Aberdeen Savings & Loan Ass'n v. Chase, 157 Wash. 351,


289 Pac. 536; 290 Pac. 697 (1930).

           ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.      351
 June 1930               Syllabus.

          [No. 22228. En Banc. June 12, 1930.]

ABERDEEN SAVINGS & LOAN ASSOCIATION et al., Appellants,
      v. SAMUEL H. CHASE et al., Respondents. 1

[1] CONSTITUTIONAL LAW (103) - EQUAL PROTECTION OF
LAWS - CONSTITUTIONAL GUARANTIES. The equal protection clause
of the Federal Constitution as to "any person," applies to
corporations as well as to individuals.

[2] STATUTES (56) - TAXATION (6, 13) - INTENTION OF LEGISLATURE
- EQUALITY AND UNIFORMITY-- EXCISE TAX. Chapter 151,
Laws of 1929, p. 380, imposing a tax on banks and financial
corporations measured by their net income, will not be held
to be a franchise or corporate privilege tax merely because
it contains a declaration to that effect; and after giving
due weight thereto, the courts must consider the true
operation and effect of the law and the practical results
which follow.

[3] TAXATION (13, 25) - CONSTITUTIONAL PROVISIONS - EXCISE OR
CORPORATE PRIVILEGE TAX. Chapter 151, Laws of 1929, p. 380,
imposing a tax on banks and financial corporations measured by
their net income is not sustainable as providing a corporate or
privilege tax; since it operates on the corporations named only
when the corporate privilege is exercised by engaging in
business in competition with other persons, natural or
artificial, in the carrying on of which every person is entitled
to the equal protection of the laws.

[4] TAXATION (3, 28) - EQUALITY - DISCRIMINATION BETWEEN BANKS
AND OTHER CORPORATIONS - LIABILITY OF PERSONS AND
PROPERTY - TAX ON NET INCOME - EXEMPTIONS. Chapter
151, Laws of 1929, p. 380, imposing a tax on banks and
financial corporations measured by their net income without
excepting income de rived from Federal tax-exempt
securities, unlawfully attempt to levy a tax on property
exempt by Federal law; that being a major consequence of
the act and therefore primarily intended by the
legislature.

[5] SAME (3, 28). There being a distinction in the relations of
"depositors" in commercial banks and in savings and loan
associations, in that money deposited in the latter
constitute capital for investment, a tax measured by the
net income of such institutions is discriminatory, where,
in computing the net income of banks, all interest paid by
them is deducted; while savings and loan associations are
not allowed any deductions


1 Reported in 289 Pac. 536; 290 Pac. 697.

 352    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Opinion Per BEALS, J.           157 Wash.

for dividends paid to shareholders for the use of the money
deposited.

[6] SAME (3, 28). Since the state can tax national banks only
strictly according to the grant of Federal authority, a tax
measured by the net income is not a tax upon the corporate
franchise, but a special tax in accordance with the act of
Congress; and chapter 151, Laws of 1929, p. 380 et seq.,
(SSSS 2, 3 and 4) recognizes the distinction by a recital to
that effect, and that, as to every other bank and financial
institution, the same tax is a privilege tax.

[7] SAME (3, 28). Chapter 151, Laws of 1929, p. 380, imposing a
tax on banks and financial institutions measured by net
income, is unconstitutional in that it violates the equal
protection clause of the Federal Constitution and the laws
of the United States denying to the states authority to tax
the income from tax exempt governmental securities.

Appeal from a judgment of the superior court for
Thurston county, Wilson, J., entered September 11,
1929, upon sustaining a demurrer to the complaint,
dismissing an action to enjoin the enforcement of a law
by the state tax commission. Reversed.

Grinstead, Laube, Laughlin & Lichty and Henderson,
Carnahan & Thompson, for appellants.

The Attorney General and E. W. Anderson, Assistant,
for respondents.

William Hatch Davis and John H. Powell, amici
curiae.

Arthur G. Cohen and Lester M. Livengood, amici
curiae on rehearing.

BEALS

HOLCOMB, FULLERTON, and MILLARD, JJ., dissent.

BEALS, J. - Plaintiff Aberdeen Savings & Loan Association
and sixty-two other savings and loan associations,
doing business in this state and organized under
the provisions of chapter 1, title XXI, Rem. Comp.
Stat., SS 3716 et seq., and acts amendatory thereto,
brought this action against the members of the state

      ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.           353
 June 1930          Opinion Per BEALS, J.

tax commission, seeking to enjoin the enforcement as
against plaintiffs of chapter 151, Laws of 1929, p. 380,
providing for a tax, measured by income, upon banks
and financial corporations, plaintiffs praying in the
alternative for relief against certain alleged threatened
illegal applications of the act by defendants.

To plaintiffs' complaint, defendants demurred. The
demurrer having been sustained by the trial court,
plaintiffs elected to stand upon their complaint, and
from a judgment dismissing the action, they appeal.

In their complaint, appellants allege that, prior to
the convening of the legislature in January, 1929, the
system of taxation which had theretofore been in effect
in this state had been seriously affected by litigation
which had been instituted by certain of the railroad
and banking corporations for the purpose of procuring
relief against alleged excessive, unjust and discriminatory
taxes levied against their respective properties,
which litigation threatened to seriously impair
the revenues of the state and also of the counties and
other municipal corporations. Appellants quote at
length from the messages of the Governor to the state
legislature, and set forth certain proceedings of the
legislature, had with a view to some readjustment of
the laws having for their object the raising of revenue.

Chapter 151, Laws of 1929, p. 380, against which act
this attack is waged, attempts to provide, as expressed
in its title, "for a tax measured by income upon banks
and financial corporations;" provides for the assessment
and collection thereof and for certain offsets or
deductions to be considered in determining the amount
of taxes due from institutions liable to pay the same.
Corporations organized to do "a savings and loan or
building and loan" business are expressly named in
the act as subject to the provisions thereof. The terms

 354    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Opinion Per BEALS, J.           157 Wash.

"gross income," "net income" and "financial
corporation" are in the act defined as follows:

"The term 'gross income,' as herein used, includes
gains, profits and income derived from business of
whatever kind and in whatever form paid; gains, profits
or income from dealings in real or personal property;
gains, profits or income received as compensation
for services, as interest, rents, commissions, brokerage
or other fees or otherwise received in carrying on such
business; all interest received from Federal, state,
municipal or other bonds, and, except as hereinafter
otherwise provided, all dividends received on stocks;
Provided, That the premium income of insurance companies
shall not be included in gross income.

"If the gross income is derived from business done
in part within and part without the state of Washington,
gross income means that portion of the income
derived from business done within this state, to be
ascertained and allocated in such manner as will fairly
determine the gross income derived from business done
within the state. The commission shall have power to
prescribe such rules and regulations as will, in its
opinion, carry out the direction and detail of this
provision.

"The term 'net income,' as herein used, means the
gross income less the deductions allowed. . . .

"The term 'financial corporation' shall include any
corporation, other than a bank, engaged within the
state of Washington in the business of acting in any
representative or trust capacity; or in the business of
a savings and loan or building and loan society or association;
industrial loan company, or finance company;
or in the business of buying, selling, discounting,
or dealing in stocks, bonds, debentures, bills of exchange,
warrants, notes and/or other evidences of
debt; or in the loaning, collecting and reloaning of
money."

After the section of the act containing definitions of
the terms therein used, the act continues:

"Sec. 2. Every national banking association, located
or doing business within this state, shall annually pay

      ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.          355
 June 1930          Opinion Per BEALS, J.

to the state, in addition to all other taxes or charges,
a tax according to or measured by its net income, to be
computed in the manner hereinafter provided, at the
rate of five per cent upon the basis of its net income
for the next preceding fiscal or calendar year.

"See. 3. Every bank, other than a national banking
association, doing business within this state, shall
annually pay to the state, in addition to all other taxes
or charges, for the privilege of exercising its corporate
franchise within this state, a tax according to or
measured by its net income, to be computed in the manner
hereinafter provided, at the rate of five per cent
upon the basis of its net income for the next preceding
fiscal or calendar year.

"Sec. 4. Every financial corporation doing business
within this state shall annually pay to the state, in
addition to all other taxes or charges, for the privilege
of exercising its corporate franchise within this state,
a tax according to or measured by its net income, to
be computed in the manner hereinafter provided, at
the rate of five per cent upon the basis of its net
income for the next preceding fiscal or calendar year.

