Summary
holding that appellate court may overrule its own dicta
Summary of this case from Commonwealth v. FirmanOpinion
February 1, 1940.
February 5, 1940.
Constitutional law — Taxation — Uniformity — Ordinance taxing profits of businesses and professions for current year — Tax on salaries and wages for following year.
1. An ordinance of a city imposing a tax for general revenue purposes on salaries and wages earned during the next year by residents of the city, and on salaries and wages earned in the city during the next year by non-residents and on the net profits of businesses or other activities of residents earned during the current year, and on the net proceeds, earned during the current year, of businesses and other activities conducted in the city by non-residents, was held not invalid on the ground that it violated constitutional provisions, requiring uniformity of taxation, by providing that the net proceeds of businesses and professional activities for the current year be taxed but that employees pay a tax on their salaries and wages earned for the next year. [379-82]
2. Classification for tax purposes is proper where it is made according to reasonable, just and practical rules, drawn from experience, and where it rests upon some difference which bears a reasonable and just relation to the act in respect to which the classification is proposed. [381]
3. Where the classification is sound, the tax imposed is uniform if it falls equally upon all members within such class. [381]
Constitutional law — Due process — Tax on salaries and wages — Deduction at source — Residents and non-residents — Provisions for hearing and judicial review.
4. Such ordinance was not invalid because of the fact that employees, working in the city, would have the tax on their salaries and wages deducted currently at the source, in accordance with the provisions of the ordinance, while employees, working out of the city but residing therein, would necessarily escape such deduction. [381]
5. Such ordinance was not invalid on the ground that it contained no provision for hearing, appeal or judicial review, where it required the receiver of taxes to bring suit for recovery of any amount claimed by him, and the receiver did not have authority to enter a judgment or a lien or to make a distraint, or, in any other way immediately to collect against the will of the taxpayer the amount of any tax assessed by him. Furthermore, it was not invalid as not affording opportunity for judicial review and as violating due process by reason of the provisions of Sections 12, 14 and 15 of the Act of June 27, 1939, P. L. 1199, which provide fully for judicial review. [382-3, 388]
Wages — Attachment — Exemption — Tax on salaries and wages — Deduction at source — Act of April 15, 1845, P. L. 459.
6. Such ordinance was not invalid on the ground that deduction at the source was equivalent to an attachment of wages prohibited by the Act of April 15, 1845, P. L. 459, section 5. [384-5]
7. The Act of 1845 sets up a system of attachment for debts and applies to debts only and not to taxes. [384]
Constitutional law — Privilege against self-incrimination — Tax statute — Requirement of production of books for examination.
8. Such ordinance was not invalid on the ground that it required the production of books for examination without granting immunity to the taxpayer who produced them. [385]
Constitutional law — Public officers — Compensation — Diminution during term of office — Tax on salaries.
9. Such tax was not invalid, in violation of Article III, section 13 of the Constitution, on the ground that it constituted a diminution of the compensation payable to public officers to whom the tax might be applicable. [385]
Constitutional law — Impairment of obligation of contracts — Tax on salaries and wages — Deduction by employer.
10. The provision in such ordinance requiring employers to deduct the tax from salaries and wages at the time of payment thereof did not constitute an impairment of the obligation of contracts. [386]
Constitutional law — Taxation — Double taxation — Tax on salaries and wages — Deduction by employer — Liability of employee.
11. A provision in the ordinance that liability of the employee should remain where the employer had failed to make a return and to pay the tax, applied only to cases where the employer had neglected to make the deduction and, for such reason, had failed to make a return and pay the tax, or where the employer was not subject to the jurisdiction of the city, and for such reason, had failed to make a return and payment; and, therefore, the ordinance was not invalid on the ground that it imposed a duty on the employer to deduct the tax from salaries and wages but did not relieve the employee from liability where the employer failed to pay the tax to the city. [386]
Judgments — Res judicata — Validity of tax ordinance — Constitutional questions involved.
12. Where the validity of an act or ordinance is attacked and a decision rendered sustaining it, it may be assumed that all constitutional questions involved have been decided, whether or not they were raised in the pleadings or were mentioned in the opinion. [379]
Statutes — Construction — Scope of judicial review — Wisdom or expedience of ordinance.
