State ex rel. Wolfe v. Parmenter , 50 Wash. 164 ( 1908 )

Hadley, C. J.

This action was instituted in the superior court of Lincoln county, and it is in the nature of an action in mandamus to require the assessor of that county to list for taxation purposes, for the year 1908, mortgages, notes, accounts, moneys, certificates of deposit, tax certificates, judgments, bonds, and warrants. In terms the petition asks for a writ of prohibition to prohibit the assessor from allowing the above-mentioned items to become exempt from taxation; but in effect the relief sought is affirmative and in the nature of mandamus. The assessor demurred to the petition, on the ground that it does not state facts sufficient to authorize the issuance of a writ. The demurrer was overruled, and in the absence of further pleading, judgment was entered commanding the assessor to list and assess all the items specified above. The assessor has appealed.

It is urged in support of the demurrer that it was the duty of appellant to refuse to list the items mentioned, by reason of the act of the legislature as found in chapter 18, at page 69 of the session Laws of 1907. Section 1 of that act is as follows:

“That section 3 of ‘Chapter x-xxxm of the Laws of 1897, amended June 12, 1901, is hereby amended to read as follows: Sec. 3. Personal property, for the purpose of taxation, shall be construed to embrace and include, without especially defining and enumerating it, all goods, chattels, stocks or estates; all improvements upon lands, the fee of which is still vested in the United States, or in the State of Washington, or in any railroad company or corporation, and all and singular of whatsoever kind, name, nature and description, which the law may define or the courts interpret, declare and hold to be personal property, for the purpose of taxation, and as being subject to the laws and under the jurisdiction of the courts of this state, whether the same be any marine craft, as ships and vessels, or other property holden under the laws and jurisdiction of the courts of this state, be the same at home or abroad: Provided, That the ships or vessels registered in any custom house of the United States within this state, which ships or vessels are used, exclusively in trade between this state and any of the islands, districts, territories, states of the United States, or foreign countries, shall* not be listed for the purpose of or subject to taxation in this state, such vessels not being deemed property within this state: Provided, That mortgages, notes, accounts, moneys, certificates of deposit, tax certificates, judgments, state, county, municipal and school district bonds and warrants shall not be considered as property for the purpose of this chapter, and no deduction shall hereafter he allowed on account of an indebtedness owed.”

It will be seen that the effect of the closing proviso of the. section is to exempt from taxation the items there enumerated. If, therefore, the statute is a valid one, the appellant did his duty; but if it violates constitutional limitations, the judgment of the court was right. The constitutionality of the statute is the only question involved in this appeal.

It is contended that the act is invalid because of insufficiency of the title. The title is as follows:

“An act amending an act entitled, ‘An act to amend section 3, of chapter Lxxxm of the Laws of 1897, relating to revenue and taxation,’ passed the senate and the house June 12, 1901, notwithstanding the veto of the governor, and declaring an emergency.”

If it is necessary to pay strict regard to everything contained in this title, then it is singularly involved. Reference to chapter 83 of the Laws of 1897, to which the title refers as the law amended by this act, discloses that it treats of monuments and notices upon mining claims. It is manifest that the reference to the former statute is a pure error, as the two ácts relate to subjects entirely separate and distinct. This title does however further state the subject as “relating to revenue and taxation,” and the body of the act clearly and succinctly treats of that subject alone. The subject of exemption from taxation treated in the body of the act is included in the general subject specified in the title. We think the erroneous reference to the former statute must be treated as mere surplusage, and inasmuch as without that part of the title there is a clearly stated and single subject which is followed by a clear treatment of that subject in the act itself, the statute becomes an independent one and has the effect of amending any existing statute upon the subject and of repealing by implication any previously existing provisions in conflict with it. We therefore hold that the act is not invalid by reason of its title.

It is further urged that the act violates § §■ 1 and 2 of art. 7 of the state constitution. Section 1 contains, among other things, the following:

“All property in the state not exempt under the laws of the United States or under this constitution, shall he taxed in proportion to its value, to be ascertained as provided by law.”

Section % is in part as follows:

“The legislature shall provide by law a uniform and equal rate of assessment and taxation on all property in the state, according to its value in money, and shall prescribe such regulations by general law as shall secure a just valuation for taxation of all property, so that every person and corporation shall pay a tax in proportion to the value of his, her or its property: Provided, That a deduction of debts from credits may be authorized.”

