May 27, 1941.
June 30, 1941.
Constitutional law — Appropriations for benevolent purposes — Unemployment compensation — Act of December 5, 1936, P. L. (1937) 2897.
1. The Pennsylvania Unemployment Compensation Law of December 5, 1936, P. L. (1937) 2897, does not violate Article III, section 18, of the Constitution, as an appropriation for a charitable or benevolent purpose. [531-5]
Constitutional law — Local or special laws — Interest — Unemployment compensation — Act of December 5, 1936, P. L. (1937) 2897.
2. Sections 308 and 309 of the Act of December 5, 1936, P. L. (1937) 2897, do not violate section 7 of Article III of the Constitution, which prohibits the passage of local or special laws fixing the rate of interest. [535-6]
Constitutional law — Interstate commerce — Unemployment compensation — Act of December 5, 1936, P. L. (1937) 2897.
3. Section 307 of the Act of December 5, 1936, P. L. (1937) 2897, does not violate Article I, section 8, the commerce clause of the Federal Constitution. [536-40]
Constitutional law — Debt — Payment of moneys in excess of reserve — Unemployment compensation — Act of December 5, 1936, P. L. (1937) 2897.
4. The Act of December 5, 1936, P. L. (1937) 2897, does not violate Article IX, section 12 of the Pennsylvania Constitution, providing that moneys of the State over and above the necessary reserve shall be used in payment of the debt of the State. [540-43]
Constitutional law — Powers reserved to the states — Surrender — Unemployment compensation — Act of December 5, 1936, P. L. (1937) 2897.
5. Article VI of the Act of December 5, 1936, P. L. (1937) 2897, does not violate the Tenth Amendment to the Federal Constitution on the ground that it deprives the State from functioning as a sovereign state and that the surrender of the surplus moneys to the Treasury of the United States is, pro tanto, an unconstitutional surrender of sovereignty. [543-4]
Argued May 27, 1941.
Before SCHAFFER, C. J., MAXEY, DREW, LINN, STERN, PATTERSON and PARKER, JJ.
Appeal, No. 49, May T., 1941, from judgment of C. P. Dauphin Co., Com. Docket, 1940, No. 1, in case of Commonwealth v. Fred C. Perkins. Judgment affirmed.
The court below entered judgment for the Commonwealth in an opinion by HARGEST, P. J., which was in part as follows:
"This case involves the constitutionality of the Pennsylvania 'Unemployment Compensation Law' approved December 5, 1936, P. L. (1937) 2897, 43 PS (Pocket Sup.) Sec. 751.
"The Commonwealth, in its own name and for the use of the Unemployment Compensation Fund, brought suit against the defendant Fred C. Perkins, individually, and trading as Perkins Battery Company, for the contributions which the Commonwealth claimed were due under the Act. The defendant filed an affidavit of defense raising questions of law and attacking the constitutionality of the Act.
"A number of constitutional attacks have been raised in the pleadings, only five of which are pressed and will be considered.
"1. That the Act violates Article III, Section 18, of the Pennsylvania Constitution which prohibits appropriations for benevolent purposes to any person or community;
"2. That Sections 308 and 309 violate section 7, of Article III, of the Pennsylvania Constitution prohibiting the passage of any local or special law fixing the rate of interest;
"3. That Section 307 taxes employers engaged in interstate commerce, in violation of Section 8, of Article I, of the United States Constitution and the Tenth Amendment to the Constitution of the United States;
"4. That the Act violates Article IX, Section 12, of the Pennsylvania Constitution providing that moneys of the State over and above the necessary reserve shall be used in payment of the debt of the State; and
"5. That the statute violates the Tenth Amendment to the Federal Constitution.
"1. Is the statute invalid because it is in violation of Section 18 of Article III of the Pennsylvania Constitution which provides 'no appropriation, except for pensions or gratuities for military services, shall be made for charitable, educational or benevolent purposes, to any person or community . . .?'