"Sec 5. If the entire business of a bank or corporation
is done within this state the tax shall be based
upon its entire net income; and if the entire business
of such bank or corporation is not done within this
state the tax shall be based upon that portion thereof
which is derived from business done within this state,
as herein provided. . . .

"Sec. 24. The commission shall between the first
day of May and the first day of July in each calendar
year, from the reports filed with it or from other information
in its possession, determine the net income
of each bank and corporation as the basis of computing
the tax provided for in this act. Such basis shall
not be increased beyond the amount of net income
shown by the taxpayer's return unless the commission
shall give ten days' notice in writing by registered
mail to the taxpayer of the amount to which it is proposed
to increase such basis of computation, and of
the time and place when and where such taxpayer will
be heard by the commission in opposition to such proposed
increase.

 356    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Opinion Per BEALS, J.           157 Wash.

"Sec. 25. The commission shall on or before the
first day of September next thereafter prepare and
transmit to the assessor of each county within the state
an assessment roll for such county and shall place upon
such assessment roll the name of each bank and corporation
liable to a tax for the taxable year for which
such assessment roll is prepared, and having its principal
office or place of business within the county for
which such assessment roll is prepared.

"The commission shall also enter upon such assessment
roll opposite to or in connection with the name
of each bank or corporation the name or designation
of the city, town, township, school district and other
taxing districts within said county in which said taxpayer
has its principal office or place of business together
with the net income or basis for the computation
of the tax as determined by the commission and the
amount of the tax due and payable as computed by
it.

"The assessor of such county shall enter upon the
tax rolls of the county the name of each bank and corporation
and the amount of such tax due from it as
shown by such assessment roll. . .

"See. 27. All taxes collected or paid under the
provisions of this act shall be for the use of the state and
of the county, city, town, school district, municipality
or other taxing district in which the bank or corporation
has its principal office or place of business and
shall be by said county treasurer distributed in the
manner and in the same proportions as provided by
law for the distribution of taxes upon personal property."

Appellants contend that the act of the legislature
which they attack in this proceeding violates the constitution
of the United States and the constitution of
the state of Washington. Constitutional provisions
upon which appellants rely are the following:

Constitution of the United States, article I, SS 10,
paragraph 1:

"No state shall enter into any treaty, alliance, or
confederation; grant letters of marque and reprisal;

      ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.          357
 June 1930          Opinion Per BEALS, J.

coin money; emit bills of credit; make anything but
gold and silver coin a tender in payment of debts; pass
any bill of attainder, ex post facto law, or law
impairing the obligation of contracts; or grant any title of
nobility."

Fourteenth amendment to the constitution of the
United States, SS 1:

"All persons born or naturalized in the United
States, and subject to the jurisdiction thereof, are
citizens of the United States and of the state wherein
they reside. No state shall make or enforce any law
which shall abridge the privileges or immunities of
citizens of the United States; nor shall any state deprive
any person of life, liberty, or property, without
due process of law, nor deny to any person within its
jurisdiction the equal protection of the laws."

Article VII of the constitution of the state of
Washington, SS 2:

"The legislature shall provide by law a uniform and
equal rate of assessment and taxation on all property
in the state, according to its value in money, and shall
prescribe such regulation by general law as shall secure
a just valuation for taxation of all property, so
that every person and corporation shall pay a tax in
proportion to the value of his, her, or its property:
Provided, that a deduction of debts from credits may be
authorized: Provided, further, that the property of the
United States, and of the state, counties, school districts,
and other municipal corporations, and such
other property as the legislature may by general laws
provide, shall be exempt from taxation."

Article VII of the constitution of the state of
Washington, SS 9:

"The legislature may vest the corporate authorities
of cities, towns, and villages with power to make local
improvements by special assessment, or by special
taxation of property benefited. For all corporate purposes,
all municipal corporations may be vested with
authority to assess and collect taxes, and such taxes

 358    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Opinion Per BEALS, J.           157 Wash.

shall be uniform in respect to persons and property
within the jurisdiction of the body levying the same."

Article XI of the constitution of the state of Washington,
SS 12:

"The legislature shall have no power to impose taxes
upon counties, cities, towns, or other municipal corporations,
or upon the inhabitants or property thereof,
for county, city, town, or other municipal purposes,
but may by general laws vest in the corporate authorities
thereof the power to assess and collect taxes
for such purposes."

[1] Appellants, in the first place, argue that the
act of which they complain violates the fourteenth
amendment to the constitution of the United States in
that it denies to appellants the equal protection of the
laws.

The supreme court of the United States has held
that a corporation is a person within the contemplation
of the constitution. Smyth v. Ames, 169 U. S.
466; Southern R. Co. v. Greene, 216 U. S. 400; Quaker
City Cab Co. v. Pennsylvania, 277 U. S. 389.

In discussing the "equal protection" clause of the
constitution, the supreme court in the case of Strauder
v. West Virginia, 100 U. S. 303, said:

"The Fourteenth Amendment makes no attempt to
enumerate the rights it designed to protect. It speaks
in general terms, and those are as comprehensive as
possible. Its language is prohibitory; but every prohibition
implies the existence of rights and immunities,
prominent among which is an immunity from inequality
of legal protection, either for life, liberty, or
property."

In the later case of Barbier v. Connolly, 113 U. S.
27, the supreme court used this language:

"The Fourteenth Amendment undoubtedly
intended not only that there should be no arbitrary
deprivation of life or liberty, or arbitrary spoliation

      ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.      359
 June 1930          Opinion Per BEALS, J.

of property, but that equal protection and security
should be given to all under like circumstances
in the enjoyment of their personal and civil rights;
that all persons should be equally entitled to pursue
their happiness and acquire and enjoy property; that
they should have like access to the courts of the
country for the protection of their persons and property,
the prevention and redress of wrongs, and the enforcement
of contracts; that no impediment should be
interposed to the pursuits of any one except as applied
to the same pursuits by others under like circumstances;
that no greater burdens should be laid
upon one than are laid upon others in the same calling
and condition, and that in the administration of
criminal justice no different or higher punishment
should be imposed upon one than such as is prescribed
to all for like offenses."

A discussion of these principles is also found in the
case of Atchison, Etc., Railroad Co. v. Matthews, 174
U. S. 96, as follows:

"The equal protection guaranteed by the Constitution
forbids the legislature to select a person, natural
or artificial, and impose upon him or it burdens and
liabilities which are not cast upon others similarly
situated. It cannot pick out one individual, or one
corporation, and enact that whenever he or it is sued
the judgment shall be for double damages, or subject
to an attorney fee in favor of the plaintiff, when no
other individual or corporation is subjected to the
same rule. Neither can it make a classification of individuals
or corporations which is purely arbitrary,
and impose upon such class special burdens and liabilities.
Even where the selection is not obviously unreasonable
and arbitrary, if the discrimination is
based upon matters which have no relation to the object
sought to be accomplished, the same conclusion
of unconstitutionality is affirmed."

The allegations of appellants' complaint, which of
course stand admitted by respondents' demurrer, include
statements to the effect that over 300,000 persons

 360    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Opinion Per BEALS, J.           157 Wash.

are interested as shareholders in the savings and
loan associations doing business in this state, the
average holding of each shareholder being approximately
$350. Appellants further allege that approximately
ninety per cent of the gross income of each of
the appellants is derived from interest paid on loans
secured by first mortgages on improved real estate,
and that, in purchasing or making such mortgages,
appellants, in the terms which they can offer, come
into competition with other corporations as well as
with many private persons who are also making such
loans within this state. It is, of course, evident that
the rate of interest borne by the loans made or purchased
by appellants is an important element to be
considered in connection with the ability of appellants
to secure safe and desirable loans.

Appellants also allege that the minimum rate of
return paid by them to their shareholders is five per
cent per annum, and that the average rate of return
is five and sixty. five hundredths per cent, and that the
rate of return cannot be generally reduced below the
latter figure without material and serious detriment
to their business and to the securing by them of adequate
funds with which to transact their business.
Appellants argue that, as the competition in loaning
money between them, on the one hand, and other corporations
and private parties, on the other, is keen, a
tax of five per cent upon their net income constitutes
a substantial burden upon them, which, in view of the
fact that no such tax is paid by private parties or
some other competing corporations, deprives them of
the benefit of the "equal protection" clause of the
constitution and renders the law of which they here
complain unconstitutional and void.

