Opinion
No. 33381.
November 7, 1938. Suggestion of Error Overruled November 21, 1938.
1. LICENSES.
A manufacturer of wooden veneer and wooden plugs was not required, under statute imposing a sales tax for the privilege of engaging in business on persons engaged principally in the business of producing timber for sale, to pay sales tax on proceeds, constituting less than 10 per cent. of its operations, from logs which manufacturer sold to another firm because the logs were unsuited to manufacturer's purposes, since sale of logs was a mere incident of the principal business (Laws 1936, ch. 158, sec. 2).
ON SUGGESTION OF ERROR.2. APPEAL AND ERROR.
The Supreme Court was not required to pass on constitutional objections to sales tax, urged for the first time in the Supreme Court on suggestion of error, and not raised by the pleadings.
APPEAL from the circuit court of Jackson county; HON.W.A. WHITE, Judge.
J.A. Lauderdale, Assistant Attorney-General, for appellant.
It is clear that Section 2 and Section 2-a of Chapter 119, Laws of 1934, as amended by Chapter 158, Laws of 1936, levy the tax on the business of appellee and that it is liable for same unless it is exempted by the proviso in Section 2-a.
Jackson Fertilizer Co. v. Stone, 173 Miss. 183, 162 So. 170.
Under the facts alleged in the declaration, appellee's principal and only business is felling and producing timber for sale, profit or commercial use.
J.H. Sumrall, of Jackson, for appellant.
Primary business of appellee is production of timber for commercial purposes.
Section 2-a, Chapter 119, Laws of 1934.
The contention of the appellant is that, being the owner of a large tract of timber land, from which timber is produced for the purposes of manufacture and sale, would make of said appellee a person primarily and principally engaged in the production of timber, as contemplated by said Section 2-a.
It is a cardinal rule in the construction of statutes that an exception is strictly construed. An exception, being in the nature of an exemption from the general provision of a statute which the proviso modifies, is regarded as an exemption in the sense that the language of a proviso must be as strictly construed as the language of an exemption statute.
Lewis' Sutherland Statutory Construction, sec. 352.
There can be no question of the fact that the appellee was engaged in the business of producing timber, such business being taxable under Section 2-a of the Sales Tax Law.
The use of a part of the timber produced in the manufacturing process, would not exempt the balance of the timber so produced from the tax imposed by Section 2-a.
Lewis' Sutherland Statutory Construction, sec. 347.
The provision of the statute, "only persons engaged principally in the business of felling and producing timber for sale," etc., ". . . shall be required to pay the tax levied in this section," does not exempt such operations as the appellee was engaged in from the tax.
Lewis' Sutherland Statutory Construction, sec. 363; Roseberry v. Norsworthy, 135 Miss. 845; Rawlings v. Ladner, 165 So. 427, 174 Miss. 611; Zeigler v. Zeigler, 164 So. 768, 174 Miss. 302; Walters v. Walters, 177 So. 507; Craig v. Mississippi Power Light Co., 180 So. 604.
Ford Ford, of Pascagoula, for appellee.
It is our contention, first, that the appellee in this cause does not come within the provisions of the tax imposed by Section 2-a of Chapter 119 of the Laws of 1934, in that its principal business is the manufacture and sale of veneer and plugs and not of buying, logging and selling timber, etc., for commercial purposes.
Second, even though the word "principally" was stricken out of the act, the appellee would not be liable for the tax, because it is plainly violative of both the State and Federal Constitutions, in that the tax is only levied on those who do not either manufacture the logs themselves in this state, or those who do not sell their logs to a concern which manufactures them in this state, the tax being levied only on those selling or delivering logs to persons outside of the state, or transporting them out of the state for utilization there.
It is the contention of counsel for appellant that the principal business of the appellee is the production of timber for sale, profit, or commercial use, etc. It is our contention that the production and sale of timber by it is not its principal business, but that, as alleged in the declaration, the principal business is the manufacture and sale of veneer and wooden plugs.
It is uniformly held that the performance of an isolated or incidental transaction does not constitute doing business.
Item Co., Ltd. v. Shipp, 140 Miss. 699, 106 So. 437.
