Summary
In Compress of Union v. Stone, 188 Miss. 49, 193 So. 329, the exemption from liability for the manufacturer's tax was sought to be based upon the fact that part of the gross income of the manufacturer was "derived from sales to the United States government."
Summary of this case from Stone v. Green Lumber Co.Opinion
No. 34011.
January 29, 1940. Suggestion of Error Overruled April 8, 1940.
1. LICENSES.
Under statute providing that in computing amount of state privilege tax there should be excepted from gross proceeds of sales so much thereof as was "derived from sales to United States government," only income from sales to the government may be deducted (Laws 1934, chap. 119, sec. 2-h, as amended by chap. 222).
2. TAXATION.
A state tax on income derived from a federal governmental agency is permissible.
3. LICENSES.
An amount received by cotton compressing company from the Federal Commodity Credit Corporation for services performed by company which compressed cotton for the corporation was subject to state privilege tax (Laws 1934, chap. 119, and amendments Laws 1934, chap. 222; Laws 1936, chap. 158).
4. LICENSES.
The state privilege tax statute, when construed as imposing tax on amount received by a cotton compressing company from Federal Commodity Credit Corporation for services performed by the company which compressed cotton for the corporation, was not invalid as a tax on a federal governmental agency (Laws 1934, chap. 119, and amendments Laws 1934, chap. 222; Laws 1936, chap. 158).
APPEAL from the circuit court of Newton county; HON. PERCY M. LEE, J.
Flowers, Brown Hester, F.W. Bradshaw, and Robert Burns, Jr., all of Jackson, for appellant.
At various place in the act creating the Commodity Credit Corporation and in the acts providing for its operation and functions, it is declared that the same is an agency of the government and as such, it would seem that no question could exist as to its being identical with the United States Government. The Attorney-General, in the argument below, admitted that the Commodity Credit Corporation was an agency of and identical with the United States and that the court should consider the case exactly the same as if the compression and storage charges on which the sales tax is claimed had been collected directly from the United States Government.
The amount claimed as tax in this suit, being 2% of storage and compression charges received by appellants from Commodity Credit Corporation for a given period, is not valid because Commodity Credit Corporation is identical with the United States Government, and Section 2-h of Chapter 119, Laws of 1934, as amended, excepts such charges from liability for this tax.
It is our contention that the word "sales" as used in Section 2-h of Chapter 119 of the Laws of 1934 as amended has a general meaning and that it embraces and includes sales of all kinds, sales of physical properties, sales of storage space, and sales of service such as that rendered in compressing cotton. Cotton is stored for a given period of time, and a stipulated charge is made for the space occupied by a bale of cotton for a given period of time. A bale of cotton occupies a given number of square feet of warehouse space when placed in storage, and the charge made is at a given rate per month. In other words, the warehouseman sells to the person who places the cotton in storage a given number of square feet of space for each bale of cotton held in storage at a specified rate per month.
"Sale" is defined in the New Century Dictionary as, "The act, or an act, of selling." The word is also defined in Webster's International Dictionary (2 Ed.), as "Act of selling."
It is clear that the Legislature intended to give to the word "sales" as used in Section 2-h of the Act, a general meaning, because it provides that every closed transaction constitutes a sale. If the Legislature had not intended to give to the word "sales" a general meaning, the term "gross income of the business" would not have been inserted in Section 2-h of the Act.
It is common knowledge, and the court will take judicial notice of the fact, that the sales tax is a consumers' tax. It was never the intention of the Legislature that the sales tax should be paid by the party making the sale but that it should be passed on to the consumer. That is, that the consumer should be required to pay the tax. It is also common knowledge that the sales tax is passed on to the consumer, that the consumer pays the tax, and the court will take judicial notice of this fact. And this is in accord with the legislation purpose. The court will recall the discussion that occurred in the Legislature concerning the sales tax when the passage of the law was being debated and it was generally declared by the proponents of the law and by the then governor of the State of Mississippi that it was understood to be in its operation a consumer's tax and that the amount thereof should be charged against the consumer in every transaction in which a sales tax was due to be paid. The Legislature had this in mind in the passage of Section 2-h of Chapter 119 of the Laws of 1934 as amended. They realized that a sales tax could not be validly imposed on sales to the United States Government, and it was for this reason that such sales were excepted from the tax by this section of the Act. And under the law, insofar as the legal effect is concerned, there is no distinction between sales of physical properties and other sales to the government, sales of space and sales of service. The legislative purpose was to except all sales to the United States Government from imposition of the tax.