13. In passing upon the constitutionality of an ordinance, the court does not have power to review the wisdom or expedience of the ordinance, or to consider the propriety or justness of the tax it imposes; its duty is to consider only the constitutionality and validity of the ordinance. [387]
Argued February 1, 1940.
Before SCHAFFER, C. J., MAXEY, DREW, LINN, STERN, BARNES and PATTERSON, JJ.
Appeals, Nos. 152 and 153, Jan. T., 1940, from decree of C. P. No. 7, Phila. Co., Dec. T., 1939, No. 1755, in case of Jennie Dole v. City of Philadelphia et al. Decree affirmed.
Bill in equity. Before OLIVER, P. J., CRUMLISH and SLOANE, JJ.
The facts are stated in the opinion of the court below as follows, by OLIVER, P. J., SLOANE, J., dissenting:
In these proceedings the plaintiff, a wage earner residing in the City of Philadelphia, attacks the validity and seeks to restrain the enforcement of the ordinance passed by the City Council of Philadelphia and approved by the Acting Mayor on December 13, 1939, "imposing a tax for general revenue purposes on salaries, wages, commissions and other compensations earned after January 1, 1940, by residents of Philadelphia, and on salaries, wages, commissions and other compensation earned after January 1, 1940, by non-residents of Philadelphia for work done or services performed or rendered in Philadelphia, and on the net profits earned after January 1, 1939, of businesses, professions or other activties conducted by such residents, and on the net profits earned after January 1, 1939, of businesses, professions or other activities conducted in Philadelphia by non-residents; requiring the filing of returns and the giving of information by employers and those subject to the said tax; imposing on employers the duty of collecting the tax at source; providing for the administration, collection and enforcement of the said tax; and imposing penalties."
No questions of fact are in dispute and the matter was heard as upon final hearing on bill and answer.
In the case of Butcher v. Philadelphia et al., 333 Pa. 497, the Supreme Court of this Commonwealth declared constitutional and valid the substantially similar ordinance passed by the City Council of Philadelphia and approved by the Mayor on November 26, 1938, "imposing a tax for general revenue purposes on salaries, wages, fees, commissions and other compensation earned by residents of Philadelphia and on the net profits of business or other activities conducted by such residents; on salaries, wages, fees, commissions and other compensation earned by non-residents of Philadelphia for work done or services performed or rendered in Philadelphia and on the net profits of business or other activities conducted in Philadelphia by non-residents; requiring the filing of returns by employers and by those whose earnings and profits are subject to the said tax; providing for certain credits against said tax; providing for the assessment, collection, administration and enforcement of said tax; providing for appeals from assessment of said tax; and imposing penalties." All objections against the validity of the 1939 ordinance, which were urgeable with substantially equal force against the validity of the 1938 ordinance, we must regard as having been disposed of by the Supreme Court in the Butcher case. When the validity of an act or ordinance is attacked and a decision rendered sustaining it, it is fair to assume that all constitutional questions involved have been decided, whether or not they were raised in the pleadings or mentioned in the opinion: Turco Paint and Varnish Co. v. Kalodner, 320 Pa. 421 (428).
In what respects are the two ordinances different? It is obvious each was intended to tax salaries and wages earned by residents; the net profits of businesses or other activities conducted by residents; salaries and wages earned in Philadelphia by non-residents; and the net profits of businesses or other activities conducted in Philadelphia by non-residents. Both ordinances, therefore, recognize a distinction between earned income and unearned income and both impose a tax only upon earned income. But the 1938 ordinance made the tax applicable to all earned income beginning January 1, 1938, and the 1939 ordinance makes the tax applicable to employees' compensation earned after January 1, 1940, and to net profits earned after January 1, 1939. The 1939 ordinance, therefore, has divided the large class of earned incomes into two, — one class consisting of incomes which arise out of an employee relationship and the other, incomes which arise out of the conduct of a business or profession. The distinction between these two classes of income was recognized by the Supreme Court in the Butcher case by its suggestion "that regulations will be promulgated under Section 6 of the [1938] ordinance, providing that the tax be collected at the source," because it is obvious that such collection may be made of the tax on salaries and wages but not of the tax on net profits. Furthermore, salaries and wages are in their nature essentially certain, and free from the speculative features inevitably attached to net profits. A business or professional man at the end of a year of industrious work may find that his efforts have produced no net income, — only a loss. In another year his net profit may be tremendous. The salaried man or wage earner proceeds on a more even keel. He usually knows in advance of performance just how much his salary or wage will be. Also, he knows currently what he is earning, while the business or professional man generally calculates his net profit or loss on an annual basis. He has to operate and calculate on a long range basis. Many of our laws for the benefit of employees are based upon these, and other fundamental and universally recognized, differences between the earning position of an employee and that of a business or professional man depending, not on salary, but on net profits for his livelihood.