"The State has no power to take the property of a citizen except by way of taxes or eminent domain. Beeland Wholesale Co. v. Kaufman, (Ala.) 174 So. 516. This statute came before the Supreme Court of Pennsylvania on appeal from the decision of this court. Fidelity-Philadelphia Trust Co. v. Hines, 48 Dauph. 59, 337 Pa. 48, 51, 10 A.2d 553, 555. No question of constitutionality was therein raised, but it was said:
" 'Although the act provides in form for a payment [of] "contributions", such enforced contributions are in reality [excise] taxes on the right to employ.'
"We must, therefore, treat this statute as a taxing statute.
"Section 1 of Article IX of the Constitution provides that all taxes shall be uniform. There is nowhere in the Pennsylvania Constitution any specific authority given to levy taxes nor any limitation imposed as to the purposes for which taxes may be levied. The taxing power is vested absolutely in the legislature as an attribute of sovereignty with no other limitation upon its exercise than the Constitutions, State and Federal, and the laws of the United States, and the power to tax, is bounded only by the necessity of the State and the will of the people: Kirby v. Shaw, 19 Pa. 258; Sharpless v. Philadelphia, 21 Pa. 147; Clouser v. Reading, 270 Pa. 92; Fox's Appeal, 112 Pa. 337; Washington Avenue, 69 Pa. 352.
"It necessarily follows, however, that taxes cannot be laid except for some proper governmental purpose, and it also follows that no appropriations may be made by the State for benevolent purposes. The questions immediately before us are:
"(a) Whether this statute makes an appropriation within the meaning of the Constitution, and
"(b) Whether the tax is laid for a benevolent purpose.
"(a) As we understand the word 'appropriation', when used in the constitutional or legislative sense, it means a designation of money raised by taxation to be withdrawn from the public treasury for a specifically designated purpose. The money in question raised by taxation under this statute never gets into the State Treasury. It is paid into the Unemployment Compensation Fund created under the Act, then paid over to the Unemployment Trust Fund, which is the Federal agency created under the Act of Congress. Then, as often as necessary, it is requisitioned from the Unemployment Trust Fund back to the Unemployment Compensation Fund, into what is known as the Compensation Account, and thence paid to the recipient. The process does not have the earmarks of an appropriation of public moneys as generally understood.
"Whether the moneys are public moneys presents a rather difficult hurdle to clear. On the one hand it might be said with force that a State has no right to raise money by taxation which would not properly be designated public money. It is the sovereign power representing the public which has taxed the money away from the individual. The government has no power to lay the tax unless it be for a governmental purpose, and it might seem to be juggling with terms to say that when it is the exercise of a governmental purpose, raising money by taxation, that the money so raised, merely because of the method of its treatment when raised, is not public money. Yet that is precisely the trend of the modern decisions.
"In Gillum v. Johnson, (Calif.), 62 P.2d 1037, 1043, the Court said: 'It must be conceded that the moneys so contributed under the Act are not public moneys in the sense that they are subject to appropriation other than as provided in the act.'
"To the same effect are the cases of Howes Bro. v. Unemployment Compensation, (Mass.), 5 N.E.2d 720; Tatum v. Wheeless, (Miss.), 178 So. 95, 102; Gillum v. Johnson, 62 P.2d 1037, to which fuller reference is made in discussing the fourth question raised by the defendant.
"However, Carmichael v. Southern Coal Coke Co., 301 U.S. 495, 515, seems to treat the fund as a State fund. It is there said: 'We need not labor the point that expenditures for the relief of the unemployed, conditioned on unemployment alone, without proof of indigence of the recipients of the benefits, is a permissible use of State funds.'
"We conclude that the funds are not State funds within the contemplation of Section 18 of Article III of our Constitution.
"(b) The ordinary use of the word 'benevolence' would indicate that a contribution made to one who is unemployed, without the necessity for any proof of indigence, would be a benevolence. This would seem to be so even though the recipient gets it by way of some governmental process, but in the concurring opinion of Mr. Justice MAXEY, in Commonwealth v. Liveright, 308 Pa. 35, 90, it is said: 'I hold that an appropriation of State money to combat widespread poverty arising from unemployment can no more justly be characterized as "charity" [or] "benevolence" than could an appropriation of State money with which to combat a plague sweeping over Pennsylvania.'
"In the case just cited, Mr. Justice KEPHART, in a very extensive opinion reviewing Busser v. Snyder, 282 Pa. 440, and Collins v. Martin, 290 Pa. 388, held that the care of the poor 'was a fixed governmental duty similar to the enforcement of law and order.'
