Court Opinion

ID: 6360672
Source: CourtListenerOpinion
Date Created: 2022-06-24 23:35:30.198709+00
Date Added: 2024-06-11T15:49:40.596342
License: Public Domain

Dissenting Opinion by
President Judge Bowman :
Since adoption of the Pennsylvania Constitution of 1874 it has been and remains the fundamental law of this Commonwealth that all taxes shall be uniform upon the same class of subjects.
Attempts to change this fundamental social-political doctrine in favor of a non-uniform concept were rejected by the voters in referendum in 1913, 1928 and 1937. Recognizing this repeatedly expressed mandate of the people of Pennsylvania, those who recently sought extensive revision of our Constitution wisely excluded this subject from the scope of the Constitutional Convention of 1967-68; the convention was approved by referendum but interdicted to leave the uniformity principle unchanged. Hence, the Pennsylvania Constitution of 1968 retains the same provisions.
This repeated expression of the will of the people upon a subject which goes to the very essence of the legislative power to tax should not be “frittered away by judicial construction”, Appeal of Fox and Wife, 112 Pa. 337, 352, 4 A. 149, 153 (1886), nor should *376^semantic sleight of hand” give constitutional sanction to that which is clearly palpably and plainly unconstitutional, Wanamaker v. Philadelphia School District et al., 441 Pa. 567, 581, 274 A. 2d 524, 531 (1971) (dissenting opinion of Justice Roberts).
Equally inappropriate for judicial consideration is a socio-political philosophy based upon the meaningful but at the same time undefined concept of ability to pay. “It has become a mere platitude to state, what has so often been proclaimed, that Courts are concerned, not with the wisdom of legislation, but with the right of the legislative body to enact it — not with policy but with power”. National Biscuit Company v. Philadelphia 374 Pa. 604, 608, 98 A. 2d 182, 184 (1953).
It is for us to decide whether the power to tax was constitutionally exercised by the General Assembly with respect to Article III of the Tax Reform Code of 1971.1 It is not for us to decide that it was wise or unwise to so act or to be influenced in our decision by the fiscal problems that brought about its enactment or will follow if the enactment does not pass constitutional muster.
Uniformity — Taxable Income
Does uniformity in the rate of tax measured by an arbitrary definition of net income for the “privilege of receiving, earning or otherwise acquiring income from any source whatsoever”,2 meet the constitutional *377mandate that all taxes shall be uniform upon the same class of subjects?
Article III of the Tax Reform Code of 1971, supra, characterizes the tax imposed in said article as a personal income tax and declares in Section 301 that the intent and policy of the Legislature is to impose a “flat rate tax on income defined in this article.”
Apart from the question of whether an unlawful delegation of legislative authority is involved,3 it would seem to make little difference on the question of uniformity whether the Legislature chose to adopt its own definition of net income or incorporated by reference the definition of taxable income as contained in the Internal Revenue Code. The question remains the same and cannot be answered by the simplistic syllogism that because all individual taxpayers pay a flat rate tax on a uniform base, uniformity is achieved.
It has been widely assumed that some concept of “net income” affords an acceptable classification not violative of the uniformity clause of our Constitution, and more specifically, that a Federal criteria of “net income” meets constitutional uniformity requirements. It is said that Turco Paint & Varnish Company v. Kalodner et al., 320 Pa. 421, 184 A. 37 (1936), is authority for this proposition. In that case our Supreme Court sustained the constitutionality of a State tax upon corporate net income as returned to and ascertained by the Federal government against an attack on uniformity. “Plaintiff has not pointed to a single provision of the act which would demonstrate a legislative intent to impose a graded income tax. The rate used, 6%, is the same for all corporations. The tax base to which this rate is to be applied is also identical. It is the net income attributable to this State. It cer*378tainly should be axiomatic that the same impost when applied to the same subject matter does not make the tax graded simply because of the fact that one association,. owning more of the particular taxable subject matter than another, pays, on this account, a greater sum'total of tax. Where different rates are legislatively imposed on varying amounts or quantities of the same tax base, then you have a graded tax that lácks uniformity under our Constitution.” Turco Paint & Varnish Company v. Kalodner et al., 320 Pa. at 426, 184 A. at 40.
In my opinion, Turco is not controlling on the issue before us. As it was pointed out in Commonwealth v. Warner Bros. Theatres, Inc., 345 Pa. 270, 27 A. 2d 62 (1942), ,the corporate net income tax is an excise tax imposed upon corporations for the privilege of doing business in Pennsylvania. In the instant case we have h" personal income tax imposed upon individuals as Stated in'Section 305 of Article III “[f]or the privilege. : of receiving, earning or otherwise acquiring income from any source whatsoever. ...”
