-/'37- Record No. 2548

Record

I ~ I ..!:,- tY' /7D -/'37-

No. 2548 IN THE

Supreme Court of Appeals of Virginia AT RICHMOND

CITY OF ROANOKE. Plaintiff in Error

vs.

JAMES W. MICHAEL'S BAKERY CORPORATION and COMMONWEAL TH OF VIRGINIA, Defendants in Error

FROM THE HUSTINGS COURT OF ROANOKE, VA.

RULE 14 CJ 5. NUMBER OP CQPJES To BE FILED AND DELIVERED To OPPOSING COUNSEL Twenty copies of each brief shall be filed with the clerk of the court, and at least two copies mailed or deliverea-"fo opposing counsel on or before the day on which the brief is filed. f] 6. SrzE AND TYPE. Briefs shall be printed in type not less in the size than small pica, and shall be nine inches in length and six inches in width, so as to conform in dimension to the printed records. The record number of the case shall be printed on all briefs.

The foregoing is printed in small pica type for the information of counsel.

M. B. WATTS, Clerk

Court opens at 9:30 a. m.; Adjourns at r:oo p. m.

Camelot Publishing Company, Wytheville, Va.

/ 80 VA \ 3 2-

NOTICE TO COUNSEL This case probably will be called at the session of

cou1·t to be held APR 1942. - You will be advised" la.ter more definitely as to the

<ln.te. Print names of counsel on front cover of briefs.

1vf. B. \VATTS, Clerk.

,,

INDEX TO PETITION

---o---Side Page

Statement of the Case . . . . . . . . . . . . . . . . . . . . . 2* Assignments of Error . . . . . . . . . . . . . . . . . . . . . . 3 * Position of the City of Roanoke . . . . . . . . . . . . . . 4 * Position of the Commonwealth . . . . . . . . . . . . . . 4 * Argument: Constitutional Provisions . . . . . . . . . . . . . . . . . . 4 * Acts of the General Assembly . . . . . . . . . . . . . . . . 9 * History of Segregation . . . . . . . . . . . . . . . . . . . . . 1 5 * Decision of Trial Court . . . . . . . . . . . . . . . . . . . . r 8 * Discussion of Two Recent Cases in Virginia . . . . . . 2 r * Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24*

Prayer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24* Statement Required by Rule 9 . . . . . . . . . . . . . . . . 24 * Oral Hearing Requested on Petition . . . . . . . . . . . . 25 *

TABLE OF CASES CITED

Button vs. State Corporation Commission, 105 Va. . 634, 54 S. E. 769 . . . ................ .

City of Danville vs. Ragland. r 75 Va. 27, 7 S. E. (2nd) I2I ......................... .

Day vs. Roberts, IOI Va. 248, 43 S. E. 362 ... . Farinholt vs. Luckhard, 90 Va. 937, 2I S. E. 817 .. Harrison vs. Barksdale, 127 Va. 180, 102 S. E. 789 Martin's Ex'rs. vs. Commonwealth, r 26 Va. 604,

608, 102 S. E. 77 . . . . . ........ · · · · · · · · May vs. Topping, 65 W. Va. 656, 64 S. E. 848 .. Norfolk vs. Perry, 108 Va. 28, 61 S. E. 867 .... Prigg vs. Pennsylvania, 16 Peters (U. S.) 539, ro . L. ed. 1060 ......................... .

Quesinberry vs. Hull, 159 Va. 270, 274; 165 S. E. 383 · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · ·

Roanoke vs. Elliott, 123 Va. 393, 96 S. E. 819 .. Southern Railway Co. vs. City of Richmond, 175 Va.

308, 8 S. E. (2nd) 273, 274 ........... . State vs. Cottrill, 3 I W. Va. 162, 6 S. E. 428 ... .

17*

21*

I 7, 20*

17* 17*

13* 20*

12*

16*

8* 17*

I 2, 23* 20*

State ex rel etc. vs. Osborne, 11 S. E. (2nd) 260 . . I 3 * Town of South Hill vs. Allen, 177 Va. 154, 12 S.

E. (2nd) 770, 773 . . . . . . . . . . . . . . . . . . . . 14* Virginia etc. R. Co. vs. Clowers, 102 Va. 867, 872,

47 S. E. 1003 . . . . . . . . . . . . . . . . . . . . . . 8, 17*

ST A TUTES CITED

Acts of Assembly, 19 I 5, page I I 9 . . . . . . . . . . . . 15 * Acts of Assembly, 1928, page 699 . . . . . . . . . . . . 8* Constitution of Virginia, Sec. 119 . . . . . . . . . . . . 21, 22* Section 168 . . . . . . . . . . . 4, 5, 10, 14, 16, 17, 24* Section 170 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 * Section 171 .............. 3, 6, 8, 9, 10, 13, 14,

............................ 16, 17, 19, 23, 24* Tax Code of Virginia, Sec 7 . . . . . . . . . . . . . . . . · 9* Section 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 20* Section 73 .................... 4, 10, 11, 12,

............................... 14, 18, .19, 20*

Section 283 ......................... 9, 10, 12, 14* Section 4 Io . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2*

DIGESTS

Digest of Va. & W. Va. Rep. Vol. 2, 710, 712

IN THE

Supreme Court of Appeals

of Virginia AT RICHMOND

Record No. 2548

CITY OF ROANOKE, Plaintiff in Error

vs.

JAMES W. MICHAEL'S BAKERY CORPORATION and COMMQNWEAL TH OF VIRGINIA, Defendants in Error

----o,----

PETITION ---,o---

To the Honorable Justices of the Supreme Court of Appeals of Virginia:

Your petitioner, the City of Roanoke, respectfully represents that it is aggrieved by a final judgment rendered by the

Hustings Court for the City of Roanoke, Virginia, on the 2* 19th day *of September, 1941, in a certain statutory pro-

ceeding brought under section 41 o of the Tax Code of Virginia therein pending wherein James W. Michael's Bakery Corporation was plaintiff and the Commonwealth of Virginia and your petitioner were the defendants. A duly certified copy of the transcript of the record is herewith filed.

2 Supreme Court of Appeals of Virginia

Your petitioner is advised and represents unto Your Honors that the said judgment is erroneous and that it is aggrieved thereby as hereinafter set forth:

ST A TEMENT OF THE CASE

The facts in this case are not in dispute, and are as follows:

James W. Michael's Bakery Corporation, prior to the year I 93 8 and since, has been engaged in the bakery business in the City of Roanoke, and in the conduct of its business delivered to its customers bread and other bakery products by means of motor trucks owned by it. The corporation owned certain office furniture, scales, showcases and other fixtures which were used at its plant in connection with the corporation's business. The trucks, furniture and fixtures were assessed as tangible per sonal prop£rty by the city for the years 1938 and 1939. The corporation paid the local taxes thereon for the year 1 9 3 8, but did not do so for the year 1939.

3 * *On January 2 I, I 93 8, the corporation was instru.cted by the State Department of Taxation that the value of its

trucks, furniture and fixtures should thereafter be reported for taxation as capital for State taxation, and not to report them for local taxation as tangible personal property. The corporation protested on the ground that it was of the opinion the property was tangible personal property and subject to local taxation only.

The corporation having declined to report its trucks, furniture and fixtures as capital, the State Department of Taxation, on the 5th day of October, I 939, for the first and only time, arbitrarily assessed for State taxation the trucks, furniture and fixtures as capital for the years 193 8 and 193 9. Thereafter, the corporation filed its application for the correction of the State assessments, alleging -them to be erroneous in that the property was tangible personal property, and as such, had been segregated for and made subject to local taxation only by virtue of section I 71 of the Constitution of Virginia.

The City of Roanoke was made a party defendant in order that the city as well as the applicant and the Common.wealth of Virginia might be bound by the court's decision.

City of Roanoke vs. J. W. Michael's Bakery Corp., et al 3

The city also attacked the State assessments and sought to uphold the local assessments as valid.

ASSIGNMENTS OF ERROR

The trial court sustained the State assessments, and voided the local a~sessments. The city, alone, excepted to the judg

ment of the trial court. The action of the trial court in · 4 * * Sustaining the State assessments is assigned as error on

the ground that such assessments, pursuant to section 73 of the Tax Code or any other section thereof, were unconstitutional.

POSITION OF THE CITY OF ROANOKE

The city claims that each item of property assessed was tangible personal property, and by virtue of sections 168 and 171 of the Constitution, could not be made subject to State taxation, the same having been segregated for local taxation only; and that section 73 of the Tax Code, in so far as it undertakes to classify the property as capital, is violative of said sections of the Constitution.

POSITION OF THE COMMONWEAL TH

The Commonwealth contends that the property constituted capital, within the meaning of the Constitution and section 73 of the Tax Code, and subject to State taxation; and that section 73 of the Tax Code is not in conflict with the Constitution.

ARGUMENT

(Note: Italics supplied unless otherwise indicated)

Constitutional Provisions

5 * That last sentence of section 168 of the *Constitution, added thereto in I 9 3 8, is as follows:

" .... The general assembly may define and classify taxable subjects, and except as to classes of property herein expressly segregated for either State or local taxation,:


the general assembly may segregate the several classes of property so as to specify and determine upon what subjects State taxes, and upon what subjects local taxes may be levied."

The editor's note, following the section where it appears in the Code of Virginia, reads:

"The last sentence is new and is added for emphasis."

It will be noted that in those instances in which the Constitution expressly segregates property for State or local taxation the general assembly is given no discretion in defining and classifying taxable subjects so as to impair such segregation. In fact, the language of section I 6 8 of the Constitution is a clear mandate to the general assembly that it shall not fritter away the principle of segregation as set forth in the Constitution.

The general assembly may define and classify taxable subjects without limit or restraint so long as it does not by such definition or classification take from the State subjects of taxation which it alone is entitled to tax or from the localities subjects of taxation which they alone are entitled to tax.

If the general assembly could by definition and classification juggle subjects of taxation in such a manner as to give the State taxes on that which has been segregated to localities, or in a manner as to give the localities taxes on that which has

been segregated to the State, the segregation provisions of 6* the Constitution would be impotent-and such an act of

the legislature would be the supreme law, and not the Cons ti tu tion.

What is segregation of taxable subjects as contemplated by the Constitution? The answer is found in section I 71 thereof, which reads as follows:

''No State property tax for State purposes shall be Jevied on real estate or tangible personal property, except the rolling stock of public service corporations. Real estate and tangible personal property, except the rolling stock of public service corporations, are hereby segregated for, and made subject to, local taxation, only, and shall be assessed or reassessed for local taxation in such manner and at such


times as the general assembly has heretofore prescribed, or may hereafter prescribe, by general laws."

The foregoing language is simple and clear.

It tells us:

(a) No State property tax for State purposes shall be levied on real estate or tangible personal property.

(b) Real estate and tangible personal property ( except the rolling stock of public service corporations) are segregated for and made subject to local taxation only.

(c) Such real estate and tangible personal property shall be assessed or reassessed for local taxation.

(d) The manner and time of such assessments, to be prescribed by general law.

There can be no doubt as to the term "tangible personal property" as used in section 1 7 I of the Constitution. It has a well defined meaning in law and ordinary usage. It needs no explanation; -and it would be an affront to the court to at-

tempt to enlarge upon its meaning.

7* *It will be noted that no class of tangible personal prop-erty, other than rolling stock of public service corporations,

can be taxed for State purposes. Surely, any other rolling stock ( trucks, automobiles, wagons or other conveyances) belonging to those not engaged in the business of a public service corporation cannot be taxed for State purposes, but must be taxed for local purposes only. That rolling stock is tangible personal property cannot be denied, otherwise, the section would not contain after the words "tangible personal property" the phrase "except the rolling stock of public service corporations."

From the foregoing it will be seen that no shift or device, however clever, can be used to penetrate the armor of protection afforded the localities for an assured source of revenue to be derived from real estate and tangible personal property. In the instant case, State Tax Commissioner Morrisett testified that the Common wealth was not taxing the trucks, furniture and fixtures of the corporation, but the money invested therein. If such a shift or device could be resorted to by the State Department of Taxation, with legislative sanction, everything


would become capital, including real estate, and the localities would have nothing upon which to levy a property tax. With such leeway the general assembly and the State Department of Taxation could easily determine that automobiles, household furniture and all other tangible personal property owned by individuals are not to be taxed as such, but merely the money

1nvested therein, and appropriate unto the State, under the 8 * guise of capital, the taxes *thereon, the Constitution to

the contrary notwithstanding.

The act providing for the submission to the people for ratification or rejection of proposed revision and for amendments of certain sections of the Constitution, carried as proposal No. 2, the following:

''For the amendment to section one hundred and seventy-one of the C~mstitution of Virginia, providing that no State property tax for State pruposes shall be levied en real estate or tangible personal property, except the

rolling stock of public service corporations.

"Against the amendment to section one hundred and seventy-one of the Constitution of Virginia, providing that no State property tax for State purposes shall be levied on real estate or tangible personal property, except the rolling stock of public service corporations." (See Acts 1928, at page 699.)

The object of construction, as applied to written constitution, is to give effect to the intent of the people adopting them.

Virginia etc. R. Co. vs Clowers, 102 Va. 867, 872, 47 S. E. 1003.

· 'The people make them, the people adopt them, the people must be supposed to read them, with the help of common sense and cannot be presumed to admit in them any recondite meaning or any extraordinary gloss."

Quesinberry vs. Hull, 159 Va. 270, 274: 165 S. E. 383.

It is inconceivable· that in the light of the above proposal, constituting the ballot upon which the people voted, section 171 of the Constitution can now be construed as contended by the Commonwealth-that is to say, that everybody understood


that tangible personal property used in business, such as trucks, furniture and equipment would thereafter be considered as in

tangibles and the State would get the taxes thereon. 9 * * "Extraordinary gloss", raised to the nth degree, would

be the sum total added by such a construction of the section.

If the field of tangible personal property taxes may be invaded by the State, what is there to keep it from invading the field of real property taxes by denominating real property as "capital" or some other intriguing term that might appeal to the flight of one's imagination?

Real estate is inextricably coupled with tangible personal property as a subject of local taxation only in section 171 of the Constitution.

Acts of the General Assembly

Section 7 of the Tax Code also segregates real estate and tangible personal property ( except the rolling stock of corporations operating railroads by steam) for local taxation only. Section 8 of the Tax Code segregates for State taxation only certain classes of property. These statutes throw little or no light on the subject under consideration except that they reinforce generally the claim made by the city in this case that the end sought by section 1 7 1 of the Constitution, as amended, was complete segregation, and one not susceptible to change by any whim of the general assembly.

Section 283 of the Tax Code, however, is most interesting in many particulars.

It begins with the statement that "tangible personal property having been segregated by law for l_ocal taxation only,"

and says the "classification hereunder shall be as follows:" 1 o * * It then lists many items of tangible personal property,

including under 5 automobiles, motor trucks, etc. This in itself is an admission that trucks are tangible personal property. The startling part of section. 283 of the Tax Code is the last paragraph under 15 thereof, which is as follows:

''No property shall be assessed as tangible personal property which the law classifies as intangible personal property."

g Supreme Court of Appeals of Virginia

When the last a hove quoted language is com pared with that of section 1 6 8 of the Constitution, which does not permit the general assembly to define and classify taxable subjects, "expressly segregated for either State or local taxation", as provided in section 171 of the Constitution, the absurdity of any attempted reservation in section 283 of the Tax Code that certain tangible personal property may be classified as intangible personal property, is apparent.

Section 73 of the Tax Code attempts to define capital. Under "Fourth" it is stated that "capital" is "all other taxable personal property of any kind whatever . .. but excluding the property hereinafter specifically mentioned." In other words, notwithstanding the mandate of sections 1 68 and 171 of the Constitution, as to segregation, the general assembly said that by denominating all taxable tangible personal property as "capital", except that which it chose to except, it became ipse dixit intangible personal property.

The Constitution has given no such latitude discretion or power to the legislature. If so, the legislature could take away

from the localities all taxes, not only on tangible 11 * *personal property but on real estate, too, by merely

classifying both kinds of property as capital.

A glaring example of how the general assembly has flouted the mandate of the Constitution is disclosed in the fifth and sixth paragraphs under HFourth" in section 73 of the Tax Code, wherein personal property, tangible in fact and used in certain businesses, is set apart for local taxation.

Why should the property in some businesses be in one category and the same property in other businesses in another category for tax purposes? Why should trucks used in delivering laundry be tangible personal property and assessed locally for taxation, and trucks used in delivering bakery products be "capital'' and assessed for State taxation? But this is what is being done under the section merely because the general assembly has seen fit to grant to the localities a few crumbs of taxes from business. whereas, by constitutional guarantee the localities are entitled to the whole loaf of taxation on tangible personal property ( except the rolling stock of public service corporations) notwithstanding whether the owner uses it in business, for pleasure or otherwise.


