LUMBER CO. v. STATE TAX COMMISSION

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No. 30655.

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Smith, C.J., delivered the opinion of the court.

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FERNWOOD LUMBER CO. v. MISSISSIPPI STATE TAX COMMISSION et al.

Green, Green Jackson, of Jackson, for appellant.

Section 6, subdivision 2, contravenes section 112 Mississippi Constitution, in this, that the timber utilized by appellant in manufacturing the lumber sold had a value as property when the income tax act of 1924 was passed of ten dollars per thousand feet, and the attempt to retroactively make operative the value as at March 16, 1912, is unconstitutional.

Thompson v. Kreutzer, 112 Miss. 165, 72 So. 891; Thompson v. McLeod, 112 Miss. 383, 73 So. 193; Sheip Co. v. Amos, 130 So. 699, 705; Jackson v. McPherson, 162 Miss. 164, 138 So. 604, 606; Hattiesburg Grocery Co. v. Robertson, 126 Miss. 34, 88 So. 4; State ex rel. Bundy v. Nygaard, L.R.A. 1917E (Wis.), 563, at 565; Alderman v. Wells, 27 L.R.A. (N.S.) 864; State ex rel. Bolens v. Frear, L.R.A. 1915B, 569; Doyle v. Mitchell Bros. Co. post, 568; McLaughlin v. Alliance Ins. Co., 286 U.S. 250, 76 L.Ed. 1086; Chicago, etc., R.R. Co. v. Robertson, 122 Miss. 417, 84 So. 449; Note 70, A.L.R. 468; Featherstone v. Norman (Ga.), 70 A.L.R. 449; Bachrach v. Nelson (Ill.), 182 N.E. 909, at 914; Norman v. Bradley, 160 S.E. 413, 416; Smart v. Wisconsin Tax Commission, 237 N.W. 114, at 115; Norris v. Cary, 237 N.W. 113; Norris v. Cary (Wis.), 238 N.W. 415; Falk v. Ross (Wis.), 230 N.W. 64, Syl. 3; Sims v. Ahrens (Ark.), 271 S.W. 720, Syl. 1; In re Opinion of the Justices, 165 N.E. (Mass.) 900; Cooley on Taxation, sections 15, 743; Redfield v. Fisher (Ore.), 292 P. 813, at 817; Gulf Ship Island Railroad Co. v. Adams, 90 Miss. 559, 45 So. 91; Gulf Refining Co. v. Cleveland Trust Co., 108 So. 158; State v. G.M. N.R.R., 104 So. 689, 138 Miss. 70; Brushaber v. Union Pac. R.R. Co., 240 U.S. 1, 60 L.Ed. 493; Eisner v. Macomber, 252 U.S. 205, 64 L.Ed. 528; Peck v. Lowe, 247 U.S. 172, 62 L.Ed. 1051; Southern Pacific Co. v. Lowe, 247 U.S. 334, 62 L.Ed. 1147; Lynch v. Hornby, 247 U.S. 343, 62 L.Ed. 1151; Evans v. Gore, 253 U.S. 261, 64 L.Ed. 896; State taxation, Eliasberg Bros. v. Grimes, 86 So. 56; In re Opinion of the Justices, 120 Mass. 613; State v. Pinder, 108 A. 43.

Sections 112, 181 and 143 of the Constitution of Mississippi require that an assessment by the assessor is a prerequisite to the taxation of property.

State v. Adler, 68 Miss. 487, 9 So. 640; Thibedeaux v. State, 69 Miss. 683, 13 So. 352; State Revenue Agent v. Tonella, 70 Miss. 701, 14 So. 17.

The assessor cannot be legislatively controlled in the fixation of the value of property to be taxed.

Hawkins v. Mangum, 78 Miss. 97, 28 So. 872; Adams v. Kuykendall, 75 Miss. 701, 23 So. 385.

Legislatively fixing the amount of taxes on gross receipts violates section 118.

Chicago, etc., R. Co. v. Robertson, 122 Miss. 417, 84 So. 449; Reed Bros. v. Board of Supervisors of Lee County, 126 Miss. 162, 88 So. 504.

This is a violation of the equal protection clause of the Federal constitution.