Appellants also allege that, under this law, the
banks doing business within the state of Washington

      ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.          361
 June 1930          Opinion Per BEALS, J.

would pay a tax at the rate of $0.57 per thousand
dollars of resources, whereas appellants and other
similar associations in the state would pay an aggregate
tax equal to $2.46 per thousand dollars of resources

[2] The question of whether or not the act which we
are now considering imposes a tax upon appellants
for the privilege of exercising their corporate powers
within this state, or whether, on the other hand, it
purports to impose a tax directly upon property, to
wit, upon the net income earned by appellants upon
which the amount of tax due is to be computed, or
upon the occupation with which appellants are engaged,
is important. Respondents do not seriously
contend that a tax of like general nature to that which
we are now considering can be lawfully levied directly
upon appellants' property, which is equivalent to the
levy of such a tax upon the net income earned by appellants,
or that such a tax can be levied upon the occupation
of doing a financial business. Respondents
contend that the act imposes a franchise privilege tax
upon the corporations included within its terms, to be
paid by them for the privilege of exercising corporate
powers.

In the case of Quaker City Cab Co. v. Pennsylvania,
277 U. S. 389, it appeared that the cab company (the
plaintiff in error) was a New Jersey corporation, authorized
to do business in Pennsylvania and carry on
therein a general taxicab business. The state of
Pennsylvania sought to collect a tax of eight mills
upon the dollar upon the gross receipts of the corporation.
The cab company was, in its business, subject
to competition by individuals who were also operating
taxicabs. To these the act did not apply, and
they paid no tax upon their receipts. Corporations
operating taxicabs were not exempted from any of

 362    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Opinion Per BEALS, J.           157 Wash.

the taxes imposed upon natural persons engaged
in the same business, and every such corporation,
whether domestic or foreign, paid a capital stock tax
and another tax on the par value of all stock issued,
if a domestic corporation, and, if a foreign corporation,
a like rate on its capital employed in Pennsylvania.
The court, speaking through Mr. Justice Butler,
says:

"Plaintiff in error is entitled in Pennsylvania to
the same protection of equal laws that natural persons
within its jurisdiction have a right to demand
under like circumstances. Kentucky Finance Corporation
v. Paramount Exch., 262 U. S. 544, 550. The
equal protection clause does not detract from the
right of the state justly to exert its taxing power or
prevent it from adjusting its legislation to differences
in situation or forbid classification in that connection,
'but it does require that the classification be not
arbitrary but based on a real and substantial difference
having a reasonable relation to the subject of the
particular legislation.' Power Co. v. Saunders, 274 U. S.
490, 493. . . .

"There is no controversy as to the application of
the tax. Plaintiff in error assumes that the section
covers its gross receipts, as held by the state court,
but insists that the section is invalid because it does
not extend to like receipts of natural persons and
partnerships. No doubt there are situations in which,
as appears in Cudahy Packing Co. v. Minnesota, 246
U. S. 450, and other cases, a percentage of gross
earnings may be taken as a tax on property used in the
business and properly may be deemed not to be a tax
or burden on such earnings. But the practical operation
of the section is to be regarded, and it is to be
dealt with according to its effect. Frick v. Pennsylvania,
268 U. S. 473. Panhandle Oil Co. v. Mississippi,
277 U. S. 218. Here the tax is one that can be
laid upon receipts belonging to a natural person quite
as conveniently as upon those of a corporation. It is
not peculiarly applicable to corporations as are taxes
on their capital stock or franchises. It is not taken in

      ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.          363
 June 1930          Opinion Per BEALS, J.

lieu of any other tax or used as a measure of one intended
to fall elsewhere. It is laid upon and is to be
considered and tested as a tax on gross receipts; it is
specifically that and nothing else.

"In effect SS 23 divides those operating taxicabs
into two classes. The gross receipts of incorporated
operators are taxed while those of natural persons
and partnerships carrying on the same business are
not. The character of the owner is the sole fact on
which the distinction and discrimination are made to
depend. The tax is imposed merely because the owner
is a corporation. The discrimination is not justified
by any difference in the source of the receipts or in
the situation or character of the property employed.
It follows that the section fails to meet the requirement
that a classification to be consistent with the
equal protection clause must be based on a real and
substantial difference having reasonable relation to
the subject of the legislation. Power Co. v. Saunders,
supra. No decision of this court gives support to such
a classification. [And the supreme court of Pennsylvania
has condemned such a classification. Schoyer
v. Cornet Oil & Refining Co., 284 Pac. 189, 196-197.] In
no view can it be held to have more than an arbitrary
basis."

The court held that the law, as construed and applied
by the supreme court of Pennsylvania, violated
the constitution of the United States, and that the tax
could not be sustained.

Respondents contend that the tax provided for by
the statute is technically an excise for the privilege of
doing business as a corporation; or what is generally
known as a corporate franchise tax. For the purposes
of this opinion, we assume that a tax by way of an excise
to be collected by the state for the exercise of corporate
privileges would be valid. The act itself, in
SSSS 3 and 4, contains a recital that the tax is to be
paid by each corporation liable thereto "for the
privilege of exercising its corporate franchise within this

 364    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Opinion Per BEALS, J.           157 Wash.

state." Such a legislative declaration is to be carefully
considered by the courts and due weight given
thereto. Courts should, however, in construing an act
containing such a declaration, consider the true
operation and effect of the law which must be dealt with on
the basis of the practical results which follow its
operation, and not alone by legislative declarations
contained therein.

In this connection, the following opinions of the
supreme court of the United States are pertinent:
Craig v. Missouri, 4 Peters (U. S.) 410; Mugler v.
Kansas, 123 U. S. 623; Louisville Gas & Electric Co.
v. Coleman, 277 U. S. 32; St. Louis Cotton Compress
Co. v. Arkansas, 260 U. S. 346; Postal Tel. & Cable Co.
v. Taylor, 192 U. S. 64; Macallen v. Massachusetts, 279
IT. S. 62O.

The tax here sought to be levied is, as was stated by
the supreme court of the United States in the case of
Quaker City Cab Co. v. Pennsylvania, as above quoted:

". . . one that can be laid upon receipts belonging
to a natural person quite as conveniently as upon
those of a corporation. It is not peculiarly applicable
to corporations as are taxes on their capital stock or
franchises. It is not taken in lieu of any other tax or
used as a measure of one intended to fall elsewhere.
It is laid upon and is to be considered and tested as a
tax on gross receipts; it is specifically that and
nothing else."

The law of Pennsylvania providing for taxation of
taxicab companies, which was being construed by the
supreme court in the case last cited, provided for a
tax upon gross receipts, while the statute now before
us provides for a tax upon net income, but we can see
no distinction in principle in this particular between
the two acts. In our opinion, the principles upon

      ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.          365
 June 1930          Opinion Per BEALS, J.

which the supreme court of the United States held the
statute of the state of Pennsylvania unconstitutional
are extremely pertinent here.

[3] Assuming, as we do, for the purposes of this
opinion, that the state can fix any excise or franchise fee
or tax which must be paid by corporations organized
under the laws of this state, we must, nevertheless,
note that this act operates only when the corporate
privilege to do business is exercised. It is the engaging
in business, or the exercise of the corporate
privilege, which causes the tax to attach, and it is the
business in which the corporation engages which
brings the corporation in competition with other persons,
natural or artificial, in the carrying on of which
every person is entitled to the equal protection of the
laws in accordance with the mandate of the Federal
constitution.

