Opinion
(Decided 24 May, 1898.)
Corporation — Franchise — Taxation — Privilege Tax — Uniformity of Taxation.
1. The franchise tax imposed by section 37, chapter 168, Laws 1897 (Revenue Act), upon every corporation doing business in the State is a tax upon the privilege of being a corporation, and its payment does not relieve it, or its lessee from the payment of a tax imposed upon the privilege of carrying on the particular kind of business for which the corporation was chartered; hence,
2. Where a corporation chartered for the purpose of owning and conducting a hotel has paid the franchise tax imposed by section 37 of the Revenue Act of 1897, the lessee of such corporation is not relieved thereby from paying the tax imposed by section 35 of said Revenue Act upon the business of conducting a hotel.
3. Under the provisions of section 35, chapter 168, Laws 1897 (Revenue Act), hotels whose gross receipts are between $1,000 and $2,000 inclusive, per annum, must pay a tax of $10, and hotels whose gross receipts are over $2,000 must pay a tax of one-half of one per cent upon such receipts.
4. A tax is uniform and consistent with the Constitution when it is equal on all persons in the same class, and hence the graduated tax imposed on hotel-keepers by section 35 of the Revenue Act of 1897, which exempts from taxation those whose yearly receipts are less than $1,000, is not unconstitutional.
CONTROVERSY, submitted without action to test the validity of section 35, chapter 168, Laws 1897, and to restrain the defendants from collecting the tax therein imposed, heard before Robinson, J., at January Term, 1898, of DURHAM. His Honor granted the injunction prayed for, and defendants appealed.
Guthrie Guthrie and Boone Bryant for plaintiff.
Manning Foushee and Cook Green for defendants.
The Carrolina Hotel Company, a company duly incorporated by the General Assembly of North Carolina, has paid for the year 1897 the tax of $100 imposed upon its franchise as a corporation, according to the amount of its capital stock, under section 37, chapter 168, Laws 1897. The sheriff of the county has, in addition to that tax, demanded of the plaintiff, who is the lessee of the hotel company, the license tax of $10 imposed under the provisions of section 35 of the act, and one-half of one per cent on all gross receipts by the lessee plaintiff from the hotel business over and above $2,000 for the privilege of carrying on the business of hotel keeper during the same year 1897. Upon a case agreed, his Honor, being of the opinion that the plaintiff lessee was not liable for the last mentioned tax imposed under section 35, and that the same was illegal, ordered that the collection of the tax from the plaintiff be perpetually enjoined and that the sheriff do not report the plaintiff as a delinquent to the proper authorities. The plaintiff's first ground of resistance of the tax, that because the hotel company has paid the tax imposed upon the corporation under section 37 of the Revenue Act, he cannot, therefore, be compelled to pay the tax imposed under section 35 for the privilege of conducting the business of a hotel keeper; that is, that the payment of a tax on the corporation carries with it the privilege of conducting the hotel business without the payment of a license tax for the conducting of the same. The question for decision, then, on that point is, Is it lawful for the General Assembly to impose a tax on the franchise of a corporation simply as a privilege tax for being a corporation, and at the (309) same time to impose a tax for the privilege of conducting the business contemplated by the charter of the corporation; and, if lawful, has the Legislature in section 35 imposed the tax on the business in section 37 the tax on the corporation? We are of the opinion that both taxes are lawful, and that the General Assembly in the sections above referred to has imposed them.
There are many advantages, in a business way, accruing to those persons who associate themselves in the formation of private corporations, and for such benefits and advantages the State has the right to receive in return compensation in the way of taxes for the privileges conferred. As was said by the Supreme Court of the United States in the case of Insurance Co. v. New York, 134 U.S. 594:
"By the term `corporate franchise or business,' as here used, we understand is meant . . . the right or privilege given by the State to two or more persons of being a corporation, that is, of doing business in a corporate capacity, and not the privilege or franchise which, when incorporated, the company may exercise. The right or privilege to a corporation, or to do business as such body, is one generally deemed of value to the corporation or it would not be sought in such numbers as at present. It is a right or privilege by which several individuals may unite themselves under a common name, and act as a single person with a succession of members, without dissolution or suspension of business, and with a limited individual liability. The granting of such right or privilege rests entirely in the discretion of the State, and of course, when granted, may be accompanied with such conditions as the Legislature may judge most befitting to its interest and policy. (310) It may require as a condition of the grant of the franchise, and also of its continued exercise, that the corporation pay a specific sum to the State each year or month, or a specific portion of its gross receipts, or of the profits of its business, or a sum to be ascertained in any convenient mode which it may prescribe."
