Summary
severing unconstitutional mandate, even without a severability clause, because "[d]eletion of the invalid [provision did] not alter the effect of the ordinance in fulfilling the purpose expressed"
Summary of this case from Jones v. MurrayOpinion
43328 Record No. 741178.
March 5, 1976
Present, Carrico, Harrison, Cochran, Harman, Poff and Compton, JJ.
(1) Taxation — Power to Tax.
(2) Constitutional Law — Tax Classification — Presumption — Burden of Proof.
(3) Taxation — Double Taxation — Direct Tax.
(4) Ordinance — Severability — Statutory Construction — Subsequent Amendment.
(5) Taxation — Administrative Problem.
1. City enjoys broad license taxing powers granted by General Assembly and may levy license taxes on those "engaged in business".
2. Tax on engaging in renting residential property is not unconstitutionally discriminatory. Those engaged in renting motels, or non-residential property may be placed in separate class for tax purposes. If classification is reasonable and not arbitrary, uniformity and equality are not required. Classification need not be perfect and discrimination will not be set aside if any state of facts reasonably may be conceived to justify it. Classification is presumptively valid and will be upheld unless it is facially unreasonable or its unreasonableness has been established by clear and convincing proof.
3. Business license tax on real estate agents does not invalidate license tax on owner-lessor. Tax affecting property not tax on that property.
4. Since record fails to show applicable severability clause, burden of proving severability devolves upon supporter of legislation. Intent of lawmakers is controlling and not uncertain. Subsequent amendment responds to Court's prior opinion on ordinance in question.
5. Problems of administration and enforcement raise questions as to the advisability rather than validity of legislative enactment.
Error to a judgment of the Circuit Court of the City of Portsmouth. Hon. Robert F. McMurran, judge presiding.
Reversed and remanded.
Gordon B. Tayloe, Jr., for plaintiff in error.
J. Stanley Livesay, Jr. (Schlitz, Levy Livesay, Ltd., on brief), for defendants in error.
Howard E. Gordon (Robert C. Nusbaum; Hofheimer, Nusbaum McPhaul, on brief), for Churchland Square Apartments, amicus curiae.
This appeal presents for our determination the question of the validity of two local ordinances levying license taxes on those engaged in the business of renting residential property.
On June 22, 1971, City Council of the City of Portsmouth adopted for the license tax year beginning May 1, 1972, and for subsequent tax years, Ordinance No. 1971-52, in which the definition of those required to pay the tax paralleled the overly broad definition invalidated by us in Krauss v. City of Norfolk, 214 Va. 93, 197 S.E.2d 205 (1973). Subsequently, on July 24, 1973, City Council amended the ordinance by adopting for the tax year beginning May 1, 1973, and for subsequent tax years, Ordinance No. 1973-97, which incorporated the common law definition of "engaged in business", set forth in Krauss, supra, 214 Va. at 95, 197 S.E.2d at 206-07.
Ordinance No. 1971-52 provided: . . . "Section 87.1. Rental of Residential Property.
"Every person engaged in the business of renting residential property, including houses, apartments and dwelling units shall pay an annual license tax of $50.00 for the first four units and $12.00 for each additional unit in excess of four.
"For the purposes of this section a person shall not be deemed to be engaged in the business of renting residential property in the City unless such person shall rent four or more such residential units. The business of renting houses, apartments or dwelling units as used in this section shall be construed to mean the renting of buildings or portions thereof, each designed for residential occupancy as a single dwelling unit by one family but not hotels, motels, mobile home parks, lodging houses or boarding houses for which a license is otherwise required by this ordinance."
In Krauss the ordinance provided that a person who rented four or more dwelling units was "deemed to be engaged in the business" of renting such property.
Ordinance No. 1973-97 provided: . . . "Section 87.1. Rental of residential property.
"Every person engaged in the business of renting residential property, including houses, apartments and dwelling units, shall pay an annual license tax of $12.00 for each such unit.
