Opinion of the Justices

• Decision Date: 30 March 1965
• Citation: 208 A.2d 458,106 N.H. 202
• Parties: OPINION OF THE JUSTICES.
• Court: New Hampshire Supreme Court

Page 458

208 A.2d 458

106 N.H. 202

OPINION OF THE JUSTICES.

Supreme Court of New Hampshire.

Submitted March 15, 1965.

Answer Returned March 30, 1965.

Walter D. Hinkley, Lancaster, Chairman of the Legislative Committee for the Bar Association of New Hampshire(by brief), in opposition to the bill.

Request of House of Representatives, No. 5348.

The following resolution was adopted by the House of Representatives March 3, 1965 and filed in this court on March 9, 1965:

'Whereas, there is pending before the House of Representatives House Bill 292, An Act imposing taxes on the net income of all businesses, services and business operations conducted within the state, and providing for the abolition of certain taxes, and

'Whereas, questions have arisen as to the constitutionality of the proposed act, now therefore, be it

'Resolved, that the Justices of the Supreme Court be respectfully requested to give their opinion upon the following questions of law:

'1 Do the provisions of House Bill 292, An Act imposing taxes on the net income of all businesses, services and business operations conducted within the state, and providing for the abolition of certain taxes, violate in any way the provisions of the fundamental law of the state, with respect to the following:

'(a) The provisions of RSA 78-A:2 as inserted by section 1 of the bill which classify as taxable only net income received from engaging in any business activity and levy a tax thereon.

'(b) The provisions of RSA 78-A as inserted by the bill which classify certain net income received from engaging in business activity as taxable and do not tax any other type of income.

'2 If the answer to question 1 is in the negative, is the proposed legislation otherwise constitutional?

'Be it further resolved, that the speaker transmit seven copies of this resolution and of House Bill 292 to the clerk of the Supreme Court for consideration by said court.'

The following answer was returned:

To the House of Representatives:

The Justices of the Supreme Court make the following reply to your request for advice with respect to House BillNo. 292:

This bill is entitled 'An Act imposing taxes on the net income of all businesses, services and business operations conducted within the State, and providing for the abolition of certain taxes.'It proposes to accomplish this purpose by inserting in the Revised Statutes Annotated a new chapter 78-A to be entitled 'Tax on Business Income.'In view of the actual provisions of the bill however, these titles are misleading.SeeSection 1, V, VII and Section 2.The bill is an income tax measure which in effect would repeal RSA 72:15, subd. 1 (supp)(the Stock in Trade Tax) and would impose a levy on income of almost every description.In this respect, it is similar to the proposed Gross Income Tax Bill, H.B. 190, submitted to this Court in 1949.Opinion of the Justices, 95 N.H. 537, 64 A.2d 320.Actually, it is broader than H.B. 190 since, for example, it does not exempt charitable or other nonprofit organizations.

Before reaching your fundamental inquiries, it may be helpful to point out certain considerations bearing on the constitutionality of the proposed measure.

In Opinion of the Justices, 95 N.H. 537, 64 A.2d 320, we said that a gross income tax and a net income tax, such as is now before us, were alike in that they were both subject to the same constitutional requirements of uniformity.Id., 95 N.H. 539, 64 A.2d 320.We held the bill then before us unconstitutional, since the tax was not to be laid at a uniform rate on all income to be taxed.However, H.B. 292 does provide for a uniform rate of one per cent on all net income (Section 3) and, so far as this feature alone is concerned, it is constitutional.Opinion of the Justices, 84 N.H. 559, 571, 149 A. 321;Opinion of the Justices, 97 N.H. 543, 545, 81 A.2d 851;Opinion of the Justices, 99 N.H. 512, 112 A.2d 44.

Also, we believe that the method of allocation of the tax between income derived partly from within and partly from without the state(Section 5) does not offend any part of the New Hampshire or the Federal Constitution.Opinion of the Justices, 95 N.H. 540, 64 A.2d 322;General Motors Corp. v. Washington, 377 U.S. 436, 84 S.Ct. 1564, 12 L.Ed.2d 430.The distribution of revenue provision (Section 19), whereby the loss to cities and towns of the stock in trade tax will be made good, also appears valid.Opinion of the Justices, 84 N.H. 559, 578-579, 149 A. 321;Opinion of the Justices, 97 N.H. 533, 539, 81 A.2d 845.So, too, Section 6, permitting the taxpayer to use a fiscal rather than a calendar year in making his returns, appears to offend no constitutional provision.Opinion of the Justices, 95 N.H. 540, 64 A.2d 322.