It is submitted that the Constitution means what it says, and personal property, tangible in fact, regardless of the owner or where or how it is employed, in business or not in business, is subject to local taxation only; and no nice distinctions can be made by the general assembly. in order to take from the localities the taxes they are entitled to under the Constitution and given them to the State. Any argument made in an effort to uphold another view runs counter to the plain language of the

Constitution; and great as may be the power of the genI 2 * eral assembly, it cannot as yet, by *some legerdemain,

change water into wine, nor can it by mere words change tangible personal property into intangible personal property by giving it the name "capital" and so classify it as such. The last sentence of section r 68 of the Constitution is a barrier to any definition or classification by the general assembly which tends to destroy the principle of segregation; and by reason thereof, the assessment by the State in this case is void; and in so far as sections 73 and 283 of the Tax Code permit such an assessment by the State they, too, are unconstitutional.

The Common wealth contends that because this is the first time the constitutionality of the Tax Code provisions now under consideration have been attacked Father Time has remedied any defects. This court in Southern Railway Co. vs. City of Richmond, 175 Va. 308, 8 S. E. (2nd.) 273, at page 274, quoted with approval the following:

"While a court should hesitate to declare a statute unconstitutional until clearly satisfied of its invalidity, and where it has been on the statute books for many years the hesitation should be all the greater, yet, if such an act is plainly in conflict with the organic law of the State, old age cannot give it life, and when the issue of its constitutionality is properly raised: it must be declared void."

Constitutional rights do not become forfeited because they are not exercised. Norfolk vs. Perry, 108 Va. 28, 61 S. E. 867.

The Commonwealth further contends that great consideration should be given to her claim that she will lose $1,250,000.-

00, or more, annually, if the city prevails in this case. It 13 * is conceded by the Commonwealth that the localities *will

thereby gain a greater amount; and it is notorious that

IO Supreme Court of Appeals of Virginia

the localities generally are in great need, whereas, the Commonwealth is piling up surpluses every year. This is not, however~ of any concern to the court. A similar argument was made in the case ofState ex rel etc. vs. Osborne, 11 S. E. (2nd) 260 ( S. C.) . The court said:

"But we cannot dissipate constitutional provisions by forced construction, or by regarding form rather than substance. A statute is constitutional or unconstitutional by reason of its scope and purpose and effect. Whatever the language used, we test the statute by a realistic consideration of the subject which it encompasses, the purpose which it seeks to serve, and the effect it will have when put in operation.

"If constitutional limitations are directed at these factors, they must be given effect.

"We are mindful, too, of the fiscal problems of the State that are wrapped up in the present litigation. But these are legislative problems. Our two-fold duty is to refrain from interfering with legislative action which involves no clear constitutional infirmity, and to firmly condemn such action when it infringes upon constitutional restraints upon the legislative power. The court has neither the power to levy taxes nor the power to appropriate the money made available by such levy, and in view of the~e indisputable facts, it cannot be charged with any portion of the financial problems under which the State is la boring.''

Langauge as equally strong as the foregoing was used by this court in Martin's Ex'rs. vs. Commonwealth, I 26 Va. 603, 608, 102 S. E. 77, although the current revenues of the State, to a material degree, was dependent upon the court's decision.

The Commonwealth further sought to show that the constitutional provisions should be explained and amplified by reading into the Constitution after the first sentence of section

171 the words "and capital as may be defined by the · 14 * legislature", *or words of similar import; and in like

manner violence should be done to the clear wording of the last sentence of section 168 of the Constitution. This court in Town of South Hill vs. Allen, 177 Va. 154, 12 S. E. (2nd)

City of Roanoke vs. J. W. Michael's Bakery Corp., et al r r

770, at page 773, said in connection with the construction of a provision of the Virginia Constitution:

"The language used is plain and unambiguous. It conveys a clear and definite meaning, indicating the purpose intended. When this is the case, courts are not permitted to interpret that which needs no interpretation, and hence general rules for the construction of either constitutional or statutory provisions of doubtful meaning have no application."

The above quotation alone is sufficient to dispose of. the Commonwealth's attempt to add something to the constitutional provisions involved. It is insisted that the rule of law, above set forth, is controlling in this case, because nowhere in section r 7 r of the Constitution or elsewhere in the Constitution is there anything to cast doubt upon the language used. We are not unmindful of the fact that light from all sources should be sought in order to construe ambiguous instruments. At the same time, we are aware of the fact that the courts will not permit doubt to be cast upon plain words, terms, etc. in order to make -them con form to such light from other sources. We deny that the plain and definite language of section r 7 r of the Constitution must yield to some strained construction in order to make the section fit into the jigsaw puzzle of the Tax Code, and particularly sections 73 and 283.

Sections 1 68 and 171 of the Constitution are the foundation stones of the tax structure in so far as segregation is concerned, and the tax structure must conform to them; otherwise, "the tail would wag the dog."

History of Segregation

Even before segregation of subjects of taxation was written into the Constitution the general assembly went on record as to the need of specifying and determining upon what subjects the State should receive tax revenue, and upon what subjects the localities should receive tax revenue. The preamble to the act of r 915 (Acts 1915, p. 119) reads in part as follows:

"Whereas, in the judgment of this general assembly the interests of the Commonwealth will be promoted by

I2 Supreme Court of Appeals of Virginia

putting into operation at the earliest day practicable a plan of complete segregation of the subjects of taxation so as to specify and determine upon what subjects State taxes and upon what subjects local taxes may be levied."

Because of certain reasons and conditions recited in the act of 191 5 the general assembly could not then provide for complete ~egregation; but as far as was then practicable, there was segregated to the localities taxes on real estate and tangible personal property ( except rolling stock of railroad corporations.)

From that time complete segregation as an underlying principle of taxation in this State was preached upon the Hustings, commended by the press, advocated by able governors and all others who had come to the conclusion that there should be a well defined line of demarcation between those subjects taxable by the State and those taxable by the localities, so each would know with some degree of certainty how to adequately

budget its requirements. As a consequence the Constitu-1 6 * tion was amended so * that sections 168 and 171 read

as at present. This accomplished, the advocates of segregation were assured that regardless oof temptation, however strong, the general assembly could not fritter away the limitations therein contained.

The Commonwealth undertook to show in this case that complete segregation was not contemplated by the Constitution, as amended in 1926 and 1928 (sections 168 and 171) ; but thue were implied reservations permitting the legislature to define or classify. in its discretion, tangible personal property so as to put it in the category of intangible personal property, thereby enabling the State to reap the taxes thereon. To justify such a position there must be read into the Constitution after the first sentence of section 171 the words "and capital as may be defined by the legislature", or their equivalent.

It is submitted that the statement in section 171 of the Constitution that "no State property tax for State purposes shall be levied on real estate or tangible personal property, except the rolling stock of public service corporations", is a positive affirmative term, plainly implying the negative of what is not mentioned, and inhibits the power of the legislature to read into the constitution what is not found therein. As far


back as the decision in Prigg vs. Pennsylvania, I 6 Peters, (U. S.) 539, 10 L. ed. 1060, the Supreme Court of the United States declared that a court has no right to insert any clause in the Constitution which is not expressed and cannot be fairly

implied. And it is a well recognized principle that every 1 7 * word in the * Constitution should be expounded in its

plain, obvious, common sense. Farinholt vs. Luckhard, 90 Va. 937, 21 S. E. 817; Virginia etc. Ry. Co. vs. Clowers' Adm'x., 102 Va. 867, 872, 47 S. E. 1003; Digest of Va. & W. Va. Rep. Vol 2, p. 710.

Furthermore, the Common wealth insists that the legislative construction of sections 168 and 171 of the Constitution should be given weight. This is true where there is doubt, but such legislative construction cannot be permitted to overturn plain language. Day vs. Roberts, 1 o I Va. 248, 4 3 S. E. 362; Roanoke vs. Elliott, 123 Va. 393, 96 S. E. 819; Button vs. State Corporation Commission, 105 Va. 634, 54 S. E. 769; Harrison vs. Barksdale, I 27 Va. 180, 102 S. E. 789; Digest of Va. & \.V. Va. Rep., Vol. 2, p. 712.

When it is remembered that the legislature and the people, from 19 I 5 to the adoption of the Constitution amendments referred to, were striving for complete (not partial) segregation of taxable subjects, it is submitted that the amendments reject any implications that will destroy their meaning, so clearly expressed.

The Commonwealth insists that because the Supreme Court of Appeals had in a number of cases held equipment, inventories etc. of manufacturing companies to be "capital" there was no reason to except capital in the Constitution. When those cases were decided there were no constitutional limitations on the legislature. It had the power to define and classify subjects of taxation. The cases merely interpreted what the legislature had done within its wide power prior to the amendments of the Constitution. It was in part, because of the con-

fusion of tax laws, difficult administration thereof by 18* taxing authorities, and costly *litigation, as an out-

growth, that complete segregation of taxes came to the front. The cases referred to merely upheld the legislature in its definition of "capital" at a time when it could define and classify without constitutional restraint.


That "capital", as a fixed rule, does not represent money invested in business is demonstrated by section 73 of the Tax Code, wherein property, tangible in fact, is not treated as capital when used in businesses such as theatres, laundries, etc. This clearly shows that the legislature's viewpoint, at least in part, is inconsistent with that of the State as presented in the instant case.

Muddled legislation and the strained construction thereof by the State Tax Department, as might have been expected, have started a new battle ·for the principle for segregation. It is high time that further encroachments upon the constitutional right of the localities to receive all the taxes on all tangible personal property ( except the rolling stock of public service corporations) be halted.

Decision of Trial Court

The opinion of the trial judge is a part of the record in this case. It discloses that the contention of the Commonwealth that the furniture, fixtures and delivery equipment of the applicant should be classified as "capital" under item 4

of section 73 of the Tax Code, was upheld by the trial 1 9 * court. The *City of Roanoke contended that its con

stitutional right to tax the property had been abridged, and that in so far as the section provided for such a classification, the section was unconstitutional.

The city further contended that the subjects of taxation, to-wit: the trucks, furniture and fixtures, were nothing more than machinery and tools used in the manufacturing business, and even under section 73 of the Tax Code should be taxed locally. The court, however, rejected this contention.

From the beginning of the Commonwealth to 19 16. machinery and tools and furniture and fixtures were always regarded as "tangible personal property" and not as "capital". Since that time they have been juggled back and forth from one classification to another. What will happen in the future? Surely it is unwise to tamper with section 171 of the Constitution by construing therein an exception to cover "capital", especially when "capital", according to the general assembly, is one thing today and another tomorrow.

City of Roanoke vs. J. W. Michael's Bakery Corp., et al I 5

In any event, it certainly cannot be successfully maintained that the trucks, furniture and equipment (machinery and tools) of the applicant (conceded to be a manufacturer by the Commonwealth) are intangible personal property, taxable by the State.

The classification of machinery and tools in section 73 of the Tax Code and the classification of all tangible personal property of the twenty-one different kinds of businesses mentioned in the section, made subsequent to the amendment of section I 7 1 of the Constitution, are significant because they

show that the general assembly has, in part, conformed 20* to section I 7 I *of the Constitution and has actually

segregated some "tangible personal property" constituting "capital", as interpreted by the Commonwealth in this case, for local taxation only. Regardless of all the confusion caused by section 73 of the Tax Code, which in many instances is wholly inconsistent with section 8 thereof, section 73 recognizes in part the fact that ''tangible personal property'' should be segregated for local taxation, notwithstanding it is "capital" as i1:1terpreted by the Commonwealth in this case.

The trial court placed great stress upon the administrative practice of the State Department of Taxation, dating from 1926 and also legislative construction of the constitutional provis-. 10ns.

"Contemporary construction can never abrogate the text of a constitutional provision nor fritter away its obvious sense; it can never narrow down its true meaning; it can never enlarge its natural boundaries." May vs. Topping, 65 W. Va. 656, 64 S. E. 848.

"Acquiescence for any length of time cannot legal~ ize the clear usurpation of power, for where the people have clearly expressed their will in the constitution, and appointed tribunals to enforce it, to allow contemporary practical construction to solve in its own favor doubts which arise on reading the constitution, is not giving it its full legitimate force." State vs. Cottrill, 3 1 W. Va. 162, 6 S. E. 428.

''The construction placed on the constitution of the State by the legislature thereof is entitled to consideration,

Supreme Court of Appeals of Virginia

and, in case of doubt, should be influential in its construction, but cannot be permitted to overturn plain language." Day vs. Roberts, IOI Va. 248, 43 S. E. 362.

The trial judge wholly disregarded the foregoing cardinal rules of law and merely affirmed administrative and legislative construction as controlling.

2 I* Discussion of Two Recent Cases in Virginia

We now wish to call the attention of the court to the case of City of Danville vs. Ragland, I 75 Va. 27. 7 S. E. (2nd) I 2 I, which was decided on February 26, I 940.

This is a most interesting case on the point that the Constitution must be construed as it is written and not as it was evident! y intended that it should be written.

The opinion in this case shows that section r r 9 of the Constitution, as amended, and as found in the appendix to Michie's Code of 1936, reads, in part, as follows:

''The duties and compensation of such officers shall be prescribed by general law."

that the trial court was of the opinion that the appointment of a· deputy was one of the "duties" which were "prescribed by general law"; that counsel for both sides, as well as the trial court, assumed that the language of Section Ir 9 as above written was correct but that, at the oral argl,lment before the appellate court, the question was raised as to whether the word "general" was properly a part of the amended section; that an examination of the original records pertaining to said amendment revealed that, at the r 927 extra session, the joint resolution proposing said amendment included the word "general'' in section I 1 9; .that, at the I ~)28 regular session, the joint resolution included the word "general" in section I 19: that, at the .1928 session of the general assembly an act to provide for the submfrsiori to the people for ratification or rejection said amend-

ment was passed which included the word "general"; 22 * that ,as recorded in the enrolled bills of r 928 and *ap

proved by the governor, the word "general" was omitted from section 1 1 9; and that an examination of the governor's proclamation of July 27, 1928, showing the result of the


submission of said amendment to the people for ratification, discloses that the proposal for the amendment to section I I 9, as submitted, did not include the word "general".

The court very properly held as follows:

"The submission to the people and the ratification by them of a proposed amendment to the Constitution are necessary steps in the process of amending that instrument. (Constitution. section 196; Scott vs. James, 1 I 4 Va. 297, 303. 76 S. E. 283.) It follows, therefore, that in the instant case the word 'general', which was not in the proposed amendment to section 119 as submitted to and ratified by the people, must be excluded:"

It will be seen that it is not what the general assembly has in its mind with reference to the submission of an amendment to the people for ratification that governs but it is the ratification of what is actually submitted that governs. It is clear to us that the word "general" was inadvertently omitted after the bill passed both branches of the general assembly. It was, therefore. clearly the intention of the general assembly t·hat the amendment to be submitted to the people should include the word "general". It is likewise clear that the· proposed amend-.ment submitted to the people did not include the word "general". Inasmuch as the Constitution becomes effective by virtue of the ratification of the people of the State. it necessarily follows that the proposed amendment submitted to the people for ratification must stand or fall on its own terms.

2 3 * * In the case at hand, we insist that section r 7 I of the Constitution must stand or fall on its own terms and

not on any terms that might have been in the minds of the members of the general assembly. Counsel for the Commonwealth are insisting. in effect. that there must be inserted in section 171 of the Constitution words of exception to tangible personal property, giving the State the right to segregate for State taxation the tangible personal property of manufacturing and mining businesses.

The case of Southern Railway Company vs. City of Richmond, supra, which was decided on April 8, r 940, is of particular interest not only because it was so rec~ntl y decided, but


because it covers several subheads under the rules of construction hereinbefore mentioned.

In this case the question was whether or not an ordinance of the City of Richmond, which, by the general assembly of 1938, was made to harmonize with the city charter, was in violation of section I 70 of the Constitution of Virginia. The court very properly held that neither the city ordinance before or after the action of the general assembly in I 93 8, nor the act of the general assembly in 193 8 was constitutional because section 1 70 of the Constitution did not aqthorize the assessment made by the City of Richmond under said ordinance, and under said charter, and under said act of the general assembly.

If it is not permissible under section r 70 of the Constitution to substitute the term "privilege of using sewers" for "use of sewers", it certainly cannot be permissible under section r 7 r of the Constitution to substitute "tangible personal property as defined in the Tax Code" for "tangible personal property."

CONCLUSION

It is submitted that the legislature may define and classify property, real or personal, at its pleasure. The Constitution so provides; but it is denied that as to those classes of property, to-wit: real and tangible, there can be a definition or classification which will shift the tax from the locality to the State without doing violence to sections r 68 and r 7 I of the Constitution. Therefore, the trucks, furniture and fixtures of the plaintiff, being tangible personal property, segregated under the Constitution to the City of Roanoke as subjects of local taxation only, cannot be taxed by the State and the assessments thereof for State purposes for the years 193 8 and 193 9 are void.

PRAYER

Your petitioner, therefore, prays that a writ of error and supersedeas to the judgment complained of may be awarded your petitioner, in order that said judgment, for the cause of error aforesaid, before you may be caused to come, that the whole matter of said judgment contained may be reheard, and that said judgment may be reversed and annulled.

