Jurisdictional Statement — Spalding Laundry & Dry Cleaning Co. v. Department of Revenue

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INDEX

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Opinions Below... .......................0.... nd 2

Jurisdiction... 20... ee, eta 2- 4

Statutes Involved |. . Eerie te Cineie ak aipdnieg s 2 4

Question Presented........... 2 CARES same ny ga gen 4

. Statement of the Case....... ane enigciese; 5-7

A. <a eee eRe aE RE Cees kes 5 Savdincs o- 7

B. Stage at which Federal Question Raised. . shoe 7

The Question is Substantial........................ 8-11

| Appendix A—Opinions oe af CECE ahewaie cane a 15-30

+ Appendix B—Order Appealed From...........:.... 31

4

TABLE OF CITATIONS.

Cases: . PAGE

Warren Trading Post Co. v. Arizona Tax Commis-

sion, ét al., 380 U.S. 685 (1965)........ Me Roper a8

Standard Oil Company of California ve Johnson,

Treasurer of California, 316 U. S. 481 (1942)... 3_

Muir v. Samuels, 100 Ky. 605, 62 S. W. 481...... )

Mareum v. Louisv#ley Public Housing Commission,

RS, Se BW Be GGb ig ass caes anitae ‘kvkeen es 7)

Louisville Gas ('o. v. Cian. Sea Ws Ek Os ss Suan - §

Atchison, Topeka & Sante Fe R. R. Co. v. Mat-

thews, 175 U. S. 92........ Apa ies sah eens 9

Statutes: — 7 a

Kentueky Revised Statutes 159.480(8)..... ENOL As 3

Kentucky Revised Statutes 139.170................ y. @

United States Constitution, Amendment Four-

WOO eas ceux <ne ace fanaa whee cae e 44 see

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‘SUPREME COURT OF THE wi) STATES

October Term, 1968

No.

2

SPALDING LAUNDRY & Dry (CLEANI ING ne

oo a oo ==, = * Appellant, —

Vv.

| Ae

DEPARTMENT ‘OF ybveses, ComMMON-

WEALTH OF KENTUCKY, -- - - Appellee.

ON APPEAL FROM THE Cou RT OF APPEALS

OF KENTUCKY.

JURISDICTIONAL STATEMENT.

P

b

.

This is an appeal by the Spalding Laundry & Dry

Cleaning Company (‘‘Spalding’’) from the judgment

of the/Court of Appeals of Kentucky entered on Feb-

ruary 21, 1969, rever sing the judgment of the Jefferson

Cireuit Court and affirming an order of the Kentucky

Board of Tax Appeals assessing a sales and use tax on .

the purchase of certain oe equipment made

by Spalding.

Appellant submits this statement to. den that the

Supreme Court of the United States has jurisdiction of

the Appeal and that a substantial question is presented.

i

OPINIONS BELOW.

The opinion of the Court of Appeals of Kentucky

is reported at 436 8S. W. 2d 522, and is set forth herein

in Appendix A. The opinion of the lower court, the

Jefferson Circuit Court, Chancery Br anch, is not on-

tained in theofficial reports but is set forth in Appen-

dix A and the order of the Kentucky Board of Tax

“Appeals (No. K-65-R-5) is likewise set forth in Ap- .

pendix A. - ' :

5

) JURISDICTION. .

This matter commenced with a ruling by the Ken-

tucky Department of Revenue that certain items of

machinery: (such as boiler parts) purchased in an ex-

pansion of Appellant’ s business did not fall within the

exemption provisions of the Kentucky Sales-and Use

Tax Law, Kentucky Revised Statute 139. 480(8) as de-

fined by Kentucky Revised Statute 139.170. The Ken-

tucky Board of Tax Appeals upheld the Department

and this ruling was appealed tothe Jefferson Cireuit

Court.

The Circuit Court reversed the Board o\ Tax Ap-

peals and held that the denial of the exemption to this

Appellant was a violation of the equal protection clause

of the Fourteenth Amendment to the United States

Constitution. A copy of this decision is found in seed

pendix A.

