Opinion
No. 38277.
March 17, 1952.
1. Taxation — retail sales tax — illegal transactions.
Our sales tax law makes no distinction between legal and illegal transactions, and the State has the right to exact a tax on illegal transactions.
2. Taxation — retail sales tax on sales of intoxicating liquor.
A person engaged in the illegal sale of intoxicating liquor is liable for the 2% retail sales tax on all such sales made by him.
Headnotes as approved by Hall, J.
APPEAL from the chancery court of Clay County; B.M. WALKER, Chancellor.
B.H. Loving and Frank A. Critz, for appellant.
It was not the intention of the Legislature in the enacting of the Sales Tax, to make the same applicable to those sales forbidden by law.
"The distinction between a property tax and a `license' or `privilege tax' imposed for revenue is: that function of a property tax is to raise revenue by virtue of fact that property is within jurisdiction of taxing power and no condition is imposed thereby upon use of property taxed, while a license or privilege tax, even though also passed to raise revenue, is imposed upon the right to exercise a privilege." Stone v. General Contracting Purchase Corp., 193 Miss. 301, 7 So.2d 806, citing 140 A.L.R. 1029.
The sales tax in Sec. 10105 Code 1942, provides: "There is hereby levied and shall be collected annual privilege taxes."
"Laws imposing privilege taxes are to be construed favorably to the citizen, and no occupation is to be taxed unless clearly within the provision of such laws." Vicksburg, etc. R. Co. v. State, 62 Miss. 105.
"Laws imposing privilege taxes approximate an abridgement of the liberty of the citizen guarantee to him by the Fourteenth Amendment to the Constitution of the United States, and should receive the strictest construction." Wilby v. State, 93 Miss. 767, 47 So. 465.
"Though Legislature has power to impose a tax on business made unlawful by another statute, the intention so to do will not be imputed to it unless language of the statute clearly requires such construction." Scott, Sheriff, etc. v. Hossley, 107 So. 760.
In a long list of cases this Court has announced the rule that taxing statutes of doubtful meaning are construed against the taxing power, and all doubts are resolved in favor of the taxpayer. Town of Utica v. State, 166 Miss. 565, 148 So. 635; Gully v. Jackson International Co., 165 Miss. 103, 145 So. 905, and authorities cited in these cases. Gulf Ship Island R. Co. v. Harrison County, 4 So.2d 718. See also Independent Linen Service Co. v. Stone, 6 So.2d 110; A.H. Stone, Chairman of Tax Commission v. Allis-Chalmers Mfg. Co., 8 So.2d 228; Vanzandt v. Town of Braxton, 14 So.2d 223; Chickasaw County v. Gulf, Mobile Ohio R. Co., 15 So.2d 351.
The sales tax law, paragraph 10, 105, states plainly that there is hereby levied and shall be collected annual privilege taxes measured by the amount of volume of business done against the persons on account of business activities, and in the amounts to be determined by the application of rates against values or gross income of sales as the case may be as follows:
Under Sec. 10,108 it provides upon every person engaging or continuing within this State in the business of selling any tangible property whatsoever, real or personal, there could not be any sales tax on intoxicating liquor under the law; it is specifically stated that there is no property right in intoxicating liquor whatsoever.
J.H. Sumrall, for appellees.
I respectfully call the attention of the Court to the following authority in 30 Am. Jur., Sec. 164, p. 340, in which the following text is announced: "A tax, in the strict sense, may be imposed upon liquor dealers without licensing or otherwise authorizing the trade. The decisions generally hold that such a course is not offensive to a constitutional inhibition against licensing the sale of liquors, or to a prohibition law. A prohibited business may be taxed, and this without legalizing it."
Cited in support of said text are the following cases, from which I present the following excerpts: In the case of Stevenson v. Hunter, 2 Ohio, N.P. 300, the Court used the following language: "The state, finding the traffic in existence, and disapproving it, taxes it both for revenue and to diminish the evils resulting from it.
