Case Name: PARRISH et al. v. EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA et al.; GEORGIA ASSOCIATION OF EDUCATORS v. TEACHER RETIREMENT SYSTEM OF GEORGIA
Court: Supreme Court of Georgia
Jurisdiction: Georgia
Decision Date: 1990-12-03
Citations: 260 Ga. 613
Docket Number: S90A0575; S90A0576
Parties: PARRISH et al. v. EMPLOYEES’ RETIREMENT SYSTEM OF GEORGIA et al. GEORGIA ASSOCIATION OF EDUCATORS v. TEACHER RETIREMENT SYSTEM OF GEORGIA.
Judges: All the Justices concur, except Smith, P. J., and Bell, J., who dissent.
Reporter: Georgia Reports
Volume: 260
Pages: 613–625

Head Matter:
S90A0575.
PARRISH et al. v. EMPLOYEES’ RETIREMENT SYSTEM OF GEORGIA et al. GEORGIA ASSOCIATION OF EDUCATORS v. TEACHER RETIREMENT SYSTEM OF GEORGIA.
S90A0576.
(398 SE2d 353)

Opinion:
Benham, Justice.
Appellants are retired teachers and retired employees of the State of Georgia, whose retirement benefits were statutorily exempted from state income tax. See OCGA § 47-2-332 (a) (1); 47-3-28 (a); 48-7-27 (a) (4) (A) (i) and (viii). In September 1989 appellants' retirement benefits became subject to state income taxation by the passage and approval of HB No. 1 EX. Appellants maintain that HB No. 1 EX is an unconstitutional impairment of the obligation of their contract with the State.
1. [A] statute or ordinance establishing a retirement plan for government employees becomes a part of an employee's contract of employment if the employee contributes at any time any amount toward the benefits he is to receive, and if the employee performs services while the law is in effect; and . . . the impairment clause of our constitution [1983 Ga. Const., Art. I, Sec. I, Par. X] precludes the application of an amendatory statute or ordinance in the calculation of the employees' retirement benefits if the effect of the amendment is to reduce rather than increase the benefits payable . . . [I]f the employee performs services during the effective dates of the legislation, the benefits are constitutionally vested, precluding their legislative repeal as to the employee. . . .
Withers v. Register, 246 Ga. 158 (1) (269 SE2d 431) (1980). See also Swann v. Bd. of Trustees &c., 257 Ga. 450 (360 SE2d 395) (1987). Since each retiree contributed to the retirement system and performed services while the law exempting retirement benefits from state income taxation was in effect, that law became part of the contract of employment of the retiree. However, since 1877, the Georgia Constitution has provided that
[t]he state may not suspend or irrevocably give, grant, limit, or restrain the right of taxation and all laws, grants, contracts, and other acts to effect any of these purposes are null and void.
1983 Ga. Const., Art. VII, Sec. I, Par. I. See also 1976 Const., Art. VII, Sec. I, Par. I; 1945 Const., Art. VII, Sec. I, Par. I; 1877 Const., Art. IV, Sec. I, Par. I. Thus, since 1877, the Georgia General Assembly has had no power to grant an irrevocable tax exemption, and
[a] 11 parties whomsoever . are charged with knowledge of all constitutional limitations which Georgia has placed upon the powers of her legislature . . . [A]n act of the legislature which contravenes the Constitution . . . [is] by the State Constitution declared void. . . . The Constitution denies to the legislature the power to surrender the sovereign right of the State to tax. [Art. VII, Sec. I, Par. I.] Nothing the legislature does, no matter how unambiguously it is expressed, can have validity if it offends [Art. VII, Sec. I, Par. I].
IBM Corp. v. Evans, 213 Ga. 333, 335 (99 SE2d 220) (1957). If, by passage of the Teachers' Retirement Act and the Employees' Retirement Act the General Assembly bestowed an irrevocable tax exemption upon the retirees, that tax exemption was invalid under the Georgia Constitution, and the retirees would have no vested right to an exemption which they were never entitled to receive. See Tate v. Teacher Retirement System, 257 Ga. 365 (1) (359 SE2d 649) (1987). The constitutional provision, however, does not prohibit a revocable grant of a tax exemption. See Felton v. McArthur, 173 Ga. 465, 471 (160 SE 419) (1931). We must therefore focus on whether the statutory tax exemptions are irrevocable.
2. The retirees agree that Art. VII, Sec. I, Par. I prohibits the legislature from granting an irrevocable exemption from state income taxation, and maintain that the drafters of the 1877 Constitution intended the provision to prevent only perpetual or permanent tax exemptions. They contend that the income tax exemption granted each of them is not a forbidden permanent grant of tax exemption in perpetuity, but an acceptable non-perpetual exemption of limited duration that will terminate as payment of retirement benefits to each employee ceases. Thus, the retirees argue, the tax exemption is not irrevocable because the tax-free benefits will not be paid to or on behalf of each retiree in perpetuity. The State asserts that the retirees' definition of "irrevocable" is not that ascribed to it by the drafters of the Constitution of 1877.
The scope of the predecessor of Art. VII, Sec. I, Par. I was discussed at the Constitutional Convention of 1877, which wrote the Constitution of 1877. Delegate Robert Toombs stated that the right to tax provision "applies to everybody under the sun. This applies alike to corporations, individuals, and the federal government itself." Small, A Stenographic Report of the Proceedings of the Constitutional Convention held in Atlanta, Georgia 1877. In Felton, supra at 471-472, the court noted that
[p]rior to the adoption of the constitution of 1877 the legislature had indulged in the practice of exempting certain corpo rations and taxpayers from the payment of taxes. . It was the purpose of the makers of the constitution to deny to the legislature the power to grant exemptions from taxation by laws, contracts, or any other acts. . Its purpose was to prohibit exemptions from taxation, and to make void all limitations of every kind and character upon the taxing power of the State.
In Nash v. Nat. Preferred Life Ins. Co., 222 Ga. 14 (2) (148 SE2d 402) (1966), this court examined Art. VII, Sec. I, Par. I, and concluded that "irrevocable," as used therein, meant "incapable of being revoked." In light of the history of the passage of Art. VII, Sec. I, Par. I, we cannot agree with the employees' interpretation of "irrevocable." That the retirement benefits paid to each retiree will not be paid to or on behalf of that retiree in perpetuity does not render the tax exemption revocable. As to each of these retirees, the tax exemption is irrevocable, and that is untenable in light of Art. VII, Sec. I, Par. I. We therefore conclude that HB No. 1 EX is not an unconstitutional impairment of the retirees' contracts with the State.
3. Since we are dealing with "a matter of local policy, like a system of taxation," and the construction placed upon a state statute by this court should be respected absent "real oppression or manifest wrong in the result," (Atlantic CLR Co. v. Phillips, 332 U. S. 168, 170 (67 SC 1584, 91 LE 1977) (1947)), we do not find HB No. 1 EX to violate the U. S. Constitution's prohibition against state laws that impair the obligation of contract (Art. I, Sec. X).
4. In light of the above holdings, the trial court did not err in denying appellants' motions for class certification and the establishment of an escrow fund.
Judgment affirmed.
All the Justices concur, except Smith, P. J., and Bell, J., who dissent.
The holding in Quillian v. Employees' Retirement System, 259 Ga. 253 (379 SE2d 515) (1989), dealt with a claim of estoppel and is not controlling as to the issue presented herein, an unconstitutional impairment of the obligation of contract. See Quillian, supra at 254, n. 2.