I can not agree with either the reasoning or the result of the majority opinion. It is to be borne in mind that the case is before us on the amended complaint, a demurrer thereto *Page 660 which was sustained, and a judgment dismissing the action.
The amended complaint is too long to be set forth in its entirety; a brief summary of it must suffice. Its allegations may be reduced to the following statement: Appellant is a California corporation, and as such has complied with the laws of this state relating to foreign corporations. It owns and operates a telephone and telegraph system, and does both an intrastate and interstate business.
For the sake of convenience and adequate service to its patrons, it has divided the state of Washington into a number of exchange areas. The "Seattle exchange area" includes several thousand telephones outside the limits of the city of Seattle. Service between telephones within the same exchange area is designated "telephone exchange service"; the service between telephones located in different exchange areas is designated "telephone toll service." The company's accounts are kept in accordance with forms prescribed by the Interstate Commerce Commission and the department of public works of Washington. The company has a central office equipment in Seattle having a value in excess of ten million dollars. Through its central office is rendered not only exchange service within the Seattle exchange, but also toll service, both intrastate and interstate. The company also has central office equipments in the other exchange areas throughout the state, aggregating in value about twenty million dollars.
The company's business in the city of Seattle, according to the amended complaint, has at all times been conducted in an efficient and economical manner. Its net earnings derived from its business in the Seattle exchange during the first three months of 1932, stated in rate per cent annual return upon the cost of its property *Page 661 used and useful in furnishing service within the exchange, were not in excess of 3.25%; its net earnings from business wholly within the city's limits were somewhat less. Subsequent to the first three months of 1932, the net earnings declined, and conditions existing at the time that the action was commenced indicate a probable further decline.
The company has paid all its taxes for the years prior to 1931. In 1932 it paid taxes for 1931 on its real estate inside the city, in the sum of $96,908.41, of which the city received $44,164.01 as its proportion. The company also paid $302,590.97 as the first half of 1931 personal property taxes, of which the city received $126,664.52. The remaining half became payable after this action had been commenced.
It is alleged in the amended complaint that the company was licensed by the state of Washington to engage in the telephone and telegraph business in and throughout the state, including the city of Seattle, for which license it paid the state, in 1932, a fee of $12,777.11; that the duty to give telephone service in Seattle and elsewhere in the state is a continuous one, and can not be terminated except with the consent of the state; and that, for more than twenty-one months last past, the company has not earned a fair return upon its property, and that the tax is arbitrary, unreasonable and confiscatory. The demurrer, of course, admits these allegations.
My first reason for dissent is that, under the allegations of the amended complaint, a prima facie case is stated. Not only is it directly alleged that the license fee is arbitrary, unreasonable and confiscatory, but sufficient facts to support the allegation, if it be considered as a mere conclusion, are also stated. We can not disregard those facts or the issue tendered thereby. If the city can fix the rate at four per cent, it can also fix *Page 662 it at ten. It is as easy to specify the one as it is the other. There is no innate virtue in the figure four, nor any inherent vice in the figure ten. We can not say, nor are we privileged to say, dogmatically, that a fee of four per cent, as prescribed by the ordinance, is not unreasonable or confiscatory, or that a fee of ten per cent would be. It will require evidence, probably of an expert nature, to show what the actual situation is, and, until that evidence is produced, we can not prejudge it. The demurrer should have been overruled for this reason alone, if for no other.
But I go further. The ordinance is not regulatory, but simply one for revenue. Not only does the ordinance declare it to be a revenue measure, but its very terms make no provision for regulation. This much is conceded in the majority opinion. The question then presents itself: Has the city the right to compel the company to obtain a license from it and to pay a tax or fee therefor, before it can continue to carry on its business within the city?