"We now hold that unemployment is a governmental concern and it is a matter of discretion as to how the legislature shall deal with it. But in Commonwealth v. Liveright, supra, it was also said, page 76: 'Whether the charitable work is compulsory or discretionary, the performance is controlled by the Constitution.' After discussing the duty of the State towards its poor, the opinion continues, page 79: 'Having twice decided that appropriations to perform obligatory public duties or functions are not charities or benevolences, we again hold that the State, in the performance of its governmental duty to take care of the poor is not forbidden by Article III, Section 18, either directly to assume this obligation or to permit and aid one of its subsidiaries of government to perform it, or to have it performed by an institution not forbidden by the Constitution.'
"As long as these channels are kept clear, constitutional inhibitions will not disturb such acts. If appropriations to perform the obligatory duties are not charities or benevolences, it would seem to be a refinement to hold where there is a governmental concern with which the legislature has discretionary power that it would be a benevolence merely because the one is obligatory and the other discretionary.
"Adopting the language which we have just quoted, we hold that a statute dealing with unemployment, creating an agency for that purpose, is not forbidden by Article II, Section 18, of the Constitution as an appropriation for a charitable or benevolent purpose.
"We might quote at length the extract from Busser v. Snyder, 282 Pa. 440, particularly found on page 453, and parts of the opinion in Commonwealth v. Liveright, supra, which, if carried to their logical end, might lead to a different conclusion; but we are of opinion that the quotation which we have just made from Commonwealth v. Liveright expresses the law as it must be applied to this case in determining its validity under Article III, Section 18, of the Constitution.
"2. It is contended that Sections 308 and 309 of the statute violate Section 7 of Article III of the Pennsylvania Constitution which prohibits the passage of local or special laws fixing the rate of interest.
"These two Sections require that contributions unpaid on the date when they are due shall bear interest at the rate of one per centum per month. It is contended on the authority of the case of Pennsylvania Co. v. Philadelphia, 262 Pa. 439, that this is a special act fixing the rate of interest. In that case the Act of 1915, P. L. 685, required that the damages for private property taken 'by municipal corporations' should bear interest at the rate of six per centum per annum 'from the date of such taking.' It was declared unconstitutional because limited to municipal corporations only.
"The statute before us applied to all persons who may be subject to its terms, namely, all employers in the State of Pennsylvania. It could hardly be said that grouping all employers and dealing with them as a class is an unconstitutional classification. No employers are excluded and what applies to one applies to all. We conclude that this is a proper classification. Moreover, twelve per cent interest is not a strange thing in the legislative history of Pennsylvania. It will serve no useful purpose to trace it to its source, but twelve per cent interest has been the penalty for non-payment of taxes for generations.
"It must be assumed that the Legislature of 1874 contained many of those who sat in the Constitutional Convention of 1873 which wrote Article III into the fundamental law, and it may be presumed that those legislators understood what was thereby intended. One of the very first statutes passed by them was the Act of April 24, 1874, P. L. 68, 'for the taxation of corporations,' in which the interest penalty is twelve per centum per annum for non-payment. That penalty has been carried along down through the years by the Acts of 1879, 1887, 1889 and into the Fiscal Code of 1929. The twelve per cent penalty has been before the Court in a multitude of cases, although an investigation has not disclosed that it was ever constitutionally attacked. Commonwealth v. Standard Oil Co., 101 Pa. 119, 150; Commonwealth v. Western Union Telegraph Co., 2 Dauph. 30; Delaware Division Canal Co. v. Commonwealth, 50 Pa. 399; Commonwealth v. J. B. Lippincott, 7 Dauph. 193; Commonwealth v. Provident Life Trust Co., 6 Dauph. 109; Commonwealth v. Philadelphia, 157 Pa. 558, 577.
"It would be an unsettling situation to now declare it unconstitutional.
"For these reasons we think there is no merit in this contention.
"3. It is contended that Section 307 of the Act violates the commerce clause of the Federal Constitution.
