National Biscuit Co. v. Philadelphia

*632 Opinion by

Mr.. Justice Bell

Concurring In Part and Dissenting In Part :

, The Sterling--Act prohibits the City of Philadelphia from levying or collecting “any tax on a privilege, transaction, subject, or, occupation or on personal property which is now or may hereafter become subject to [1] a state tax' or [2.]. a license fee.” * , , .

The Chief. Justice has ably expounded the law with respect to the meaning of the words “license fee” as used in the Sterling Act. I agree with his. construction of this license fee prohibition and of the application thereof to the cases of The Philadelphia Saving Fund Society, The Western Saving Fund Society, The Beneficial Saving Fund Society,-and The Saving Fund Society of Qermantoion; Household Finance Corporation, Household Consumer Discount. Company, Comer, et al., Tifft, et al., and National Biscuit Company. ■ However, I disagree with.the majority opinion so far as it deals with corporations which pay to the State of Pennsylvania a corporate net income tax.

As recently as 1950 this Court flatly and unanimously decided in Murray v. Phila., 364 Pa. 157 , 71 A. 2d 280 , that the Sterling Act prohibited Philadelphia from levying a tax on the net profits or net income of (every person, including) a corporation, domiciled in Philadelphia because the State taxed (when we look beneath the form and surface to the substance, i.e., to the realities) the net income of a corporation. We there said: “In construing the Act, it is immaterial that state taxes have been referred to as. excise or franchise taxes or by any other adjective; the reality controls. The fact that this tax [the corporate net income tax] is paid to the state conclusively shows that the city has no jurisdiction to tax the corporate income.”

*633 In 1953 (when we look beneath the form and surface to the substance or realities) we find that the present Philadelphia Ordinance unquestionably and without the slightest doubt taxes the gross (or in the alternative, the net) income of a corporation; but because the ordinance calls the tax by a different name, the same tax that was declared invalid 3 years ago is now sustained by a majority of this Court. How unrealistic can we be?

But even if we close our eyes to reality and assume that this Philadelphia Ordinance does not, in reality and in its operations and practical effect, impose an income tax on corporate income, but merely an “excise” tax for the privilege of doing business (measured by the corporate income) the City is still prohibited because, irrespective of what the City tax is called or is determined to be, it is a replica of and identical with the corporate net income tax and consequently taxes the same “privilege”, i.e., the privilege of doing business in Philadelphia, and the same subject, i.e., corporate income, as the State does. This fundamental fact was overlooked by the majority opinion which became enmeshed in attempting to distinguish “excise” taxes from “property” taxes, and fell into the basic error of adopting and applying one test for the Act, i.e., the “realities” test, and an entirely different test, i.e., the nomenclature test, for the Ordinance.

In order to determine whether the City is attempting to tax a “privilege” or a “subject” which has already been taxed by the State and is therefore prohibited, we must first examine the legislative intent as disclosed by the Sterling Act, the Corporate Net Income Tax Act, and by the City Ordinance.

The Corporate Net Income Tax Act by its very terms is “An Act to provide revenue . . .by imposing an excise tax... on the net income of certain corporations . , . .” *634 What for? “. . . for the privilege of doing business in this Commonwealth.” The City Ordinance by its very terms is “An Ordinance to provide revenue by imposing a mercantile license [excise] tax on persons . . . any individual, partnership, association or corporation engaging in certain businesses including manufacturing, professions, occupations, trades, vocations,. . . .” What for? For the privilege of doing business in Philadelphia. What is the tax imposed? “. . . on the gross receipts [gross income] of persons, including certain corporations, engaging in certain businesses in the City of Philadelphia.” If, so far as corporations are concerned, that isn’t a duplication of both “privilege” and “subject”, each of which is banned by the Sterling Act, then the word “duplication” no longer has any meaning in our language.