The Department of Revenue feraerer this decision

to the Kentucky Court of Appeals which reversed

lower court and reinstated the érder of the Board >

Tax Appeals. This opinion was handed down oa

-

ww?

3

*

October 25, 1968 and Appellant’s Petition for Rehear-

ing was overruled on February 21, 1969 and the man-

daté issued that same date. A copy of this Order is,

set forth in Appendix B. }

, Appellant's Notice of Appeal to this court was filed

in the Court of Appeals of Kentucky on March 26,

1969, within the statutorily prescribed period. .

The question involved is the constitutionality, under

. the Fourteenth Amendment of the United States Con-

stitution, of KRS 139.170 which limits to manufactur-

ing industries the broad exemption set forth in KRS -

139.480(8). :

The Kentucky statute was found to be in violation

of the Fourteenth Amendment by the lower court, but

the Kentucky Court of Appeals reversed and expressly

rejected Appellant’s direct challenge of the statute’s |

-constitutionality. The Supreme Court. clearly has

jur isdiction to rev iew the decision of the Court of Ap-

peals by direct appeal under the provisions of 28 U.S.C.

§1257(2). Warren Tr ading Post Company v. Arizona

Tar Commission, et al., 380 U. S. 685 (1965) ; Standard

Oil Company of California v. Johnson, Treasurer of

California, 316 U. S. 481 (1942). os

The Kentucky Statutes that are directly inv olv ed

are as follows:

Acts of the General Assembly of the Commonwealth

of Kentucky, Regular Session "1960, — 5, Arti-

ele I, Section 47 (h), page 24.

‘““KRS 189.480. Any other provisions of this

¢ hiasides to the contrary notwithstanding, the terms

“sale at retail,’ ‘retail s sale,’ ‘use,’ ‘storage,’ and

e

‘consumption,’ as used in this chapter do not in-

_ ¢lude ‘the sale, ‘use, storage or_ other consumption

a ee

{8) Machinery for new and expanded industry.”

Acts of the General ‘Assembly of the Ceiineanedtts

_of Kentucky, Regular. Session 1960, Chapter 5, .Arti-

‘gle I, Section 17, page 16.

‘*KRS: 139.170. ‘Machinery for new and ex-

' panded industry’ shall mean that machinery used -

directly in the manufacturing process, which is in-

corporated for the first time into plant facilities,

. established i in this state, and w hich does not replace.

machinery in such plants.”’

. QUESTION PRESENTED.

_ Whether or not the taxing of a sale of Machinery. -

to’ n “service” ’ industry and exempting from the tax

an identical sae to a “‘manufacturing” industry is

arbitrary and unreasonable and i in violation of the equal

protection clause of the Fourteenth Amendment when

_-the basis of the classification as: between manufacturing

and service industries has no substantial relationshi ip

* to tae, object sought to be achieved by the a

STATEMENT OF THE CASE.

A. Facts,

T he Appellant, Spalding, operates a ‘laundry and.

dry cleaning businéss in Louisville, Kentucky and in

recent years’ has purchased many pieces of new ma-

chinery to expand existing facilities, for the addition

of new special services, and for equipping additional

outlets at new locations.

The Appellee, Department of Revenue, is under-

taking to collect a sales tax on the purchase of this

equipment’ although there is no question that it was

purchased for new and expaided facilities. It is:

"agreed that under Kentue ky law tlie’ Appellant, Spald-

ing, is engaged in a *‘service’’ industry and not in a

**manufacturing”’ industry, Muir v. Samuels, 100 Ky.

605, 62.8. W. 481. | | id

The Kentucky sales'tax statute places the tax on

the vendor, but requires him to collect the tax from the

vendee and remit it to the state. Mareum vy. Louisville -

Public Housing Commission, Ky. i4-S. W. 2d 865.

