In re Opinion of the Justices

• Decision Date: 01 March 1937
• Citation: 190 A. 801
• Parties: In re OPINION OF THE JUSTICES.
• Court: New Hampshire Supreme Court

190 A. 801

In re OPINION OF THE JUSTICES.

Supreme Court of New Hampshire.

March 1, 1937.

[Copyrighted material omitted.]

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

On February 12, 1937, the House of Representatives passed the following resolution:

Whereas, six acts are now pending in the House of Representatives affecting the general system of taxation in the state, namely:

House Bill No. 385, An act for the taxation of property passing by sale at retail,

House Bill No. 386, An act relating to the taxation of income,

House Bill No. 387, An act relating to the property tax reduction fund,

House Bill No. 388, An act relative to tax on interest and dividends,

House Bill No. 389, An act relative to the taxation of legacies and successions,

House Bill No. 390, An act relative to taxation of live stock and stock in trade:

Resolved, that the Speaker of the House be and hereby is directed to obtain from the justices of the Supreme Court their opinion upon the questions arising under these several bills and especially upon the questions enumerated below which are of serious importance to the financial welfare of the state, namely:

1. Would any constitutional provision be violated by imposing a tax upon the value of property passing by sale at retail, to be paid by the purchaser, as provided in House Bill No. 385 ?

2. If the answer to the above question is in the negative, would it be constitutional to exempt from the provisions of said bill sales of gas, water, electricity, and motor fuels as provided in said bill?

3. Would any constitutional provision be violated by the adoption of a rate differing from the average rate of taxation throughout the state?

4. Would any constitutional provision be violated by the method of distribution proposed in said bill?

5. Would any constitutional provision be violated by imposing a tax, as provided in House Bill No. 386, upon the earned income of individuals and corporations, including manufacturers, wholesale and retail merchants ?

6. If the answer is in the negative, could such tax be laid at a uniform rate of 3 per cent. different from the average rate of taxation in the state?

7. Would the method of distribution provided in said act violate any constitutional provision?

8. Would it be in violation of any constitutional provision to make the personal exemptions provided in said bill larger in amount, as the Legislature might decide?

9. Would any constitutional provision be violated by any of the provisions of House Bill No. 387, relating to the property tax reduction fund?

10. Is any constitutional provision violated by any of the provisions of House Bill No. 388, relative to tax on interest and dividends?

11. Is any constitutional provision violated by the difference in method in the distribution of tax revenue from earned income and that from interest and dividends ?

12. Is any constitutional provision violated by House Bill No. 389?

13. Could the first $3,000 in value of all estates be exempt from the tax on legacies and successions under House Bill No. 389?

14. Would any constitutional provision be violated by any of the provisions of House Bill No. 390, An act relative to taxation of live stock and stock in trade?

The following answer was returned: To the House of Representatives:

The undersigned, justices of the Supreme Court, furnish this answer to the inquiries submitted by your resolution of February 12.

Your first four inquiries are directed towards House Bill No. 385, providing for a retail sales tax.

1. In our opinion such a tax may be validly imposed. Its propriety on constitutional grounds was discussed in Re Opinion of the Justices, 84 N.H. 559, 575-577, 149 A. 321, 330, and we agree with the conclusion there reached, that "a tax upon sales made within the state would be constitutional." The tax being upon "the transmission of property in a distinctive way," it is immaterial whether it be placed upon the seller or upon the purchaser.

By the bill the tax is placed upon the purchaser. Although the seller is required to guarantee, collect, account for, and pay it, he is also required to add it to the price of the article sold and may not assume or absorb or refund it. The duty thus devolved upon him to act as the collector of the tax without adequate compensation for the service a majority of us believe would be in derogation of due process as a confiscatory deprivation of his rights of equality. It would not be a service incidental to the ascertainment of his own taxes.

The situation is not parallel with that of distributors of gasoline and other motor fuels who are required to pay the tax thereon although it is in finality a tax against the ultimate consumer. Such distributors must be licensed (Pub. Laws c. 104, § 1), and their duty to pay the tax is therefore a term of the license.

