Annotate this Case

118 S.E.2d 543 (1961)

254 N.C. 129

LENOIR FINANCE COMPANY v. James S. CURRIE, Commissioner of Revenue, State of North Carolina.

No. 449.

Supreme Court of North Carolina.

March 1, 1961.

*545 Taylor, Allen and Warren Goldsboro, and Fairley, Hamrick & Jack T. Hamilton, Charlotte, for plaintiff-appellant.

T. W. Bruton, Atty. Gen. and Peyton B. Abbott and Thos. L. Young, Asst. Attys. Gen., for defendant-appellee.

RODMAN, Justice.

W. A. Johnson, successor in office to defendant Currie, was, on motion of the State, substituted as defendant.

The legislative power to tax is limited only by constitutional provisions. Sec. 3, Art. V of our Constitution imposes the duty to tax in a just and equitable manner. It further provides: "Taxes on property shall be uniform as to each class of property taxed." Specific authority is given to tax trades, professions, franchises, and incomes. Literally the requirement of uniformity is confined to taxes on property, *546 but repeated judicial interpretations extend this requirement to license, franchise, and other forms of taxation. American Equitable Assurance Co. v. Gold, 249 N.C. 461, 106 S.E.2d 875; Roach v. City of Durham, 204 N.C. 587, 169 S.E. 149; State v. Stevenson, 109 N.C. 730, 14 S.E. 385; Gatlin v. Town of Tarboro, 78 N.C. 119.

A tax statute which suffices to meet the rule of uniformity required by our Constitution likewise conforms to the requirements of the Fourteenth Amendment of the U. S. Constitution.

Since courts are not charged with the duty of providing funds for the support of government, they have no right to weigh and determine legislative wisdom in selecting one form of tax over another or one class rather than another or the proportion of the whole tax burden which any class should fairly assume. It is the duty of a court, when the validity of a tax statute is challenged on the ground of discrimination, to ascertain if in fact there is a difference in the classes taxed. Merely assigning different names to members of the same groups is not sufficient to meet constitutional requirements, but, as said by Mr. Justice Frankfurter: "The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same." Tigner v. State of Texas, 310 U.S. 141, 60 S. Ct. 879, 882, 84 L. Ed. 1124. Devin, J. (later C. J.), put it this way: "It has been declared by this Court that the power to classify subjects of taxation carries with it the discretion to select them, and that a wide latitude is accorded taxing authorities, particularly in respect of occupation taxes under the power conferred by Art. V, sec. 3 of the Constitution." Charlotte Coca-Cola Bottling Co. v. Shaw, 232 N.C. 307, 59 S.E.2d 819, 821.

Courts have approved legislative distinctions between wholesale and retail merchants, Leonard v. Maxwell, 216 N.C. 89, 3 S.E.2d 316, appeal dismissed 308 U.S. 516, 60 S. Ct. 175, 84 L. Ed. 439; a single grocery store and a chain or grouping of such stores, Great Atlantic & Pacific Tea Co. v. Maxwell, 199 N.C. 433, 154 S.E. 838, affirmed 284 U.S. 575, 52 S. Ct. 26, 76 L. Ed. 500; volume of business, Nesbitt v. Gill, 227 N.C. 174, 41 S.E.2d 646, affirmed 332 U.S. 749, 68 S. Ct. 61, 92 L. Ed. 336; Wayne Mercantile Co. v. Commissioners of Mt. Olive, 161 N.C. 121, 76 S.E. 690, 49 L.R.A., N.S., 954; Cobb v. Board of Commissioners, 122 N.C. 307, 30 S.E. 388; businesses conducted in areas of differing populations, State v. Green, 126 N.C. 1032, 35 S.E. 462; State v. Carter, 129 N.C. 560, 40 S.E. 11; handlers of meat products, Lacy v. Packing Co., 134 N.C. 567, 47 S.E. 53; affirmed 200 U.S. 226, 26 S. Ct. 232, 50 L. Ed. 451; vending machines selling different kinds of merchandise, Snyder v. Maxwell, 217 N.C. 617, 9 S.E.2d 19; transportation companies, based on mileage, Clark v. Maxwell, 197 N.C. 604, 150 S.E. 190, affirmed 282 U.S. 811, 51 S. Ct. 211, 75 L. Ed. 726; a retail sale by the producer of an article and the sale of the same article by a merchant, Henderson v. Gill, 229 N.C. 313, 49 S.E.2d 754; stock companies and mutual insurance companies, German Alliance Ins. Co. v. Lewis, 233 U.S. 389, 34 S. Ct. 612, 58 L. Ed. 1011; an agent whose business is selling accident insurance and an agent of a transportation company who sells accident insurance as an incident and a part of his business of selling transportation, Hunter v. Wright, 159 Ga. 840, 152 S.E. 61, drug stores and news stands, even though both sell newspapers, magazines, tobacco, and soft drinks, State v. Towery, 239 N.C. 274, 79 S.E.2d 513, appeal dismissed 347 U.S. 925, 74 S. Ct. 532, 98 L. Ed. 1079.

