
    CASE 35 — ACTION BY THE COMMONWEALTH BY THE AUDITOR’S AGENT AGAINST THE LOUISVILLE WATER COMPANY TO RECOVER A PENALTY FOR FAILURE TO PAY TAXES
    March 5.
    Louisville Water Co. v. Commonwealth
    Appeal from Franklin Circuit Court.
    R. L. Stout, Circuit Jud'ge.
    Judgment for plaintiff. Defendant appeals
    Reversed.
    Taxation — Delinquency-^Prosecution—Power of Auditor’s Agent to Prosecute. — St. 1900, section 4091, makes any corporation failing to pay its taxes, penalty, and interest after becoming delinquent guilty of a misdemeanor and liable to a fine. Section 4263 makes it the duty of the revenue agent, when directed by the-auditor, to institute suits, etc., in the name of the commonwealth against any delinquent person, to recover any money due the commonwealth. Held, that the auditor’s agent has no authority to institute a suit to recover the penalty by section 4091, as a person charged with having committed a misdemeanor does not owe the commonwealth any money ^ntil he has been convicted.
    CARROLL & MIDDLETON for appellant.
    POINTS AND AUTHORITIES.
    ' 1. The Water Company acted in entire good faith in failing to pay the franchise tax. Where there is grave legal doubt as to the liability of property for taxation heavy penalties for failure to pay the tax should not he exacted. (Taylor vs. Commonwealth, 54 Ky. (15 B. Mon.) 9; Commonwealth, &c. vs. L. & N. R. R. Co., 89 Ky. 134; Katehem, &c. vs. Pennsylvania R. ft. Co., Federal Case No. 7738; Delaware Division Canal Company vs. Commonwealth, 50 Paa. (14 Wright) 399; State vs; Chicago & Northwestern Ry. Company, 108 N. W. 594, 128 Wis. 449).
    2. The judgment entered in the case of City of Louisville vs. Bell, on June 27, 1907, protected the Water Company fully from the penalties sought to be collected herein. (Louisville Water Co. vs. Clark, 94 Ky. 47.)
    3. The faith of the Commonwealth was pledged to protect the Water Company from these penalties..
    4. By instituting through its Revenue Agent, John Cassady, an action in the Jefferson Circuit Court for the purpose of recovering franchise taxes for the years 1906 and 1907, together with ten per cent, penalty and ten per cent interest, the Commonwealth split its cause of action an delected not to sue for the $50.00 a day penalty. The plea in abatement setting up that action in the Jefferson Circuit Court in bar of this action should have been sustained.
    Section 15, Art. 4, sub-division 1 of the Act of 1906 relating to Revenue and Taxation. (B. F. Johnson Publishing Co. v. Commonwealth, 97 S. W. 749; Commonwealth vs. Southern Pacific Company, 32 Ky. Law Rep. 285; L. & N. R. R. Co. vs. Commonwealth, 29 Ky. Law Rep. 666, 94 S. W. 655; Pilcher vs. Ligón, 91 Ky. 228.)
    5. The section of the Statute under which the fine was imposed is unconstitutional, first, because it levies an excessive fine and, second, because it discriminates against those corporations which pay franchise taxes and does not afford them, the equal protection of the law guaranteed by the fourteenth amendment. (State vs. G-. H. and S. A. R. R. Co., 97 S. W. 71; 7 Cyc. 185; Mutual Fire Ins. Co. of New York vs. Hammond, 21 Ky. Law Rep. 204.) •
    ARTHUR E. HOPKINS, McQUOWN & BECKHAM and D. W. SAUNDERS, for Commonwealth.
    CLASSIFICATION AND AUTHORITIES.
    (a) The power to tax is inherent in the government. (Cooley on Taxation, Vol. 1, p. 7, and cases there cited.)
    (b) As to classification, policy, construction, imposition of penalties, etc., see: (Ky. Railroad Tax cases, 115 U. S. 321; W. U. Telegraph Co. vs. Indiana, 146 Ind. 54; W. U. Telegraph Co. vs. Indiana, 165 U. S. 304; Mobile County vs. Kimball, 102 U. S. 704; Louisville & Jeff. Ferry Co. vs. Com, 104 Ky., 726; Louisville & Jeff. Ferry Co. vs. Com., 188 U. S. 385; State vs. Ind. & 1113. R. R., 18 L. R. A. 504; Sate vs. Kansas City, etc. R. R., 32 Fed. 722; Hall vs. Com., 101 Ky. 382.)
    