It is argued that the exemption of the items mentioned in the statute violates the constitutional provision of § 1 quoted above, which requires that all property in the state shall be taxed except such as is exempt under the laws of the United States or under the constitution of the state. It is contended that credits such as mortgages, notes, and accounts, are property and cannot be excluded by the legislature from the subjects of taxation. The argument assumes that all property in the state cannot be taxed without the taxation of credits Is the assumption correct ? The constitution simply requires — that all property shall be taxed, but the method of doing it is left to the legislature. If the method devised by the legislature reaches all property in fact, then there is no violation of the constitution. It is possible to assess the same property in different ways any one of which would subject the entire property to the tax. For example, one person may own the fee title to real estate and another may own an easement or a leasehold therein. All of these aré property, but it cannot be successfully maintained that all of them must be taxed in order to satisfy the constitution. The state taxes the land as an entirety and leaves the owners of the several interests to make such adjustments as they choose. The constitutional requirement that all property shall be taxed is certainly satisfied through a method by which the total of all wealth in the state is once taxed. Double taxation should be avoided as far as possible, and in any event the constitution should not be so construed as to require it. In an effort to tax all property it is, however, difficult to avoid double taxation in some particulars. The complexity of established business methods is such that property appears and then reappears in representative forms. The actual property of a corporation reappears in the hands of its stockholders in the shape of corporate stock. That the taxation of the corporate property and also of its capital stock amounts to double taxation was recognized by this court in Lewiston Water fy Power Co. v. Asotin County, 24 Wash. 371, 64 Pac. 544. The court observed in that case as follows:

“But, as we have seen, the assessment of the capital stock of a domestic corporation which has all its property in which the capital stock is invested already assessed is duplicate taxation, and this latter result will not be inferred without specific legislation. It may be further observed that § 1676, Bal. Code, in providing the method for the assessment of domestic corporations such as this, does not contemplate duplicate taxation.”

See, also, Ridpath v. Spokane County, 23 Wash. 436, 63 Pac. 261.

All the provisions of the constitution on the subject of taxation cannot be fully and literally met. For purposes of present consideration these provisions may be stated as follows: “All property” shall be taxed. The assessment shall be “uniform and equal,” and a “just valuation” shall be placed upon all property, so that every person shall pay a tax in proportion to the value. No method of taxation in its results can fully accomplish all that the constitution declares shall he done. As near an approach to a full compliance as is reasonably possible is all that can be expected of the legislature. One requirement of the constitution is as mandatory in its nature as another. It is just as imperative that taxa--tion shall be uniform and equal upon all property as it is that all property shall be taxed. It is manifest that a system which subjects some property to double taxation is not uniform and equal. Any method which can be devised by the legislature must necessarily be defective in some particulars and must fail to meet with exactness every standard set by the constitution. Any method adopted by the legislature which reason— ably comprehends the taxation of all property once in some form, and which seeks to accomplish uniformity by avoiding double taxation as far as possible, should receive judicial sanction, for the reason that the constitutional provisions are harmonized by such a method as fully as complete harmony thereunder can be accomplished.

It will be seen that the items specified by the statute of 1907 which shall not be considered as property for the pur — • poses of assessment and taxation, may all be classified as “credits,” except the item of “moneys.” So far as credits are — concerned, if it is demonstrable that the total wealth of the state can be once taxed without the taxation of credits in any form, we think the constitution is satisfied without the taxation of credits. The multiplicity of credits does not add to the property wealth of the state. If A buys of B a piece of real estate and agrees, by promissory note or otherwise, to pay $5,000 therefor, there is as a result in the hands of B a credit in the amount of $5,000, but there is not thereby created $5,000 more property or wealth. By the transaction the land has passed from B into the possession and control of A and is taxable the same as if it had remained with B. The credit in the hands of B is a matter of no value or consequence, except for the prospect or faith that A will in the future deliver to B $5,000 in actual money or other property. That money or property that may in the future come to B is still in the hands of A or some one else from whom A will procure it; and it is meanwhile taxable at some place, wherever it may be, no matter who possesses it or controls it, whether within or without this state. The credit in the hands of B is simply the right to demand the delivery of $5,000’ worth of property at some time in the future. To tax both this right and the property which it represents is clearly double taxation. .

