Court Opinion

ID: 9528595
Source: CourtListenerOpinion
Date Created: 2023-08-07 03:42:14.995488+00
Date Added: 2024-06-11T13:27:04.415383
License: Public Domain

Mr. Justice Davis, dissenting: The majority opinion holds that our State constitution of 1870, as modified by article IX-A, may not validly classify exemptions from ad valorem personal property taxation on the basis of the ownership of the property, and that such exemption may be made only upon a classification based upon the nature of the property or its use. I dissent from this pronouncement. It is clear that the United States constitution imposes no particular modes of taxation upon the States and leaves them unrestricted in their power to tax those domiciled within their borders so long as the tax imposed is upon property within the State, or on privileges enjoyed there, and so long as the tax is not so palpably arbitrary or unreasonable as to infringe upon the equal protection and due process requirements of the fourteenth amendment. Lawrence v. State Tax Commission of Mississippi, 286 U.S. 276, 76 L. Ed. 1102, 1105, 52 S. Ct. 556, 559. The majority opinion recognizes that “the equal protection clause of the fourteenth amendment does not prohibit classification, and absolute precision is not required of the States in drawing the lines between classes”; and that, “Nevertheless, a state may not, under the guise of classification, arbitrarily discriminate against one and in favor of another similarly situated.” This general rule is found in the quotation from Allied Stores of Ohio v. Bowers, 358 U.S. 522, 3 L. Ed. 2d 480, 79 S. Ct. 437, cited by the majority. The rule has been expressed and exemplified many times in varying terms. Examples are: “Any classification of taxation is permissible which has reasonable relation to a legitimate and governmental action” ( Welch v. Henry, 305 U.S. 134, 83 L. Ed. 87, 92, 59 S. Ct. 121, 124); “It is a salutary principal of judicial decision, * * * that the burden of establishing the unconstitutionality of a statute rests on him who assails it, and that courts may not declare a legislative discrimination invalid unless, viewed in the light of facts made known or generally assumed, it is of such a character as to preclude the assumption that the classification rests upon some rational basis within the knowledge and experience of the legislators. A statutory discrimination will not be set aside as the denial of equal protection of the laws if any state of facts reasonably may be conceived to justify it” (Metropolitan Casualty Ins. Co. v. Brownell, 294 U.S. 580, 584, 79 L. Ed. 1070, 1072-3, 55 S. Ct. 538, 540); “Neither due process nor equal protection imposes upon a state any rigid rule of equality of taxation. [Citations.] This Court has repeatedly held that inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation.” (Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 509, 81 L. Ed. 1245, 1253, 57 S. Ct. 868, 872); and it is only the invidious discrimination or classification which is patently arbitrary and utterly lacking in rational justfication which is barred by the due-process or equal-protection clauses. Flemming v. Nestor, 363 U.S. 603, 611, 612, 4 L. Ed. 2d 1435, 1445, 80 S. Ct. 1367. The variety of ways of expressing the rule that a legislative classification for taxation purposes is not violative of the fourteenth amendment if it has a reasonable relation to the subject of the particular legislation so that all persons similarly situated are treated alike, and pertinent citations, are found in 16A C.J.S. Constitutional Law, secs. 520, 521, 649. In this litigation, as is often the case, the particular expression of the rule which the majority of the court chooses to rely upon may be dictated by the outcome which the judges of the majority think to be proper. Beyond doubt, the fourteenth amendment does not impose on the States an inflexible and technical rule of equal taxation, and the extent to which the States may go in devising a legislative classification for taxation is illustrated by the statement of the Supreme Court in Lawrence v. State Tax Commission of Mississippi, 286 U.S. 276, 284, 285, 76 L. Ed. 1102, 1108, 52 S. Ct. 556, 559: “The equal protection clause does not require the state to maintain a rigid rule of equal taxation, to resort to close distinctions, or to maintain a precise scientific uniformity; and possible differences in tax burdens not shown to be substantial or which are based on discriminations not shown to be arbitrary or capricious, do not fall within constitutional prohibitions.” The Supreme Court in Lawrence also stated that there is no constitutional requirement that a system of taxation should be uniform as applied to individuals and corporations, regardless of the circumstances in which it operates, (286 U.S. 276, 283, 76 L. Ed. 1107, 52 S. Ct. 556, 558,) and we have just recently held that for the purpose of income taxation, corporations may be placed in one class and individuals in another and each taxed differently. (Thorpe v. Mahin, 43 Ill.2d 36.) The language of the court at pages 45 and 46 is worthy of repetition: “It is next contended that