Peden v. State
| Decision Date | 20 December 1996 |
| Docket Number | No. 75205,75205 |
| Parties | Eric PEDEN and Sharon L. Smith, for themselves and all others similarly situated, Appellees, v. STATE of Kansas, Kansas Department of Revenue, Nancy Parrish, Secretary of Revenue of the State of Kansas, and Alisa Dotson, Director of Taxation of the State of Kansas, Appellants. |
| Court | Kansas Supreme Court |
Syllabus by the Court
1. Determining whether a statute violates equal protection is a question of law. When determining a question of law, this court may exercise an unlimited de novo standard of review.
2. A statute is presumed constitutional and all doubts must be resolved in favor of its validity. If there is any reasonable way to construe a statute as constitutionally valid, the court must do so. A statute must clearly violate the constitution before it may be struck down. This court not only has the authority, but also the duty, to construe a statute in such a manner that it is constitutional if the same can be done within the apparent intent of the legislature in passing the statute.
3. Equal protection is implicated when a statute treats "arguably indistinguishable" classes of people differently. Single and married taxpayers are arguably indistinguishable in a legal sense, and the Kansas Income Tax Act treats single and married taxpayers differently in regard to the tax rates applicable to each group. Thus, the Kansas Income Tax Act implicates equal protection.
4. The rational basis standard (sometimes referred to as the reasonable basis test) applies to laws which result in some economic inequality. Under this standard, a law is constitutional, despite some unequal classification of citizens, if the classification bears a reasonable relationship to a valid legislative objective.
5. The reasonable basis test is violated only if the statutory classification rests on grounds wholly irrelevant to the achievement of the State's legitimate objective. The state legislature is presumed to have acted within its constitutional power, even if the statute results in some inequality. Under the reasonable basis test, a statutory discrimination will not be set aside if any state of facts reasonably may be conceived to justify it.
6. A plaintiff asserting the unconstitutionality of a statute under the rational basis standard has the burden to negate every conceivable basis which might support the classification.
7. In taxation, even more than in other fields, legislatures possess the greatest freedom in classification.
8. Under the reasonable basis test, it is unnecessary to ascertain the specific purpose the Kansas Legislature espoused, if any, in establishing the challenged classification. Rather, if any state of facts reasonably may be conceived to justify the alleged statutory discrimination, the statute will not be set aside as a violation of equal protection.
9. Courts are compelled under rational basis review to accept a legislature's generalizations even when there is an imperfect fit between means and ends. A classification does not fail rational basis review because it is not made with mathematical nicety or because in practice it results in some inequality.
10. Although the rational basis standard requires that the discriminatory classification (in this case, the tax rate disparity between single and married taxpayers) be rationally related to valid State interests or goals, the standard does not require that the classification be the perfect solution to achieve such goals.
11. Public policy relating to marriage is to foster and protect it, to make it a permanent and public institution, to encourage married parties to live together, and to prevent separation.
12. A legislative choice is not subject to courtroom factfinding and may be based on rational speculation unsupported by evidence or empirical data.
Timothy B. Dyk, of Jones, Day, Reavis & Pogue, Washington, DC, argued the cause, and Gregory A. Castanias, of the same firm, and Richard Oxandale, general counsel, David A. Prager, III, and Frank Reeb, of the Kansas Department of Revenue, were with him on the briefs for appellants.
Michael E. Waldeck, of Niewald, Waldeck & Brown, P.C., Kansas City, MO, argued the cause, and Angela K. Green, David T. Glynn, and Vincent F. O'Flaherty, of the same firm, Overland Park, and Eric C. Peden and Steven J. Schleicher, of Schleicher Latz, P.C., Kansas City, MO, were with him on the brief for appellees.
The plaintiff challenged the tax rate schedule found in the Kansas Income Tax Act (KITA), K.S.A. 79-3201 et seq., to the extent that tax rates imposed on single taxpayers are higher than the highest tax rate imposed on married taxpayers filing jointly. The Shawnee County District Court found that such tax rates under KITA were an unconstitutional violation of equal protection. The trial court also ruled that it had subject matter jurisdiction to hear the plaintiff's claim for a tax refund, even though the plaintiff had not exhausted all of his administrative remedies to receive a refund. Finally, the trial court certified a plaintiff class of single taxpayers who were subject to tax rates higher than the highest tax rate imposed on married taxpayers filing jointly. The State appeals all three of these rulings to this court.
