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The opinion of the Court was delivered by
Mr. Associate Justice Fisi-iburne.
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Upon a careful examination of the record and the issues presented, on appeal, this Court is in agreement with the conclusions reached by the Circuit Court, and the reasoning on which these conclusions rest. We adopt the judgment of the lower Court as the judgment of this Court. Let the judgment of the lower Court be reported.
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Judgment affirmed.
Messrs. Associate Justices Baker and Stukes and Messrs. Acting Associate Justices E. D. Lide and A. E. Gaston concur.
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Case posture Posture Before OXNER, J., Greenville County, March, 1941. Affirmed.Action by Otus Pickelsimer, doing business as Greenville Steam Laundry, suing in behalf of himself and certain others in like situations, against S.B. Pratt and others, as the South Carolina Unemployment Compensation Commission and others, challenging the constitutionality of the South Carolina Unemployment Compensation Act. From an adverse judgment, plaintiff appeals.
The Order of Judge Oxner required to be reported, follows:
The purpose of this action is to have the Court declare unconstitutional the South Carolina Unemployment Compensation Act, which is Act No. 946 of the Acts of 1936 and Act No. 316 of 1939. Plaintiff alleges that said Act is unconstitutional because it is in violation of Section 1, Article
X; Section 2, Article X; Section 8, Article I; Section 5, Article 1; Section 3, Article X; of the Constitution of 1895; and of the Fourteenth Amendment of the Federal Constitution.
Defendants demurred to the complaint on the ground that it does not state facts sufficient to constitute a cause of action in that (1) the Act in question is constitutional and (2) the plaintiff has not suffered any injury from the operation of said Act. A demurrer to the complaint admits all facts, which are well pleaded, but does not admit allegations of unconstitutionality of a statute which are allegations of law.
It is conceded that the disposition of the demurrer depends entirely upon the constitutionality of said statute.
I shall only refer briefly to the history of this legislation. I shall not enter into a discussion of the economic background which induced and prompted the passage of this and similar legislation throughout the country. This is fully discussed in the cases from other jurisdictions which will be hereinafter referred to.
In 1935 Congress passed what is known as the Social Security Act. 49 Stat. at Large, 620, 42 U.S.C.A., Chapter 7, § 301 et seq. This Act is divided into eleven separate titles, but this particular litigation concerns only Titles 9 and 3. Under the Act, every employer is required each year to pay an excise tax, with respect to individuals in his employ, the tax to be measured by prescribed percentages of the total wages payable by the employer during the calendar year of such employment. An employer is one having more than eight persons in his employ. Certain classes, such as agricultural labor, domestic service and some others, are exempt from the operation of the Act. If the taxpayer has made contributions to an unemployment fund under a State law, he may credit such contributions against the federal tax provided the total credit allowed shall not exceed 90 per cent. of the tax against which it is credited.
South Carolina passed its original Unemployment Compensation Act in 1936. It provides for a tax similar to the Federal Unemployment Compensation excise tax and contains appropriate provisions taking advantage of the plan of state-federal cooperation.
The Federal Act was held constitutional by the United States Supreme Court in the case of Steward Machine Company v. Davis , 301 U.S. 548 , 57 S.Ct., 883 , 81 L.Ed., 1279 , 109 A.L.R., 1293.
It was there held that said tax was an excise tax; that the exemptions under the terms of the Act were not so arbitrary as to render the tax violative of the due process requirement of the Fifth Amendment; and that the Act may be sustained as a co-operative plan between the State and Federal governments to reduce the financial burden of the nation due to unemployment.
Following the passage of the Federal Social Security Act every state, with possibly one or two exceptions, enacted an Unemployment Compensation Law designed to take advantage of the provisions of the Federal Act. The various state laws have been assailed in Court from time to time on the ground of unconstitutionality and in no instance, so far as my investigation discloses, has a Court declared such legislation unconstitutional.