"If, notwithstanding the prohibition, the business is carried on, it would be an anomaly to hold that a violation of the law relieves from the payment of the tax. The result would be that those who are lawfully engaged in carrying on the business must pay the tax, while those who carry on the business in violation of the law are exempt. This would be putting a premium on disobedience to the law. It is no answer to this to say that the person who violates the law by carrying on the prohibited business may be punished by a fine and imprisonment. The tax is imposed, not to punish him, nor, on the other hand, in consideration of any protection due to the business. The business is not protected, but his property and the fruits of his business are protected, and in consideration of this, and the general benefits of government, he should pay the tax the same as all law-abiding citizens."
In the case of Foster v. Speed, 120 Tenn. 470, 111 S.W. 925, 926, the following language is quoted: "If one puts the government to special inconvenience and cost by keeping up a prohibited traffic or maintaining a nuisance, the fact is a reason for discriminating in taxation against him; and if the tax be imposed on the thing which is prohibited or which constitutes a nuisance, the tax law, instead of being inconsistent with the law declaring the illegality, is in entire harmony with its whole purpose, and may sometimes be even more effectual.
"The imposition of a tax upon an outlawed business is often more efficient in suppressing it than statutes making it a criminal offense, because of the greater certainty of the collection of the tax, and the difficulties attending the prosecution of the misdemeanor, and the fact that the enforcement of the two remedies is generally entrusted to different officers, and in this case, where the tax is collected by the clerk of the county court and the prosecution of the misdemeanor committed in making the sale made the duty of the sheriff and the district attorney."
As evidence of the fact that the State of Mississippi recognizes its right to impose a tax on a business even though said business is prohibited by law, the Legislature has enacted what is commonly known as the "Black Market Tax" which tax is imposed on persons engaged in the sale of liquor within the State, requiring the payment of a tax of ten per cent on the sale price, even though the sale of liquor in Mississippi is expressly prohibited by statute.
As another evidence of the fact that it is the policy of the State to put a tax on illegal business, by Section 36 Code 1942, charging a rate of interest greater than twenty per cent per annum is prohibited, and the law provides that any amount paid upon principal or interest where interest in excess of twenty per cent per annum is contracted for or received, directly or indirectly, would forfeit all interest and principal as well, and any amount paid may be recovered by suit.
And yet, by Section 9574 Code 1942 a privilege tax is imposed at the rate of $2,000.00 upon all persons lending money at a greater rate of interest than twenty per cent per annum, the tax imposed on such business being $2,000.00.
No better precedent could be found for the right of a State to impose a tax on an illegal business than that established by the Federal Government. And by the Eighteenth Amendment to the Constitution of the United States, the manufacture, sale or transportation of intoxicating liquor within the United States and all territory subject to its jurisdiction were prohibited. And in addition, the National Prohibition Act, commonly known as the Volstead Act was enacted by Congress of October 28, 1919, which also expressly prohibited the manufacture, sale or transportation of intoxicating liquors within the United States, and yet, the well known lord of the underworld of Chicago, Al Capone, was prosecuted and imprisoned by the federal authorities for failure to pay his income tax on the sale of intoxicating liquors at a time when the sale thereof was prohibited not only by an Act of Congress, but by the Constitution of the United States.
This appeal presents the question whether a person engaged in business as defined by our Sales Tax Law, Section 10104 et seq., Code of 1942, is liable for 2% retail sales tax on illegal sales of intoxicating liquor.
Appellant is engaged in business as defined in said statute and in addition to his legal sales, for which he reported and paid the 2% tax, he is also engaged in the illegal sale of intoxicating liquor. He did not report and pay the tax on his illegal sales. The State Tax Commission, from the best information available, assessed appellant with such tax in accordance with Section 10120, Code of 1942. Appellant did not pursue the remedy provided by Section 10122, Code of 1942, for a hearing on the matter, but filed a bill of complaint in the chancery court against the sheriff of Clay County and the Chairman of the State Tax Commission seeking to enjoin the collection of the tax levied by the commission. The chancellor then acting in that district granted an injunction as prayed for without notice in direct violation of the provisions of the last mentioned section of the Code. A motion to dissolve the injunction was sustained by a succeeding chancellor and a judgment on the injunction bond was rendered for the amount of the tax with interest and damages. This appeal is from that decree.