Section 3 of the ordinance provides that, after July 1, 1932, no person may engage in any business, occupation, pursuit or privilege for which a license fee or tax is imposed, without alicense; that any taxpayer who carries on his business without such license shall be guilty of a violation of the ordinance for each day that the business is carried on or conducted. Section 24 provides that any person failing to comply with any of the provisions of the ordinance shall be guilty of a misdemeanor, punishable by a fine in any sum not to exceed three hundred dollars, or by imprisonment in the city jail for a term not exceeding ninety days, or by both such fine and imprisonment.
If the city can not compel the taking out of a license, then it can not impose the tax. In the case before us, the company had, under chapter 227, Laws of 1929, p. *Page 663 634, § 5, Rem. Rev. Stat., § 3836-5, paid the state the sum of over twelve thousand dollars for the privilege of doing business in the state of Washington, for the year 1932. The privilege so obtained was comprehensive and subject to no limitations. The city could not give the company something that it already had; nor, conversely, could it take away or withhold a right that the company then possessed. The sovereign having granted the right, the city could not withdraw it. Since it could not take it away, it can not hamper its exercise in the manner attempted. Mayorand Aldermen of Savannah v. Georgia, 36 Ga. 460; Reser v.Umatilla County, 48 Ore. 326, 86 P. 595, 120 Am. St. 815; Cooley on Taxation, 4th Ed., § 1691. A license is simply the authority to conduct a business or pursue a calling, or the right conferred by the municipality which makes the pursuit lawful and without which it would be unlawful. The appellant having been authorized by the state to conduct its business within the state, the city can not make that pursuit unlawful.
The majority opinion cites the following cases in support of the rule that cities and towns may impose taxes either for revenue or regulation: Fleetwood v. Read, 21 Wash. 547,58 P. 665, 47 L.R.A. 205; Walla Walla v. Ferdon, 21 Wash. 308,57 P. 796; Stull v. DeMattos, 23 Wash. 71, 62 P. 451, 51 L.R.A. 892; In re Garfinkle, 37 Wash. 650, 80 P. 188; Sumnerv. Ward, 126 Wash. 75, 217 P. 502; Bucoda v. Swaney,163 Wash. 43, 299 P. 652. Those cases do announce that rule, it is true, but neither they nor the rule therein announced are applicable here, for the reason that in none of those instances had the state previously granted the privilege. Consequently, the municipality there had the right to exact a license for the conduct of the business, and the payment of a tax therefor. If the parties did not care to engage in business on the *Page 664 terms exacted, they could either have refrained from entering upon it or else withdrawn if they had already begun. The situation here is not at all comparable. The company can not withdraw from the field, but must continue to function; that was one of the considerations for which it was permitted to enter the state.
Approaching the matter from a somewhat different angle, I am of the view that the particular field of taxation had already been preempted by the state under chapter 113, Laws of 1921, p. 354, Rem. Comp. Stat., § 10417, chapter 107, Laws of 1923, p. 290, Rem. 1927 Supp., § 10417, both amended by chapter 107, Laws of 1929, p. 209, Rem. Rev. Stat., §§ 10417-10419; and chapter 227, Laws of 1929, p. 634, § 5, Rem. Rev. Stat., § 3836-5. The amending act of 1929 requires every public utility to file with the department of public works an annual statement showing its gross operating revenues for the preceding year, and to pay a fee of one-tenth of one per cent thereon. All such fees are required to be deposited in the public service revolving fund. The act makes the failure to pay such fees a misdemeanor punishable by a fine for each day's failure to pay. The last act requires all foreign corporations doing intrastate business in this state to pay certain fees for the privilege of doing such business.
Those acts are, in my opinion, purely license acts, and not regulatory. The funds derived therefrom are not devoted to the purpose of regulation, but, with the exception of the annual fees paid to the secretary of state, are required to be paid into the public service revolving fund, which is a general fund of the state subject to reappropriation by the legislature. The right to appropriate funds, under Art. VIII, § 4, of the state constitution, is recognized in State ex rel. Bloedel-DonovanLumber Mills v. Clausen, 122 Wash. 531, *Page 665 211 P. 281, and State ex rel. Shuff v. Clausen, 131 Wash. 119,229 P. 5.