City of Roanoke vs. J. W. Michael's Bakery Corp., et al I9

STATEMENT REQUIRED BY RULE 9

Coun~I for the City of Roanoke, Virginia, states that a copy of this petition was on the 14th day of November

25 * 1941, mailed to opposing counsel in the trial court, and that this petition was filed on the 14th day of Novem

ber, r 941, with Justice Herbert B. Gregory, at Roanoke, and further, that should a writ of error be awarded, this petition is adopted as the opening brief on behalf of the City of Roanoke.

ORAL HEARING REQUESTED ON PETITION

Counsel for the City of Roanoke desires to state orally the reasons for reviewing the decision complained of and respectfully requests that opportunity be afforded therefor.

CITY OF ROANOKE, VIRGINIA, By C. E. HUNTER,

Counsel

Roanoke, Virginia, November 14, 1941.

I, C. E. Hunter, an attorney practicing in the Supreme Court of Appeals of Virginia, do hereby certify that in my opinion there is error to the judgment entered on the 19th day of September, r 94 r, in the Hustings Court of the City of Roanoke against the City of Roanoke and James W. Michael's

Bakery Corporation and in favor of the Commonwealth 26* of Virginia, as set forth in the foregoing petition, for

which the same should be reviewed by the Supreme Court of Appeals of Virginia.

C. E. HUNTER

Filed before me this 14th day of November, 1941.

H.B. G.

November 28, 1941, writ of error and supersedeas awarded by the court. No bond.

M.B.W.


RECORD

Virginia:

PLEAS BEFORE THE HONORABLE. J. L. ALMOND, JR., JUDGE OF THE HUSTINGS COURT OF THE CITY OF ROANOKE, VIRGINIA, ON THE NINETEENTH DAY OF SEPTEMBER. ONE THOUSAND NINE HUNDRED AND FOR TY ONE, (A. D. r 941) .

JAMES W. MICHAEL'S BAKERY CORPORATION,

vs.

COMMONWEAL TH OF VIRGINIA, et al.

Be it remembered that heretofore, to-wit:

On the 26th day of April, 1940, the Petitioner, James W. Michael's Bakery Corporation filed in the Clerk's Office of the

Hustings Court of the City of Roanoke, it's petipage 2 ] tion against the Common wealth of Virginia, and the

City of Roanoke, Virginia, praying for a correction of certain tax assessments, notice of which filing was duly accepted by C. E. Hunter, City Attorney for the City of Roanoke, which petition is in the words and figures following, to-wit:

page 3 ] APPLICATION FOR CORRECTION OF ERRONEOUS ASSESSMENT OF TAXES

To the Honorable J. L. Almond, Jr., Judge of the Hustings Court of the City of Roanoke, Virginia.

Your petitioner. James W. Michael's Bakery Corporation, a corporation organized and existing under the laws of the State of Virginia, and having its principal office in the City of Roanoke in said State respectfully shows unto the court the following to-wit: ·


( 1) Your petitioner prior to the year 193 8 and ever since has been engaged in the bakery business in said City, and in the conduct of its said business has made a practice of delivering to its customers bread and other bakery products made at its plant by means of motor vehicles owned by it;

(2) That for many years, including the years 1938 and 1939, said trucks, and also your petitioner's furniture and fixtures at its said plant and used in connection therewith were assessed as tangible personal property by the said City of Roan-

oke, and the taxes so assessed each year by said City page 4 ] have been paid by your petitioner except for the year

193 9; that your petitioner has been notified by said City that it does not propose to relinquish any local tax assessments heretofore or hereafter made on said trucks, furniture and fixtures unless they be voided by the courts in proceedings whereby the City may be fully heard upon its claims for taxes on said trucks, furniture and fixtures;

( 3) That on January 2 1, 193 8, your pet1t1oner was notified by the Department of Taxation of the Commonwealth of Virginia that the value of its said trucks, furniture and fixtures should thereafter be reported for taxation as capital for state taxation and not reported for local taxation as tangible per-sonal property: that your petitioner was then advised and is now so advised that said trucks, furniture and fixtures were properly assessed by said City for taxation as tangible personal property_; that your petitioner thereafter notified said Department of Taxation that your petitioner was of the opinion that said furniture, fixtures and trucks should not be assessed as capital and protested any assessment thereon as capital for state taxation, but, at the request of said Department of Taxation, the value of said trucks, furniture and fixtures was furnished to said Department of Taxation by your petitioner;

(4) That on the 5th day of October 1939, said Department of Taxation for the first and only time assessed for state taxation said trucks, furniture and fixtures as capital as follows to-wit:

22

Tax Year: 1938 1939


Value: $3,000.00

$3,000.00

Total

Taxes Assessed: $22.50 $22.50

( 5) That your petitioner is advised and doth allege and charge that said assessment made by said Department of Tax

ation on the 5th day of October 1939, is erroneous page 5 ] in that said trucks: furniture and fixtures are tang-

ible personal property and as such are segregated for and made subject to local taxation only by virtue of Section 171 of the Constitution of Virginia, and in so far as any Act of the General Assembly of Virginia, and particularly Section 73 of the Tax Code, may undertake to classify said trucks, furniture and fixtures as capital for state taxation, such classification is violative of Sections I 68 and 171 of the Constitution of Virginia and are, therefore, unconstitutional;

( 6) That in view of said local assessment for taxation of said trucks, furniture and fixtures by the said City for the year r 939, your petitioner is advised and doth allege and charge that it is proper that said City be made a party defendant in this proceeding in order that said City, as well as your petitioner

and the Commonwealth of Virginia, may be bound by the decision of the court in this proceeding and to the end that each taxing agency may be fully advised as to whether the Commonwealth of Virginia is entitled to the tax on said property or the City of Roanoke is entitled thereto, and in order that your pe-

titioner may have determined in one proceeding to page 6 ] whom it should make payment of taxes on said

property, your petitioner being ready, willing and able to make prompt payment of the taxes thereon immediately upon the court's decision in this proceeding.

WHEREFORE, your petitioner prays that said assessment for state taxation of your petitioner's trucks, furniture and fixtures as capital made by the Department of Taxation of the Commonwealth of Virginia on the 5th day of October 1939, for the years 193 8 and I 9 3 9 be declared and held to be an erroneous asses~ment, and that your petitioner be relieved from the payment of the taxes based upon said assessment; that in addition to the Commonwealth of Virginia the said City of Roan-

City of Roanoke vs. J. W. Michaers Bakery Corp., et al 23

oke be made a party defendant in this proceeding, and that the decision of the court with respect to the matters set forth in this petition .be made binding upon your petitioner, the Commonwealth of Virginia, and the City of Roanoke, and that your petitioner may have such other, further and general relief as the nature of its case may require. "

JAMES W. MICHAEL'S BAKERY CORPORATION,

By Moss A. Plunkett,

MOSS A. PLUNKETT, Its Attorney.

Endorsement Found on Back

···'! 1

(

...

Legal service of a copy o.f the within petition is accepted this 26th day of April 1940.

City of Roanoke, Va. By C. E. Hunter,

Its Attorney.

Received and filed Apr. 26, 1940,

W. H. CARR. D. C.

ANSWER OF CITY OF ROANOKE AND CROSSCLAIM

The separate answer of City of Roanoke, Virginia, to the petition of James W. Michael's Bakery Corporation, exhibited against it and the Commonwealth of Virginia in the Hustings Court of the City of Roanoke, Virginia.

It is true that said petitioner has been and is engaged in the bakery business in said city; that for many years, including the years 1938 and 1939. the said petitioner's trucks, furniture and fixtures used in connection with said business have been assessed for local taxation as tangible personal property by said City; and that the taxes so assessed have been paid, except that for the year 1939, which has been paid in part.

The value of said trucks, furniture and fixtures for page 7 ] tax purposes for the year 1939 is $4,900.00; that

the tax rate of said city is $2.50 on each $100.00 of valuation; that the amount of local tax on said property for


the year 1939 was $122.50, of which amount $65.00 was paid, leaving a balance of $ 5 7. 5 o plus a penalty of 5 % .

This respondent is advised and doth allege and charge that the assessment of said property as capital by the Department

of Taxation of the Commonwealth of Virginia for page 8 ] t'he years r 938 and r 939 is erroneous in that said

property is segregated for and made subject to local taxation only by virtue of Section r 71 of the Constitution of Virginia; and this respondent adopts the allegations contained in said petition attacking the validity of said assessment made by said department of taxation.

This respondent is further advised and doth allege and charge that it is entitled to and ought to have and receive from said petitioner said sum of $57.50, plus said penalty of 5 %, as aforesaid, on account of said local taxes for the year I 93 9, the payment of which has been demanded of said petitioner by this respondent, but payment thereof has been refused.

This respondent is further advised and doth allege and charge that said petitioner, having conceded said assessment by said department of taxation as erroneous, ought not to withhold payment of said local assessment, but should make payment thereof to said respondent. Therefore, this respondent adopts so much of this answer as deals with said indebtedness of said petitioner to this respondent as a cross-claim and in support of a judgment in favor of said respondent against said petitioner for the said unpaid balance of said local assessment and penalty.

Wherefore, this respondent prays that this answer to said petition be treated as a cross-claim of this respondent against said petitioner; that judgment be rendered in this proceeding against said ·petitioner, James W. Michael's Bakery Corpora-

tion, in favor of this respondent, City of Roanoke, page 9 ] Virginia, for said sum of Fifty-Seven and 5 o / 1 oo

dollars ( $ 5 7. 5 o) plus said 5 % penalty, as aforesaid, and costs, on account of said local tax assessment on said trucks, furniture and fixtures for the year 193 9, and that this respondent may have such other, further and general relief as the nature of its case may require.

CITY OF ROANOKE, VIRGINIA By C. E. HUNTER

Its Attorney.

City of Roarioke vs. J. W. Michael's Bakery Corp., et al 25

Endorsement Found on Back

Filed by Leave of Court. 5/8/40 F. L. SEYMOUR,

Deputy Clerk.

MOTION TO DISMISS THE CITY OF ROANOKE AS A PARTY DEFENDANT

To the Honorable J. L. Almond, Jr., Judge of the Hustings Court of the City of Roanoke, Virginia.

NOW COMES the Commonwealth of Virginia by Abram P. Staples Attorney General of Virginia, and moves the court that the City of Roanoke be dismissed as a party defendant in this proceeding and as grounds therefor assigns the following:

1. The application herein is a purely statutory proceeding brought under the authority of Section 41 o of

page Io ] the Tax Code of Virginia for the correction of an alleged erroneous assessment of State taxes. The

said section relates exclusively to applications for the correction of State taxes and makes no provision for the correction of local taxes or for joining a locality as a party defendant in an application for the correction of State taxes.

2. The application herein cannot be treated as an application under the authority of Section 4 I 4 of the Tax Code of Virginia for the correction of taxes assessed by the City of Roanoke for the reason that there is no allegation that any assess-

ment of taxes made by the City of Roanoke is erpage 1 1 ] roneous. On the contrary, the application alleges

that the taxes assessed against the plaintiff by the City of Roanoke are correct.

It is, therefore, respectfully submitted that the City of Roanoke is not a necessary or proper party defendant in this proceeding and should be dismissed as such.

COMMONWEAL TH OF VIRGINIA By Abram P. Staples,

ABRAM P. STAPLES, Attorney General.

W. W. MARTIN. Of Counsel.

_J


Motions, etc.-3.

EVIDENCE

By Mr. Martin: I will make a motion to get you out of this, Mr . .Hunter.

(Addressing counsel for the City of Roanoke) . I want to make a motion, Your Honor, copies of which motion have been sent to Mr. Hunter and Mr. Plunkett, two or three weeks ago. In

this petition for correction of alleged erroneous aspage 1 2 ] sessment of State taxes, the Petitioner asks that the

City of Roanoke be made a party defendant. The Petition is brought under Section 4 Io of the Tax Code. I will read the motion:

(Reading):

"To the Honorable J. L. Almond, Jr., Judge of the Hustings Court of the City of Roanoke, Virginia:

"Now comes the Commonwealth of Virginia by Abram P. Staples, Attorney General of Virginia, and moves the Court that the City of Roanoke be dismissed as a party defendant in this proceeding and as grounds therefor assigns the following:

r. The application herein is a purely statutory proceeding brought under the authority of Section 41 o of the Tax Code of Virginia for the correction of an alleged erroneous assessment of State taxes. The said section relates exclusively to applications for the correction of State taxes and makes no provision for the correction of local taxes or for joining a locality as a party defendant in an application for the correction of State taxes.

2 The application herein cannot be treated as an application under the authority of Section 4 r 4 of the Tax Code of Virginia for the correction of taxes assessed by the City of

Roanoke for the reason that there is no allegation page 13 ] that any assessment of taxes made by the City of

Roanoke is erroneous. On the contrary, the application alleges that the taxes assessed against the plaintiff by the City of Roanoke are correct.

"It it, therefore, respectfully submitted that the City of


Roanoke is not a necessary or proper party defendant in this proceeding and should be dismissed as such.

COMMONWEAL TH OF VIRGINIA, By ABRAM P. STAPLES,

Attorney General. W. W. MARTIN,

Of Counsel. * * * *

By Mr. Martin: ( Continuing) : In txplanation of our motion, I will say that the Com

monwealth realizes that, as a matter of policy, the City of Roanoke has an interest in the outcome of this case, and we have no objection to Mr. Hunter's actively taking part in the case, and to argue the case and examine the witnesses, if he chooses to do so, but the Commonwealth thinks it will be establishing a harmful precedent to allow the City of Roanoke, or any City, to be joined in a statutory proceeding for the correction of State taxes. Section 41 o of the Tax Code relates exclusively to proceedings for the correction of State taxes. The first clause says:

"Any person. firm or .corporation assessed with any State taxes on property * * * may apply to the "Corporation Court for relief''.

The section applying to local levies or taxes, simipage 14 ] lar to the case as to State Tax, is Section 414, of

the Tax Code. We have no objection to participation by the City's coun

sel, but to establish a precedent by joining a locality in a proceeding as to the assessment of State taxes, when there is nothing alleged that the local assessment is erroneous, would be a harmful precedent. I could cite authority for that: In the case of the Town of Leesburg, Virginia, vs. Loudon National Bank, 141 Va. 244, the Court said:

''The true parties to the proceeding under this section are either the county or the municipality for the use of which the specific levy is made.''

The only one challenged here is the State tax, and the State, we contend, is the only proper party. The City has assessed taxes on the same property and the city could have


brought suit for the collection of these taxes and the Commonwealth would not have objected. But we think joining them is erroneous and that the City should be dismissed.

By Mr. Hunter: May it please the Court: It is true, as Mr. Martin has said,

that this section of the Tax Code for relief against State taxes is Code practice and only contemplates a petition whereby the State is made a party defendant. Nevertheless, when the plain-

tiff in this case, James W. Michael's Bakery Corppage 1 5 1 oration, filed an application for relief against State

taxes assessed for 1938-1939, the City of Roanoke was made a party defendant to that application. And for this reason: The City of Roanoke had assessed the very property involved in the State assessment. The City had taxed the trucks, furniture and equipment of James W. Michael's Bakery Corporation as tangible property and that tax is still an assessment by the City. The State came along and taxed the very same property,-assessed the same property. The James W. Michael's Bakery Corporation made the City a party, in order that the City might be bound by the order or judgment of this Court in - this case. The City, in turn. replied to the Petition, asking that judgment be rendered in favor of the City against James W. Michael's Bakery Corporation for the taxes, so no harm could be done to the State of Virginia by reason of the City of Roanoke being a party to this proceeding. The law and the evidence will be the same, and it does not lie, as I see it, in the mouth of one defendant to say that another defendant has been misjoined. The defendant who has been improperly misjoined could make a motion to be dismissed by filing a plea in abatement.

Another thing-the City of Roanoke was not made a party to this petition in order that jurisdiction could be obtained here. The Code, in that very section, says that the application by the tax-payer as against State taxes may be made in Your

Honor's Court. In addition to that, Code pracpage 1 6 ] tice has no particular advantage over any other

proceedings in the Court. You may recall that, a short time ago, James D. Johnston

filed a petition in your Court for redress for what he claimed to be an excessive assessment. You held that that was in the nature of a suit or action and that, although notice was not re-


quired by statute, nevertheless, all the rules of pleading and practice had not been broken down by reason of that hiatus or absence of the requirement of notice in the statute. And on a petition for a writ of error in that case, the Supreme Court of Appeals took the same view and denied a writ of error.

Section 6102 of the Code of Virginia provides:

"No action or suit shall abate or be defeated by the nonjoinder or misjoinder of parties, plaintiff or defendant, but whenever such nonjoinder or misjoinder shall be made to appear by affidavit or otherwise, new parties may be added and parties misjoined may be dropped by order of the Court at any stage of the cause as the ends of justice may require;"

Now, that gives the Court wide latitude and discretion. The last clause of the quoted language of the Code of Virginia does not permit the dropping of a party, unless the ends of justice so requires. The plaintiff has done no violence to the Commonwealth's case by making the City of Roanoke a party to the suit. The plaintiff should be permitted to have

settled in one proceeding all of his tax liability on page 1 7 ] the same subject of taxation. The City claims that

it is entitled to the tax. The law and the evidence will be the same, whether the City is a party or not. The only difference is that each party, by the Court's decision, will be bound, provided the City is not dropped as a party to this suit.

