Liggette Co.

v Lee

Brief Fact Summary. Thirteen chain storeowners, (Appellants), filed a class action seeking an order enjoining tax
officials, (Appellees), from enforcing Chapter 15624 of the Laws of Florida, 1931 (Ex. Sess.). Defendant successfully
moved to dismiss and the Supreme Court of Florida affirmed. Plaintiffs appealed to the United States Supreme Court.

Synopsis of Rule of Law. Chain stores employ distinguishable methods of conducting business and the Legislature
may make the difference in method and character of the business the basis of classification for taxation.

Facts. This statute requires businesses operating in Florida to obtain a license. The filing fees for the license are
heavier for chain stores as opposed to stores owned independently but operating in voluntary cooperation with each
other. The tax is increased if one or more store in the chain is located in a different county. A further tax of $3 is
required for each $1,000 value of stock carried in each retail store. Filling stations engaged exclusively in the sale of
petroleum products are excluded.

Issue.
Whether a tax distinguishing between chain stores and voluntary chains is an arbitrary and unreasonable
discrimination.

Whether those provisions of the act that increase the tax if the owners stores are located in more than one county
are unreasonable and arbitrary.

Whether the requirement deprives Appellants of equal protection of the law because wholesale merchants not taxed
by the act in question are assessed under section 926 of the Revised General Statutes of Florida.

Whether tax of $3 for each $1,000 value of stock carried in each retail store deprives Appellants of equal protection of
the law because merchants are not taxed similarly.

Whether excluding filling stations engaged exclusively in the sale of petroleum products deprives Appellants of equal
protection of the law.

Whether the act by bearing unevenly upon those who purchase directly from a wholesale manufacturer whose plant
is outside the state burdens interstate commerce.

Whether the tax is unconstitutionally discriminatory because state officials do not intend to collect it from the owners
of stores in certain lines of business and therefore Appellants should be exempt from paying the tax.

Held.
No. A single shop employs distinguishable methods of conducting business, and the Legislature may make the
difference in method and character of the business the basis of classification for taxation.

Yes. Those provisions that increase the tax if the owners stores are located in more than one county are
unreasonable and arbitrary and violate the Fourteenth Amendment

No. The diverse purposes of the storage and difference in the nature of business conducted are sufficient to justify a
different classification of the two sorts of warehouses for taxation.

No. The Fourteenth Amendment does not prevent a state from imposing differing taxes upon different trades and
professions or varying the rates of excise upon various products.

No. The tax is laid for the privilege of operating stores in Florida and attempts no discrimination between merchandise
imported from another state and that produced in Florida.
No. If discrimination does result, Appellants only remedy is a writ of mandamus compelling the taxing officials to do
their duty.

Dissent.
The main purpose of the legislation is to protect the individual storeowners from the competition of chain stores by
taxing chain stores at a higher rate. The validity of the entire act should be upheld. Appellants are all corporations
engaged in intrastate commerce in Florida. They can only succeed if the discrimination is unconstitutional as applied
to them as corporations. The Constitution does not give corporations the right to engage in intrastate commerce in
Florida. Whether the corporate privilege shall be granted or withheld is always a matter of state policy. The states
may carry out the policy by adjusting its revenue laws and taxing the system in such a ways as to favor certain
industries. The difference in power between corporations and natural person sis ample basis for placing them in
different classes. Since the proper purpose of the statute is to financially handicap chain stores to create inequality
that will discourage the establishment of chain store a higher license fee is appropriate.

The gradation of a tax may be determined by the spread of a business from one county into another. Statistics
indicate that there is a difference between chains that serve consumers within a single territory than those framed for
larger ends. The Legislature had to draw the line somewhere and it chose the county line. Movement from the locality
to other fields of activity is a symptom of an inner change. The business conducted by Appellants is subjected to tax
because it is the business of operating chain stores and the spread over counties is a factor in determining how much
should have to be paid. Differences have been discovered between local chains and others in organization and
opportunity. These differences need not be great to justify the difference in tax.

Discussion.
In attempting to distinguish this case from precedent, Appellants stress mere details while ignoring the underlying
reason for sustaining the classification. The conduct of a chain of stores constitutes a form and method of
merchandizing apart from that adapted to the practice of the ordinary individually operated small or department store.
That difference is fundamental and the Legislature may distinguish between them for the purposes of taxation.

A tax on stores in the same ownership within the same county that increases for all the stores if one happens to be in
another county has no reasonable basis. Appellees fail to show how the fact that the new place of business lies in
another county increases the advantage over that to accrue from a location within the same county. This difference in
treatment has no discernible relation to the sort of chain that establishes a store across a county line.