It will also be noted that, while the 1938 ordinance grouped together in one class incomes from salaries and wages and from net profits, making for administrative purposes a distinction solely as between the earnings of residents and the earnings of non-residents, the 1939 ordinance first covers salaries and wages of residents and of non-residents and then covers net profits of residents and of non-residents and definitely shows an intention to subdivide the great class of earned incomes into its two great and legitimate classes, — income from salaries and wages and income from net profits.
It is contended that the assumption, above quoted, made by the Supreme Court in the Butcher case, is merely an "advisory dictum" and therefore not binding; but, although the Supreme Court is free to overrule its own rulings and dicta, we choose to follow the advisory dictum in that case both because we think it based upon a sound distinction and because we believe it reflects a seriously considered conclusion of our highest court and not a merely chance observation.
"Classification under the Constitution is necessarily elastic": Turco v. Kalodner, supra, page 434. It may properly be made according to reasonable, just and practical rules, drawn from experience, and must rest upon some difference which bears a reasonable and just relation to the act in respect to which the classification is proposed. "If the selection is neither capricious nor arbitrary, and rests upon some reasonable consideration of difference or policy, there is no denial of the equal protection of the law": Turco v. Kalodner, supra, page 432-3.
All that our Constitution requires is that taxes shall be uniform upon the same class of subjects. Therefore, if the classification above referred to is sound, the tax imposed by the ordinance before us is uniform if it falls equally upon all members within each class. That being so, there can be no sound objection to the fact that business and professional men must pay a tax on net profits from businesses and professions conducted by them earned subsequent to January 1, 1939, whereas income earners in another class, employees, are required to pay a tax on their salaries and wages earned after January 1 a year later.
In our opinion also there can be no sound objection to the fact that employees, working in the city, will have the tax on their salaries and wages deducted currently at the source, while employees, working out of the city but residing therein, will necessarily escape such deduction. The practical necessity and soundness of this administrative distinction is readily apparent. The city is without power to compel collection at the source of the tax upon income of resident employees derived from work performed outside of the city. Therefore, the suggestion, made by the Supreme Court in the Butcher case, that the tax under the 1938 ordinance be collected at the source, must be regarded as having been made solely with respect to employee income earned within the city limits. The Court, therefore, found nothing objectionable in this difference in the method of collecting the tax on salaries and wages earned in the city and the tax on salaries and wages earned outside the city.
If the employer is to deduct the tax, it is obvious the deductions should be made currently and should forthwith be paid over to the city by its agents. It is equally obvious that, as a practical matter, while current returns and payments may profitably be handled from employers, as such returns and payments will generally speaking be on a volume basis, dealing with many employees, current returns and payments could not be handled from hundreds of thousands of individual employees, except at such great administrative cost as to make the tax wholly impracticable. See Carmichael v. Southern Coal Co., 301 U.S. 495, 81 L.Ed. 1245, in which the Supreme Court of the United States said: "Administrative convenience and expense in the collection or measurement of the tax are alone a sufficient justification for the difference between the treatment of small incomes or small taxpayers and that meted out to others. . . . We cannot say that the expense and inconvenience of collecting the tax from small employers would not be disproportionate to the revenue obtained." In that case a tax was imposed on employers which excluded employers of less than eight and exempted employees of certain specified classes. "Taxation is not a matter of exact science . . . and acts will not be condemned merely because some inequalities are brought about": Turco v. Kalodner, supra, page 429. "Absolute equality of taxation cannot be obtained and is not required . . . some degree of inequality from the nature of things must be permitted": Com. ex. rel. v. A. Overholt Co., Inc., 331 Pa. 182, 192.
