Conner v. State

• Decision Date: 01 September 1925
• Parties: CONNER v. STATE.
• Court: New Hampshire Supreme Court

130 A. 357

CONNER

v. STATE.

Supreme Court of New Hampshire. Rockingham.

Sept. 1, 1925.

Transferred from Superior Court, Rockingham County; Doe, Judge.

Petition by Arthur J. Conner against the State and another for the abatement of income tax assessed by Tax Commission. The petition was denied by the Commission and on petitioner's appeal the facts were agreed and the case transferred without ruling. Petition dismissed.

A part of the taxed income consisted of dividends upon the stock of corporations organized and doing business in this state.

The petitioner claims that the statute is unconstitutional because it imposes an income tax; because it lays a disproportional tax; because it provides for the taxation of individuals but not of corporations, and of residents but not of nonresidents.

Murchie & Murchie and Alexander Murchie, all of Concord, for plaintiff.

Joseph S. Matthews, Asst. Atty. Gen., and Fletcher Hale, of Laconia, for defendant.

Fred C. Demond, of Concord, for Concord Chamber of Commerce.

PEASLEE, C. J. In 1903 a fundamental change was made in the people's grant of the taxing power. In the generation just preceding that time, the idea that the constitutional provision for contribution of "his share" by each taxable party meant a share determined by a common and unvarying method had been upheld and amplified in great detail and with a wealth of argument. Edes v. Boardman, 58. N. H. 580; Morrison v. Manchester, 58 N. H. 538; Bowles v. Landaff, 59 N. H. 164; Gould v. Raymond, 59 N. H. 260; Robinson v. Dover, 59 N. H. 521; B. C. & M. Railroad v. State, 60 N. H. 87; State v. Express Co., 60 N. H. 219; Franklin Street Society v. Manchester, 60 N. H. 342. It had been decided that the existing provisions of the Constitution did not permit the laying of any inheritance tax. Curry v. Spencer, 61 N. H. 624, 60 Am. Rep. 337; Williams v. State, 81 N. H. 341, 346, 125 A. 661. Whether any form of income tax was then allowable, or whether taxation other than that upon polls must be limited to a levy upon estates, as that term had been treated in the discussion of taxation problems in the various cases upon this subject, was generally considered to be at least a matter of doubt. Such a limitation had been judicially declared. State v. Express Co., 60 N. H. 219, 236, "Taxation as understood here when the Constitution was amended (1903) meant equal treatment to every one, and meant, when property was the basis or measure of the tax, a uniform rate, and it was also understood that equality and uniformity were essential characteristics of every process which could be included under the term taxation." Williams v. State, 81 N. H. 341, 350, 125 A. 601, 605.

In this situation, the convention of 1902 proposed and the people adopted a constitutional amendment providing that:

"The public charges of government or any part thereof may be raised by taxation upon polls, estates and other classes of property, including franchises and property when passing by will or inheritance." Const, pt. 2, art. 6.

The significance of the grant of power to lay an inheritance tax has since been the subject of litigation and judicial decision. The cases upon that subject establish that there is a disproportion inherent in the nature of such a tax, as compared with an annual tax upon estates; and that since power to lay the inheritance tax was granted, it must be assumed that the constitutional rule of proportionality (theretofore applied with more strictness than in other jurisdictions) was relaxed, so far as necessary for the imposition of the new tax in an efficient way. Thompson v. Kidder, 74 N. H. 89, 65 A. 392, 12 Ann. Cas. 948; Mann v. Carter, 74 N. H. 345, 68 A. 130, 15 L. R. A. (N. S.) 150; Williams v. State, 81 N. H. 341, 346, 347, 125 A. 661.

Whether the provision for the taxation of "other classes of property" enlarges the legislative power has not been considered. The question is presented by this petition for the abatement of an income tax, laid under the provisions of the act of 1923. This statute provides for the taxation of dividends and interest; and resident individuals, partnerships, and fiduciaries are taxable parties. Laws 1923, c. 65, § 2. The fundamental question is whether authority has been given to lay a tax of this nature.

