Bruton v Moen Municipality [1991] FMSC 3; 5 FSM Intrm. 009 (Chk. 1991) (20 February 1991)

5 FSM Intrm. 9 (Chk. 1991)

FEDERATED STATES OF MICRONESIA
SUPREME COURT TRIAL DIVISION

FSM CIVIL ACTION NO. 1989-1021

FLAVIA M. BRUTON
d/b/a MITA & BRUTON ENTERPRISES
Plaintiff

V

MOEN MUNICIPALITY
Defendant

OPINION

BEFORE: Richard H. Benson Associate Justice, FSM Supreme Court

APPEARANCES: For the Plaintiff: R. Barrie Michelsen, Attorney at Law;
For the Defendant: Maketo Robert, Attorney at Law

OPINION: February 20, 1991

HEADNOTES

Taxation
A municipality may legislate and impose licensing fees to regulate activities within its jurisdiction subject to a requirement that the licensing fee at least tends to promote the public health, morals, safety or welfare. Bruton v. Moen, 5 FSM Intrm. 9, 12 (Chk. 1991).

Taxation
When the record is barren of any relationship between the fee imposed and the business regulation or licensing objectives and the fee is exacted for the sole purpose of granting a business permission to do business and possesses no attributes of a licensing statute, a municipality's power and authority to impose tax on the income of a business are foreclosed. Bruton v. Moen, 5 FSM Intrm. 9, 12 (Chk. 1991).

COURT'S OPINION

RICHARD H. BENSON, Associate Justice:

This matter came before the Court on the motion of the plaintiff for an order granting partial summary judgment. After oral argument on August 23, 1990, the matter was submitted to the Court for decision.

The issue presented is whether the general business fee required by Moen Municipal Ordinance No. 001-88 (hereinafter cited as "the ordinance") impermissibly imposes a tax upon the gross revenues or sales of a business in violation of article IX, section 2(e) of the FSM Constitution. For the reasons set forth below, the Court holds that the general business fee imposed by the ordinance does not constitute a legitimate regulatory licensing fee and is an unconstitutional tax on the gross income of a business.

I. BACKGROUND

The ordinance establishes a Moen municipal business license classification schedule pursuant to which retail stores are required to pay annual fees. The fee is classified based on the volume of the gross sales of a business. Defendant's Answer to Plaintiff's First Set of Interrogatories: Answer No. 1 (hereinafter cited as "Answer No. 1"). In 1989, plaintiff obtained its general business license by paying the fee in accordance with the classification scheme set forth in the ordinance.^[1]

II. LEGAL ANALYSIS

Defendant contends that the business fee ordinance "simply provides the fee for the permission of the municipality to allow certain business [sic] to do certain type [sic] of business activities on Moen." Defendant's motion in opposition to plaintiff's motion for summary judgment, points and authorities, p. 2 (hereinafter cited as "Defendant's Opposition"). Defendant argues that the classification scheme of the ordinance is permissible because the license fee is based on the gross sales as opposed to the gross income of a business, and therefore cannot be characterized as a tax on the income of a business.

Defendant's position is not well taken. The pivotal issue is whether the gross "sales" or "revenues" of a retail business inherently bear the same identity. It is difficult to perceive of and adopt any exclusive definitions of the meaning of these words as defendant urges. This jurisdiction's established statutory and decisional authorities, together with the plain usage of these words leave no room for the distinction the defendant urges. Title 54 of the Code of the Federated States of Micronesia provides, in part, " 'Gross revenue' means the gross receipts...derived from trade, business, commerce, or sales." 54 F.S.M.C. 112(5) (emphasis added). Gross revenues which by definition are derived from a taxpayer's sales, also come within the meaning of income. Afituk v. FSM, [1986] FMSC 17; 2 FSM Intrm. 260, 264 (Truk 1986). Furthermore, the lay usage of income is not inconsistent with these legal authorities. Webster's Third New International Dictionary (1971) defines "income" so as to include "commercial revenue or receipts of any kind." Together, these definitions extinguish defendant's attempt to draw substantive distinctions between the gross sales and revenues of a business. Under these circumstances it makes no difference whether the fee is imposed upon and classified in accordance with the gross "revenues," "sales" or "income" of a business.

Nonetheless, defendant claims that the fee is reasonable. Answer No. 1. Defendants argues that the intent and purpose of the ordinance are: "[1] to establish different kinds of business license[s]; and [2} to prescribe the fee for each type of license." Defendant's Opposition.

Without question it is within the police power of a municipality to legislate and impose licensing fees as a means of regulating activities within its jurisdiction. See generally 51 Am. Jur. 2d Licenses and Permits § 1 et seq. (1970). However, in order for a licensing requirement to be justified as a proper exercise of governmental police power, the courts generally require a showing that the requirement at least tends to promote the public health, morals, safety, or welfare. Id. § 14. In this case, the record is barren of any relationship between the fee imposed and the business regulation or licensing objectives to be served. The fee is exacted for the sole purpose of granting a business permission to do business and possesses no attributes of a licensing statute.

Consequently, insofar as the general business licensing provisions of the ordinance are concerned, defendant's power and authority to impose a tax on the income of a business are foreclosed. Section 2(e) of article IX of Constitution expressly delegates to Congress the power to impose taxes on income. Ponape Federation of Cooperative Associations v. FSM, [1985] FMSC 21; 2 FSM Intrm. 124, 126 (Pon. 1985). The ordinance is impermissible.

Rule 56 of our Rules of Civil Procedure provides for the granting of a motion for summary judgment if the moving party shows that there is no genuine issue as to any material fact and that it is entitled to judgment as a matter of law. The facts, and any inferences therefrom, are to be viewed in the light most favorable to the party against whom the summary judgment is sought. Bank of Guam v. Island Hardware, Inc., [1986] FMSC 22; 2 FSM Intrm. 281, 284 (Pon. 1986). Here, the plaintiff has met its burden under Rule 56. Defendant has produced no facts showing that the ordinance legitimately imposes a licensing fee. The record shows that the fee is a tax on the income of the business.^[2]

ORDER

Partial summary judgment, that the general business fee imposed by the ordinance violates article IX, section 2(e) of the FSM Constitution, and injunctive relief against the enforcement of the fee are granted in favor of the plaintiff.

The balance of plaintiff's request for relief (attorney's fees and costs) is denied.

FOOTNOTES:

³In its moving papers, plaintiff seeks, inter alia, an order refunding the $390 fee paid to the defendant. That request for relief was withdrawn through counsel at oral argument.

³The court notes that on at least one occasion, defendant has characterized the ordinance fee as a tax, notwithstanding its position that the fee is a license fee. Defendant's Answer to Interrogatory No. 5 discusses its duty to notify a business "that its license is [sic] is expired and its taxes are due ...[T]he business [shall be afforded] an opportunity to explain why it fails to pay tax." Similarly, Answer to Interrogatory No. 10 states that the "Tax collector will testify as to the tax assessments against the business.

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^[1]In its moving papers, plaintiff seeks, inter alia, an order refunding the $390 fee paid to the defendant. That request for relief was withdrawn through counsel at oral argument.

^[2]The court notes that on at least one occasion, defendant has characterized the ordinance fee as a tax, notwithstanding its position that the fee is a license fee. Defendant's Answer to Interrogatory No. 5 discusses its duty to notify a business "that its license is [sic] is expired and its taxes are due ...[T]he business [shall be afforded] an opportunity to explain why it fails to pay tax." Similarly, Answer to Interrogatory No. 10 states that the "Tax collector will testify as to the tax assessments against the business.