As the court will observe Section 2-a of Chapter 119 of the Laws of 1934 does not attempt to grant an exemption to persons not principally engaged in the business, but on the contrary the tax is levied only on those who are principally engaged in the particular business. The burden is therefore on the State to show that the taxpayer is engaged in that business, under the rulings of this court announced in the cases of Pan American Petroleum Co. v. Miller, 154 Miss. 565, and State v. Mississippi Power Light Co., 161 Miss. 839.
The court in these cases reannounces and follows the fundamental rule that wherever there is any doubt as to whether or not the tax should apply to a particular person, that the doubt is resolved in favor of the taxpayer and against the sovereign.
Our second contention in this case is that regardless of the construction placed on the word "principal" as used in Section 2-a of Chapter 119 of the Laws of 1934, and even though this word were not in the statute, that the said Section 2-a is violative of the Constitution of the State of Mississippi, as well as that of the United States of America, for the reason that it seeks to exempt from taxation the gross proceeds of sale or value of logs or timber which is manufactured in this state by the producer, or is sold to be manufactured in this state and only levies the tax on the gross proceeds of logs and timber which are sold for delivery outside of the state, or are transported out of the state.
Art. 1, sec. 8, par. 3, U.S. Constitution; Sec. 14, Constitution of Mississippi; Adams v. Mississippi Lbr. Co., 84 Miss. 23.
In the case of Lowery v. City of Clarksdale, 154 Miss. 155, the court announced the rule, that a classification for purposes of taxation must rest on some reasonable distinction, citing Scleisenger v. Wisconsin, 70 L.Ed. 557. This court in the above cited case of Adams v. Mississippi Lbr. Co., stated and held that there can be no valid classification between timber for home sale and timber for export.
It is further manifest that the act as written constituted a discrimination against gross receipts from sales of property made in interstate commerce. This is prohibited by the interstate commerce clause of the Constitution, as held by the Supreme Court of the United States in the case of Pullman Co. v. Richardson, 67 L.Ed. 682, and New Jersey Bell Telephone Co. v. State Board of Taxes and Assessments, 74 L.Ed. 463, which doctrines were reannounced in the case of East Ohio Gas Co. v. Tax Commission, 75 L.Ed. 1171.
Sprout v. South Bend, 72 L.Ed. 833; Thompson v. McLeod, 112 Miss. 383; Thompson v. Kreutzer, 112 Miss. 165.
Argued orally by J.A. Lauderdale and J.H. Sumrall, for appellant, and by J.I. Ford, for appellee.
STATEMENT OF CASE.Appellee, a foreign corporation authorized to do business in this state, brought this action in the Circuit Court of Jackson County against A.H. Stone, Chairman of the State Tax Commission, in his official capacity of Sales Tax Commissioner of the state, to recover the sum of $734.79 representing sales taxes paid by appellee to the State Tax Commission for the two-year period beginning the 1st of January, 1936, and ending December 31, 1937, which had been paid under protest. Appellee demurred to the declaration, which demurrer was overruled, and appellee, declining to plead further, final judgment was entered for the amount sued for. From that judgment, appellant prosecutes this appeal.
The case is clearly and succinctly stated in the declaration and the demurrer which, leaving off formal parts, follow:
"Declaration: Comes the plaintiff herein, Martin Veneer Corporation, and respectfully avers that it is a corporation, chartered, created and organized under the laws of the State of Delaware; that it has qualified to do business in the State of Mississippi as required by law and has its principal place of business in the City of Pascagoula, Jackson County, Mississippi. That the defendant herein, A.H. Stone, is the official Sales Tax Commissioner of the State of Mississippi, the said A.H. Stone being a member of the State Tax Commission of the said State and to whom has been allocated the position of Sales Tax Commissioner of the State of Mississippi by the said Commission, and, whose official place of residence as such Commissioner is the City of Jackson, Hinds County, Mississippi.
"Plaintiff avers that it is engaged in the business of manufacturing wooden veneer and wooden plugs and for said purpose it has a manufacturing plant located in the City of Pascagoula, Jackson County, Mississippi, which plant was operated by plaintiff during the period of time beginning January 1st, 1936, and ending December 31, 1937. Plaintiff respectfully shows that its principal business is that of converting and manufacturing gum logs and logs of other trees into wooden veneer and wooden plugs. That as sales of said veneer and plugs were made by it during the period of time hereinabove set forth, plaintiff made and filed with the proper authorities the reports of its gross income required by law, copy of said reports attached hereto, marked Exhibit `A' to this declaration.
