In re Opinion of the Justices

• Decision Date: 15 March 1927
• Citation: 138 A. 284
• Parties: In re OPINION of the JUSTICES.
• Court: New Hampshire Supreme Court

138 A. 284

In re OPINION of the JUSTICES.

Supreme Court of New Hampshire,

March 15, 1927.

Answers to questions propounded to the Justices of the Supreme Court by resolution of the House of Representatives.

On February 16, 1927, the House of Representatives passed the following resolution:

"Whereas two acts are now pending in the House of Representatives which contemplate important changes in the taxing system of the state, namely, House Bill No. 180, an act to provide for general revenue for the state of New Hampshire and the municipalities thereof, to be known as the General Revenue Bill, and House Bill No. 300, an act (a) to repeal paragraph 1, § 14, c. 60, of the Public Laws, relating to the taxation of stock in trade, (b) in amendment of chapter 65 of the Public Laws, relating to the taxation of income from intangibles, and (c) providing for the taxation of incomes from manufacturing and mercantile business carried on within the state;

"Resolved, that the speaker of the House be and hereby is directed to obtain from the justices of the Supreme Court their opinions upon the following questions of law which are of serious importance to the financial welfare of the state, namely:

"1. Would any constitutional provision be violated by imposing privilege taxes at varying fixed rates on persons engaged in some or all of the vocations, occupations or businesses specified in said House Bill No. 180, as proposed in said bill?

"2. If question 1 is answered in the affirmative, could such privilege taxes constitutionally be levied—

"(a) At a uniform fixed rate upon all business thereby affected, instead of varying rates for different businesses; or

"(b) At either varying rates or a uniform rate upon corporations engaged in such businesses as a method of taxing their franchises, to the exclusion of individuals and unincorporated bodies so engaged?

"3. Would any constitutional provision be violated by imposing a tax at a fixed rate on net incomes derived from manufacturing and mercantile business carried on within the state, as proposed in said House Bill No. 300?

"4. If question 3 is answered in the negative—

"(a) Is it constitutionally necessary that such fixed rate be single and unvarying, as proposed in said bill, or could the rate of taxation be graduated according to the amount of the net income derived by the taxpayer from such business?

"(b) Is it constitutionally necessary that the rate of taxation and the amount of income exempt from taxation be the same for net income derived from such business and for income derived from intangibles, as proposed in said bill; or could net income derived from such business be taxed at one fixed or graduated rate, and income derived from intangibles be taxed at a different fixed or graduated rate, or at the average rate of general property taxation as now provided in chapter 65 of the Public Laws?

"(c) Would any particular provision of said House Bill No. 300 violate any constitutional provision, so far as it is practicable for the justices to return a reasonably prompt answer to this inquiry?"

Fred C. Demond, of Concord, N. H., for New Hampshire Mfr's Ass'n.

The following answer was returned:

To the House of Representatives:

The undersigned, justices of the Supreme Court, make the following answer to the inquiries propounded in your resolution of February 16.

I. House Bill No. 180 appears to have been drawn without any reference to the structure of our state government, and contains many provisions which could not be applied here. Its main purpose seems to be to establish a system of charges upon various vocations, avocations, and acts. It deals largely with what are commonly known as occupation taxes. Section 3 divides these subjects of proposed taxation into 118 separate classes, each with one or more schedules of stated charges. Many of the occupations or acts thus sought to be levied upon involve only the ordinary transactions of private life. They contain no element subject to supervision either under the police power or as things affected with a public use.

The mere statement of the general proposition is sufficient to show that it unquestionably exceeds the legislative power. State v. Express Co., 60 N. H. 219. Even in jurisdictions where excises are authorized, the power to lay them does not extend to the imposition of a charge upon the exercise of a common right. O'Keefe v. Somerville, 190 Mass. 110, 76 N. E. 457, 112 Am. St. Rep. 316, 5 Ann. Cas. 684.