"Section 8 of Article I of the Constitution of the United States provides, inter alia: 'That Congress shall have power . . . to regulate commerce with foreign nations and among the several states . . . .' The Tenth Amendment provides: 'The powers not delegated to the United States by the Constitution nor prohibited by it to the States are reserved to the States respectively and to the people.'
"It is settled that the state cannot levy a direct tax on gross receipts derived from interstate commerce. Meyer v. Wells, Fargo Co., 223 U.S. 298; Crew Levick Co. v. Pennsylvania, 245 U.S. 292, 295, 297; Cudahy Packing Co. v. Minnesota, 246 U.S. 450. Neither can the State tax the privilege of engaging in interstate commerce although it may tax the property within a State so employed: Wells, Fargo Co. v. Nevada, 248 U.S. 165, 167; East Ohio Gas Co. v. Tax Commission, 283 U.S. 465, 469; Adams Mfg. Co. v. Storen, 304 U.S. 307, 311.
"The contention of the defendant is that this tax is invalid because the employer is engaged in interstate commerce and it amounts to a tax on the privilege to so engage within the State. There is no factual situation to show that the defendant is within that class, but we prefer to put our decision on the broader ground assuming that he is.
"The defendant largely relies on Southern Pacific Co. v. Gallagher, 306 U.S. 167, 180. In that case, the Court, referring to the case of Ozark Pipe Line Corp. v. Monier, 266 U.S. 555, said: 'This Court pointed out that the corporation had a license to engage exclusively in interstate business. The language just quoted shows that this Court interpreted the transactions in Missouri as merely a part of the interstate commerce and the tax on the franchise an interference therewith because a tax directly upon it. ". . . nothing was done in Missouri except in furtherance of transportation." It was this conclusion of the court on the factual situation which brought about the Ozark decision. Where there is also intrastate activity, an apportioned state franchise tax on foreign corporations doing an interstate business is upheld. A franchise tax on an exclusively interstate business is a direct burden; proportioned to an intermingled business, it is valid. Since the incidence of the California tax as here interpreted is upon events outside of interstate commerce, the Ozark opinion is not applicable. There the Missouri tax was upon activities found wholly interstate.'
"There is no factual situation in the instant case which justifies the application of any of the principles above referred to.
"There is, however, another situation which requires serious consideration. Section 307 of the statute provides: 'No employer required by this act to pay contributions shall be relieved from compliance therewith on the ground that he is engaged in interstate commerce, or that this Act does not distinguish between employees engaged in interstate commerce and those engaged in intrastate commerce.'
"In Section 906 of the Social Security Act, Congress seems to have made plain that it did not intend to cover the field of interstate commerce which the State statute attempts to do. That section provides: 'No person required under a state law to make payments to an Unemployment Fund, shall be relieved from compliance therewith on the ground that he is engaged in interstate commerce or that the state law does not distinguish between employees engaged in interstate commerce and those engaged in intrastate commerce.'
"The plain purport of that Section seems to be that Congress has intended to meet the specific language quoted from Southern Pacific Co. v. Gallagher, supra, and has indicated that it has not intended to cover the field of Unemployment Compensation as related to interstate commerce, even though there is no apportionment of the tax as to interstate and intrastate business.
"It may be argued that Congress cannot, by the ipsi dixit contained in Section 906, as above quoted, determine that the law, as declared in the case of Sligh v. Kirkwood, 237 U.S. 52, shall not apply. However, that may be, it is well settled that even in commerce among the states the police power of the State to prescribe regulations within its borders is not taken away until Congress enters and covers the field.
"In Sligh v. Kirkwood, 237 U.S. 52, 58, it is said: 'That Congress has the exclusive power to regulate interstate commerce is beyond question, and when that authority is exerted by the State, even in the just exercise of the police power, it may not interfere with the supreme authority of Congress over the subject; while this is true, this court from the beginning has recognized that there may be legitimate action by the State in the matter of local regulation, which the State may take until Congress exercises its authority upon the subject. This subject has been so frequently dealt with in decisions of this court that an extended review of the authorities is unnecessary. See the Minnesota Rate Cases, 230 U.S. 352.'
