Manzara v. State

• Decision Date: 02 August 2011
• Docket Number: No. SC 91025.,SC 91025.
• Citation: 343 S.W.3d 656
• Parties: Barbara MANZARA and Keith Marquard, Appellants,v.STATE of Missouri, et al., Respondents.
• Court: Missouri Supreme Court

343 S.W.3d 656

Barbara MANZARA and Keith Marquard, Appellants,

v.STATE of Missouri, et al., Respondents.

No. SC 91025.

Supreme Court of Missouri, En Banc.

Aug. 2, 2011.

Irene J. Smith, St. Louis, for Manzara and Marquard.James R. Layton, Maureen Beekley, Attorney General's Office, Jefferson City, for The State.Paul J. Puricelli, Robb E. Hellwig, Stone, Leyton & Gershmann, St. Louis, for Northside Regeneration.MARY R. RUSSELL, Judge.

Two taxpayers filed a petition for declaratory judgment challenging the constitutional validity of section 99.1205,¹ the Distressed Areas Land Assemblage Tax Credit Act (Act).They claimed that the tax credits provided by the Act constituted an unconstitutional grant or lending of public money to private persons, associations, or corporations.The trial court declined to enter declaratory judgment because the taxpayers did not have standing to challenge the statute.

The taxpayers appealed to this Court, arguing that they had standing because the tax credits were direct expenditures of funds generated through taxation.They also argued that the tax credits given under the Act are unconstitutional.Reaching the merits of the taxpayers' claims is unnecessary because the taxpayers did not meet their burden to prove they had standing to bring a challenge to the statute as the issuance of tax credits does not constitute a direct expenditure of funds generated through taxation.Further, this Court agrees with the recent statement of the Supreme Court of the United States that tax credits are not public expenditures.The trial court's judgment is affirmed.

I.Background

A.Distressed Areas Land Assemblage Tax Credit Act

The Act establishes tax credits to encourage redevelopment of historically distressed or disadvantaged areas.Qualified redevelopers may apply for a land assemblage tax credit to offset the acquisition and interest costs incurred by the redeveloper in obtaining the land.

The eligibility requirements and limitations are regulated by the statute.To receive the tax credit, preconditions must be met.First, for land to be an “eligible parcel,” it must be located within an eligible project area,² slated for redevelopment, acquired without the commencement of condemnation proceedings, and have no outstanding taxes, fines, or bills owed to the municipal government.Section 99.1205.2(7).

Second, the person or entity seeking the tax credit must be an applicant, as defined in the statute.An applicant is a person, firm, partnership, trust, limited liability company, or corporation that has acquired enough land to constitute an eligible project area.Section 99.1205.2(2).In addition, the applicant must have been appointed or selected as a redeveloper by a municipal authority under an economic incentive law.Id.

Once an applicant acquires an eligible parcel, the Act allows a tax credit to issue.An applicant is entitled to a tax credit for 50 percent of the acquisition costs and 100 percent of the interest incurred five years after acquisition.Section 99.1205.3.The tax credit may be applied to taxes imposed under chapters 143,³ 147,⁴ and 148,⁵ except for sections 143.191 to 143.265.⁶Id.If the amount of the credit exceeds the total tax liability for the year in which the applicant qualifies for a tax credit, the remaining tax credit may be carried over for the succeeding six years.Section 99.1250.4.Further, the tax credits may be transferred, sold, or assigned.Id.The transferee, purchaser, or assignee may use the tax credits to offset 100 percent of the tax liability imposed under chapters 143, 147, and 148, except for sections 143.191 to 143.265.Section 99.1205.5.

B.Procedural History

Barbara Manzara and Keith Marquard(the taxpayers) are taxpayers who live within a qualified census tract, as designated under 26 U.S.C. § 42, and within a distressed community, as defined by section 135.530.They filed a petition for declaratory judgment challenging the validity of the Act, claiming that section 99.1205 violates article III, section 38(a) of the Missouri Constitution because the tax credit is a “grant of public money or property” to a “private person, association or corporation.”Alternatively, taxpayers contended that the Act violates article III, section 39(1)–(2) of the Missouri Constitution because the tax credit is a “lending of the credit of the state in aid or to any person, association, municipal or other corporation,” or a “pledge [of] credit of the state for the payment of the liabilities ... of any individual, association, municipal or other corporation.”