What was intended by the grant of power to tax "other classes of property"? Other provisions of the amendment show, by elimination, what it does not mean. It does not refer to any form of tax upon estate—that is, to taxes upon ownership, possession or enjoyment of property. It had theretofore been decided that the term "estates" covers all these matters. Morrison v. Manchester, 58 N. H. 538; Franklin Street Society v. Manchester, 60 N. H. 342; Curry v. Spencer, 61 N. H. 624, 60 Am. Rep. 337. It includes in terms franchises and inheritances; but it also includes something more. "Other classes of property, including franchises and property when passing by will or inheritance" plainly means, not only that the subjects specifically named were provided for, but also that others fairly embraced by the general description were intended to be covered.

As all property could be taxed as estate under the earlier constitutional provisions, it is clear that the term "other classes of property" refers to some element other than ownership, possession, or enjoyment as the determining factor for taxability under the new grant of authority. Read in another way, the provision means that property may be taxed for reasons other than ownership. The test of taxability may be put upon other grounds. "Other classes of property" is here used as the equivalent for property otherwise classified. The incidence of the tax is to be determined by some fact other than mere ownership. This is illustrated by the named class of inheritances. These are property, and taxable each year as estate. They are taxed annually because of ownership. They are made subject to another tax for another reason. The inheritance tax is imposed because of the fact that the estate has passed from ancestor to heir.

In the search for classifications of property to which the general provision in the amendment of 1903 could apply, the one that naturally and inevitably comes to mind is the receipt of income. The levy upon income was then a generally recognized method of taxation. Beyond any other that has been suggested, it is one to which the general description fitly applies. Unless the provision under consideration is to be wholly disregarded, the conclusion that it authorizes laying an income tax must be adopted.

It may be urged that, as the amendment by implication limits the application of earlier and continuing constitutional provisions against discrimination, therefore nothing should be added to the amendment by implication; that these other provisions forbid the extension of the application of the amendment beyond its plain terms. It may be conceded that the argument is sound; but it does not control the present situation. The phrase "other classes of property" is not to be effaced from the amendment upon this ground. It is not a question of adding something by implication, but of giving some meaning to express terms. And since this provision cannot be given any effect save by the limitation of other provisions, the intent to create that limitation must have existed and must be allowed to operate. It was understood in 1903 that additional powers of taxation were being granted, and that existing constitutional limitations, necessarily in conflict with the new grant, were to be disregarded. Williams v. State, 81 N. H. 341, 350, 125 A. 661.

The power to tax other classes of property, or property classified in some way other than as estate, was granted. No form of tax coming within this description, which would not impinge upon the rules theretofore laid down as to constitutional limitations upon the power to tax property, has been suggested. It is believed that none can be found. The implied exception from earlier provisions is necessary if this phrase in the amendment is to be given any effect.

In the advisory opinions given to the House of Representatives in 1915, the majority suggested that there might be a grant of power to lay an income tax in this provision. But the point was not pressed, and the theory that a certain limited taxation of incomes was permissible under the provision for the taxation of estates was made the basis of the advice given. Opinion of the Justices, 77 N. H. 611, 617, 93 A, 311. The differences of opinion then expressed related almost wholly to the nature of an income tax, as compared with an annual tax upon estates. One error in the minority opinion is the conclusion that there is now no constitutional warrant for the imposition of an income tax. 77 N. H. 627, 93 A. 311. As above stated, such a tax is provided for by the amendment of 1903.

It is urged by the petitioner that the tax results in double taxation. It is said that, as under our decisions an estate tax cannot be laid against a corporation, and another against its stockholders (Smith v. Burley, 9 N. H. 423; Sawyer v. Nashua, 59 N. H. 404; Robinson v. Dover, 59 N. H. 521; Cheshire, etc., Co. v. State, 63 N. H. 167), therefore a tax upon the dividends paid to the stockholder must be held to be invalid under like circumstances. It may be conceded for the purposes of the argument that such procedure results in double taxation, within the meaning of that term as used in this jurisdiction. But that does not render the tax invalid, if the people have...