Opinion ID: 2197684
Heading Depth: 2
Heading Rank: 4

Heading: The Contract Clause Claim

Text: FWNC also claims that the inclusion of municipal bond income in the FIT calculation would constitute an unconstitutional impairment of a contract violating art. 1, § 10 of the United States Constitution and that such an impairment is actionable under 42 U.S.C. § 1983. We must determine in what sense, if any, a contract was created by between the State and the taxpayer and what were the precise terms of this contract. FWNC seems to claim that the GES, as it interprets the statute, was incorporated into the terms of the bonds at the time of issue. As we have noted in the past, [t]he intent of the legislature to enter into a contract with an artificial body of its creation ought to be apparent from the law which is alleged to constitute the contractual obligation. When that law is a special act addressed to a particular group of incorporators to meet a specific need or purpose the intent to contract is more easily discerned than when the law is general, addressed to no one in particular but available to all of a class as a vehicle for incorporation so long as it stands unrepealed. Grand Lodge Hall Ass'n v. Moore (1945) 224 Ind. 575, 579, 70 N.E.2d 19, 20, cert. denied, 330 U.S. 808, 67 S.Ct. 1088, 91 L.Ed. 1265; 331 U.S. 864, 67 S.Ct. 1201, 91 L.Ed. 1869. In that same opinion, this Court cited a quote from Justice Holmes that guides our decision today: The broad ground in a case like this is that, in view of the subject-matter, the legislature is not making promises, but framing a scheme of public revenue and public improvement. In announcing its policy, and providing for carrying it out, it may open a chance for benefits to those who comply with its conditions, but it does not address them, and therefor(e), it makes no promise to them. It simply indicates a course of conduct to be pursued until circumstances or its views of policy change. Id., 224 Ind. at 581, 70 N.E.2d at 21, quoting Wisconsin & Michigan R. Co. v. Powers, 191 U.S. 379, 387, 24 S.Ct. 107, 108, 48 L.Ed. 229, 231 (1903) (emphasis added). The language of the GES contains neither a promise that the exemption from direct taxation on the bonds would not be repealed or subject to modification for perpetuity, nor a promise that the GES would exempt bonds from even being used to measure a franchise tax, such as the FIT. Even if the GES was incorporated into the bond contract, it would not have prevented the Legislature from using the bond income to measure the FIT liability. The bonds and their income are still exempt from direct state taxes. The promise contained in those bonds was the promise of a given return as a percentage of their purchase price. Thus, the use of the federal and municipal bond income to measure the taxpayer's FIT liability was not an unconstitutional impairment of a state obligation.