Brackman v. Kruse , 122 Mont. 91 ( 1948 )

I cannot agree that the tax in question is a regulatory measure passed under the police power. There is no rule laying down a precise test by means of which it can be determined that a license fee is a revenue measure or a police regulation. 51 Am.Jur., Taxation, sec. 68, p. 96. But certain standards have been established which are helpful in the final determination.

In passing upon the constitutionality of a statute we must always bear in mind the cardinal rule that every possible presumption is in favor of the validity of the Act. The Act of the legislature must be held valid unless clearly arbitrary, capricious or unreasonable. This presumption in favor of the validity of the statute is especially strong where the Act has been on the statute books for a long time without contest. In re Mahaffay's Estate, 79 Mont. 10, 23, 254 P. 875. In a close case this presumption favoring the validity of a statute would determine whether it should be considered a revenue measure or a police regulation.

"The police power must be distinguished from the taxing power, and the distinction is this: The taxing power is exercised for the purpose of raising revenue, and is subject to certain limitations elsewhere considered, while the police power is exercised only for the purpose of promoting the public welfare, and, although this end may be attained by taxing or licensing occupations, yet the object must always be regulation and not the raising of revenue * * *." State ex rel. Pierce v. Gowdy,62 Mont. 119, 127, 203 P. 1115, 1117.

In the instant case the revenue derived from the tax is greatly in excess of any cost of collection. For example in the fiscal year 1944-1945 the amount collected from oleomargarine licenses was $30,550 and the total expense of maintaining all of the activities of the dairy division was but $22,041.04. In the next year, the fiscal year 1945-1946, licenses for oleomargarine brought in $31,750 and the cost of operating the entire dairy division was $24,752.48. The dairy division has the duty of administering the regulations relating to the dairy industry, including creameries, cheese factories and whole milk plants and enforcement of the egg-grading law, as well as the oleomargarine dealers.

The amount of the fee or charge is properly considered in determining whether it is a tax or an exercise of the police power. The amount may be so large as to itself show that the purpose was to raise revenue and not to regulate." Cooley on Taxation, 4th Ed., sec. 1786, pp. 3516, 3517.

"* * * if the amount is wholly out of proportion to the expense involved, it will be declared a tax." Detroit Retail Druggists' Ass'n v. City of Detroit, 267 Mich. 405, 255 N.W. 217,219. And see City of Muskogee v. Wilkins, 73 Okla. 192,175 P. 497; City of Tulsa v. Metropolitan Jewelry Co., 74 Okla. 107,176 P. 956.

By the test of returns this tax must be taken to be a revenue measure.

The title of Chapter 93, Laws of 1929, of which section 2620.45 was a part, might indicate that it was meant to be a regulatory Act. It was entitled: "An Act to Regulate the Dairy Industry in the State of Montana * * *; Designating the Powers and Duties of the Department of Agriculture, Labor and Industry in Relation to the Dairy Industry and the Enterprises Regulated by This Act; * * * Regulating the Handling and Sale of Oleomargarine and Other Substitutes for Dairy Products and the Licensing of Persons Dealing Therein: * * *"

"In determining the type or kind of tax, the substance of the law, rather than a designation or name given it by the Legislature, must be considered." Independent School Dist., Class A, No. 1, Cassia County v. Pfost, 51 Idaho 240, 4 P.2d 893,895, 84 A.L.R. 820, and see Educational Films Corp. v. Ward,282 U.S. 379, 51 S. Ct. 170, 75 L. Ed. 400, 71 A.L.R. 1226.

Another test was laid down in State ex rel. City of Bozeman v. Police Court, 68 Mont. 435, 442, 219 P. 810, 812. "A distinction between a license tax and a tax proper or a revenue measure is stated as follows: `Where the fee is imposed for the purpose of regulation and the statute requires compliance with certain conditions in addition to the payment of the prescribed sum, such sum is a license properly imposed by virtue of the police power; but when it is exacted solely for revenue purposes without any further condition it is a tax.' (17 R.C.L. 479.)"

Section 2620.45, R.C.M. 1935, requires the licensee to make a quarterly report of the number of pounds of butter sold and requires that the license be conspicuously posted in the place of business of the licensee. The latter requirement has been said to be in effect no regulation at all. Ex parte Bock, 25 Cal. App. 375,13 P.2d 836.

Section 2620.46, R.C.M. 1935, makes it a misdemeanor to sell oleomargarine without a license. But this does not in any way affect the character of the tax. Giragi v. Moore, 49 Ariz. 74,81, 64 P.2d 819, 110 A.L.R. 320, and cases therein cited.

