Opinion of the Justices

• Citation: 101 N.H. 549,137 A.2d 726
• Parties: OPINION OF THE JUSTICES.
• Decision Date: 16 January 1958
• Court: Supreme Court of New Hampshire

Page 726

137 A.2d 726

101 N.H. 549

OPINION OF THE JUSTICES.

Supreme Court of New Hampshire.

Jan. 16, 1958.

Louis C. Wyman, Atty. Gen., and Warren E. Waters, Deputy Atty. Gen., for the State.

Sulloway, Hollis, Godfrey & Soden, Concord, for Public Service Co. of N. H. and N. H. Electric Co.

Orr & Reno, Concord, for Manchester Gas Co. and Concord Natural Gas Co.

Richard F. Upton and Robert W. Upton, Concord, pro se.

Rae S. Laraba, pro se.

The following resolution was adopted by the Governor and Council on December 16, 1957:

'Whereas the outcome of the petitions for abatement of franchise taxes brought by the Public Service Company of New Hampshire and the New Hampshire Electric Company against The State of New Hampshire has created serious problems in State finances and threatens to unbalance the budgets adopted by the General Court for the biennium ending June 30, 1959; and

'Whereas the Governor and Council have under consideration a proposal to convene the General Court in Special Session as soon as possible to act upon legislation to be recommended for their consideration by the Executive Department levying a new tax or taxes upon electric and gas utilities in substitution for the present ineffective franchise tax law and designed to produce revenue sufficient to replace that just lost; and

'Whereas doubts exist whether it is possible to devise any practical and constitutional method of taxing such utilities at State level, in addition to the taxes now levied on their property at the local level, and unless a reasonable area for such legislation exists, doubts have been expressed as to whether it is expedient to call a Special Session; and

'Whereas the Governor and Council are in need of judicial advice on the applicable constitutional law in this field in order properly to determine whether it is wise and practical for them to convene the General Court in Special Session for the above-stated objective; and

'Whereas the obtaining of an advisory opinion on the following questions in advance of a Special Session, if it is eventually decided to call one, will result in substantial savings of public expense;

'Now Therefore Be It Resolved by the Governor and Council in Executive Session convened that the Justices of the Supreme Court be respectfully requested, upon this solemn occasion, to give their opinion upon the following important questions of constitutional law:

'1. Must any tax levied upon the franchises of gas and electric utilities take the form of an ad valorem property tax?

'2. Must any such tax as that described in question #1 be levied at the average rate of general property taxation throughout the State or may the General Court establish a reasonable rate differing therefrom?

'3. Must the assessed valuation of utility franchises under any such tax as that described in question #1 be set at such proportion of the full value thereof as the locally assessed valuation of general property throughout the State bears to its full and true value?

'4. Could the General Court by rigid formula fix the value of a utility franchise at the difference, if any, of the fair market value of its common stock over the value of all its assets (real and personal but exclusive of franchises) less the amount of its preferred stock, bonds and other indebtedness for the purpose of imposing an ad valorem property tax?

'5. Could the General Court declare the value of a utility franchise to be equal to its net operating income before federal income taxes, and tax the franchise at such value at the average rate of taxation throughout the State?

'6. In view of the difficulty in valuing a utility franchise precisely, except by rigid formula, may the General Court, if it finds that the value of a franchise is directly proportioned to the net income of the utility, impose a tax on the franchises of such utilities equal to a reasonable percentage of their net operating income for the preceding year derived from the exercise of such franchises, and not limited by the rate of taxation fixed by RSA 77 as amended?

'7. Instead of an ad valorem property tax may the General Court establish an annual fee to be charged each holder of such a franchise for the extraordinary privilege thereby granted, equal to a reasonable percentage of its net operating income for the preceding year, derived from the exercise of such franchise, and not limited by the rate of taxation fixed by RSA 77, as amended?

'8. May a gross or net income tax be levied upon the income of electric and gas utilities derived from utility operations within the State, at a reasonable rate determined by the General Court and not limited by the rate of taxation fixed by RSA 77, as amended?'