[4] Appellants rely on the opinion of the supreme
court of the United States in the case of Macallen Co. v.
Massachusetts, 279 U. S. 620, in which an opinion of
the supreme judicial court of Massachusetts, holding
constitutional a law of that state providing for the
payment by Massachusetts business corporations of an
annual payment by way of an excise, was reversed and
the law held unconstitutional. The statute of Massachusetts
which was attacked required, among other
things, the payment of "an amount equal to two and
one-half per cent of that part of its net income, as
defined in this chapter, which is derived from business
carried on within the commonwealth." The law had,
at one time, exempted from the net income upon which
the tax should be computed, interest upon bonds, notes
and certificates of indebtedness of the United States,
but by amendment this exemption was deleted and no
deduction of such interest in computing the net income

 366    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Opinion Per BEALS, J.           157 Wash.

was provided for. In considering the questions
presented, the supreme court says:

"The words of the act and the opinion of the state
court as to the nature of the tax are to be given
consideration and weight; but they are not
conclusive As it many times has been decided, neither state
courts nor legislatures, by giving the tax a particular name,
or by using some form of words, can take away our
duty to consider its nature and effect. Choctaw &
Gulf R. R. v. Harrison, 235 U. S. 292, 298; Galveston,
Harrisburg, etc. Ry. Co. v. Texas, 210 U. S. 217, 227.
And this court must determine for itself by independent
inquiry whether the tax here is what, in form and
by the decision of the state court, it is declared to be,
namely, an excise tax on the privilege of doing business,
or, under the guise of that designation, is in substance
and reality a tax on the income derived from
tax-exempt securities. If, by varying the form - that
is to say, if, by using one name for a tax instead of
another, or imposing a tax in terms upon one subject
when another is in reality aimed at - the substance and
effect of the imposition may be changed, constitutional
limitations upon powers of taxation would come to
naught. The rule is otherwise."

The court assumes, as a controlling principle, that
the state cannot tax the instrumentalities or bonds of
the United States, while on the other hand the state
is at liberty to tax corporations with respect to the
doing of business. Holding that the state cannot tax
the income of a corporation derived from nontaxable
securities, the court says:

"It necessarily follows that the legislature may not,
by an artful use of words, deprive this court of its
authority to look beyond the words to the real legislative
purpose. And the power and the duty of the court to
do so is of great practical importance. For when the
aim of the legislature is simply to tax the former, it is
less likely to impose an injurious burden upon the
latter than when the aim is directed primarily against the
latter."

      ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.      367
 June 1930          Opinion Per BEALS, J.

The court concluded that the amended act imposed
a tax upon Federal bonds and securities, and was
therefore void.

The opinion of the supreme judicial court of
Massachusetts was filed during the month of September,
1928, prior to the enactment of the law now before us,
while the opinion of the supreme court of the United
States last referred to was not filed until May, 1929.
Counsel for respondents endeavor to distinguish the
case of Macallen v. Massachusetts, supra, but we are
unable to follow counsel in their argument.

On behalf of respondents, it is argued that the ruling
in the Macallen case was based wholly on the fact that
the court felt constrained to hold that the real object
and purpose of the Massachusetts act was to impose
a tax upon governmental tax-exempt securities. It is
true, as above stated, that the act, as originally passed,
provided that interest upon such securities should be
deducted in determining the net income upon which
the tax should be computed, and that a special tax
commission appointed to consider the tax situation in
Massachusetts made a report in which it recommended
that the law be amended by disallowing this exemption,
and that the legislature thereupon passed an
amendatory act following the suggestion of the commission,
thereby distinctly indicating a change of
policy on the part of the state. In its opinion, the
supreme court of the United States refers to this
action on the part of the legislature as indicating an
express purpose to subject governmental tax-exempt
securities to the burden of the tax, and states "that
the amended act in substance and effect imposed a tax
upon Federal bonds and securities." It is, of course,
true that these remarks of the supreme court were
clearly warranted by the facts before it, but we are

 368    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Opinion Per BEALS, J.           157 Wash.

unable to see that this makes any difference in the
principle involved.

The act of the legislature of this state now under
consideration was enacted after the passage of the
amended act by the Massachusetts legislature, and
after that act had been held constitutional by the supreme
judicial court of that state. No act of any
similar nature existed in this state prior to the passage
of the statute of 1929, and we cannot imagine that it
could be held that the amended act of Massachusetts
was unconstitutional, in so far as it affected Federal
tax-exempt securities, and that the act of this state
could be held good in that particular, simply because,
prior to the enactment of the 1929 statute, no law of
similar purport had existed in this jurisdiction.

It is true that the primary purpose of the legislature
of Massachusetts, in passing the amendatory act, may
have been to procure for the state, as part of its
revenue, a proportion of the interest paid to Massachusetts
corporations by the United States on governmental
securities, while nothing in the record now before
us indicates that such was the primary purpose
of the legislature of this state in enacting the 1929 law.
But this again makes no difference in the principle
involved, which is identical in both instances. It is, of
course, true, as argued on behalf of respondents, that
the supreme court of the United States did not hold
that a state cannot tax the corporate privilege and
measure the tax by net income, the court expressly
saying that "the state is at liberty to tax a corporation
with respect to the doing of its business." The court
continues, however, by saying that "the state cannot
tax the income of the corporation derived from nontaxable
securities."

The legislature, in enacting such a statute as that
now before us, must be held to have primarily intended

          ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.      369
 June 1930          Opinion Per BEALS, J.

all the major consequences of the act, and we are
clearly of the opinion that, under the ruling of the
supreme court in the case of Macallen v. Massachusetts,
supra, the law of 1929 unlawfully attempts to levy a
tax upon governmental securities, which, under the law
of the United States, the state has no right or power
to tax.

[5] Appellants, in their complaint, allege that respondents,
in preparing to administer the law, refused
to allow appellants to make any deductions on account
of payments made to their members or shareholders
for the use of the money of such members on deposit
with appellants, while allowing banks to make deductions
as to all interest paid by them.

This matter is argued at length and we have carefully
examined the authorities cited. It is, of course,
true that banks, in paying interest upon their savings
or time deposits, pay according to an agreed rate,
while appellants, in crediting their members or shareholders
with dividends, do not make such credits on
any contract rate, but adjust them upon the basis of
corporate earnings. The full amount of the deposits
and credited dividends are subject at all times to
withdrawal by the member (subject, of course, to the
rules of the savings bank as to the giving of notice,
when required), the principal sum deposited being
nowise subject to any hazard or risk, the element of
speculation attending only the dividends which may
or may not be earned from the funds deposited by the
shareholders. The fundamental relation between the
member and the depositee is always that of debtor and
creditor, and the payments or dividends, when paid,
for the purposes of an act such as that now before us,
would seem to partake well nigh exactly of the nature
of interest paid by a bank upon money deposited with
it. For some purposes, indeed, the two propositions

 370    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Opinion Per BEALS, J.           157 Wash.

are entirely different, while considered from other
angles they are practically identical.

There is, of course, a great difference between the
corporate structure of a savings and loan association
and that of a commercial bank, and the word "depositor,"
when used in reference to a commercial bank,
imports in law a different meaning from that which the
word implies when used in connection with a savings
and loan association, as, in the latter case, money
placed by the depositor in the association is, to a great
extent at least, capital for investment for the depositor's
benefit, such deposits being, as stated by the
supreme court of the United States in the case of Bank
of Redemption v. Boston, 125 U. S. 60, "the only capital
which is invested and employed."

Respondents argue that, as the purpose of the act is
the production of revenue, and that, if the distributions
made by mutual savings banks and financial corporations
of a similar nature are held to be deductible,
there will be little revenue raised from such institutions.
This is probably true, but that fact has only
incidental bearing upon the determination of the important
question which we are now discussing.

We have examined the authorities cited in the brief
of amici curiae to the effect that a depositor in a
savings and loan association is not always considered
strictly a creditor of the institution, and that such
depositor bears a relation to the institution entirely
different from that of a depositor in a commercial bank.
These authorities support the propositions advanced
in the brief, but are not controlling here. We have
also considered the opinions of the supreme court of
the United States in the cases of Savings Bank of
Danbury v. Loewe, 242 U. S. 357, and Cary v. Savings
Union, 89 U. S. 38.

Amici curiae argue that interest, to be deductible,

      ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.          371
 June 1930          Opinion Per BEALS, J.

must be paid by the taxpayer, and that distributions
to appellants' shareholders out of their own money
cannot be considered deductible interest paid for the
use of money borrowed from others. This argument
apparently works both ways, as it would seem that a
savings association should not be taxed upon the business
which it does with its shareholders' money, if it
is allowed no credit for what it pays the shareholders
for the use of that money. Such a law as this should
be construed consistently. If the money deposited in
savings associations belongs at all times to the
shareholders, then the only net income earned by the
association is its profit, and the dividends credited to
the shareholders are their income, not that of the
company, while, if the income of the institution includes
the money credited as dividends, the corporation, in
computing its net income, should be allowed credit for
dividends paid; otherwise the equation is unequal.