The act grants a broad exemption én sales made of

“thachinery for new and expanded industry, ** Ken-

tucky Revised Statutes 139. 480(8), but in a separate

section thé act undertakes to classify industries and

limit the exemption to sales to manufac ‘turers, Ken-

tucky Revised Statute 139.170, If this’ classification

‘is upheld then Spalding is not entitled to the sommp-

~ tion on its ptirchases: :

The legislative purpose of the br oad exemption for

new and expanded industry is to ene ourage both the

6 c

location of new industries in Kentucky and the ex-

pansion of existing ones. This is agreed to by counsel |

for the Appellee and was so found by the lower court

in Kentucky. The lower court's opinion states as fol-

lows. (Appendix A, pp. 24, 25):

The purpose of the legislation was to stimu- -

late industry that is presently operating in the

Commonwealth of Kentucky and to encourage |

ew industry to come into Kentucky. The eco-

nomic growth .of Kentucky and the prosperity of

its citizens is no less sought, stimulated. or desired

from service industries than from manufacturing

‘industries. They. are both sought and needed.

Sery ice industries-are More numerous and usually

have fess financial investment.. The desir: ibility

in the Commonwealth of a service industry is no

less than a manufacturing industry. As a matter.

of fact many of the smaller communities in this

Commonwealth can, and ‘as a matter of fact, are

benefited from service industries where they have

ne possibility of securing aid from a manufactur-

ing industry. The economic help available for the

Commonwealth of Kentucky as a whole, with

special emphasis on the smaller communities, is

stimulated by service industries. *Machinery for

new and expanded industry’ is just as necessary -

_and important for service industries as to manu-

facturing industries.

"This Court, as well as counsel for appellant,

[Spalding] agrees with the statement of counsel

for appellee [Départment of Revenue] which ap-

pears on page 3 of his brief filed with the Ken-—

tueky Board of Tax Appeals that :

ee

“A * * * .

con j

Phe purpose of the bitte for

new and expanded Industry was ¢learly intended

to encourage the location of ne Wo industry in

this state and the expansion of existing industry.

* & £%

“There is no contention made that the estal-

Jishment ofa new service industry, or the expan-

sion of an existing service industry V is net as much.

for the benefit’ of the public at large, or is less

related to the. ‘purpose forowhich the tax is im-

_ posed, than is the establishment af a mannfactuy-

ing industry or the expansion of a manufacturing

industry. There is no difference in the end to be

accomplished,”

Since: this opinion was rendered, counsel for the

Department. of Revenue has apparently changed his

position and the Court of Appeals of Kentucky has

: gone along with him (Appendix A, p. 15), but the

fact remaius that the classification is air arbitrary one

that is expedient for purposes of -raising revenue Inut

denies to this Appellant‘and others simi): rly situated

the equal — of the laws:

B. Federal Question. .

The Federal question. in this case was presented in

the initial stages before the Board of Tax Appeals

(Appendix A, pp. 27-28). Subsequently the question

‘Was presented to the Circuit Court which held that the

attempted classification violated the provisions of the

~ Fourteenth Amendment (Appendix A, p. 20, et seq.)

and the question was placed before the Kentucky € ourt

of Appeals which ruled adversely to this Appellant

( Appendix A, p. 15, et seq.).

8

THE QUESTION IS SUBSTANTIAL.

The amount of tax dollars involved in‘this partic-

ular bit of litigation is not substantial, the principles

involved are. Much may be made of the fact that there

is a technological difference between a manufacturing

industry and a service industry, but there is no dif-

_ ference which relates to the purpose of this particular —

legislation. If this classification is- permitted to stand,

_ then a serious inroad has been made in the basic gui(de-

lines of permissible discrimination through classifica-

tion. . _ |

In Louisville Gas Co. v. Coleman, 277 U.S. 32, Mr.’

Justice Sutherland made this statement of the law

(at p. 37 of the opinion) : . o |

‘The equal protection clause, like the due

process of law clause, is not susceptible of exact

delimitation. No definite rule in respect of either,

which automatically will. solve the question in

specific instances, can be formulated. Certain

general prinéiples, however, have been established

in the light of which the cases as they arise are to _

be considered. In the first place, it may be said

generally that the equal protection clause means

. that the rights of all persons must rest upon the

~~ same rule under similar circumstances, AKentuchm —

Railroad Tax Cases, 115 U.S. 321, 337; Magoun v.

