Mary C. Wheeler School, Inc. v. Board of Assessors of Seekonk

• Decision Date: 14 July 1975
• Citation: 368 Mass. 344,331 N.E.2d 888
• Parties: MARY C. WHEELER SCHOOL, INC. v. BOARD OF ASSESSORS OF SEEKONK.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 888

331 N.E.2d 888

368 Mass. 344

MARY C. WHEELER SCHOOL, INC.

v. BOARD OF ASSESSORS OF SEEKONK.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued April 7, 1975.

Decided July 14, 1975.

Jonathan E. Cole, Providence, R.I. (Kinnaird Howland Providence, R.I., with him), for the taxpayer.

Max Volterra, Attleboro, for the Board of Assessors of Seekonk.

Before TAURO, C.J., and BRAUCHER, HENNESSEY, KAPLAN and WILKINS, JJ.

KAPLAN, Justice.

Mary C. Wheeler School, Inc. (School) is organized under Rhode Island law as a 'non-business corporation.' It runs a day and boarding school for children from nursery school through secondary school age. The School's main campus is in Providence, Rhode Island, but it also owns a 122-acre tract of open and wooded land in Seekonk, Massachusetts, a few miles away, which it uses primarily for recreation and sports and as an 'open classroom' for science and ecology courses.

The board of assessors of Seekonk (assessors) assessed the School $4,055.84 in real estate taxes on the Seekonk property for 1972. In doing so, the assessors followed G.L. c. 59, § 5, Third, which grants tax exemption to the property of a 'literary, benevolent, charitable, or scientific institution or temperance society' only if it is 'incorporated in the Commonwealth.' The School filed an application for an abatement of the tax with the assessors; following denial it paid $962.40, the amount necessary to preserve its right to appeal, ¹ and petitioned the Appellate Tax Board (Board) for tax exemption, claiming that the distinction on which tax exemption was made to turn--State of incorporation--violated the Fourteenth Amendment guaranty of equal protection of the laws. The formal procedure was followed before the Board; a hearing was held and on May 24, 1974, the School's petition was denied, ² the Board subsequently making findings of fact and a report. The School took the present appeal to this court. We reverse the Board.

As the parties are agreed that the School satisfies all the requirements for tax exemption other than State of incorporation, ³ the issue is just that posed in the petition to the Board: was the distinction between foreign and domestic incorporation a valid one for the classification of the property of charitable institutions into taxable and tax exempt classes in this State.

'(T)he Fourteenth Amendment permits the States a wide scope of discretion in enacting laws which affect some groups of citizens differently than others. The constitutional safeguard is offended only if the classification rests on grounds wholly irrelevant to the achievement of the State's objective. State legislatures are presumed to have acted within their constitutional power despite the fact that, in practice, their laws result in some inequality. A statutory discrimination will not be set aside if any state of facts reasonably may be conceived to justify it.' McGowan v. Maryland, 366 U.S. 420, 425--426, 81 S.Ct. 1101, 1105, 6 L.Ed.2d 393 (1961). A State's 'scope of discretion' is especially 'wide' when the subject involved is taxation. See State Bd. of Tax Commrs. of Ind. v. Jackson, 283 U.S. 527, 537--538, 51 S.Ct. 540, 75 L.Ed. 1248 (1931) (permissible to distinguish between chain stores and independent stores in imposing annual license tax); Commonwealth v. Life Assur. Co. of Pa., 419 Pa. 370, 214 A.2d 209 (1965) (permissible to distinguish between life and other insurance companies for purpose of tax on gross premiums). Our own cases reflect the breadth of discretion available to the Legislature in tax classifications. Thus, in the recent case of FROST V. COMMISSIONER OF CORPS. & TAXN., --- MASS. ---, 293 N.E.2D 862 (1973)^A, app. dism. for want of a substantial Federal question, 414 U.S. 803, 94 S.Ct. 51, 38 L.Ed.2d 40 (1973), the court upheld G.L. c. 65A, § 1, which imposed estate taxes on intangible personal property in the Commonwealth owned by residents of foreign countries but not on such property owned by residents of other States: the fact that the Federal estate tax credit was available for taxes paid to the States, but not for taxes paid to foreign countries, provided a basis for distinction between the two classes of cases. See Cabot v. Assessors of Boston, 335 Mass. 53, 138 N.E.2d 618 (1956) (permissible to exempt Boston Common garage from taxation while taxing other parking garages); Weinstock v. Hull, --- Mass. ---, ^b 323 N.E.2d 867 (1975), (permissible to distinguish for purpose of tax exemption between household furniture and effects used in a dwelling which is place of domicil and such property used elsewhere).

