State v. Alabama Educational Foundation

• Decision Date: 20 June 1935
• Docket Number: 6 Div. 682
• Citation: 163 So. 527,231 Ala. 11
• Parties: STATE v. ALABAMA EDUCATIONAL FOUNDATION.
• Court: Alabama Supreme Court

163 So. 527

231 Ala. 11

STATE v. ALABAMA EDUCATIONAL FOUNDATION.

6 Div. 682

Supreme Court of Alabama

June 20, 1935

Rehearing Denied Oct. 10, 1935

Appeal from Circuit Court, Jefferson County; John Denson, Judge.

Proceeding by the State to levy an escape assessment for taxation against the Alabama Educational Foundation. From a judgment for defendant, the State appeals.

Affirmed.

A.A Carmichael, Atty. Gen., and Frontis H. Moore, Asst. Atty Gen., for the State.

Lange Simpson & Brantley, of Birmingham, for appellee.

FOSTER Justice.

The question on this appeal relates to the constitutionality of an act approved September 9, 1927, p. 564, by which "there is exempted from taxation *** all property, real and personal, by whomsoever owned, and whether assessed or not, during the entire time, including the current tax-year, the net income, rents and returns from which are used, or are to be used, exclusively for educational purposes in the State of Alabama, other than for schools owned or controlled by any religious sect or denomination."

The assessment is of certain property in Alabama whose income has been so used, or is to be used for the benefit of such a school, since the beginning of the tax year 1926-27. The appeal relates to the taxes for 1928, 1929, 1930, 1931, and 1932 tax years, respectively. During all that time the income of the property was so used, or is to be used as indicated.

Appellee was relieved of the tax assessment by a ruling of the Attorney General in office when the act was passed, and by order of the State Tax Commission in 1928 and 1929, respectively. But the Attorney General insists that the act is in violation of sections 91, 100, 211, and 217 of the Constitution, and is void for uncertainty.

Section 91 is self-executing, and exempts lots in incorporated cities (and those outside such cities, within certain limitations) from taxation when they are used exclusively for religious worship, for schools, or for purposes purely charitable. Its meaning has been clearly defined to make exemption dependent upon the use and not the ownership of the property, and not use of the income from it. State v. Church of the Advent, 208 Ala. 632, 95 So. 3; Anniston City Land Co. v. State, 160 Ala. 253, 48 So. 659.

The general rule is that when the Constitution specifically creates exemptions from taxation, there is an implied prohibition against other legislative grants in that connection. State v. Elba Bank & Trust Co., 18 Ala.App. 253, 91 So. 719; State v. Guaranty Sav. Bldg. & Loan Ass'n, 225 Ala. 481, 144 So. 104, 86 A.L.R. 819; 2 Cooley on Taxation, §§ 659, 661, note 57; 61 Corpus Juris, 389; State v. Bradley, 207 Ala. 677, 93 So. 595, 26 A.L.R. 421.

Also when the taxation requirements of the Constitution manifest a purpose to include all those who own property which is made taxable, or who are within its provisions. Authorities supra.

It is, however, well understood that unless restricted by express or implied provisions, the power to exempt is as much a legislative prerogative as the power to tax. In both respects the Constitution is restrictive in operation and not permissive. 2 Cooley on Taxation, § 659; 61 Corpus Juris, 384.

Section 91 is not in connection with any specific subject of taxation, to which it is an exception. It is not so expressed as to show a purpose to prohibit the Legislature from granting other exemptions to religious, educational, and charitable institutions. We do not think that such is its intent.

Section 211 provides that "all taxes levied on property in this state shall be assessed in exact proportion to the value of such property." This provision does not prevent a classification of property for taxation, nor show a purpose to prohibit an exercise of the inherent right to create exemptions. Mobile & G.R.R. Co. v. Peebles, 47 Ala. 317. Indeed such right is recognized to some extent, at least, in Crow v. Gen. Cable Corporation, 223 Ala. 611, 137 So. 657; though it cannot be permanently bargained away. Swann v. State, 77 Ala. 545.

In this connection, section 211 should be considered in the light of section 217. The latter requires equality of the tax rate, with a proviso that "this section shall not apply to institutions devoted exclusively to religious, educational, or charitable purposes." Such institutions are therefore expressly exempted by sections 91 and 217, with nothing to indicate a prohibition from exemption under section 211.

