Court Opinion

ID: 9700357
Source: CourtListenerOpinion
Date Created: 2023-08-25 21:23:34.17554+00
Date Added: 2024-06-11T13:10:35.051671
License: Public Domain

Dissenting Opinion by
Mb. Justice Eagen:
Neither from my understanding of the Uniformity Clause, nor from past decisions by our Court in this area of law nor indeed from the reasoning of the majority am I inexorably led to conclude that the general features of the Personal Income Tax (Article III, Tax Reform Code of 1971, adopted March 4, 1971, Act No. 2, 72 P.S. 7107 et seq.) violate Article VIII, Section 1 of the Pennsylvania Constitution and for this reason I am compelled to dissent.
In 1935 this Court answered with a resounding NO the question of whether Pennsylvania could enact a graduated personal income tax which would comport with the Uniformity Clause of the Taxation and Finance Article of the Constitution. Kelley v. Kalodner, 320 Pa. 180, 181 A. 598 (1935). But just as importantly we did not say that the Legislature could never enact any form of income tax. The injunction was simply that the constitutional mandate of uniformity must be observed.
My review of the decisions of this Court encourages me in the conclusion that the Legislature in framing Article III of the Tax Reform Code has remained faithful to the constitutional guidelines and nice distinctions of the concept of uniformity as set down by this Court.
’ At the outset it might be helpful for purposes of clarity and comparison to review briefly the majority’s position. It is their contention that although the Tax Reform Code of 1971 purports to impose a flat Sy2 percent tax on “taxable income”, the concept of “taxable income” already reflects the federal personal exemptions for the taxpayer and his qualified dependents and hence embodies exactly the same elements of non-*69uniformity as were condemned in Kelley v. Kalodner, supra, and Saulsbury v. Bethlehem Steel Company, 413 Pa. 316, 196 A. 2d 664 (1964). “The effect of the Personal Income Tax ... is entirely nommiform by imposing differing tax burdens upon persons enjoying identical privileges.” [Opinion of the Majority, page 17]
The rejoinder to this position is that the Legislature in resorting to the federal system for its tax base in the present instance acted in no wise differently than it did in imposing the Corporate Net Income Tax Act of 1935, 72 P.S. 3420(a) et seq., a taxing statute which was upheld by this Court in Turco Paint & Varnish Company v. Kalodner, 320 Pa. 421, 184 A. 37 (1936) and again in Commonwealth v. Warner Bros. Theatres, Inc., 345 Pa. 270, 27 A. 2d 62 (1942).
The contention in the Turco Paint & Varnish Company case was that the corporate net income tax could not be uniform because of the process by which net income was determined.1
Despite the fact that permitted deductions from gross income might vary drastically with respect to corporations having the same gross income, and therefore result in widely varying taxable net income, our Court did not find this use of net income returned to and ascertained by the Federal Government as a Pennsylvania tax base to be violative of the Uniformity Clause. As Mr. Chief Justice Kephart wrote: “Plaintiff *70has not pointed to a single provision of the act which Avould 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 certainly 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.” 320 Pa. at 426.
A compelling question now arises: If a federally determined base (and one freighted with exemptions and deductions) is held to meet the constitutional test of uniformity in the instance of the corporate net income tax, why does not the same hold true for the personal income tax; how does it come to pass that the base of the latter tax is so fatally defective?
The majority’s answer is that it is inapposite to refer to this Court’s approval of the corporate net income tax since what was being considered there was an excise tax on the privilege of doing business in the Commonwealth, not an income tax; the implication being that while the former is an excise levy, the latter is a property tax and never the twain shall meet.
Such a contention cannot square with what Mr. Justice, now Chief Justice Bell, so pellucidly wrote in Commonwealth v. Eastern Motor Express, Inc., 398 Pa. 279, 298, 157 A. 2d 79 (1959); “The constitutionality of the Corporate Net Income Tax Act of May 16, 1935, as reenacted and amended, was sustained on the ground that it was a property tax on net income, in spite of the declaration in the Act that it was an excise tax: Blauner’s Inc. v. Philadelphia, 330 Pa. 342, 345, 198 A. 889; National Biscuit Co. v. Philadelphia, 374 Pa. 604, 612, 98 A. 2d 182; Murray v. Philadelphia, 364 *71Pa. 157, 169, 71 A. 2d 280; Philadelphia v. Samuels, 338 Pa. 321, 326, 12 A. 2d 79. . . .” [Emphasis not ours] [footnote omitted]2
But even granting for the sake of argument that the corporate net income tax is an excise tax, the import of the majority’s distinction (and its conclusion of inappositeness) continues to elúdeme.
In Saulsbury v. Bethelem Steel Co., 413 Pa. 316, 319, 196 A. 2d 664 (1964), we restated what has so often been repeated, that: “The Pennsylvania Constitution specifically states that ‘All taxes shall be uniform, upon the same class of subjects.’ This language is as broad and comprehensive as it could possibly be and must necessarily be construed to include all kinds of taxes, be they in the nature of property or excise levies. The Pennsylvania constitutional provision is all inclusive and is clearly not limited to requiring uniformity in property taxes alone.” [citations omitted]
Hence it is fair to again ask that if it is constitutionally permissible for the measure of the corporate net income tax to be the income upon which tax is paid to the Federal Government, why cannot the same be true for a personal income tax? An apple is not an orange and an excise tax is not a property tax, but when the Uniformity Clause applies to both, as we have seen that it does, how can the latter tax be determined to be defective for using the federally determined base in conjunction with a flat 3.5 percent rate? The genetics of these two types of taxation are of little moment when analyzed for purposes of uniformity.