The circuit court rejected the taxpayers' argument, finding that they lacked standing to bring their claims and that, even if they did have standing, section 99.1205 was constitutional because it serves a public purpose.The taxpayers appeal, arguing that the circuit court erred in finding that they lacked standing and that the Act was constitutional.⁷

II.Standing

The preliminary issue before this Court is whether taxpayers have standing to challenge the tax credits given to redevelopers under the statute.SeeE. Mo. Laborers Dist. Council v. St. Louis County,781 S.W.2d 43, 45–46(Mo. banc 1989)(“Regardless of an action's merits, unless the parties to the action have proper standing, a court may not entertain the action.”).Standing is an antecedent to the right to relief.Comm. for Educ. Equal. v. State,878 S.W.2d 446, 450 n. 3(Mo. banc 1994).

Standing is a question of law, which is reviewed de novo.Mo. State Med. Ass'n v. State,256 S.W.3d 85, 87(Mo. banc 2008).To have standing, the party seeking relief must have “a legally cognizable interest” and “a threatened or real injury.”E. Mo. Laborers,781 S.W.2d at 46.As the parties seeking relief, the taxpayers bear the burden of establishing that they have standing.SeeKansas City v. Douglas,473 S.W.2d 101, 102(Mo.1971).

Taxpayer standing has a long history in Missouri.The issue of taxpayer standing first arose in Newmeyer v. Missouri & Mississippi Railroad,52 Mo. 81(1873).There, the court held that taxpayers had standing to bring a suit to challenge the county's subscription to capital stock of a railroad.Id. at 89.The court reasoned that the county's taxpayers suffered a peculiar injury—the burden of paying for the subscription.Id.After Newmeyer, Missouri courts have held that when a public interest is involved and public monies are being expended for an illegal purpose, taxpayers have the right to enjoin the action.See, e.g., Civic League of St. Louis v. City of St. Louis,223 S.W. 891(Mo.1920);Berghorn v. Reorganized Sch. Dist. No. 8, Franklin Cnty.,364 Mo. 121, 260 S.W.2d 573(1953);Tichenor v. Mo. State Lottery Comm'n,742 S.W.2d 170(Mo. banc 1988).

In Eastern Missouri Laborers,this Court in 1989 revisited taxpayer standing.The court acknowledged that the mere filing of a lawsuit does not confer taxpayer standing upon a plaintiff.E. Mo. Laborers,781 S.W.2d at 46.Instead, a taxpayer must establish that one of three conditions exists: (1) a direct expenditure of funds generated through taxation; (2) an increased levy in taxes; or (3) a pecuniary loss attributable to the challenged transaction of a municipality.Id. at 47.The taxpayers rely on the first option as their basis for standing, arguing that the tax credits given under the Act are a direct expenditure of funds generated through taxation.⁸

Taxpayer standing is available “so that ordinary citizens have the ability to make their government officials conform to the dictates of the law when spending public money.”Ste. Genevieve Sch. Dist. R–II v. Bd. of Aldermen of the City of Ste. Genevieve,66 S.W.3d 6, 11(Mo. banc 2002).As this Court has recognized,

Public policy demands a system of checks and balances whereby taxpayers can hold public officials accountable for their acts....Taxpayers must have some mechanism of enforcing the law.Today's decision provides the door through which taxpayers may enter the courts to seek enforcement.

E. Mo. Laborers,781 S.W.2d at 47.

A.Is a Tax Credit a Direct Expenditure of Funds Generated Through Taxation?

While this Court has put forth the test for taxpayer standing, it never has interpreted what “a direct expenditure of funds generated through taxation” constitutes.Dictionary definitions provide guidance.Direct, when used as an adjective, is defined as “without any intervening agency or step.”Webster's Third New International Dictionary Unabridged 640 (1993).An expenditure is “[a] sum paid out.”Black's Law Dictionary 658 (9th ed.2009).A fund is “[a] sum of money or other liquid assets.”Id. at 743.Generate is defined as “to come into existence.”Webster's Third New International Dictionary Unabridgedat 945.Taxation is “the means by which the state obtains the revenue required for its activities.”Black's Law Dictionaryat 1598.Therefore, “a direct expenditure of funds generated through taxation” is a sum paid out, without any intervening agency or step, of money or other liquid assets that come into existence through the means by which the state obtains the revenue required for its activities.

The tax credits created by the Act do not meet the definition of “a direct expenditure of funds generated through taxation,” as tax credits are not expenditures.Expenditures typically occur in government when checks are written by the state treasurer based on appropriations or warrants.No such withdrawal of public funds or such “expenditure” occurs with the granting of a tax credit.While “expenditures” and “tax credits” might be compared in that their end result is “less” money in the state treasury, the similarity is superficial.Said differently, a tax credit expresses the legislature's wish to declare a portion of the pool of taxable assets off-limits to its own power to collect taxes.Properly understood, this does not result in “less” money in the treasury because the legislature never wished it to be...