(After argument of counsel on all sides, the Court rendered the following decision) :

By The Court: Gentlemen, I will over-rule the motion ro dismiss.

By Mr. Martin: We note an exception to the decision of the Court.

By Mr. Hunter: Shall we undertake to dictate a statement of facts?

By Mr. Martin: I will agree to the fundamental facts, but I want you to

prove your case. If you want to stipulate your facts, those that I can agree to, I will do so. However, the burden is on you to prove your case.


Charles R. Lescure

By Mr. Hunter: We will go through with the case in the usual way.

page 18 ] EVIDENCE FOR PLAINTIFF

CHARLES R. LESCURE Sworn for Plaintiff.

DIRECT EXAMINATION

By Mr. Hunter: Q. Mr. Lescure, what is your occupation? A. I am Deputy Commissioner of the Revenue for the

city of Roanoke. Q. Are you now deputy commissioner of the revenue

for the City of Roanoke, Virginia? A. Yes, sir. Q. How long have you been Deputy Commissioner of

the Revenue for the City of Roanoke, Virginia? A. Ever since 1 9 3 3. Q. This is the case of James W. Michael's Bakery Corp

oration vs. Commonwealth of Virginia and the City of Roanoke, Virginia. I will ask you, do you have a record of the assessments made through the office of the Commissioner of the Revenue for the City of Roanoke, Virginia, against that company?

A. I have some of them, yes, sir. Q. ·oo you have an assessment for 193 7, a record of

that. (Exh1biting papers to witness) ? A. We have a card record which embraces 1937. They

did not make a return. A. You mean that the corporation did not make a re

turn for I 9 3 7 ? A. Not through our office.

page 1 9 ] Q. Was that an arbitrary assessment made through your office?

A. Yes, sir. Q. What is the assessment you have for 193 7? A. A value of $I715.00 of tangible personal property,

embracing trucks, furniture 3nd fixtures.


Charles R. Lescure

Q. Was that assessment for local taxation? A. Yes, sir. Q. Was there an assessment of Capital for that year? A. No, sir; not through our office. Q. What do your records show for 1938? A. For 193 8, they made a return and I have a copy of

it here (indicating) . That is this return here (indicating). Q. Was there anything assessed as Capital for that year? A. Yes, sir; they had on their Capital Tax Return the

amount of $4190.04. Q. Was any assessment made for Tangible Personal

Property for that year? A. Yes, sir: $2,000.00. Q. What did that embrace? A. A fleet of trucks-I International; I Dodge; 1 Ford;

2 Fords; 5 Dodges and 2 Chevrolets. Q. I will ask you to file that I 938 return. A. I so file it.

By The Court: Would you rather file a copy?

page 20 ] A. I will have to make a copy.

By Mr. Martin: That is agreeable.

(Said paper is filed herewith as Exhibit No. r for Plaintiff, and is attached hereto and made a part hereof).

By Mr. Hunter: Q. As to the year r 938, I observe on the return a pencil

notation. Can you tell me what that is and how it got on there?

A. No, sir: I cannot answer that; only when we wrote for a copy of that, a letter came back which said, "As requested in your letter of the 22nd, we are enclosing a copy of Capital Tax Returns for 193 8 and 193 9, as filed by this corporation", and the notations were made by the department for those two years. It is signed by the Supervisor.

Q. What date is that? A. October 24th, 1940.


Charles R. Lescure

Q. That pencil notaton was on there when you got it in your office, was it?

A. Yes, sir; when it came back from the State. Q. When it came back from the State? A. Yes, sir. Q. Do you have a copy of the return, if any, made for

1939? A. Yes, sir; they made a return that year.

page 2 1 ] Q. Was there any return of Tangible Personal Property and, if so, what was it?

A. For 1939, the Tangible Personal property was $4,-900.80.

O. What did that represent? A. A fleet of trucks; machinery, tools and equipment

and office fixtures: counters, cash registers and cases and cans and things like that.

Q. Will you file that copy of return with your evidence? A. Yes, sir.

(Said paper is filed herewith as Exhibit No. 2, for the plaintiff, and is made a part hereof and attached hereto).

Q. Was that property assessed by your office for local taxation?

A. Yes, sir. Q. Was there any assessment of Capital un 1939? A. Yes, sir. Q. What was that? A. $3824.21. Q. What did that embrace? A. It embraced "Inventory of stock on hand; material for

use in business' '-the inventory of stock on hand being $ 1327. -60, and material used in business $ 1 1 3 7. 60; the total being

$2465.20; Accounts Receivable $235.00; Bills page 22 ] payable $4412.01; Accounts Payable $3450. 11,

for a total of $7862. 12; money on hand and on Deposit $1359.01. Total taxable capital $3,824.21.

Q. And your office assessed him with that property you just read for the year 193 9?

A. That was 1 9 3 8 : I beg your pardon. This is for 1 9 3 9 (indicating) ; those were the 193 8 figures.


Charles R. Lescure

Q. For 1939, what was assessed as Capital through your office?

A. A total of $4190.04. Q. What was embraced there? A. Inventory of stock on hand $1773.55; Accounts Re

ceivable $661. 5 9; Accounts Payable $2949. 5 1; money on hand and on Deposit $2416.49.

Q. Was your office advised of an additional assessment for 1938-1939, by the Department of Taxation, on Capital?

A. Not to my recollection.

CROSS EXAMINATION

By Mr. Martin: Q. Mr. Lescure, you say that the 193 7 assessment on

these items of delivery equipment were made by your office arbitrarily?

A. Yes, sir. Q. No return was made by the tax-payer; is that right? A. That is right.

Q. You assessed it as Tangible Personal Proppage 2 3 ] erty, did you not?

A. Yes, sir. Q. In connection with the 1938 assessment on similar

property, you stated that the return was filed by the tax-payer, did you not?

A. Yes, sir. Q. Did the Commissioner of the Revenue request that

return?

not?

A. Q. A. Q.

A. Q. A. Q. A. Q.

In the general course of assessments, it came up. Did you make any special request for it? No, sir. The 1939 report was filed by the tax-payer, was it

Yes, sir. It was as·sessed as tangible personal property, was it? Some of it, yes, sir. The assessment was made for the city, was it? Yes, sir. Assessed as tangible personal property and the assess-


Charles R. Lescure

. .,

ment for the city was made as tangible personal property for 193 8; is that right?

A. Yes, sir.

Note: Tax returns for the years 1938 and 1939, are here attached, marked as Exhibits Nos. 3 and 4, respectively, and made a part of this record.

Witness stands aside.

By Mr. Plunkett: I wish to introduce in evidence a letter dated Aug

page 24 ] ust 25, 1939, from the Department of Taxation, by H. T. Leake. Supervisor, Corporation Division,

which reads as follows:

(Reading):

COMMONWEALTH OF VIRGINIA Department of Taxation

C. H. Morrissett, State Tax Commissioner

Richmond, August 25, 1939.

James W. Mitchell's Bakery Corp., 3 17 First St., S. E., Roanoke, Va.

"In re: 1939 State Capital Tax Return.

Gentlemen:

"We note that you did not include in the taxable capital the value of the delivery equipment and furniture and fixtures, so the department will increase your taxable capital by the amount of $3,000.00 to cover these items of capital. A similar adjustment will be made in your 193 8 State Capital return, as these items of capital were also omitted from that report.

"You will no doubt recall that under date of January 2 1,

193 8, we advised you to discontinue reporting these items of taxable capital to the locality for taxation, but to include them

City of Roanoke vs. J. W. Michael's Bakery Corp., et al 3 5

in your State capital tax return beginning with the 193 8 State capital tax return.

Very truly yours,

DEPARTMENT OF TAXATION By H. T. Leake,

Supervisor Corporation Division."

By Mr. Plunkett: This was a letter written to James W. Michael's

page 25 l Bakery Corporation and was received by the James W. Michael's Bakery Corporation. We wish to file

it as an Exhibit.

(The foregoing paper is marked as Exhibit No. 5, and is attached hereto and made a part hereof) .

By Mr. Plunkett: I also want to introduce in evidence a Notice of Assess

ment of Taxes by the Department of Taxation, under date of October 5, 1939, against James W. Michael's Bakery Corporation, which shows Capital 1938, tax $22.50; and Capital 1939, $3,000.00, tax $22.50, or a total of $45.00.

(The foregoing paper is filed as Exhibit No. 6 for the plaintiff and is attached hereto and made a part hereof).

By Mr. Plunkett: I also want to introduce the copy of a letter dated Novem

ber 1st, 1939, from Moss A. Plunkett, Attorney for James W. Michael's Bakery Corporation, to Mr. H. T. Leake, Supervisor, Department of Taxation, Richmond, Virginia, as follows:

(Said paper is filed as Exhibit No. 7, for the Plainpage 26 ] tiff, the same being made a part hereof and being

in the following words and figures, to-wit:)

November 1, 1939.

In re: James W. Michael's Bakery Corp.

"Mr. H. T. Leake, Supervisor, Department of Taxation, Richmond, Virginia.


Dear Sir:

"The Department of Taxation has assessed the trucks of James W. Michael's Bakery Corporation at a valuation of $3,-000.00 for the years 1938 and 1939.

"Section 7 of the Tax Code provides that all taxable tangible personal property is segregated and made subject to local taxation only. On the strength of this Section, the City of Roanoke has subjected the trucks in question to local taxation and the taxes thereon have been paid by James W. Michael's Bakery Corporation.

"I presume that this is not the first case of this character that you have had. I would like to ask whether or not any Courts in Virginia have passed upon the right of the State to tax taxable tangible personal property.

"As you can well appreciate, the above property cannot legally be taxed by the State of Virginia and by the City of Roanoke. One or the other has the right to tax.

"I will appreciate it if you will let me hear from you promptly, as this is a matter that should not be permitted to drag along."

page 2 7 ] "Very truly yours, Moss A. Plunkett,".

"MP:ET."

By Mr. Plunkett: I also want to file as an Exhibit a letter dated November

2, 1939, from the Department of Taxation at Richmond, Virginia, to myself, signed by Mr. H. T. Leake, Supervisor of the Corporation Division reading as follows:

(Said paper is filed as Exhibit No. 8 for the Plaintiff, the same being made a part hereof, and being in the following words and figures, to-wit) :

COMMONWEAL TH OF VIRGINIA Department of Taxation

Richmond

"Mr. Moss A. Plunkett, Attorney, Shenandoah Life Building, Roanoke, Virginia.

November 2, 1939 C. H. Morrissett

City of Roanoke vs. J. W. Michael's Bakery Corp., et al 3 7

In re: James W. Michael's Bakery Corporation.

My Dear Sir:

"Your letter of the first instant in relation to the above corporation has been received.

page 28 ] "Under Section 73 of the Tax Code as amended personal property, tangible or physical in fact, which

is used in any trade or business not otherwise specifically taxed or specifically exempt from taxation should be reported as capital. The law then defines the different items of capital one of which is the inventory of stock on hand, which is tangible or physical in fact. It then proceeds to eaumerate other items of capital such as the excess of receivables over payables, the money on hand, and then it refers to all other taxable personal property of any kind whatever, but excluding the property hereinafter specifically mentioned in this section.

"The business of a bakery is not otherwise specifically taxed or specifically exempt from taxation and it is not one of the businesses· mentioned in Section 73 of the Tax Code where the tangible property is not held to be capital but shall be listed for local taxation exclusively and taxed as tangible personal p .. :operty.

"The State Tax Commissioner has held that the tangible personal property, including the delivery equipment of such businesses that are not exempted under the provisions of Section 73 of the Tax Code of Virginia, should be reported as capital, and the department has steadfastly adhered to this ruling.

''It is certainly true that the property in question cannot legally be taxed by the State of Virginia and also by the City of Roanoke, and as the State Tax Commissioner has interpreted Section 73 of the Tax Code as amended, the delivery equipment of the above corporation should be reported as an item of capital against Item 4 under the "Capital" classification that refers to all other taxable personal property of any kind whatever, et cetera.

"The question that you have raised has been adpage 29 ] vanced many times before, and the answer has been

given to others in the same way that we are now replying to your letter.

11We might suggest that since there is a difference of opinion as to the proper classification of the delivery equipment in


C. H. Morrissette

question it might be best for you to have your commissioner of the revenue communicate directly with the State Tax Commissioner, if he has not already done so.

"The general practice though throughout the State is for a business of this kind to report the delivery equipment as one of the items of capital under the provisions of Section 73 of the Tax Code and not report it for local taxation.

Very Truly Yours,

DEPARTMENT OF TAXATION, By H. T. LEAKE, Supervisor

"htl-s." Corporation Division

STIPULATIONS

By Mr. Plunkett: It is stipulated by counsel on both sides, or for all parties.

that it will not be necessary to bring witnesses here to show who wrote and who received the letters -in question.

PLAINTIFF RESTS

page 30 ] EVIDENCE FOR DEFENDANT

By Mr. Martin: _ I want to ask Mr. Michael a question, unless you will stip

ulate what this inventory consisted of-the items of the inventory-unless we can stipulate that it was flour and bread and other materials used in making bread in bakery production.

By Mr. Plunkett: Yes: we will stipulate that: that it included that.

C. H. MORRISSETTE Sworn for Defendant.

DIRECT EXAMINATION

By Mr. Martin: Q. You are the State Tax Commissioner, are you not?


C. H. Morrissette

A. Yes, I am. Q. You have been such for many years, have you? A. Since April, I 9 26; a period of some 14 years. Q. And as such State Tax Commissioner, you have gen

eral supervision over the administration of the State tax laws, do you not?

A. Yes, sir, under the statutes. Q. At my request, Mr. Morrissett, have you brought with

you and examined the files of the Department of Taxation relating to the petitioner here?

A. Yes ,sir. page 3 1 1 Q. I show you a letter dated January 17th, I 93 8,

or rather the copy of a letter, and ask you to state what that is. It may be understood that I have all the originals here and I am filing the originals and withdrawing them and substituting copies. (Paper is handed to witness).

A. This is a letter written under date of January I 7th, 1938, by James W. Michael's Bakery Corporation, by Walter C. Michael, President, to Mr. H. T. Leake, Supervisor, Corporation Division Department of Taxation, Richmond, Virginia reading as follows:

(Reading).

"Dear Sir:

"Upon investigation, we find that through some sort of oversight, we failed to make the return on intangible property last year, and wish to say that this was not done intentionally, for we do certainly want to pay our just share of the taxes, and so we enclose our check for $29. 16, which is 75 cents on the one hundred dollars on the amount of the return.

"As our buisness is a Cash business, we do not have any accounts payable or receivable.

"Trusting that this will make matters 0. K. beg to remain.

"Very Truly Yours,

James W. Michael's Bakery Corporation, Walter C. Michael, President.''

Supreme Court of Appeals of Virgii:iia

C. H. Morrissette

(The said letter is filed herewith and made a part page 3 2 ] of this record, the same being marked as Exhibit

No. "A" for the defendant).

By Mr. Martin: Q. That letter was received by the Department of Tax

ation, was it? A. Yes, sir. Q. I want that introduced as Exhibit "A" for the de

fendant. A. It has been so filed.

(Said paper has been filed heretofore as Exhibit ''A", as above indicated) .

Q. Can you surmise why that letter was written? A. Evidently in response to a form communication call

ing upon all delinquent Capital Tax payers for tax returns. Q. That return was filed directly with the Department

was it? A. Yes, sir. Q. The assessment for 193 7 taxes on Capital pursuant

to the return was made, was it? A. Made by the Department, yes, sir. Q. At this point, in accordance with our understanding,

I want to introduce a copy of the 193 7 Capital Tax return filed by this Corporation.

A. I so file it.

(Said paper is filed as Exhibit No. "B" for the depage 3 3 ] fendant, and the same is attached hereto and made

a part hereof).

Q. Does that show an item of Inventory? A. It shows $241o.59, value of Inventory of Stock on

Hand, and Matrial for use in business. Q. I show you another letter, dated January 18th, 193 8,

purporting to be from Mr. H. T. Leake Supervisor of the Corporation Division to James W. Michael's Bakery Corporation, 3 1 7 Nelson Street, Roanoke, Virginia and will ask you if the original of tpat letter is in the files of the Department of Taxation?

City of Roanoke vs. J. W. Michael's Bakery Corp., et al 4 I

C. H. Morrissette

A. Yes, sir. Q. I will ask you to read it. A. Very well. (Reading) :

"January 18, 19,8

James W. Michael's Bakery Corporation, 3 1 7 Nelson St., Roanoke, Virginia.

Gentlemen:

· 'We have your letter of the 17th enclosing the delinquent 193 7 State capital tax return and also your check in amount of $29. 16. However, we note that you failed to include in the taxable capital the value of your delivery equipment and furniture and fixtures.

"Please advise the value of the above equipment as page 3 4 ] of January I st, and if same was reported to the lo

cality for taxation. Thanking you for an early reply, we are,

''Very Truly Yours,

DEPARTMENT OF TAXATION, By H. T. Leake, Supervisor,

Corporation Division."