My conclusion is and must be that such denial of an analogy between the instant tax and the corporate net income tax does not withstand analysis unless we *72are willing to turn the clock back thirty-five years and retroactively brand the Turco Paint & Varnish Company case and its progency as aberrations.
To reiterate, this Court has sanctioned the borrowing of a tax base from the Federal Government and has given short shift to arguments that it was not uniform. As was said in Commonwealth v. Warner Bros. Theatres, Inc., 345 Pa. 270, 272, 27 A. 2d 62 (1942); “Net income as ascertained is the base upon which the tax is measured, not the tax itself. How it was fixed by the Federal Authorities is of no concern to the taxing officers of the Commonwealth nor to its statute. The rate of income tax may vary, or the method of its computation but as a base it is unvarying.”3
Mindful that this Court has written that “Absolute equality is of course unattainable; a mere approximative equality is all that can reasonably be expected”, Commonwealth v. Delaware Div. Canal Company, 123 Pa. 594, 620, 16 A. 584 (1889), and also that there is a presumption of constitutionality attending legislative enactments, see Hadley’s Case, 336 Pa. 100, 6 A. 2d 874 (1939), I would hold that Article III of the Tax Code, with the exceptions of Section 317 and 319, meets the constitutional standards of uniformity.
The Vanishing Tax Credit :
It cannot be gainsaid that the Legislature now has the authority under the new provisions of the Pennsylvania Constitution to establish special classes or make *73special tax provision for the poor, aged, infirm or disabled (Article VIXI, Section 2(b) (ii)). Accordingly, the Legislature sought to accomplish this commendable result in Section 319 of the Tax Code.4
For the reasons outlined by Judge Kramer in his opinion in the court below, I feel that Section 319 cannot escape condemnation since its very vagueness would allow it to operate in a nonuniform manner far removed in some instances from its original purpose. As Judge Kramer aptly notes the section is absolutely devoid of any definition of age, disability, infirmity or poverty. Can it be said that these terms are infused with any more meaning by reciting that “The class of taxpayers who qualify for such tax credit and the amount thereof shall be determined solely by reference to the taxable income and exemption schedule. ...”
Something more than “taxable income” is needed to make the permitted classification of poor, aged, disabled and infirm an integrated classification and hence, uniform. However this is merely a technical defect easily corrected by the use of qualifying definitions.
The Local Tax Credit:
In an attempt to alleviate some of the double taxation resulting from the imposition of the personal income tax, the Legislature included in the Tax Code the following credit provision:
*74“Section 317. Taxes imposed by political subdivisions of this Commonwealth:
“(a) Every resident or nonresident individual, estate or trust subject to tax under this article shall be allowed a credit against the tax otherwise due under this article equal to thirty percent of the amount of any local taxes imposed on and paid by such individual, estate or trust to any political subdivision of this Commonwealth during the calendar year 1971, except that such credit shall not apply to local taxes imposed on real estate, realty transfers or amusements.
“(b) For local taxes described in subsection (a) imposed and paid in the taxable years beginning after December 31, 1971, the amount of credit base provided in this section shall not exceed thirty percent of the total amount of the local taxes which were imposed and paid by such individual, estate or trust during the calendar year 1971 to political subdivisions of this Commonwealth, except that in the case where no such local taxes were imposed upon and paid by such individual, estate and trust during the calendar year 1971, then the percentage rate shall be applied to the total amount of such local taxes which were imposed upon and paid by such individual, estate or trust dur ing the calendar year in which such taxes were first imposed and paid and the amount so determined shall each year thereafter constitute the base on which the tax credit rate shall be applied.”
This section, I believe, patently lacks uniformity in its operation and hence is unconstitutional.
The foremost thing to be noted is that the tax credit is frozen at thirty percent of taxes paid to a political subdivision of the Commonwealth during 1971, or if no such taxes were paid by the individual during 1971, then thirty percent of local taxes during the first year in which they were imposed and paid. The credit once established, is forever predetermined despite the fact *75that a taxpayer may move to a new taxing authority and/or substantially increase the amount of his income. However, 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. Turco Paint & Varnish Co. v. Kalodner, 320 Pa. 421, 184 A. 37 (1936). See also Danyluk v. Johnstown, 406 Pa. 427, 430, 178 A. 2d 609 (1962) wherein Mr. Justice Cohen said, “Residence cannot be made the basis of discrimination in taxation. ... To permit such distinction would be contrary to the well established principle that the test of the validity of a classification is whether it produces diversity in results or lack of uniformity in its operation on . . . the persons affected as payers. Biddle Appeal, 390 Pa. 460, 468, 135 A. 2d 915 (1957).”
Despite the fact that the Commonwealth has impaled itself on its own good intentions here, this section of the Tax Code can be invalidated (as can section 319) without affecting the constitutionality of the rest of the Code. See Butcher v. Philadelphia, 333 Pa. 497, 6 A. 2d 298 (1938) where the Court excised credits provided by the Philadelphia income tax while upholding the tax itself.
Mr. Justice Jones joins in this dissent.