"For the purposes of this section, the phrase 'engaged in business' shall mean a course of dealing which requires the time, attention and labor of the person so engaged for the purpose of earning a livelihood or profit and implies a continuous and regular course of dealing, rather than an irregular or isolated transaction. The business of renting houses, apartments or dwelling units as used in this section shall be construed to mean the renting of buildings or portions thereof, each designed for residential occupancy as a single dwelling unit by one family but not hotels, motels, mobile home parks, lodging houses or boarding houses for which a license is otherwise required by this ordinance."
Citizens Trust Company, Trustee, and twelve other taxpayers filed in the trial court, under the provisions of Code Sec. 58-1145, their petitions to correct alleged erroneous license tax assessments. The taxpayers, alleging that both the 1971 and the 1973 ordinances were invalid, sought refunds, with interest, of taxes which they had paid thereunder. The trial court, concluding that Krauss was controlling, ruled in favor of the taxpayers. By final orders the court restrained the city and its officials from collecting from these taxpayers any taxes under the ordinances, and directed that refunds be made, with interest and costs, of taxes previously paid by them. Upon the petition of the city, filed pursuant to Rule 5:23, we granted it a writ of error to all but one of the judgment orders, and the matter was briefed and argued before us as a consolidated appeal.
Because of procedural deficiencies we refused to grant the city a writ of error to the judgment order entered in the trial court on August 1, 1974, in the proceeding therein styled Chelsea Corporation v. City of Portsmouth (Law No. L-73-302).
The city enjoys the broad license taxing powers granted to local governing bodies by the General Assembly. We recognized in Krauss that a city has been delegated the power to levy license taxes on those "engaged in business". Id. 214 Va. at 95, 197 S.E.2d at 206. We said in Bott v. Commonwealth, 187 Va. 745, 48 S.E.2d 235 (1948), that the word "business" has a meaning broad enough to cover everything about which a person can be employed, including operation of an apartment building. Id. at 749, 48 S.E.2d at 237. See also Chesapeake Potomac Tel. Co. v. City of Newport News, 196 Va. 627, 85 S.E.2d 345 (1955); and Fallon Florist v. City of Roanoke, 190 Va. 564, 58 S.E.2d 316 (1950). We held in Krauss, however, that the city in that case had no authority, by its charter or by statute, to extend or enlarge the definition of "engaged in business" so as to contravene the common law.
Code Sec. 8-266.1 (Cum. Supp. 1969) provides that the "council of any city . . . may levy . . . license taxes on businesses, trades, professions, occupations and callings and upon the persons, firms, and corporations engaged therein within the city. . . ."
We reject the taxpayers' argument that a tax on those who engage in the business of renting residential property is unconstitutionally discriminatory. The equal protection clause of the Fourteenth Amendment does not prevent a state from adjusting its system of taxation in all reasonable and proper ways. Bell's Gap R'd Co. v. Pennsylvania, 134 U.S. 232, 237 (1889). Recognizing that the states possess broad power to classify according to occupation for purposes of taxation, the Supreme Court has held that equal protection does not compel identity of treatment but "only requires that the classification rest on real and not feigned differences, that the distinction have some relevance to the purpose for which the classification is made, and that the different treatments be not so disparate, relative to the difference in classification, as to be wholly arbitrary". Walters v. City of St. Louis, Mo., 347 U.S. 231, 237 (1954). If the classification is reasonable and not arbitrary, uniformity and equality are not required. Town of Ashland v. Supervisors, 202 Va. 409, 415, 117 S.E.2d 679, 684 (1961); Langston v. City of Danville, 189 Va. 603, 608, 54 S.E.2d 101, 104 (1949). It is not necessary that legislative classifications be perfect, and a statutory discrimination will not be set aside if any state of facts reasonably may be conceived to justify it. Sheek v. City of Newport News, 214 Va. 288, 291, 199 S.E.2d 519, 522 (1973).
