The opinion of Mr. Justice LeBaron renders a statement of the case and of the errors relied upon unnecessary. It will suffice to state our conclusions.
As we view the case, the extension by section 55 of the Organic Act of the legislative power of the Territory to all rightful subjects of legislation not inconsistent with the Constitution and laws of the United States, locally applicable, includes the power to lay, consistently with the restrictions and limitations imposed by the Constitution and laws of the United States, an annual excise tax upon all businesses and activities carried on in the Territory measured by the application of rates against values, gross proceeds of sales or gross income, as the case might be.1 A tax imposed by a nonfederal political agency, however reasonable, universal and nondiscriminating, the legal effect of which is to lay a direct and immediate tax upon the instrumentalities of the United States, is within the implied prohibition of the Constitution of the United States against laying a burden upon or interfering with federal activities,2 even though imposed under the guise of an excise tax.3 A nondiscriminating territorial excise tax measured by the application of rates against values, *Page 316 gross proceeds of sales or gross income, as the case may be, is not within the constitutional prohibition merely because in its incidence it might indirectly reach a federal instrumentality.4 It was the intention of the legislature, as manifested by sections 2, 24 and 3 of the general excise tax law of 1935, that in the computation of the tax there be excepted from gross proceeds of sales or gross income only so much of the gross proceeds of sales or gross income derived from the sales made to the United States Government, its departments or agencies, which was then or might thereafter be exempted from taxation under the Constitution of the United States or the Organic Act of the Territory, such exception, however, not to apply if and when the Congress of the United States permitted the Territory to impose a privilege tax upon gross proceeds of sales made to the United States Government, its departments or agencies. And although in its incidence the local general excise tax law of 19355 indirectly affects the United States Government and its departments or agencies, its economic effect is consequential and remote and not immediate and direct.6
Whether or not the effect of the decision in the case ofPanhandle Oil Co. v. Knox was to extend constitutional immunity from taxation under the local excise law to the gross proceeds of sales to federal instrumentalities is deemed of no importance further than it may serve to ascertain the legislative intent in the use of the language *Page 317 contained in section 3 of the Act. Nor whether the King Boozer case overruled the Panhandle Oil Co. case. The tax, the legality of which is in question herein, was assessed for the year 1942. The King Boozer case was decided in November, 1941. And the rationale of the King Boozer case applies7 without the necessity of further legislation on the subject.8 Nor are we concerned with the question of whether the legislature was correct in assuming, as indicated by the proviso of section 3, that the Congress of the United States is authorized to permit the Territory to impose a privilege tax upon gross proceeds or gross income derived from sales made to the United States Government, its departments or agencies or that it was legally necessary to do so. An intent clearly and unequivocally expressed is no less so because it may be based upon a false hypothesis.
The only troublesome question involved is whether the rate to be applied to gross proceeds of sales or gross income, as the case might be, should be one and one-half per cent, the rate applicable to "every person engaging or continuing * * * in the business of selling any tangible personal property whatsoever (not including, however, bonds or other evidence of indebtedness or stocks)" or the rate of one quarter of one per cent, the rate applicable "in the case of a wholesaler or producer."
Section 2, B (1) of the Act imposes a tax "Upon every person engaging or continuing within this Territory in the business of selling any tangible personal property whatsoever (not including, however, bonds or other evidence *Page 318 of indebtedness or stocks)" of one and one quarter per cent (since increased to one and one-half per cent) of the gross proceeds of sales of the business, except in the case of wholesalers or producers, in which case it is one quarter of one per cent. Section 1, paragraph (8) defines "gross proceeds of sale" as the "value actually proceeding from the sale of tangible personal property without any deduction on account of the cost of property sold or expenses of any kind." Section 1, paragraph (10) defines a wholesaler as "a person doing a regularly organized wholesale or jobbing business, known to the trade as such, and only with respect to the following sales: (a) sales, to a licensed retail merchant or jobber, for purposes of resale; (b) sales, to a licensed manufacturer, of material or commodities which are to be incorporated by such manufacturer into a finished or saleable product (including the container or package in which the product is contained) during the course of its preservation, manufacture or processing, including preparation for market, and which will remain in such finished or saleable product in such form as to be perceptible to the senses, which finished or saleable product is to be sold and not otherwise used by such manufacturer; or (c) sales, to a licensed contractor, of material or commodities which are to be incorporated by such contractor into the finished work or project required by the contract and which will remain in such finished work or project in such form as to be perceptible to the senses." It is apparent from the foregoing references to the Act that the legislature intended that the rate of tax applicable to the gross proceeds of all sales of tangible personal property should be one and one-quarter per cent or such rate to which the same might be decreased or increased under the provisions of section 2, III, except in the cases of sales made by a wholesaler as defined and in respect to the types of sales enumerated *Page 319 and defined in section 1, paragraph (10) (a), (b) or (c), and except in case of sales made by a producer, when the rate should be one quarter of one per cent. Whether or not, after excluding wholesalers or producers from the all-inclusive phrase "upon every person," retailers alone remain is a question that is not involved. The Act, besides carrying its own definition of a "wholesaler" and the sales to which the term shall apply, thus restricting and limiting the ordinarily accepted meaning of the term "wholesaler," also carries a definition of the term "retailer" [§ 1, par. (13)] and of the term "producer" [§ 1, par. (11)]. Unquestionably, the phrase "upon every person" includes retailers, and this conclusion is confirmed by the running head of section 1, B, and the administrative regulations in respect to retailers contained in section 2, 1-B (1), (3), (4) and (5).
