In re Opinion of the Justices

• Decision Date: 07 January 1930
• Parties: In re OPINION OF THE JUSTICES.
• Court: New Hampshire Supreme Court

149 A. 321

In re OPINION OF THE JUSTICES.

Supreme Court of New Hampshire.

Jan. 7, 1930.

To the House of Representatives.

[Ed. Note.—For other definitions, see Words and Phrases, First and Third Series, Income Tax.]

Bill making volume per acre test of taxability of timber held not valid method of discrimination.

Answers to questions propounded to the Justices of the Supreme Court by resolutions of the Senate and the House of Representatives.

On April 18, 1929, the following resolutions were adopted by the senate: To the Justices of the Supreme Court:

Whereas the legislature of 1927 provided for the appointment of a special commission to study the general subject of state and municipal taxation and to report to the present legislature their findings and recommendations as to the expediency of revising or amending the existing tax laws; and whereas said commission has made a report to the legislature and incorporated its recommendations in sundry bills affecting the general system of taxation which are now before the Senate; and whereas serious doubt has arisen as to the constitutionality of various provisions of these bills and it is important that the question of their constitutionality should be settled in advance of their enactment; and whereas there is not time to receive an answer to these questions before the adjournment of the present session of the legislature, now therefore be it.

Resolved, That the president of the Senate be and hereby is directed to request the opinions of the justices of the Supreme Court upon the questions arising under these several bills now before the Senate, to wit: House Bills Nos. 5, 10, 13,15 and 401, and particularly upon the questions enumerated below, and to request the justices to render their opinions as soon as may be convenient so that the subject matter may be acted upon at the next special or regular session of the legislature.

1. Would any constitutional provision be violated by imposing a tax, as provided in House Bill No. 13 in new draft, upon the franchises, property and estate of gas and electric utilities conducting business in this state?

2. If a tax may be imposed as provided in said bill is it rendered unconstitutional by the method of distribution proposed in said bill?

3. If question 1 be answered in the negative, is there a franchise, or any property in addition to the physical assets of such utilities, which constitutionally may be made the subject of taxation?

4. Would any constitutional provision be violated by imposing a tax, as provided in House Bill No. 10 in new draft, upon the earned income of individuals from whatever source derived with reasonable exemptions and deductions for certain expenses incurred and allowances for dependents as proposed in said bill?

5. Is it necessary in order to satisfy the provisions of the constitution that the rates and exemptions be the same on all classes of income, as for instance on earned income and on income derived from other sources?

6. Would any constitutional provision be violated by a general act exempting from taxation standing timber, the owners of which enter into a contract with the state to pay a certain fee upon the severance of the timber, as provided in House Bill No. 5 in new draft?

7. If any exemption of timber be constitutional is it rendered unconstitutional by making it apply only to tracts of more than five acres and by permitting no such contract to be made to cover more than five hundred acres in any one year, as provided in House Bill No. 5?

8. Is the good will of any trade or business constitutionally subject to a tax by the legislature? If so, can the good will of a trade or business be measured prima facie by a percentage of the gross receipts of the trade or business?

9. If such good will is taxable is any constitutional provision violated by imposing a tax upon retail merchants and shopkeepers, as proposed in House Bill No. 401?

10. Is it constitutional for the state to distribute the proceeds of a state tax in the manner proposed in House Bill No. 15, which provides (a) that a part of the revenue therefrom be appropriated to the state forestry department for forestry improvement work; (b) a part be appropriated to the highway department for the maintenance of state highways; (c) a part be appropriated to the state educational department for the equalization of local school facilities; (d) a part distributed to towns as a reimbursement for tax loss by exemption (provided such exemption is not in contravention to the constitution); and (e) the balance be returned to the towns of residence of the several taxpayers in the proportion that the amount of total tax paid by residents of such town bears to the total amount of such tax paid in the state as a whole? 11. Is any constitutional provision violated by imposing a tax which is assessed and collected by the state and distributed to the several towns (1) on the basis of their respective needs, as proposed in paragraphs (b) and (c) section 2 of House Bill No. 15, or (2) on the basis of their losses by exemption, as proposed in paragraph (d) thereof, without reference to the proportion in which such towns contributed toward the payment of such a tax?

