinck, 275 Mo. 339, 205 S.W. 196; Sess. I, ch. 45, United States Statutes at Large, Volume 12, p. 309; Pollock v. Farmers Loan and Trust Co., 158 U.S. 601, 39 L.Ed. 1108, 15 Sup. Ct. Rep. 912; Brushaber v. Union Pac. Railroad Co., 204 U.S. 1, 60 L.Ed. 493, 36 Sup. Ct. Rep. 236; Colonial Records of Massachusetts Bay Colony, II, 173, II, 213, III, 88; Const. of Mo., Art. X, secs. 3, 4, 6, 7, and 9; Art. II, sec. 15; Art. IV, sec. 1; Const. of the United States, Amendment XIV, sec. 1. (1) Sections 3, 4, 6 and 7 of Article X of the Constitution of Missouri are applicable only to taxes on property and have no application to income taxes. Wilson v. Washington County, 247 S.W. 185; Glasgow v. Rowse, 43 Mo. 479; Laws 1865, p. 112; Const. of Mo. of 1865, Art. I, sec. 30; Ludlow-Saylor Wire Co. v. Wollbrinck, 275 Mo. 339, 205 S.W. 196; Riesenberg v. Primary Realty Co., 214 Mo. App. 43, 258 S.W. 23; Elliott v. Winn, 305 Mo. 105, 264 S.W. 391; Young v. Illinois Athletic Club, 310 Ill. 75, 141 N.E. 369; Featherstone v. Norman, 153 S.E. 58; Purnell v. Page, 133 N.C. 125, 45 S.E. 535; State v. Railroad Co., 45 Md. 361, 24 Am. Rep. 511; Diefendorf v. Gallet, 10 P.2d 307; State ex rel. Sallic F. Moon Co. v. Wis. Tax Comm., 166 Wis. 287, 163 N.W. 639; People v. Wendell, 197 A.D. 131, 188 N.Y.S. 348, affirmed 231 N.Y. 629, 132 N.E. 916; Springer v. United States, 102 U.S. 586, 26 L.Ed. 259; Michigan Cent. Railroad Co. v. Slack, 100 U.S. 595, 25 L.Ed. 647; Opinion of the Justices, 220 Mass. 613, 108 N.E. 570; Eliasberg Mere. Co. v. Grimes, 204 Ala. 492, 86 So. 56; Evans v. McCabe, 52 S.W.2d 159; Constitution of Tennessee, Art. II, sec. 28; In re Cupples' Estate, 272 Mo. 465, 199 S.W. 556; In re Zooks, 317 Mo. 986, 296 S.W. 778; State v. Baldwin's Estate, 323 Mo. 207, 19 S.W.2d 732; Express Co. v. St. Joseph, 66 Mo. 675; Kansas City v. Whipple, 136 Mo. 475, 38 S.W. 295, 35 L.R.A. 747; St. Louis v. Sternberg, 69 Mo. 289; City of Aurora v. McGannon, 138 Mo. 38, 39 S.W. 469; St. Louis v. Reilly Woolfort, 6 Mo. App. 590; St. Joseph v. Ernst, 95 Mo. 360, 8 S.W. 558; St. Louis v. McCann, 157 Mo. 301, 57 S.W. 1016; City of Richmond v. Creel, 253 Mo. 256, 161 S.W. 794; McGrew v. Granite Bituminous Paving Co., 247 Mo. 549, 155 S.W. 411; State ex rel. Barker v. Merchants' Exchange of St. Louis, 269 Mo. 346, 190 S.W. 903, Ann. Cas. 1917E, 871, judgment affirmed Merchants' Exchange of St. Louis v. State of Missouri ex rel. Barker, 248 U.S. 365, 63 L.Ed. 300, 39 Sup. Ct. Rep. 114; State v. Weir, 145 Mo. 162, 46 S.W. 1099. (2) Section 3, Article X, of the Constitution of Missouri is not violated by provisions of the Income Tax Act as amended. Glasgow v. Rowse, 43 Mo. 479; Ludlow-Saylor Wire Co. v. Wollbrinck, 275 Mo. 339, 205 988 S.W. 196; Laws 1917, p. 528; R.S. 1929, sec. 572; Lawrence v. State Tax Commission (Advance Opinions United States Supreme Court, No. 13, 1931 term, p. 720, decided May 16, 