Leonard v. Thornburgh

Decision Date03 April 1985
Citation489 A.2d 1349,507 Pa. 317
PartiesThomas A. LEONARD, et al., Appellee, v. Richard L. THORNBURGH, Governor, et al., Appellants.
CourtPennsylvania Supreme Court

LeRoy S. Zimmerman, Atty. Gen., Maura A. Johnston, Deputy Atty. Gen., Dauphin Co., Barbara W. Mather, Janet Stern Holcombe, Philadelphia, for appellants.

Barbara W. Mather, Philadelphia, for City of Philadelphia at No. 94.

Maura A. Johnston, Deputy Atty. Gen., at No. 95.

Charles W. Bowser, Philadelphia, for amicus curiae City Council.

Thomas A. Leonard, James P. Leonard, Steven L. Friedman, Philadelphia, for Kathleen Leonard.

Edmunds J. Brokans, Elizabeth A. Read, Philadelphia, for amicus curiae Non-Resident Taxpayers.

Before NIX, C.J., and LARSEN, FLAHERTY, McDERMOTT, HUTCHINSON, ZAPPALA and PAPADAKOS, JJ.

OPINION OF THE COURT

FLAHERTY, Justice.

This is an appeal from an order of the Commonwealth Court which declared unconstitutional Section 359(b) of the Tax Reform Code of 1971, 72 P.S. § 7359(b) (Supp.1984), known as the Philadelphia Non-Resident Wage Tax Cap, and Philadelphia Ordinance No. 1716. Leonard v. Thornburgh, 83 Pa.Commw.Ct. 1, 477 A.2d 577 (1984). The Non-Resident Wage Tax Cap limits to 4 5/16% the rate at which non-residents can be taxed by the City of Philadelphia upon income earned in Philadelphia. 1 Ordinance No. 1716, effective July 1, 1983, amended the City's Wage and Net Profits Tax so as to levy the tax at the rates of 4 5/16% upon non-residents, and 4 96/100% upon residents. Commonwealth Court, in declaring these provisions unconstitutional, reasoned that the differing tax rates applicable to residents and non-residents of the City of Philadelphia violated the Uniformity Clause of the Pennsylvania Constitution, Article VIII, Section I, which provides:

"All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws."

The appellant, Secretary of Revenue James I. Scheiner, contends that the tax provisions in question comport with constitutional requirements 2, under the Uniformity Clause of the Pennsylvania Constitution, supra, as well as under the equal protection clause of the Fourteenth Amendment. The appellee, Kathleen Leonard, a resident of Philadelphia who is aggrieved by having been assessed higher wage taxes than would have been payable had she not been a resident of Philadelphia, argues that the Uniformity Clause, rather than the Fourteenth Amendment, is the relevant constitutional standard, and that under that standard the tax provisions are invalid. It is well established, however, that in matters of taxation both constitutional standards are relevant, and that allegations of violations of the equal protection clause, and of the Uniformity Clause, are to be analyzed in the same manner. Aldine Apartments v. Commonwealth, 493 Pa. 480, 486-487, 426 A.2d 1118, 1121 (1981); Commonwealth v. Westinghouse Electric Corp., 478 Pa. 164, 168-169, 386 A.2d 491, 493 (1978), appeal dismissed, 439 U.S. 805, 99 S.Ct. 61, 58 L.Ed.2d 97 (1978); Fisher Controls Co. v. Commonwealth, 476 Pa. 119, 125, 381 A.2d 1253, 1256 (1977).

The principles which govern the analysis of claims of non-uniform taxation are well established. The legislature possesses wide discretion in matters of taxation. Aldine Apartments v. Commonwealth, 493 Pa. at 487, 426 A.2d at 1121. The burden is upon the taxpayer to demonstrate that a classification, made for purposes of taxation, is unreasonable. F.J. Busse Co. v. Pittsburgh, 443 Pa. 349, 359, 279 A.2d 14, 19 (1971). Accord, Amidon v. Kane, 444 Pa. 38, 51, 279 A.2d 53, 60 (1971) ("[T]he challengers of the constitutionality of state or local taxation bear a heavy burden...."). Indeed, tax legislation will not be declared unconstitutional unless it " 'clearly, palpably, and plainly violates the Constitution.' " Commonwealth v. Life Assurance Co. of Pa., 419 Pa. 370, 377, 214 A.2d 209, 214 (1965), appeal dismissed, 384 U.S. 268, 86 S.Ct. 1476, 16 L.Ed.2d 524 (1966). See also, Campbell v. Coatesville Area School District, 440 Pa. 496, 501, 270 A.2d 385, 388 (1970).

Under the equal protection clause, and under the Uniformity Clause, absolute equality and perfect uniformity in taxation are not required. Columbia Gas Corp. v. Commonwealth, 468 Pa. 145, 151, 360 A.2d 592, 595 (1976). In cases where the validity of a classification for tax purposes is challenged, the test is whether the classification is based upon some legitimate distinction between the classes that provides a non-arbitrary and " 'reasonable and just' " basis for the difference in treatment. Aldine Apartments v. Commonwealth, 493 Pa. at 487, 426 A.2d at 1121-1122. See also, F.J. Busse Co. v. Pittsburgh, 443 Pa. at 358, 279 A.2d at 19. Stated alternatively, the focus of judicial review is upon whether there can be discerned "some concrete justification" for treating the relevant group of taxpayers as members of distinguishable classes subject to different tax burdens. Columbia Gas Corp. v. Commonwealth, 468 Pa. at 150-153, 360 A.2d at 595-597. When there exists no legitimate distinction between the classes, and, thus, the tax scheme imposes substantially unequal tax burdens upon persons otherwise similarly situated, the tax is unconstitutional. Commonwealth v. Staley, 476 Pa. 171, 180, 381 A.2d 1280, 1284 (1978). See also, Amidon v. Kane, 444 Pa. at 55, 279 A.2d at 63.

Applying these principles to the instant case, we find that the tax scheme in question meets constitutional requirements, for there exists the requisite basis for treating residents and non-residents of Philadelphia as separate classes of wage earners subject to different tax rates. The legitimate distinction between those classes rests not upon the superficial fact that one class resides in Philadelphia while the other resides elsewhere, but rather, at a deeper level of analysis, upon significant differences between the two classes of wage earners that provide reasonable and concrete justifications for their being taxed at different rates.

This is not a case, therefore, where mere residence, uncorrelated with concrete justifications related to the situs of residence, has been relied upon by the taxing authority as an asserted basis for differential tax treatment. In the past, it has been held that residence alone is an insufficient basis upon which to sustain differential tax treatment, absent further justifications which correlate with the status of residency. See Columbia Gas Corp. v. Commonwealth, 468 Pa. at 150-155, 360 A.2d at 595-597 (disparate rates of tax on foreign and domestic corporations invalid where Commonwealth offered no justification for taxing foreign corporations more heavily than domestic ones); Danyluk v. Johnstown, 406 Pa. 427, 178 A.2d 609 (1962) (city's capitation tax on non-residents held unauthorized and invalid, with dictum indicating that an occupation tax levied only against non-residents would violate constitutional uniformity standards); Carl v. Southern Columbia Area School District, 41 Pa.Commw.Ct. 527, 400 A.2d 650 (1979) (school district's tax invalid where, without reasonable justification, taxpayers residing in different counties were charged different amounts for precisely the same educational services).

In the instant case, it may clearly be presumed that non-resident wage earners utilize services provided by the City of Philadelphia to a lesser extent than do residents. Rather than benefit from twenty-four hour and seven day...

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