Further Resolved, That the president of the Senate be and hereby is directed to furnish a copy of the foregoing resolution to each of the justices, together with the report of the interim tax commission, copies of the several bills and the governor's message to the Senate thereon.

The following answer was returned: To the Honorable Senate:

The undersigned, the justices of the Supreme Court, make the following answers to your inquiries, contained in your resolution adopted April 18, 1929:

The bills to which the questions relate cover a wide field of problems in taxation, and we have not undertaken to review all the bills in every detail to ascertain if perchance they may be objectionable in some minor respect. We do not conceive that it is our province to do so. Opinion of the Justices, 239 Mass. 606, 133 N. E. 453. We have confined our answers to dealing with the topics specified in your questions, together with such others as have been suggested in the briefs and arguments of counsel.

While our answers are limited as above indicated, we have not considered that a mere categorical reply to your inquiries would be a full discharge of our duty as your constitutional advisers. The proposals put before us involve a wide departure from the present methods of taxation in this state. They appear to be closely related, and, as a practical proposition, to be largely interdependent. They signify an effort to put into execution a general plan; and we assume that where a particular provision is objectionable, but the desired result can be reached in another and constitutional way, you would wish to be advised thereof. Opinion of the Justices, 81 N. H. 566, 570, 129 A. 117, 39 A. L. R. 1023.

The procedure adopted by the senate and the house of representatives, in not requesting replies during a legislative session, has afforded ample opportunity for investigation and consideration. Counsel have made full use of the opportunity, as to many of the problems; and their thought and research have been of great assistance. We regret that upon some of the questions, especially those relating to an income tax, we have not had the benefit of adversative argument.

We take up the questions in numerical order.

Questions 1 and 2. The Utility Tax.— The bill proposes to lay a tax upon gas and electric utilities at the average rate throughout the state, and to distribute to the several towns where the physical property is situated an amount equal to the tax on that property at the local rate. The money so distributed is to be used for local purposes. It is argued that this is a town tax, and consequently must be assessed at the town rate (Boston, C. & M. Railroad v. State, 60 N. H. 87, 95); that although the town receives the equivalent of the local tax, the utility is taxed at the average rate, which may be more or less than the town rate; that in this respect the proposed act does not meet the constitutional requirement; and that the portion of the assessment which is to go to the towns must be laid at the local rate.

In order to determine the scope and effect of the decision in Boston, C. & M. Railroad v. State, supra, it is necessary to examine it in some detail. The statutory provisions under which the railroad tax was then assessed were that the tax was to be laid "in proportion to the taxation of other property * * * in the several towns and cities in which such railroad is located" (Gen. Laws c. 62, § 1), and was to be distributed one-fourth to those towns, a part of the balance to towns where stock in the road was owned according to the proportion of the whole stock so owned, and the remainder (representing nonresident stock-ownership) to the state (Id. § 7).

The railroad's appeal from the assessment by the state board of equalization was heard by referees, who reported in favor of a tax laid according to the directions of the statute, i. e. at the rate in the particular towns wherein that railroad had property. The point decided was that since a part of the tax was to remain in the state treasury as state funds, the tax could not be deemed to be wholly that of the railroad towns, and hence that the assessment at the rate in those towns was unconstitutional.

The rule that "a state tax must be uniform throughout the state, a county tax throughout the county, a town tax throughout the town" (page 95 of 60 N. H.) was stated. This was followed by a discussion as to what the nature of this tax as a whole might be. It was not decided that it was not a state tax. That question was in express terms left open. "When the facts are found, the parties will have an opportunity to be heard on the question whether, for the purpose of assessment, the tax is a state tax, or of a triple...