Magnolia Bank v. Pike County, 11 Miss. 857, 72 So. 697; First National Bank v. Harrison County, 157 Miss. 197, 127 So. 696; Keokuk Hamilton Bridge Co. v. Salm, 258 U.S. 122, 66 L.Ed. 496; Sunday Lake Iron Co. v. Town of Wakefield, 247 U.S. 350, 62 L.Ed. 1154; Raymond v. Chicago Union Traction Co., 207 U.S. 20, 52 L.Ed. 78; Knox v. Southern Paper Co., 143 Miss. 870, 108 So. 288, 290; Teche Lines v. Board of Supervisors, 142 So. 24, 28; Glenn v. Doyal, 285 U.S. 526, 76 L.Ed. 923; Hattiesburg Grocery Case, 126 Miss. 34, 88 So. 4; Enochs v. State, 91 So. 20, 128 Miss. 361; Rockefeller v. U.S., 257 U.S. 176, 66 L.Ed. 186; Walsh, Collector, v. Brewster, 255 U.S. 536.

No man should be denied the equal protection of the law.

Cumberland Coal Co. v. Board of Revision, 284 U.S. 23, 76 L.Ed. 146; Taylor v. Louisville, etc., Railroad Co., 88 Fed. 350; Greene v. Louisville, etc., Co., 244 U.S. 517, 61 L.Ed. 1289; Louisville Nashville R. Co. v. Greene, 244 U.S. 522, 61 L.Ed. 1291; Illinois Central R. Co. v. Greene, 244 U.S. 555, 61 L.Ed. 1309; United States v. Osage County, 251 U.S. 133, 64 L.Ed. 187.

Here appellant makes a hundred per cent return of income, and it is demanded that it pay upon this basis, while the law which makes this exaction of it legislatively adopted as the admeasurement of who should pay, and what should be paid, the individual opinion of each prospective taxpayer.

Raymond v. Chicago Union Traction Co., 207 U.S. 20, 52 L.Ed. 78, 87.

The returns of the appellant to the state tax commission appear as Exhibit 2 to the record. That at issue is: Under the Constitution, section 112, may this appreciation through unearned increment prior to 1924, be taxed as income when it had consistently been taxed by the state under section 112 as property?

Appellant does not in this aspect complain of an alleged discrimination, but does complain that the timber having become through appreciation property by reason of appellant's ownership, the legislature may not retroactively convert such appreciation, existent as property, back into income so that in virtue of its alleged being that which it is not, it may be taxed contrary to the provision of section 112, which is the fundamental law.

Thompson v. Kreutzer, 112 Miss. 165, 72 So. 891; Thompson v. McLeod, 112 Miss. 383, 73 So. 193; Hattiesburg Grocery Co. v. Robertson, 126 Miss. 34, 88 So. 4; State ex rel. Bundy v. Nygaard, L.R.A. 1917E (Wis.), 563, 565; Smart v. Wisconsin Tax Commission (Wis.), 237 N.W. 115; Redfield v. Fisher (Ore.), 292 P. 813, 73 A.L.R. 738; Sims v. Ahrens (Ark.), 271 S.W. 720; Hixon v. School Dist. (Ark.), 60 S.W.2d 1027.

Appellant has not, with reference, argued that the Income Tax Act of 1924 is unconstitutional, recognizing that thereasto Hattiesburg Grocery Co. v. Robertson, 126 Miss. 34, 88 So. 4, 126 Miss. 655, 89 So. 369, and Knox v. G.M. N. Co., 138 Miss. 70, 104 So. 689, are conclusive, but having admitted the general validity thereof, that which we attack is the inability of the legislature to make income out of property while section 112 of the Constitution stands.

Hixon v. School District (Ark.), 60 S.W.2d 1027.

E.R. Holmes, Jr., Assistant Attorney-General, for appellees.

This court, in the case of Hattiesburg Grocery Company v. Robertson, 126 Miss. 34, held that the Income Tax Act did not violate section 112 of our Constitution, and the case of Knox v. Gulf, M. N.R.R. Company, 138 Miss. 70, reiterated the opinion that our Income Tax Law was not violative of section 112 of the state Constitution, and went further, specifically holding that the equality clauses of the state and federal constitutions were complied with by the provisions of our income tax statute.

