Opinion ID: 2016681
Heading Depth: 1
Heading Rank: 7

Heading: Analysis of L.B. 829

Text: A statute is presumed to be constitutional, and all reasonable doubts will be resolved in favor of its constitutionality. State ex rel. Spire v. Strawberries, Inc., 239 Neb. 1, 473 N.W.2d 428 (1991); In re Application A-16642, 236 Neb. 671, 463 N.W.2d 591 (1990). The burden is upon the party claiming a statute is unconstitutional to establish its unconstitutionality. Id. Here, the State argues that § 7 of L.B. 829 is constitutionally valid because elimination of the personal property tax is eminently reasonable. Brief for defendants at 32. Specifically, the State points to the administrative difficulties associated with collection of a tax on personal propertydifficulties resulting in its oft-repeated characterization as a liar's tax. The State also argues that the exemption is a legitimate economic development measure designed to prevent the loss of certain inventory-intensive industries to neighboring states which do not tax personal property. As we made clear in Banner County v. State Bd. of Equal., 226 Neb. 236, 411 N.W.2d 35 (1987), however, the reasonableness of a classification will not save a legislative enactment violative of the uniformity clause. Therefore, it is first necessary to determine whether § 7 of L.B. 829 improperly shifts the property tax burden to the remaining taxpayers. When the Legislature initiated the current system of exemptions in 1972, it fully funded them with revenues derived from the sales tax and the income tax. The scheme did not shift any of the property tax burden to the remaining taxpayers, and thus the only issue confronting the Stahmer court was the reasonableness of the classifications drawn. As noted earlier, however, subsequent events resulted in a dramatic shift in the property tax burden. In MAPCO Ammonia Pipeline, this court held that the burden on the remaining taxpayers was too great and declared the exemptions contained in § 77-202(6) through (9) unconstitutional. For tax year 1991, § 7 of L.B. 829 essentially codifies the situation as it stood prior to MAPCO Ammonia Pipeline, with the additional exemption of the small sliver of personal property remaining on the tax rolls at that time. The State focuses on this small sliver of personal property in attempting to distinguish MAPCO Ammonia Pipeline and persuade us that § 7 is valid. According to the State, MAPCO Ammonia Pipeline turns on the constitutional repugnancy of exempting approximately 75 percent of the state's income-producing personal property, while taxing the remaining 25 percent. In support of this interpretation, the State relies upon language from a concurrence in Natural Gas Pipeline Co. questioning the exemption of all but a small amount of property. Natural Gas Pipeline Co., 237 Neb. at 375, 466 N.W.2d at 472 (White and Fahrnbruch, JJ., concurring). In this case, the State points out, the situation is effectively reversed because real property constitutes approximately 75 percent of the property tax base and personal property only 25 percent. Thus, the State concludes that § 7 is valid because it retains the taxation of tangible property as to nearly three-fourths of property available for taxation. Brief for defendants at 39. The State's reading of MAPCO Ammonia Pipeline is overly narrow. The concurring opinion in Natural Gas Pipeline Co. relied upon by the State makes clear that the concern with the shifting property tax burden extends to owners of real property. This concurrence concludes by noting that the boards of equalization cannot exercise their duty of valuing uniformly if the federally protected property and exempt property are not taxed and nonprotected and nonexempt property is valued and taxed. The decision in [ Trailer Train Co. ], has sounded the death knell for personal property taxation in this state unless the preferential treatment to certain classes of personal property is abandoned. Taxation of real estate may also be at risk for the same reasons. (Emphasis supplied.) Natural Gas Pipeline Co., 237 Neb. at 376, 466 N.W.2d at 473. Similarly, MAPCO Ammonia Pipeline overruled Stahmer because subsequent developments had the effect of making Nebraska's system of taxation increasingly discriminatory as to the remaining taxpayers.  (Emphasis supplied.) MAPCO Ammonia Pipeline, 238 Neb. at 582, 471 N.W.2d at 745. It is clear that in MAPCO Ammonia Pipeline, this court adopted the reasoning of the concurring opinion in Natural Gas Pipeline Co. The avowed purpose of the uniformity clause was to prevent special interests from achieving tax exemptions and thereby unload the taxation of property onto the other class. 2 Proc. Const. Convention at 2371. Between 1972 and 1991, real property increased from 78 percent to 92 percent of the property tax base due to the large proportion of personal property taken off the tax rolls. We perceive no reason why it is less unfair to shift the property tax burden to owners of real property than to owners of income-producing personal property and, therefore, reject the narrow interpretation of MAPCO Ammonia Pipeline advanced by the State. We note that § 26 of L.B. 829 provides for the reimbursement of the State's political subdivisions for any revenues lost due to the exemption from taxation of personal property which was immediately prior to [June 11, 1991], subject to tax for tax year 1991 but which is exempt from tax solely because of the changes made to section 77-202 by [L.B. 829]. 1991 Neb. Laws, L.B. 829, § 26 (codified at Neb.Rev.Stat. § 77-27,138.01 (Supp.1991)). The only personal property subject to taxation immediately prior to [June 11, 1991] was the small sliver of income-producing personal property not already legislatively or judicially exempted at the time of the decision in MAPCO Ammonia Pipeline. Thus, as regards the property tax burden on real property owners, § 26 of L.B. 829 merely retains the status quo as it existed at that time. In other words, the plight of the state's landowners for tax year 1991 does not get any worse with passage of L.B. 829, but it does not get any better either. In MAPCO Ammonia Pipeline, we concluded that the Legislature's system of exemptions placed an unconstitutionally heavy burden on owners of property remaining on the tax rolls, which included real property owners. As it relates to tax year 1991, § 7 of L.B. 829 imposes an identical burden. Therefore, we hereby declare § 7 of L.B. 829, as it relates to tax year 1991, unconstitutional as a violation of the uniformity clause of Neb. Const. art. VIII, § 1.