But if the State legislative power in the field of taxation is extensive, there are yet limits to it, and courts have found the limits exceeded when the distinction drawn is one which favors State residents--individual or corporate--over nonresidents. Hanover Fire Ins. Co. v. Harding, 272 U.S. 494, 47 S.Ct. 179, 71 L.Ed. 372 (1926), struck down as violative of the equal protection clause a tax on net receipts of insurance companies that applied only to out-of-State companies. Again, in Wheeling Steel Corp. v. Glander, 337 U.S. 562, 69 S.Ct. 1291, 93 L.Ed. 1544 (1949), a State tax imposed on only those intangibles in Ohio owned by foreign corporations was declared invalid. The court held that '(u)nder long-settled principles of our Federation, Ohio was not required to admit these foreign corporations to carry on intrastate business within its borders. The State may arbitarily exclude them or may license them upon any terms it sees fit, apart from exacting surrender of rights derived from the Constitution . . .. Ohio elected, however, to admit these corporations . . .. After a state has chosen to domesticate foreign corporations, the adopted corporations are entitled to equal protection with the state's own corporate progeny, at least to the extent that their property is entitled to an equally favorable ad valorem tax basis.' 337 U.S. at 571--572, 69 S.Ct. at 1296. The court rejected as a possible justification for the tax the implicit invitation extended by Ohio to other States to impose reciprocal taxes on Ohio corporations; the court noted that no other State had enacted such a tax in response. See also Reserve Life Ins. Co. v. Bowers, 380 U.S. 258, 85 S.Ct. 951, 13 L.Ed.2d 959 (1965), reversing mem. 175 Ohio St. 468, 196 N.E.2d 87 (1964), affirming mem. 119 Ohio App. 251, 196 N.E.2d 114 (1963) (not permissible to tax personal property of foreign but not domestic insurance companies); Haman v. County of Humboldt, 8 Cal.3d 922, 106 Cal.Rptr. 617, 506 P.2d 993 (1973) (not permissible to impose higher property tax on boats registered out of State than on those registered in State); Borden v. Selden, 259 Iowa 808, 146 N.W.2d 306 (1966) (not permissible to grant agricultural land tax credit only to residents); Cleveland-Cliffs Iron Co. v. Department of Rev., 329 Mich. 225, 45 N.W.2d 46 (1950) (not permissible to exempt domestic but not foreign corporations from taxation of intangible property located in and taxed by another State).

If the contrast between the normal reluctance of courts to invalidate classifications in tax statutes, and their readiness to do so in cases involving classifications that disfavor nonresidents, seems somewhat jarring, the explanation for it is plainly stated in the concurring opinion of Mr. Justice Brennan, joined by Mr. Justice Harlan, in Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. 522, 530, 79 S.Ct. 437, 3 L.Ed.2d 480 (1959). Agreeing with the court on the validity of a tax classification that favored nonresidents by exempting from taxation their property held in warehouses in Ohio, the opinion addressed itself to the problem of reconciling that result with Wheeling Steel Corp. v. Glander, 337 U.S. 562, 69 S.Ct. 1291, 9 L.Ed. 1544 (1949): 'Wheeling teaches that a distinction which burdens the property of nonresidents but not like property of residents is . . . (unconstitutional). But this is not because no rational ground can be conceived for . . . (the) classification . . .: could not such a ground be found in the State's . . . desire to favor itw own residents . . .? The proper analysis, it seems to me, is that Wheeling applied the Equal Protection Clause to give effect to its role to protect our federalism by denying Ohio the power constitutionally to discriminate in favor of its own residents . . .. On the other hand, in the present case, Ohio's classification based on residence operates against Ohio residents and clearly presents no state action disruptive of the federal pattern. There is, therefore, no reason to judge the state action mechanically by the same principles as state efforts to favor residents.' 358 U.S. at 533, 79 S.Ct. at 444. The theme that courts must be vigilant to protect the functioning of federalism was repeated in Austin v. New Hampshire, --- U.S. ---, 95 S.Ct. 1191, 43 L.Ed.2d 530 (1975). That case voided a State income tax that applied to nonresidents but not to residents, saying that '(i)n resolving constitutional challenges to state tax measures this Court has made it clear that 'in taxation, even more than in other fields, legislatures possess the greatest freedom in classification.' Madden v. Kentucky, 309 U.S. 83, 88, 60 S.Ct. 406, 408, 84 L.Ed. 590 (1940). . . . Our review of tax classifications has generally been concomitantly narrow . . ..' However, said the court, 'Since nonresidents are not represented in the taxing State's legislative halls, cf. Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. 522, 532--533, 79 S.Ct. 437, 443--444, 3 L.Ed.2d 480 (1959) (Brennan, J., concurring), judicial acquiescence in taxation schemes that burden them particularly would remit them to such redress as they could secure through their own State; but 'to prevent (retaliation) was one of the chief ends sought to be accomplished by the adoption of the Constitution.' Travis v. Yale & Towne Mfg. Co., 252 U.S. 60,...