(The foregoing letter is attached hereto as Exhibit "C" for the defendant, and is made a part of this record).

By Mr. Martin: Q. I show you a letter, Mr. Morrissett, dated January

19th, 1938, signed by Walter C. Michael President of James W. Michael's Bakery Corporation and addressed to Mr. H. T. Leake, Supervisor, Corporation Division, Department of Taxation, Richmond, Virginia, which reads as follows:

"Answering your letter of January 18th:

"I he1ewith enclose duplicate tax receipt showing amount of assessment on delivery equipment and furniture and fixtures, and the amount paid to Mr. Kennett, Treasurer.

"I trust that this will clear up the confusion, which has


C. H. Morrissette

been caus.ed I feel by the transfer of the business page 3 5 ] from Walter C. Michael & Son to the present

corporation.

Sincerely, Walter C. Michael, President James W. Michael's Bakery Corporation."

(The foregoing letter is marked as Exhibit "D" for defendant, and is attached to and made a part of this record).

By Mr. Martin: Q. I show you another letter, dated January 21, 1938,

and ask you to read that copy of the letter and file it with your testimony.

A. I so file it.

(Said letter is filed as Exhibit "E" for defendant, the same being made a part of this record and being in the following words and figures, to'...wit) :

January 21, 1938.

James W. Michael's Bakery Corporation, 3 I 7 First Street, S. E., Roanoke, Va.

Gentlemen:

"Acknowledgment is made of receipt of your letter of the 19th, and we are returning herewith your tax receipt, and would suggest that for the year 1938 the delivery equipment and furni

ture and fixtures be reported as a part of the taxpage 3 6 ] able capital based on the book value less deprecia

tion, and that you do not report these items of taxable capital to the locality for taxation.

Thanking you, we are

Very truly yours, Department of Taxation,

By H. T. Leake, Supervisor Corporation Division.''


C. H. Morrissette

By Mr. Martin: Q. I take it. for the tax year 1 9 3 7, the Department did

not assess Michael's Bakery with the items of Capital which the Department says was omitted?

A. It did not include the delivery equipment in the tax assessment, because the evidence was that the corporation had already paid the taxes on the trucks to the City. The amount being small, the Department pursued the matter no further, except to write the company to get straight in the future. We have many tax cases and the small cases are not pursued to a conclusion to the same extent as the more important ones.

Q. Mr. Morrissett, it is stipulated here that the corporation was chartered in 1 9 3 6?

A. Yes, sir. Q. Then for what year would the first capital re

page 3 7 ] turn have been filed? A. For the tax year of 1937.

Q. And that is the return you refer to, is it? A. Yes, sir. Q. I hand you copies of Capital returns filed by the tax

payer for the years 1938 and 1939. Is that right? (Papers are handed to witness) .

A. These are copies of Capital tax returns filed for the tax years 1938 and 1939.

Q. You have copies of those (indicating counsel on the opposing side) . Do either of these returns show the item of Inventory?

A. Both of them show the item of Inventory. Q. In what office were they filed for the years 193 8 and

1939? A. They were filed in the office of the Commissioner of

Revenue of Roanoke City. Q. And of course the assessment for taxes was made by

that office, was it? A. After the assessment was made by. the Commissioner

of Revenue, a copy of the assessment book, accompanied by the returns themselves, went to the Department of Taxation, the object being to have an audit and investigation and for permanent preservation.


C. H. Morrissette

Q. I will ask you to file returns there for 1938 and 1939 with your evidence.

A. I so file them.

( Said retu ms for 1 9 3 8 and 1 9 3 9, are filed and page 3 8 J made a part of this record, as Exhibits "F" and

"G", respectively, for the defendant).

By Mr. M2rtin: Q. I show you a letter dated August 25, 1939, and will

ask you to read that: A. (Reading) :

August 25, 1939. James W. Michael's Bakery Corp., 3 1 7 First St., S. E., Roanoke, Va.

"In re: 1939 State Capital Tax Return.

Gentlemen: "We note that you did not include in the taxable capital

the value of the delivery equipment and furniture and fixtures, so the department will increase your taxable capital by the amount of $3000.00 to cover these items of capital. A similar adjustment will be made in your 193 8 State capital return, as these items of capital were also omitted from that report.

"You will no doubt recall that under date of January 2 I,

193 8, we advised you to discontinue reporting these items of taxable capital to the locality for taxation, but to include them in your State capital tax return beginning with the 193 8 State capital tax return.

page 39 ]

By Mr. Martin:

Very truly yours,

Department of Taxation, By H. T. Leake, Supervisor,

Corporation Division."

Q. Please file that as an Exhibit with you evidence. A. I so file it.

(Said letter is filed as a part of this record, Marked Exhibit No. "H" for the defendant) .


C. H. Morrissette

Q. It was pursuant to that letter that the two additional assessments of 1938 and 1939 were complained of, was it?

A. Yes, sir; the Corporation was first told about the law and advised to conform thereto. It having failed to do so, the Department of Taxation itself acted under the statute as the result of the audit.

Q. Mr. Morrissette, are you familiar with the administrative practice of the Department of Taxation in connection with the filing of Capital tax returns?

A. I am. Q. Will you state what has been the administrative prac

tice in the 14 years you have been State Tax Commissioner, for the State of Virginia, with reference to requiring a tax-payer

who was manufacturing to make a Capital Tax re-page 40 ] turn and include in their return Inventory of Stock

on hand; material for use in Business, Delivery Equipment, and other items.

Counsel for Roanoke City objects to this question, because it is wholly immat.erial and irrelevant, and because it is not a question of what the practice was between tax-payer and the Department. The whole thing is whether or not the State is entitled to the tax by virtue of the statutes, and if by virtue of the statutes, whether or not these statutes are unconstitutional. It is a pure question of law.

By The Court: I take it that comes to the question of the construction of

the statutes and the course of procedure by the State Department or agency, over a period of time, with knowledge of such course of procedure brought home to the General Assembly, and acquiesced in subsequently by the General Assembly-acquiesced in by the public- might be revelant. The objection is overruled.

By Mr. Hunter: We except to the ruling of the Court for reasons stated

above.

A. The administrative practice through the years has been for tax-payers to report as part of their taxable capital, mean-


C. H. Morrissette

ing thereby specifically manufacturers, taxable on capital, their personal property - physical in fact-excluding

page 41 ] machinery and tools, as provided by the statute. Variations from such practice have been few. Theser

when discovered, have been corrected, in appropriate instances, by the State tax authorities. The tax forms prepared by the State tax authorities under the statutes, have been prepared in conformity with Section 73 of the Tax Code, under which the personal property-physical in fact-used or em ployed in· the manufacturing business is included as one of the items of Capital, except that machinery and tools are excluded and given a separate classification. The Commissioners of the Revenue, by reason of the Tax Code itself and the tax forms prepared by the tax ·authorities, and by oral instruction and written instruction, have been instructed to conform to the statutes as written. Instances have occurred in which errors have been made. There have been isolated cases where. as in this case, the Department for the first year did not tax or include in the taxable capital the delivery equipment, as the amount was already taxed by the Locality. This administrative practice has continued in an unbroken manner to my own personal and official knowledge since April, 1926, when I took office as State Tax Commissioner.

Q. And to be specific, the practice has been to require a report of all the items from one to four, respectively, as capital, that is to say, Inventory of stock on hand and Materials

for use in business and miscellaneous personal proppage 42 ] erty, such as delivery equipment and furniture and

fixtures; is that correct? A. The administrative practjce has been to require the

tax-payer to report such items for State taxation, as constituting items of taxable capital.

Q. This practice has been uniform, has it? A. The Commissioners of the Revenue, if any have fail

ed to act accordingly, have violated the statute and the instructions of the State Tax Commissioner.

Q. So far as you know, did this practice represent any change from the practice prior to your taking office as State Tax Commissioner?

A. Not at all.


C. H. Morrissette

Q. Had the tax-payers generally been reporting these items on their returns filed with the Commissioners of the Revenue?

A. They have, yes, sir. Q. Mr. Morrissette, what becomes of the return of In

tangible Personal property af::er it is filed? A. The current return? Q. The return filed with the Commissioner of the Rev

enue? A. After the returns of Intangible personal property are

filed with the Commissioner of the Revenue, they enter the same on their personal property books, after which they are sent to the Department of Taxation at Richmond.

Q. W_hat does the Department do with these repage 43 ] turns--confining ourselves to returns of Intangible

property? A. Upon the receipt of such returns, or as soon thereafter

as is practicable, the Department of Taxation audits the same and, in the case of corporations, compares the Capital Tax return with the balance sheets found in the Income Tax return of the corporations, and any discrepancy so noted is pursued, of course reasonably and in conformity with the law.

Q. That is, if additional assessments appear to be in order, they are made, are they?

A. If additional assessments are in order, they are made by the Department.

Q. You state that these returns are compared with the balance sheets of the Corporation, which is shown on the State Income Tax return filed by the corporation. Is that correct?

A. Yes, sir. Q. I hand you copies of the State Income Tax returns

filed by James W. Michael's Bakery Corporation for the years 193 6, 193 7 and 193 8, and ask you if these are copies of the returns on file with the Department of Taxation, with the cmi~sion of the items of income. I might say to counsel for Michael's Bakery that it was not necessary to show the Corporation's income from its business on this Exhibit.

We only included the heading of the return, topage . 44 ] gether with the balance sheet.


C. H. Morrissette

By Mr. Plunkett: All right.

By Mr. Martin: Q. These are copies of the Income Returns for the years

I 93 6, 193 7 and I 93 8, aren't they (indicating) ? A. Yes, sir. Q. And they contain balance sheets prepared by the Corp-

oration, do they not? A. They do. Q. Were the returns filed by the corporation? A. Yes, sir. Q. I will ask you to file these returns as part of your

evidence? A. I so file them.

(Said papers are filed as Exhibits for the defendant, marked respectively as Exhibits 'T', "J" and "K", the same being hereto attached and made a part of this record) .

Q. As a sample of one of these balance sheets, will you read the item under "8" of the Balance Sheet?

A. Item "8" of the balance sheet for the period beginning April 1st, 1936, and ending the 2nd day of January, 1937,

is as follows: "8"-Capital assets: Land-" page 45 ] none or rather it is blank; "Buildings" blank; "Ma

chinery and equipment-$ 1,867.22; "Furniture and fixtures-$ 128.63; Delivery equipment- $6,073.4i; Total-$8,069.26."

Q. You have filed copies of the Intangible returns of the tax-payer for the years 1937. 1938 and 1939. These returns are made on forms prepared by the Department of Taxation, are they?

A. Yes, sir. Q. Has there been any substantial change in these forms

in recent years? A. None at all: there has been no substantial change for

many years. Q. I show you a blank form of Tangible Personal Prop

erty return, prepared by the Department of Taxation for 193 8. I want to ask you to file this as a specimen return-there is


C. H. Morrissette

nothing on that-and will ask you if that is a specimen of the Tangible Personal Property returns prepared by the Department of Taxation?

A. Yes, sir. Q. And also this form for 1939? A. Yes, sir. Q. And they are the returns the tax-payers generally use

in reporting for Local taxation their Tangible Personal property, are they?

A. Yes, sir. Q. Will you read the instructions in the upper

page 46 ] left hand corner of the return? A. The material in the upper left hand corner of

the official State form for the Return of Tangible Personal Property, Machinery and Tools and Merchants' Capital to the localities, is as follows: (Reading from form) : "Report on this Return the Property Owned by the Taxpayer on January 1, 193 8, and File the Return with the Commissioner of the Revenue for the County or City. No property is assessable as tangible personal property which the law classifies as intangible personal property.'' That language comes from a statute.

Q. There is no substantial change in these forms is there? A. No, sir, there has been no substantial change in them

for many years. Q. Please file those blank returns as Exhibits with your

evidence. A. I so file them.

(Said papers are filed as indicated, marked as Exhibits "L" and "M" for the defendant, and attached hereto and made a part of this record).

Q. Do you know the amount of Capital taxes paid to the State by tax-payers, taxable on Capital, say for the year r 940, or whatever year you have?

A. A good idea can be had-

By Mr. Hunter: (Interrupting) : We object to that as being immaterial and irrelevant, as

to what the State may collect by way of taxes, page 47 ] without a comparison to show what was collected


C. H. Morrissette

by the localities on Tangible property. It has nothing to do with the case.

By The Court: What is the purpose of this question?

By Mr. Martin: The purpose of the question, as will be developed by sub

sequent questions, is to show and to give effect to what Mr. Morrissette said as to the acquiescense of the tax-payers in filing their returns of Capital and including these items, to show how much tax is involved and, if the tax-payer had not acquiesced, in view of the large amount involved, there would have been a kick about it.

By The Court: The objection will be over-ruled.

By Mr. Hunter: We EXCEPT to the ruling of the Court in admitting this

testimony, whatever it may disclose; and we also except on the further ground that, if the State is wrongfully collecting a tax and the tax-payers are acquiescing therein, it is not binding on this particular tax-payer, nor on the City of Roanoke.

By Mr. M".rtin: We don't claim the tax-payers are estopped.

Q. Answer the question: As to the amount of page 48 ] the capital taxes.

A. A good idea may be had from the last figures prepared as of October I I th, 1940, giving the capital tax in and for the tax year 1940: The total State tax on such capital amounted to $1,556,000.00.

Q. How much do you estimate in that tax year was represented by Item I of Capital Tax Return, that is to say, Inventory of Stock on Hand and Material for use in Business?

A. Inventory of stock on hand and Material for use in business, both tangible in fact, constitute approximately 75 % of the total capital value in Virginia. In terms of State revenue, that amounts to about $1,167,000.00.

Q. How much of that revenue would be included in Item 4, which is "all other taxable personal property"?


C. H. Morrissette

A. Of the total of Capital values, it is estimated that approximately three per cent represents Item 4, which is "All other taxable personal property", in terms of State revenue, that is, delivery equipment, etc., or approximately $45,000.00 per annum. So that is small in comparison with Item No. I.

Q. The figures you have given as to the amount of Capital Tax would be included in the official reports of the Department would they?

A. The latest figures given will be included in the annual report of the Department for that year.

Q. How much of the value-taxable value-of page 49 ] capital for the year I 940, comes from the City of

Roanoke? A. I have no figures on 1940, but I may refer to the

latest published report of the Department of Taxation for the fiscal year ending June 30th, 1939; that gives the capital value of the city of Roanoke at $4.375,799.00.

Q. That is the value on which the rate is-A. (Interrupting): The State taxes being $32,817.76. Q. That is the total capital. A. Yes, sir. That is the assessment for the year I 93 8. Q. Applying the percentage of three per cent, as you

have stated, covering Item 4 of the Capitai Report, how much taxable value do you get on that item for the city of Roanoke?

A. Three per cent on $4,375,000.00. Q. You haven't got the figure. That is all right. It

will be three per cent on that amount. A. Yes, sir; that would be the value on which taxes

would be computed, whether or not it is State or local. Q. Yes, sir. What class of tax-payer constitute the larg

est capital tax payers. I do not mean by that the nature of their business.

A. Corporations are away by far the largest capital taxpayers.

Q. I do not mean in dollars and cents, but as to the percentage.

A. By far the greater tax-payers in terms of taxes page 50 ] paid are corporations engaged in manufacturing

and mining.


C. H. Morrissette

Q. You have not had an opportunity to estimate the approximate percentage paid by corporations, have you?

A. At least ninety per cent in capital taxes is paid by .corpo'rations. ·

Q There is one question in connection with administrative practice that I want to ask you: What can you say about the acquiescence of tax-payers generally in the administrative practice you have described?

A. This is the first litigation that has occurred during my tenure of office over the segregation plan of taxation. The tax-payers have acquiesced in this practice.

Q. In practice? A. In practice. Q. In practice? A. In the practice thereunder, yes, sir; this is the first lit

igation that has developed after twelve years of constitutional law under Section 17 r.

Q. Mr. Morrissette, what is the practice in the Department in administrating the capital tax law, as to what shall be classified as Machinery and Tools?

A. The separate classification for machinery and tools was first authorized by the Legislature of 1926. It has been construed through the years as meaning Machinery and Tools used in the actual process of manufacturing.

Q. Has it ever been construed to mean such items page 5 r ] as delivery equipment?

A. It has never been construed, so far as I know, to include delivery equipment. no, sir. The idea was to provide for these low rates on machinery actually used in manufacturing plants for making articles.

Q. Mr. Morrissette, in connection with the documentary evidence, we overlooked introducing a letter in connection with the James W. Michael's Bakery Corporation, in connection with this assessment. It was written by you to Mr. Moss A. Plunkett, Attorney at Law, Shenandoah Life Building, Roanoke, Virginia, under date of November 10th, 1939. Did you write that letter? (Paper is. handed to the witness).

A. Yes, sir. Q. Will you read that letter to the Court? A. Yes sir. This letter is dated November roth, 1939,


C. H. lv/ orrissette

as taken from the files of the Department of Taxation. It is a letter signed by C. H. Morrissette, State Tax Commissioner, and is addressed to Mr. Moss A. Plunkett, Attorney, at Law, Shenandoah Life Building, Roanoke, Virginia, and is as follows: (Reading).