We are confident the court will hold that the word "sales" as used in Section 2-h of the Act in question embraces and includes sales of storage and compression facilities of warehouses and that under this section the appellant was not required to pay sales tax on the amount received from Commodity Credit Corporation as storage and compression charges covering cotton which Commodity Credit Corporation had stored with and had compressed by appellant during the period in question, but if we should be mistaken in this, we think appellant is relieved from such tax under the last clause of the section which excepts from the tax those transactions and that business which the state is prohibited from taxing under the Constitution of this State, or the Constitution of the United States.
We most earnestly urge the court to give to Section 2-h of Chapter 119 of the Laws of 1934, as amended, the construction which will exempt the business thus transacted between appellant and the government, as most clearly appears was the intention of the Legislature. The Legislature knew it could not tax the government and did not attempt to do so. The Legislature excepted all sales to the government from liability for the tax.
It would be folly to say that Section 2-h of the Act intended to exempt a sale of a bale of cotton to the government from the tax, but that charges collected as storage for the bale of cotton from the government would not be exempt from the tax. This is the effect of the construction contended for by appellee in the court below and is the effect of the construction given to Section 2-h of the Act by the court below.
The Act of Congress creating and controlling the operation of Commodity Credit Corporation provides that it shall be immune from all forms of taxation by the states and other governmental sub-divisions, except as to real estate owned by it and prevents the collection of the tax involved in this suit (See Public Act No. 442 of the 75th Congress, 52 U.S. Statutes at Large, Chapter 44, p. 107). But it would be immune from such taxation without this declaration in the Federal Act, as stated by our court in Parker v. Mississippi State Tax Commission, 177 So. 567.
And a state cannot tax the instrumentalities of a federal agency, or the agency itself, indirectly or under color of a subterfuge, as was held by the United States Supreme Court in Federal Land Bank v. Crosland, Judge of Probate, 67 L.Ed. 703, 261 S.Ct. 372.
Callam County v. U.S., 263 U.S. 341, 68 L.Ed. 328, 44 S.Ct. 121.
In Panhandle Oil Company v. Mississippi, 277 U.S. 218, 72 L.Ed. 857, 48 S.Ct. 451, it was held that the State of Mississippi could not impose a tax measured by the quantity sold upon the privilege of one of its citizens of selling gasoline to the federal government for use of its Coast Guard or Veterans' Hospital.
Graves v. Texas Co., 298 U.S. 393, 80 L.Ed. 1236, 56 S.Ct. 818; Indian Motorcycle v. U.S., 283 U.S. 570, 75 L.Ed. 1277, 51 S.Ct. 601; Western Union Telegraph Co. v. Texas, 105 U.S. 460, 26 L.Ed. 1067.
The Mississippi Sales Tax Law was passed at the 1932 session of the Legislature. The act was subsequently amended at the 1934, 1936 and 1938 sessions of the Legislature. The Sales Tax Token Law was passed at the 1936 session of the Legislature. The exceptions, or exemptions, as now made and granted in Section 2-h of Chapter 119 of the Laws of 1934, as amended, are in substantially the same form as they originally appeared in the Act when first passed. The decision of the United States Supreme Court in the case of Panhandle Oil Company v. State of Mississippi, 277 U.S. 218, 72 L.Ed. 857, 48 S.Ct. 451, was rendered May 14, 1928, and the law as there declared was in full force and effect and in the minds of the Legislature at the time the original Sales Tax Law was passed. This is significant on the construction of Section 2-h, Chapter 119 of the Laws of 1934, as amended, because the Legislature knew that it was unlawful to attempt to impose a tax, either directly or indirectly, and regardless of the name given to the tax, on the United States Government, or on the transactions in which it participated. And it was because of this that the exceptions were made in that section of the Law. There is no escape from this proposition. It is clear that the Legislature wanted to except and exempt transactions such as are involved in this case. And the Legislature having desired to make the exception and grant the exemption in accordance with existing law, this purpose of the Legislature ought not to be defeated by attempting to give a construction to the statute which is not justified.