After careful consideration, we are of the opinion
that appellants, under any law similar to that now
under consideration, would be entitled, in computing
the net income upon which they are to pay a tax, to
some credit on account of dividends paid to members.

[6] Appellants argue that the primary purpose
of this act was to tax national banks, and that state
banks and other financial corporations were included
within the purview of the act because of a supposed
necessity for their inclusion by reason of SS 5219, U. S.
Rev. Stat. (12 U. S. C. A., SS 548), by which Congress
vested the state legislatures with the power, within
certain defined limitations, of taxing shares of national
banking associations or the net income earned by such
associations, or taxing them according to, or measured
by, their net income, subject to the limitations set
forth in the section of the Revised Statutes above referred
to.

 372    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Opinion Per BEALS, J.           157 Wash.

It is, of course, true that a state cannot tax a national
bank without authority from Congress, and then only
strictly according to the terms of the authority granted,
because such banks are agencies of the United States,
created by and acting under the constitution and laws
of the Federal government to promote governmental
purposes. First National Bank of Guthrie Center v.
Anderson, 269 U. S. 341; Owensboro National Bank v.
City of Owensboro, 173 U. S. 664.

The authority of the state, then, to levy such a tax
as this upon the net income of, or according to, or
measured by, the net income of, a national bank, is
not a tax upon the corporate franchise of such an
institution, but would be a special tax to be levied
strictly in accord with the act of Congress above referred
to. This distinction is recognized in words by
the act now before us for consideration (SSSS 2, 3 and 4
of the act of 1929, supra), which recites that, as to
national banks, the tax provided for thereby is a tax
according to, or measured by, the net income of such
institutions, while, as to every other bank and every
financial corporation doing business within this state,
the tax, in exactly the same amount, levied in the same
way, is a franchise privilege (or excise) tax.

Respondents argue that, even though the act should
be held unconstitutional in so far as it purports to levy
a tax upon the net income of national banks, such a
holding would not necessarily invalidate the act, as
the paragraph providing for the levy of such a tax
against national banks could be deleted from the act
without impairing the other features thereof. Assuming,
without deciding, that the result of a decision that
the section providing for the levy of a tax against the
net income of national banking associations was void
would simply be the deletion of the section of the act
establishing such tax, and in view of the importance of

      ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.          373
 June 1930          Opinion Per BEALS, J.

the questions involved, the length to which this opinion
is necessarily extended, and the result which we have
reached, we do not at this time pass upon the validity
of the act in so far as the same purports to levy a tax
upon the net income of national banks.

Respondents and amici curiae argue ably and at
length upon all phases of this litigation. They cite
many authorities, some of which clearly sustain respondents'
position. We have read the texts and
cases relied upon by respondents, and, after thoughtful
consideration, are of the opinion that the opinions
of the supreme court of the United States above referred
to lay down the better rule, and are, indeed, controlling
upon the phases of this litigation in regard to
which they are respectively relevant.

[7] The matters presented on this appeal are of
great and far-reaching importance. Bearing in mind,
on the one hand, the importance of the questions involved
and the amount of time requisite for a careful
study thereof and of the very many authorities cited by
the respective parties, and remembering, on the other
hand, the importance of a speedy determination of
this appeal and the injury to the public which would
result from further delay in deciding the questions
now before us, we conclude that no further discussion
of the issues here involved is advisable. Having due
regard for respondents' arguments to the effect that
a statute will not be held unconstitutional by
construction, nor unless the court is clearly required by the
law to hold the statute void, that laws are presumed
to be valid, and that acts providing for the raising of
revenue should always receive most favorable consideration,
we are, notwithstanding these propositions,
fully convinced that chapter 151 of the Laws of 1929,
p. 380, is unconstitutional, in that it violates the "equal
protection" clause of the constitution of the United

 374    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Dissenting Opinion Per HOLCOMB, J. 157 Wash.

States (Quaker City Cab Co. v. Pennsylvania, supra),
and for the further reason that it is in contravention
of the laws of the United States which provide that no
state has authority to tax the income from tax-exempt
governmental securities (Macallen v. Massachusetts,
279 U. S. 620).

This holding renders unnecessary any discussion of
appellants' contention that the act impairs the
obligation of contracts in violation of article I, SS 10,
paragraph 1, of the constitution of the United States, and
that it violates the uniform taxation provisions of the
constitution of the state of Washington, or other provisions
thereof.

The judgment appealed from is reversed with instructions
to the trial court to overrule respondents'
demurrer to appellants' complaint.

MITCHELL, C. J., FRENCH, TOLMAN, MAIN, and
PARKER, JJ., concur.

HOLCOMB, J. - We are vitally interested
in the growth and prosperity of savings and
loan associations and of savings bank establishments.
The burdens by taxation upon those institutions are
matters of deep concern, for they vitally affect thousands
of people possessed of small means. As to appellants
who are dealers in investment securities, we
are not so much concerned, inasmuch as they can pass
on the burdens of taxation to their more opulent customers
who constitute, as to them, "ultimate consumers."

However, if these decisions become the law because
of a supposed infringement of the Federal constitution
existing in the statute before us, the lawmakers
of this state, henceforth, practically, will be inhibited
from enacting any taxing system except by laying all
the burdens directly upon property within the state.

               ABERDEEN SAVINGS & LOAN ASS'N v. CHASE. 375
 June 1930          Dissenting Opinion Per HOLCOMB, J.

Because the decisions are so far-reaching in that respect,
as well as erroneous, and because they are unfortunate
in another respect, namely, that decisions
involving the validity of legislation as affected by the
Federal constitution, when decided adversely to the
state, cannot be taken by the state to the United States
supreme court for review, but if decided otherwise,
other parties could - I cannot concur.

The prevailing decisions are based upon the erroneous
premise that, "notwithstanding the legislative
declaration, the tax is not in truth and in fact an
excise or corporate privilege tax." The majority surely
have not carefully studied the nature of excise taxes.
They were long ago defined as:

"Taxes laid upon the manufacture, sale, or consumption
of commodities within the country, upon
licenses to pursue certain occupations and upon corporate
privileges." Cooley on Constitutional Limitations
(7th ed.) 680.

In Flint v. Stone Tracy Co., 220 U. S. 107, a Federal
corporation tax (36 Stat. 11, 112-117, c. 6), although
]aid upon corporations created by the states and the
tax not apportioned between the states, as required
by a Federal constitutional provision for direct taxes,
was held to be an excise and valid. It was also there
held that there is a substantial difference between
business as carried on in the manner specified in the
act and as carried on by partnerships and individuals
to justify the classification; that there are distinct
advantages in carrying on business in the manner
specified in the corporation tax law over carrying it on
by partnerships and individuals, and it is this privilege
which is the subject of the tax, etc.

The Federal act, by its terms, imposed "a special
excise tax with respect to the carrying on or doing

 376    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Dissenting Opinion Per HOLCOMB, J. 157 Wash.

business" (by corporations), the tax to be assessed
upon net income received "from all sources."

In the debate in Congress leading to the enactment
of the above corporation tax act, Senator Elihu Root
said:

"My own state has for many years grouped all
corporations within its borders, with certain specific
exceptions, in a class upon the revenues of which it
imposes a tax imposed on no other members of the
community. And it is a late day for us to be told that
there is no right in the United States to adopt this
old familiar, general basisoof classification for the
purpose of imposing an excise tax. It is rounded upon
reason, sir, and not alone upon authority." 44 Cong.
Rec. 4005-4006.

That Congress has no more power or right to declare
and adopt subterfuges to evade constitutional
limitations than has the state legislature, is
undeniable.

The majority rely largely upon the decisions of the
supreme court in Quaker City Cab Co. v. Pennsylvania,
277 U. S. 389, and Macallen Co. v. Massachusetts, 279
U. S. 620.

A vast variety of state taxation laws have been before
that court, and in many of them there are subtle
distinctions and in some of them apparent subterfuges.
In the last cited case, that court went behind the last
legislation before it and examined legislation that had
existed in Massachusetts theretofore, and discovered
that there was a patent attempt to evade Federal laws
and decisions in the later legislation. In the Quaker
City Cab Co., case, supra, as was said by the court,
the Pennsylvania law imposed a tax upon the gross
receipts of corporations engaged in the taxicab business
for hire, and not upon individuals engaged in the
same business. The court said that:

               ABERDEEN SAVINGS & LOAN ASS'N v. CHASE. 377
 June 1930          Dissenting Opinion Per HOLCOMB, J.