Legislatures have for many years grouped and classified those engaged in lending money based on the manner in which the business was conducted. Pawn brokers are nearly always put in a class distinct from other money lenders, and this classification has been upheld. State v. Davis, 157 N.C. 648, 73 S.E. 130, 39 L.R.A.,N.S., 136; State v. Hill, 168 La. 761, 123 So. 317, 69 A.L.R. 574, with annotations; Metropolitan Trust Co. v. Jones, *547 384 Ill. 248, 51 N.E.2d 256, 149 A.L.R. 1416, with annotations. True, most of these cases deal with the exercise of the police power rather than the power to tax, but the principle involved is the same. Classification, to be valid, must rest on a genuine distinction.

We assume the parties did not, by the 12th stipulation that no facts except as stipulated were material or necessary to a decision of the case, intend to deny us the right to take notice of pertinent public laws and facts of common and general knowledge.

It is a matter of general knowledge that loans can be obtained by borrowers from many distinct kinds of business. The Federal Government has created special agencies to help certain types of borrowers. Illustrative: Home Owners Loan Corporation and Federal Land Banks, which, as federal agencies, are free from State taxes. The principal private businesses making loans are insurance companies, taxed pursuant to Art. 8B of our Revenue Act (c. 105 of the General Statutes); banks, taxed pursuant to Art. 8C of the Revenue Act; building and loan associations, taxed pursuant to Art. 8D; pawn brokers, taxed under G.S. § 105-50; installment paper dealers, licensed and taxed under G.S. § 105-83; loan agencies or brokers, licensed and taxed under G.S. § 105-88. Each of these varying kinds of businesses is defined by statute. Probably all make some loans identical in all respects with loans made by some other lending agency, but that fact does not make the businesses identical.

Installment paper dealers are defined by statute, G.S. § 105-83, as "engaged in the business of dealing in, buying, and/or discounting installment paper, notes, bonds, contracts, evidences of debt and/or other securities, where a lien is reserved or taken upon personal property located in this State to secure the payment of such obligations." Those engaged in this business are by subsec. a of the statute required to pay an annual license tax of $100, and by subsec. b, to pay quarterly a tax equal to .275 of 1% of the face value of the obligations handled during such quarter.

The asserted invalidity of the statute is based on subsec. d, which reads: "This section shall not apply to corporations organized under the State or national banking laws." Although appellant has paid the taxes levied under subsecs. a and b, it does not claim that the tax levied under subsec. a is invalid. It limits its claim of invalidity to subsec. b. But if the statute is invalid because installment paper dealers and banks are in fact in the same class, the entire statute would fail, not merely subsec. b leaving in effect subsec. a which requires payment of $100 per year.

The business taxed under G.S. § 105-83 is of comparatively recent origin. It came into existence primarily as a means to facilitate the sale of motor vehicles. We take judicial knowledge of the fact that there are many corporations engaged in this business. Some are financial giants and national in scope. Their shares are listed on various stock exchanges. Their resources run into hundreds of millions. They establish lines of credit and borrow from banks and insurance companies. They are created under statutes which authorize the creation of business corporations in general. They do not have to secure a certificate of convenience and necessity to begin business. They do not receive deposits.

On the other hand, the statutory definition of a bank is "any corporation, other than building and loan associations, industrial banks, and credit unions, receiving, soliciting, or accepting money or its equivalent on deposit as a business." G.S. § 53-1. Before a bank can be created, application must be made to the Commissioner of Banks who must determine the need for such an institution, fitness of the proposed incorporaters to conduct the proposed business, and their ability to command the confidence of the community, G.S. § 53-4. The powers which a bank may exercise are enumerated in G.S. § 53-43. Their right to make investments and the kinds of investments *548 which they may make are restricted, G.S. §§ 53-46, 53-48. Banks must keep on hand or in approved depositories a fixed per cent of the monies on deposit, G.S. § 53-50. They cannot establish branch offices without the approval of the Commissioner of Banks, G.S. § 53-62. They are subject to regulations promulgated by the Commissioner of Banks, G.S. § 53-104.

The foregoing are some of the things that distinguish a bank from an installment paper dealer. The distinction between banks and installment paper dealers is at least as great as the distinction between installment paper dealers and loan agencies or brokers, G.S. § 105-88. The Legislature, in providing funds for governmental needs, had a right to recognize these distinctions. If perchance some banks are operating contrary to law and regulations promulgated by the Commissioner, that fact would not nullify a statute properly enacted by the Legislature.

Not long after the business defined by statute as installment paper dealers became economically important, several States, recognizing the distinction between such a business and the business of banking, taxed them differently. Where such statutes were challenged as arbitrary classifications, the courts upheld legislative action. Dewey v. Richardson, 206 Mass. 430, 92 N.E. 708; Cowart v. City Council of Greenville, 67 S.C. 35, 45 S.E. 122; City Council of Augusta v. Clark & Co., 124 Ga. 254, 52 S.E. 881; Norris v. Lincoln, 93 Neb. 658, 142 N.W. 114; Link v. Commonwealth, 205 Ky. 243, 265 S.W. 804; State ex rel. Ormes v. Tennessee Finance Co., 152 Tenn. 40, 269 S.W. 3; Bradley & Co. v. City of Richmond, 110 Va. 521, 66 S.E. 872.

The facts stipulated, supplemented as they must be by matters of which we take judicial notice, support the conclusion reached by the trial court that plaintiff was not entitled to recover because of the asserted invalidity of the statute.