Taxpayers Lobby of Indiana, Inc. v. Orr

• Decision Date: 06 June 1974
• Docket Number: No. 374S67,374S67
• Citation: 311 N.E.2d 814,262 Ind. 92
• Parties: TAXPAYERS LOBBY OF INDIANA, INC., et al., Appellants, v. Robert D. ORR, as Lieutenant Governor of the State of Indiana and by virtue of said office, President of the Senate, et al., Appellees.
• Court: Indiana Supreme Court

Page 814

311 N.E.2d 814

262 Ind. 92

TAXPAYERS LOBBY OF INDIANA, INC., et al., Appellants, v. Robert D. ORR, as Lieutenant Governor of the State of Indiana and by virtue of said office, President of the Senate, et al., Appellees.

No. 374S67.

Supreme Court of Indiana.

June 6, 1974.

Frank E. Spencer, Indianapolis, for appellants.

Theodore L. Sendak, Atty. Gen., Sheldon A. Breskow, John H. Meyers, Deputy Attys. Gen., Indianapolis, for appellees.

PRENTICE, Justice.

This case arose out of the passage of the House Enrolled Act No. 1143 by the first regular session of the 98th General Assembly, as an integral part of the so-called 'tax package' enacted to restructure the Indiana tax laws. The Act, now Public Law No. 47, Acts of 1973, amends the Gross Income Tax Act of 1933 and is entitled, 'An Act to amend I.C.1971, 6--2--1 concerning the gross income, sales and use tax.' The effect of the aforementioned act is to increase the rate of the state sales tax from 2% to 4%, as well as to create a new exemption from the tax for sales of food for human consumption. It was passed by both houses of the General Assembly on April 13, 1973, was signed by the presiding officers of the respective houses and was, on April 24, 1973, approved by the Governor and became law. Following the passage of the aforesaid act, the plaintiffs filed their complaint in the Superior Court of Marion County, asking that court to declare the act unconstitutional, to enjoin the defendants from enforcing the act and to require the Lieutenant Governor, as President of the Senate, to remove his authenticating signature.

Subsequent to the filing of the initial complaint, the plaintiffs filed a second paragraph of complaint which raised additional allegations concerning the validity of the act. Taking the two paragraphs of the complaint together, the plaintiffs' allegations can be summarized into three basic contentions.

I. They new food exemption under the sales tax, contained in § 3 of the act, is unconstitutional on the grounds that: (a) it does not contain workable standards of classification and requires an invalid exercise of legislative power of the Department of Revenue in order to work; and (b) it constitutes an invalid legislative classification, which grants special privileges and immunities and is not of general and uniform operation throughout the state.

II. As an amendatory act, it violates Article IV, § 19, of the Indiana Constitution, in that it does not adequately identify the original act being amended and does not publish, at full length, the sections of the original act being amended.

III. The act was not enacted in compliance with legislative procedural provisions in the Indiana Constitution respecting the reading of bills, the voting thereon and the duration of legislative sessions.

Both sides presented witnesses, whose testimony dealt primarily with the workability of the new food exemption from the sales tax provisions and with the legislative procedure followed in the enactment of said act. After hearing the evidence and the arguments presented, the Court entered special findings of facts and conclusions of law and its judgment thereon upholding the act in all respects. The plaintiffs' motion to correct errors was overruled, and they initiated this appeal.

ISSUE I. Before proceeding to a consideration of the specific issues involved, several basic principles which govern all constitutional litigation should be mentioned. The trial court properly recognized that whether a statute, particularly a tax statute, is wise or expedient is for the legislature to decide, not the courts. (Conclusion of Law No. 1); Lurie v. City of Indianapolis (1964), 245 Ind. 457, 198 N.E.2d 755. An act of the legislature enjoys a strong presumption of constitutionality. Roeschlein v. Thomas (1972), Ind., 280 N.E.2d 581. A court may not hold an act unconstitutional except on the clearest showing of invalidity. State v. Clark (1966), 247 Ind. 490, 217 N.E.2d 588. All doubts must be resolved in favor of the statute. Wright-Bachman, Inc. v. Hodnett (1956), 235 Ind. 307, 133 N.E.2d 713. Finally, a statute should be construed to sustain its validity, not unreasonably or in a manner resulting in its invalidity. Evansville-Vanderburgh Levee Authority Dist. v. Kamp (1960), 240 Ind. 659, 168 N.E.2d 208.

