Caldwell, Charles W.

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Volume 40 Issue 3 Article 17 April 1934 Taxation--Constitutional Law--Due Process of Law as Prescribing Maximum Limits for Direct Property Taxes Charles W. Caldwell West Virginia University College of Law Follow this and additional works at: https://researchrepository.wvu.edu/wvlr  Part of the Constitutional Law Commons, Property Law and Real Estate Commons, and the Tax Law Commons Recommended Citation Charles W. Caldwell, Taxation--Constitutional Law--Due Process of Law as Prescribing Maximum Limits for Direct Property Taxes, 40 W. Va. L. Rev. (1934). Available at: https://researchrepository.wvu.edu/wvlr/vol40/iss3/17 This Recent Case Comment is brought to you for free and open access by the WVU College of Law at The Research Repository @ WVU. It has been accepted for inclusion in West Virginia Law Review by an authorized editor of The Research Repository @ WVU. For more information, please contact ian.harmon@mail.wvu.edu. WEST VIRGINIA LAW QUARTERLYvendee is afforded relief, while the vendor is placed in much thesame position as if he were suing on his implied lin." A sounddecision has been reached in this litigation, achieving a resultthat challenges current theory as to the decadence of equity.'-ROBERT W. BuRmT.Ax&TION - CONsT moUNoAL LAW - DUE PRocESs op LAWAS PRESCRIBING MAxIrUM LIMITS FOR DMECT PROPERTY TAXES. -The town of Carolina Beach, having defaulted in payment ofprincipal and interest of bonds issued for certain public im-provements, the holder thereof obtained judgment and after-wards a writ of mandamus requiring the town to levy a tax uponreal and personal property sufficient to pay the total amount ofthe bonds and the costs of the suit. Plaintiff, a hotel company,sues to restrain the collection of the tax "on the ground that suchtax is exorbitant and confiscatory." The writ of mandamusnecessitated an increase in the tax levy from one dollar to threedollars, per hundred, over a period of three years. Held: Thejudgment against the town was binding on the inhabitants:dictum, that plaintiff was not deprived of its property without dueprocess of law. Pate Hotel Company v. Morris.'As to procedural objections, it is the recognized rule thata judgment or decree against a municipality imposes an obliga-tion upon its citizens which they are compelled to discharge, ex-pointed time. And, that the chancellor treats the contract as executed in factthough it is executory in form."Fisher v. Brown, 24 W. Va. 713 (1884); King v. Burdett et al., 44 W.Va. 561, 29 S. E. 1010 (1898). It is said in MeNeely v. S. P. Oil Co. et al.,52 W. Va. 616, 44 S. E. 508 (1902) the vendors only remedy against vendeewould be to specifically execute the contract, have balance due decreed, and indefault of payment after a day given therefore, a decree to sell and havevendee's equity foreclosed. In Liskey v. Snyder, supra n. 15, at 528,it is said that vendor has option to cause the lands to be sold and theproceeds thus disposed of, or to rescind the contract for failure of the vendeeto comply with his part. But, even so, the former of these would be his bestremedy, for equity would relieve from a forfeiture of vendee's payments incase of a rescission.The implied lien, where vendor retains the title, is not affected by thestatute abolishing implied liens in conveyances. See reviser's note to c. 38,art. 1, § 1, W. VA. CoDE (1931). Poe v. Paxton, 26 W. Va. 607, 610 (1885).m Pound, The Decadence of Equity (1905) 5 COL. L. REv. 20.1 171 S. E. 799 (N. C. 1933).1Caldwell: Taxation--Constitutional Law--Due Process of Law as Prescribing MPublished by The Research Repository @ WVU, 1934RECENT CASE COMMENTScept where mistake or fraud can be shown; nor can they sue toprevent the enforcement of a levy providing for payment.'Likewise, there are multitudes of decisions enunciating theprinciple that a state, in the absence of express constitutionallimitations, determines its own policy in matters of taxation, andthat the due process clause of the fourteenth amendment is nota restriction upon the taxing power of a state nor local govern-mental subdivision.' There are, however, certain instances wherevarious tax measures have failed to withstand the application ofthe due process clause. Foremost among these are the licensecases holding that such a tax must not be imposed so as arbitrarilyto prohibit or suppress legitimate business activity.' Occupation2Morton Motor Co. v. Public Service Commission, 111 W. Va. 22, 160 S.E. 226 (1931); 1 FREEMAN ON JUDGMENTS (5th ed. TUTTLE 