Andrews v. Lathrop

• Decision Date: 05 February 1974
• Docket Number: No. 166-73,166-73
• Citation: 132 Vt. 256,315 A.2d 860
• Parties: , 4 Envtl. L. Rep. 20,571 James D. ANDREWS et al. v. Robert G. LATHROP, Commissioner of Taxes.
• Court: Vermont Supreme Court

Page 860

315 A.2d 860

132 Vt. 256, 4 Envtl. L. Rep. 20,571

James D. ANDREWS et al. v. Robert G. LATHROP, Commissioner of Taxes.

No. 166-73.

Supreme Court of Vermont.

Feb. 5, 1974.

Richard E. Davis Associates, Barre, for plaintiff.

Kimberly B. Cheney, Atty. Gen., Louis P. Peck, Benson D. Scotch, Asst. Attys. Gen., and Norris H. Hoyt, Jr., Norwich, Special Counsel to the Governor.

Before SHANGRAW, C. J., and BARNEY, SMITH, KEYSER and DALEY, JJ.

DALEY, Justice.

Appellant seeks to overturn the judgment of the Washington County Court, upholding the constitutionality of Chapter 236, Title 32, commonly referred to as the Land Gains Tax. The State rested without introducing evidence in the lower court, relying on the presumption of constitutionality. Prior to judgment, a motion by the appellant to reopen was entertained by the court, and a transcript of a press conference by the Honorable Thomas P. Salmon, Governor of the State of Vermont, was introduced. The court, however, concluded that such evidence had no bearing upon the issues before it.

The Land Gains Tax is a tax imposed in addition to all other taxes imposed under Title 32 on the gain derived from the sale or exchange of land held by the transferor less than six years. The rate of the tax is proportional to the percentage of gain and in inverse proportion to the holding period. A maximum rate of sixty per cent (60%) is imposed on land held less than one year and sold at a two hundred per cent (200%) or more gain. A minimum rate of five per cent (5%) is imposed on land held between five and six years as to which the gain is ninety-nine percent (99%) or less.

The principal contention is that the six-year time period, insofar as it determines who shall and shall not be subject to the tax, violates the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution. It appears that appellant attempted to prove, by the testimony of legislators and others, that the legislature enacted the land gains tax to deter land speculation within the State. This purpose, he argues, is so unrelated to the stated purpose of the tax as to constitute an arbitrary and capricious exercise of legislative power under the Equal Protection Clause. In addition, he charges that the State failed in its burden by not introducing evidence as to a reasonable basis for the six-year classification.

The sponsor's statement of purpose in the House legislative record, not a part of the formal text of the enactment, is as follows: 'It is the purpose of this bill to limit a person's property tax on his basic housing to five percent of his household income; and to provide partial funding for such property tax relief by imposing a tax on the gains from certain sales in exchanges of real property.' Vermont House Bills-1973, H. 155, at 1. The lower court found this to be the primary purpose of the bill as finally passed. Nevertheless, the court held that the presumption of constitutionality had not been overcome. We agree.

Legislation may frequently serve multiple objectives. There is no requirement that the objectives served by the manner in which a tax is collected and those served by the manner in which it is spent be related to each other for constitutional purposes. Cf. Magnano Co. v. Hamilton, 292 U.S. 40, 54 S.Ct. 599, 78 L.Ed. 1109 (1935). The Equal Protection Clause, recognizing that no scheme of taxation has yet been devised which is free of all discriminatory impact, 'imposes no iron rule of equality, prohibiting the flexibility and variety that are appropriate to reasonable schemes of state taxation.' Allied Stores of Ohio v. Bowers, 358 U.S. 522, 526, 79 S.Ct. 437, 440, 3 L.Ed.2d 480 (1958). What is required is that the discriminatory classification not be capricious or arbitrary, but rest on some reasonable consideration of legislative policy. Id. Judicial inquiry, therefore, is not directed toward a comparison of legislative purposes, but rather toward the nexus between a classification and such purposes as it may serve.

The determination of purpose is a question of law, as it is in the process of statutory construction. The presumption of constitutionality sets the standard for that determination. Inherent within it is the further presumption that the legislature has not acted unreasonably, without purpose. Thus, if any reasonable policy or purpose for the legislative classification may be conceived of, the enactment will be upheld. Allied Stores, supra. We are not here concerned with a classification involving suspect criteria or affecting fundamental rights, such as may nullify the presumption of constitutionality and require a different standard as to legislative purpose. Cf. Veilleux v. Springer, 131 Vt. 33, 300 A.2d 620 (1973). Although such purpose is not subject to proof, it must be consistent with whatever indicia of purpose may be drawn from the statute itself and other relevant materials. See, e. g., State v. Taranovich's Estate, 116 Vt. 1, 68 A.2d 796 (1949).