the Act violates the uniformity provision of section 1 of article IX of our constitution and the equal-protection and due-process requirements of the fourteenth amendment to the United States constitution by creating multiple classes and discriminating unreasonably among them. This contention is advanced specifically against the provisions which tax corporations at a 4% rate and individuals, trusts, and estates at 2}4% rate. “Both the equal-protection argument and the uniformity argument depend on the reasonableness of putting corporations in one class and individuals, trusts, and estates in another class for purposes of this tax. (See Grenier & Co. v. Stevenson, 42 Ill.2d 289.) When the due-process contention has been advanced, this court, citing Supreme Court cases, has stated: ‘It has long been settled that the power of the legislature to make classifications, particularly in the field of taxation, is very broad, and that the fourteenth amendment imposes no “iron rule” of equal taxation. [Citations.] The reasons justifying the classification, moreover, need not appear on the face of the statute, and the classification must be upheld if any state of facts reasonably can be conceived that would sustain it. [Citations.] The burden therefore rests on one who assails the statute to negate the existence of such facts. [Citations.]’ Department of Revenue v. Warren Petroleum Corp., 2 Ill.2d 483, 489-490. “When the uniformity contention has been advanced this court has stated: ‘It is well established that the legislature has broad powers to establish reasonable classifications in defining subjects of taxation * * *. Such classification must, however, be based on real and substantial differences between persons taxed and those not taxed. [Citations.]’ (Klein v. Hulman, 34 Ill.2d 343, 346-347.) ‘In order to prevail on an allegation that a statute or portion of a statute is unconstitutional, the plaintiff has the burden of showing how the legislature has violated the constitution.’ Grenier & Co. v. Stevenson, 42 Ill.2d 289, 291. “In short, petitioners have the burden of showing that the challenged classification is unreasonable. Their only assertion is that ‘corporations are at a disadvantage when they compete in the same type of business with individual proprietorships or partnerships because of the rate differential.’ This assertion has been rejected by the Supreme Court as to a Federal tax (Flint v. Stone Tracy Co., 220 U.S. 107, 31 S. Ct. 342, 55 L. Ed. 389), and as to a State tax (Fort Smith Lumber Co. v. Arkansas ex rel. Arbuckle, 251 U.S. 532, 40 S. Ct. 304, 64 L. Ed. 396), and by this court (People v. Franklin National Insurance Co. of New York, 343 Ill. 336; Michigan Millers Mutual Fire Insurance Co. v. McDonough, 358 Ill. 575), where, for purposes of the tax in question, corporations were placed in one class and individuals in another and each were taxed differently.” The majority, however, holds that as to a property tax the classification for exemption from taxation may not be based upon the character of the ownership, but only upon the nature of the property itself. Thus, the majority is of the opinion that the classification may not be based upon the corporation — individual distinctions which we upheld in Thorpe. In Thorpe this court reversed its prior holding that income is property (Backrach v. Nelson, 349 Ill. 579), and held that an income tax was not a property tax. The significance of this determination was that section 1 of article IX of our constitution of 1870 required the levying of a tax “by valuation, so that every person and corporation shall pay a tax in proportion to the value of his, her or its property * * *.” At the same time, the constitutional provisions permitted a tax upon franchises and privileges in such manner as the legislature might direct, so long as it was uniform as to each “class.” Obviously, the legislature could not, under the foregoing provisions, impose an income tax upon corporations at one rate and upon individuals at a lesser rate if it were a tax on property. Our constitution then prohibited any tax on property unless structured to be uniform as to valuation. After reaching the conclusion that an income tax was not a property tax, the court faced no barrier in upholding the Illinois Income Tax Act. In the case at bar, after article IX-A amendment to the constitution of 1870 was adopted, the unformity provisions of section 1 of article IX were no longer effective as to the taxation of personal property of individuals, and the court should have found no impediment to upholding the validity of article IX-A and the abolishment of this tax as to individuals. Constitutional provisions requiring property to be taxed uniformly in proportion to its value are not uncommon to the States. In the California Railroad Tax cases (San Mateo County v. Southern Pacific R. Co., 13 Fed. 722, appeal dismissed per stipulation, 116 U.S. 138; Santa Clara County v. Southern Pacific R. Co., 18 Fed. 385, aff’d other grounds, 118 U.S. 394) which held that unequal taxation, based upon the character of the owner, was forbidden by the fourteenth amendment, a constitutional