1925) § 507and cases cited. See Eames v. Savage, 77 Me. 212 (1885), holding that astatute permitting execution, following judgment against towns or cities, tobe levied upon the property of the inhabitants, did not violate the due pro-cess clause of the fourteenth amendment.8In Providence Bank v. Billings, 4 Pet. 514, 563 (1830) Marshall, C. J.,declared: "This vital power (taxation) may be abused; but the constitutionof the United States was not intended to furnish the corrective of everyabuse of power which may be committed by the state governments. Theinterest, wisdom, and justice of the representive body, and its relationswith its constituents, furnish the only security, where there is no express con-tract, against unjust and excessive taxation; .... " And many years laterin Brushaber v. Union Pac. R. R., 240 U. S. 1, 24, 36 S. Ct. 236, 244 (1915),the court said: "So far as the due process clause of the Fifth Amendmentis relied upon, it suffices to say that there is no basis for such reliance sinceit is equally well settled that such clause is not a limitation upon the taxingpower conferred upon Congress by the Constitution; in other words, that theConstitution does not conflict with itself by conferring upon the one handa taxing power and taking the same power away on the other by the limita-tion of the due process clause." And further, it was added,-". . . . thisdoctrine would have no application in a case where although there was aseeming exercise of the taxing power, the act complained of was so arbitraryas to constrain to the conclusion that it was not the exertion of taxation buta confiscation of property, that is, a taking of the same in violation of theFifth Amendment, .... " In State v. Page, 100 W. Va. 166, 169, 130 S.E. 426, 427 (1925), the court stated: "When not limited by the constitu-tion, the power of the state, acting through its governmental agencies, totax its citizens, is absolute and unlimited as to persons and property." And,in same opinion, it was held, "The state exists for the purpose of securingthe life, liberty and property of its citizens, and may, within the limitsprescribed by the constitution, exhaust all the resources of private property insupport and preservation of that existence." See 1 COOLEY, TAXATION (4thed. 1924) §§ 57 and 162.But compare Marshall's famous statement in McCulloch v. Maryland, 4Wheat. 316, 14 L. ed. 316 (1819), that "the power to tax is the power todestroy", with the words of Holmes, J., in Panhandle Oil Co. v. Mississippi,277 U. S. 218, 223, 48 S. Ct. 451 (1928), "The power to tax is not thepower to destroy while this court sits." (Italics ours), (dissent).'It is important to note that license taxes (actually fees) imposed underthe police power for the purpose of regulating businesses and trades aredistinguished from license taxes for revenue only. Courts do not permit the2West Virginia Law Review, Vol. 40, Iss. 3 [1934], Art. 17https://researchrepository.wvu.edu/wvlr/vol40/iss3/17WEST VIRGINIA LAW QUARTERLYtaxes, confiscatory in nature and effect, have been held invalid.'The same has been true of a few excise and privilege taxes, whenthey reached the point of destroying private property rights.'And, in a recent case, a multiple chain store tax scheme was heldinvalid upon the ground of the excessiveness of the tax as it af-fected the appellants But, apparently, no court has said that adirect property tax violated the due process clause. Is there adistinction between direct and indirect taxation of property? Thedirect tax must be uniform within the taxing unit or governmentaldivision. It may be retroactive. People are accustomed to directassessments. The indirect tax must possess uniformity, only inthat the things taxed must be treated equally. Generally, it canregulatory fees to exceed the reasonable amount necessary for administra-tion. In re Wan Yin, 22 Fed. 701 (1885) (holding a quarterly laundry feeof $5 or $20 for the full year as void under the due process clause). HerbBros. v. City of Alton, 264 Ill. 628, 106 N. B. 434 (1914) (a license fee of$100 a year imposed on all vendors of meats was held invalid). The courtsaid: I .... while a license fee may be exacted it must be only such a feeas will legitimately assist in the regulation of the business and should notexceed the necessary or probable expense of issuing the license and of in-specting and regulating the business which it covers ..... "But a wider discretion is accorded the legislature in the imposition of alicense tax for revenue. Ez parte McKenna, 126 Cal. 429, 58 Pac. 916 (1899)(a