Appellant contends that the state sales tax cannot be collected on any illegal transaction. (Hn 1) Our sales tax law makes no distinction between legal transactions and those that are illegal. A merchant may open his store and sell his goods on Sunday in violation of law but it could hardly be successfully contended that such sales are not subject to taxation as are sales made on all other days of the week. The State has the right to exact a tax on illegal transactions. For instance, usury is prohibited by Section 36, Code of 1942, and yet the State levies a privilege tax on all money lenders charging a greater rate of interest than 20% per annum, Section 9574.
In 30 Am. Jur. p. 340, Intoxicating Liquors, Sec. 165, it is said: "Further, a dealer who sells liquor in a prohibited area cannot successfully combat an attempt to exact a privilege tax imposed by general statute on the business of selling liquor, on the theory that the statute does not apply to places where selling is prohibited and made an offense."
In Gooderham Worts, Ltd. v. Collins, 59 Cal.App.2d 309, 138 P.2d 785, 787, the court said: "But the determination of the present appeal in no way depends upon the question of whether the sales were lawful or unlawful, for it is well settled that `* * * the state may collect the tax on sales which are unlawful — i.e., made to non-licensees, as well as on lawful sales made to licensees. * * * the tax was due on all nonexempt sales, and that applies to illegal as well as to legal sales.'"
In State v. White, 115 La. 779, 40 So. 44, 45, the Supreme Court of Louisiana said that defendant's argument "is bottomed on the circumstance that the defendant during the years in question had no permit from the city council to retail intoxicating liquors. It is true that the city ordinance requires such a permit, but it does not follow that the defendant's violation of the ordinance has exempted her from the operation of the general license laws of the state."
In Foster v. Speed, 120 Tenn. 470, 111 S.W. 925, 22 L.R.A., N.S., 949, 15 Ann. Cas. 1066, the Supreme Court of Tennessee said: "Plaintiff's contention is that the statute making the sale of liquor a privilege, and imposing a tax upon those exercising the privilege, does not apply to places where the business is prohibited and made a misdemeanor; in other words, that the Legislature did not intend to license and tax a business which could not be conducted lawfully." The court then quoted the Tennessee statute with reference to the tax on retail liquor dealers, and said "It covers the whole state and all sales, whether legal or illegal. * * * The courts of last resort in a number of states have held that the fact that a business was prohibited, and license could not be obtained authorizing it, was no defense to an action to collect the tax imposed from one engaged in such business. Welsh v. State, 126 Ind. 71, 25 N.E. 883, 9 L.R.A. 664; State v. Funk, 27 Minn. 318, 7 N.W. 359; State v. Doon, R.M. Charlt. (Ga.) 1; State v. Hipp, 38 Ohio St. 199; Butzman v. Whitbeck, 42 Ohio St. 223; State v. Tucker, 45 Ark. 55; State v. Brown, 41 La. Ann. 771, 6 So. 638."
See also Carpenter v. State, 120 Tenn. 586, 113 S.W. 1042; Stevenson v. Hunter, 2 Ohio N.P. 300; License Tax Cases, 5 Wall. 462, 18 L.Ed. 497; Annotations in L.R.A. 1915C, 101, and 118 A.L.R. 828.
(Hn 2) It follows that the decree appealed from should be affirmed. However, through apparent inadvertence the decree authorizes a recovery of the taxes by A.H. Stone individually and the same will be modified to the extent of adjudicating the recovery in favor of A.H. Stone in his capacity as Chairman of the State Tax Commission.
Affirmed as modified.
McGehee, C.J., and Lee, Arrington and Ethridge, JJ., concur.