1932); Stouffer v. Crawford, 248 S.W. 581; Ex Parte Asotsky, 319 Mo. 810, 5 S.W.2d 22, 62 A.L.R. 95; Const. of Mo. Art. X, sec. 3; State v. Becker, 288 Mo. 607, 233 S.W. 54; St. Louis v. Green, 7 Mo. App. 468; St. Louis v. Green, 70 Mo. 562; St. Louis v. Railway, 263 Mo. 387, 174 S.W. 78; St. Louis v. Sternberg, 69 Mo. 289; St. Louis v. United Rys. Co., 263 Mo. 507, 174 S.W. 109; State ex rel. McCluing v. Becker, 288 Mo. 607, 233 S.W. 54; Viquesney v. Kansas City, 305 Mo. 488, 266 S.W. 700; Northwestern Masonic Aid Assn. v. Waddill, 138 Mo. 628, 40 S.W. 648; State v. Guinotte, 275 Mo. 298, 204 S.W. 806; City of Aurora v. McGannon, 138 Mo. 38, 39 S.W. 469; Stanley v. Gates, 179 Ark. 886, 19 S.W.2d 1000; Featherstone v. Norman, 170 Ga. 370, 153 S.E. 58; Diefendorf v. Gallet, 10 P.2d 307; Standard Lumber Co. v. Pierce, 112 Or. 314, 228 P. 812; In re Inman's Estate, 101 Or. 182, 199 P. 615, 16 A.L.R. 675; State ex rel. v. Railroad Co., 138 Miss. 70, 104 So. 689; State v. Johnson, 170 Wis. 218, 175 N.W. 589; Waring v. Savannah, 60 Ga. 93; Hattiesburg Grocery Co. v. Robertson, 126 Miss. 34, 88 So. 4; Knowlton v. Moore, 178 U.S. 41, 44 L.Ed. 969, 20 Sup. Ct. Rep. 747; Flint v. Stone-Tracy Co., 220 U.S. 107, 55 L.Ed. 389; Cook v. Marshall County, 196 U.S. 261, 49 L.Ed. 471, 25 Sup. Ct. Rep. 233; Nicol v. Ames, 173 U.S. 509, 43 L.Ed. 786, 19 Sup. Ct. Rep. 522; Brushaber v. Union Pac. Railroad Co., 240 U.S. 1, 60 L.Ed. 493, 36 Sup. Ct. Rep. 236; Black, "Income and Other Federal Taxes," sec. 55, chap. 3; Cooley on Taxation, sec. 1752; 26 R.C.L. sec. 124, p. 153; Egyptian Levee Co. v. Hardin, 27 Mo. 495; Washington v. State, 13 Ark. 752; McGee v. Mathis, 21 Ark. 40; People v. Coleman, 4 Cal. 46; Sohler v. Schneider, 49 Ga. 195; Home Ins. Co. v. Augusta, 50 Ga. 530; Slaughter v. Co., 13 Gratt. 767; Eyre v. Jacob, 14 Gratt, 422; Adams v. Somerville, 2 Hoad. 363; Aulanier v. Governor, 1 Tex. 655; Tex. Bank. Ins. Co. v. State, 42 Tex. 636; Wiggins Ferry Co. v. E. St. Louis, 102 Ill. 560; Walker v. Springfield, 94 Ill. 364; Ex Parte Robinson, 12 Nev. 263; Gatlin v. Tarboro, 78 N.C. 119; Boye v. Giradly, 28 La. Ann. 717; Walters v. Duke, 31 La. Ann. 668; W.U. Tel. Co. v. Mayer, 28 Ohio St. 537; People v. Hartwell, 12 Mich. 508; State v. Jones, 19 Ind. 356; Dishon v. Smith, 10 Iowa 212; City of Newton v. Atchison, 31 Kan. 151, 1 P. 288; State v. Orvis, 20 Wis. 235; Baker v. Cincinnati, 11 Ohio St. 534. (3) Section 4, Article X, of the Constitution of Missouri is not violated by provisions of the Income Tax Act as amended. Glasgow v. Rowse, 43 Mo. 479; Const. of Mo. of 1861, Art. I, sec. 30; Ludlow-Saylor Wire Co. v. Wollbrinck, 275 Mo. 339, 205 S.W. 196; Express Co. v. St. Joseph, 66 Mo. 675; St. Joseph v. Spiegel, 75 Mo. 145; Ward v. Board, 135 Mo. 309, 36 S.W. 648; Mass. Bonding and Ins. Co. v. Chorn, 274 Mo. 15, 201 S.W. 1122; Viquesney v. Kansas City, 305 Mo. 488, 266 S.W. 700; Kansas City