Court Opinion

ID: 6452919
Source: CourtListenerOpinion
Date Created: 2022-06-25 12:36:01.705491+00
Date Added: 2024-06-11T15:51:34.206476
License: Public Domain

Marshall, C.J.
(dissenting). Article 44 of the Amendments to the Massachusetts Constitution accords the Legislature “a considerable range of discretion within the bounds of reason” to establish classifications of taxable income. Daley v. State Tax Comm’n, 376 Mass. 861, 866 (1978). See Opinion of the Justices, 425 Mass. 1201, 1203 (1997). Taxpayers challenging such classifications bear the heavy burden of proving “beyond a rational doubt,” Andover Sav. Bank v. Commissioner of Revenue, 387 Mass. 229, 235 (1982), that the General Court’s line drawing is “plainly and grossly oppressive and unequal, or contrary to common right.” Tax Comm’r v. Putnam, 227 Mass. 522, 531 (1917), quoting Oliver v. Washington Mills, 11 Allen 268, 279 (1865). Because in my view the plaintiffs have failed to surmount the formidable presumptions of validity that govern our review of § 32 of the Revenue Enhancement Act of 2002 (act), St. 2002, c. 186,1 respectfully dissent.1
The act was passed to address “a serious fiscal crisis” in the Commonwealth. Id. In connection with this purpose, § 32 of the act established May 1, 2002, as the effective date for the replacement of a tiered system of taxation on capital gains by a uniform rate of taxation. Nothing in the plain wording of art. 44 or our case law prohibits such legislative action. Moreover, the circumstances surrounding the adoption of art. 44 in 1915 suggest no such prohibition, as Justice Cordy makes abundantly clear in his dissenting opinion.
As we have recognized, art. 44 enables the Legislature to levy taxes on a flat-rate basis on income derived from the same class of property. See Opinion of the Justices, 383 Mass. 940, 942 (1981), and cases cited (art. 44 gives Legislature authority to tax income while “forbidding the taxation of income from the same class of property at graduated rates, i.e., with the rate of taxation varying with the total amount of income [as, for example, is done by the Federal government]”). The uniformity requirement of art. 44 ensures that different classes of owners of *431the same class of income-producing property will not be taxed at different rates. See Salhanick v. Commissioner of Revenue, 391 Mass. 658, 662 (1984). It also prevents the Legislature from subdividing for income tax purposes classes of property that are the same in kind. Id. However, art. 44 makes no mention of, and does not purport to control, the actual rate at which income derived from property may be taxed or the precise taxable event that triggers the tax levy. Those judgments, among others, are left to the Legislature’s sound discretion. Johnson v. Department of Revenue, 387 Mass. 59, 67 (1982), quoting McLaughlin v. Alliance Ins. Co., 286 U.S. 244, 250 (1932). Having exercised its constitutional authority to establish an income tax policy, the Legislature may, consistent with art. 44, “choose the moment of its realization [and recognition] and the amount realized [and recognized], for incidence and the measurement of the tax.” Johnson v. Department of Revenue, supra, quoting McLaughlin v. Alliance Ins. Co., supra.
In this case, the Legislature’s retroactive establishment of May 1, 2002, for the termination of one scheme of taxation on capital gains and the imposition of another might well have caused inconvenience, surprise, and expense to those who devised their tax strategies in reliance on the superseded tax scheme. But the plaintiffs have no constitutional entitlement under art. 44 to any particular income tax rate or taxable event. See Johnson v. Department of Revenue, supra. The ownership of property subject to taxation always carries with it the risk that significant features of the tax system will change over time in a manner that will increase their tax liability. Cf. Johnson v. Department of Revenue, supra at 66, quoting Snell v. Commissioner, 97 F.2d 891, 893 (5th Cir. 1938) (as to plaintiffs’ equal protection claim, stating, “[t]hat the law might be changed, not only in the tax rate but in any other of its provisions, was a risk the taxpayer^] took in deferring the [recognition] of [their] gains”).2
That the tax provision at issue in this case took effect part *432way through the 2002 tax year does not offend the uniformity requirement of art. 44 because it does not disturb the classification of the plaintiffs’ income-producing property at issue here, and it does not impermissibly divide classes of owners. Stated differently, it does not impose nonuniform rates on the same class of property. To be sure, as with any legislative choice of a date of enactment, different owners of a class of property necessarily will fall on one or the other side of the effective date of change, but their status as property owners and the classification of their property by type are not thereby affected. Setting a date for a uniform change in the income tax laws is an altogether different order of business from classifying income-producing property or owners of such property. The latter tasks are governed by the strictures of art. 44, but the former is not.
Contrary to the court’s opinion, Tax Comm’r v. Putnam, supra, does not require a different conclusion. See ante at 423-424. As explained in detail by Justice Cordy, post at 438-441 (Cordy, J., dissenting), the Putnam court did not address the Legislature’s authority to fix a date certain in which, a new income tax rate may take effect. We should be most loathe to transform art. 44 from a specific and broadened grant of taxing authority to the Legislature into a taxpayer entitlement to a specific effective date for all changes in the income tax rate.3 The income tax scheme established by the act was intended “to provide forthwith enhanced state revenues to assist in addressing a serious fiscal crisis.” St. 2002, c. 186, preamble. That purpose is wholly consistent with the Legislature’s broad constitutional powers to tax, and its duty to safeguard the public fisc. The plaintiffs’ dismay at the Legislature’s action, however *433understandable, does not amount to a redressable harm within the meaning of art. 44.

agree with the court’s opinion that capital gains are “income . . . derived from property” within the meaning of art, 44. Ante at 424. See Tax Comm’r v. Putnam, 227 Mass. 522, 526 (1917) (word “income” in art. 44 “was employed to express a comprehensive idea. It is not to be given a narrow or constricted meaning. It must be interpreted as including every item which by any reasonable understanding can fairly be regarded as income”).

In rejecting a Federal due process challenge to the Federal tax code, Judge Learned Hand made a similar point. “Nobody,” he wrote, “has a vested right in the rate of taxation, which may be retroactively changed at the will of Congress at least for periods of less than twelve months .... The injustice is no greater than if a man chance to make a profitable sale in the months *432before the general rates are retroactively changed. Such a one may indeed complain that, could he have foreseen the increase, he would have kept the transaction unliquidated, but it will not avail him; he must be prepared for such possibilities, the system being already in operation. His is a different case from that of one who, when he takes action, has no reason to suppose than any transactions of the sort will be taxed at all.” Cohan v. Commissioner of Internal Revenue, 39 F.2d 540, 545 (2d Cir. 1930).

It may be that in some circumstances repeated changes in the rate of income taxation imposed part way or sequentially through a taxable period are so arbitrary and irrational as to offend art. 44. Such circumstances are not present here.