It is conceded that the tax in question involves sales of tangible personal property, not including bonds or other evidence of indebtedness or stocks. Hence, the gross proceeds of sales made by the taxpayer of tangible personal property was subject to a tax of one and one-quarter per cent unless, as claimed by him, they were made by him as a wholesaler and come within any of the categories of sales defined in section 1, paragraph (10) (a), (b) or (c). The taxpayer claims that the sales made to post exchanges and ships' service stores come within section 1, paragraph (10) (a). It is admitted by the Territory that the taxpayer does a regularly organized wholesale business, known to the trade as such, and that the sales involved were for the purpose of resale. But are post exchanges and ships' service stores "licensed merchants," as that term is used in section 1, paragraph (10) (a)? We think not. Post exchanges and ships' stores are admittedly federal instrumentalities. While post exchanges and ships' stores sell at "retail" and the sales in question were *Page 320 made for purposes of resale, neither post exchanges nor ships' stores are "licensed," as that term is used in section 1, (10) (a). By section 21 of the Act all persons having gross proceeds of sales upon which a privilege tax is imposed by the Act are required, as a condition precedent to engaging or continuing such business, to secure an annual license upon conditions that are immaterial to our discussion. It is therein further provided that: "Any person who may lawfully be required by the Territory, and who is required by this Act, to secure a license as a condition precedent to engaging or continuing in any business subject to taxation under this Act, who shall engage or continue in such business without securing such license in conformity with this Act, shall be guilty of a misdemeanor * * *." A privilege tax is not imposed by the Act upon the gross proceeds of sales by federal instrumentalities. While not expressly exempted, they are, as heretofore pointed out, immune from such taxation by the Territory. Hence, one of the essential attributes of a "licensed merchant" is absent and the legal effect is to exclude such sales from the category of sales defined in section 1, paragraph (10) (a). In other words, in respect to sales to federal instrumentalities, the taxpayer was not a wholesaler as defined in the Act.
In our opinion the word "licensed" included in the definition of sales in section 1, paragraph (10) (a), was used by the legislature advisedly. It must be assumed that it was advised of the immunity from taxation of federal instrumentalities. It extended exemptions by the Act itself to certain business activities exercising retail functions, viz., hospitals, infirmaries and sanatoria. It no doubt had in mind other business activities which, though retailers in a popular sense, nevertheless legally were not retailers under the terms of the Act. In each of the instances referred to no license is required under the provisions *Page 321 of section 21 of the Act. From all this it is abundantly clear that by the use of the word "licensed" the legislature intended to exclude from the definition of "wholesaler" sales made to persons exercising retail functions who under the provisions of the Act were not required to be licensed.
Nor are we satisfied that post exchanges and ships' service stores are "merchants" in the sense that the term "merchant" is employed in section 1, paragraph (10) (a). The Act itself does not define the word "merchant." Hence, its common-law meaning controls. A merchant has been defined as one who is engaged in buying and selling goods, wares or merchandise for gain or profit.9 The army regulations governing post exchanges are in evidence. It was stipulated that ships' service stores have the same relation to the United States Navy as post exchanges have to the United States Army. The regulations governing post exchanges are epitomized in the opinion of the court in the case ofStandard Oil Co. v. Johnson, 316 U.S. 481, at 484. It was there held: "* * * post exchanges as now operated are arms of the Government deemed by it essential for the performance of governmental functions. They are integral parts of the War Department, share in fulfilling the duties entrusted to it." If post exchanges and ships' service stores as now operated are arms of the Government and integral parts of the respective services to which they are attached, their functions are governmental and not proprietary,10 and in whomever the title to the tangible personal property sold may be vested immediately prior to sale, such person is not a "merchant" within the meaning of section 1, paragraph (10) (a) of *Page 322 the Act. For this additional reason the taxpayer was not a wholesaler as defined in the Act.
Nor does the imposition of the higher rate of taxation applicable to "every person" juridicially discriminate against sales to federal instrumentalities.
