This is an appeal by the taxpayers and citizens of the town of Georgiana from a final decree of the circuit court of Butler County, in equity, validating certain warrants proposed to be issued by the town. The proceeding to validate was brought by the town and its governing body under the provisions of Code 1940, Tit. 7, §§ 169-176.
On March 19, 1956, the town, purporting to act under the authority of § 466, Tit. 37, Code 1940, adopted an ordinance authorizing the issuance and sale of $70,000 principal amount of its Hospital Special Tax Anticipation Warrants, payable serially from 1957 through 1971, for the purpose of obtaining funds with which to construct a public hospital in the town. To provide for payment of the warrants, both principal and interest, the town also adopted on March 19, 1956, an ordinance levying a "privilege and license tax", measured by gross sales or gross receipts, against all persons, firms and corporations engaged in the business of selling tangible personal property at retail within the corporate limits of the town, subject to certain enumerated exemptions. This tax is "in addition to all other taxes of every kind now imposed by law." The entire proceeds of the tax are "irrevocably pledged for payment of the principal of and the interest on the warrants * * * subject of course to the law imposed requirement that, if necessary, out of the revenue accruing from the gross receipts tax, the essential and legitimate governmental expenses of operating the town must first be paid." The principal of and interest on the warrants are made payable solely from the proceeds of the gross receipts tax and are not secured by the general faith and credit of the town, it being expressly provided that "they shall not constitute general obligations of the town." It is agreed by the parties that if the proposed warrants constitute an indebtedness of the town within the meaning of § 225, Constitution 1901, the town will, by the issuance of such warrants, exceed its debt limit as prescribed by said section.
The determinative question presented is whether the town will "become indebted", within the meaning of § 225, supra, by the issuance of the proposed warrants. We do not find where it has been previously determined whether or not obligations payable solely from the proceeds of a municipal license tax, such as the gross receipts tax here involved, and issued pursuant
Appellants take the position that municipal obligations secured by a pledge of revenues, including license taxes, which are available, or which may be made available, at the time of such pledge for general municipal purposes are chargeable against the debt limit. On the other hand it is the town's position that the warrants, being payable solely from the special gross receipts tax, and the full faith and credit of the town not being pledged to their payment, the town does not become "indebted" by the issuance thereof, within the meaning of § 225; and that this is particularly so in view of the provision in the warrant ordinance that the pledge of revenue from the license tax is subject to the law imposed requirement that, if necessary, out of such revenue "the essential and legitimate governmental expenses of operating the town must first be paid."
Section 225, Constitution 1901, provides, in pertinent part, as follows:
Section 224, Constitution 1901, provides, in part, as follows:
It has been said that the purposes of these sections are to curb the improvident creation of debts by cities and counties, thereby protecting the taxpayers against excessive and unnecessary burdens, and to secure the credit of cities and counties to the end that they may borrow money, within the limits prescribed, on advantageous terms. Hagan v. Commissioner's Court of Limestone County, 160 Ala. 544, 551, 49 So. 417, 37 L.R.A.,N.S., 1027; Gunter v. Hackworth, 182 Ala. 205, 209-210, 62 So. 101; Norton v. Lusk, 248 Ala. 110, 117, 26 So.2d 849, 854. From the last cited case is the following:
Although § 225, according to its terms, is a limitation on the power to contract indebtedness and not on the power to tax, it is nevertheless well-settled that its underlying purpose is to serve as a limit to taxation or, stated otherwise, as a protection to the taxpayer. Any obligation assumed by the city, which directly or indirectly increases the burden of taxation, is a debt in the constitutional sense. Hagan v. Commissioner's Court of Limestone County, supra; Norton v. Lusk, supra. In the recent case of Rollings v. Marshall County, 263 Ala. 317, 321, 82 So.2d 428, 431, it was said:
In construing § 224, this court, in Hagan v. Commissioner's Court of Limestone County, supra [160 Ala. 544, 49 So. 420], had this to say:
We see no reason why the same may not be said of the restraint placed on cities and towns by § 225.