The Supreme Court of the United States, in the case of Carmichael v. Southern Coal Coke Company , reported in 301 U.S. 495 , 57 S.Ct., 868 , 81 L.Ed., 1245 , 109 A.L. R., 1327, upheld the constitutionality of the Alabama Unemployment Compensation Act. The various state Acts are almost identical in their language for the reason that they were all passed in order to qualify for the advantages offered by the Federal government in the Social Security Act. In the foregoing case the Supreme Court held that the classification in levying the tax only upon those employers of eight or more employees was a reasonable one and clearly constitutional. It recognized the principle that the legislature
may make distinction of degree having a rational basis and that a tax was constitutional if it applied alike to all members of a class. The Court held that the Alabama Act did not violate the Fourteenth Amendment of the Federal Constitution and that it did not contravene the constitutional prohibition against taking property without due process of law or of denying the equal protection of the law. The Alabama Act was upheld by its Supreme Court in the case of Beeland Wholesale Company v. Kaufman , 234 Ala., 249 , 174 So., 516 ; the Arkansas Act by its Supreme Court in the case of Buckstaff Bath House Co. v. McKinley , 198 Ark. 91 , 127 S.W.2d 802 ; the California Act by its Supreme Court in the case of Gillum v. Johnson , 7 Cal.2d 744 , 62 P.2d 1037 , 63 P.2d 810 , 108 A.L.R., 595; the Massachusetts Act by its Supreme Court in the case of Howes Bros. Co. v. Massachusetts Unemployment Compensation Commission , 296 Mass. 275 , 5 N.E.2d 720 ; the Mississippi Act by its Supreme Court in the case of Tatum v. Wheeless , 180 Miss., 800 , 178 So., 95 ; the New York Act by its Supreme Court in the case of Chamberlin, Inc., v. Andrews , 271 N.Y., 1 , 2 N.E.2d 22 , 106 A.L.R., 1519; the Tennessee Act by its Supreme Court in the case of Southern Photo Co. v. Gore , 173 Tenn., 69 , 114 S.W.2d 796 ; the Utah Act by its Supreme Court in the case of Globe Grain Milling Company v. Industrial Commission , 98 Utah, 36 , 91 P.2d 512 and the North Carolina Act by its Supreme Court in several cases.
It will thus be seen that there is a remarkable unanimity of opinion among the various jurisdictions — that the entire unemployment compensation system is constitutional and is a proper exercise of both the taxing and police powers of the several states for the purpose of stabilization and reduction of unemployment.
In the consideration of the attack made by the plaintiff upon this Act, it is well to bear in mind that the supreme legislative power is vested in the General Assembly;
that the provisions in the State Constitution are not a grant, but a limitation of legislative power; and that every presumption must be indulged in favor of the constitutionality of an Act of the legislature. To justify a Court in declaring an Act unconstitutional, such must appear beyond a reasonable doubt. Citation of authority to support the foregoing fundamental rules of constitutional construction is unnecessary.
The various grounds of attack advanced by the plaintiff upon this Act will now be considered.
Section 1, Article X, provides in part: The General Assembly shall provide by law for a uniform and equal rate of assessment and taxation, and shall prescribe regulations to secure a just valuation for taxation of all property, real, personal and possessory.
Article I, Section 5, relates to due process and equal protection of the law. These two sections may be considered together.
Plaintiff alleges that the Act in question violates Section 1, Article X, in two particulars: (1) It exempts those having less than eight employees. (2) The so-called experience rating provision of Section 7 (c) (3) II (b) of the Act allows employers to pay a smaller tax beginning in 1942 provided their employment records are good.
It may be pointed out that all employers under the Act pay unemployment compensation contributions based on the same rate of taxation for the years 1936 through 1941. In short, there is no graduated tax in effect at present nor can there be until 1942. Beginning in 1942, there will be a graduated unemployment compensation tax based on the employment records of the employers who are liable. Employers will thereupon be classified according to their records over a five-year period. All members of each class will be taxed alike. Such classification is designed to carry out the avowed purpose of the Act as set out in Section 2 thereof. Obviously, the experience rating method is reasonable and fair. It is not
based on fancy or whim. It will encourage stability of employment and reduce unemployment.
It seems to be well established in this State that the provisions of Section 1, Article X, apply only to ad valorem
taxes on property and that this section does not apply to a license tax. Among the many cases sustaining this construction is that of Gregg Dyeing Company v. Query , 166 S.C. 117 , 164 S.E., 588 . Also see the case of Wingfield v. South Carolina Tax Commission , 147 S.C. 116 , 144 S.E., 846 . It has been uniformly held by Courts of other jurisdictions that this tax in controversy is an excise tax.
In the Gregg case, supra ( 166 S.C. 117 , 164 S.E., 595 ), the Court said: In South Carolina, neither the Constitution of 1868 nor 1895 expressly or impliedly makes reference to excise taxes, though their existence must naturally be assumed to have been known to the framers of these instruments. The lack of restriction in them on the inherent power of the legislature to impose such taxes affords ground for the conclusion that the power was purposely left unrestricted while the mode of exercising other taxing powers was provided for.