Illinois Trust & Savings Bank, 170 U. S, 283, 293,

and that it applies to the exercise of all the powers

of the state which can affect the individual or his .

property, including the power of taxation. County —

of Santa Clara_.v. Southern Pac. R. Co., 18 Fed.

885, 388-399; The Railroad Tar Cases, 13 Fed.

9 , ; wan y

722, 733. It does not, however, forbid classifica-

tion; and the power of the staté to ¢ ssify for

purposes of taxation is of wide range and flexi-

bility, provided always, that the classification

‘must be reasonable, not arbitrary, and must rest

upon some ground of difference having a fair and

substantial relation to the object of the legislation, ©

so that all persons similarly cireumstanced shal]

be treated alike.’ Royster Guano Co. v. Virginia,

253 U.S. 412, 415; Airway Corp: v. Day, 266 U. S.

_ Th, 85; Schlesinger v. Wisconsin, 270 U. S. 230,

240. That is to say, mere difference is not enough:

_ the attempted classification ‘must always rest upon

some difference which bears a reasonable and just .

relation to the act in respect to which the classifica-

tion is proposed, and can never be made arbitrarily

_ and without. any such basis.’ Gulf, Colorado &

Santa Fe Ry. v. Ellis, 165 U. 8. 150, 155. Dis-

eriminations of an- unusual character especially

suggest careful consideration to determine whether —

they are obnoxious to the constitutional provision.

Compare Martin v. District of Columbia, 205 U.S.

135, 139; Bell’s Gap R.R. Co. v. Pennsylvania, —

134 U.S. 232, 237.’’ (Emphasis ours.) |

In Atchison, Topeka & Santa Fe R.R. Co. v. Mat-

thews, 175 U. S. 92, the essence of equal protection is,

again discussed by the Court in the following language,

commencing at page 104 of the opinion: |

. . . the equal protection guaranteed by

the Constitution forbids the legislature to select’ a

person, natural or artificial, and impose upon him

or it burdens and ‘liabilities which are not cast

upon others similarly situated.. It cannot pick

out one individual, or one corporation, and enact

10 a

- that whenever he or it is sued the judgment shall

be for double damages, or subjeét to an attorney

fee in favor of the plaintiff, when no other individ-

_ual or corporation is subjected to the same rule.

Neither can it make a classification of individuals

/€ or corporations which is purely arbitrary, and

impose upon such class special burdens and lia-

bilities. Even where the selection is not obviously

- unreasonable and arbitrary, if the discrimination

is based upon matters which have no relation to

the object sought to be accomplished, the same:

conclusion of unconstitutionality 4s affirmed,”’

(Emphasis ours. )

The classifications in the present case do not meet

the well known criteria set forth in the ees cited

authorities, and if this case is not heard on its merits ©

and reversed the door is well opened to state legislative

discrimination based solely upon the narrow whims of

the moment.

One example of the absurdity of the feaitis of this

classification is the purchase by Spalding of parts of

a new boiler which it is agreed were for the expansion

of the Appellant’s business. The sales ‘tax in question

is on the vendor of these parts and if the vendor sells

the boiler to a shirt manufacturer for the expansion

of his business the tax does not apply, whereas if the

identical boiler is sold to expand Spalding’s business

of laundering the shirts the tax does apply. We sub-

mit that this is arbitrary and unreasonable.

The decision by the Court of Appeals of Kentucky —

in this case should be reversed and we ask that probable

jurisdiction be noted by the Supreme Court to avoid

11

this serious departure from, the -basie doctrines of

~ permissible classifications for taxation under the equal

protection clause of the Fourteenth Amendment to the

Constitution.

eappintane sidsittieed,

-«~ Cart L. WEDEKIND, JR.,. :

T. KENNEDY HELM, Jr.,

Stites & McEtwatn,

1212 Kentucky Home Life Building,

Louisville, Kentucky 40202,

Counsel for A ppellant.

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