The counsel of the plaintiff called our attention to section 1, Schedule B of the Revenue Act, which reads, "That the taxes in this schedule shall be imposed as a license tax for the privilege of carrying on the business or doing the act named." But this plainly has reference to the right to tax the various trades and professions named in the act in addition to the right to tax property, for in the same section it is declared that "nothing in this schedule contained shall be construed to relieve any person from the payment of the ad valorem tax on his property as required in the preceding (A) schedule; and, besides, the intention of the Legislature is made manifest by the following language used in section 38: "Every person who shall practice any trade or profession or use any franchise taxed by the laws of North Carolina, without having paid and obtained a license as required in this act, shall be deemed guilty of a misdemeanor . . . " If the owners of the stock of the hotel company had not had themselves incorporated the tax mentioned in section 37 could not have been imposed, and the license tax on the business of hotel keeping under section 35 would have been the only privilege tax that could have been laid by law. The other point of resistance to the license tax imposed by section 35 is that it is opposed to section 3, Article V, Constitution of North Carolina, in that it makes a discrimination among persons engaged in the same class of business. The (311) language of section 35 is as follows: "On all hotels, boarding or lodging houses, restaurants, or eating houses of any kind . . . whose gross receipts are over $1,000 and less than $2,000, the sum of $10 and one-half of one per centum on all gross receipts over and above $2,000 dollars." We agree with the counsel that the syntax of the sentence is not of the highest order, but still we think that its reasonable and fair construction is that on all hotels whose gross receipts are between $1,000 and $2,000, inclusive of both, there is laid a license tax of $10; and on those hotels . . . whose gross receipts are over $2,000, a tax of one-half of one per cent on such gross receipts.
The counsel of the plaintiff at one time argued that, as nothing was said in so many words in the section about that class of hotel keepers whose gross receipts were less than $1,000, therefore that class could not be included in the act, and that, as those whose receipts were over $2,000 were not embraced, according to a reasonable construction of the language used, there was therefore left for taxation only one class, viz., those whose incomes were between $1,000 and $2,000, and that, as a consequence, they were discriminated against in the act. But the irresistible inference from the imposition of taxes upon those hotels, etc., whose gross receipts amount to $1,000 or more is that the hotels whose gross receipts are less than $1,000 are exempt from the payment of the license tax; and in such exemption the plaintiff's counsel insisted that there was a discrimination between those engaged in the same business. But when the counsel came down to the real point in the case, that is, whether the exemption of hotels whose gross receipts did not amount to (312) $1,000 and the taxing of others whose receipts were more than $1,000, he had to admit that the act exempted the former from the payment of the tax. On this point in our minds there is no doubt that the General Assembly may in its discretion impose either a specific tax or one graduated to the extent of the business done — the gross receipts derived from the business. S. v. Powell, 100 N.C. 525, and that such tax is uniform and consistent with the Constitution when it is equal on all persons in the same class. Gatlin v. Tarboro, 78 N.C. 119. But in our case the additional element enters of an exemption from the operation of the general rule of certain hotels whose yearly receipts are less than a certain amount. We have no decisions on the question, but we are of the opinion that the General Assembly has the right to make such an exemption, provided the exemption is not palpably against the spirit of the Constitution.
In Cooley on Taxation, pages 170, 172, the author says:
"Every statute for the levy of taxes is, in a sense, a statute making exemptions, that is to say, it leaves many things untaxed which it would be entirely competent to tax if the Legislature had deemed it wise or politic. In each case there is such selection of subjects as the Legislature's wisdom has determined upon, and the determination is conclusive. When, however, the selections have been made, and the general rule determined upon, it has been customary for the Legislature to make certain exemptions of either persons or property coming within the general rule, but which for reasons of general policy it is deemed wise not to tax. Some of these, such as the exemption of household furniture, tools of trade, etc., and the limited personal property which very poor persons may be possessed of, are to be looked upon rather as in the nature of limitations of the general rule than as exceptions from (313) it, the taxation being only of all that is possessed over and beyond what has been left out as absolutely needful to the owner's support."
It may be of interest to observe that in the case of Hyde v. Trust Co., 15 U.S. 673, the question as to whether the exemption of income less than $4,000 invalidated the tax is not decided, the Court was equally divided. And on the rehearing of the case, 158 U.S. 601, no reference was made to the point.
There was error in the judgment of the court below and the same is
Reversed.
Cited: Lacy v. Packing Co., 134 N.C. 572; Dalton v. Brown, 159 N.C. 179; Mercantile Co. v. Mount Olive, 161 N.C. 124; Smith v. Wilkins, 164 N.C. 140.