Miller v. Heffernan

• Decision Date: 27 September 1977
• Court: Connecticut Supreme Court
• Parties: Carl MILLER et al. v. Gerald J. HEFFERNAN, Tax Commissioner.

Page 572

378 A.2d 572

173 Conn. 506

Carl MILLER et al. v. Gerald J. HEFFERNAN, Tax Commissioner.

Supreme Court of Connecticut.

Argued June 8, 1977.

Decided Sept. 27, 1977.

John S. Murtha, Hartford, with whom were John E. Silliman, Hartford, and, on the brief, William J. Keenan, Hartford, for plaintiffs.

Richard K. Greenberg, Asst. Atty. Gen., with whom were Ralph G. Murphy, Asst. Atty. Gen., and Carl R. Ajello, Atty. Gen., for defendant.

Before HOUSE, C. J., and LOISELLE, BOGDANSKI, LONGO and SPEZIALE, JJ.

LOISELLE, Associate Justice.

This case comes to the court on a reservation from the Superior Court in Hartford County. The questions stipulated by the parties, noted in the footnote below, ¹ concern the constitutionality of two provisions of 1975 Public Acts, No. 75-213, subsequently codified as §§ 12-505 and 12-506 of the General Statutes. The challenged provisions include § 43, ² which imposes a 7 percent tax upon all dividends received by taxpayers with adjusted gross incomes of $20,000 or more, and § 42, ³ which defines "taxpayer" to include "a husband and wife both of whom are residents in this state and who file for the taxable year a single federal income tax return jointly."

The plaintiffs, a husband and wife who filed a joint federal income tax return, are residents of Connecticut with an adjusted gross income of more than $20,000. In accordance with the requirements of the noted provisions, they filed a state capital gains and dividends tax return, paying the prescribed tax. Simultaneously, they filed a claim for refund alleging the tax to be unconstitutional. Upon denial of their claim by the defendant, the plaintiffs appealed to the Superior Court, which reserved the matter for the advice of this court.

I

The first two questions are whether § 43 of the act (General Statutes § 12-506), which provides for a tax on dividends received by taxpayers with adjusted gross incomes of $20,000 or more, violates article first, § 20, of the Connecticut constitution or § 1 of the fourteenth amendment to the United States constitution. These equal protection provisions have often been held to have a like meaning, imposing similar constitutional limitations. Horton v. Meskill, 172 Conn. 615, 639, 376 A.2d 359; State v. Rao, 171 Conn. 600, 601, 370 A.2d 1310. The questions will, therefore, be treated together.

Where legislation neither containing a suspect classification nor impinging upon a fundamental right is challenged on equal protection grounds, the burden is on the complaining party to establish that the statutory distinction is without rational basis. Horton v. Meskill, supra, 640; Kellems v. Brown, 163 Conn. 478, 486, 313 A.2d 53, appeal dismissed, 409 U.S. 1099, 93 S.Ct. 911, 34 L.Ed.2d 678. This standard is even more stringent where the challenged legislation pertains to taxation. As this court emphasized in Kellems v. Brown, supra, 487, 313 A.2d 53, quoting Madden v. Kentucky, 309 U.S. 83, 88, 60 S.Ct. 406, 408, 84 L.Ed. 590, " 'in taxation, even more than in other fields, legislatures possess the greatest freedom in classification. Since the members of a legislature necessarily enjoy a familiarity with local conditions which this Court cannot have, the presumption of constitutionality can be overcome only by the most explicit demonstration that a classification is a hostile and oppressive discrimination against particular persons and classes. The burden is on the one attacking the legislative arrangement to negative every conceivable basis which might support it.' "

The plaintiffs claim that § 43 of the act, by singling out for taxation those dividends received by taxpayers with adjusted gross incomes of $20,000 or more, while leaving untaxed dividends received by those with lower adjusted gross incomes, constitutes just such "clear and hostile discrimination." It is to be emphasized that the question which must be addressed is not whether the prescribed mode of taxation is wise; Bassett v. Rose, 141 Conn. 129, 104 A.2d 212; but whether the classification it delineates is reasonable, resting upon "some ground of difference having a fair and substantial relation to the object of the legislation, so that all persons similarly circumstanced shall be treated alike." F. S. Royster Guano Co. v. Virginia, 253 U.S. 412, 415, 40 S.Ct. 560, 561, 64 L.Ed. 989.