Other sections of Chapter 93 prohibit the sale of oleomargarine colored to resemble butter, sec. 2620.43, Rev. Codes 1935, the sale of oleomargarine to any institution maintained by the state of Montana, sec. 2620.37, Rev. Codes 1935, and in advertising of oleomargarine prohibits the use of the words "dairy," "creamery," "butter," "cream" or any picture of a cow or name of any breeds of cattle. Sec. 2620.44, Rev. Codes 1935.

Looking at the substance of the Act, the limited amount of regulation imposed as contrasted with the revenue produced, it is my opinion that section 2620.45, R.C.M. 1935, is a revenue measure and the license fees imposed are for the primary purpose of revenue and not regulation. This conclusion is buttressed by the admission that oleomargarine is a "nutritious, wholesome and healthful food" and not deleterious to the health or welfare of the people; that all oleomargarine sold within the state of Montana is manufactured outside the state and conforms to the rigorous standards of the federal pure food and drug Act. Federal Food, Drug and Cosmetic Acts, 21 U.S.C.A. sec. 301 et seq. The Act has no provision for inspectors or for the payment of expenses of inspection and regulation. The proceeds of the tax are paid into the general fund of the state and there commingled with other funds rather than kept as a special fund to be used for the administration and supervision of a regulatory Act.

The majority decision is based upon the construction of the Act as a police regulation. There was also a contention that even if the Act were construed as a revenue measure it would be invalid as a violation of the Fourteenth Amendment to the Constitution of the United States and of sections 1 and 11 of Article XII of the Montana Constitution.

There is little point in discussing this phase of the case in view of the majority decision. Suffice to say that it is for the legislature to determine the rate of taxation in order to have revenue to carry on the functions of government. Every tax has an incidental effect of regulation and varies the cost of the article taxed. Oleomargarine like any other commodity, must bear its allocated share of the costs of government. If the legislature wants to tax oleomargarine in order to obtain revenue for the state there can be no constitutional objection to such a course. State v. Hammond Packing Co., 45 Mont. 343, 123 P. 407, affirmed 233 U.S. 331, 34 S. Ct. 596, 58 L. Ed. 985; A. Magnano Co. v. Hamilton, 292 U.S. 40, 47, 54 S. Ct. 599, 78 L. Ed. 1109.

It is not a question of whether the tax is high or low until the fee is raised to the point of being prohibitive. (Levin v. City of Asbury Park, 154 A. 742, 9 N.J. Misc. 515) or is so excessively unreasonable as to `wholly exclude oleomargarine from sale within the state. Schollenberger v. Commonwealth of Pennsylvania, 171 U.S. 1, 18 S. Ct. 757, 43 L. Ed. 49. Until the extreme limit of prohibition is reached the legislature is sovereign.

In view of the revenue that has accrued to the state from the sale of licenses to retail and wholesale oleomargarine dealers, it cannot be said that the license fee fixed by the legislature is so excessive as to be prohibitive. The following table of returns from the oleomargarine tax indicates the contrary:

No. No. Retail Income No. Income Pounds Pounds Year Licenses from Whsle. From Whsle. Retail No. Retail Licenses Whsle. (sold) (sold) -------------------------------------------------------------------------- 1936-37 73 $ 7,300 4 $1,000 372,048 513,961 1937-38 104 10,400 4 1,000 514,818 640,988 1938-39 100 10,000 4 1,000 227,150 374,463 1939-40 106 10,600 4 1,000 299,292 396,004 1940-41 112 11,200 4 1,000 416,796 431,339 1941-42 134 13,400 5 1,250 477,950 499,208 1942-43 152 15,200 4 1,000 318,769 518,809 1943-44 198 19,800 8 2,000 705,102 678,958 1944-45 278 27,800 11 2,750 749,010 943,774 1945-46 296 29,600 12 3,000 702,767 707,392

Av. Tax Per Pound Year Retail Whsle. ------------------------------ 1936-37 .01420 .00269 1937-38 .01622 .00194 1938-39 .02670 .00442 1939-40 .02677 .00334 1940-41 .02597 .00240 1941-42 .02684 .00262 1942-43 .02930 .00314 1943-44 .02916 .00284 1944-45 .02946 .00367 1945-46 .04184 .00427

The Act should be declared constitutional and the cause dismissed.

Rehearing denied November 22, 1948.