"Plaintiff avers that in making said reports it remitted and paid all sums of money which it owed for sales tax to the State of Mississippi, and that the same represented all of the sales tax owing by the plaintiff to the State of Mississippi. Plaintiff avers, however, that on or about the 25th day of May, 1937, the defendant herein, acting by and through one of his Field Men, assessed plaintiff with an additional sales tax, in the total sum of $417.84, the said additional assessment being on account of the proceeds of logs which were sold by plaintiff and not used by it in its business. Plaintiff avers that it was not liable for said tax and protested the payment thereof but made payment reserving its rights to institute this proceeding.
"Plaintiff avers that it is not liable for said additional assessment of sales tax for the reason that it is not engaged principally in the business of felling and producing timber for sale, profit or commercial use or buying, logging and selling timber for commercial purposes, as hereinabove set forth, and as shown by its sales tax returns, which are exhibited hereto, the principal business of plaintiff is that of manufacturing wooden veneer and making sale of same. Plaintiff avers that it did not, during the period of time in interest, purchase any timber or logs for commercial purposes, all of the timber utilized by it in its plant and sold by it being timber cut from tracts of land owned by plaintiff for a number of years. Plaintiff therefore avers that it was not principally engaged in the business of felling and producing timber for sale, profit or commercial use or buying, logging and selling timber for commercial purposes, but that its principal business is the manufacture and sale of wooden veneer and wooden plugs and that it was not therefore liable for said additional tax which having been paid by it to the Sales Tax Commissioner, defendant herein, it is advised and believes it is entitled to recover by this proceeding.
"Plaintiff further avers that another additional assessment was made against it by the defendant herein on account of logs sold by plaintiff during the period of time beginning April 1, 1937 and ending December 31, 1937, which said additional assessment is the sum of $316.95 and which amount was likewise paid by plaintiff to the defendant herein as Sales Tax Commissioner of the State of Mississippi, said payment having been made under protest by plaintiff on January 26, 1938. Plaintiff avers that as hereinabove set forth it was not liable for said tax for the reason that it was not principally engaged in the business of felling and producing timber for sale, profit or commercial use or buying, logging and selling timber for commercial purposes but that its principal business is now and was throughout said period, that of the manufacture and sale of wooden veneer and wooden plugs, all as shown by the gross sales tax returns made by it heretofore exhibited to this declaration.
"Plaintiff further avers that the timber from which the logs used by it in its manufacturing operations were cut by it from a large tract of land owned by plaintiff and which it was owned for a number of years; that some species of its logs were not adaptable for the making of veneer or wooden plugs, and these logs which form but a small percentage of its operations, were sold by it to a manufacturing concern in the City of Mobile, in the State of Alabama. That during the period in interest, viz., from January 1st, 1936 to December 31, 1937, the gross receipts and sale made by plaintiff of its manufactured products amounted to the sum of $351,278.75. The gross receipts from sales of its logs to the manufacturing concern in Mobile amounted to the sum of only $35,741.47 and its total sales, including the logs the sum of $387,278.75. Plaintiff avers that all of said matters are shown by the sales tax returns filed by it which are exhibited hereto; that the gross receipts from the sale of logs amounts to less than ten percent of the total gross proceeds of its business operations, and, that, as shown on said returns, it is not principally engaged in the business of felling and producing timber for sale, profit or commercial use or buying, logging or selling timber for commercial purposes, but that its principal business is that of the manufacture and sale of wooden veneer and plugs.
"Plaintiff attaches hereto, marked Exhibits B and C, true and correct copies of the additional assessments which were made against it by the State Tax Commissioner, defendant herein, and avers that it made payment to the said Tax Commissioner of the full amount of the tax shown by said additional assessments, i.e., the sum of $734.79, which payments were made under protest by it and avers that for the reasons hereinabove set forth it was not subject to said tax and is entitled to recover the same from the defendant."
"Demurrer: 1. The averments of the declaration do not state a cause of action in law.
"2. The plaintiff, by the averments in its declaration, plainly discloses liability for the tax paid, and which are sought to be recovered in this suit.