II A. Making the price levied by the excise uniform would not meet the constitutional objections to the proposed act Rate is but one of the essentials of a tax in this jurisdiction. Opinion of the Justices, 76 N. H. 609, 85 A. 757. Except in the case of the tax upon polls, taxes are required to be laid ad valorem. Rate and value are both essential elements of a valid tax. The provision for laying excises, contained in the Constitution of Massachusetts, was omitted from that of New Hampshire. State v. Express Co., 60 N. H. 219, 216. "There is no warrant for the imposition of any other tax than one assessed upon a proportional and equal valuation of all the different kinds of property on which it is to be laid." 60 N. H. 246. Amoskeag Co. v. Manchester, 70 N. H. 336, 47 A. 74. No authority has been given to prescribe "an arbitrary imposition of specific taxes upon the objects named." Opinion of the Justices, 76 N. H. 588, 596, 79 A. 31, 34.

The constitutional amendment of 1903 did not abrogate or modify this feature of limitation upon the power to tax. "It seems clear that the people must have understood that they were called to vote upon a question of taxation so related at least to property taxation as to lead to the understanding, no special exception being made, that the rules with which they were familiar in taxation of that character were to be applied so far as possible." Williams v. State, 81 N. H. 341, 349, 125 A. 661, 665.

II B. The second division of your second inquiry involves power to tax franchises, not only in a general way, but also a detailed application to the 118 specifications of section 3 and the added ones found in later sections. No bill presenting the form of legislation proposed, to which an answer to this inquiry could apply, has been submitted.

Broadly speaking, a tax cannot be imposed upon a corporation which would not be upon an individual similarly circumstanced. The power to tax franchises, granted in express terms in the amendment of 1903 (Const. pt. 2, art. 6), has reference to rights which may be considered to be property. The phrase, "other classes of property, including franchises," admits of no other meaning.

It is settled that in this state the power to be a corporation is not an irrepealable right. It can be taken away at any time, and without compensation. Dow v. Railroad, 67 N. H. 1, 36 A. 510. Because of this, it might seem doubtful whether it could be considered to be property, in the constitutional sense of the term', so far as to be taxable under the grant of power contained in the amendment of 1903. But, while the mere right to be a corporation is held by an uncertain tenure, yet the practical fact that it is very seldom interfered with may be sufficient, taken in connection with other features of the right, to permit such a franchise to be treated as property within the meaning of that term as used in the grant of the taxing power.

"The word 'franchise' * * * has various significations, both in a legal and popular sense. A corporation is itself a franchise belonging to the members of the corporation: and a corporation, being itself a franchise, may hold other franchises, as rights and franchises of the corporation." Pierce v. Emery, 32 N. H. 484, 507. The franchise to be a corporation is to be distinguished from the franchise to do certain things.

A franchise, or right to do certain things, giving a power to enter upon transactions which is not possessed by the people as of common right, is property. It cannot be taken away, except for a public use and upon compensation made. Piscataqua Bridge v. New Hampshire Bridge, 7 N. H. 35, 66. Such a franchise is taxable under the amendment of 1903. Whether it was not also taxable before that amendment was adopted is not material to the question now under consideration.

The franchise or privilege to do certain things may be granted to a corporation, an unincorporated association, a partnership, or an individual. Opinion of the Justices, 66 N. H. 629, 642, 33 A. 1076. A tax laid upon it is subject to the constitutional rules of proportionality and reasonableness which apply to all taxes. Williams v. State, 81 N. H. 341, 125 A. 661. If the privilege is taxed when held by a corporation, it must be when exercised by collective owners associated together under some other form of agreement, or by an individual. Singling out corporations, and taxing them upon privileges, while permitting other holders of like privileges to go tax free, is a discrimination not permitted by the Constitution.

"The rule placing 'natural persons and corporations precisely upon the same ground' of general liability to legislative control is 'the only one upon which equal rights and just liabilities and duties can be fairly based.' Thorpe v. Railroad, 27 Vt. 140, 145. A railroad corporation is 'put in the same position a natural person would occupy if engaged in the same or like business. Its rights and its privileges in its business of transportation are just what those of a natural person would be under like circumstances; no more, no less.' Stone v. F. L. & T. Co., 116 U. S. 307, 329 [6 S. Ct. 334 (29 E. Ed. 636)]. This is an application of the equitable principle that the corporate fiction does not operate beyond the purpose of its introduction." Dow v. Railroad, 67 N. H. 1, 30, 36 A. 510, 525.

If the bare franchise to be a corporation is to be considered as property, and therefore taxable, it could be taxed only upon an ad...