Q. Will you file that letter with your evidence as an Exhibit?

A. Yes, sir.

(Said letter was duly filed as Exhibit No. "N" for defendant, the same being in the following words and figures to-wit) :

COMMONWEALTH OF VIRGINIA page 52 ] DEPARTMENT OF TAXATION

Mr. Moss A. Plunkett, Attorney at Law, Shenandoah Life Bldg., Roanoke, Virginia

Richmond November 10, 1939.

IN RE: James W. Michael's Bakery Corp.

My Dear Mr. Plunkett: Mr. Leake has requested me reply to your letter of the 3rd

instant, in relation to James W. Michael's Bakery Corporation. In this letter I will undertake to write you on the subject

of Section 73 of the Tax Code to the extent that it relates to a manufacturing business. From what I write you will see that the delivery equipment of this concern, assuming that it is en- · gaged in the manufacturing business, is taxable as a part of its capital under Section 73 of the Tax Code.

Section 73 is in Chapter 7 of the Tax Code, entitled "Intangible Personal Property." Section 68, which is the first section of the chapter, reads as follows:

''Intangible personal property having been segregated for State taxation only, the subjects of taxation classified by this

chapter are hereby defined as intangible personal page 5 3 ] property, and shall be taxed as hereinafter provid

ed, that is to say:"


C. H. Morrissette

Section 73 defines and classifies capital for the purpose of State taxation. As applied to a manufacturing business, the entire taxable property is covered by the definition of capital except real estate and machinery and tools. Real estate is always taxable as such and the machinery and tools used in a manufacturing business taxable on capital under section 73 are taken out of the definition of a capital and a separate classification of such machinery and tools by the political subdivisions of this State for the purpose of local taxation is authorized.

Section 283 of the Tax Code, which classifies tangible personal property for the purpose of local taxation, contains the following paragraph:

''No property shall be assessed as tangible personal property which the law classifies as intangible personal property."

As we have just seen, Sections 68 and 73 classify capital as intangible personal property.

The second sentence of Section 168 of the Constitution of Virginia, as amended June I 9, 1928, Reads as follows:

"The General Assembly may define and classify page 54 ] taxable subjects, and, except as to classes of prop-

erty herein expressly segregated for either State or local taxation, the General Assembly may segregate the several classes of property so as to specify and determine upon what subjects State taxes, and upon what subjects local taxes may be levied."

Section 171 of the Constitution of Virginia, as ratified June r 9, 1928, reads as follows:

"No State property tax for State purposes shall be levied on real estate or tangible personal property except the rolling stock of public service corporations. Real estate and tangible personal property, except the rolling stock of public service corporations, are hereby segregated for, and made subject to, local taxation only, and shall be assessed or re-assessed for local taxation in mch manner and at such times as the General Asr.em bl y has heretofore prescribed, or may hereinafter prescribe, by general laws.''

I was the draftsman of Section 1 7 I. I suggested the necessity of amending Section 1 68 so as expressly to authorize the

Ceneral Assembly to define and classify taxable subjects. This was done to prevent Section I 7 I from being too rigid. In con-


C. H. Morrissette

struing Section 171 we must take into consideration Section 168, and in addition we must remember that Section

page 5 5 ] 1 7 1 was drafted in the light of the court decisions to the effect that capital is intangible personal prop

erty although some of the constituent parts might be tangible in fact.

Again we must remember that construction which the General Assembly put on Section r 7 r at the time of its adoption. The General Assembly did not because of Section r 7 r change the capital tax section so as to restrict it to property which was intangible in fact. It continued substantially the old definition, and up to this time the legislative construction and the practical construction put upon the whole matter has not resulted in any litigation. This covers a period of eleven years and if any litigation should now be brought about, the acquiscence in this legislative and administrative construction for eleven years will naturally carry weight with the court.

I may say that a stock of goods is tangible in fact, and that if a man were to hit his head against an automobile in an automobile manufacturing plant, it would hurt him no less than if he were to hit it against a truck which is being used by the automobile manufacturing plant to transport the automobiles to retailers, assuming of course the same force in each case. Notwithstanding this, apparently some of the cities are attempting to contend that there is a difference between automobiles in

stock and the truck which transports the automobile page 5 6 ] to the retailer in regular course of business. The

principle is the same whether the business be that of automobile manufacturing, tobacco manufacturing, shoe manufacturing. or bread manufacturing.

In view of the foregoing, the Department of Taxation would stultify itself if it in any way receded from the unbending construction of eleven years both by the General Assembly and the administrative authorities.

I may add that the General Assembly of 1938 was requested by certain city authorities in the State to modify Section 73. The bill, however, was frowned upon by the Senate Finance Committee and the General Assembly refused to classify as tangible personal property the delivery equipment, etc., of manufacturing establishments. No effort was made to get the


C. H. Morrissette

General Assembly to classify inventory of stock on hand as tangible personal property. On the other hand, a spokesman for the citites contended that there was a difference between stock on hand and delivery equipment so far as tangibility in law was concerned.

If you will read carefully the opinion of the court by Burks, J., in Commonwealth vs. Pembroke Limestone Works, 145 Va. 4 76, for the theory of the capital tax, you will see that there is no legal foundation for the city's position. With best wishes, I am

Very truly yours,

ST A TE TAX COMMISSIONER

CROSS EXAMINATION

By Mr. Hunter: Q. Mr. Morrissette, the State tax rate is 75 con the $ I 00.-

00, is it not? A. It is 75c on the $ 100.00 of Capital.

page 5 7 ] Q. It has been that way for some years, has it not? A. For more than ten years.

Q. The Local tax rate is $2.50 for Roanoke, is it not? A. Yes, sir. Q. What is the average for the State at large? A. $2.50 nominally. Q. $2.50. A. Yes, sir; that rate is not far from being the average

for the state at large. From $2.00 to $2.50, but actually the tax rate is much lower than that. The true tax rate must be a~sessed or computed on the actual value of the property taxed, but, if the property be. under assessed, as most of it is, the true rate would be lower than $2.50.

Q. There are a few localities that have a tax rate of$ 1.50

a hundred, are there not? A. Some counties have levies that low. Q. Most of them are above that rate, are they? A. Yes, sir. Q. You spoke of co-operation on the part of the tax

payers of the State with reference to the return of their furniture


C. H. Morrissette

and equipment, etc., as Caapital. That is rather page 58 ] natural, isn't it, because the State rate is much

lower than the local rate? A. The true situation is that the actual difference in dol

lars and cents depends on what value is adopted for local tax purposes. The 75c rate is computed on the book value, almost without exception on these items, whereas the city rate of $2.-

5 o, applied to Tangible property is not applied to the full value of the property.

Q. The book value is not the full value, is it? A. It is fairly representative of the value. It is the best

that can be done in getting at the true value, I think. Q. You spoke of what the State might lose in the event

of an adverse decision. The city of Roanoke, with this rate of $2.50, would be the gainer so far as property is concerned, if it got the tax, wouldn't it?

A. That is true, but if you compute $2.50 on the amount stated, the probability is you would not have over $2500.00

or $3,000.00 of local reven·ue involved in the case. Q. That would be more than you could get back fot

the State, wouldn't it? A. Not at all. It depends on what y·ou include in the

matter of "getting back''. You understand, if I may say this, that the plan of segregation was worked out in 1926, and the localities were given consideration as well as the State.

Q. As a matter of fact, segregation really started page 59 ] as late or as early as I 9 I 5, as nearly as it could be

worked out by the Legislature, didn't it? A. That was the beginning of segregation, but it was

partial. Q. The Legislature said in I 915, didn't it, that it was

to the advantage of the State's interests that there should be segregation, as nearly as it could be worked out at that time, didn't it. As a matter of fact, I will read you the preamble of the Act of r 9 r 5. (Reading from page 84 of the Extra Session of the Acts of Assembly of Virginia for 1915): "Whereas, in the judgment of this general assembly the interests of the Commonwealth will be promoted by putting into operation at the earliest date practicable a plan of complete segregation of the subjects of taxation so as to specify and determine upon what


C. H. Morrissette

subjects State taxes and upon what subjects local taxes may be levied''. Is that correct?

A. Yes, sir. Q. And the Legislature proceeded, insofar as it was then

practicable, to make provision for segregation, did it not? A. It adopted a plan of partial segregation, retaining a

ten cent State tax on real estate and tangible personal property. Q. The great reason for that was in order that

page 60 ] the localities might know from whence its source of revenue might come, was it?

A. No, sir. Segregation was adopted in Virginia to eliminate the necessity of establishing a Central Board at Richmond for the equalization of real estate assessments as among the political sub-divisions of the State.

Q. That was due to the assessments in what was known as the richer counties and the pauper counties, was it not?

A. The ratio of assessed values to actual values varied from ten per cent to more than seventy per cent; therefore, the man holding real estate in a Seventy per cent county, paying a State tax of 25 cents per $ r 00.00, was paying seven times more State tax as the ~an in the ten per cent county was paying the State. That was the reason segregation was adopted, and I daresay it was the only reason. It was not for any reason except to meet the situation in Virginia which was developing by reason of these inequalities in real estate assessments.

Q. And the richer counties were lowering their assessments because the State got part of the taxes, feeling they were paying more into the State treasury than they should be, because of these pauper counties; is that not a fact?

A. There was a tendency in some counties to reduce their ratio of assessed values to actual values, and that very thing was

the cause of the repeal of the State tax on real estate, page 6 r ] -to get rid of the necessity of establishing a State

Board of Equalization. Q. And that enabled the counties and other localities to

know from whence their revertue came and they could fix their assessments at whatever the localities felt they should be; is that right?

A. No; the General Assembly retained full authority over the assessment of property for local taxation, and it still


C. H. Morrissette

has such authority. Tangible property in Roanoke is assessed under the State law.

Q. The rates, however-A. (Interrupting) : The local rates are applied to the

assessments. These local rates are made by Council, but they get proper authority from the General Assembly.

Q. The Generaly Assembly provides that assessors shall be appointed and their duties, and that is as far as the State goes, is it not?

A. Roanoke is an arm of the State, created for the purpose of convenience in administration. The statutes deal with the assessment of property for local taxation.

Q. But leaves it to those Boards or these assessors as to the valuation for tax purposes they wish to put on the real estate and on the tangible personal property. Is that correct?

A. There is no State administration or control over the assessment of real estate.

By Mr. l\fartin: I do not wish to object to this testimony, but I do not de

sire to be considered as consenting to the discussion between Mr. Hunter and the witness. I don't know whether

page 62 ] Mr. Hunter wishes to pursue it any further.

By The Court: I do not know what effect it will have on the Supreme

Court, but it is enlightening to me.

By Mr. Hunter: , I think you went rather far afield yourself (addressing Mr.

Martin). Q. You spoke of a case and read from a letter, in which

you cited the case of the Commonwealth vs. Pembroke Limestone Works. That case was decided before the segregation amendment to the Constitution became effective, was it not?

A. I think it was decided in September, 1926, after the amendment was first proposed by the General Assembly and before it was concurred in at the next session. It was in the interim. The theory of Capital Taxes is that it is taxes on Capital invested. These trucks are not assessed as trucks, but as part of Capital, and it is Capital.


C. H. Morrissette

Q. The effect is the same, as to which taxing authority the money goes to, isn't it?

A. You might say that the effect is the same, but the legal principles do mean a great deal in this matter

of Constitutional and statutory construction. Legispage 63 ] lative bodies have a certain discretion in enacting

legislation and there are recognized legal fictions. Not that this is a legal fiction. but there are a number of legal fictions in law, but it does not-if I may say this-it does not trouble me in my thinking to see that Judge Burks was right in the Pembroke Limestone case, when he said that Capital is Intangible Personal Property.

Q. There was no prohibition on the Legislature at that time. so far as the construction of the Constitution was concered, was there?

A. No, sir. The amendment had been proposed at the 1926 Session, and the Pembroke case was decided in September, I 926. There was no Constitutional provision in effect about segregation. _ Q. And the Legislature had a free hand altogether then and the Constitution had no control over the legislation they might pass as to classification or as to who would be entitled to any tax levied?

A. There was no segregation amendment in force in Vir~ ginia until June I 9, I 928, but that amendment must be construed in the light of the circumstances under which it was proposed and ratified by the people. Naturally the draftsman of the amendment, as well as the General Assembly and the people, had a right to rely on the Court's decision. I have drafted a great deal of legislation through the years-

Q. (Interrupting) : I notice in the section referred page 64 ] to, No. I 68, which you ,say you drew-that you

were the draftsman of it-the last sentence-A. (Interrupting) : Section I 68-no, I did not say I

was. Q. You did not draw the last sentence of Section 168 of

the Constitution? A. No, sir. I can testify that I was chief director of the

Virginia Legislative Bureau. I did draft Section I 71 of the Constitution.

City of Roanoke vs. J. W. Michael's Bakery Corp., et al 6r

C. H. Morrissette

Q. You took particular pains there to except the rolling stock of public service corporations. from local taxes. There was no mention there of what might be denominated as Capital as being exempt from local taxation, was there?

A. The State had for many years been imposing a tax on the rolling stock of steam railroads as Tangible Personal property. The rate of $2.50 was being applied to that. The Constitutional amendment, however, is not restricted to the rolling stock of steam railroads. That is what the State taxes today, the rolling stock of public service corporations. But rolling stock of the dectric railway company of Roanoke is taxed by the City and not by the State, whereas, under the Constitution, the State could tax it.

Q. You do make an exception as to Tangible Personal property, insofar as the rolling stock of public service corpora

tions is concerned. but there is no mention at all of page 65 l Tangible Personal Property which might be de

nominated or classified as Capital and making it Intangible personal property. Isn't that true?

A. The exception as to rolling stock was regarded as necessary, there having been no Court decisions holding that the rolling stock of steam railroads or puplic service corporations was Intangible personal property.

Q. The Court decisions merely said that the Machinery, etc., was capital, because the Legislature said it was capital prior to the decision. Is that right?

A. The Legislature has been defining taxable subjects for many, many years, and any Constitutional amendment must be read in the light of the history of the matter. May I add also. that, at the Session of 1926, the General Assembly provided that a Commission revise all the tax laws in Virginia and codify them. That Commission worked from 1926 to I 928, and started what is now the Tax Code of Virginia, and in this matter of the Constitutional amendment, Section 171, it was not regarded by that Commission or by the Legislature that the amendment would destroy the segregation plan of taxation. Consequently, the definition of Capital was not changed by the Commission or the General Assembly at the I 928 or 1930 Sessions.


C. Fl. Morrissette

Q. No, sir. The definition of Capital was not within this section of the Constitution, No. 168, which says:

''The general assembly may define and classify taxpage 66 ] able subjects."

And there is no classification of the said subjects. and it goes on to say:

"And, except as to classes of property herein expressly segregated for either state or local taxation, the general assembly may segregate the several classes of property so as to specify and determine upon what subjects state taxes and upon what subjects local taxes may be levied."

It says "expressly segregated". As to Capital, there is no mention of it in the Constitution, is there?

By Mr. Mc:rtin: Is that a question or a statement?

By Mr. Hunter: I asked him if there was any mention of Capital in the

Constitution.

A. There was nothing by the name of the word Capital irt the Constitution; but the point is that the term Tangible Personal Property is a term that needs construction-what was meant by the Legislature in proposing the amendment; what was meant by the people, who ratified it. As a matter of fact, in 1926, when statutory segregation was enacted for the first time, and I refer to complete segregation and not partial segregation as in 19 1 5, the statute does speak of all tangible personal property being segregated to the different localities for local taxation exclusively, and then, later in the bill, it took up the subject of Capital, defining it so as to include in it some

of these properties physical in fact. Tangible Perpage 67 ] sonal property in Virginia has been in a separate

claassif ication for tax purposes for generations and it had acquired a meaning familiar to the General Assembly and to all who had been connected with this Tax Code.

Q. Another question and I am through: According to your statement you just made as to the latitude of the Legislature to define Capital, do you say that the Legislature now can


C. H. Morrissette

classify real estate belonging to manufacturing concerns, as Capital?

A. I should say not. I would not support the view that it could, because real estate has never been held to be a part of Capital of a manufacturing corporation for tax purposes. Real estate has had a meaning in the tax laws through the years the same as tangible personal property has had.

Q. Doesn't the same thing apply to tangible personal property in the Constitution, as applies to real estate?

A. Yes, sir: the history with reference to the two, and the meaning of the two, are the same.

Witness Stands Aside.

By Mr. Martin: I have here as documentary evidence copies of extracts from

the Journals of the two houses of the General Assembly of Virginia for r 934, I 93 8 and 1940, certified by the

page 68 ] Clerks of the two houses. The effect of these ex-tracts is to show-I can take that up in my argu

ment-the effect is to show that bills have been introduced in the General Assembly at these three named sessions, the purpose of which was to eliminate from this Item 4 of Capital any personal property tangible in fact whatsoever, and the extracts show that all of these bills in the extracts failed of passage.

By agreement of counsel, they have agreed as to the authenticity of these documents. I have not had them consent to their relevancy, but I want to submit them in evidence and I now introduce them. Is there any objection to that?