      (c) Excessive fine no ground for relief where fine is imposed by law which violates no constitutional limitation. (W. U. Tel. Co. vs. Indiana, 165 IT. S. 304; State vs. Kansas, etc., R. R., 32 Fed. 722; Waters-Pieree Oil Co. vs. Texas, decided January 18, 1909.)
    2. Appellant on the record and published opinion of this Court cannot raise question of “good faith” in failing to pay the franchise tax and penalty. It has willfully failed to pay this tax. Good faith no defense to inflation of penalty. (Com. vs. Keathley, 82 S. W. 232; Com. vs. Toncray, 21 Ky. Law Rep. 572; State vs. Chicago, etc., R. R., 108 N. W. 594.)
    Reported cases where the appellant has persistently litigated and delayed payment of its taxes are: (Louisville Water Co. vs. Hamilton, 81 Ky. 519; Louisville Water Co. vs. Com., 89 Ky. 244; Clark vs. Louisville Water Co., 90 Ky. 515; Louisville Water Co. vs. Clark, 94 Ky. 47; Louisville -Water Co. vs. Clark, 141 U. S. 1; Bell, Sheriff, vs. Lou. Water Co., 32 Ky. Law Rep. 599.)
    (a) City, etc., vs. Bell, Sheriff, had no reference to the franchise tax. (Bell, etc., vs. City of Louisville, etc., 32 Ky. Law Rep. 509.)
    (b) The agreement in City, etc., vs. Board of Valuation and - Assessment in the Franklin Circuit Court was a nullity. No injunction issued and the State’s officers were powerless to make any agreement concerning the collection of the tax after the assessment had become final. (I. C. A. R. vs. Com., 32 Ky. Law-Rep. 1112, and cases there cited.
    3. Section 15, Art. IV., Sub. Div. 1, Chap. 22, Acts of 1906, and Sec. 4091, Kentucky Statutes, 1903, create two separate and distinct causes of action. (L. & N. R. R. Co. vs. Com., 29 Ky. Law Rep. 666.)
    (a) Jurisdiction exclusively in the Franklin Circuit Court Com. vs. Morrel, etc., Car Co., 112 S. W. 860.
   Opinion of the Court by Judge Hobson

Reversing.

After the decision of this court in Board of Councilmen v. Commonwealth, 94 S. W. 648, 29 Ky. Law Rep. 699, the city attorney of Louisville advised the Louisville Water Company that it was not liable- to state taxation. The sheriff of Jefferson county under the tax warrants in Ms hand's levied upon the property of the water company for the state taxes of 1906 on its tangible property. The water company thereupon filed an action in the 'Jefferson circuit court enjoining the sheriff from collecting' the taxes. A temporary injunction was granted by the chancellor, which on June 27, 1907, was made perpetual by a final judgment in the action. An appeal was taken from that judgment, and in this^ court it was held that the water company was subject to taxation. See Bell, Sheriff, v. City of Louisville, 106 S. W. 862, 32 Ky. Law Rep. 699. The petition for rehearing was filed, which was subsequently overruled, and thereupon the water company paid its taxes with the penalties. On March 7, 1908, Arthur E: Hopkins filed this suit as auditor’s agent in the name of the Commonwealth against the Louisville Water Company in the Franklin circuit court, in which he set up the fact that the company had been delinquent in the payment of its franchise tax for 1906 for 581 days, and sought to' recover a'judgment against it for a fine of $50 for each day the tax remained unpaid and 20 per cent, thereon. The company filed an answer to which the circuit court sustained a demurrer, and, it failing to plead further, entered a judgment against it as prayed in the petition. From this judgment, the water company appeals.

