Sunset Nut Shelling Co. v. Johnson

PETERS, P. J.

Plaintiff, Sunset Nut Shelling Company, paid a portion of its franchise tax for the calendar year 1935 under protest. Thereafter, this action was instituted by the taxpayer to recover the amount so paid. The trial court overruled the demurrer of the State Treasurer. The latter elected to stand upon the demurrer, and judgment was entered in favor of plaintiff, from which this appeal is taken.

The problem involved is whether a 1935 amendment to the Franchise Tax Act, effective June 25, 1935 (Stats, of 1935, p. 1245, at p. 1246; Deering’s Gen. Laws, 1935 Supp. Act 8488), raising the rate of the tax from 2 per cent to 4 per cent is applicable to this taxpayer for the calendar year 1935.

[356]

The complaint alleges that plaintiff is a California corporation ; that on March 13, 1935, it made its return to the Franchise Tax Commissioner; that according to the law then in effect it was the duty of the plaintiff to pay for the privilege of exercising its corporate franchise in the state a franchise tax measured by its net income at the rate of 2 per cent upon the basis of its net income for the next preceding year; that the tax constituted a lien upon the property of plaintiff in California, which lien attached on March 4, 1935; that the tax was computed in the manner then provided by law and a remittance so computed made to the Franchise Tax Commissioner on March 13, 1935; that thereafter the legislature changed the rate from 2 per cent to 4 per cent by an enactment which became effective June 25, 1935; that on September 20, 1935, the Franchise Tax Commissioner served notice upon plaintiff demanding an additional tax computed according to the 4 per cent rate; that on October 2, 1935, plaintiff paid the additional tax under protest, and this action was thereafter instituted.

There can be no doubt but that the legislature intended that the 1935 amendment raising the rate should apply to taxes payable for the calendar year 1935. Section 4(8) of the 1935 amendments expressly so provides. (Stats, of 1935 at p. 1247.) The question is not whether the legislature intended the tax to apply in the calendar year 1935, but whether the statute so providing is constitutional.

Under the terms of the act the tax for each year is measured by the net income of the taxpayer for the preceding year. The tax involved in the instant case accrued on January 1, 1935,'and became a lien on the taxpayer’s property in California on the first Monday in March, 1935. One-half the tax becomes due and payable on or before the fifteenth day of the third month following the close of the taxable year, and the balance on or before the fifteenth day of the ninth month following the close of the taxable year, and is delinquent if not paid by those dates. As already pointed out, plaintiff paid its tax in full on March 13, 1935. It is the theory of respondent that since it paid the tax on March 13, 1935, and since on that date the tax was a lien, it acquired a vested right to the privilege of exercising its corporate franchise for the year 1935, which was unconstitutionally impaired by the imposition of the additional tax in June of 1935. The theory is untenable.