The bill has been drawn with House Bill No. 386 relating to an income tax in mind as accompanying legislation. There is some indication that the tax is placed by the bill upon the purchaser under the influence of the view expressed in Re Opinion of the Justices, supra, 84 N.H. 559, 577, 149 A. 321, 330, to the effect that a tax upon sales would bar one "upon the sales profits of the same class of taxpayers." We believe the view is erroneous.

The reason assigned was an assumed result of double taxation. Our consideration reaches an opposite conclusion. An income tax upon sales profits is upon the amount of the excess of receipts over expenses. A sales tax, like any other expense of business, is reflected in the net profits by a reduction therefrom. No part of the profits includes any part of the tax. The incidence of transmission of property in a sale is unrelated to that of income. "The income tax is a levy upon the receipt of property. * * * It involves a different kind of taxability, and is to be treated as distinct from the estate tax." In re Opinion of the Justices, 82 N. H. 561, 568, 138 A. 284, 288. Likewise, it is not a form of a sales tax, and connection by which it depends upon or relates to a sales tax is not perceived. Income may be produced through the use of property taxed. In like manner, it may come from sales taxed. In either event the tax on income is not invalidated.

In the ordinary conduct of business, a sales tax charged to the retailer is passed along to the purchaser by an increase of the price of the article sold. That being done, sales profits are unaffected. From the standpoint of income, a sales tax is an item of cost like the stock in trade tax or any other tax the burden of which the seller's business bears.

It is accordingly our conclusion that although both sales profits taxes, as a form or part of an income tax, and sales taxes are levied on property, the events or incidences required for their imposition are unrelated and lead to no duplication of taxation in the constitutional sense.

If the bill were redrafted so as to place the tax on the retailer, the objectionable feature of his status as a tax collector would be eliminated.

Section 16 of the bill provides for an entitled arbitrary assessment One in fact arbitrary may not be sustained, and the information on which any assessment is based should be reliable and in the commission's judgment provably true.

Section 22 vests the commission with authority to demand information from the retailer of about every conceivable sort and to search his place of business. The section will be construed to authorize no unreasonable searches (Const, pt. 1, art 19) and to require no one to furnish evidence against himself tending to show guilt of crime or offense (Const, pt. 1, art. 15).

2. The exemptions of sales of gas, water, and electricity when delivered by conduit or wire may be properly made. The element of service is involved in all of them, as is also their subjection to special public regulations of price. Except as furnished by the public, they are supplied by utilities. The public interest that their prices be reasonable is a just reason for their classification as exemptions.

The exemption of gasoline and other motor fuels already taxed by the state appears to be required as well as proper. The present tax upon them is not a sales tax, but a charge for their use in motor vehicle highway travel. Tirrell v. Johnston, 86 N.H. 530, 536, 171 A. 641. The state's interest is to obtain "a uniform return for the use of highways." Id., 86 N. H. 530, 537, 171 A. 641, 645. But if the charge in legal definition is a toll and not a sales tax, it has practical equivalence with a sales tax. Although the distributor is the party directly liable to pay the charge, he is required to add it to his price and pass it along to the retailer who in turn must collect from the consumer. Whatever the difference in methods of computation between the charge and the sales tax, the consumer pays according to the amount he buys. The event of transmission of property is the same for both forms of tax. It would therefore be a violation of the principle of equality to levy a sales tax on the transaction in addition to the charge for highway use.

3. The adoption of a tax rate differing from the average rate throughout the state is proper. Our differences of opinion upon the propriety of a special rate for an income tax do not extend to that for a sales tax. This tax is regarded by all of us as one which cannot be correlated and made uniform with the average of the general property tax. It is paid before the average rate can be ascertained, and disproportion is inevitable. And a majority of us believe that the special rate is also sustainable on the grounds for the validity of a special rate for an income tax which a majority of the court expressed in Re Opinion of the Justices, 82 N.H. 561, 138 A. 284.

4. Our answer to this inquiry is to be found in our subsequent discussion of House Bill No. 387, relating to the property ...