v. Richardson, 90 Mo. App. 450; American Co. v. St. Louis, 270 Mo. 40, 192 S.W. 402; Carthage v. Rhodes, 101 Mo. 175, 14 S.W. 181; Simmons v. State, 12 Mo. 268, 49 Am. Dec. 131; St. Louis v. Laughlin, 49 Mo. 559; State v. Bixman, 162 Mo. 1, 62 S.W. 828; St. Louis v. Green, 7 Mo. App. 468; State v. Parker Distilling Co., 236 Mo. 219, 139 S.W. 453; State ex rel. McClintock v. Guinotte, 275 Mo. 298, 204 S.W. 806; Laws 1917, pp. 237-242; State v. Freehold Investment Co., 305 Mo. 88, 264 S.W. 702; Hattiesburg Grocery Co. v. Robertson, 126 Miss. 34, 88 So. 4; State ex rel. v. Railroad Co., 104 So. 689; 27 L.R.A. (N.S.) 864; Const. of Mo. Art. X, sec. 4. (4) Sections 6 and 7 of Article X of the Constitution of Missouri are not violated by the Income Tax Act as amended. Const. of Mo. Article X, sections 6 and 7; Ludlow-Saylor Wire Co. v. Wollbrinck, 275 Mo. 339, 205 S.W. 196; Cooley on Taxation, sec. 1760; State ex rel. Atwood v. Johnson, 175 N.W. 589; People ex rel. v. Wendell, 188 N.Y.S. 344; State v. Pinder, 108 A. 43; State ex rel. v. Shipman, 290 Mo. 65, 234 S.W. 60, 63. (5) Section 9 of Article X of the Constitution of Missouri is not violated by the Income Tax Act as amended. 12 C.J. 216; Louisiana Cotton Mfg. Co. v. New Orleans, 31 La. Ann. 447; Cyclopedic Law Dictionary, p. 196. (6) Section 1 of Amendment 14 of the Constitution of the United States is not violated by the Income Tax Act as amended. Const. of United States, Amendment XIV, sec. 1; Ludlow-Saylor Wire Co. v. Wollbrinck, 275 Mo. 339, 205 S.W. 196; Stanley v. Gates, 179 Ark. 886, 19 S.W.2d 1005; Standard Lumber Co. v. Pierce, 112 Or. 314, 228 P. 812; Alderman v. Wells, 85 S.C. 507, 67 S.E. 784; Bell's Gap Railroad Co. v. Pennsylvania, 134 U.S. 232, 10 Sup. Ct. 533, 33 L.Ed. 892; Magoun v. Bank, 170 U.S. 283, 42 L.Ed. 1037, 18 Sup. Ct. Rep. 594; Keeney v. New York, 222 U.S. 525, 56 L.Ed. 299, 32 Sup. Ct. Rep. 105; Watson v. State Comptroller, 254 U.S. 122, 65 L.Ed. 170, 41 Sup. Ct. Rep. 43. (7) Section 15, Article II, and Section 1 of Article IV, of the Constitution of Missouri are not violated by the amendment of 1931. Const. of Mo. Art. II, sec. 15, Art. IV, sec. 1; State v. Kramer, 222 S.W. 822; Stouffer v. Crawford, 248 S.W. 581; Hicks v. Simonsen, 307 Mo. 307, 270 S.W. 318; State v. Williams, 266 S.W. 484; Ordelheide v. M.B.A., 226 Mo. 203, 125 S.W. 1105; State v. Baskowitz, 250 Mo. 89, 156 S.W. 945; Danciger v. Express Co., 247 Mo. 209, 152 S.W. 302; Rindge Co. v. Los Angeles County, 262 U.S. 700, 67 L.Ed. 1186, 43 Sup. Ct. Rep. 689; Commonwealth of Massachusetts v. Mellon, 262 U.S. 447, 67 L.Ed. 1078, 43 Sup. Ct. Rep. 597; Dahnke-Walker Milling Co. v. Bondurant, 257 U.S. 282, 66 L.Ed. 239, 42 Sup. Ct. Rep. 106; Station WBT v. Poulnot, 46 F.2d 671; Stephenson v. Binford, 53 F.2d 509; Dolley v. Abilene Natl. Bank, 179 F. 461, 102 Cir. Ct. App. 607, 32 L.R.A. 1065; State v. Southwestern Bell Tel. Co., 316 Mo. 