When chain stores warehouse goods, it is for the purpose of retail sale at their shops. On the other hand, goods
stored by a wholesaler are stored for sale to retail establishments who will resell them. The difference in purpose of
the storage and nature of the business conducted justify a different classification for taxation.

All dealers in gasoline are required by statute to pay a license tax of 5$ per annum and 7 cents per gallon for every
gallon sold. This is not clear and hostile discrimination in view of the imposition of taxes on the operation of filling
stations by other acts.

The tax on the value of merchandise in a retail store for sale in that store even though incident on articles which have
moved in interstate commerce, is laid after interstate commerce has ceased. It does not burden the purchase in
interstate commerce of articles for sale in Florida.

Appellants argue that where the taxing officials fail to tax some persons required to pay, all others are exempt from
having to pay. Every unit of the taxpaying public has an interest in having all property subject to taxation legally
assessed and may require all property subject to taxation be placed on the tax books and bear its proportionate part
of the expense of the government.
GAMBOA v TEVES
FACTS:

In 1969, General Telephone and Electronics Corporation (GTE), sold 26 percent of the outstanding common shares
of PLDT to Philippine Telecommunications Investment Corporation (PTIC). In 1977, Prime Holdings, Inc. (PHI)
became the owner of 111,415 shares of stock of PTIC. In 1986, the 111,415 shares of stock of PTIC held by PHI were
sequestered by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares, which
represent about 46.125 percent of the outstanding capital stock of PTIC, were later declared by this Court to be
owned by the Republic of the Philippines.

In 1999, First Pacific, a Bermuda-registered acquired the remaining 54 percent of the outstanding capital stock of
PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the Philippine Government through a
public bidding sold the same shares to Parallax Venture who won with a bid of P25.6 billion or US$510 million.

Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the
111,415 PTIC shares by matching the bid price of Parallax. On 14 February 2007, First Pacific, through its subsidiary,
MPAH, entered into a Conditional Sale and Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of
the outstanding capital stock of PTIC, with the Philippine Government for the price of P25,217,556,000 or
US$510,580,189. The sale was completed on 28 February 2007.

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is
actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of PLDT. With
the sale, First Pacific common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing
the common shareholdings of foreigners in PLDT to about 81.47 percent. This, according to petitioner, violates
Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility
to not more than 40 percent.

On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and declaration
of nullity of sale of the 111,415 PTIC shares.

ISSUE: Whether or not the term "capital" in Section 11, Article XII of the Constitution refers to the total common
shares only or to the total outstanding capital stock of PLDT, a public utility?

HELD:

Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization
of public utilities, to wit:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the laws of the
Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate,
or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or
right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the
Congress when the common good so requires. The State shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the governing body of any public utility enterprise shall be
limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines.

The intent of the framers of the Constitution in imposing limitations and restrictions on fully nationalized and partially
nationalized activities is for Filipino nationals to be always in control of the corporation undertaking said activities.
Otherwise, if the Trial Court ruling upholding respondent's arguments were to be given credence, it would be possible
for the ownership structure of a public utility corporation to be divided into one percent (1%) common stocks and
ninety-nine percent (99%) preferred stocks. Following the Trial Court ruling adopting respondent's arguments, the
common shares can be owned entirely by foreigners thus creating an absurd situation wherein foreigners, who are
supposed to be minority shareholders, control the public utility corporation.
The term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the
election of directors, and thus in the present case only to common shares, and not to the total outstanding capital
stock comprising both common and non-voting preferred shares.

Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the
corporation. This is exercised through his vote in the election of directors because it is the board of directors that
controls or manages the corporation. In the absence of provisions in the articles of incorporation denying voting rights
to preferred shares, preferred shares have the same voting rights as common shares. However, preferred
shareholders are often excluded from any control, that is, deprived of the right to vote in the election of directors and
on other matters, on the theory that the preferred shareholders are merely investors in the corporation for income in
the same manner as bondholders. In fact, under the Corporation Code only preferred or redeemable shares can be
deprived of the right to vote. Common shares cannot be deprived of the right to vote in any corporate meeting, and
any provision in the articles of incorporation restricting the right of common shareholders to vote is invalid.

Considering that common shares have voting rights which translate to control, as opposed to preferred shares which
usually have no voting rights, the term "capital" in Section 11, Article XII of the Constitution refers only to common
shares. However, if the preferred shares also have the right to vote in the election of directors, then the term "capital"
shall include such preferred shares because the right to participate in the control or management of the corporation is
exercised through the right to vote in the election of directors. In short, the term "capital" in Section 11, Article XII of
the Constitution refers only to shares of stock that can vote in the election of directors.

This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino
citizens the control and management of public utilities. Thus, 60 percent of the "capital" assumes, or should result in,
"controlling interest" in the corporation and thus in the present case, only to common shares, and not to the total
outstanding capital stock (common and non-voting preferred shares).