Section 17 of the proposed legislation states that the tax imposed upon 'manufacturers, merchants, shopkeepers, mechanics, and tradesmen, with respect to their income from their transactions as such shall be deemed to be a property tax upon their stock in trade, in substitution for and in lieu of the tax heretofore imposed by paragraph 1 of RSA 72:15.'Interpreted literally the tax imposed by this bill on the above enumerated taxpayers would be a property tax which should be levied by the same standards and at the same rate as other property taxes.Bemis Bros. Bag Co. v. Claremont, 98 N.H. 446, 450, 102 A.2d 512;Opinion of the Justices, 82 N.H. 561, 569, 138 A. 284.It would be unconstitutional to impose such a tax in a different manner and at a different rate than that on other property in the same taxing district.Opinion of the Justices, 99 N.H. 512, 513, 112 A.2d 44;Opinion of the Justices, 101 N.H. 549, 555, 137 A.2d 726.If the language of this section is changed to state simply that these persons shall pay an income tax at the uniform rate provided for all others taxed by this bill and that the stock in trade tax previously imposed on the described taxpayers by RSA 72:15, subd. 1 (supp) will be repealed, this section is not objectionable.Opinion of the Justices, 99 N.H. 512, 112 A.2d 44;Opinion of the Justices, 97 N.H. 533, 81 A.2d 845.

Your first specific inquiry, divided into two sections (a) and (b), which seem to us closely inter-related if not identical in purpose, raises difficult problems.These questions presuppose that the bill would tax 'only net income received from * * * business' and would 'not tax any other type of income.'Yet Section 2 of the bill would impose a tax upon the receipt of net income by residents engaging in business, and by 'all other persons deriving such income from activities or business or any other source within the state.'Moreover, Section 1, VII defines 'income' to include receipts from a great variety of sources, including receipts 'from the sale, transfer or exchange of property, tangible or intangible, real or personal, including the sale of capital assets; receipts 'from prizes and premiums;' receipts 'from interest, discounts, rentals, royalties, dividends, fees, commissions;' and 'all other receipts of any kind and character from any source whatsoever' with certain exceptions.Whether the phrase 'all other persons' in Section 2(b) is intended to refer simply to residents deriving income from the specified sources, or more broadly to all persons other than residents engaged in business is not plain.The purpose of the proposed classification made by Section 2(a) and (b) is not apparent.

Without doubt, the power of the Legislature to classify various subjects of taxation is broad.Opinion of the Justices, 84 N.H. 559, 569, 149 A. 321;Opinion of the Justices, 101 N.H. 549, 558, 137 A.2d 726.However, it is not unlimited.SeeOpinion of the Justices, 82 N.H. 561, 138 A. 284;Opinion of the Justices, 84 N.H. 559, 573, 149 A. 321;Opinion of the Justices, 88 N.H. 500, 509, 190 A. 801.'Property can be classified for tax purposes.The taxpayers cannot.'Opinion of the Justices, 84 N.H. 559, 569, 149 A. 321, 326.Classification cannot be made without 'just reason.'Opinion of the Justices, 97 N.H. 533, 536, 81 A.2d 845.Were the proposed bill limited to a tax on merchants and manufacturers having a stock in trade and the revenues used to replace the loss to cities and towns by the repeal of the stock in trade tax (RSA 72:15, subd. 1 (supp), it would, as previously suggested, be valid legislation.Opinion of the Justices, 97 N.H. 543, 545, 81 A.2d 851.But such is not the case.

House Bill 292 would tax the income from personal services of all kinds, including professional services, except that it would not tax income from personal services of an identical sort 'for which wages or salaries are received from an employer.'Section 1, V. For example, a self-employed carpenter, painter, plumber or general repairman would pay...