"3. The averment of facts in the declaration show a liability for the full amount of taxes paid; and no right exists in law for the recovery thereof."
The question of appellee's liability for the sales tax turns on the construction of certain provisions of Section 2-a of Chapter 119 of the Laws of 1934, Section 2, Chapter 158 of the Laws of 1936. Those provisions follow:
"Upon every person engaging or continuing within this state in the business of felling and producing timber for sale, profit or commercial use, or buying, logging or selling timber for commercial purposes, the amount of such tax to be equal to the value of the articles produced, as shown by the gross proceeds derived from the sale thereof by the producer (except as hereinafter provided), multiplied by the respective rates as follows:" (the tax levies)
"Provided, however, that only persons engaged principally in the business of felling and producing timber for sale, profit, or commercial use, or buying, logging and selling timber for commercial purposes (except as otherwise provided in this act), shall be required to pay the tax levied in this section for the privilege of engaging in the business of felling and producing timber for sale, profit, or commercial use, or logging and selling timber for commercial purposes. . . .
"And, likewise, any person engaging in the business of mining or producing timber, minerals, or other natural resource products (excepting, however, oil and gas), who shall sell such minerals, timber, or other natural resource products to a person engaged in the business of manufacturing, compounding or preparing such products for sale, as manufactured products, in mills or plants located in this state and taxable under section 2-b of this act, shall not be required to include in the measure of the tax imposed in this section any gross proceeds derived from the sale of such minerals, timber, or other natural resource products (excepting, however, oil and gas), to persons taxable under section 2-b of this act; but such person shall be required to make a proper return showing the amount of the gross proceeds of such sales and the persons to whom such products were sold."
Particularly the proper construction of the proviso. It will be observed that it imposes the tax only on persons principally engaged in the business of felling and producing timber for sale, profit or commercial use, or buying, logging and selling timber for commercial purposes. Appellee's principal business is the manufacture of veneer and wooden plugs. Its timber business is a mere incident. It naturally grows out of the main business, but, nevertheless, is distinct from it. It constituted less than ten percent of the whole during the two-year period involved.
The substance of appellant's contention is that the proviso in the statute only applies to the holders of lands engaged in enterprises, entirely separated from the timber business, who sell the timber on their lands in aid of such enterprises — for illustration, the farmer who sells the trees on his land to get money to aid in his farming operations. We are of the opinion that the argument is unsound. The statute means what it plainly says. The timber business must be the principal business. Of course, there could be two principal businesses — the manufacture of veneer and wooden plugs, and the timber business. But where one is a mere incident of the other, and in comparison is small, then there is only one principal business under the statute.
Isolated or incidental transactions do not constitute doing business. Item Co., Limited, v. Shipp, 140 Miss. 699, 106 So. 437. Chapter 110 of the Laws of 1912 imposed an annual privilege tax on the business of extracting turpentine from standing trees. The Court held that the act did not undertake to make a distinction between "the humble homesteader who taps a few trees by his own home and a large operator of many distilleries. No distinction can in fact be made."
Appellee argues that if mistaken in its position that the proviso does not cover its timber transactions, the statute violates certain provisions of both federal and state constitutions in that it discriminates against the sale of timber out of the state and the sale of it in the state for manufacturing purposes. So construed the statute would impose a tax on foreign shipments and exempt local sales. It would be entirely useless to decide any constitutional questions — they are not involved because we are holding that there is no such a discrimination. And, furthermore, they were not raised in the Court below and cannot be raised here for the first time. Adams v. Board of Supervisors, 177 Miss. 403, 170 So. 684.
Affirmed.
ON SUGGESTION OF ERROR.
We think that the construction given the statute involved in the former opinion was correct; and we do not now feel called on to pass on the constitutional question here urged for the first time on suggestion of error, and not raised by the pleadings. Taylor v. Copeland, Miss., 183 So. 519; Eady et al. v. State, 153 Miss. 696, 122 So. 199; City of Laurel v. Fox, 154 Miss. 755, 762, 122 So. 484, 124 So. 73; Warren County v. Mississippi River Ferry Company, 170 Miss. 183, 194, 154 So. 349, 155 So. 349; State ex rel. Suddoth v. Tann, 172 Miss. 162, 167, 158 So. 777, 159 So. 539.
Suggestion of error overruled.