Morley, Comm'r of Revenues v. Remmel , 215 Ark. 434 ( 1949 )

I respectfully dissent. The question which we are considering is whether Act 234 of 1949 was constitutionally adopted by the General Assembly in view of 2 of Amendment 19 of our Constitution, which provides: "Section 2. None of the rates for property, excise, privilege or personal taxes, now levied shall be increased by the General Assembly except after the approval of the qualified electors, voting thereon at an election, or in case of emergency, by the vote of three-fourths of the members elected to each House of the General Assembly."

This Amendment was submitted to the people by the 1933 Legislature and overwhelmingly adopted in 1934 by a vote of 99,223 for, and 25,496 against.

It is undisputed that Act 234 did not receive the vote of three-fourths of the members of the House and Senate.

A solution of the question presented depends upon the meaning of the term "rates" as used in the Constitution and the Income Tax Statute. I think, from the authorities presently referred to, it will be shown that the word "rate" is a most flexible term, depending for its meaning upon the context in which it is used and the result intended to be accomplished by the constitutional provision and statute in which it appears.

As used here, I think that we should hold that it means all the facts embraced in computing the overall rate of the tax, as valuations, exemptions, deductions and percentages, and in order to find the rate, all elements which produce it must be taken into account.

The term "rate" has been variously defined as meaning a tax or assessment; a sum assessed as a tax; a public valuation or assessment of every man's estate; also a percentage upon the valuation of land. The term may apply either to the percentage of taxation or to the valuation of property, or it may refer to the assessment, the rate of assessment, and the valuation taken together." 52 C.J. 1142.

"Bouvier's Law Dictionary, Eighth Edition, defines `rate' as `A public valuation or assessment of every man's estate; or the ascertaining how much tax everyone shall pay'."

In Towne v. Eisner, 245 U.S. 418, 38 S. Ct. 158,62 L. Ed. 372, L.R.A. 1918D, 254, (1918), Mr. Justice HOLMES said: "A word is not crystal, transparent and unchanged; it is the skin of a living thought and may vary greatly in color and content according to the circumstances and the time in which it is used."

The Supreme Court of the United States in Boyer v. Boyer, 113 U.S. 689, 5 S. Ct. 706, 28 L. Ed. 1089, held that the term "rate" included "the entire process of assessment * * * includes both their valuation and the rate of per cent on such valuation," and if anyone of these items is so changed as to increase the tax, then the tax rate has been increased.

Our National Bank tax cases appear to hold uniformly that the provision that State taxes on National Bank shares shall not be at a "greater rate" than that. assessed on other monied capital has reference to the entire process of taxation, including valuation of shares as well as the percentage charged on the valuation. New York v. Weaver, 100 U.S. 539, 22 L. Ed. 705 (1880); Pelton v. Commercial Nat'l Bank, 101 U.S. 143,25 L. Ed. 901 (1880); Boyer v. Boyer, 113 U.S. 689, 28 L. Ed. 1089 (1885); Stanley v. Albany County, 121 U.S. 535,7 S. Ct. 1234, 30 L. Ed. 1000; Des Moines National Bank v. Fairweather, 263 U.S. 103, 44 S. Ct. 23, 68 L. Ed. 191 (1923); Central Nat'l Bank v. Lynn, 259 Mass. 1, 156 N.E. 42 (1927); First Nat'l Bank v. Dawson County,65 Mont. 321, 213 P. 1097 (1923); 59 A.L.R. 18.

In State v. Wiley, 177 Wash. 65, 31 P.2d 539, it was contended that an act was unconstitutional since the word "rate" as used in the Constitution did not include valuation but percentage or millage only. In holding that the constitutional provision should not be construed so narrowly, the court said: "As we read the proviso, the key to its interpretation — if interpretation is needed — is the word `rate'. The word has various meanings, dependent upon its relation to subject-matter and context. It may mean measure, valuation, proportion, or percentage. In relation to taxation, it is used in the sense of valuation or percentage. State v. Utter,34 N.J. Law 489; Coventry Co. v. Assessors, 16 R.I. 240, 14 A. 877; Lake County v. Schroeder, 47 Or. 136, 81 P. 942; Ankeny v. Blakley, 44 Or. 78, 74 P. 485. We think the word is used here in the sense of both valuation and percentage."

Section 14030, Pope's Digest, defines net income as "the gross income of the taxpayer less the deductions allowed by this act."

Obviously any change in deductions as attempted by Act 234 here, brings about changes in net income which necessarily changes the rate as specified in 14026, Pope's Digest, by eliminating federal income tax deductions. Act 234 necessarily, it seems to me, raises the income tax rate, a result prohibited by Amendment 19, in the absence of a three-fourths affirmative vote of both Houses of the Legislature.

There are two well established rules in construing a constitutional provision:

(1)

The first is to determine the meaning and intention when the electors adopted it. To that end, we should look to the history of the times and examine the conditions and state of things existing when the amendment was adopted. Purpose should always prevail over the letter and a reasonable construction should be placed upon it to the end that the object of the people may not be defeated. Ragsdale v. Hargraves, 198 Ark. 614,129 S.W.2d 967, 123 A.L.R. 993; Bailey v. Abington,201 Ark. 1072, 148 S.W.2d 176, 149 S.W.2d 573.

