Spring Valley Co., Ltd. v. Johnson

DOOLING, J.,

pro

tem.

This is an appeal from a judgment entered after sustaining a demurrer to plaintiff’s complaint. The action was brought by appellant, Spring Valley. Company, Ltd., against the State Treasurer to recover taxes paid under protest for the year 1931.

From the complaint it appears that prior to March 3, 1930, appellant for many years was engaged in supplying water as a water utility corporation to the inhabitants of San Francisco, and on that date it transferred the whole of its water system to the city and county of San Francisco and retired from the water utility business, but that it retained and still owns certain lands not necessary or useful in such water utility business, but which it had been compelled to acquire from time to time in order to acquire certain other contiguous lands necessary and useful in such business; that from January 1, 1930, to March 3, 1930, appellant derived a net income from its water utility business of $448,512.81, but since that time it has not derived and can no longer derive any income from the distribution of water; that since March 3, 1930, appellant’s sole business has been the holding, conservation, administration, investment and reinvestment of said nonoperative assets, and that instead of a net income appellant suffered a net loss in 1931 of $43,539.54; that despite these facts the franchise tax commissioner assessed a tax upon appellant for 1931 based upon appellant’s net earnings in 1930, including the $448,512.81 derived from its water business between January 1 and March 3, 1930, which tax appellant paid under protest and herein seeks to recover.

It is appellant’s first' contention that section 4 of the Bank and Corporation Franchise Tax Act of 1929 (Stats. 1929, p. 19) is unconstitutional in so far as it purports to authorize a tax upon a corporation “upon the basis of its net income for the next preceding fiscal or calendar year’’. This argument is pointed to subdivision 2 (a), section 16,

[260]

article XIII, of the Constitution of the state as adopted November 6, 1928, which reads: “All financial, mercantile, manufacturing and business corporations doing business within the limits of this State, subject to be taxed pursuant to subdivision (d) of section 14 of this article, in lieu of the tax thereby provided for, shall annually pay to the State for the privilege of exercising their corporate franchises within this State a tax according to or measured by their net income. The amount of such State tax shall be equivalent to four per cent of their net income.”