Title: Alabama Educ. Ass'n v. Grayson

State: alabama

Issuer: Alabama Supreme Court

Document:

382 So. 2d 501 (1980)
ALABAMA EDUCATION ASSOCIATION et al.
v.
Claude H. GRAYSON et al.
No. 78-232.

Supreme Court of Alabama.
February 8, 1980.
Rehearing Denied April 4, 1980.
*502 Truman M. Hobbs and Robert D. Segall of Hobbs, Copeland, Franco & Screws, Montgomery, for appellants.
James R. Seale of Capell, Howard, Knabe & Cobbs, Montgomery, for intervening defendants.
TORBERT, Chief Justice.
This is an appeal from the judgment of the Circuit Court of Montgomery County upholding the constitutionality of Act No. 594, Acts of Alabama, 1977, under challenges alleging that the Act violates §§ 45 and 100 of the Constitution of Alabama of 1901. We affirm.
The title and pertinent portions of that Act provide:
Title, Act No. 594, Acts of Alabama, 1977.
Act No. 594, Acts of Alabama, 1977, § 1(b)(1)(A) and (B).
Act No. 594, Acts of Alabama, 1977, § 1(b)(2).
Whether the Act is unconstitutional under § 100 of the Constitution of Alabama of 1901 because the Act operates to release a fixed obligation.
The Constitution of Alabama of 1901, provides in Art. IV at § 100:
Constitution of Alabama of 1901, Art. IV, § 100.
The appellant argues that the three-year carryback provisions of the Act operate to release an obligation. It is clear that § 100 of the Constitution has no application to conditional obligations, but proscribes only the release of fixed obligations.
State v. Louis Pizitz Dry Goods Co., 243 Ala. 629, 635, 11 So. 2d 342, 347-348 (1943) (emphasis added).
Thus, the resolution of Issue Number I turns on when the tax obligation becomes fixed. In Union Bank and Trust Co. v. Phelps, 228 Ala. 236, 153 So. 644 (1934), this Court held:
228 Ala. at 238, 153 So.  at 646 (emphasis added).
That same holding, that the income tax obligation becomes fixed when assessed, was reiterated by this Court in State v. Woodroff, 253 Ala. 620 at 631, 46 So. 2d 553, 563 (1950), in the following language: "The final assessment not appealed from is as conclusive as the judgment of an ordinary court."
It is the levy and assessment of the tax which create a fixed legal liability on the taxpayer and not the conditional self-assessed tax return filed annually by taxpayers. This position is supported by the manner in which our Code defines "assessment."
Code 1975, § 40-18-40 (emphasis added).
Section 40-18-40 provides that the taxpayer's return is conditional and it is the Department of Revenue that makes the final assessment.
Code, 1975 § 40-18-40.
The 1975 Code also provides that each return filed by the taxpayer is not finally fixed or assessed but remains "open" or contingent for a period of three years.
Code 1975, § 40-18-45(a) (emphasis added).
Thus, the three-year carryback provision (which has long been a part of the federal income tax law) does not diminish an obligation of the taxpayer because that obligation does not become fixed until three years have expired after the filing of the initial return, or within the three-year period, the tax obligation is finally assessed by the Department of Revenue.
Our resolution of Issue Number I is supported by the fact that Amendment No. 25 to the Alabama Constitution, ratified 30 years after the adoption of the 1901 Constitution (including § 100 thereof), gives the Legislature plenary power "to designate what income is to be taxed and affix the rates of taxes."
Constitution of Alabama of 1901, Amendment No. 25 (emphasis added).
We held in State v. Weil, 232 Ala. 578, 168 So. 679 (1936), that Amendment No. 25 was intended to enlarge the powers of the legislature in regard to tax matters. Thus, the legislature has the power to re-define income. By adopting Act No. 594 the legislature has provided that in determining what obligation or tax the taxpayer owed, one must take account of the loss carryback provisions. Thus, the prohibition of § 100 against releasing obligations does not come into play until the amount of the obligation is finally determined. The legislature, exercising its plenary power to define "tax," *505 has required that in determining the amount of the obligation due, we must take into account the loss carryback provisions of Act 594, Acts of Alabama, 1977.
We hold that the tax obligation does not become fixed until the assessment thereof by the Department of Revenue or the expiration of three years after the tax return was filed, and therefore Act No. 594, Acts of Alabama, 1977, does not violate § 100 of the 1901 Alabama Constitution by remitting, releasing or diminishing an obligation. We also hold that the legislature was accorded the plenary power to define the obligation or tax due by Amendment 25, and that definition, without violating § 100, may include loss carryback provisions.
Several issues presented by appellant challenge the constitutionality of Act No. 594, Acts of Alabama, 1977, under § 45 of the Alabama Constitution of 1901. Those issues are dealt with here in a consolidated fashion:
Whether the Act is unconstitutional under § 45 of the Alabama Constitution of 1901 because the title to the Act is deceptive in that it fails to disclose the retroactive features of the Act, whether the act itself violates § 45 in its entirety, and whether § 45 is violated because of the lack of an accurate synopsis and fiscal note on the Act.
The Alabama Constitution of 1901 provides in Article IV at § 45:
Alabama Constitution of 1901, Art. IV, § 45 (emphasis added).