"By the enactment of the Social Security Act, Congress has not been silent but has affirmatively declared that it does not intend to cover this field, and by the enactment of the Pennsylvania statute the Legislature of Pennsylvania has asserted that it intends to exercise its power until Congress does cover the field. In the case of Carmichael v. Southern Coal Coke Co., 301 U.S. 495, the power of the State of Alabama to enact an unemployment compensation act, almost identical with the statute of Pennsylvania, has been sustained. The question of the illegality of the Alabama statute under the commerce clause of the Federal Constitution does not seem to be directly passed upon either in the Supreme Court of the United States or in the Alabama Court: Beeland Wholesale Company v. Kaufman, (Ala.), 174 So. 516.
"In the case of Steward Machine Co. v. Davis, 301 U.S. 548, the Supreme Court of the United States distinctly sustained the power of Congress to enact Titles 3 and 9 of the Social Security Act. It was there held, with reference to the Alabama statute, page 597: 'Even sovereigns may contract without derogating from their sovereignty. . . . The states are at liberty, upon obtaining the consent of Congress, to make agreements with one another. . . . We find no room for doubt that they may do the like with Congress if the essence of their statehood is maintained without impairment. Alabama is seeking and obtaining a credit of many millions in favor of her citizens out of the treasury of the nation. Nowhere in our scheme of government — in the limitations express or implied of our federal constitution — do we find that she is prohibited from assenting to conditions that will assure a fair and just requital for benefits received. But we will not labor the point further. An unreal prohibition directed to an unreal agreement will not vitiate an act of Congress, and cause it to collapse in ruin.'
"It is true also that the commerce clause of the Constitution is not directly involved in this decision, but in the case of Wisconsin v. Cary Mfg. Co., decided in the Circuit Court of Wayne County, October 9, 1937, C. C. H. Wisc., Par. 8088, the Court had before it the Unemployment Compensation Act of Wisconsin in which the question was directly raised, and there the Court said: 'The defense particularly put forth in the present case as a justification for not making the compensation payments is that the defendant corporation is engaged in interstate commerce, and the state of Wisconsin is seeking unconstitutionally to interfere with that commerce. Reliance is had upon the recent decisions of the United States Supreme Court sustaining the National Labor Relations Act as an appropriate exercise of the power by Congress to regulate commerce between the states. . . . Congress has not entered upon the field of unemployment compensation, as it has in labor relations, and the question accordingly of conflict with Federal jurisdiction and clash with the commerce clause of the United States Constitution, is purely academic. The only ground upon which the defendant might predicate his position is that which may be contended to flow from the labor relations cases; namely that Congress has preëmpted the field; hence the State must keep out. But the simple truth is that Congress has not. The Federal Social Security Act . . . is not an unemployment compensation law.'
"We are therefore of opinion that the Pennsylvania statute does not violate the commerce clause of the Federal Constitution.
"4. The defendant contends that Article 6 of the Compensation Law, which provides for the retention of surplus funds in the custody of the State Treasurer, to be invested as provided under the Act of 1929, and the retention of surplus funds in the Unemployment Trust Fund by the United States Treasurer violates Section 12 of Article IX of the Pennsylvania Constitution. This Section provides: 'The moneys of the State over and above the necessary reserve shall be used in the payment of the debt of the state, either directly or through the sinking fund, and the moneys of the sinking fund shall never be invested in or loaned upon the security of anything; except the bonds of the United States or of this State.'
"The scheme set up by the statute is as follows: Contributions are collected by the State Department of Labor and Industry, through the machinery provided by the Act, and deposited in an Unemployment Compensation Fund. From time to time moneys in this Fund are paid over to the Treasurer of the United States and deposited by him in an Unemployment Trust Fund created by the Social Security Act of Congress. These sums are credited to the State of Pennsylvania. As often as may be necessary, the Department of Labor and Industry may requisition from the Unemployment Trust Fund such amounts necessary to pay compensation under the Act. Upon receipt of such requisitioned funds, the Department deposits them in the Unemployment Compensation Fund in a ledger account to be known as the Compensation Account, and expends such moneys for the payment of compensation. All moneys to the credit of the Compensation Account are required to be mingled and undivided. The Department pays compensation authorized by this Act out of the Compensation Account. There is also created a special fund known as the Administration Fund, which consists of moneys paid to the Department by the United States. The State Treasurer is the custodian of the Unemployment Compensation Fund and the Administration Fund. The moneys belonging to such funds are deposited by the State Treasurer as the general funds of the Commonwealth are deposited, but no deposit insurance charge is paid out of the Compensation Fund. The budgetary provisions required by the Administrative Code shall not apply to these funds. If Title IX of the Social Security Act is repealed or held unconstitutional, the Department then requisitions all moneys from the Unemployment Trust Fund. And the Act of Congress provides, Section 903, that if the state laws are repealed or invalidated, the funds shall be paid over to the respective states.