provision requiring uniformity of taxation was involved. Even though the California constitution specified that all property be taxed in proportion to its value, laws of the State especially provided that as to railroad properties only, the amount of a mortgage on the real estate was not to be deducted in ascertaining the value of the real estate for taxation purposes. The trial court quite properly held that this method of valuation, as to railroads only, was improper under the circumstances, and the United States Supreme Court affirmed the lower court on a nonconstitutional basis without reaching the constitutional question. The California railroad tax cases should be read, with cognizance, that the State constitution required all property to be taxed in proportion to its value, and that the cases arose at a time when it was necessary to establish that the word, “persons” as used in the fourteenth amendment, included corporations. Apparently, the latter point had a strong bearing on the expressions found in these cases. In the case at bar, by virtue of the adoption of article IX-A, there is no constitutional requirement that taxes on personal property be uniform as to individuals and corporations so that each pays a tax in proportion to the value of his or its property. Article IX-A, which we are called upon to consider, eliminated this requirement; it provides that “the taxation of personal property is prohibited as to individuals.” Thus, the case at bar is a far cry from one in which the legislature is attempting to discriminate between individuals and corporations in the face of a constitutional provision prohibiting such discrimination. Here the question for determination is whether, absent the requirement of a State constitution that corporate and individual personal properties be taxed the same, the equal-protection clause of the fourteenth amendment permits them to be taxed differently ? I believe that it does! Without the constitutional requirement of uniformity on the taxation of properties, there is no reason or justification in the case at bar for stating that personal property taxation may not be classified on the basis of the ownership of the property. The constitution of 1870, as amended by article IX-A, does not so provide, and the constitution of 1970 suggests the contrary. Article IX of the constitution of 1970 relates to revenue, and section 5 thereof pertains to personal property taxation. Subsection (a) thereof provides that the legislature “may classify personal property for purpose of taxation by valuation, abolish such taxes on any or all classes and authorize the levy of taxes in lieu of the taxation of personal property by valuation.” (Emphasis ours.) Without more, it could be said that the word, “classes” refers only to classes of property, but subsection (c) refers to the abolition of all ad valorem personal property taxes by January x, 1979, and the replacement of the lost revenue, and provides: “Such revenue shall be replaced by imposing statewide taxes, other than ad valorem taxes on real estate, solely on those classes relieved of the burden of paying ad valorem personal property taxes because of the abolition of such taxes subsequent to January 2, 1971.” (Emphasis ours.) Obviously, the word, “classes” as there used, does not refer to classes of property; it refers to classes of property owners and provides for taxation according to the character of the owner. If the majority opinion is to stand and article IX-A held to be unconstitutional, then under consistent application of its rationale, subsection (a) of section (5) of the new constitution is likewise unconstitutional. The majority opinion chose to rely upon the rationale of Quaker City Cab Co. v. Commonwealth of Pennsylvania, 277 U.S. 389, 72 L. Ed. 927, 48 S. Ct. 553. I believe that the elucidation and logic of the dissent of Mr. Justice Brandéis, in which Mr. Justice Holmes concurred, offers the better reason. Therein, Mr. Justice Brandéis made some observations which are particularly apropos here. The court had under consideration a tax on the gross receipts of corporate taxicab companies where no similar tax was imposed upon the receipts of individuals who operated taxicabs. The majority held that the classification was based solely upon the character of the owner, and that it violated the fourteenth amendment. In his dissenting opinion, 277 U.S. 389, 403-412, 72 L. Ed. 927, 48 S. Ct. 553, S55-558. Mr. Justice Brandéis observed that the tax applied equally to all corporations, foreign and domestic. He stated that the fundamental question before the court was: “Does the equality clause prevent a state from imposing a heavier burden of taxation upon corporations engaged exclusively in intrastate commerce, than upon individuals engaged under like circumstances in the same kind of business ? The narrower question presented is whether this heavier burden may be imposed by a form of tax ‘not peculiarly applicable to corporations’; that is, by a tax of such a character that it might have been extended to individuals if the legislature had seen fit to do so.” He then pointed out that the difference between a