A similar illustration applies to a loan of money. At this „ point it is proper to remark that we think moneys cannot properly be classified with credits as is done in the statute of 1907. Money in practical commercial operations possesses such value by way of immediate purchasing or exchange — powers as in effect robs it of a mere representative character and clothes it with the dignity of property having intrinsic value. We therefore think that the proviso in question must —be held to be inoperative so far as money is concerned, since to exempt it from taxation would amount to a palpable effort to avoid the taxation of all property. Becurring now to the illustration as to a credit created by the loan of money,, we will suppose that A borrows from B $5,000 in cash. A, instead of B, becomes the possessor of the money, and either it or its equivalent in other property which it purchases for A becomtes taxable in the latter’s hands. To tax the money — in A’s hands and also the mere right which B has to call upon A for its repayment is clearly double taxation. These’ illustrations it is believed should apply to all credits. Credits are in effect the mere legal right with which one is clothed to demand the delivery of money or other property in the future, and until such transfer of possession is made, that property is-taxed wherever it may be. Thus the total actual property or —- wealth of the state may be once taxed without the taxation-of credits, and the constitutional requirement is thereby fully-met.

In People v. Hibernia Bank, 51 Cal. 243, 21 Am. Rep. 704, it was held, under constitutional provisions similar to ours, that credits are not property subject to taxation, within the meaning of the constitution which provides for the uniform taxation of all property in the state in proportion to its value. It is not necessary in order to sustain our statute of 1907 that it should be held, as was done in California, that the legislature cannot, in its discretion provide for the taxation of credits. It is sufficient to say that the omission of credits from a scheme of taxation does not violate the requirement that all actual property shall be taxed. It is argued that State ex rel. Chamberlain v. Daniel, 17 Wash. 111, 49 Pac. 243, is decisive of this controversy in favor of respondent. The act there under consideration exempted from taxation in the hands of each person $500 of personal property and $500 of improvements upon land. It will be seen that the act exempted actual property, and its enforcement would have deducted a large amount from, the aggregate of the actual property wealth of the state as not taxable, thus plainly violating the requirement that all property shall be taxed. We have seen that the statute under discussion in the case at bar does not prevent the taxation of the total wealth of the state once, but it does prevent double taxation by way of assessing credits. The case cited is therefore not in point upon the question presented here.

It is urged that the makers of our constitution must have intended to declare that credits are property which must be taxed, from the fact that § 2 of art. 7, supra, provides that “a deduction of debts from credits may be authorized.” It is insisted that the above words are a clear constitutional recognition of credits as property.’ If, however, we should recognize the argument as forcible and should undertake to adopt it, we should at once be met with the requirement in the same section that all taxation shall be uniform and equal. We have seen that the taxation of credits violates uniformity and equality and effects double taxation. The great and principal subject treated in the section is that of uniformity and equality of taxation. It overshadows everything else, and whatever else is mentioned in the section is merely incidental to the main subject. Having reference to the main subject, it cannot be held that uniformity can be preserved if the constitution means that credits must be taxed. It is our duty to adopt such construction as will most nearly harmonize all provisions in the section, with the evident chief purpose sought to be accomplished.

With the mere policy of the statute, the courts have nothing to do, except in so far as the same may throw light upon the legislative intention. It may be stated in this connection, as a matter of common knowledge, that one of the most fruitful sources of inequality in taxation is the attempt to tax credits. Laws for that purpose can never be effectively enforced. Efforts to conceal the existence of the credits are so successful that a few honest persons pay the taxes and the large majority of holders do not. Moreover, in practical experience,the tax is not really paid by the holders of the credit, but it is paid by his debtor. When mortgages are taxed, the mortgagee seldom pays the tax, but the burden thereof is imposed upon the mortgagor by way of increased rates of interest or otherwise, and the same may be said as to increased rates of interest imposed upon borrowers generally. Such results cannot well be avoided, and doubtless the legislature had such considerations in mind as supporting the policy of this law. It was no doubt believed that all the wealth of the state can be once taxed without the taxation of credits, and that with the constitutional requirement as to taxation of all property thus satisfied, uniformity and equality can be the better effected and the abuses above mentioned largely corrected.

We therefore think, for the foregoing reasons, that the statute is not unconstitutional, except in so far as it attempts to exempt moneys from taxation. That, however, does not invalidate the other provisions, as has been often held. The general demurrer was properly overruled, inasmuch as a cause of action was stated so far as listing of moneys is concerned, but the judgment should be modified so as to command the respondent to list all moneys for taxation, and further provide that all credit items mentioned in the statute of 1907 shall be excluded from the assessment lists. It is so ordered, and the cause is remanded with instructions to so proceed. The appellant shall recover the costs on appeal.

Rudkin, Dunbar, Crow, and Mount, JJ., concur.