The term "retailer" is defined in the Act as "any person who sells, other than as a wholesaler within the definition of this Act, tangible personal property for consumption or use by the purchaser and not for resale." The statutory definition of the word "wholesaler" has already been quoted. If, as heretofore held, the taxpayer is not a "wholesaler" as defined by the Act and is included in the all-inclusive term of "every person" employed in section 2, B, which levies the tax, he is simply one of a class to which the rate imposed uniformly applies. "Every person" selling to federal instrumentalities pays the same tax. All vendors of the same class are treated alike. Moreover, by the same token, sales to retailers are divided into two classes,viz., (1) sales to a retailer either not licensed or not a merchant, when the vendor falls into the category of "every person" and the higher rate applies, and (2) sales "to a licensed retail merchant for purposes of resale" when the vendor falls into the excepted class of "wholesaler" and the lower rate applies. In either case all vendors in the respective classes to which they belong are treated uniformly and pay the same applicable tax.
The exception of "wholesalers" as a class from "every person" as a class affects a natural and reasonable classification of vendors especially where, as here, it synchronizes with the evident intent of the legislature, speaking generally, that sales of tangible personal property in their normal distribution through commercial channels bear two taxes, viz., one when sold at wholesale when the rate is one quarter of one per cent and one when sold at retail when the rate is one and one-half per cent. The same may *Page 323 be said of the classification of sales to retailers where resales by the retailers are nontaxable by reason of immunity, exemption or otherwise. They are readily distinguishable from sales to a "licensed retail merchant." And the legislature apparently intended that as to each class a different rate of taxation obtain, in the former the rate of one and one-half per cent as sales made by "every person" and in the latter one-quarter per cent as sales made by a "wholesaler." The well-settled rule that the legislature may classify objects for the purposes of taxation has long since received recognition and been applied by this court.11 Diversity of rate of taxation based upon proper classification of the objects of taxation is not discrimination. It would serve no useful purpose to pedantically repeat what this court has heretofore said on the subject. The language of the court in the Robertson case and the authorities there cited are equally applicable here.
Moreover, factually no discrimination exists against sales to post exchanges or ships' service stores. If anything, it is the other way about. And of this plaintiff does not complain.
It has been tritely said that the ultimate consumer always pays the tax. Here it is a question of the absorption of the tax by the retailer. The post exchanges and ships' service stores, however, by reason of their immunity, absorb less in taxes under the general excise tax law of 1935 than licensed retail merchants. In the former case the tax to be absorbed is only one and one-half per cent, in the latter one and three-fourths per cent. The result is that the purchasers to whom sales at post exchanges and ships' service stores are restricted as ultimate consumers pay less than the general public purchasing from licensed retail merchants. *Page 324
The judgment appealed from is reversed and the cause remanded for a new trial.
1 W.C. Peacock Co. v. Pratt, 121 Fed. 772, 776; Haavik v. Alaska Packers Assn., 263 U.S. 510, 513; Kitagawa v. Shipman,54 F.2d 313, 318; Yerian v. Territory of Hawaii, 130 F.2d 786, 788; Robertson v. Pratt, 13 Haw. 590.
2 Johnson v. Maryland, 254 U.S. 51, 55; Mayo v. United States, 319 U.S. 441.
3 Choctaw Gulf R.R. v. Harrison, 235 U.S. 292; Northwestern Ins. Co. v. Wisconsin, 275 U.S. 136; Panhandle Oil Co. v. Knox,277 U.S. 218; Macallen Co. v. Massachusetts, 279 U.S. 620.
4 Society for Savings v. Coite, 6 Wall. 594 (1867); Home Ins. Co. v. New York, 134 U.S. 594 (1889); Provident Institution v. Massachusetts, 6 Wall. 611 (1867); Hamilton Company v. Massachusetts, 6 Wall. 632 (1867); Metcalf Eddy v. Mitchell,269 U.S. 514 (1925); Fidelity Deposit Co. v. Pennsylvania,240 U.S. 319 (1915); Trinityfarm Co. v. Grosjean, 291 U.S. 466 (1933); James v. Dravo Contracting Co., 302 U.S. 134 (1937); Alabama v. King Boozer, 314 U.S. 1 (1941); Curry v. United States, 314 U.S. 14 (1941).
5 Sess. Laws 1935, Act 141.
6 Alabama v. King Boozer, supra. See also dissenting opinion of Mr. Justice Holmes in Panhandle Oil Co. v. Knox, supra, dissenting opinion of Mr. Justice Stone in Macallen Co. v. Massachusetts, supra; Trinityfarm Co. v. Grosjean, supra.
7 Philadelphia v. Schaller, 148 Pa. Super. 276,25 A.2d 406, cert. denied 317 U.S. 649.
8 Western L. Co. v. State Bd. of Equalization, 11 Cal. (2d) 156, 78 P.2d 731.
9 Bacon v. Cannady, 144 Ga. 293, 86 S.E. 1083; In re Jupp, 274 Fed. 494; Rosenbaum v. City of Newbern, 118 N.C. 83,24 S.E. 1; H.H. Kohlsaat Co. v. O'Connell, 255 Ill. 271, 99 N.E. 689.
10 Fed. Land Bank v. Bismark Co., 314 U.S. 95, 102.
11 Naone v. Thurston, 1 Haw. 392; Campbell v. Shaw, 11 Haw. 112; Robertson v. Pratt, supra.