By Mr. Hunter: I don't know what they are really all about.

By Mr. Martin: Yes; I tried to explain that.

By Mr. Hunter: Yes, sir; but I don't know what they contain or anything

of that sort.

By Mr. Martin: I have copies of them for you.


By Mr. Hunter: He can enter them and we will except to them, to save

time.

By The Court: You object to them and the objection will be over-ruled

and you can except.

page 69 ] By Mr. Hunter: Yes, your Honor. we will EXCEPT to the ruling

of the Court. ·

The foregoing papers were duly filed in evidence and made a part hereof, marked as Exhibits Nos. "O", "P", "Q" and "R", the same being in the following words and figures, to-wit:

Exhibit No. "O".

EXTRACTS FROM THE JOURNAL OF THE SENATE OF VIRGINIA SESSION 1934

TOUCHING THE CONSIDERATION AND page 70 ] DISPOSITION OF S. B. NO. 200, A bill to

amend and re-enact section 73 of the Tax Code of Virginia, in relation to local taxation on tangible personal property. X X X X X

FRIDAY, February 9, r 934. X X X X X

Messrs. Fuller, Montague and Wicker, by leave, presented S. B. No. 200, A bill to amend and re-enact section 73 of the Tax Code of Virginia, in relation to local taxation on tangible personal property; which was taken up. ordered to be printed and referred to the Committee on Finance. X X X X X

The foregoing is a true extract from the Journal of the Senate of Virginia, touching the consideration and disposition of the bill mentioned in the caption, known as Senate Bill No. 200, the full text of which as offered is as follows:

A BILL

To amend and re-enact Section 73 of the Tax Code of Virginia. in relation to local taxation on tangible personal property.


Be it enacted by the General Assembly of Virginia, paage 7 I ] that section seventy-three of the Tax Code of Vir

ginia be amended and re-enacted so as to read as follows:

Section 73. Capital of any Trade or Business of any person, Firm or Corporation, Except the Capital of any Trade or Business Which Capital is Otherwise Specifically Exempt from Taxation.-All capital of any trade or business of any person, firm or corporation except the capital of any trade or business which is otherwise specifically taxed or specifically exempt from taxation.

Capital as used herein is defined as follows:

First. The inventory of stock on hand, which shall include all materials for use in the business, whether at the place of business, in storage or elsewhere in the State.

Second. The excess of all bills and accounts receivable over bills and accounts payable.

Third. All money on hand and on deposit.

Fourth. All taxable intangible personal property of any kind whatever, including all choses in action, equities, demands and claims.

Real estate shall not be held to be capital under this section, but shall be listed and taxed as other real estate.

Machinery and tools used in a manufacturing or page 72 ] mining business taxable on capital under this sec-

tion shall not be held to be capital under this section, nor shall such machinery and tools be hereafter assessed as real estate. All such machinery and tools used in a manufacturing or mining business taxable on capital under this section shall be listed for local taxation exclusively, and each city, town and county is hereby authorized to make a separate classification for all such machinery and tools and to fix the rate of levy thereon, but such rate shall not be higher than the rate imposed upon tangible personal property in such city, town, county, or district.

The shares of stock mentioned in section seventy-one of the Tax Code of Virginia, as amended in section seventy-two of the Tax Code of Virginia, as amended, shall not be held to be capital under this section.


Personal property, tangible in fact, used in or employed in any trades and businesses shall not be held to be capital under this section, but shall be listed for local taxation exclusively and taxed as tangible personal property.

This section shall not be construed to apply to any profession which the State regulates by law, nor shall it be construed to include the business of farming. Property used or employ

ed in such professions, and in the business of farmpage 73 ] ing, shall be taxable in the actual form in which it

may be, and not as capital. On all capital defined by this section there is hereby an

nually levied a tax of seventy-five cents on every one hundred dollars of the actual value thereof.

This section, as hereby amended, shall be in force on and after the first day of January, nineteen hundred and thirty-five, and for every tax year thereafter until otherwise provided by law.

The bill above mentioned died in the Committee on Ff: nance.

Richmond, Virginia, September 1 2, 1940.

E. R. COMBS, Clerk of the Senate of Virginia.

Exhibit No. "P".

EXTRACTS FROM THE .JOURNAL OF THE SENATE OF VIRGINIA SESSION 193 8

TOUCHING THE CONSIDERATION AND page 74 ] DISPOSITION OF H. B. NO. 478, A bill to

am.end and re-enact section 73 of the Tax Code of Virginia, in relation to the taxation of capital of any trade or business; and to repeal section 73-a of the Tax Code of Virginia, in relation to tax on dairies. X X X X X MONDAY, March 7, 1938. X X X X X

A communication from the House of Delegates, through its Clerk, was received and read as follows:

In House of Delegates, March 5, 1938. X X X X X


It has passed the fellowing House bills entitled:

An act to amend and re-enact section 73 of the Tax Code of Virginia, in relation to the taxation of capital of any trade or business; and to repeal section 73-a of the Tax Code of Virginia, in relation to tax on dairies-· -No. 478. X X X X X

H. B. No. 478. A bill to amend and re-enact sec-· page 75 ] tion 73 of the Tax Code of Virginia, in relation

to the taxation of capital of any trade or business; and to repeal section 73-a of the Tax Code of Virginia, in relation to tax on dairies; was taken up, read by title the first time and referred to the Committee on Finance. X X X X X

The foregoing are true extracts from the Journal of the Senate of Virginia, touching the consideration and disposition of the bill mentioned in the caption.

The bill mentioned above died in the Committee on Finance.

Richmond, Virginia, September 1 2, I 940.

E. R. COMBS, Clerk of the Senate of Virginia.

E h 'b' N "Q" X 1 lt O. .

EXTRACTS FROM THE JOURNAL OF THE HOUSE OF DELEGATES OF VIRGINIA SESSION 1938

TOUCHING THE CONSIDERATION AND page 76 ] DISPOSITION OF H. B. NO. 478, A bill to

amend and re-enact section 73 of the Tax Code of Virginia, in relation to the taxation of capital of any trade or business; and to repeal section 73-a of the Tax Code of Virginia, in relation to tax on dairies. X X X X X

TUESDAY, February 22, 1938. X X X X X

The following were presented, ordered to be printed and referred under Rule 3 7: X X X X X


To the Committee on Finance: By Messrs. Ruffin, Coleman of Nelson, Breeden and

Thompson: No. 478. House bill to amend-and re-enact section 73 of

the Tax Code of Virginia, in relation to the taxation of capital of any trade or business; and to repeal section 73-a of the Tax Code of Virginia, in relation to tax on berries (sic). X X X X X THURSDAY, March 3, 1938. X X X X X

No. 478. House bill to amend clnd re-enact section 73 of the Tax Code of Virginia, in relation to the taxation of capi

tal of any trade or business: and to repeal section page 77 ] 73-a of the Tax Code of Virginia, in relation to

tax on dairies; having been considered by the com -mittee in session was reported from the Committee on Finance. with amendment.

Yeas 10. Nays o. X X X X X

THURSDAY~ March 3, 1938. X X X X X

The following House bills, having been printed were read by title a first time:

No. 478. House bill to amend and re-enact section 73 of the Tax Code of Virginia, in relation to the taxation of capital of any trade or business; and to repeal section 73-a of the Tax Code of Virginia, in relation to tax on dairies. X X X X X

FRIDAY, March 4, 1938. X X X X X

No. 4 78. House bill to amend and re-enact section 73 of the Tax Code of Virginia, in relation to the tax

page 78 ] ation of capital of any trade or business; and to repeal section 73-a of the Tax Code of Virginia, ·

in relation to tax on dairies; was read by title a second time. The amendment proposed by the Committee on Finance

as follows: Page 4, line r, strike out all of section 2, including every

thing on page 4: was agreed to. Mr. Breeden moved to amend the bill as follows: Title, strike out "and to repeal section 73-a of the Tax


Code of Virginia, in relation to tax on dairies"; which was agreed to.

The bill was ordered to be engrossed. X X X X X SATURDAY, March 5, 1938. X X X X X

The following House Bills were read by title a third time and passed: X X X X X

No. 478. House bill to amend and re-enact section 73 of Tax Code of Virginia, in relation to the taxation of capital of any trade or business; and to repeal section 73-a of the Tax Code of Virginia, in relation to tax on dairies.

Yeas, 64. Nays, 16. The vote required by the Constitution was record

page 7 9 ] ed as follows: Yeas-Adams, B. D., Adams, H. H., Ashworth,

Beandy, Barrow, Bazile, Blackwell, Boatwright, Boschen, Breeden, Britt, Burks, Burnett, Carleton, Cassell, W. H. W. Chitwood, Coleman, I. N. Coleman, J. T., Collins, Crowder, Daniel, Davis, D., Davis, R. B., Edwards, Folkes, Godwin; Hand, Harman, Harris, Hobson, Hutcheson, Irvine, McCue, Martin, Massenburg, Medley, Miller, Moncure, Neff, Perkins, Perry, Poindexter, Quesenbery, Randolph, Rosenberg, Ruffin, Russell, Sanford, Shrader, Smith, H. McK., Smith, V. C., Spiers, Stanley, Stant, Stephens, Sutherland, Thompson, Walker, Weaver, Williams, Wilson, Yeatts, Zigler, Mr. Speaker-64.

Nays-Campbell, Caudill, Chapman, Ely, Fitzpatrick, Goodwin. Gray, Holleman, Hunter, King, Lewis, Louderback, Moore, F., Morgan, Scott, Triplett-I 6. X X X X X

Motions severally made to reconsider the vote by which Nos. x x x 4 78 x x x House Bills were passed; were severally rejected. X X X X X

The House of Delegates consists of one hundred members. The foregoing are true extracts from the Journal

page 80 ] of the House of Delegates of Virginia, touching the consideration and disposition of the bill mention

ed in the caption, known as House Bill No. 478, the full text of which as offered is as follows:


A. BILL

To amend and re-enact section 73 of the Tax Code of Virginia, in relation to the taxation of capital of any trade or business: and to repeal section 73-a of the Tax Code of Virginia, in relation to tax on dairies.

Be it enacted by the General Assembly of Virginia, That section seventy-three of the Tax Code of Virginia, as heretofore amended, be amended and re-enacted so as to read as follows:

Section 73. Capital of any trade or business of any person, firm or corporation, except the capital of any trade or business which capital is otherwise specifically taxed or specifically exempt from taxation.-All capital of any trade or business of any person, firm or corporation, except tpe capital of any trade or business which is otherwise specifically taxed or specifically exempt from taxation.


First. The inventory of stock on hand, which shall page 81 ] include all materials for use in the business whether

at the place of business, in storage or elsewhere in the State.



Fourth. All other taxable personal property of any kind whatever, including all choses in action, equities, demands and claims, but excluding the property hereinafter specifically mentioned in this section.


Machinery and tools used in a manufacturing or mining business shall not be held to be capital under this section, nor shall such machinery and tools be hereafter assessed as real estate. All such machinery and tools used in a manufacturing or mining business shall be listed for local taxation exclusively, and each city, town and county is hereby authorized to make a separate classification for all such machinery and tools and to fix the rate of levy thereon, but such rate shall not be high-


er than the rate imposed upon tangible personal property in such city, town, county, or district.

page 82 ] The shares of stock mentioned in section seventy-one of the Tax Code of Virginia, as amended, and

bonds of the political subdivision of this State, mentioned in section seventy-two of the Tax Code of Virginia, as amended, shall be held to be capital under this section.

All other personal property, tangible in fact, shall not be held to be capital under this section, but shall be listed for local taxation exclusively and taxed as tangible personal property.

This section shall not be construed to apply to any profession which the State regulates by law, nor shall it be construed to include the business of farming. Property used or employed in such professions, and in the business of farming, shall be taxable in the actual form in which it may be, and not as capital. ·

On all capital defined by this section there is hereby annually levied a tax of seventy-five cents on every one hundred dollars of the actual value thereof.

This section, as hereby amended, shall be in force on and after the first day of January, nineteen hundred and thirtynme.

Be it further enacted by the General Assembly of page 83 ] Virginia, That section seventy-three-a of the Tax

Code of Virginia, relating to tax on dairies, be, and the same is hereby, repealed.

E. GRIFFITH DODSON, _ Clerk of the House of Delegates of Virginia.

Richmond, Virginia. September 2 7, 1 940.

Exhibit "R".

EXTRACT FROM THE JOURNAL OF THE HOUSE OF DELEGATES OF VIRGINIA SESSION 1 940

TOUCHING THE CONSIDERATION A ND page 84 ] DISPOSITION OF House Bill No. 231, A bill

to amend and re-enact section 73 of the Tax Code of Virginia, as heretofore amended, in relation to the taxation of capital of any trade or business. X X X X X


THURSDAY, February 8, 1940. X X X X X

The following were presented, ordered to be printed, and referred under Rule 3 7: X X X X X

TO THE COMMITTEE ON FINANCE

By Messrs. Ruffin Coleman, of Nelson and Breeden: No. 23 1. House bill to amend and re-enact section 73 of the Tax Code of Virginia, as heretofore amended, in relation to the taxation of capital of any trade or business. X X X X X

The House of Delegates consists of one hundred page 85 (100) members.

The foregoing are true extracts from the Journal of the House of Delegates of Virginia, touching the consideration and disposition of the bill mentioned in the caption, known as House Bill No. 2 3 1, the full text of which as offered is as follows:

A BILL

To amend and re-enact section 73 of the Tax Code of Virginia, as heretofore amended, in relation to the taxation of capital of any trade or business.

1. Be it enacted by the General Assembly of Virginia, That section seventy-three of the Tax Code of_ Virginia as heretofore amended, be amended and re-enacted so as to read as follows:

Sec. 73. Capital of any trade or business of any person, firm or corporation, except the capital of any trade or business wh:ch capital is otherwise specifically taxed or specifically exempt from taxation.-All capital of any trade or bu~iness of any person, firm or corporation, except the capital of any trade or business which is otherwise specifically taxed or specifically exempt from taxation.


page 86 ] First: The inventory of stock on hand, which shall include all material for use in the business,

City of Roanoke vs. J. W. Michael'sBakery Corp., et al 73

whether at the place of business, in storage or elsewhere in the State.



Fourth. All other taxable personal property of any kind whatever, including all choses in action, equities, demands and claims, but excluding the property hereinafter specifically mentioned in this section.


Machinery and tools used in a manufacturing or mining business shall not be held to be capital under this section, nor shall such machinery and tools be hereinafter assessed as real estate. All such machinery and tools used in manufacturing or mining business shall be listed for local taxation exclusively, and each city, town or county is hereby authorized to make a separate classification for all such machinery and tools and to fix the rate of levy thereon, but such rate shall not be higher

than the r:ate imposed upon tangible personal proppage 8 7 ] erty in such city, town, county or district.

The shares of stock mentioned in Section Seventyone of the Tax Code of Virginia, as amended, and bonds of the political subdivisions of this State, mentioned in section seventytwo of the Tax Code of Virginia, as amended, shall not be held to be capital under this section.

All other personal property, tangible in fact, shall not be held to be capital under this section but shall be listed for local taxation exclusively and taxed as tangible personal property.

This section shall not be construed to apply to any profession which the State regulates by law, nor shall it be con~trued to include the business of farming. Property used or employed in such profession, and in the business of farming, shall be taxable in the actual form in which it may be, and not as capital.

On all capital defined by this section there is hereby annually levied a tax of seventy-five cents on every one hundred dollars of the actual value thereof.


This section, as hereby amended, shall be in force on and after the first day of January, nineteen hundred and forty·one."

E. GRIFFITH DODSON, Clerk of the House of Delegates of Virginia.

Richmond, Virginia, September 27, 1940.

Note:

BOTH SIDES REST

END OF ALL EVIDENCE

After argument of counsel, the Court requested page 88 ] counsel on all sides to file briefs, and the Court

took the cause under advisement.

(Pages 89 to 99 inclusive omitted in printing by agreement -See M. S.)

COURT'S CERTIFICATE

I, J. Lindsey Almond, Junior, Judge of the Hustings Court for the City of Roanoke, Virginia, do hereby certify that the

foregoing is a true and correct stenographic copy page I oo ] or report of all the testimony that was introduc-

ed, and other incidents of the trial therein, including all the instructions, amended, given or refused, all exhibits or other writings introduced in evidence or presented to the Trial Court, all questions raised and all rulings thereon, in the case of James W. Michael's Bakery Corporation vs. the Com· monwealth of Virginia, et al, tried in the Hustings Court for the City of Roanoke, Virginia, on Thursday, October 31st, 1940, and it appears· in writing that the attorneys for the plain· tiff and attorneys for the Commonwealth of Virginia have had reasonable notice of the time and place when this report of the testimony and other incidents of trial would be tendered and presented to the undersigned for certification, which is certified within sixty days after final judgment.

GIVEN under my hand this the 24th day of October,

J. L. ALMOND, Jr., Judge.


I, R. J. Watson, Clerk of the Hustings Court for page Io 1 ] the City of Roanoke, Virginia, do hereby certify

that the foregoing stenographic copy or report of testimony and other incidents in the trial of the case of James W. Michael's Bakery Corporation vs. Commonwealth of Virginia, et al, was filed with me as Clerk of said Court on the 24th day of October, 1941.