1008, 292 S.W. 1037; Smith v. Dirckx, 283 Mo. 188, 223 S.W. 104; Laws 1931, pp. 365, 367; 1 Cooley on Constitutional Limitations (8 Ed.) p. 227; State v. Zimmerman, 197 N.W. 827; Union Bridge Co. v. United States, 204 U.S. 364, 51 L.Ed. 523, 27 Sup. Ct. Rep. 367; The Aurora v. United States, 7 Cranch, 382, 3 L.Ed. 378; Marshall Field Co. v. Clark, 143 U.S. 649, 36 L.Ed. 294; R.S. 1929, sec. 10125; State ex rel. v. Williams, 232 Mo. 56, 133 S.W. 1; R.S. 1929, sec. 10134.
In this proceeding, appellant, a resident of Jackson County, seeks to enjoin the collection of an income tax assessed against him for the year 1931, on the sole ground that the Income Tax Act of 1917, as amended in 1931, is in certain respects unconstitutional. It is alleged that the Act violates Sections 3, 4, 6, 7 and 9 of Article 10 and Section 15 of Article 2 of the State Constitution, and the Fourteenth Amendment of the Constitution of the United States as well. The provisions of the sections just mentioned, while familiar enough to most, may not readily come to mind by the mere naming of the sections by number and article. Said Section 3 provides that taxes shall be uniform upon the same class of subjects within the territorial limits of the authority levying the taxes; Section 4 provides that all property subject to taxation shall be taxed in proportion to its value; Section 6 provides that certain property therein enumerated shall be exempt from taxation, and that certain other property may be exempted by general law; Section 7 provides that property not enumerated in Section 6 shall not be exempt; Section 9 provides that "no county, city, town or municipal corporation, nor the inhabitants thereof, nor the property therein, shall be released or discharged from their or its proportionate share of taxes to be levied for State purposes, nor shall commutation for such taxes be authorized in any form whatsoever;" and Section 15, Article 2, provides that the General Assembly shall not pass any law retrospective in its operation. The Fourteenth Amendment requires no identification.
In Wire Company v. Wollbrinck, 275 Mo. 339, 205 S.W. 196, it was contended that the original Income Tax Act of 1917 violated practically all of the constitutional provisions above noted, but the contention as to each was disallowed. With respect to its alleged violation of said Sections 4, 6 and 7, this court said:
"It is apparent, therefore, that when the Constitution of 1875 was adopted, the word 'property' as the basis for taxation, proportioned to value, had acquired a fixed and definite meaning preclusive of personal incomes, occupations, privileges and similar sources of revenue. . . . It was the evident intent, therefore, of the Constitution of 1875, Section 4, supra, to use the word 'property' in the same sense and meaning which it had been held to carry when used in a similar section in two prior constitutions. . . .