"If these funds are State funds there is some basis for the contention that under the cases of Schnader v. Liveright, 308 Pa. 35, 67, 68, and Montgomery v. Martin, 294 Pa. 25, 43, this statute would violate the constitutional provision above quoted in that the moneys are being applied and kept otherwise than as directed therein.
"Unemployment statutes have been enacted in a number of states and have been the subject of judicial review. It seems to be invariably held that the revenue so raised is not money of the State. In Beeland Wholesale Co. v. Kaufman, 174 So. 516, 525, where the attack was made that the act violated the Constitution in that it was an act to raise revenue and had not originated in the House as the Constitution required, the Court said: 'But when an Act has for its main purpose provision for the general welfare by enacting a scheme within the state's police power, it is not one to raise revenue, though it does so as an incident to such scheme.'
"In Gillum v. Johnson, (Calif.), 62 P.2d 1037, 1043, the Court said: 'It must be conceded that the moneys so contributed under the act are not public moneys in the sense that they are subject to appropriation other than as provided in the act. . . . The balances (in the funds) do not revert to the general fund at the end of the fiscal year and under both the state and federal acts constitute trust funds to be administered by the state commission and subject to its call at all times.'
"In Howes Bros. Co. v. Unemployment Compensation Commission, (Mass.), 5 N.E.2d 720, 728, the Court said: 'The contributions under the unemployment compensation law are not a part of the general revenue of the Commonwealth, although paid into the State Treasury. They are raised by the Commonwealth for a particular purpose through the exercise of the police power.'
"In Tatum v. Wheeless, (Miss.), 178 So. 95, the Court said, page 102: 'A sufficient answer to this contention is that the fund here provided for and collected is not a fund for the general purposes of running the state government, or providing for the expense of operating the state government. The fund here created is not to be placed in the state treasury — it is a trust fund to be held and applied for the benefit of a class of employees, in the nature of unemployment insurance, and is authorized by law. In other words, the funds here provided are trust funds, and do not belong to the state in its sovereign capacity.'
"We adopt the reasoning of these cases and hold that the funds are not State funds, and it therefore follows that the constitutional provision applicable to the investment of State funds does not control.
"The defendant has attacked the statute both as to the manner of its operation and the size of the revenue provided under it, but these are legislative questions which, at least under the present state of the record, the Court has no power to consider.
"5. The defendant finally contends that Article VI of the Act violates the Tenth Amendment to the Federal Constitution in that it deprives the State from functioning as a sovereign state and that the surrender of the surplus moneys to the Treasury of the United States is, pro tanto, an unconstitutional surrender of sovereignty.
"This question is considered at length in the case of Steward Machine Co. v. Davis, 301 U.S. 548, 593, et seq. and decided against the contentions of the defendant.
"The question of coercion of States by the passage of the Federal statute has been considered in the cases of Tatum v. Wheeless, (Miss.), 178 So. 95; Gillum v. Johnson, (Calif.), 62 P.2d 1037; Howes Bros. Co. v. Unemployment Compensation Commission, (Mass.), 5 N.E.2d 720; Beeland Wholesale Co. v. Kaufman, (Ala.), 174 So. 516. It is held in each case that there is no unconstitutional coercion.
"For the reasons herein expressed, we conclude that this statute does not violate the Tenth Amendment to the Federal Constitution."
Error assigned, among others, was judgment.
Samuel Kagle, with him J. Edgar Small, for appellant.
David R. Perry, Special Deputy Attorney General, with him Claude T. Reno, Attorney General, for appellee.
The judgment is affirmed on the foregoing portions of the opinion of President Judge HARGEST.