 The base of this corporate tax is net income as returned to and ascertained by the Federal Government. Some of the adjustments which are involved under the Federal Tax Code in converting corporate gross income to corporate net income are: deductions for business expenses, 26 U.S.C.A. (I.It.C. 1954) §162 which can include, inter alia, penal damages paid to individuals for anti-trust violations (§162(g)); charitable contributions, 26 U.S.C.A. §170; net operating loss carryovers, 26 U.S.C.A. §381; payments made to pension and profit-sharing plans, 26 U.S.C.A. §404, etc. If “widespread tax preferences” are not also built into this tax then I do not know what that phrase means.

 In a footnote to this statement, Mr. Justice Bell acknowledged the existence of other “confusing”, “Irreconcilable” decisions on this point but his own opinion concludes that such cases are wrong. No member of the Court dissented to this opinion.

 The Warner Bros, ease also answers those who would contend that the personal income tax violates the restriction on exemptions clause of the Pennsylvania Constitution (Article VIII, §5) and that the base constitutes a delegation of legislative authority to the Federal Government. As the Court in this case observed: “[T]he Act does not delegate the power to tax to the Federal tribunal, it only takes the net income fixed by it as the base for the excise privilege tax levied by the Commonwealth.” 345 Pa. at 272. See also, Commonwealth v. Curtis Publishing Co., 363 Pa. 299, 69 A. 2d 410 (1949).

Section 319(b) provides: “Establishing of Class: Tax Credit— Pursuant to the provisions of said section of the Constitution of Pennsylvania there is hereby legislatively determined and established in the schedule provided in subsection (c) of this section, a class of taxpayers who by reason of poverty, age, disability or infirmity are in need of special tax relief and the members of such class, on and after the effective date of this article shall be entitled to claim a credit against the amount of tax which would otherwise be due under this article. The class of taxpayers and the members thereof who qualify for such tax credit and the amount thereof shall be determined solely by reference to the taxable income and exemption schedule set forth in subsection (e) of this section.”