In the Wingfield case, supra ( 147 S.C. 116 , 144 S.E., 852 ), the Court said:
Regardless of whether constitutional provisions as to equality and uniformity are applicable to license taxes, it is too well settled to admit of argument that occupations and forms of business may be classified for the purpose of such taxation. 1 Cooley on Taxation (4th Ed.), 746. However, such classification must be reasonable, and not arbitrary, and the tax imposed must fall alike on all persons of the same class. The classifications may go even further, and subdivisions or subclassifications may be made where a reasonable basis of distinction exists. * * *
In accordance with the principles heretofore stated, a license or occupation tax is valid, under the various constitutional
provisions relating to equality and uniformity, if it applies equally and without discrimination to all persons engaged in the same particular business or avocation, or exercising the same privileges, or if the occupations or privileges and the persons engaged therein are classified for taxation according to reasonable and well-recognized lines of distinction, it does not matter how few the persons are who may be included in a class, so long as all who are or may come into the like situation or circumstances are embraced in the class.
The same attack which plaintiff is now making upon the exemptions provided for in the Act were made in the attack on the Alabama Act, all of which were overruled by the United States Supreme Court in the case of Carmichael v. Southern Coal Coke Company, supra. A like attack was overruled by the Massachusetts Supreme Court in the case of Howes Bros. Co. v. Massachusetts Unemployment Compensation Commission, supra. The exemptions under this Act and the provisions for experience rating are all reasonable and it certainly cannot be said that they are arbitrary. Upon this question also see the recent case of Carolina Music Company v. Query , 192 S.C. 308 , 6 S.E.2d 473 .
It is next contended that appropriation is not for a public purpose and that the benefits are not extended to all employees. Of course, the State taxing power can only be exerted to effect a public purpose and cannot be used for raising revenue for private purposes. It has uniformly been held that the public purposes of a state, for which it may raise funds by taxation, embrace expenditures for its general welfare. It was held in the case of Carmichael v. Southern Coal Coke Company, supra , by the United States Supreme Court that the benefits of this Act were for a public purpose; that if the purpose is legitimate because public, it will not be defeated because the execution of it involves payments to individuals; and in establishing a system of unemployment benefits, that the legislature was not bound to occupy the whole field. These same contentions were
fully considered and overruled by the Supreme Court in that case.
It is further contended that the Act violates Section 8, Article I, in that it impairs the obligation of contracts between the employer and employees. I am unable to see any force in this contention and it is clearly, in my opinion, without merit.
As was said by the Supreme Court of Massachusetts in the Howes Bros. case, supra ( 296 Mass. 275 , 5 N.E.2d 729 ): The law here assailed does not affect the contract of hire between the employer and employee. The wages remain the same. The Commonwealth has intervened in the exercise of its police power to relieve against the acute evils of unemployment. While contributions to that end are exacted from both employers and employees, the wages paid and received are not changed. In principle these contributions stand on the same footing as the payments for insurance against personal injuries which are a valid part of almost every Workmen's Compensation Act. Also see Globe Grain Milling Company v. Industrial Commission, supra.
It frequently happens that the rights of one of the contracting parties are affected by taxation relating to the subject-matter which was passed subsequent to the making of the contract. I know of no authority which denies the right of taxation upon the theory contended for by plaintiff's counsel.
It is urged that the Act contravenes Section 2, Article X, of the State Constitution. This section is as follows: The General Assembly shall provide for an annual tax sufficient to defray the estimated expenses of the state for each year, and whenever it shall happen that the ordinary expenses of the State for any year shall exceed the income of the State for such year the General Assembly shall provide for levying a tax for the ensuing year sufficient, with other sources of income, to pay the deficiency of the preceding
year together with the estimated expenses of the ensuing year.
Plaintiff alleges that the assessments provided for in Section 7 of the Act are not based on the ensuing annual estimated need but are, on the contrary, sufficient to meet such need and to build up a trust fund which will yield an income to be used in later years. He thereby contends that the foregoing constitutional provision has been violated.
It is obvious that this constitutional provision is designed to prevent the General Assembly from failing to levy taxes equal in amount to the appropriations made. Unless this were done, the State's credit would be jeopardized and its ordinary governmental functions curtailed or seriously impaired.