"From what has been said as to the division of 'property' into its component classes and the limitation of that term under the Constitution to tangible and specific lands and personalty as the basis for taxation ad valorem, it follows that the excluded classes or property embracing incomes, etc., are not within the regulative provisions of the Constitution (Secs. 6, 7, Art. 10) specifying what 'property' shall be exempt from taxation."
As to its contravention of the uniformity provisions we said:
"The Constitution (Section 3, Art. 10) provides 'taxes may be levied and collected for public purposes, only. They shall be uniform upon the same class of subjects,' etc. By necessary implication this constitutional provision recognizes the power of the Legislature to classify the subjects falling within its restriction, and only requires that the tax shall be uniform upon the classified persons, or the classified subjects of taxation. In the Missouri act under review, persons, corporations and entities are distinguished and classified. The act also provides a classification as to the amount, of the portion of the net income of each class of persons, corporations or entities, which is subject to taxation therein. The act further provides for the payment of an identical rate of taxation upon each of the classifications of income subject to its burden, and that each person, corporation or entity shall pay the same tax which is paid by every other person, corporation or entity belonging to the same class. That the Legislature had the power to create such classification is implied by the very terms of the provision of the Constitution (Sec. 3, Art. 10) that taxes thereunder shall be uniform upon the same class of subjects. Necessarily this language would be meaningless unless interpreted to empower the Legislature to create distinct classes of 'subjects.' In the act under review it is not even contended (conceding the power to levy the tax) that the provisions distinguishing the persons and grading the tax to be paid in accordance with such distinctions, are not founded in reason, in justice and for the utility of the public — the true criteria which should govern all legislative action. Indeed the essential justice of the various classifications of the act seem to be evident."
Touching its impingement upon rights guaranteed by the Fourteenth Amendment we further said:
"Nor is there any logical basis for the further contention of appellant that the Income Tax Law contravenes the Fourteenth Amendment of the Constitution of the United States. In speaking of the relationship of the Nation to the States, as to the exercise of the taxing power by the latter, the Supreme Court of the United States said:
"'There is no general supervision on the part of the Nation over State taxation; and in respect to the latter, the State has, speaking generally, the freedom of a sovereign both as to objects and methods.'"
The constitutionality of the basic Act of 1917 having been thus set at rest, the present attack has been directed against the Act as amended in 1931. The changes introduced by the amendments of 1931, so far as they have any bearing on the questions raised, are found in the following portions of New Section 10115 (Laws 1931. p. 365), enacted in lieu of Section 10115, Revised Statutes 1929:
"There is hereby levied a per centum tax on net income in each year as follows: First, for the portion of the year 1931 after June 30, 1931, remaining after this act becomes effective and for the whole of each succeeding year thereafter . . . a tax shall be levied upon, assessed against, collected from, and paid by every individual, a citizen or resident of this state, upon net icome received from all sources during the preceding year in excess of the exemptions now or hereafter provided, and a like tax shall be levied upon, assessed against, collected from, and paid by every individual, not a resident or citizen of this state, upon net income received from all sources within this state, during the preceding year in excess of the exemptions now or hereafter provided . . . The per centum of the tax on net income above referred to, levied upon, assessed against and to be collected and paid as herein provided, shall be determined as follows:
"(a) On incomes in excess of the deductions and exemptions now or hereafter provided, but not exceeding such deductions and exemptions by more than one thousand dollars ($1,000) a rate of one per cent (1%) of each such net income.
"(b) On incomes in excess of the deductions and exemptions now or hereafter provided, and exceeding such deductions and exemptions by more than one thousand dollars ($1,000) but not exceeding such deductions and exemptions by more than two thousand dollars ($2,000) a rate of one and one-half per cent (1½%) of each such net income, less five dollars ($5).