In order to avoid the pyramiding of taxes, the City Council could reasonably place those engaged in the business of renting residential property in a different category from those expressly excluded. Thus, the ordinances excluded those engaged in the business of renting specified kinds of residential property, such as motels, for the operation of which licenses were otherwise required by the city. For the same reason the City Council could omit from the classification those engaged in the business of renting non-residential property. The classification is presumptively valid and will be upheld unless it is facially unreasonable or its unreasonableness has been established by clear and convincing proof. Sheek v. City of Newport News, supra, 214 Va. at 288, 199 S.E.2d at 521. Here, the presumption of validity has not been overcome.
The taxpayers further contend that this license tax will result in double taxation because real estate agents representing the owners' interests also pay a business license tax. This contention is based on the theory that any tax directly or indirectly affecting property is a tax on that property, a concept which we have repeatedly declined to approve. See Hunton v. Commonwealth, 166 Va. 229, 244, 183 S.E. 873, 879 (1936).
We conclude that the city could validly impose a license tax on those engaged in the business of renting residential property. It follows that the 1973 ordinance, which conformed to the guidelines enunciated in Krauss, is valid.
The validity of the 1971 ordinance, however, depends upon a determination whether in the second paragraph the definition of those "engaged in the business", arising implicitly from the exclusionary language, and conceded by the city to be invalid under our holding in Krauss, can be satisfactorily severed from the rest of the ordinance. The city contends that the ordinance is severable and that the proscribed definition may be excised without destroying the entire ordinance, because the first paragraph, the operative section describing the class to which this license tax applies, would remain intact, and the phrase "engaged in the business" contained therein would necessarily carry its common law meaning.
The record fails to support the city's contention that there is an applicable severability clause. Without such a provision the burden of proving severability devolves upon the supporter of the legislation. Hannabass v. Maryland Cas. Co., 169 Va. 559, 571, 194 S.E. 808, 813 (1938). Nevertheless, even in the absence of a severability clause, "the test of severability is whether the legislature would be satisfied with what remains after the invalid part has been eliminated". Waynesboro v. Keiser, 213 Va. 229, 235, 191 S.E.2d 196, 200 (1972). The intent of the lawmakers is controlling. Bd. Sup. James City County v. Rowe, 216 Va. 128, 147, 216 S.E.2d 199, 214 (1975).
There can be no uncertainty as to the legislative intent in the present case. Deletion of the invalid definition in the 1971 ordinance does not alter the effect of the ordinance in fulfilling the purpose expressed in its first sentence of levying the tax on every person engaged in the business of renting residential property". Moreover, the City Council has since proceeded by amendment to substitute the approved common law definition for the invalidated definition. It has also changed the ordinance to provide that the tax will be levied in a specified amount for each residential unit, rather than in a specified sum for the first four units and in a different amount for each additional unit. We conclude that the 1971 ordinance is severable and that the trial court erred in ruling to the contrary.
The taxpayers have misconstrued the effect of our ruling on rehearing in Krauss. We did not resolve the question of severability because this issue was never raised before us except on rehearing, when it was too late. Therefore, we reaffirmed, without opinion, our previous decision. In the present cases, severability was an issue at every stage of the proceedings.
We agree with the taxpayers that the ordinances present difficult administrative and enforcement problems, but these problems raise questions as to the advisability, rather than the validity, of the legislative enactments. An ordinance or a statute is not fatally defective because questions may arise as to its applicability, or opinions may differ as to what falls within its terms, or because it is difficult to enforce. Fallon Florist v. City of Roanoke, supra, 190 Va. at 590, 58 S.E.2d at 329.
By 1974 amendment, Acts 1974 c. 196, a new subdivision (6a) was added to Code Sec. 8-266.1 to prohibit local governments from levying license taxes on those who, as owners, engage in the business of renting certain kinds of residential property. Localities that had such a tax on January 1, 1974, however, were exempted from the provisions of the amendment.
The judgment orders appealed from are reversed and the cases are remanded for further proceedings to determine whether the taxpayers were "engaged in the business of renting residential property" within the meaning of the ordinances and thus were subject to the license taxes in question.
Reversed and remanded.