"'The real subject of the tax is the gross receipts
of a company engaged in the transportation of freight
or passengers.

It was, therefore, obviously and concededly, a direct
tax, which same tax was not levied upon individuals
engaged in the same business.

Chapter 151, Laws of 1929, p. 380, with which we are
concerned, contains no such defects. It is apparent
from an examination of it that it was carefully drawn
to comply with the Federal decisions relating to such
taxation so as to avoid conflict with the Federal constitution
and the delegated power to tax national banks
granted to the states.

"The power of taxation rests upon necessity and is
inherent in every independent state. It is as extensive
as the range of subjects over which the government
extends; it is absolute and unlimited, in the absence
of constitutional limitations and restraints, and carries
with it the power to embarrass and destroy. Post.
Tel Co. v. Charleston, 153 U. S. 692; McCrary v. United
States, 195 U. S. 27." Tanner v. Little, 208 Fed. 605.

The above pronouncement of the law by Judge Rudkin
in the district court was approved and confirmed
by the supreme court in Tangier v. Little, 240 U. S.
369.

Chapter 151, supra, is not only declared by the
legislature to be an excise law or tax upon corporate
privileges, all of which are created by the state and exist by
its grace, but the law is intrinsically nothing else than
a law imposing excises. Flint v. Stone Tracy Co.,
supra. The very existences of these appellants in corporate
form are privileges conferred by the state.
Provident Institution v. Massachusetts, 6 Wall. (U.S.)
611; Hamilton Co. v. Massachusetts, 6 Wall. (U. S.)
632; Baltic Mining Co. v. Massachusetts, 231 U. S. 68;
Alpha Portland Cement Co. v. Massachusetts, 268
U. S. 203.

 378    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Dissenting Opinion Per HOLCOMB, J. 157 Wash.

In Northwestern Mutual Life Ins. Co. v. Wisconsin,
275 U. S. 136, the validity of an excise measured by net
income, including that from tax-exempt securities of
the United States, was recognized. It was also held in
that case that a state tax on domestic insurance companies,
called an annual license fee, consisting of three
per cent annually of the *gross income* of the corporation,
save rents from land otherwise taxed and premiums,
was void pro tanto, only where the income was
in part interest from United States bonds. But here
the majority hold the entire taxing scheme void, upon
the corporate state franchises, based upon the *net income*,
and if income derived from interest from United
States bonds should be exempted, that could be shown
and claimed in the returns of the tax payers to the
assessing officers for exclusion in making up their net
incomes. Such decision by the majority would not
strike down the entire act. Possibly, this court would
be compelled to sustain such a contention. The distinction
between net income and gross income as the
measure of a tax is well established. Peck & Co. v.
Lowe, 247 U. S. 165; United States Glue Co. v. Oak
Creek, 247 U. S. 321.

The majority have not fully comprehended the precise
import of the Quaker City Cab Co., and the Macallen
cases, supra. To be properly understood, they
should have been analyzed and compared with the decisive
and other illustrative cases.

That court seems to have adhered consistently to
the principle that either the Federal or state governments
may constitutionally impose an excise tax on
corporations for the privilege of doing business in
corporate form, and measure the tax by the property
or net income of the corporation, including the tax-exempt
securities of the other or income derived from
them. The Quaker City Cab Co. and the Macallen

                ABERDEEN SAVINGS & LOAN ASS'N v. CHASE. 379
June 1930      Dissenting Opinion Per FULLERTON, J.
cases did not overrule any of the former cases, and
do not seem to have departed from or modified them,
but to have found refined distinctions which were decided
by a closely divided court.

It is not incumbent upon us to stretch for reasons
and grounds to grant immunity for infringements of
the Federal constitution where there may be even some
doubt. In this instance, there seems to be little doubt.
There are more doubtful questions arising under our
own constitutional provisions, especially as to the
validity of SSSS 24, 25 and 27 of chapter 151, supra. Even
those, in my opinion, could be resolved in favor of the
validity of the act without doing any violence to well
established legal principles or precedents.

The trial judge very ably analyzed all the legal
propositions involved herein in a most competent way,
in his memorandum opinion, with which I am in general
accord.

Were it not for the urgency of an early decision by
the court upon this legislation, I should desire to
extend my discussion further upon the points touched,
and also upon the validity of the legislation under our
state constitution. Inasmuch as the majority have disregarded
the effect of our own constitution upon the
act, I shall also pass the questions.

For the foregoing reasons, very inadequately stated,
I dissent. The judgments of the lower court should be
affirmed.

-Dissenting_Opinion-

FULLERTON, J. - While I agree with the
conclusion reached by Judge Holcomb in his dissenting
opinion, I wish to notice with more particularity
some of the questions he has noticed but generally.

The majority, it will be observed from the concluding
part of their opinion, rest their conclusion that the
act in controversy is in contravention of the Federal

 380    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Dissenting Opinion Per FULLERTON, J. 157 Wash.

constitution, because it denies to the complainants the
equal protection of the laws, and is in contravention
of the Federal laws because it taxes tax-exempt
securities. To reach these conclusions, the majority hold,
and must necessarily hold, that the act is not what
upon its face it purports to be, and is not what the
law-making power enacting it intended and declared it
to be. They hold, to state the holding more particularly,
that, notwithstanding tim act is in form and declaration
a tax on the right of the corporation affected
by it to do business within the state - that is, a tax
upon their franchises - it is, in substance and effect,
not such a tax, but is a tax upon their properties.

The process of reasoning by which this conclusion is
reached I must confess I have difficulty in
understanding. In so far as the franchise of a corporation is
property, it is, of course, a tax upon property, and in
as much as the tax is levied in lieu of all other taxes, it
can be said to be a substitute form of a property tax.
But to say that it is not a franchise tax, nor a
substitute for a property tax, but is a direct tax upon
property, is, in my opinion, neither a correct interpretation
of the meaning of the act, nor in accord with the actual
fact. I can thus see no reason for calling the tax
something else than it really is, and measuring its
constitutionality by a rule applicable to that something
else. In my opinion, it should be treated as a franchise
tax and its constitutionality measured by that
consideration.

Considering the tax as a tax on franchises and as a
substitute for other taxes, I can see no constitutional
objection to it. I am aware that the majority intimate
that such a tax cannot be laid in this state. But if this
be their meaning, it is contrary to both principle and
authority. Corporations in this state are organized
under general laws. By their organization, the state

                ABERDEEN SAVINGS & LOAN ASS'N v. CHASE. 381
 June 1930          Dissenting Opinion Per FULLERTON, J.

enters into no contract obligation with them. By SS 1,
Art. XII, of the state constitution, corporations may
not be created by special laws, they must be organized
under general laws, and it is therein specially provided
that "all laws relating to corporations may be
altered, amended, or repealed by the legislature at any
time." Because of this provision, corporations have
no contractual immunity from the imposition by the
legislature of additional burdens subsequent to their
organizations; the legislature may not only impose
upon them such additional burdens at its pleasure, but
it may absolutely destroy them.

For authority we need not go beyond our own decisions.
That franchises of corporations is a species of
property that can be taxed was expressly held by this
court in the following cases: Commercial Electric
Light & Power Co. v. Judson,
21 Wash. 49, 56 Pac.
829, 57 L. R. A. 78; Edison Electric Illuminating Co. v.
Spokane Co., 22 Wash. 168, 60 Pac. 132; Lewiston
Water & Power Co. v. Asotin County, 24 Wash. 371, 64
Pac. 544. In the first two of these cases, the question
was directly presented. The trial court had held that
franchises of corporations were not taxable, and in
each instance we overruled its holding. In so far as
my examination has gone, no court of any other jurisdiction
has held to the contrary. There are cases
which hold, because of constitutional restrictions, or
because of contract, franchises of corporations are not
taxable. But these cases rest on special grounds not
present here. They do not deny the power as a power.

I am aware that it is said in the majority opinion in
this connection that "we must, nevertheless, note that
this act operates only when the corporate privilege to
do business is exercised." I take this to mean that
the majority are doubtful whether the legislature can
make a distinction, when taxing franchises of corporations,

 382    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Dissenting Opinion Per FULLERTON, J. 157 Wash.

between active and inactive corporations. But
I see no objection to the act because of this reason.
Certainly, the complaining corporations cannot object
to paying a tax unless other corporations similarly
situated pay no tax, and this act does not provide, nor
is there any other act which provides, that inactive
corporations shall be exempt from taxation.

