Associated Industries of Massachusetts, Inc. v. C. I. R.

• Decision Date: 03 August 1979
• Citation: 393 N.E.2d 812,378 Mass. 657
• Parties: ASSOCIATED INDUSTRIES OF MASSACHUSETTS, INC., et al. 1 v. COMMISSIONER OF REVENUE et al. 2
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 812

393 N.E.2d 812

378 Mass. 657

ASSOCIATED INDUSTRIES OF MASSACHUSETTS, INC., et al. ¹ v. COMMISSIONER OF REVENUE et al. ²

Supreme Judicial Court of Massachusetts, Suffolk.

Argued June 28, 1979.

Decided Aug. 3, 1979.

Robert J. McDonough, Boston (Peter L. Resnik, Boston, with him), for plaintiffs.

S. Stephen Rosenfeld, Asst. Atty. Gen. (James A. Aloisi, Jr., Asst. Atty. Gen., with him), for defendants.

Before HENNESSEY, C. J., and QUIRICO, BRAUCHER, KAPLAN and WILKINS, JJ.

KAPLAN, Justice.

This action attacking the constitutionality of the Classification Act (St.1978, c. 580) is before us on reservation and report, without decision, by a single justice of this court, certain facts being stipulated. The full bench heard argument on June 28, 1979. Upon representations of the parties that, in the light of legislative calendars and necessities, a speedy decision was urgently required, we entered an order, after deliberation, on July 6, declaring rights in favor of the defendants, that is, sustaining the constitutionality of the enactment against the specific claims of invalidity urged by the plaintiffs. (The text of the order appears at note 25.) We stated at the time that an opinion would follow.

1. Statement of the Case. (a) Constitution and statute. Part II, c. 1, § 1, art. 4, of the Constitution of the Commonwealth has long empowered the General Court "to impose and levy proportional and reasonable assessments, rates and taxes, upon all the inhabitants of, and persons resident, and estates lying, within the said Commonwealth." Amendment art. 112, ratified by the people on November 7, 1978, added the words: "except that, in addition to the powers conferred under Articles XLI and XCIX of the Amendments, ³ the general court may classify real property according to its use in no more than four classes and assess, rate and tax such property differently in the classes so established, but proportionately in the same class, and except that reasonable exemptions may be granted." Before the amendment, art. 4 had been construed to prohibit "the imposition of taxes upon one class of persons or property at a different rate from that which is applied to other classes." Bettigole v. Assessors of Springfield, 343 Mass. 223, 230, 178 N.E.2d 10 (1961), quoting from Opinion of the Justices, 341 Mass. 738, 750, 167 N.E.2d 745 (1960). The municipalities were legally obliged to assess property at fair cash value (see G.L. c. 59, § 38; Sudbury v. Commissioner of Corps. & Taxation, 366 Mass. 558 321 N.E.2d 641 (1974)), and each municipality was then to apply to these values a rate chosen to meet its fiscal needs. In fact the obligation of such "100% Valuation" of all types of property had been widely disregarded. The 1978 amendment was an expression of the popular dissatisfaction with the tax system, which it modified on the terms above quoted. (Our recent Opinion of the Justices, --- Mass. --- - --- ^A, 393 N.E.2d 306 (1979), recounts this background.)

The General Court passed the Classification Act on July 12, 1978, and the Governor approved it on July 24, both in anticipation of the ratification of amend. art. 112. By § 40, the act was to become effective upon the ratification of the amendment in 1978; if the amendment was not so ratified, the act was to be null and void.

Following are salient features of the act. Classification of real property begins on January 1, 1979, but subject to the provision that a municipality may not classify until all real property within its borders has been assessed at its fair cash value and the assessment has been certified by the Commissioner of Revenue. G.L. c. 59A, § 42. ⁴ Upon certification, the local assessors classify property as residential, commercial, industrial or manufacturing, or open space. § 5. To attain the "taxable valuation" of property in each class, its fair cash value is multiplied by the applicable "classification ratio": 40% For residential, 50% For commercial, 55% For industrial or manufacturing, and 25% For open space (§§ 18-19); and in the case of residential property, by going on to allow a $5,000 exemption for each parcel (§ 17), "parcel" being defined so that each condominium unit in a building is treated as a parcel, but a rental unit in a building under single ownership is not. The rate of taxation is calculated by dividing the revenue required to be raised by the property tax by the aggregate amount of the taxable valuations, including personal property, which continues to be assessed at its full and fair cash value. We illustrate in the margin how one would compute the effective rates on the fair cash values in the several classes. ⁵

The property of electric and gas utility companies receives separate treatment (§ 19A): such companies are exempted from real and personal property tax; instead they pay an excise measured by a formula related to certain property values but not congruent with any formula set out above.