Section 3 of the act creates a new exemption from the sales tax for 'sales of food for human consumption.' It is provided that the term 'food for human consumption' shall include a number of listed items and products. It is further provided that the term 'food for human consumption' shall not include a number of other items and products which are also listed. The plaintiffs contend that such provisions are unconstitutional on the grounds that: (a) it does not contain workable standards of classification and necessitates an unconstitutional exercise of legislative power by the Indiana Department of Revenue in violation of Article IV, Section 1, of the Indiana Constitution; and (b) it is invalid legislative classification, in that it grants special privileges or immunities and is not of general and uniform operation throughout the state in violation of Article I, Section 23, and Article IV, Section 23, of the Indiana Constitution.

Considering the latter contention first, the plaintiffs' basic objection to the so-called food exemption is that the exemption is 'arbitrary and devoid of any apparent rationality.' The plaintiffs point to the fact that milk and egg products are exempt but soft drinks are taxed, food sold for consumption off the premises is exempt but food sold for consumption on the premises is taxed, etc. The sales tax, however, is an excise tax and the General Assembly has a great deal of discretion in classifying for purposes of an excise tax. As this Court stated in Lutz v. Arnold (1935), 208 Ind. 480, 193 N.E. 840, in which the Court upheld the intangibles tax law as a proper classification:

'Having determined that the tax imposed is an excise tax, then, under a uniform holding of the courts, the state may classify for the purpose of imposing an excise tax. And as said in the case of Baldwin v. State (1923), 194 Ind. 303, 141 N.E. 343, 345: 'It is primarily for the Legislature to determine the classification, and is never a judicial question unless the classification under no circumstances can be viewed as reasonable.' (Emphasis added) 193 N.E. at 847.

Similarly, in Miles v. Department of Treasury (1935), 209 Ind. 172, 199 N.E. 372, appeal dismissed, (1936), 298 U.S. 640, 56 S.Ct. 750, 80 L.Ed. 1372, the Indiana Supreme Court upheld certain classifications, saying '(t)he Legislature has full power to select one class for taxation to the exclusion of another, and to tax different classes at different rates.' 199 N.E. at 379.

The same principles have been applied to the creation of exemptions under the sales tax law. In Welsh v. Sells (1963), 244 Ind. 423, 192 N.E.2d 753, on rehearing, 244 Ind. 423, 193 N.E.2d 359, the Supreme Court recognized the discretion which the legislature has in creating such exemptions, as well as specifically recognizing the rationality of exemption certain food items from the sales tax. The Court, quoting from a State Tax and Financing Policy Commission Report, said:

"All sales tax laws exempt or exclude some retail sales. The reasons for this treatment vary. Goods used in the manufacturing process are exempt entirely or partially by all state laws to avoid tax pyramiding, that is, the situation where a tax is levied on a tax and the result is a retail price increase greater than the amount of the tax. The same rationale presumably has led to the exemption of such farm supplies as feed, seed, and fertilizer. Several states also exempt industrial machinery and fuel, and some states extend the exemption to farm machinery.

"To mitigate the regressivity of the sales tax, 'necessities' are frequently exempted, principally groceries, medicine, schoolbooks and clothing. * * *'

'* * *

'The legislature has latitude in determining classifications for taxation as long as it is based upon some reason connected with the subject matter. (Citations omitted.)' (Emphasis added) 192 N.E.2d at 759--760.

The plaintiffs' assertion that the food classification is unreasonable is based on an apparent misunderstanding as to the nature and purpose of the food exemption. A comparison of the list in the Act of food items included in the exemption with the list of food items excluded from the exemption reveals that the legislature was not attempting to exempt from the sales tax everything which might be called 'food.' Rather it basically exempted food necessities and staples purchased for consumption off the premises where sold. The purpose of such an exemption for 'groceries' is to mitigate the regressivity of the sales tax, as the Supreme Court recognized in Welsh v. Sells, supra. That purpose is unquestionably a proper one for the legislature to achieve, and a food exemption has been recognized as one means of achieving that purpose. A leading authority on sales tax states:

'Evaluation of food exemption. Food exemption without question accomplishes the objective of lessening regressivity and the absolute burden on the poor, because such a high percentage of family expenditures in the lowest income groups is made for food. This result has been demonstrated empirically in a number of studies and need not be reviewed here. These studies uniformly show that a sales tax with food taxed is regressive; with food exempt, more or less proportional to income except at the lowest income level. Of perhaps even greater importance is the importance of the exemption in reducing the absolute burden on the poor. Food exemption also lessens discrimination against large families compared to smaller ones.' Due, State and Local Sales Taxation (1971) at 66.

In light of the purpose of the food exemption, the Act's inclusion and exclusion of...