The provision complained of benefits appellant in case at bar.

The right to question the constitutionality of the Income Tax Act, or any provision thereof, must be bottomed on defendant's own situation, and here the provision complained of, necessarily operates in appellant's favor, for without it, the deduction allowable, would be less.

Shafer v. Carter, R.C.L. 89-90; N.O.M. R.R. Co. v. State, 110 Miss. 305; Stauffer v. Crawford (Mo.), 248 S.W. 581; Pugh v. Pugh (S.D.), 32 L.R.A. (N.S.) 954, and note; Rosenthal v. N.Y., 57 L.Ed. 212, 226 U.S. 260; Underwood Type. Co. v. Chamberlain, 65 L.Ed. 165, 254 U.S. 113.

Income tax is excise tax and so does not contravene uniformity clause of Mississippi constitution.

Hattiesburg Gro. Co. v. Robertson, 126 Miss. 34; Knox, Attorney General, v. Gulf, M. N.R.R. Co., 138 Miss. 70.

In the case of Diefendorf, State Tax Commissioner, v. Gallet, State Auditor (Idaho), 10 P.2d 307, the court held that an income tax was an excise tax under a constitutional provision, saying that "all taxes shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax.

Featherstone v. Norman, 170 Ga. 370, 153 S.E. 58, 65, 70 A.L.R. 449; Maxwell, Commissioner of Revenue, v. Kent, etc., Co. (N.C.), 168 S.E. 397; Penny Stores v. Mitchell, 59 F.2d 789; Sims v. Ahrens (Ark.), 271 S.W. 721.

The equal protection clause of the fourteenth amendment is not violated.

Lawrence v. State Tax Commission, 286 U.S. 276; Ohio Oil Co. v. Conway, 281 U.S. 146, 159; Southwestern Oil Co. v. Texas, 217 U.S. 114, 121; Brown Forman Co. v. Kentucky, 217 U.S. 563, 573; State Board of Tax Commissioners v. Jackson, 283 U.S. 527, 537.

Argued orally by Garner Green, for appellant, and by E.R. Holmes, Jr., for the state.

1. TAXATION. Provision of 1924 income tax statute that, in computing net "income" on timber acquired before effective date of 1912 statute, fair market value on such date should be taken in lieu of cost, held not to violate constitutional provision respecting taxation of " property" ( Laws 1924, ch. 132, section 12, par. 9; Laws 1912, ch. 101; Const. 1890, section 112).

This was so as against contention that increase in value of property was not "income," but merely increase in value of owner's capital, and as against contention that increase in value of property accruing prior to date on which it became subject to income tax thereon is "property" within meaning of Constitution 1890, section 112, and cannot be subjected to taxation thereafter as income, but only as property under general revenue laws; the latter contention ignoring fact that Laws 1924, chapter 132, section 12, paragraph 9, the provision attacked by taxpayer, did not cease to tax increase in value of property that accrued prior to date at which it was first made subject to income taxes thereon by Laws 1912, chapter 101.

2. TAXATION.

Income derived from property is taxable as such, and taxation thereof does not violate constitutional provision respecting taxation of "property" (Laws 1924, chapter 132; Constitution 1890, section 12).

3. TAXATION.

Increase in value of property, accruing over period of years, may be taxed as "income" of year in which it is converted into money or other property (Laws 1924, chapter 132).

4. TAXATION.

That profit or gain is evidenced by something which is property taxable as such does not render it exempt from taxation as "income" (Laws 1924, chapter 132).

5. TAXATION.

1924 income tax statute held but amendment and continuation of 1912 statute (Laws 1912, chapter 101; Laws 1924, chapter 132).

6. CONSTITUTIONAL LAW. Taxation.

That 1924 income tax statute in directing computation of net income on timber acquired before effective date of 1912 statute, provided fair market value on such date should be taken in lieu of cost, held not to violate constitutional equality clauses, though 1912 statute allegedly permitted taxpayer to be sole judge of value of property, while 1924 statute required computation on actual value (Laws 1924, chapter 132, section 12, par. 9; Laws 1912, chapter 101, Constitution 1890, section 112; Constitution U.S. Amendment 14, section 1).