The proceeding is based on Section 4091, Ky. St., which, so far as material, is gs follows: “All state taxes assessed against any corporation, company or association under this article, shall be due and payable thirty days after notice of the same has been given said corporation, company or association by the auditor; and all county, municipal, school and other taxes shall be due and payable thirty days after, notice of the amount of said tax is given by the officer whose duty it is to collect the same; and every such corporation, company or association failing to pay its taxes, after receiving thirty days ’ notice, shall be deemed delinquent, and a penalty of ten per cent, on the amount of the tax shall attach, and thereafter such tax shall bear interest at the rate of ten per cent, per annum. Any such corporation, company or association failing to pay its taxes, penalty and interest, after becoming delinquent, shall be deemed guilty of a misdemeanor, and, on conviction, shall be fined fifty dollars for each day the same remains unpaid, to be recovered by indictment or civil action, of which the Franklin circuit court shall have jurisdiction.” It will be observed that any corporation failing to pay its,taxes, penalty, and interest after becoming delinquent shall be deemed guilty of a misdemeanor, and on conviction Shall he fined $50 for each day the tax remains unpaid. The statute adds a certain penalty to the tax: if it is not paid, and provides that the taxes shall then bear interest at 10 per cent., and it further provides that the nonpayment of the taxes, penalty, and interest shall be a misdemeanor, punishable by a fine of $50 a day. The question which lies at the threshold of this case is: Has the auditor’s agent authority to* institute a proceeding for the punishment of a misdemeanor created by statute? The only authority relied on is. section 4263, Ky. St.: “It shall be the* duty of the revenue agent, and he shall have authority when directed by the auditor, to institute suits,, motions, or proceedings in the name of the Commonwealth against any delinquent officer, or other person, to recover any money which may be due the Commonwealth; and, in all such suits, motions or proceedings in which a judgment is recovered, the party in default shall, in addition to the amount for which he is liable to- the state, be adjudged to pay a penalty of twenty per cent, of the amount due; and the revenue agent who prosecutes such action and recovers, the amount due the Commonwealth, shall be entitled to receive said penalty for his services. The penalties- herein provided for shall not be in addition to the penalties in actions in the name of the Commonwealth prosecuted by the county attorney or other attorneys for the Commonwealth. The money so1 adjudged due the Commonwealth, and penalties and costs, shall be paid to the State Treasurer, and he shall, within thirty days, pay tbe twenty per cent, penalty and costs to tbe officers entitled thereto. ’ ’ By this section the auditor’s agent, is authorized when directed by tbe auditor to institute suits to recover any money which may be due the Commonwealth; hut, when a person is alleged to have committed a misdemeanor, he cannot be said to be owing to- tbe Commonwealth any money until his. guilt has been established by conviction. When he has been convicted of the offense, the amount of the judgment is due by him to. the Commonwealth; but it was- not contemplated by this statute that the auditor's agent should1 be- authorized to- prosecute persons supposed to be guilty of a misdemeanor, and thus- collect from them not only the fine imposed by the statute, but also a 20 per cent, penalty thereon. The- 20 per cent, penalty is allowed by the statute as a penalty against the person who has failed' to- pay the Commonwealth money which he owed it. But, when a, person is simply charged with having committed a public offense, he cannot be proceeded against under this section. If the prosecution was instituted by the Commonwealth attorney, simply a fine would be imposed; but, if it may be maintained under this section, a penalty of 20 per cent, in addition to the fine may be required to be paid. The Legislature contemplated no such, result. It had not in mind in enacting section 4263 an additional procedure for the prosecution of offenses against the penal laws.

Judgment reversed and cause remanded, with directions to' the circuit court to dismiss the proceedings.  