This Court has interpreted § 45 as imposing the requirement that where an act is intended to have retroactive application, the title of the act must "fairly and reasonably indicat[e] that the act is retrospective." Lindsay v. United States Savings and Loan Association, 120 Ala. 156, 24 So. 171 (1897); See Gayle v. Edwards, 261 Ala. 84, 72 So. 2d 848 (1954). The purpose of § 45 is to prevent fraud upon the legislature and the people of this state, and the test for whether a statute violates § 45 gives effect to those purposes. The question to be addressed in determining the constitutionality of an act under § 45 is: Whether the title of the act "is so misleading and uncertain that the average legislator or person reading the same would not be informed of the purpose of the enactment." Pillans v. Hancock, 203 Ala. 570, 84 So. 757 (1919); Opinion of The Justices, 294 Ala. 571, 319 So. 2d 699 (1975).
To the extent that the three-year carryback provision has retrospective application to the conditional income tax obligation, we hold that the retroactive feature of the Act is fairly and reasonably indicated in the title of the Act by the word "carryback." The connotation of the word "carryback" should be familiar to those with a passing acquaintance with the field of taxation. Loss carrybacks for financial institutions have been authorized since 1955. Act No. 568, Acts of Alabama, 1955 (now Code 1975, § 40-16-1(2)k). The early version of § 172 of the Internal Revenue Code of 1954, which authorizes loss carrybacks, has been part of the federal income tax law since 1918. Applying the test enunciated above to the title of Act 594, we hold that the word "carryback," which has long been part of our tax system, is sufficient to indicate any retrospective application of the Act, and the title is not so misleading and uncertain that the average legislator or person *506 reading the same would not be informed of the purpose of the enactment.
Finally, appellant challenges the constitutionality of the Act based upon violation of the House and Senate Rules, lack of an accurate synopsis or fiscal note. The Rules of the House of Representatives and Senate of the State of Alabama are not a part of the Constitution of Alabama of 1901 and thus do not furnish a basis upon which to challenge the constitutionality of Act 594, Acts of Alabama, 1977.
AFFIRMED.
MADDOX, ALMON, SHORES and BEATTY, JJ., concur.
FAULKNER, J., with whom BLOODWORTH, JONES and EMBRY, JJ., join, dissents.
FAULKNER, Justice (dissenting).
This is an appeal from a judgment of the Circuit Court of Montgomery County declaring Act No. 594, Acts of Alabama, 1977, to be constitutional under the Constitution of Alabama, 1901. The majority affirms. I would reverse and render.
Act No. 594 was enacted by the legislature apparently as an attempt to permit Alabama taxpayers to carry forward and carry back business net operating losses, for state income tax purposes, much in the same manner as those losses are carried back and forward for federal income tax purposes.
The pertinent parts of the Act relevant to this appeal are the title, and §§ 1(b)(1)(A) and (B), and 1(b)(2). The title to the Act reads:
Section 1(b)(1)(A) and (B) read:
Section 1(b)(2) reads:
The appellants contend, and I agree, that § 45 of the Constitution of Alabama, 1901, is violated. I cannot agree with the majority's reasoning on this issue. There is no provision in the title clearly indicating that the Act is retrospective. Thus, the Act violates § 45 of the Constitution and is void. In Lindsay v. United States Savings & Loan Association, 120 Ala. 156, 24 So. 171 (1897), this Court, speaking through Mr. Chief Justice Brickell, stated:
This language was approved by this Court in Gayle v. Edwards, 261 Ala. 84, 72 So. 2d 848 (1954). There the Court held that the "retroactive feature of the act is not clearly expressed in the title, or even suggested," and declared the subject unconstitutional and void.
Next, construing § 1(b)(1)(A) and (B), I opine that the act is unconstitutional because of its vagueness and uncertainty. Nothing in the Act indicates that net operating losses are restricted to business net operating losses. If the Act is to have a field of operation as the federal tax statutes have, then only business net operating losses can be carried back or forward. Assuming that "operating" refers to business losses, the statute's definition of "net operating loss" is even more vague. Section 1(c) provides that "net operating loss" means the excess of the deductions allowed in computing the Alabama income by this section over the gross income in Alabama. There is nothing to indicate that "deductions" refers to business deductions. For aught that appears a salaried individual taxpayer having only salary income, and having deductible medical expenses in excess of his salary could carry back or forward his "loss."
It is, indeed, regrettable that the majority opinion does not speak to the question of the type of net operating loss that will be allowed by the Income Tax Division of the State Revenue Departmentbusiness or non-business losses, or both. Since the majority has rewritten the statute so as to have it mean what they want it to mean, the least that they could do is to inform the Revenue Department what "losses" can be carried forward or backward, when auditing a taxpayer's tax return.
Because my position is that I would reverse on the grounds already stated, I would pretermit discussing § 100, Constitution 1901.
BLOODWORTH, JONES and EMBRY, JJ., concur.