In Lybrand v. Wafford, 174 Ark. 298,296 S.W. 729, this court said: "It is settled by very high authority that, in placing a construction on a constitution, or any clause or part thereof, a Court should look to the history of the times, and examine the state of things existing when the constitution was framed and adopted, in order to ascertain the old law, the mischief and the remedy. Constitutions, like statutes, are properly to be expounded in the light of conditions existing at the time of their adoption and the general spirit of the times and the prevailing sentiments among the people," and in Bailey v. Abington, supra, we said: "The Court, therefore, should constantly keep in mind the object sought to be accomplished by its adoption and the evils, if any, sought to be prevented or remedied. Effect should be given to the purpose indicated by a fair interpretation of the language used. The intent may be shown by implication as well as by express provisions."

With these principles in mind, let us review briefly the situation confronting the people of Arkansas when Amendment 19, supra, was enacted.

In 1934, we take judicial notice of the fact that this State, (along with all the others in the Union), was in the throes of the most calamitous depressions perhaps in the history of this Country. There was general unemployment, bread lines were forming, banks were failing, money difficult to obtain, and many of the most thrifty of our people were unable to pay their debts. The Legislature was called in special session to enact moratorium laws of various types, including restrictions on the right to foreclose mortgages and to allow the property owner to pay his taxes by piece meal.

Can it be said that in these circumstances the people intended, by Amendment 19, that their taxes might be increased by our lawmakers directly or indirectly short of a three-fourths vote in both Houses.

It is undisputed that the effect of Act 234 is to increase the income tax of every person who pays a Federal income tax, in fact, it appears to be undisputed that the purpose of this act was to increase and that it will increase the income tax payments on Arkansas taxpayers to the extent of a total of $2,500,000 or more annually.

I think it is obvious that the people had no such intention, that is to make it possible for their taxes to be increased by their deliberate and overwhelming approval of Amendment 19.

(2)

If, under the above rules and authorities, this court should have any doubt about the construction which should be placed upon Amendment 19 and the tax statute, any such doubt must be resolved in favor of the taxpayer. We have repeatedly so held.

"A statute imposing a tax must be strictly construed against the taxing authority. A tax cannot be imposed except by express words indicating that purpose." (Cook v. Ark.-Mo. Power Co., 209 Ark. 750, 192 S.W.2d 210). See also, Little Rock v. Corporation Commission,209 Ark. 18, 189 S.W.2d 382; Moses v. McLeod, 207 Ark. 252,180 S.W.2d 110;; McLeod v. Commercial National Bank, 206 Ark. 1086, 178 S.W.2d 496, and McCain v. Crossett Lumber Co., 206 Ark. 51, 174 S.W.2d 114.

To sum up, I submit that the term "rates" as used in Amendment 19 and the income statute, Act 234, includes the whole tax formula. Act 234, by disallowing any deductions to the Arkansas income taxpayer on his Federal income tax payment, so changes the meaning of net income as to increase the tax rate and the taxes of every taxpayer in Arkansas who pays a Federal income tax.

The decree of the trial court, in my opinion, should be affirmed.

GEORGE ROSE SMITH, J., dissenting. I should like to add a few words to Justice HOLT'S thorough analysis. I think the basic fallacy in the majority opinion lies in the fact that the Constitution is being interpreted as if it were a statute. In matters of statutory construction the courts recognize the legislators' skill in the preparation of laws and their familiarity with the meaning of legal terms. Hence it is perfectly proper for a statute to be construed in the light of existing laws and court decisions. But here the question is not one of statutory construction. "We must never forget that it is a constitution we are expounding."

Our problem is to determine the intention of the electorate in adopting Amendment 19. In this view, much of the majority opinion is seen to be irrelevant. It is true that several of our tax laws use the word "rate" in a technical sense, but the average voter does not bring to the polls the legal knowledge of a tax consultant. His knowledge of the Amendment was derived from reading its provisions or the summary that appeared on his ballot. The whole purpose of the Amendment, as disclosed by each of its five sections, was to restrict the cost of government and the expenditure of public funds. The Amendment limits appropriations to the sum of $2,500,000 in each biennium and prohibits any increase in existing rates of taxation, with a proviso permitting the General Assembly to exceed either limitation by a three-fourths vote. The taxpayers will be dismayed to learn that in spite of their efforts to curb State expenditures a majority of the legislature may now increase their taxes in innumerable ways, as long as the rate — as that term is sometimes used in law books — is not raised.

This conception of "rate" is actually an incomplete idea, as it necessarily involves a ratio between two separate factors. So close is the interplay between the two factors that the meaning of each is dependent upon that of the other. If the Constitution prohibited any increase in the rate of speed upon the highways in excess of sixty miles an hour, I do not suppose the legislature could evade the prohibition by declaring that an hour shall henceforth consist of thirty minutes. So in this case, the ratio is between a percentage factor and the amount of net income. The scope of each is affected by the meaning of the other. To say that the income tax rate is from one to five per cent is not informative unless we also know the amount of the exemption, the permissible deductions, the brackets for each percentage rate — in short, the entire income tax structure. It does not take a mathematician to see that the amount of the tax depends just as directly upon the method of computing net income as it does upon the so-called rate. For example, the income tax exemption in 1934 was $1,500 for a single person. The court now holds that a majority of the legislature may abolish the exemption altogether, so that a person who would formerly have paid no tax at all will be compelled to pay upon every penny of his earnings. He will receive with some skepticism the majority's assurance that the rate of his tax has not been increased in the slightest degree. In like manner the taxpayer who was in the 1% bracket may be moved into the 2% bracket by a change in exemptions or deductions, but still this is said not to involve a change in his rate. There is no need to multiply examples. I am convinced that the average voter approved Amendment 19 in the reasonable belief that it would restrict any change in the tax structure that is designed to levy an increased tax upon a given amount of income, property valuation, or other source of public revenue. I think that by disregarding this fact the majority have emasculated an important provision of the Constitution.