Nor do we see any sound basis for distinguishing the Hagan case from the one now before us. In the Hagan case there was levied a new "special county courthouse tax" of one-fourth of one per centum on all taxable property in the county to pay for a new court house, while in the instant case a new gross receipts tax has been levied, that is, a tax which the municipality had not theretofore tapped as a source of revenue. In the Hagan case the county and the contractor entered into an agreement for the erection and furnishing of the court house. This agreement provided for the payment of the contract price exclusively from the proceeds of the tax levied, the payments to be made in nine annual installments. It was specifically provided that no debt was thereby "created or incurred by said county, but instead thereof a transfer and assignment of the proceeds of said special tax levy to the amounts herein stated for the foregoing named years are made to said contractor as the consideration and payment for the erection, completion and furnishing of said courthouse building." It was held that a debt, within the meaning of § 224, was thus created by the county.
The fact that in the Hagan case there was an ad valorem property tax involved, and not a license tax as in the instant case, is of no particular significance.
We here observe that the wisdom of fixing an arbitrary debt limitation beyond which a city may not go, even for undertakings of universal appeal, such as hospitals, is not for this court to question. To hold that the debt limitation applies only when there is a pledge of existing tax revenue, and not when merely a potential source of tax revenue is pledged, would destroy the basic purpose of the debt limitation provision and would permit an obvious evasion of it. An existing tax revenue, by the simple expedient of repealing it, could then be made available for pledging as a potential source. We hold that whether the tax pledged is from existing or potential tax revenues is immaterial.
One further point merits attention. The case of Johnson v. City of Sheffield, 236 Ala. 411, 414, 183 So. 265, 268, sets forth a law-imposed requirement that, if necessary, the essential and legitimate expenses of operating the town must first be paid before pledges of revenue are met. This is rested upon the authority of White v. Mayor and Council of City of Decatur, 119 Ala. 476, 480, 481, 23 So. 999, 1000, where it was stated:
Appellees urge that the drying up of the city's revenues by repeated pledges of various sources of revenue is not a real fear because of this law-imposed requirement and an additional provision in the warrant itself providing that if revenues fail, the city may pay for its governmental functions from the proceeds of the excise tax and defer payments to the warrant holders. The effect of this argument and the clause in the warrant is to admit that in reality the pledge is of a part of the general revenue of the municipality. Being so, the proposed warrants would constitute a debt of the town within the meaning of the limitation prescribed by § 225, Constitution. Wharton v. Knight, 241 Ala. 218, 220, 2 So.2d 310, 311.
The opinion in Wharton v. Knight, supra, contains the following statement:
In that case Jefferson County undertook to contract for the purchase and lease of voting machines for use in the county. Payment for the machines involved charges against the general revenues of the county for several fiscal years, it being held that such obligation was chargeable against the county's debt limit. No license tax or other tax was there pledged or involved. It seems clear that the quoted statement, unsupported by any cited authority, was unnecessary to the decision in that case and is not to be taken as authoritative or controlling in the case now before us.
We here note that counsel for appellees have placed their principal reliance on the so-called "bridge decisions"—Scott v. Alabama State Bridge Corp., 233 Ala. 12, 169 So. 273; In re Opinions of Justices, 225 Ala. 460, 143 So. 900; Alabama State Bridge Corp. v. Smith, 217 Ala. 311, 116 So. 695; and Rogers v. Garlington, 234 Ala. 13, 173 So. 372—and certain decisions from other states, e. g., Gruen v. State Tax Comm., 35 Wn.2d 1, 211 P.2d 651; State ex rel. Capitol Addition Bldg. Comm. v. Connelly, 39 N.M. 312, 46 P.2d 1097, 100 A.L.R. 878; and State v. City of Pensacola, Fla., 40 So.2d 569. It is not intended by this opinion to reflect at all upon the "bridge decisions". It seems to us that they are distinguishable.
On rehearing by appellee, the original opinion is extended by adding the next preceding paragraph. The application for rehearing is denied.
Reversed and rendered.
All the Justices concur.