"(c) On incomes in excess of the deductions and exemptions now or hereafter provided, and exceeding such deductions and exemptions by more than two thousand dollars ($2,000) but not exceeding such deductions and exemptions by more than three thousand dollars ($3,000) a rate of two per cent (2%) of each such net income, less fifteen dollars ($15).
"(d) On incomes in excess of the deductions and exemptions now or hereafter provided and exceeding such deductions and exemptions by more than three thousand dollars ($3,000) but not exceeding such deductions and exemptions by more than five thousand dollars ($5,000) a rate of two and one-half per cent (2½%) of each such net income, less thirty dollars ($30).
"(e) On incomes in excess of the deductions and exemptions now or hereafter provided, and exceeding such deductions and exemptions by more than five thousand dollars ($5,000) but not exceeding such deductions and exemptions by more than seven thousand dollars ($7,000) a rate of three per cent (3%) of each such net income less fifty-five dollars ($55).
"(f) On incomes in excess of the deductions and exemptions now or hereafter provided, and exceeding such deductions and exemptions by more than seven thousand dollars ($7,000) but not exceeding such deductions and exemptions by more than nine thousand dollars ($9,000) a rate of three and one-half per cent (3½%) of each such net income, less ninety dollars ($90).
"(g) On incomes in excess of the deductions and exemptions now or hereafter provided, and exceeding such deductions and exemptions by more than nine thousand dollars ($9,000) a rate of four per cent of each such net income less one hundred thirty-five dollars ($135). . . .
"(i) Provided, however, that if the rates on net income hereinbefore levied upon, assessed against and authorized to be collected from and paid by every individual, a citizen or resident of this State . . . be hereafter for any reason declared invalid or inoperative, then and in that event for the portion of the year 1931 after June 30, 1931, remaining after the aforesaid portions of this act would otherwise become effective and for the whole of each succeeding year thereafter, at the time and in the manner now or hereafter provided, a tax shall be levied upon, assessed against, collected from and paid by every individual, a citizen or resident of this State, at the rate of two per cent (2%) of net income, determined as now or hereafter provided, received from all sources during the preceding year, in excess of the exemptions now or hereafter provided."
The foregoing provides for a graduated progressive rate of income tax, and in that respect differs from the original Act, which levied the same rate upon all classes of income. In the Wollbrinck case it was held that the Legislature was empowered to classify the subjects of (income) taxation, and that a tax which was uniform upon all subjects in the same class, though not as between the different classes, did not violate the uniformity provisions of the Constitution, provided the classification was founded in reason. In this case appellant charges that the classification made by New Section 10115 is arbitrary, unreasonable and capricious, and therefore void. This contention presents the principal question for decision on this appeal.
The Amendment divides and classifies net income as follows: (a) Income not exceeding $1,000; (b) the portion of net income in excess of $1,000, not exceeding $2,000; (c) the portion in excess of $2,000, not exceeding $3,000; (d) the portion in excess of $3,000, not exceeding $5,000; (e) the portion in excess of $5,000, not exceeding $7,000; (f) the portion in excess of $7,000, not exceeding $9,000; and (g) the portion in excess of $9,000. On class a it levies a rate of 1 per cent; on class b a rate of 1½ per cent; on class c a rate of 2 per cent; on class d a rate of 2½ per cent; on class e a rate of 3 per cent; on class f a rate of 3½ per cent; and on class g a rate of 4 per cent. These divisions of income and their allocation to classes constitute the basis of the classi cation of income taxpayers. For example, if the taxpayer's income falls wholly within the first class, his tax is 1 per cent thereof; if his income exceeds $1,000, but not $2,000, he pays on the first thousand, allocated by the Statute to class a, at the rate of 1 per cent and on the remainder, allocated to class d, at the rate of 1½ per cent; if his income exceeds $2,000, but not $3,000, he pays on the first thousand at the rate of 1 per cent, on the second at the rate of 1½ per cent, and on the remainder at the rate of 2 per cent, and so on. To further illustrate. Suppose A's income is $25,750. Taxes would be levied thereon as follows:
Income Rate Tax $1,000 1% $10.00 $1,000 1½% $15.00 $1,000 2% $20.00 $2,000 2½% $50.00 $2,000 3% $60.00 $2,000 3½% $70.00 $16,750 4% $670.00 _______ ________ Total net income $25,750 Total tax $895.00
The Statute, however, affords a method of computation much simpler than the above. Taking the same income and applying the statutory method the tax thereon would be derived as follows:
Class Income Rate Amount Ded'n. Tax g $25,750 4% $1,030.00 $135.00 $895.00
Whichever method is used the result is the same. All persons having the same net income are required to pay precisely the same amount of tax. To the extent that their incomes fall within the same brackets all persons pay the same tax.