(b) Parties. Plaintiffs are properly positioned to raise the various constitutional questions. Associated Industries, Inc., is a nonprofit Massachusetts corporation composed of some 2,350 industrial and manufacturing companies, most of which own taxable real property in the Commonwealth. Esleeck Manufacturing Company, Inc., and Wes-Pine Millwork, Inc., own property used for manufacture in the towns of Montague and Hanover, respectively. James Lizak and Charlotte Lizak own property used for commercial purposes in the town of Warren. Eden Tresses, Inc., leases commercial property in Hanover and is obliged by the terms of the lease to pay the taxes on the property. Richard Blauvelt rents a residential apartment in Montague.

Defendants Montague, Hanover, and Warren are among the municipalities that have completed revaluation efforts, and properties there have been assessed at their fair cash valuations as of January 1, 1978. If defendant Commissioner of Revenue certifies that the properties have been so assessed for 1979, defendant boards of assessors of those localities will be authorized and required to classify the real properties pursuant to the Classification Act.

The likely result of classification would be to impose on the commercial and manufacturing or industrial owners represented by the several plaintiffs a larger percentage of the tax levies in their respective municipalities and a larger tax in absolute terms than they have heretofore been obliged to bear. ⁶ Blauvelt, as a residential tenant, may be favored by classification. ⁷

(c) Constitutional questions presented by plaintiffs. Is the Classification Act invalid because enacted before the constitutional amendment was ratified? Is it constitutionally permissible for the properties in some municipalities to be taxed on the usage classification basis while the properties in others continue to be taxed on the older basis, a condition created by the provision that the Classification Act takes practical effect in a locality only after it is certified as assessing at fair cash value? Does the excise provision with respect to public utilities create a fifth, unauthorized class? Is the $5,000 residential exemption fatally discriminatory?

2. Contingent Legislation. By § 40 of St.1978, c. 580, that act, approved by the Governor some three months before the ratification by the people of amend. art. 112, was made conditional upon such ratification. ⁸ It is contended that there was no constitutional authority to tax real property by usage classification when the General Court passed the statute or the Governor signified his approval of it; hence the statute was then void and must remain so despite the occurrence in fact of the condition of ratification of the constitutional amendment. This seems to us no more than a play on words. One might say with as much justification that there was authority for usage classification at the moment when the statute became practically effective by its own terms. The conditional or contingent route is not closed to the Legislature by any explicit provision of our Constitution ⁹ or by any implication that we can discern from the framework of the Constitution. Nor is there any substantial reason any perceived danger or difficulty that might counsel us to disfavor legislation passed in anticipation of the consummation of a constitutional amendment and postponing its own effectiveness to that event. The overwhelming majority of the courts that have considered the matter agree that no such reason obtrudes and the legislative procedure is not invalid. ¹⁰ There is, indeed, plain purpose and advantage in conditional legislation where the constitutional amendment is not self-executing but requires implementation.

3. Prerequisite of Fair Cash Valuation. According to the parties' stipulation, various municipalities have not yet set dates for completing fair cash revaluation and so they will be ineligible for certification under G.L. c. 59A, § 42, for an indeterminate period. In a situation in which some municipalities are certified, and others not, a disparity of tax incidence exists: commercial and industrial or manufacturing properties in a certified municipality bear a larger percentage of the tax levy than those in a municipality not certified, although the properties are equal in value and represent the same percentage of the total taxable valuations. It is argued that the difference of treatment encompasses a violation of art. 4, as amended, as well as of the equal protection guaranty. We do not agree.

The plaintiffs appear to assume that the art. 4 requirement of proportionality "within the same class" applies Statewide, but even on that assumption (erroneous, as will appear) their conclusion would not follow. For the prerequisite of certification is a means of assuring that local assessors will comply with the legal requirement of fair valuation. See G.L. c. 59, § 38. Classification based on illegal differential assessments might well...