The Attorney General argues that the proviso to section 217 only exempts from its operation property owned by such institutions. But its language is that it shall not apply to such institutions. If the entire net income of property is devoted to an institution, it is its sole beneficiary, regardless of where the legal title may be placed. As long as such income is in good faith so devoted, exemption from taxation is a direct benefit to it, and applies to it. We think that the exception in section 217 should be interpreted to embrace such a situation. But, as we have said, that section relates to the equality of rates. That means, literally, that conceding the obligation to pay taxes, the rate must be equal, regardless of ownership, except as to such institutions. We do not intend here to limit its interpretation to that effect. The right to exempt here in question is not wholly dependent upon that proviso, but it is persuasive to show that there is no purpose manifested in the Constitution to restrict the inherent right of the Legislature to make such an exemption.

We think, therefore, that the Legislature is not prohibited from making a classification of such institution by those several constitutional provisions.

The act of 1927 creates a classification of property for exemption from such taxation, regardless of ownership, if its net income has been or is to be used exclusively for educational purposes in this state, other than for religious schools. Under other acts of the Alabama Legislature, property is taxable, although its income is devoted to educational purposes exclusively. Gen.Acts 1923, p. 153, § 2; Gen.Acts 1919, p. 283, § 2.

Whatever classification is authorized is also subject to subclassification within recognized rules. 1 Cooley on Taxation, page 711; 61 Corpus Juris 130, § 59.

Although educational institutions are subject to legislative exemptions from taxation, it is not necessary that the grant of exemption shall extend to all those which are devoted exclusively to "religious, educational, or charitable" purposes. Such legislative grant is to be construed in the light of the prerogative power to exempt those as to whom the right is not denied expressly or impliedly to the Legislature, with due regard to all of a class.

Construing the constitutional power to exempt embraced in section 217, in connection with the broad right otherwise to grant exemptions, when not restricted, it necessarily follows that the Legislature may classify for such exemptions certain institutions, which are either religious, educational, or charitable, provided the classification meets the requirements of the equal protection features of the State and Federal Constitutions (Const. U.S. Amend. 14, § 1). McLendon v. State, 179 Ala. 54, 60 So. 392, Ann.Cas.1915C, 691; Aero Mayflower Transit Co. v. Ga. Public Service Co., 55 S.Ct. 709 (5), 79 L.Ed. 1439.

"Conceding that the power to classify exists, the next question is what classifications are proper. The rules are easy to state but their application to particular facts is often attended with difficulty. The following are [some of] the governing rules: 1. A particular classification is proper where based on a reason and not purely arbitrary. There must be a reason for the classification as distinguished from mere accident, whim, caprice, or vindictiveness.

'Clear and hostile discrimination' cannot be made under the guise of classification. A discrimination is not arbitrary, of course, where based on sound reason of public policy. On the other hand, while there must be a reason for the classification, the reason need not be a good one, and it is immaterial that the statute is unjust. The test is not wisdom but good faith in the classification." 1 Cooley, supra, § 334.

There is no constitutional provision for the favor or disfavor of religious schools over those not so devoted. Religious institutions and such as are educational, though not religious, may be exempted from equality of rate by the express terms of section 217. But "no preference shall be given by law to any religious sect, society, denomination, or mode of worship." Section 3, Constitution. So that religious institutions cannot be classified for exemption according to creed.

But the question is: Must all educational institutions be exempt, if any are? May the Legislature place those which are religious in one class, and those which emphasize no religious creed in a different class for tax exemption? Is there any difference, for classification, to support an argument, whether or not the argument may be sound in the opinion of the court? It is not our province to determine the qualities of the argument, but it is that of the Legislature, although it must not be wholly illusory. Every presumption in its favor must be indulged.

The educational institutions of a religious sect are created by the adherents of that faith, so that the instructors may be free to emphasize its principles. It is not the province of government to aid in the promulgation, though certainly not the discouragement, of such religious principles. To exempt from taxation is akin to the principle of appropriating the amount of the tax; not its counterpart, but predicated upon similar considerations. 2 Cooley on Taxation, § 653.

The lots ...