I do not propose to seek out the nature of the tax imposed, by. Article III. Much of the confusion in our decisional láw stems from such unnecessary distinctions and differences in terminology.4' Nor would it be necessary in this case, because both sides agree that the, uniformity clause is now considered applicable to all nature of. taxes which are .revenue measures. Kelley v. Kalodner, 320.Pa. 180,181 A. 598 (1935); Saulsbury v. Bethlehem Steel Company, 413 Pa. 316, 196 A. 2d 664 (1964).
But even if one assumes that Turco stands for the general proposition that some concept of net income affords a constitutionally acceptable base for individ*379ual income taxation as well as corporate net income taxation, our Supreme Court did not pass upon the issue, in terms of uniformity, of a need for a rational relationship between income and net income.
Having imposed a personal income tax upon resident individuals, estates and trusts (and nonresident individuals, estates and trusts with income sources within the Commonwealth), the Legislature then proceeds to levy the tax at a flat rate upon something less than income from whatever source derived. In this case the “something less than income” is “taxable income” as defined, by the Internal Revenue Code with certain additions and subtractions as set forth in Section 302 (q). In common usage or by any recognized principles of accounting, there is a wide gap between income (or gross income) and “net income”, but there is a rational relationship between the two in that the latter is determined by deducting reasonable expenses attributable to the production of “income” or “gross income”.
However, the gap between income or gross income and taxable income, as defined by the Internal Revenue Code, bears no rational relationship whatsoever to the generation of what is commonly referred to as either earned or unearned income.
Although there are a myriad deductions from gross income under the Internal Revenue Code to reach taxable income (which, incidentally, many claim favor individuals most able to pay), those deductions allowed after determining “adjusted gross income” afford the most obvious examples of the absence of any rational relationship between income and taxable income by which the flat rate 3.5% tax levy is measured. These particular deductions are found in the Federal law (not hampered by uniformity requirements) for a host of reasons. Suffice it to say that personal exemptions and those for dependents, while meritorious in terms *380of ability to pay, bear no rational relationship to a tax on net income.
By the Act of July 12, 1935, P. L. 970, the Legislature enacted an individual net income tax which imposed a tax at graduated rates upon net income as defined in the statute itself including both earned and unearned income. Additionally certain personal exemptions and dependency deductions were allowed.
In Kelley v. Kalodner, supra, our Supreme Court held the statute unconstitutional as violative of the uniformity clause in imposing a graduated rate. More importantly, however, as applicable to this case, it held that a personal exemption of $1,000, a head of family or married person deduction of $1,500 and a dependent deduction of $400 per dependent to reach net income was also violative of that constitutional proscription. As to this issue, “[tjhere can be no doubt that these exemptions were inserted for the purpose of putting the burden of the tax upon those most able to bear it, but it results in taxing those whose income arise above a stated figure merely because the legislature believes their incomes are sufficiently great to be taxed. . . . A pretended classification that is based solely on the difference in quantity or precisely the same kind of property is necessarily unjust, arbitrary and illegal.’ ” 320 Pa. at 188-9, 181 A. at 602.
An examination of the provisions of the Act of 1935 discloses that the Legislature at that time chose to set forth in the statute itself definitions of income, net income, deductions, exemptions and the like rather than incorporate them by reference to the then existing provisions of the Internal Revenue Code. In doing so, however, except in specified areas, it simply employed the language found in the then existing provisions of the Internal Revenue Code.
In 1971, the Legislature chose the opposite approach to impose the same personal income tax upon *381both earned and unearned income. Instead of borrowing the language of the current Internal Revenue Code, it simply incorporates selected provisions of that Code by reference and provides for certain additions and subtractions therefrom. To now say that a change in bill drafting technique or legislative sleight of hand makes constitutional the very provisions that Kelley declared unconstitutional is to superimpose semantic sleight of hand upon legislative sleight of hand.
Since Kelley, the Supreme Court on several occasions has spoken upon the subject of uniformity and personal income taxation. In 1938 the City of Philadelphia enacted a flat rate tax upon earned income and the net business profits of residents and nonresidents employed in or engaged in business in that City. It further provided that certain domestic workers, farm laborers and farmers were not to be included as taxpayers and all taxpayers were allowed a credit of |15.00 for prompt filing of a tax return. In Butcher v. Philadelphia, 333 Pa. 497, 6 A. 2d 298 (1938), by per curiam opinion, the Supreme Court declared: “Under the severability clause in the income tax ordinance . . . the majority, one Justice disagreeing, hold that the income tax ordinance is constitutional, with all exemptions stricken out, including the credit for making and filing the return. . . .” 333 Pa. at 498, 6 A. 2d at 298-9. (Emphasis added.)