The following answer was returned:

To His Excellency the Governor and the Honorable Council:

The undersigned Justices of the Supreme Court make the following answers to the inquiries contained in your resolution filed December 16, 1957 pertaining to the levying of taxes upon gas and electric utilities at the state level:

The resolution states in part that you 'are in need of judicial advice on the applicable constitutional law in this field in order properly to determine whether it is wise and practical * * * to convene the General Court in Special Session for the above-stated objective.'

As is evident from this resolution, determination of the question before the Governor and Council for decision involves considerations which are practical as well as those which relate specifically to constitutional limitations upon the power to tax. The questions of the wisdom or practicality of legislation which might be recommended or adopted to replace the statute held unconstitutional in Public Service Company of New Hampshire v. State, 101 N.H. ----, 136 A.2d 600, are not matters of judicial concern. However to the extent that our opinions upon 'important questions of law' (Const., Pt. II, Art. 74th) presented by your inquiries may be of aid in the performance of your constitutional duties (In re Opinion of the Justices, 79 N.H. 535, 112 A. 525), we deem it proper to answer, for reasons stated in the last paragraph of this opinion.

In expressing our opinions upon the constitutional issues, we are compelled to qualify our answers because of the generality of the inquiries and the absence of any proposed or existing statutory form such as customarily accompanies like inquiries from either branch of the Legislature or the Governor and Council. 'It should be understood that we are not foreclosing any questions that may arise in the actual operation of [any proposed] act which may not be apparent * * * under the questions submitted.' Opinion of the Justices, 97 N.H. 533, 540, 81 A.2d 845, 851.

Viewed broadly the questions posed by the resolution seek definition of fundamental constitutional limitations upon any proposal to substitute for RSA ch. 83, a new statute taxing the franchises of gas and electric utilities as property in ownership according to some new method of valuation; or in the alternative imposing a special tax measured by income derived from the exercise of such franchises, and having characteristics differing from those of a general property tax.

I. The answer to your first inquiry depends upon the interpretation to be placed upon it. If by 'ad valorem property tax' is meant a 'general property tax' based upon the ownership of franchises as property, and a tax of the sort which has consistently been regarded as a tax upon 'estates' (Const., Pt. II, Art. 6th), our answer to the question is that a tax upon the franchises of gas and electric utilities need not take the form of an ad valorem property tax for reasons which are more fully stated in the answers hereinafter made to questions 6 through 8. Accordingly our answer to question 1 is 'no.'

II & III. Your second and third questions suggest that the first question is intended to describe a general property tax levied because of ownership or possession of a franchise. This was the type of tax considered in Re Opinion of the Justices, 82 N.H. 561, 138 A. 284, and In re Opinion of the Justices, 84 N.H. 559, 149 A. 321. It has the characteristics of a tax upon estates, even though upon intangible property rather than property tangible in nature. So construed, your second and third questions present the issues of whether such a state tax must be levied at the average rate of taxation in cities and towns throughout the state (cf. RSA 82:2) and whether franchises must be assessed in the same proportion to full value as property is assessed in such cities and towns. Our answer to questions 2 and 3 is 'no.' Boston, C. & M. Railroad v. State, 60 N.H. 87; Wyatt v. State Board of Equalization, 74 N.H. 552, 70 A. 387.

Article 5, Part Second, of our Constitution requires that taxes shall be proportional and reasonable. This requires a uniform valuation and a uniform rate throughout the district by which the tax is levied. Boston, C. & M. Railroad v. State, supra, 60 N.H. 95. In other words a state tax must be uniform throughout the state, a county tax throughout the county, a town tax throughout the town. Id. Consequently if the State as a taxing district levies an ad valorem property tax on the franchises of gas and electric utilities the Constitution does not require that this tax be levied at the average rate of taxation upon property in the cities and towns throughout the state, or that the franchises by valued in the same proportion to full value as the valuation of property in the cities and towns throughout the state bears to its full and true value. See Amoskeag Mfg. Co. v. Manchester, 70 N.H. 336, 47 A. 74.

It should be noted however that the tax currently imposed upon railroads by RSA ch. 82, supra, is in the nature of a general property tax at the state level, and by legislative provision is presently levied at 'the average rate of taxation * * * upon other property throughout the state.' S. 2. Since...