The Ordinance, which it is frankly admitted is intended to produce $17,000,000. annually, further provides, in imposing a 3 mills tax on each dollar of the annual gross volume of business, that “ ‘Gross Volume of Business’ means gross receipts and shall include both cash and credit transactions. ... or ... In the Alternative at the option of the [taxpayer] at the rate of two (2) per centum of the annual gross volume of business transacted by such person less the cost of goods and less the cost of labor. .. .” This unquestionably means in the case of a corporation, 3 mills on the corporate gross income or 2% of the corporate net income. When it is realized that this tax is imposed upon virtually every person, partnership, manufacturer, profession, trade and corporation engaged in business in Philadelphia, it is clear to every layman and, I believe, to every careful analyst, that the tax is in reality and actuality not a genuine mercantile license tax, but a gross income taco (or, in the alternative, a net income tax) on individuals and corporations engaged in business in Philadelphia. *635 The words “mercantile license tax” are obviously a misnomer. If the City frankly, openly and undisguisedly imposed a tax on corporate gross or net income, but called it a mercantile license tax, could anyone justifiably contend that such a tax was not prohibited by the Sterling Act and by Murray v. Phila., 364 Pa., supra? Yet that, in effect and in reality, is exactly what the City has done in and by its present ordinance.

Murray v. Phila. reiterated the law that “the practical operation of the two taxes is controlling”', and the city’s power to tax must be strictly construed against the city. Nevertheless, the majority opinion, after holding that the corporate net income tax, in spite of calling itself an “excise” tax, is in reality a “property” tax, completely ignores the aforesaid legal principles and holds that the City tax which uses identical language with the Act is an “excise” tax and is not a tax on the income of a corporation. I repeat: How unrealistic, how impractical can we be?

Let’s examine a little more closely just what the Philadelphia Ordinance attempts to tax and what is the practical operation of this City tax upon corporate income. The Ordinance first “apes” the historical mercantile license tax by taxing dealers and vendors at the rate of 3 mills on their gross volume of business or gross receipts, which are defined to be one and the same. It then immediately shows its real nature and true colors by taxing every manufacturer, every corporation, and, with a few exceptions, every person engaged in business in Philadelphia 3 mills on the annual gross (receipts or) income, or in certain cases alternatively, 2% on their net income. This is not a real or true or genuine mercantile license tax on vendors, dealers or merchants for the privilege of selling goods, wares or merchandise or engaging in kindred businesses as are most, if not all, of the genuine mercantile taxes imposed by municipal *636 ities Under the “Tax Anything Act”. This is, we repeat, in reality and in its practical operations and effect, a thinly disguised gross (or, in the alternative, net) tax on income of (inter alia) corporations falsely and ingeniously masquerading as a mercantile license tax. Labeling poison as chocolate does not and will not malte it chocolate. Nomenclature, labels and technical distinctions are of relatively little weight in determining what a tax really is; realities control the determination: Murray v. Phila., 364 Pa., supra; Arrott’s Estate, 322 Pa. 367 , 185 A. 697 ; Armour & Co. v. Pittsburgh, 363 Pa. 109 , 69 A. 2d 405 . This corporate income is exactly what the majority say is taxed by the State in the Corporate Net Income Tax and this is specifically what is specifically prohibited in and by the Sterling Act: Murray v. Phila., 364 Pa., supra.

The majority opinion assumes that this City tax is a real mercantile license tax in spite of the fact that it taxes nearly every man, woman, child, profession, partnership and corporation doing business in Philadelphia, and asserts that such' a tax is technically an excise tax, and the corporate net income tax is technically a property tax and therefore there is no duplication. Whether we approach this question from a technical or a nontechnical point of view is immaterial, for irrespective of whether the corporate net income tax is denominated or is held to be an excise tax Or a property tax, if the Commonwealth' imposes a tax on a corporation for the privilege of doing business, the City is prohibited from imposing a tax on a corporation for the privilege of doing business, or if the State imposes a tax on the same (property'of) subject which the City attempts to tax, i:¿.,;in<3ome Of á •corporation, "the" City’s tax is'clearly and 'specifically prohibited by the Sterling Act.