Section 3, Article IX, of the Constitution of 1868, is identical in language with the section of the Constitution of 1895 under discussion.
The Supreme Court of South Carolina, in the case of State v. Hayne , 4 S.C. 403 , has adopted this same view of Section 3, Article IX, of the Constitution of 1868. In that case the Court said: Comparing this Section with Section 7, authorizing the creation of public debt, in order to meet extraordinary expenditures, it becomes evident that the leading object of section 3 is to require that ordinary expenses, embracing the expenditures necessary for maintaining the government shall be met from year to year, and paid from the annual income and resources of the State, and that public debt shall not be created for the purpose of liquidating that class of expenses. The importance of such a provision as a means of preventing the improvidence of one generation from casting a burden of unnecessary debt upon a successive generation, is obvious, and fully explains the object and intent of Section 3.
The Constitution of the State of Minnesota has a section identical, also, with the one under discussion. The legislature of that state provided for the levy annually of a tax, the proceeds of which were to be subsequently used in the
erection of a new capitol building. After referring to this section of the Constitution as well as several others not material here, the Court said, in the case of Fleckten v. Lamberton , 69 Minn, 187 , 72 N.W., 65 , 66 : There is nothing in these sections which limits the amount of taxes which may be levied, or the amount of funds which may be accumulated in the State treasury, or the amount of extraordinary expenses or disbursements which may be paid out of such funds or out of the revenues as they are collected, provided no indebtedness is incurred which cannot be defrayed by the current revenues. While these provisions of the constitution declare that the annual revenues shall be as great as the annual ordinary expenses, they do not imply that such revenues, though raised by taxation, may not be greater than such expenses, or great enough to defray in 10 years the extraordinary expenses of building a state capitol.
The foregoing case from Minnesota was cited with approval by our Court in the case of Briggs v. Greenville County , 137 S.C. 288 , 135 S.E., 153 .
Plaintiff's counsel places considerable emphasis on the case of State v. State Warehouse Commission , 92 S.C. 81 , 75 S.E., 392 , which case is not applicable here. Mr. Justice Cothran in the case of Briggs v. Greenville County ( 137 S.C. 288 , 135 S.E., 157 ), stated in reference to the Warehouse case: There the General Assembly made an appropriation for expenditures of 1912 and 1913, and made no provision by taxation or otherwise for meeting the 1913 appropriation.
No such situation is here presented.
The attention of the Court is also called to the cases of State ex rel. Edwards v. Osborne , 193 S.C. 158 , 7 S.E.2d 526 , and State ex rel. Edwards v. Osborne , 195 S.C. 295 , 11 S.E.2d 260 .
The facts in both of these cases are entirely different. It happened in both cases that the General Assembly failed to levy a sufficient tax to take care of the annual appropriations.
It was distinctly recognized in the first of the foregoing cases that the legislature could make continuing appropriations and that such so-called continuing appropriations were in the nature of successive annual appropriations for disbursements of corresponding future years.
It will be observed that the Act contemplates the creation of a special fund for a specific purpose. Under its terms, the State is not liable for any amount in excess of that collected.
Section 22 provides: Benefits shall be deemed to be due and payable under this Act only to the extent provided in this Act and to the extent that monies are available therefor to the credit of the unemployment compensation fund and neither the State nor the Commission shall be liable for any amount in excess of such sums.
I do not think the foregoing section of the Constitution applies to a situation of this kind. It is clear to my mind that this legislation does not contravene said section.
This disposes of all constitutional objections with the exception of Section 3, Article X. This section provides that no tax shall be levied except in pursuance of law. It is conceded that if the other grounds of attack upon this legislation are untenable, it necessarily follows that this section has not been violated. What has already been said disposes of the objection as to alleged violation of the Fourteenth Amendment to the Federal Constitution.
The defendants contend that the plaintiff has suffered no injury through the operation of the State Unemployment Act and, consequently, is not in a position to question the constitutionality of this Act. In this connection, it is urged that even if the Act was unconstitutional, the plaintiff would still be required to pay the same tax to the Federal government. In view of the foregoing conclusion, I find it unnecessary to pass upon this contention.
It is, therefore ordered: That the rule to show cause heretofore issued by me be, and the same is hereby, dismissed;
that the temporary restraining order heretofore issued by me be, and the same is hereby, dissolved.
Further ordered: That the demurrer on the part of the defendants be, and the same is hereby, sustained and the complaint dismissed. Source: CourtListener