In 1949 the City of Philadelphia extended its then existing wage and net profit tax to income from all sources thus converting the tax into a general income tax. The validity of the amendment was challenged in Murray v. Philadelphia, 364 Pa. 157, 71 A. 2d 280 (1950). The basic issue was one of statutory authority. The court held that the amendment was not authorized by the enabling act; thus no constitutional issue *382had to be faced. However, the court did comment by way of dictum upon the constitutional validity of the amendment insofar as it would have reached rent received from real estate. It was necessary for the court to hold that the tax upon income from property was upon the property itself (the Kelley case being cited as authority for the proposition) in order to reach its decision under the statutory issue. However, the court went on to say, assuming that such a tax (i.e., one reaching income derived from property) was authorized by the statute, it would nevertheless violate the uniformity clause in Art. IX, §1 of the Constitution. The basis of this conclusion was that such a tax would create an inequality of burden among land owners, some of whom rented and some of whom did not. in addition it was said, that the classification of realty owners into two classes (those who occupy their dwelling houses and those who let them to tenants)' would not be such a reasonable classification as would avoid an unconstitutional inequality of tax. burden.
Although not specifically addressing itself to a personal income tax, the Supreme Court in Allentown School District Mercantile Taw Case, 370 Pa. 161, 170, 87 A. 2d 480, 484 (1952) did comment upon uniformity as applicable to taxation of persons and property. “Uniformity requires substantial equality of tax burden: Com. v. Ovehholt & Co., Inc., 331 Pa. 182, 200 A. 849; Com. v. Repplier Coal Co., 348 Pa, 372, 35 A. 2d 319; Moore v. Pittsburgh School District, 338 Pa. 466, 13 A. 2d 29. While taxation is not a matter of exact science and perfect uniformity and absolute equality in taxation can rarely, ever be attained (Wilson v. Philadelphia, 330 Pa. 350, 352, 198 A. 893), the imposition of taxes which are to a substantial degree unequal in their operation or effect upon similar kinds of business or property, or upon persons in the same classifica*383Mon, 'is prohibited: Cf. Com. v. Overholt & Co., Inc., 331 Pa. 182, 190-191, 200 A. 849; Pollock v. Farmers’ Loan and Trust Co., 157 U.S. 429, 599. Moreover while reasonable and practical classifications are justifiable, where a formula or method of computing a tax will, in its operation or effect, produce arbitrary or unjust or unreasonably discriminatory results, the constitutional provision relating to uniformity is violated. . . (Emphasis added.) Also see Saulsbury v. Bethlehem Steel Company, supra.
Kelley, and these other supporting decisions of the Supreme Court, in my opinion, are controlling of the issue before us and condemn as not meeting constitutional uniformity requirements the imposition of a personal income tax which directly or by indirection allows for exemptions or deductions not rationally related to the subject matter of the tax. To reach any other conclusion would and does judicially abrogate constitutional uniformity requirements so far as income taxation is concerned. I would, therefore, declare Article III of the Tax Reform Code of 1971 unconstitutional and sever it from the other provisions of the Code.
Uniformity — ■Vanishing Tax Credits
I concur with the majority which concludes that the vanishing tax credits (Section 319) are constitutional as being within the new provisions of the Pennsylvania Constitution of 1968 authorizing the Legislature to establish special classes or make special tax provisions for the poor, aged, infirm or disabled (Article VIII, Section 2ii).
I concur, however, solely for the reason that there is no evidence of record nor can it be demonstrated from the provisions themselves that our Constitution has clearly, plainly and palpably been violated. The presumption of constitutionality must therefore obtain.
*384This leaves open the question, in my opinion, whether these provisions could withstand a constitutional test supported by an evidentiary record. Do the provisions of Section 319 actually benefit and solely apply to any one or more of the groups authorized for special tax treatment? Is there a realistic relationship of the product of the application of the vanishing tax credits to a minimum standard of health and decency, and, if so, what is that standard? AJ1 these questions are unanswered but the fact that they are unanswered does not make Section 319 clearly unconstitutional.
Judge Mjencer joins in this dissenting opinion and also files a separate dissenting opinion.

 Act of March. 4, 1971, P. L. Act No. 2.

 Section 305, Tax Reform Code of 1971, supra, which provides: “Incidence and Rate. — For the privilege of receiving, earning- or otherwise acquiring income from any source whatsoever, in the case of a resident individual, estate or trust of this Commonwealth, or from sources within this Commonwealth, in the case of a nonresident individual, estate or trust of this Commonwealth, there is levied and imposed an annual tax of thbee and five-tenths percent of the taxable income of the taxpayer.”

 See Commonwealth v. Warner Bros. Theatres, Inc., 345 Pa. 270, 27 A. 2d 62 (1942).

, see Tanner, .“Constitutional .Limitations of the Taxing Power in Pennsylvania.” 7 TJ. Pitt. L. Rev. 98 (1941).