The only distinction "between the Act and the' Ordinance is-that-the -City’s measuring-r od-or tax -is .gross as *637 distinguished from net income of corporations. This does not constitute a distinction in the privilege or subject or nature of the tax, hut merely makes the tax mors onerous and unjustifiable. A study of the Act and of the Ordinance demonstrates that they are twin brothers; and whatever the corporate net income tax is determined to be, the City taw is exactly the same.

When the legislature prohibited Philadelphia from taxing any “privilege” or any “subject” which was taxed by the State, in order to preserve the sources of the State’s income, they were not talking Greek — they were not thinking of what was or was not an excise tax, or what was or was not a property tax which even this Court cannot consistently determine — they were talking plain, clear English which every member of the legislature and at least every layman could understand. When the Supreme Court vacillates from one case to another as to whether the corporate net income tax is an excise tax or a property tax, it would seem unreasonable to hold that the legislature was referring to these taxes when it used the words “privilege” or “subject”.

The majority opinion says that the corporate net income tax * and capital stock taxes and taxes on net earn *638 ings have been held many times to be property taxes. This Court in the very recent case of Murray v. Phila., 364 Pa. (1950), without overruling or even discussing the cases which held to the contrary, decided that the corporate net income tax is a “property” tax; and that the Philadelphia Ordinance which imposed, openly and without subterfuge, income taxes on various persons and corporations in Philadelphia was invalid because it was prohibited by the Sterling Act. This Court could reach such a conclusion only by looking below the surface into the “realities”. Looking at the realities, this Court squarely decided, inter alia, that under the Sterling Act the City of Philadelphia has no power (a) to tax the income of a domestic corporation which pays a capital stock tax or a corporate net income tax to the state; or (b) to tax the income of a foreign corporation which pays a franchise tax to the state, because a franchise tax is the equivalent of a capital stock tax for domestic corporations; or (c) to tax the net income of a credit union; or (d) even to tax a dividend in the hands of a shareholder which was received from a corporation which pays corporate net income taxes to the state; or which was received from a foreign corporation which pays a franchise tax to the state, or which was received from a state bank or a national bank; and (e) has no power to tax income from bonds in the hands of a bondholder which was received from a corporation which pays a corporate loans tax to the state; and (f) has no power to tax income from real estate.

It clearly follows, if the realities of the Philadelphia tax are analyzed and carefully considered, that the City’s so-called mercantile license tax is in reality and in its operation and practical effect, not a mercantile *639 license tax, but a tax upon the income of every person and every corporation engaged in business in Philadelphia and as to said corporations is absolutely invalid.

The effect of the majority opinion will, in my judgment, open wide the door to many taxes which have heretofore been held invalid and will make meaningless and nullify many of the provisions of the Constitution. For example, if the Constitution or a statute prohibits the taxing of a particular subject, all a municipality or a legislature has to do is to call the tax a mercantile license tax or an excise tax and then measure it by the prohibited subject. Could anything show more clearly the basic weakness of the majority opinion or the dire results which can flow therefrom?

Mr. Justice Musmanno joins in this Opinion.

Italics throughout, ours.

So far as corporate net income tax is concerned, this Court more frequently held that it was an excise tax for the privilege of doing business in Pennsylvania. See: Com. v. Curtis Publishing Co., 363 Pa. 299 , 69 A. 2d 410 ; Turco Paint & Varnish Co. v. Kalodner, 320 Pa. 421 , 184 A. 37 ; Com. v. Warner Bros., 345 Pa. 270, 27 A. 2d 62 ; Com. v. Electrolux Corp., 362 Pa. 333 , 67 A. 2d 105 ;. Com. v. Bayuk Cigars Co., 345 Pa. 348 , 28 A. 2d 134 ; Com. v. Columbia Gas & Elec. Corp., 336 Pa. 200 , 8 A. 2d 404 . The distinction or'Hue of demarcation between a privilege tax, ah-excise tax and k property'tax, which in. the'last analysis mu.st. be..deter rained by the incidents and the nature and legal effect of the Act rather..than by-the name.by.which.it is-described,-is so nebulous, flexible and fluctuating, that the decisions on this point throughout the endrq *638 country are ofttimes vacillating, confused and contradictory. See: 53 C.J.S., Licenses, pp. 457-461.