It is further urged by the plaintiff that the 1939 ordinance is invalid because it contains no provision for hearing, appeal or judicial review, all of which were provided for in the 1938 ordinance. We do not regard this objection as being well founded. The Receiver of Taxes does not have authority to enter a judgment or a lien or to make a distraint or, in any other way, immediately to collect against the will of the taxpayer the amount of any tax assessed by him. On the contrary, the ordinance requires him to bring suit for recovery of the amount he claims and, in such suit, the taxpayer necessarily has his opportunity for hearing, appeal and judicial review.
Counsel for the plaintiff relies on the case of Com. ex rel. v. Cunningham et al., 337 Pa. 289, in which the constitutionality of the Act of 1937 in reference to retention of sheriff's fees was under consideration. But that case rests upon the unusual provisions of the act therein involved, which provided that a county officer, holding any unclaimed moneys not belonging to him, after a stated lapse of time should turn them over to the county treasurer whose receipt therefor should fully discharge the county officer making such payment from all liability to the owner and that the owner could get his money back from the county treasurer after proof of claim "to the satisfaction of the county controller." Thus, in exchange for a right which the owner had against the sheriff for the immediate repayment of his money, which was enforceable by judicial proceedings, he was given merely a right against the county treasurer, enforceable at the discretion of the county controller. Hence, an existing right was taken away without an equivalent substitute. The court said, "The substitute provided deprives a claimant of a judicial trial, and, instead, requires him to satisfy the controller." No such situation is presented by the provisions of the ordinance before us. If the Receiver of Taxes seeks to enforce payment of any disputed tax he must institute a suit to collect it and the taxpayer may interpose his defense. All his rights are protected. "A statute requiring the taxes to be collected by judicial proceedings in which the taxpayer can present any defense gives ample protection to him": 61 C. J. 1086, Taxation, Section 1433. If any employer deducts too much, such excess deduction may be recovered in a suit against such employer by the taxpayer. If the Receiver seeks to impose a fine or to ask for imprisonment he must seek enforcement by judicial proceedings and the taxpayer can interpose his defense. If the taxpayer pays too much and later discovers his error, the ordinance requires reëxamination and correction of his return and overpayment and we believe the taxpayer, if such action is necessary, may recover by a suit in assumpsit. Or he may pursue the remedy afforded by the ordinance of Council approved December 20, 1922, page 687, to "any person who has erroneously paid to the Receiver of Taxes, taxes which were not legally due to the City or County of Philadelphia" and which are not recoverable under certain stated acts of Assembly.
The ordinance imposes a penalty of $100 and costs for any failure of the taxpayer to pay the tax due by him and it is contended that this fine would be payable even though the taxpayer in good faith was merely resisting what he considered to be an unjust assessment. But in the recent case of Appeal of Fidelity-Philadelphia Trust Co., Co-Trustee for Sundry Trusts, in an opinion filed December 28, 1939, Mr. Justice LINN suggested that, where the so-called default arises because of a bona fide contest, "it would be inequitable to exact the penalties and interest in addition to the tax and for that reason they should not be recovered."
It is also urged that the ordinance is invalid because the deduction at the source is equivalent to an attachment of wages prohibited by the Act of April 15, 1845, P. L. 459, Section 5. But that act sets up a system of attachment for debts and applies to debts only and not to taxes. "As the obligation to pay taxes does not rest upon any contract express or implied, or upon the consent of the taxpayer, a tax is not a debt in the ordinary sense of the word": 61 C. J. 70, Taxation, Section 4, Notes 39 and 40. Moore v. Mitchell, 30 F.2d 600; affirmed in 281 U.S. 18.
It is also urged that the ordinance is invalid because it requires the production of books for examination without granting immunity to the taxpayer who produces them. This contention is answered by the general rule well expressed in 70 C. J. 722, Witnesses, Section 876, in the following language: "A statute which compels a person to incriminate himself or to disclose facts which would incriminate him is invalid. A statute requiring disclosure of particular facts or merely requiring a person to appear and answer as to particular facts is not violative of the privilege where the right to refuse to answer as to incriminating facts is not taken away. (Italics ours.) Statutes requiring the making of reports or the disclosure of particular facts as regulatory of particular organizations, occupations, or businesses are not construed as compelling self-incrimination."