The statute not only classifies income, in the manner hereinbefore indicated, but as stated it effects a corresponding classification of income taxpayers. From our analysis of the statute it is obvious that the tax required to be levied under it is uniform, and not discriminatory, as between taxpayers in the same class.
The statutory classification puts net income into narrow brackets and then applies to each successive bracket after the first, in an ascending scale, a rate of taxation slightly larger than the rate applicable to the preceding bracket. Is such classification invalid, because arbitrary and unreasonable? It is similar to the classifications upon which rest all systems of income taxation having a progressive feature. The basic principle underlying all such classifications is the ability of the taxpayer to pay. Many economists and students of government regard a progressive tax as more just and equal in point of sacrifice than a proportional one, since persons with large incomes can more readily spare a fixed proportion of their income than those who have difficulty in sustaining themselves upon what they receive each year. This is the fundamental idea carried forward in all schemes for the taxing of incomes in which there is a progressive graduation of the tax, including that of the United States and those of the states of Arkansas, Delaware, Georgia, Idaho, Mississippi, New York, Oregon, North Dakota and South Carolina. [See Income Tax cases, 148 Wis. 456; Featherstone v. Norman, 170 Ga. 370; Diefendorf v. Gallet (Idaho), 10 P.2d 307; Standard Lbr. Co. v. Pierce, 112 Or. 314; State ex rel. Knox v. Railroad, 138 Miss. 70; Stanley v. Gates, 179 Ark. 886; Knowlton v. Moore, 178 U.S. 41; Flint v. Stone Tracy Co., 220 U.S. 107.] In view of the general acceptation of the principle, classifications based upon ability to pay cannot for that reason alone be said to be capricious or whimsical. Of course a classification ostensibly resting upon the principle just mentioned could in a given case so clearly evince a hostile discrimination between particular persons and classes that a court would be compelled to hold that it violated the due process and equal protection clauses of the Fourteenth Amendment, but that cannot be affirmed of the classification here in question.
Appellant's contention that New Section 10115 contravenes Section 9 of Article 10 of the Constitution is based upon his view that the fixed deductions mentioned in paragraphs b to g, inclusive, of the statute are commutations in part of the taxes levied under the provisions of those paragraphs respectively. But as already indicated the making of the deductions, in the amounts and in the manner specified, is but a device for simplifying the computation of the taxes. Its employment dispenses with the use of the tedious bracket method, as illustrated by the computations hereinbefore made of the tax on an income of $25,750. Appellant's contention is without substance.
Appellant's final point is: "The Act of 1931 provides that if the rates therein fixed 'be hereafter for any reason declared invalid or inoperative, then . . . for the portion of the year, 1931, after June 30, 1931,' the two per cent rate shall apply. The amendment thereby becomes contingently retroactive and is a delegation of both legislative and judicial power." Within the contemplation of the Act the only thing that will cause the graduated rates to become "invalid or inoperative" is an adjudication by a court of competent jurisdiction that the provisions of the statute imposing them violate constitutional provisions. The provisions with reference to a flat two per cent rate are not intended to come into effect, unless and until such an adjudication is made. That contingency has not happened, and may never happen. The questions raised by appellant under this head are therefore purely academic. It will be time enough for us to pass upon the validity of the provisions in question when challenged by some one who feels aggrieved through their attempted enforcement.
The judgment of the trial court dismissing plaintiff's bill is affirmed. All concur.