Nor is the tax objectionable, in any constitutional
sense, because it is an indirect and not a direct tax on
property. These corporations deal in, and practically
all of their wealth consists of, intangible property, a
form of property that is difficult to reach by direct
taxation. To tax their franchises and measure the tax on
the income derived from these securities, certainly
cannot be objectionable if the corporations, in the end, pay
no greater tax than they would be required to pay were
the tax direct upon their properties, and concerning
this there is no contention.

In the briefs of the several appellants, there are
extended arguments directed to the contention that
the act in question is violative of the state
constitution. But as the majority do not notice these
arguments, I shall not do so further than to say that my
study of them has led me to the conclusion that the
contention is unfounded. Viewed as a tax on the
franchises of corporations, I can, therefore, see no
reason why the act is not a valid exercise of legislative
power.

But viewing the act as a tax on property, and not a
tax on franchises, I think the majority are wrong in
their conclusion. The first of the reasons assigned
for the conclusion is that it denies to the appellants the
equal protection of the laws. I have found some difficulty
in gathering the reasons assigned for this conclusion.
The majority first assert that, since the cause
is here upon a demurrer to the complaint, we must take

                ABERDEEN SAVINGS & LOAN ASS'N v. CHASE. 383
June 1930      Dissenting Opinion Per FULLERTON, J.
the facts alleged in the complaint as true. This is
followed by statements of the purport of these allegations,
and, taking these statements as a correct interpretation
of the act, the conclusion is drawn that the
act is discriminatory as between the corporations affected
by it.

That there might be something wrong with this line
of reasoning ought, it would seem, to be apparent. In
the first place, it is not accurate to say that a demurrer
admits the allegations of a complaint in their entirety.
The correct rule is that it admits only the allegations
that are well pleaded. In the second place, the deductions
from the act drawn by the pleader must be measured
by the terms of the act itself, and if these deductions
are not in accord with the proper conclusions to
be drawn from the act, they are not well pleaded. The
act is partially quoted in the majority opinion,
sufficiently full to illustrate the questions involved. Only
a casual reading of them, it seems to me, shows that
there is no discrimination between the corporations
affected by it. Each is taxed on a per centum of its
net income and in proportion to the amount of its net
income. This is not to discriminate between the corporations,
unless it is to be said that taxes upon corporations
cannot be lawfully measured by net income;
unless it is to be said that a corporation whose wealth
is measured in millions of dollars cannot be required
to pay more taxes, when the tax is on the franchise,
than can a corporation whose wealth is measured by
hundreds of dollars. I am not as yet prepared to subscribe
to this doctrine. I cannot conceive that to tax
a corporation on its franchise and to measure the tax
by its income is, in any just sense, discrimination.

The majority also cite from the complaint the allegation
to the effect that banks, under the act, will pay
a tax at the rate of $0.57 per thousand dollars of

 384    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Dissenting Opinion Per FULLERTON, J. 157 Wash.

resources, whereas the other corporations affected will
pay at the rate of $2.46 per thousand dollars of resources,
and seem to take the allegation as true. But
here again the pleader is only drawing his conclusions
from the act. The act itself makes no such discrimination.
It taxes all at the same rate, and if this results
in the conclusion reached, it is due to the cause
that banks do not earn the same income on their resources
that the other corporations earn. This could
easily be true. Banks are subjected to many limitations
and burdens to which the other corporations are
not subjected, and it may be that, because of these,
they will not be required to pay as great a tax, measured
by resources, as the other corporations will be
required to pay. But, if it is proper to measure taxes
on property by the amount of the income derived from
the property, it is not unlawful discrimination even if
the result predicted does follow.

Other reasons assigned by the majority for holding
that the tax denies to the appellants the equal
protection of the laws are stated by them in the following
words:

"The tax here sought to be levied is, as was stated
by the supreme court of the United States in the case
of Quaker City Cab Co. v. Pennsylvania, as above
quoted, 'one that can be laid upon receipts belonging
to a natural person quite as conveniently as upon those
of a corporation. It is not peculiarly applicable to
corporations as are taxes on their capital stock or
franchises. It is not taken in lieu of any other tax or
used as a measure of one intended to fall elsewhere.
It is laid upon and is to be considered and tested as a
tax on gross receipts; it is specifically that and
nothing else.'"

It may be that I do not understand just what the
majority mean by the quoted excerpt, but they seem
here to take an entirely different view of the nature
                ABERDEEN SAVINGS & LOAN ASS'N v. CHASE. 385
June 1930      Dissenting Opinion Per FULLERTON, J.
of the tax than they have elsewhere taken in their
opinion. They seem to assume that it is a tax on the
gross receipts of the corporations, and is to be
considered and tested as a tax on gross receipts, and seem
to assume that the tax authorized by the act is not
taken in lieu of any other tax or used as a measure of
one intended to fall elsewhere. I cannot draw these
conclusions from the language of the act. That the
tax is not a tax on gross receipts, either in form or
substance, is made clear by the act itself. In form
the act is a tax on the franchises of the corporations,
the amount of the tax to be measured by a percentage
of their net receipts. Plainly, unless words have lost
their meaning, this is not a tax on gross receipts.

Again, in the first sentence of the quotation it is said
that the tax is "one that can be laid upon receipts
belonging to a natural person quite as conveniently as
upon those of corporations." I take it that the majority
mean that, because the tax is not laid upon natural
persons, but only upon the corporations described,
the act is void. But with this I cannot agree. It is to
deny to the legislature the power to classify persons
and property for the purposes of taxation, yet this is a
power not denied by the state or Federal constitution,
and a power that has been exercised by the legislature
since the beginning of statehood. And that it may so
classify, has been held many times by this court. It
was so held in Ridpath v. Spokane Co.,
23 Wash. 436,
63 Pac. 261; Tekoa v. Reilly, 47 Wash. 202, 91 Pac.
769, 13 L. R. A. (N. S.) 901; Puget Sound P. & L. Co.
v. Seattle, 117 Wash. 351, 201 Pac. 449, and in MacLaren
v. Ferry County, 135 Wash. 517, 238 Pac. 579.
The limitation is that uniformity and equality must
exist in the classes, and the tax imposed upon the
property of the one class must not be at a higher rate than

 386    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Dissenting Opinion Per FULLERTON, J. 157 Wash.

is imposed upon the property of another. But classification
in itself is not objectionable. Oftentimes, it
is the only method by which equality in taxation can
be maintained.

The statement that the tax here levied is not taken
in lieu of other taxes is likewise without foundation.
A study of the act, together with a study of the other
taxing laws of the state, will show that this tax is
taken in lieu of all other taxes on the property of the
corporations affected by it; that it is a tax intended
to reach intangible property; a species of property on
which neither corporations nor natural persons have
for many years paid taxes. It is not, therefore, an
additional tax on property assessed and collected under
other statutes; it is a tax on property which otherwise
would and has heretofore escaped taxation.

The case relied upon by the majority to sustain
their position is Quaker City Cab Co. v. Pennsylvania,
277 U. S. 389. Simply stated, that case was this:
Certain corporations, one of which was foreign to the
state of Pennsylvania, were engaged in the taxicab
business in the city of Philadelphia. There were a
number of individuals and partnerships engaged in the
same business. The legislature enacted a law authorizing
a tax on the gross receipts of the corporations
engaged in the business, but did not make a like exaction
from the individuals and partnerships engaged
therein. At the suit of the foreign corporation, the
court held the tax illegal because it did not make the
natural as well as the artificial persons subject to the
tax, and thus violated the equal protection clause of
the Federal constitution.

Conceding the soundness of that decision (it was
questioned by three of the distinguished members of
that court in arguments that are at least appealing),
I cannot conceive that it has application to the question

               ABERDEEN SAVINGS & LOAN ASS'N v. CHASE. 387
 June 1930          Dissenting Opinion Per FULLERTON, J.

here presented. Here, the corporations complaining
do not pay taxes on their property as individual
persons pay taxes and in addition pay this tax. As I
have pointed out, they pay in this manner in lieu of all
other taxes, and if they do not pay this tax they pay
no taxes at all. Manifestly, there is here no discrimination
such as is pointed out in the cited decision.
The corporations here affected pay only one tax levied
in a different manner than other taxes are levied.