J.A. Lauderdale, Assistant Attorney-General, for the appellee.
Section 2-h, Chapter 119, Laws of 1934, as amended, does not authorize or permit appellant to deduct from its gross income the amount received by it from the Commodity Credit Corporation, an agency and instrumentality of the United States Government.
Graves v. N.Y., 83 L.Ed. 577.
We conclude that the Commodity Credit Corporation is the same as and identical with the United States Government.
Appellant seems to concede that the statute levying the tax is broad enough to and does cover the tax in controversy. It relies on the provisions of said Section 2-h to exempt it from said taxes.
In Jackson Fertilizer Co. v. Stone, 173 Miss. 183, 162 So. 170, the court held as follows: "It is familiar learning that exemptions from taxation will never be presumed, and that the burden is upon the claimant of exemptions to establish clearly his right to such exemptions. Exemptions are to be strictly construed.
Barnes v. Jones, 139 Miss. 675, 103 So. 773, 43 A.L.R. 673; Morris Ice Co. v. Adams, 75 Miss. 410, 22 So. 944; Gulfport Bldg. Loan Assn. v. City of Gulfport, 155 Miss. 498, 124 So. 658; Millsaps College v. City of Jackson, 136 Miss. 795, 101 So. 574, 275 U.S. 129, 48 S.Ct. 94, 72 L.Ed. 196.
It will be noted that the term "gross income" as defined by the act means the gross receipts of a taxpayer "accruing from the sale of tangible property", and that the term "gross proceeds of sale" as defined in said act means "the value proceeding or accruing from the sale of tangible property."
Had the Legislature intended to except from the gross income of a taxpayer all income received from the United States Government, it would have omitted from said Section 2-h the words "sales to" in the fourth line of said section. Then it would have read as follows: "In computing the amount of tax levied under this act, there shall be excepted from the gross income of the business, or gross proceeds of sales, as the case may be, so much thereof as is derived from the United States Government." However, the Legislature inserted said words in the statute, and it evidently intended that such words be construed according to their common and ordinary meaning and acceptation. The terms "gross income from business" and "gross proceeds of sale" were used in said section in order that all income "which the State of Mississippi is prohibited from taxing under the constitution of this state or the constitution of the United States would be excepted from returns.
It is apparent that in adopting Section 2-h of said act the Legislature intended to except from the gross income of a taxpayer only such income as the state was prohibited by law or the constitution from taxing. This statute was enacted after the Supreme Court of the United States had held that a tax on the sale of merchandise to the United States Government was a tax on the government.
Indian Motorcycle v. U.S., 283 U.S. 570, 75 L.Ed. 1277.
In the case of Panhandle Oil Co. v. State of Mississippi, 277 U.S. 218, 72 L.Ed. 857, the Supreme Court, in construing a statute of the State of Mississippi, had held that the tax on gasoline measured by the amount of gasoline sold was a tax on the United States government, and that such tax could not be levied. The Legislature evidently had this opinion of the court in mind when it enacted said statute, and the intent and purpose thereof was to except only income derived from sales to the United States Government. At that time other provisions of the sales tax act had not been construed and the last provision of said section was enacted so that if the courts held that the state could not levy a tax on any income when received from the United States Government that said statute would except it from the provisions thereof.
Neither the constitution of the United States nor the constitution of the State of Mississippi prohibits the state from levying and collecting the tax paid by appellant.
James v. Dravo Contracting Co., 302 U.S. 134, 82 L.Ed. 155.
Of course, we concede that the state cannot levy a tax on the United States government. However, under the holding of the Supreme Court in this case it is clear that the tax here in question is a tax on appellant and not a tax on the government.