It is also urged that this tax, if applicable to public officers, constitutes a diminution of the compensation payable to such officers within the terms for which they were respectively elected or appointed, in violation of Article III, Section 13, of the State Constitution. This objection is not sound for two reasons. First, Section 10 of the ordinance specifically provides that the ordinance is not applicable to any person or property as to whom or which it is beyond the legal power of Council to impose the tax or the duties imposed by the ordinance. Even if plaintiff's primary contention is sound, therefore, it would follow merely that public officers would be excluded from the provisions of the ordinance but the ordinance itself would not be invalid. Secondly, the modern view is that such constitutional provisions as the one relied upon are not intended to relieve public officers, judges included, from the just and necessary burdens of taxation.
It is also urged that the provision requiring employers to deduct the tax from salaries and wages at the time of payment thereof, constitutes an impairment of the obligation of contracts. The tax is imposed upon the employee and the duty to pay it rests upon him. The employer is merely a collecting agent for the City when he withholds the tax. The situation is analogous to that created by the state law imposing a tax on corporate loans and requiring the corporations to deduct the tax from the interest paid by them and to pay it over to the State. See also Travis v. Yale and Towne Mfg. Co., 252 U.S. 60, cited with approval on this point by Mr. Chief Justice KEPHART in Commonwealth ex rel. v. Sun Oil Co., 294 Pa. 99.
It is also urged that the ordinance is invalid because it imposes a duty on the employer to deduct the tax from salaries and wages but does not relieve the employee from liability where the employer fails to pay the tax to the City. As the employer is the agent of the City for the collection of the tax, it is clear such a provision, if it exists, would impose a double liability. It will be noted, however, that the ordinance does not provide that the liability shall remain where the employer has collected the tax, but only where the employer has failed to make a return and pay the tax. This provision we interpret as applying only to cases where the employer has neglected to make the deduction and, for such reason, has failed to make a return and pay the tax, or where the employer is not subject to the jurisdiction of the city and cannot be compelled to make the deduction and, for such reason, has failed to make a return and payment. Where a reasonable interpretation can be adopted, which will save the constitutionality of an act or ordinance, it is the court's duty to adopt it: Commonwealth v. Girard Trust Co., 327 Pa. 135.
The objections, made in the bill, that the ordinance is invalid because it was signed by George Connell as Acting Mayor and because more than one subject is set forth in the title, were not discussed in the briefs filed by plaintiff or in the oral argument and may be regarded as having been abandoned.
In passing upon the constitutionality of the 1939 income tax ordinance, we have been mindful of the fact that this court has no power to review the wisdom or expedience of the ordinance or to consider the propriety or justness of the tax it imposes. Our duty has been to consider only its constitutionality and validity.
For the reasons aforesaid, the court finds that the 1939 ordinance is valid and constitutional and the bill is dismissed.
Plaintiff appealed.
Errors assigned, among others, related to the action of the court below in dismissing plaintiff's exceptions.
Gilbert J. Kraus and Isadore Katz, with them Jerome L. Markovitz. Abraham L. Shapiro and Abraham Wernick, with them Herman N. Schwartz, Assistant City Solicitors, and Francis F. Burch, City Solicitor, for appellees.
Ivan P. Pechner and Milton Brooks, for intervenor.
The decree of the court below dismissing plaintiff's bill is affirmed on the opinion of President Judge OLIVER. Costs to be paid by the City of Philadelphia.
ORDER ON PETITION TO WITHHOLD RETURN OF RECORD AND SUPPLEMENTAL OPINION, PER CURIAM, February 10, 1940:
We have considered the petition to withhold the return of the record for an additional period of thirty days and are of opinion that the public interest requires that the petition be and it hereby is dismissed.
When this case was argued, our attention was not called by counsel to Sections 12, 14 and 15 of the recent Act of June 27, 1939, P. L. 1199, which cover, inter alia, the subject of taxation here involved and in themselves provide adequate methods whereby the taxpayer may have any assessment made against him reviewed by the Board of Revision of Taxes of Philadelphia County and may appeal from that Board to the Court of Common Pleas and from there to the appellate courts. This statute confirms our conclusion that due process of law is afforded to plaintiff and to all taxpayers.