The corporations affected by the act are the financial
institutions of the state. There are numerous
other corporations engaged in other pursuits, such as
trade, manufacture, and the like, who are not taxed
upon their net income, and, seemingly, it is inferred
that, because of this difference, the present act is
invalid. But if classification for the purpose of taxation
is permissible, as I have attempted to show, this act is
not invalid for this reason. The other corporations
are not permitted to escape taxation. Their property
is taxed under other laws and by different means of
measuring value, and there is nothing in this record,
and nothing elsewhere of which I am aware, that
shows that they do not pay a tax commensurate with
their wealth, or shows that they will not hereafter bear
their just proportion of the burdens of the state. After
all, this is the just criterion. The object and purpose
of all tax laws is to distribute the burden of
maintaining the state equally upon all property, and when this
is done, the manner and means by which it is done matter
little.

Again, it is said that there are natural persons engaged
in the business in which the corporations are engaged
who are not taxed upon their net incomes. But
this is not quite accurate. By positive law, the business
of conducting a bank, a building and loan association,
a savings bank, a mutual savings bank, and

 388    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Dissenting Opinion Per FULLERTON, J. 157 Wash.

like institutions, is expressly limited to corporations.
A natural person can, of course, loan his own money,
or the money of others intrusted to him for that purpose,
and he may buy stocks and bonds and other
moneyed securities for himself and for others, but
when he acts for others, he must act under private
contract. He cannot, as the corporations affected by the
act may do, open up a place of business for the receipt
of deposits from the general public and treat the deposits
when so received as his own with nothing but a
general liability for its return. Stated in another way,
the corporations affected by the act have special
privileges not accorded to a natural person, and to my mind
it is idle to say that they cannot be differentiated for
the purposes of taxation.

The second reason given for holding the act invalid
is that it authorizes a tax on tax-exempt securities.
This conclusion is drawn from the fact that the statute
under which the corporations affected are organized
permits them to invest their funds in tax-exempt securities,
and that some of them, if not all, have a part
of their funds so invested, and from the further fact
that the tax is measured by net income, without any
deduction of that part of it which may be derived from
tax-exempt securities. Taking the majority view of
the effect of the act, this objection is perhaps
pertinent, but I am unable to conceive how it avoids the
entire act. At most, only a part of the tax is void for this
reason, and I see no reason why the invalid part may
not be segregated from the valid part and the tax be
allowed to stand for the part that is valid. The courts
hold acts of the legislature, which are invalid in part,
wholly invalid only when the invalid part is inseparable
from the valid part, or when it is impossible to
say whether the legislature intended the act to operate
as a whole or not operate at all. The act here in question

               ABERDEEN SAVINGS & LOAN ASS'N v. CHASE. 389
 June 1930          Dissenting Opinion Per FULLERTON, J.

of itself relieves us from this latter consideration.
By SS 38 of the act (see Laws of 1929, p. 397, chap.
151) it is provided that:

"If any section or provision or part of this act shall
be adjudged to be invalid or unconstitutional, such
adjudication shall not affect the validity of the act as a
whole or any section, provision or part thereof not
adjudged invalid or unconstitutional."

This leaves for consideration only the question
whether the invalid provision of the act is separable
from the valid provision. I can see no difficulties on
this score. It being a tax on property, a part of which
is taxable and a part not taxable, manifestly there is
no substantial reason why the invalid part may not be
segregated from the valid part and the tax be allowed
to stand on the part on which the tax is valid. Nor are
there any insuperable administrative difficulties that
stand in the way. By the very process the statute prescribes
for ascertaining the net income, the amount of
income derived from tax-exempt securities can be segregated
and rejected.

But the majority cite the case of Macallen Co. v.
Massachusetts, 279 U. S. 620, as authority for holding
the entire tax void because it is void in part. I cannot
so read the case. The facts there involved are much
the same as those involved here; that is, it was a tax
levied on property in which the amount of the tax was
measured by net income derived from both taxable
securities and tax-exempt securities. The corporation
against which the tax was levied paid the tax under
protest, and, to use the language of the court,

". . . brought a petition for abatement of the
tax under provisions of the state law, setting forth the
foregoing facts and alleging the unconstitutionality,
under the Federal constitution, of the statute in so far
*as it was held to include interest derived from the
tax-exempt securities*." (Emphasis mine.)

 390    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Dissenting Opinion Per FULLERTON, J. 157 Wash.

The court sustained the petitioner in its contention,
but, plainly, in so doing, it did not declare the entire
act void. Indeed, so far from so declaring, the question
was not even before the court.

The majority also cite the last mentioned case as
impelling the holding that the tax here in question is a
tax on property, and not a tax on franchises. I think
this conclusion unfounded. As I read the case, the
court held the statute there in question to be a tax on
property, and not a tax on franchises, as it purported
to be, because of the peculiar circumstances surrounding
its enactment, and was not intending to lay down
the general rule that a tax on franchises was a tax on
property in every instance where the amount of the
tax was measured by net income derived in part from
tax-exempt securities. I am led to this belief by the
fact that the court had held in a number of cases, extending
back for a period of more than seventy years,
directly to the contrary. These cases are not expressly
overruled by the court, and it is impossible to believe
that they intended to overrule them sub silentio.
Moreover, the cases cited by the court as sustaining its
position are inapposite to this conclusion. They are
cases in which the tax was directly levied on
non-taxable property, not cases where the non-taxable
property was used merely as a measure of the tax.

The decision of the majority has far-reaching consequences.
It affects materially the revenues of the
state, and I fear it has more serious consequences.
The corporations affected by the act own and control
a vast part of the taxable wealth of the state, and if
their property is to be held as exempt from taxation, I
know of no reason why owners of other property may
not complain that our entire system of taxation is
void. This because it violates the state constitution.
That instrument (Art. VII, SS 1) provides that:

      ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.          391
 June 1930          Opinion Per Curiam.

"All property in the state . . . shall be taxed
in proportion to its value, to be ascertained as provided
by law."

It also provides (Id. SS 2) that the legislature shall
provide by law a uniform and equal rate of taxation,
"so that every person and corporation shall pay a tax
in proportion to the value of his, her or its property,"
and it requires no emphasis to make clear that to tax
only a part of the property of the state is to violate
these provisions of the constitution, and no emphasis
to make clear that tax laws which tax the property of
one person and exempt the property of another equally
liable to taxation are discriminatory and void.

The judgment of the trial court should be affirmed.

HOLCOMB, J., concurs with FULLERTON, J.

MILLARD, J., concurs with FULLERTON and HOLCOMB,
JJ.
                ON REHEARING.

[Nos. 22228, 22229, 22259, 22266, 22267. En Banc. August 7, 1930.]

PER CURIAM. - Respondents having filed in these
cases a petition for a rehearing, and Messrs. Arthur G.
Cohen and Lester M. Livengood, as amici curiae, having
also filed a petition for a rehearing, the two petitions
have been considered together.

Amici curiae argue that certain language used by
this court in the opinions filed in this case and in Burr,
Conrad & Broom v. Chase, post p. 393, 289 Pac. 551,
indicates that the court intended to lay down certain
principles of constitutional law which affect other
existing laws providing for the raising of revenue, and
which may be construed as limiting the power of the
state legislature in enacting future legislation
providing for the levying of other and different species of
taxes.

 392    ABERDEEN SAVINGS & LOAN ASS'N v. CHASE.
                Opinion Per Curiam.                157 Wash.

In order to clarify the situation, the court now
states that the opinions above cited were rendered
with a view to determining the questions presented
by the cases at bar, and those questions only; that
the majority of the court was of the opinion that
the legislation therein attacked must be held, under
the decisions of the supreme court of the United States,
to attempt to establish a property and not an excise
or corporation franchise tax; that, being a property
tax, the same could not be levied upon a certain class
of corporations only and not upon copartnerships or
individuals engaged in the same business. The majority
of the court was also of the opinion that, under
the decision of the supreme court of the United States
in the case of Macallen Co. v. Massachusetts, 279 U. S.
620, the legislature of this state had no legal authority
to provide for a tax based upon income from which
income revenue derived from United States securities
should not be deducted.

The opinions rendered should not be construed as
determining any question which was not before the
court, and the language of the opinions should be
limited to the matters expressly decided.

With this explanation, the petitions asking for a
rehearing are denied.