business carried on in corporate form and one carried on by natural persons is “a real and important one.” He observed that the discrimination was not based upon any difference in the source of income or in the character of the property employed, and stated the obvious: that the requirement that a classification must be reasonable does not imply that the policy embodied in the classification must be deemed by the court to be a wise one. He concluded that a State is permitted to impose upon corporations more than their pro rata share of the burden of taxation, and that nothing in the Federal constitution prohibits this. It seems that this is exactly what we held in Thorpe v. Mahin, 43 Ill.2d 36. We there recognized what we called the obvious advantages of carrying on a business in the corporate form: the corporate ownership of property, freedom from personal liability for corporate obligations, continuity of existence, etc. We acknowledged that there are sufficient differences between the privilege of earning or receiving income as a corporate entity and that of earning or receiving income as an individual to justify the variance in tax rates between the individual and the corporation, and here we should recognize that there are sufficient differences between the privilege of owning property as a corporate entity and the privilege of owning it as an individual to justify the exemption in the case of the individual property owner. The fact that the corporation may in some respects be placed at a disadvantage in its competition with individuals owning similar property and engaged in the same business should not condemn the classification as unreasonable. Thorpe v. Mahin, at p. 46. There is no more compelling reason to hold that the classification of personal property for tax purposes must be based upon the nature of the property than there is to adjudge that the classification for income tax purposes must be based on the source or type of income to be reported. The article IX-A constitutional amendment creates a classification based upon the distinctions inherent between corporations and individuals — a distinction which we have recognized and upheld as valid under the equal-protection-clause requirement of the fourteenth amendment in Thorpe v. Mahin. Another matter is worthy of mention in our consideration of this case. The evils and the inequities in the administration of the personal property tax collections in this State are known to everyone. That these inequities apply with equal force to corporate taxpayers and individual taxpayers may, or may not, be totally true. The desire and purpose of systematically eliminating this archaic form of taxation are apparent from the actions of the people and the legislature of the State. The General Assembly, which drafted and adopted Senate Joint Resolution No. 30, had previously at the same legislative session already exempted from such taxation, household furniture and one automobile, per household, used for personal pleasure. (Ill. Rev. Stat. 1969, ch. 120, par. 500.21a.) The article IX-A amendment was overwhelmingly ratified by the people of the State. The constitution of 1970, likewise adopted by the vote of the people, expressed concern over the form and use of personal property taxation. The newly-adopted constitution prohibits the reinstatement of any ad valorem personal property tax abolished before July 1, 1971, the effective date of the new constitution. This provision refers to the personal property tax as to individuals which was abolished by article IX-A, and the majority opinion runs counter to this constitutional prohibition in that it reinstates the personal property tax as to individuals. In addition, the new constitution provides that all ad valorem personal property taxes shall be abolished on or before January 1, 1979. The obvious spirit of the article IX-A amendment, the will of the people, as expressed by its adoption, and the intent and purpose of the legislature, should not be thwarted unless a construction to this effect is required. Thus, it is very appropriate that we consider the mischief sought to be remedied and the purpose to be accomplished by the article IX-A amendment. (Wolfson v. Avery, 6 Ill.2d 78, 88.) Likewise, the court should memorialize the salutary rule of law that an amendment to a State constitution should be deemed violative of the Federal constitution only where the asserted constitutional rights cannot otherwise be protected and effectuated. Reynolds v. Sims, 377 U.S. 533, 12 L. Ed. 2d 506, 540, 84 S. Ct. 1362. After considering the background of this constitutional amendment and the purpose which it, along with the other contemporary legislative enactments and constitutional adoptions, seeks to accomplish, I believe that the classification found in the article IX-A amendment does not constitute an invidious discrimination; that it seeks to accomplish and promote a valid policy expressive of the will of the people and the intent and purpose of the legislature; and that the distinction upon which the classification for exemption is based does not overstep the limitations imposed by the fourteenth amendment.