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Duhame v. State Tax Commission

Supreme Court of Arizona

March 12, 1947


Page 253

Appeal from Superior Court, Maricopa County; Thomas J. Croaff, Judge.


Whitney, Ironside & Whitney, of Phoenix, for appellant.

John L. Sullivan, Atty. Gen. and Burr Sutter, Asst. Atty. Gen., for appellees.

Udall, Judge. Stanford, C. J., and LaPrade, J., concurring.


Udall, Judge.

Page 254

[65 Ariz. 271] Appellant, E. W. Duhame, a licensed contractor commenced this action against the appellee State Tax Commission of Arizona, to recover taxes paid under protes in the sum of $ 10,778.23. The parties will hereafter be referred to as the plaintiff and the Commission.

The Commission moved for the dismissal of the forty-two page complaint on the ground that none of the five causes of action stated therein set forth a claim upon which relief could be granted. The court granted the motion, and the plaintiff declined to plead further. After entry of judgment dismissing the action, plaintiff appealed to this Court.

The taxes in question were exacted under the Excise Revenue Act of 1935 as amended, and arise from the construction of war projects in Arizona, during the years 1942-3, for the United States government. The gross amount received by plaintiff from his government contracts was $ 2,505,316.33. From his gross receipts, before calculating the tax due, the Commission subtracted all payments made for labor, to subcontractors, for Social Security, Unemployment and Workmen's Compensation exactions, leaving a balance of $ 1,077,823 upon which the tax was calculated at [65 Ariz. 272] 1%. Of this latter figure $ 726,843.02 was the cost of the materials, consisting of tangible personal property furnished by plaintiff, and $ 350,978.98 represented the charge for fabricating all of said materials. The completed buildings, structures and appurtenant facilities were all erected upon lands belonging to the government.

It is of course axiomatic that a motion to dismiss admits the truth of all ultimate allegations of fact. However such a motion does not admit any legal conclusions pleaded. Swank v. Young, 60 Ariz. 18, 130 P.2d 918. Constitutionality of the Act:

At the outset we are confronted with a very pointed and searching attack on the constitutionality of the entire Excise Revenue Act of 1935 as amended, which is found in art. 13, secs. 73-1301 to 73-1334, inclusive, A.C.A.1939 (hereinafter referred to as the Act). By a brilliant oral argument and the submission of masterly briefs, counsel for plaintiff has recited in detail the alleged infirmities of the law in question. This has caused the Court painstakingly to review the entire Act and its purposes, as well as all of our prior interpretations thereof.

As stated by 73-1303, "* * * there is hereby levied and shall be collected by the tax commission for the purpose of raising public money * * * annual privilege taxes measured by the amount or volume of business done * * *". (Thereinafter follows a listing of nine groups of businesses, 73-1303(a), (b), (c), (d), (e), (f), (g), (h), (i), and the tax bases and rates applicable to each.)

This is, therefore, the same kind of tax as to each and every business or group thereof, encompassed by the Act

We agree with the plaintiff that one of the prime requisites of any statute is certainty, -- a requirement that applies with special force to a taxing statute. An act which imposes a tax must be certain, clear and unambiguous, especially as to the subject of taxation and the amount of the tax. 51 Am.Jur., p. 357, Taxation, sec. 303; 59 C.J., p. 601, Statutes, sec. 160; Western Union Telegraph Co. v. State of Texas, 62 Tex. 630, 635; 40 Tex.Jur., p. 72, sec. 46; Williams v. City of Richmond, 177 Va. 477, 14 S.E.2d 287, 134 A.L.R. 833. The legislature must fix the mode of determining the amount of tax "with such a degree of precision as to leave no uncertainty that cannot be removed by mere computation". 61 C.J. p. 567, Taxation, sec. 694, note 14; Gadd v. McGuire, 69 Cal.App. 347, 231 P. 754, 762; People v. Board of Sup'rs of Kings County, 52 N.Y. 556, 567.