Plaintiff's narrow challenge is directed only to the Kansas tax rates applied to unmarried taxpayers which exceed the highest income tax rate charged to married individuals filing under the status of "married filing joint." Stated in terms more understandable to the unmarried taxpayers of this state, this appeal does not involve any taxpayer having a taxable income of $20,000 or less, nor does it involve the first $20,000 of taxable income of any unmarried taxpayer having a taxable income in excess of $20,000 under the 1992-1996 tax rate schedules. (Prior to 1992, the tax rate schedules had different rates and tax brackets and had an overall smaller disparity between married and unmarried taxpayers.) Further, the largest current rate disparity at issue in this appeal between unmarried taxpayers and married taxpayers filing jointly is a 1.3% difference in tax rates. The trial judge only held part of KITA unconstitutional--that part which taxes an unmarried person's taxable income at a tax rate in excess of the highest income tax rate applicable to married taxpayers filing a joint return. Currently, the highest rate for a married person filing a joint return is 6.45%, while an unmarried taxpayer is subject to a 7.5% tax rate if the taxpayer earns more than $20,000 in taxable income and is subject to a 7.75% tax rate if the taxpayer earns more than $30,000 in taxable income. If we were to affirm the trial court's holding that KITA tax rates are unconstitutional in part, KITA's savings clauses (K.S.A. 79-3239 and K.S.A. 79-32,108) would leave the remainder of the act intact. Thus, a single taxpayer earning $20,000 or less in taxable income would continue to be taxed at a 4.4% rate, while a married taxpayer filing jointly who earns $30,000 or less would continue to be taxed at a lower rate of 3.5%.
A summary of the Kansas income tax system is helpful in analyzing this case. Under KITA, each taxpayer in Kansas must pay a certain percentage of his or her taxable income in Kansas income tax. A taxpayer's taxable income is determined by calculating the taxpayer's Kansas adjusted gross income (using the federal adjusted gross income as a base) and subtracting Kansas deductions and personal exemptions from the gross income. The percentage of the taxpayer's taxable income that should be paid as income tax is equivalent to the tax rate applicable to the taxpayer. In Kansas, the tax rate applicable to each taxpayer is dependent upon the amount of taxable income the taxpayer earns and whether the taxpayer is married and filing jointly or filing a separate return as a single person.
The Kansas Legislature first created the tax rate disparity subject to challenge in this case in 1988. At that time, the Kansas Legislature made extensive changes to KITA by replacing the then existing eight-bracket tax rate schedule with a two-bracket tax rate schedule. This new 1988 tax rate schedule imposed higher rates on individual, single tax filers than the tax rates imposed on married taxpayers filing jointly. The 1988 tax rates (L.1988, ch. 381, § 2) provided:
(1) Married individuals filing joint returns.
If the taxable income is: The tax is
Not over $35,000 4.5% of Kansas taxable income
Over $35,000 $1,418 plus 5.3% of excess over
$35,000
(2) All other individuals
If the taxable income is: The tax is
Not over $27,000 4.8% of Kansas taxable income
Over $27,500 $1,320 plus 6.1% of excess over
$27,500
For the tax years 1989, 1990, and 1991, approximately the same disparity in tax rates applied, but lower tax rates were imposed overall (see K.S.A. 79-32,110[a] ):
(1) Married individuals filing joint returns.
If the taxable income is: The tax is:
Not over $35,000 3.65% of Kansas taxable income
Over $35,000 $1,278 plus 5.15% of excess over
$35,000
(2) All other individuals.
If the taxable income is: The tax is:
Not over $27,000 4.5% of Kansas taxable income
Over $27,500 $1,238 plus 5.95% of excess over
$27,500
In 1992, the Kansas Legislature revised the tax rate schedule to create three different tax rates, rather than two, thereby widening the tax rate disparity between married taxpayers filing jointly and single taxpayers. The 1992 rate schedule remains unchanged and is used...
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