Smith, C.J., delivered the opinion of the court.

The appellant sought, but was not allowed by the court below, to recover eighteen thousand four hundred twenty-one dollars and fifty-one cents paid to the appellee, under protest, in excess of income taxes admitted to be due by it for the fiscal years ending, respectively, March 31, 1925, and March 31, 1926. The income was derived from standing timber which the appellant purchased prior to March 16, 1912, and converted into money during the years for which the tax was collected. Chapter 101, Laws 1912, which became effective on March 16, 1912, imposed a tax on incomes. This statute remained in effect until it was revised and amended by chapter 132, Laws 1924, which was approved on March 27, 1924, section 12, paragraph 9, of which providing "That in computing the net income there shall be allowed as deductions: . . . In the case of timber a reasonable allowance for depletion based upon cost; provided it was acquired prior to March 16, 1912, the fair market value on that date shall be taken in lieu of cost." The value of the appellant's timber on March 16, 1912, was six dollars per acre, and on March 27, 1924, ten dollars per acre. The deduction allowed by the appellee from the price obtained by the appellant for the timber was six dollars per acre, which deduction the appellant claims should have been ten dollars per acre.

Section 112 of the state Constitution provides that "taxation shall be uniform and equal throughout the state. Property shall be taxed in proportion to its value. . . . Property shall be assessed for taxes under general laws, and by uniform rules, according to its true value. . . ."

One ground of the appellant's protest is that paragraph 9 of section 12 of chapter 132, Laws 1924, violates section 112 of the state Constitution for two reasons: First, increase in the value of property is in no proper sense income, but is merely an increase in the value of its owner's capital; but, if mistaken in this, then, second, increase in the value of property accruing prior to the date on which it became subject to income tax thereon is property within the meaning of this section of the constitution, and cannot be subjected to taxation thereafter as income, but only as property under the general revenue law.

That income derived from property is taxable as such and does not violate section 112 of the Constitution was settled by the case of Hattiesburg Grocery Co. v. Robertson, 126 Miss. 34, 88 So. 4, 25 A.L.R. 748, and increase in the value of property accruing over a series of years constitutes profit or gain, and may be taxed as income of the year in which it is converted into money or other property. 61 C.J. 1570; Merchants' Loan Trust Co. v. Julius Smietanka, 255 U.S. 509, 41 S.Ct. 386, 65 L.Ed. 751, 15 A.L.R. 1305; MacLaughlin v. Alliance Insurance Co. of Philadelphia, 286 U.S. 244, 52 S.Ct. 538, 76 L.Ed. 1083. That the profit or gain is evidenced by something which is property, taxable as such, does not render it exempt from taxation as income. Hattiesburg Gro. Co. v. Robertson, supra.

We are not here concerned with increase in the value of property that accrued prior to the date at which it was first made subject to income taxes thereon; for chapter 132, Laws 1924, is but an amendment and continuation of chapter 101, Laws 1912. MacLaughlin v. Alliance Insurance Co. of Philadelphia, supra.

This brings us to the remaining contention of counsel for the appellant, which is: The fixing by chapter 132, Laws 1924, of the value of the timber as that of the 16th day of March, 1912, the day on which chapter 101, Laws 1912, became effective, violates the equality clauses of both the state and federal constitutions. Section 112 of the state Constitution, and section 1 of the 14th Amendment to the federal Constitution. In support of this, they say that under chapter 101, Laws 1912, the return of the taxpayer as to the amount and sources of his income was conclusive, thereby rendering the statute of little effect and permitting the taxpayer to be the sole judge of the value of his property; while under chapter 132, Laws 1924, this is not true, for thereunder the actual value, not that placed on it by the taxpayer, is the basis on which income therefrom is computed. One sufficient answer thereto is that the income from this property became subject to the tax thereon when, but not until, the property was converted into money; so that the income here taxed did not come into existence, in the legal sense, until after the enactment of chapter 132, Laws 1924.

Affirmed.

FERNWOOD LUMBER CO. v. MISSISSIPPI STATE TAX COMMISSION et al.

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