The state having occupied the field of excise taxation, the city may not encroach upon it. We have here the same situation, in principle, as was presented in State ex rel. Webster v.Superior Court, 67 Wash. 37, 120 P. 861, Ann. Cas. 1913D 78, L.R.A. 1915C 287, where the right of the state was declared supreme and exclusive. The state having granted the privilege and having taxed it, the city could not thereafter exact an additional sum for the same privilege or right; otherwise, the municipality, by added exactions, could thwart the whole purpose of the state in admitting corporations to do a specific business therein on such terms as it saw fit to fix. The sovereign would be subsidiary to its various subdivisions. Cincinnati v.American Telephone Telegraph Co., 112 Ohio 493, 147 N.E. 806;Firestone v. City of Cambridge, 113 Ohio 57, 148 N.E. 470;Cincinnati Oil Works v. City of Cincinnati, 177 N.E. (Ohio App.) 768.
Further, I think that the definition of "gross income" in the ordinance is so vague and uncertain as to render the ordinance inoperative and void. By its provisions, the ordinance is penal. Fine and imprisonment are the penalties for non-compliance. The taxpayer is entitled to know definitely and certainly the amount of tax which he is required to pay and the method of its ascertainment, without the expense of litigation necessary to determine either. Western Union Telegraph Co. v. Texas, 62 Tex. 630; State ex rel. Crow v. West Side Street Ry. Co.,146 Mo. 155, 47 S.W. 959; Standard Oil Co. v. State, 178 Ala. 400,59 So. 667; Winslett v. Case-Fowler Lumber Co., 173 Ga. 539,160 S.E. 384.
Looking at the terms of the ordinance, I do not see how the taxpayer could possibly determine the amount *Page 666 of tax to be paid by it, or the method of its ascertainment, without resort to litigation. Different and vitally conflicting views will arise out of the interpretation of its language. Section 2 of the ordinance reads as follows, with reference to the definition of income:
"GROSS INCOME: The value proceeding or accruing from the sale of tangible property or service, and receipts (including all sums earned or charged, whether received or not) by reason of the investment of capital in the business engaged in, including rentals, royalties, fees or other emoluments, however designated (excluding receipts or proceeds from the use or sale of real property or any interest therein, and proceeds from the sale of notes, bonds, mortgages or other evidences of indebtedness or stocks and the like) and without any deduction on account of the cost of the property sold, the cost of materials used, labor, costs, interest or discount paid, or any expense whatsoever, and without any deduction on account of losses."
Does the word "value" as there used import "cost price," "sale price," or "net profit" on the sale of tangible property or service? If any one of these was intended, it could easily have been expressed. Again, the word "receipts" expressly excludes receipts or proceeds from the use or sale of real property. Appellant's equipment to the extent of millions of dollars is housed in, and in large part is permanently affixed to, buildings which are a part of the realty. Are the receipts from that source, pro tanto, to be deducted? Who shall say? How is anyone to know? It may confidently be assumed that the city will insist that no deductions are to be made in that respect. As confidently may it be assumed that the appellant will insist to the contrary.
Many other questions are raised by the wording of this section, all of which lead to confusion in the attempt to interpret them. The majority opinion says *Page 667 that the definition of "gross income" in the present ordinance is substantially the same as that contained in the act of West Virginia, considered and sustained in the case of Hope NaturalGas Co. v. Hall, 274 U.S. 284. I do not so read it. That act provided that persons engaging in certain businesses should pay a tax
". . . equal to the value of the articles produced as shown by the gross proceeds derived from the sale thereof by the producer (except as hereinafter provided) multiplied by the respective rates."
The language is not only entirely different, but upon its very face it shows that the tax is to be computed on the gross sales of the products. No such certainty or definiteness appears here. The rule by which the tax is to be measured should be definite and certain, and its definiteness and certainty should appear from its provisions, and not be the product of either litigation or compromise.
For the reasons suggested, and rather briefly stated in the light of the extended discussion in the briefs, I dissent. *Page 668