Graves et al. v. N.Y. ex rel. O'Keefe, 83 L.Ed. 577; N.Y. ex rel. Cohn v. Graves, 300 U.S. 308, 81 L.Ed. 666; Hale v. Iowa State Board, etc., 302 U.S. 95, 82 L.Ed. 72; Helvering v. Mountain Producers Corp., 303 U.S. 376, 82 L.Ed. 907; Helvering v. Gerhardt, 304 U.S. 405, 82 L.Ed. 1427.
Counsel for appellant contends that the tax levied by said Chapter 119, Laws of 1934, is a tax on the consumer, or that it is a consumer's tax. In its practical operation, this may be the effect of the statute. However, the tax is not laid on the consumer but on the person engaged in business. It would certainly not be a defense for the taxpayer to contend that he had not collected the tax or could not collect the tax from the consumer, therefore, he was not liable to the state.
Appellant is engaged in compressing cotton. The Commodity Credit Corporation is a Federal Agency; its entire stock is owned by the Federal Government. It had a large amount of cotton compressed by appellant for which service it paid appellant the sum of $41,025. Claiming authority so to do under Chapter 119 of the Laws of 1934, and amendments thereto, Chapter 222 of the Laws of 1934, and Chapter 158 of the Laws of 1936, the State Tax Commission levied and collected from appellant two per cent on said amount, aggregating $820.51. Appellant paid the tax under protest and brought suit against the tax commission to recover it back. The case is here on declaration, exhibits thereto, and demurrer. The trial court sustained the demurrer and dismissed the cause. From that judgment, this appeal is prosecuted.
The questions are: (1) Whether under the provision of Section 2-h, Chapter 119 of the Laws of 1934, as amended by Chapter 222 of the Laws of 1934, appellant was authorized to deduct from its gross income the said amount so paid it by the Commodity Credit Corporation; and (2) if that question is to be answered in the negative, whether the statute violates the Federal Constitution in that it is a tax on one of its governmental agencies. The statute in plain terms taxes such income unless it is excepted by the amendment, Chapter 222, Laws of 1934, which is in this language: "Sec. 2-h. In computing the amount of tax levied under this act, there shall be excepted from the gross income of the business, or gross proceeds of sale, as the case may be, so much thereof as is derived from sales to the United States government or the state of Mississippi, its departments and institutions, and upon the business of transporting gravel when consigned to a county, municipality, or sub-division thereof, and used for road construction or maintenance, or from business which the state of Mississippi is prohibited from taxing under the constitution of this state or the constitution of the United States." We are of the opinion that the language "derived from sales to the United States government or the state of Mississippi, its departments and institutions" qualifies what goes before. In other words, it is only income from sales to the government that is to be deducted.
It is not a tax on a federal governmental agency, but a tax on income derived from such an agency; that is permissible under the federal constitution. An income tax on rents and profits from land is not a tax on the land. New York ex rel. Cohn v. Graves, 300 U.S. 308, 57 S.Ct. 466, 81 L.Ed. 666, 108 A.L.R. 721. A tax on interest received from bonds is not a tax on the bonds. Hale v. Iowa State Board of Assessment and Review, 302 U.S. 95, 58 S.Ct. 102, 82 L.Ed. 72. A tax on the gross income of the proceeds of a lease is not a tax on the lease. A federal income tax on compensation received by a state employee is not a tax on the state. Helvering v. Gerhardt, 304 U.S. 405, 58 S.Ct. 969, 82 L.Ed. 1427. "An occupation tax measure by gross income is not invalid where imposed by a state upon a contractor with the United States as laying a direct burden on the Federal government, even though the imposition of the tax may increase the cost to the government of the work contracted to be done." James v. Dravo Contracting Co., 302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155, 157, 114 A.L.R. 318. There is no provision of the statute authorizing the tax on income derived from services to be passed on to the consumer. In the James case, the Supreme Court of the United States reviewed several previous decisions of that Court qualifying and limiting their language.
Affirmed.