license tax of $200 per quarter on all merchants using trading stampswas declared invalid as in restraint of trade). But see Sperry and Hutchin-son v. Melton, 69 W. Va. 124, 71 S. B. 19 (1911) (a legislative act requiringa tax of $500 a year on merchants selling or redeeming trading stamps washeld valid). As to trading stamp taxation in general see Note (1931) 40CoL. L. Ruv. 1112.sHager v. Walker, 128 Ky. 1, 107 S. W. 254 (1908) (while holding thetax invalid, the court said that the legislature did not possess unlimited free-dom from judicial control in imposing taxes upon trades, occupations andprofessions).OSalisbury v. Equitable Purchasing Co., 177 Ky. 348, 197 S. W. 813(1917) (a tax equalling 33 per cent. of net income held invalid); Williamsv. Waynesboro, 152 Ga. 696, 111 S. E. 47 (1922) (a tax equalling 12 percent. of net income held invalid); Southern Express Co. v. Town of Ty Ty,141 Ga. 421, 81 S. E. 114 (1914) (a tax equalling 16 per cent. of grossincome held invalid). However, it is generally held that the amount of aprivilege or excise tax is a matter of legislative policy outside the controlof the courts. Ohio Tax Cases, 232 U. S. 576, 34 S. Ct. 372 (1914) (eventhough the railroads could not meet operating expenses); Brushaber v. UnionPac. R. R., supra n. 3; Bowman v. Continental Oil Co., 256 U. S. 642,41 S. Ct. 606 (1921) (a gasoline tax); Railroad Company v. Maryland, 21Wall. 456, 471 (1874) where the court said: "It (the legislature) has a rightto exact compensation for their use. It has a discretion as to the amount ofthat compensation. That discretion is legislative - a sovereign - discretion,and in its very nature is unrestricted and uncontrolled."It is recognized that a franchise tax must be measured by the value of theprivilege for which it is imposed. See Air-Way Appliance Co. v. Day, 266U. S. 71, 45 S. Ct. 12 (1924); Kansas City So. Ry. Co. v. Road Imp. Dist.,256 U. S. 658, 41 S. Ct. 604 (1921).Standard Oil Co. v. Fox, Tax Commissioner, - F. (2d) -, a deci-sion by a three-judge statutory court, holding invalid the West Virginiachain store tax, as applied to filling stations (decided March, 1934).3Caldwell: Taxation--Constitutional Law--Due Process of Law as Prescribing MPublished by The Research Repository @ WVU, 1934RECENT CASE COMMENTSnot be retroactive, because time must be allowed so that it maybe figured in with the business.' The public, except for thoseexcises imposed by the federal government, are not accustomed toindirect taxation. The problems of direct taxation have primarilyconcerned the disparity in different tax standards' and equalityin assessments, ° - a condition practically impossible to attain'In recent years, however, as a partial result of the rapid in-crease of property assessments and rates, coupled with the de-creasing return from the capital invested, the country has wit-nessed a successful movement expressly to limit by statutory andconstitutional provisions the tax rate on land and chattels2  The8 But there are a few cases holding that an indirect tax may be retroactive.Milliken v. United States, 283 U. S. 15, 51 S. Ct. 324 (1931); Billings v.United States, 232 U. S. 261, 34 S. Ct. 421 (1914).0 Des Moines Nat. Bank v. Fairweather, 26a U. S. 103, 44 S. Ct. 23 (1923).See (1923) 9 IowA L. BuLL. 219."Equality as to assessments concerns chiefly the equal protection clauseof the fourteenth amendment. Sioux City Bridge Co. v. Dakota County,Nebraska, 260 U. S. 441, 43 S. Ct. 190 (1922); Southern By. Co. v. Watts,260 U. S. 519, 43 S. Ct. 192 (1923); Henderson Bridge Co. v. City of Hen-derson, 173 U. S. 592, 19 S. Ct. 553 (1899)."In the early case of Hylton v. United States, 3 Dall. 171, 179 (1796),Patterson, J., said: "The work, (referring to a direct property tax system)it is to be feared, will be operose and unproductive, and full of inequality,injustice, and oppression. Let us, however, hope, that a system of landtaxation may be so corrected and matured by practice, as to become easyand equal in its operation, and productive and beneficial in its effects."Conditions to-day show that time and actual practice have not fulfilled thehope.2The tax limitations which have been adopted present an amazing variety.Some states limit the rate which may be levied; a few limit the per capitaamount which may be raised; and a few have fixed the gross amount ofmoney. which general property owners must contribute for governmentalexpenses. For present purposes, we shall refer to state-wide blanket-limitson the rate of property taxes; and the states which have recently adoptedsuch provisions are: Indiana, (stat.) 1932; Michigan, (const.) 