The testimony of individual legislators and others as to the purpose the legislature had in mind in enacting this statute is of doubtful relevance to the present inquiry. The court has a broad discretion to consider matters which may relate to the determination of purpose. See generally State v. Stevens, 69 Vt. 412, 38 A. 80 (1889). However, in weighing evidence similar to that which was introduced in the hearing below, the Supreme Court has said, 'Judicial inquiries into Congressional motives are at best a hazardous matter, and when that inquiry seeks to go behind objective manifestations it becomes a dubious affair indeed.' Flemming v. Nestor, 363 U.S. 603, 617, 80 S.Ct. 1367, 1376, 4 L.Ed.2d 1435 (1960). No cases have been brought to our attention in which the courts of this State have ever found such testimony to be within the meaning of legislative history for the determination of purpose.

The challenging party must initially delineate the nature of the discrimination and the classes of persons affected. See San Antonio School District v. Rodriguez, 411 U.S. 1, 93 S.Ct. 1278, 36 L.Ed.2d 16 (1973). Appellant has asserted a variety of ways in which the Land Gains Tax is discriminatory in impact. He argues that the rural transferor is discriminated against by the tax exemption for the landowner's principal residence plus one acre, 32 V.S.A. § 10002, in that zoning regulations often require a minimum five acres for rural residential construction, in contrast to city landowners whose minimum lot requirements are often under one acre. He also alleges that, since nonresidents receive no benefits from the property tax relief provisions of the statute, they are deterred from purchasing land subject to the gains tax; thus the sellers' market available to such nonresident purchasers is limited unless they are willing to pay the tax, and the available buyers' market of prospective transferors whose land is subject to the tax is also limited. Appellant has failed to introduce any evidence to establish that such discrimination in fact occurs, and so has failed to meet his burden as to these allegations. See generally San Antonio School District v. Rodriguez, supra; Champlain Valley Exposition v. Village of Essex Junction, 131 Vt. 449, 455, 309 A.2d 25 (1973).

Appellant also charges discrimination between transferors arising out of the six-year holding period of 32 V.S.A. § 10003. The fact of differentiation is not here disputed and is, at any rate, apparent on the face of the statute. One who has held his property for 71 months is subject to a tax on his profits in sale of between five per cent (5%) and ten per cent (10%), while a transferor, otherwise in the same circumstance, who has held his property 72 months pays no such tax. It may be noted that a similar discrimination exists, in relative terms, between the other holding periods of § 10003, although appellant makes no contention in this regard. The ultimate issue to be determined is whether the classification in question rests on grounds relevant to the achievement of some legitimate State purpose.

In determining legislative purpose, the whole of the statutory provision may be looked to, its subject matter, and its effect and consequences. Billings v. Billings, 114 Vt. 512, 79 A.2d 179 (1946). One apparent effect of the holding period classification is to discourage the rapid turnover of land at high profits. The gains tax is a tax on profits in sale, so structured as to place a burden on the taxpayer which increases as his profit increases, and decreases as the period for which he retains the land lengthens. This alone is sufficient for constitutional purposes to support the view that the legislature could have had as a purpose the deterrence of land speculation.

Speculation in land may be adequately here defined as the purchase of land in the expectation of deriving a profit from its later sale at a higher price. Both high gain and a relatively short holding period are essential for such speculation, with its inherent risk of market fluctuation, to present an attractive alternative to, for example, depositing the equivalent capital in a savings account and drawing interest on it. See The 'Capital Asset' Concept, 59 Yale L.J. 837 (1950).

In addition, we may take judicial notice of an increasing concern within the State over the use and development of land as a natural resource, a concern to which the legislature has responded in other instances with appropriate legislation. No. 250, Public Acts, 1969 Adj. Sess. Speculation falls within the ambit of such concern as a land use; indeed it has a bearing on many other uses to which the land might be put.

It is not the function of this Court to pass upon the validity of this concern or the wisdom of the means the legislature has chosen to deal with it, but merely to determine whether the legislature may have acted in response to such a concern and whether in doing so it...