The plaintiffs urge that the $20,000 demarcation places an undue tax burden on a minority of taxpayers, alleging further that a disproportionate share of the burden falls on taxpayers over sixty-five years of age. In Kellems v. Brown, supra, this court determined that the legislature's decision to tax dividends while leaving untaxed other forms of investment income was not violative of equal protection guarantees. In reenacting this dividends tax, which of itself affects a minority of the total population of taxpayers, the legislature chose to exclude from its coverage those dividend-receiving taxpayers with adjusted gross incomes of less than $20,000. Clearly this exemption further limits the affected class, yet this fact alone does not render the tax unconstitutional.

In Independent Warehouses, Inc. v. Scheele, 331 U.S. 70, 67 S.Ct. 1062, 91 L.Ed. 1346, the United States Supreme Court held as not violative of the equal protection clause a municipal ordinance selecting out for an annual licensing tax only those engaged in commercial warehousing, despite the fact that only one such operation existed within the township. Citing Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 509, 57 S.Ct. 868, 872, 81 L.Ed. 1245, the court noted (p. 86): "It is inherent in the exercise of the power to tax that a state be free to select the subjects of taxation and to grant exemptions. Neither due process nor equal protection imposes upon a state any rigid rule of equality in taxation. . . . This Court has repeatedly held that inequalities which result from a singling out of one particular class for taxation or exemption, infringe no constitutional limitation." See also Ohio Oil Co. v. Conway, 281 U.S. 146, 159, 50 S.Ct. 310, 74 L.Ed. 775.

The court in Carmichael further emphasized that a legislature is not bound to tax every member of a class or none, as long as some rational basis for the designated intermediary distinction exists. That such basis exists is to be assumed "if there is any conceivable state of facts which would support it." Carmichael v. Southern Coal & Coke Co., supra, 301 U.S. 509, 57 S.Ct. 868, 872. The plaintiffs' own expressed concern provides one such obvious conceivable basis for the $20,000 demarcation: protection for those with limited, fixed incomes who, like some of the elderly, rely solely or heavily upon dividend income for their livelihood.

The plaintiffs, however, urge that no rational basis can be found for distinguishing between a taxpayer with a $19,999.99 adjusted gross income and one with a $20,000 adjusted gross income. Yet all laws, especially those in the tax area, are necessarily dotted with such fine distinctions. "It is only a difference in numbers which marks the moment when day ends and night begins, when the disabilities of infancy terminate and the status of legal competency is assumed. It separates large incomes which are taxed from the smaller ones which are exempt, as it marks here the difference between the proprietors of larger businesses who are taxed and the proprietors of smaller businesses who are not." Carmichael v. Southern Coal & Coke Co., supra, 301 U.S. 510, 57 S.Ct. 873. As long as some conceivable rational basis for the difference exists, "a classification is not offensive merely because it is not made with mathematical nicety." Karp v. Zoning Board, 156 Conn. 287, 299, 240 A.2d 845, 851.

In the present case, the legislature's line may well have been drawn in light of the overall tax scheme, the fiscal needs of the state, and the economy. United States Department of Labor statistics show that in 1973, just prior to the enactment of the statute here at issue, the average cost for an urban family of four on a lower budget was $8181 a year, while the intermediate and higher levels were $12,626 and $18,201 respectively. In Hartford, the average cost for a family of four at the intermediate level was $13,721, and at the higher level, $19,127. ⁴ Conceivably, the legislature was attempting to draw a line which left the average family budget intact. While such an approach is necessarily discriminatory, the equal protection clause proscribes only "invidious discrimination but does not demand identical treatment for all persons without consideration of differences in relevant circumstances." Karp v. Zoning Board, supra, 294, 240 A.2d 849. "If the . . . classification is neither capricious nor arbitrary, and rests upon some reasonable consideration of difference or policy, there is no denial of the equal protection of the law." Brown-Forman Co. v. Kentucky, 217 U.S. 563, 573, 30 S.Ct. 578, 580, 54 L.Ed. 883.

The plaintiffs emphasize the distinction between a notch exemption, such as that at issue here, and the more usual total exemption. The total exemption leaves a specified amount of income untaxed for all taxpayers, while the notch exemption essentially designates the class of taxpayers subject to the tax. For those taxpayers within the taxed class, all income denoted, in this case all dividend income, is subject to the tax without any threshold exemption. Thus, under the existing dividends tax, a taxpayer with an adjusted gross income of $20,000 would be subjected to a $1400 tax in the unusual event that all his income was derived from dividends, while a taxpayer only marginally less well endowed with dividends, receiving an adjusted gross income of $19,999, would be entirely exempt from dividend taxation. The plaintiffs argue that such discrepancy in treatment is palpably arbitrary and contrary to any concept of equality and fairness.

It should be noted that such tax effects have...