1932; NowMexico, (const.) 1933; North Dakbta; Ohio, (const.) 1931 and rate reducedstill lower in 1933; Oklahoma, (const.) 1933; Washington, (stat.) 1932;West Virginia, (const.) 1932; and the Iowa legislature has enacted a statutewhich in effect reduced millage rates twenty per cent. Kansas voted down aproposed constitutional amendment in 1932, but a statute setting up certainlimitations was adopted by the legislature in 1933.In practically every state there are certain limitations setting maxima forthe respective rates of the state, municipalities and local taxing units. Fora general discussion see LEET & PAGE, PROPERTY TAX LIMITATION LAWS(1934). (The evidence and the arguments for and against them by twenty-four authorities).The effect of the tax limitation amendment in West Virginia has been theloss of twenty million dollars in property taxes (exclusive of debt services).This deprivation of governmental revenue has made it necessary that thestate assume the obligation of providing public schools, (eight months ofthe year), and take over all district and county roads: thus causing greatercentralization in the state and a partial destruction of local government.One of the main purposes behind the amendment was to force governmentexpenses downward. This has been true. But the amendment is not an4West Virginia Law Review, Vol. 40, Iss. 3 [1934], Art. 17https://researchrepository.wvu.edu/wvlr/vol40/iss3/17WEST VIRGINIA LAW QUARTERLYeffect of these limitations has been to drive legislative bodies, intheir search for revenue, to various indirect tax devices; andseemingly, since governmental expenses have not decreased pro-portionately, the public monies must perforce come largely fromindirect taxes. Whether a legislative limitation can or will beworked out is doubtful; yet such is possible, provided sufficientpublic sentiment be aroused. Apparently, then, there are thus tobe three restrictions upon limits of taxation, whether direct orindirect: (1) economic limitations, - indirect taxation, if toogreat, will drive businesses from the state, while direct taxes will,to a certain extent, be governed by defaults and delinquencies;(2) legislative limitations, - always possible in respect of indi-rect taxes, and now provided for in many states as to direct taxes;and finally, (3) judicial limitations, - already recognized in thefield of indirect taxation: the principal case is seemingly one ofthe first to attempt to apply the contention to a direct tax. Onemay confidently anticipate more such attempts in the future.-CARLEs W. CALDWELL.TAXATION - WARRANTS DRAWN ON OvERDRAWN COUNTYFUNDs AS LEGAL TENDER FOR THE PAYMENT OF TAXEs. - Theplaintiff, claiming under the statute making county orders legaltender for the payment of taxes,' applied to the SupremeCourt of Appeals for a writ of mandamus to compelthe defendant, as sheriff, to receive certain county orders, pay-able out of the then overdrawn general county fund, in full dis-charge of the plaintiff's taxes. In deciding the case, the courtheld that the statute was to be construed together with a morerecent statute providing that funds raised by taxes shall be ex-pended only for the purposes for which levied,' and that theabsolute safeguard in cutting off governmental expenditures, inasmuch asseveral indirect tax devices have been substituted. It is suggested, however,that as a general sales tax touches the pocket-book of the whole public,there will be a greater public interest, which will demand controlled expend-itures.1W. VA. REv. CODE (1931) c. 7, art. 5, § 10, "Every officer charged withthe collection of taxes and officers' fees shall receive in payment therefor,at par, any county or school order or draft, drawn on him pursuant to law,which is then due and payable, if the person offering the same in paymentbe the person entitled thereto at the time it is so offered."2W. VA. REv. CODE (1931) c. 11, art. 8, § 12, "Any funds derived fromlevying of taxes under and pursuant to the provisions of this article shallbe expended for the purposes for which levied and no other."5Caldwell: Taxation--Constitutional Law--Due Process of Law as Prescribing MPublished by The Research Repository @ WVU, 1934

Taxation--Constitutional Law--Due Process of Law as Prescribing Maximum Limits for Direct Property Taxes

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Taxation--Constitutional Law--Due Process of Law as Prescribing Maximum Limits for Direct Property Taxes

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