R. J. WATSON, Clerk.

COURTS OPINION

The question here presented is whether or not Section 171 of the Constitution of Virginia, which segregates real estate and

tangible personal property for local taxation only, page 102 ] is violated by Sections 68 and 73 of the Tax Code,

defining and classifying capital of a trade or business as intangible personal property subject to State taxation. Further, are these two sections of the Tax Code, as construed and administered by the State Department of Taxation, in harmony with the authority to define and classify taxable subjects upon which State taxes may be levied, as conferred. upon the General Assembly by Section 168 of the Constitution?

There can be no question that real estate and tangible personal property, under the segregation amendments to the Constitution and the tax statutes enacted in pursuance thereto, have been set aside and made the subjects of local taxation only. By the Constitution itself these subjects have been rendered inviolate from a State property tax for State purposes. By the same token the c_apital of any trade or business ( with certain exceptions not necessary to here enumerate) has been reserved as a taxable subject by the State for State purposes. Treating the matter in its broader aspect, and eliminating real estate for the purpose of this discussion, we may say, tangibles to the localities and intangibles to the State. Within the meaning and pur-

pose of the tax laws under our system the real page 103 ] essence of the matter is not, however, so simple.

It seems that the solution must tum on the liquidating dominance of capital when the tangibles of certain trades or businesses come to form a part of the capital of such trades or businesses.


In the instant case the applicant, a manufacturing corporation, omitted from its State tax returns of intangible property for the years 1938 and 1939, its furniture, fixtures and delivery equipment. The Commonwealth contends that this property should have been included under item 4 of capital, defined as "all oth£=r taxable property." The applicant listed this property in its return of tangible personal property which it made to the City of Roanoke for the years in question. The State Department of Taxation, upon discovery of this omission.advised the applicant that the omitted property should be reported to the State for taxation as capital and in accordance with its uniform practice of long standing the Tax Department • assessed the applicant with additional capital tax in the amount of $22.50 for each of the years involved. It is significant that while the applicant failed to include in its State returns for the years mentioned its furniture, fixtures and delivery equipment as capital it did include its inventory of stock on hands as such. The stock on hand was, of course, just as tangible in fact as the items omitted.

The administrative practice of the State Department of Taxation which has been uniformly and consistently followed during the incumbency of the present Commissioner dating from 1929, has been to hold that inventory of stock on hand,

furniture, fixtures and delivery equipment are page 104 ] properly assessable for State Taxation as capital of

a business taxable on capital. This unyielding practice which has obtained since the year 1926, is but a continuation of the practice of the Department which was pursued prior to that time. Through all of these years this practice has been thoroughly understood and fully acquiesced in by the tax payers and tax officers, State and local.

While the question here presented is one of novel impression, as far as the decided cases are concerned, yet it turns upon whether or not, within the meaning of the tax law of the Commonwealth, caapital invested in a trade or business taxable on capital is tangible or intangible personal property. It is a self evident fact that capital may, and in most instances does, consist of property both tangible and intangible. Does tangible property, therefore, when it merges into and forms a part of capital lose its identity of tangibility, within legal contemplation, under the spirit, purpose, intent and meaning of the segregation laws?


After the adoption of the Constitution of 1902, the Legislature by the enactment of what is known as the "Tax Bill" (Acts 1902-3-4, p. 155) made the first separate classification of the various subjects of taxation. Under this bill the several classes of intangible property were classified. Capital was defined as follows:

"Moneys and credits actively used and employed in carrying on the trade or business; materials, goods, wares, and merchandise on hand, and all solvent bonds, demands, or claims

made or contracted in the course of business durpage 105 ] ing the preceding year, shall be held to be capital

in such trade or business, and shall not be taxed otherwise than as such capital, but shall be assessed and taxed as other specific property.''

It is clear therefore that immediately after the adoption of the Constitution of 1902, the Legislature classified capital as intangible property. Embraced by this classification were items both tangible and intangible with the component of tangibility merging into the intangible and the whole denominated capital and treated as intangible.

In 1908 the classification of intangible property was amended but the definition of capital remained unaltered. The changes in the Tax Bill in I 9 I 5 did not affect the classification of capital as intangible property.

As the special session of I 9 I 5, when partial segregation of taxable subjects was adopted under the administration of Governor Stuart, the General Assembly defined capital as in tangible property including therein items tangible in fact and set it aside for State taxation only. It is strikingly significant that this same session of the Legislature segregated tangible property for local taxation when its own definition of capital embraced tangible property whenever that property formed a part of the capital of a trade or business.

In addition to the legislative definition and treatment of the subject of capital our Supreme Court of Appeals has repeatedly and specifically held capital to be intangible property although embracing numerous items of personalty tangible in fact.

In the case of Commonwealth vs. United Cigarette Machine Co. ( 191 6) 1 1 9 Va. 44 7, the definition of capital


was involved. The lower court had held that the page 106 ] materials on hand and cigarette machines were

taxable as tangible property. The Supreme Court in reversing this ruling held that these items were taxable as capital.

The Court said: xxx it may be that these items of property might ap

parently be classified under the head of tangible personal property, but upon examining Schedule Band Schedule C of the tax bill we reach the conclusion that they should not be so classified xxx."

Since we are here dealing with the meaning of the tax laws it is pertinent that in Richmond vs. Drewery Hughes Co., (1918) 122 Va. 178, our court said:

''It is conceded that the capital of mechants is intangible personal property within the meaning of the tax laws.''

In Union Tanning Co. vs. Common wealth ( 1 9 1 8) 1 2 3 Va. 6 1 o, the capital of the company consisted of personal property tangible in fact. It was held that-

' 'xxx such capital of a foreign corporation doing business in Virginia xxx is intangible personal property and as such has been assessable and taxable in Virginia since long prior to 1908 under the statute law of Virginia, is well settled xxx.''.

In American Tobacco Co. vs. Richmond ( 1 9 1 9) I 2 5 Va. 29 the question before the court was whether the inventory of the tobacco of the company was taxable as capital or taxable as tangible personal property.

The Court said: "It appearing from the record that the chief office and

business domicile of the company is in Richmond, where it conducts its business of manufacturing tobacco in this State, therefore, it is clear under the decision referred to, that tobacco bought for the purpose of manufacturing and held in this State, in which its capital is invested, must be taxed as a part of such capital, as intangible property, and that as the law then was, its situs for taxation is at such business domicile.''

In Buchanan County vs. Ritter Lumber Co., page 107 ] (1919) 125 Va. 617, the court held that felled


timber, railroad ties and manufactured lumber was assessable as intangible property or capital.

In Commonwealth vs. Pembroke Limestone Works ( 1926) 145 Va. 476, the question was whether personal property tangible in fact should be assessed as capital or as tangible personal property.

The Court said: "Every item of the property in controversy was used as

part and parcel of the plant, and was necessary for the convenient and proper operation of the plant, and constituted in fact a part of the capital invested in it. The defendants in error owned no part of the land on which the plant or quarry· was located, and hence their movable buildings and fixtures never became a part of the land but were personal property. They represented a part of the money invested in the plant, and became a part of the capital invested in the business. The property involved comes within the spirit and letter of capital as defined in the tax bill, and was properly so returned. Buchanan County vs. Ritter Lumber Co., 125 Va. 617, 100 S. E. 546."

It seems clear therefore that, antedating 1926 the term "tangible property," as it appeared in the tax laws of Virginia, had been uniformly treated, considered and held by both the General Assembly and the Supreme Court of Appeals not to embrace or include the capital of a business even though such capital consisted of property tangible in fact. It is equally clear that where property tangible in fact became mixed with property intangible in fact so as to form the capital of a trade or business the whole mass assumed the status of intangibility and under the uniform, long standing administrative practice of the State Department of Taxation, the definite policy of the General Assembly and the holdings of the appellate court, was tax-

able as intangible property. This in substance depage 108 ] fines the status of the situation confronting the

General Assembly at its sessions of 1926 and 1928.

Because of the general dissatisfaction prevalent as a result of the manifest inequalities in the ratable distribution of the tax burden under partial segregation, complete segregation was adopted by the General Assembly of 1926. At this time "capital" had acquired a fixed and definite meaning. It was clearly understood by all agencies of government both State, and local;


it was so understood by the people in their representative capacity that capital was intangible even though it embraced and included items of personal property tangible in fact. With this accepted and hitherto workable understanding the segregation act of 1926 provided that "all taxable real estate and all taxable tangible personal property," with certain exceptions, be made subject to local taxation. Certain subjects including taxable intangible personal property were segregated for State taxation only. Capital was again classified as intangible property taxable only by the State. The conclusion is inescapable that when the General Assembly used the term "Tangible personal property" it did not consider nor did it have reason to consider that it included capital inasmuch as capital had acquired a practical and definite meaning under the tax system of the State. It is most significant that at this session- the General Assembly itself proposed the segregation amendment to Section I 7 I of the Constitution. Not-only did it enact the segregation statute but in almost identical language proposed the segregation amendment to the Constitution and took no step, by implication or

otherwise, that affected the statutory classification page 109 ] of capital as intangible property subject to State

taxation. The General Assembly could not have meant one thing by a statutory enactment and an almost antithetical situated in proposing an identical constitutional amendment. Reason and logic dictate with impelling force the conclusion that the General Assembly as the representative of the people sponsored the writing into the Constitution that which had already been accomplished by statute. It did this fully cognizant of its almost perpetual definition of capital and the construction of this term plainly manifest from the holdings of the Supreme Court of Appeals.

The c1ctions of the session of 19 28 insofar as they pertained to segregation of taxable subjects was but a repetition of the session of 1926 with no change in the previous classifications of taxable subjects in their division between the State and the localities.

Tlle conclusion seems inevitable that had the General Assemblies of 1926 and 1928, or the Legislature Ccmmission appointed in 1926 to revise the tax laws of Virginia, even remotely considered that constitutional segregation would have destroyed or impaired the existing system of taxing capital with its consequent disruption of the financial structure of the State,

City of Roanoke vs. J. W. Michael's Bakery Corp., et al 8 I

some method would have been suggested and some plan would have been devised and adopted to offset the patent and tremendous loss of State revenue. The glaring fact is that it was never contemplated or intended that the well established and practical

definition of capital be disturbed. page 1 1 o ] In view, therefore, of the uniform legislative and

judicial construction of capital as intangible property; the application of the legislative and judicial definition of tangible personal property as not including capital to the construction of Section 171 of the Constitution; the long acquiescence of the people in the legislative and administrative construction that Section 171 of the Constitution does not forbid the taxation by the State of capital as thus defined, and that the construction sought by the applicant and the City of Roanoke would defeat the real intent of the segregation provisions of the Constitution and serious! y disturb the financial structure of the State, I hold that Section 68 and 73 of the Tax Code, defining and classifying capital of a trade or businses as intangible personal property subject to State taxation, do not violate Section 171 of the Constitution of Virginia, which segregates real estate and tangible personal property for local taxation only.

I further hold that Sections 68 and 73 of the Tax Code, as construed and administered by the State Department of Taxation, are in harmony with the authority conferred by Section 168 of the Constitution.

I further hold that "tangible personal property" as used in Section 17 I of the Constitution, does not include capital, as defined by Section 73 of the Tax Code, and that Section 17 I does not compel the breaking down into its component parts the single 2nd inclusive taxable subject of capital so as to set apart for local taxation only certain of the tangible elements of capital.

I further hold that the property of the applicant embraced by this proceeding is properly taxable by the

page 1 1 1 ] State of Virginia as capital and that the assessments of the City of Roanoke thereon are errone

ous. I further hold that the property of the applicant embraced

by this proceeding does not come within the purview of the provisions of Section 73 of the Tax Code relating to machinery and tools.


For the foregoing reasons the prayer of the applicant's petition will be denied.

Dated: September 3, 1941.

Copy to:

J. L. ALMOND, Jr, Judge of the Hustings Court, For the City of Roanoke, Virginia.

Honorable W. W. MARTIN, Assistant Attorney General

Richmond, Virginia.

MOSS A. PLUNKETT, Esq., Roanoke, Virginia.

C. EV ANT HUNTER, City Attorney. Roanoke, Virginia.

And at another day to-wit:

On the 8th day of May I 940 the following order was entered:

Upon the motion of City of Roanoke, Virginia, page· 1 I 2 ] by its attorney leave is granted it to file its answer

and cross-claim which is accordingly done; and James W. Michael's Bakery Corporation, by its attorney, waived the issuance and service of process on said cross-claim of said city against it set forth in said answer.

And at another day to-wit:

On the 19th day of September 1941, the following order was entered:

This case came on this day to be heard upon the application filed herein, the answer and cross-claim of the City of Roanoke, the testimony of witnesses and the exhibits filed therewith, and the oral and written arguments of coun~el. and upon consideration of all of which the court being of opinion for reasons stated in writing, which opinion is hereby made a part of the record herein, that the petitioner, James W. Michael's Bakery Corporation, is not entitled to the relief prayed for in the application, and that the City of Roanoke is not entitled to the judgment prayed for in its answer and cross claim, it is therefore


ORDERED that the application of petitioner for exoneration from the State taxes on capital involved in this proceeding

be and the same is hereby denied and the petition page 113 ] dismissed and that the Commonwealth recover of

petitioner its costs in this behalf expended; and it is further

ORDERED that the prayer of the City of Roanoke for judgment against petitioner for city taxes assessed against it be and the same is hereby denied, to which action of the court in pronouncing judgment against the City of Roanoke and in favor of the Commonwealth of Virginia, the City of Roanoke, by counsel then and there excepted on the ground that section 73 of the Tax Code of Virginia is unconstitutional in so far as the classification therein permits the subjects of taxation in this case, to-wit: the trucks, furniture and equipment of the plaintiff, to be taxed for State purposes, said section 73 of the Tax Code of Virginia being in conflict with sections 168 and 17 I of the Constitution of Virginia; and said City of Roanoke signifying its intention to apply to the Supreme Court of Appeals of Virginia for a writ of error and supersedeas to the judgment of this court, execution on the above judgment is suspended for a period of sixty days to enable said City of Roanoke to prepare a·nd file its bills of exception.

Endorsements Found on Back

I ask for this.

I have seen this order.

I have seen this order.

W. W. MARTIN, Ass' t. Atty. General.

C. E. HUNTER, City Attorney.

MOSS A. PLUNKETT, Atty. for Petitioner.

CLERK'S CERTIFICATE

State of Virginia: City of Roanoke:

I, R. J. WATSON, Clerk of the Hustings Court of the City of Roanoke, Virginia, do hereby certify that the foregoing


is a true and correct transcript of the record in the page 114] case of JAMES W. MICHAEL'S BAKERY

CORPORATION against COMMONWEAL TH OF VIRGINIA, and CITY OF ROANOKE, lately determined by said Court.

I further certify that notice of the application for this transcript has been duly given to both the Attorney for the Petitioner and the Commonwealth of Virginia, as provided by law.

Given under my hand this the 13th day of November, l 941.

Fee for transcript, $30.20.

A Copy Teste:

R. J. WATSON, Clerk.

J.M. KELLY Deputy Clerk


- INDEXTORECORD -

Page Petition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Record ....................................... 20 Answer and Cross Claim of City of Roanoke .......... 23

Evidence

Charles R. Lescure . . . . . . . . . . . . . . . . . . . . . . . . . . 30 C. H. Morrisette . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 8

Exhibit, Tax Return No. 1-2-3-4-6-B-F-G I-J-K-L-M .......................... See MS.

Exhibit No. 5 Letter of August 25, 1939 ............. 34 Exhibit No. 7, Letter of November 1, 1939 ........... 35 Exhibit No. 8, Letter of November 2, 193 9 . . . . . . . . . . . 3 6 Exhibit No. A, Letter of January 17, 1938 ........... 39 Exhibit No. C, Letter of January 18, 1938 ............ 41 Exhibit No. D, Letter of January 19, 1938 ........... 41 Exhibit No. E, Letter of January 21, 1938 ........... 42 Exhibit No. H, Letter of August 25, 1939 ............ 44 Exhibit No. N, Letter of November Io, 1939 . . . . . . . . . . 5 3 Exhibit No. 0, Extract-Senate Journal 1934 ......... 64 Exhibit No. P, Extract-Senate Journal 193 8 . . . . . . . . . 66 Exhibit No. Q, Extract-House Journal 1938 . . . . . . . . . 67 Exhibit No. R, Extract-House Journal 1940 ......... 71 Motion to Dismiss City of Roanoke ................. 25 Opinion of Lower Court . . . . . . . . . . . . . . . . . . . . . . . . 75 Order of Lower Court ........................... 82 Petition of Petitioner . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Stipulation as to Authenticity of Letters . . . . . . . . . . . . . . 3 8 Stipulation as to Items of Inventory . . . . . . . . . . . . . . . . . 3 8 Stipulation as to Extracts of Journals . . . . . . . . . . . . . . . . 63 Clerk's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Documents

-/'37- Record No. 2548