"In order that a statute may be held valid, the duty imposed by it must be prescribed

Page 255

in terms definite enough to serve as a guide to those who have the duty imposed upon them. * * * When it leaves the Legislature a law must be complete in [65 Ariz. 273] all its terms, and it must be definite and certain enough to enable every person, by reading the law, to know what his rights and obligations are and how the law will operate when put into execution * * *". Vallat v. Radium Dial Co., 360 Ill. 407, 196 N.E. 485, 487, 99 A.L.R. 607; Barry v. Board of Directors of Imperial Irr. Dist., 7 Cal.App.2d 412, 46 P.2d 298, 305.

Such historic principles of law have been applied uniformly by the Arizona Supreme Court. Tillotson v. Frohmiller, 34 Ariz. 394, 403, 271 P. 867. These principles have a pointed application to this tax statute in which obedience to the Act is exacted by authorizing punishment and penalties, and by such coercive measures as being adjudged a criminal and subjected to a fine or imprisonment, secs. 73-1312, 73-1324; having to pay a penalty of twenty percent added to the amount of the tax, sec. 73-1314, and being enjoined from continuing in business in reference to which a tax assessed pursuant to the Act is unpaid, sec. 73-1328. Here the constitutional requirement that a statute to be valid must be definite and certain is not open to question. Connally v. General Construction Co., 269 U.S. 385, 46 S.Ct. 126, 70 L.Ed. 322; State v. Jay J. Garfield Bldg. Co., 39 Ariz. 45, 3 P.2d 983; State of Arizona v. Walgreen Drug Co., 57 Ariz. 308, 113 P.2d 650; Francis v. Allen, 54 Ariz. 377, 96 P.2d 277, 126 A.L.R. 190; City of Tucson v. Stewart, 45 Ariz. 36, 40 P.2d 72, 96 A.L.R. 1492.

We further agree with the plaintiff that if the Act sets up alternate and differing bases or measures by which an individual businessman may determine the amount of his privilege tax owing, and actually requires or allows such a person the freedom of selecting under which of these bases he shall file, the Act in this respect would be indefinite, uncertain and vague. The danger of allowing the taxpayer a choice under a vague statute, or a statute with alternate and differing bases of computation, is the possibility that the Commission and court later might declare his choice improper. And insofar as the taxpayer was thereby penalized (through no fault of his own but rather because of a statute which either purported to give him an option, or was so vague that he was uncertain as to which base to use), he would be deprived of property without due process of law.

Further, if under such a statute the Commission selected one of these vague, or alternate and differing bases for a tax payer, such a selection would not only be a violation of due process of law as regards that taxpayer, but would be an unconstitutional act of legislation by a Commission to whom the power to legislate was not delegated.

An excellent statement of the principle of law here involved appears in Larabee Flour Mills Co. v. Nee, D. C., 12 F.Supp. 395 (remanded on another point after the United States Supreme Court in United States v. Butler, 297 U.S. 1, 56 S.Ct. 312, 80 L.Ed. [65 Ariz. 274] 477, 102 A.L.R. 914 and Rickert Rice Mills v. Fontenot, 297 U.S. 110, 56 S.Ct. 374, 80 L.Ed. 513, held the Agricultural Adjustment Act unconstitutional). There the Court said: "Congress cannot surrender any part of the legislative power. The Constitution vests that power exclusively in Congress. The power to tax is a legislative power. The power to tax includes the power to say what shall be taxed, who shall pay it, what the tax shall be." 12 F.Supp. at page 402. "* * * What Congress cannot do is to delegate to an administrative official not only the power to fix a rate of taxation according to a standard, but also the power to prescribe the standard. Congress must prescribe the standard * * * an intelligible standard, a definite standard. It must be like a yardstick which is three feet long by whomsoever it is used, not one which in the hands of one man is three feet long, in the hands of another two feet long, and in the hands of a third four feet long, elastic at the will of the individual applying it." 12 F.Supp. at page 403.

The section of the Act relating to contractors here in question, 73-1303 (h), states that the tax shall be levied "At an amount equal to one per cent of the gross proceeds or gross income from the business, upon every person ...

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