Opinion
No. 6264.
Decided June 11, 1971.
1. Because of the requirements of uniformity and proportionality contained in part II, article 5 of the State Constitution, a constitutional amendment is a prerequisite to the enactment of a constitutional statute providing for the taxation exclusively of corporate business profits. 2. A personal income tax upon the gross income of individuals, exclusive of taxable business profits, may validly be imposed at a different rate coincidentally with the business profits tax (RSA ch. 77-A(supp.)) which is a net income tax applicable to individuals and corporations alike. 3. Property, but not taxpayers, may constitutionally be classified as taxable or nontaxable; thus, a tax imposed upon corporations, while allowing individuals engaged in like businesses or vocations to go free, would be unconstitutional. 4. Part II, article 6 of the State Constitution permits disproportional taxes to be levied upon "classes of property" made taxable thereunder, but part II, article 5 requires that such taxes be proportional and uniform within a class. 5. A proposed amendment to part II, article 6 of the State Constitution to permit the taxation of corporations would seem a doubtful expedient, because taxes have long been assessed to corporations under the Constitution in its present form. 6. Corporations may not reasonably be classified as subjects of taxation constituting a "class of property" comparable to estates, income, or property passing by sale or inheritance within the meaning of part II, article 6 of the State Constitution. 7. No just reason was suggested why corporate income should be taxed while individual income derived from like business enterprises should remain exempt. 8. Although individual gross income may reasonably be classified apart from business net income to permit a different rate to be employed for each class of income, with proportionality and uniformity maintained within each class, the tax burden must be shared by others enjoying like privileges, if corporations are to be taxed upon the receipt of income.
The following resolution was adopted by the House of Representatives May 19, 1971 and filed in this court on May 20, 1971:
"WHEREAS, Constitutional Amendment — Concurrent Resolution No. 22, amending the constitution to provide specifically that corporations are subject to taxation, is pending before the New Hampshire House; and
"WHEREAS, The question has arisen as to whether such a constitutional amendment is required to permit the general court validly to amend the business profits tax, RSA 77-A, to the effect that only corporate business entities shall be subject to taxation thereunder;
"Now, Therefore, Be It Resolved, That the justices of the supreme court be respectfully requested to give their opinion upon the following question of law:
"Is it necessary that specific allowance for taxation of corporations be inserted by amendment to the constitution before the enactment of any constitutionally valid law providing for the taxation exclusively of corporate business profits?
"Be It Further Resolved that the speaker transmit seven copies of this resolution and of Constitutional Amendment — Concurrent Resolution No. 22 to the clerk of the supreme court for consideration by said court."
The following answer was returned:
To the House of Representatives:
The undersigned Justices of the Supreme Court reply as follows to the inquiry contained in your resolution adopted May 19, 1971, and filed with this court on May 20, 1971, with respect to the necessity for a constitutional amendment in order to permit valid restriction of RSA ch. 77-A(supp.), the business profits tax, to the profits of corporate businesses only. Specifically, you inquire: "Is it necessary that specific allowance for taxation of corporations be inserted by amendment to the constitution before the enactment of any constitutionally valid law providing for the taxation exclusively of corporate business profits?"
Although your resolution makes reference to CACR No. 22, your inquiry is understood to pose no particular issue with respect to the proposed constitutional amendment, but rather to present the narrow question of whether some appropriate constitutional amendment is required before the business profits tax can validly be imposed exclusively upon the income of corporations.
In an advisory opinion recently returned with respect to House Bill No. 383, we expressed the view that a personal income tax upon the gross income of individuals, exclusive of taxable business profits, could validly be imposed coincidentally with the business profits tax (RSA ch. 77-A(supp.)) but at a different rate, since the latter tax is in the nature of a net income tax applicable to individuals and corporations alike. Opinion of the Justices, 111 N.H. 136, 276 A.2d 821 (1971).
Previously in Opinion of the Justices, 106 N.H. 202, 208 A.2d 458 (1965) we had occasion to refer to the long established principle that property, but not taxpayers, may constitutionally be classified as taxable or nontaxable. Id. at 205-06, 208 A.2d at 460-61, citing Opinion of the Justices, 84 N.H. 559, 569, 149 A. 321, 326 (1930). We there stated at page 206: "We have said that a tax imposed on corporations, while allowing individuals engaged in like businesses or vocations to go free, is unconstitutional"; citing Opinion of the Justices, 82 N.H. 561, 138 A. 284 (1927), in which the subject was fully discussed at pages 564-66, 138 A. at 286-87. In the latter opinion, advising that a proposed plan of taxation (HB No. 180) was unconstitutional, the justices said: "Broadly speaking, a tax cannot be imposed upon a corporation which would not be upon an individual similarly circumstanced." Id. at 564, 138 A. at 286. "Singling out corporations, and taxing them upon privileges, while permitting other holders of like privileges to go tax free, is a discrimination not permitted by the constitution." Id. at 565, 138 A. at 287.
Again, in Havens v. Attorney-General, 91 N.H. 115, 118, 14 A.2d 636, 638 (1940), in upholding the constitutionality of the tax upon tobacco products sold at retail, the court quoted from Opinion of the Justices, 84 N.H. 559, 569, 149 A. 321, 326 (1930), as follows: "So long as there is a reasonable line of demarcation, and there is no attempt to make taxability depend upon a classification of owners, the legislative power [to classify taxable property] is supreme." (Emphasis added). See also Opinion of the Justices, 95 N.H. 537, 540, 64 A.2d 320, 322 (1949), where the principle was reaffirmed.
It has long been settled that the 1903 amendment of article 6, part II, of the Constitution, was effective to permit the disproportionality inherent in taxes levied upon the "classes of property" made taxable by the amendment, but that the requirement of proportionality and uniformity of rate within a class continues to be required by article 5, part II of the Constitution. See also N.H. CONST., pt. I, art. 12; Opinion of the Justices, 99 N.H. 512, 513, 112 A.2d 44, 45 (1955); Opinion of the Justices, 111 N.H. 131, 276 A.2d 817 (1971); Conner v. State, 82 N.H. 126, 129-31, 130 A. 357, 359-60 (1925).
The insertion in article 6, part II of the Constitution of a reference to taxation "upon corporations," a class of taxpayers, as proposed by CACR No. 22, would seem a doubtful expedient, since taxes have long been assessed to corporations under the Constitution in its present form. Corporations, which are a class of taxpayers, may not reasonably be classified as subjects of taxation constituting a "class of property," comparable to estates, income, or property passing by sale or inheritance as permitted by article 6, part II, of the Constitution. See Opinion of the Justices, 82 N.H. 561, 564, 138 A. 284, 286 (1927); Opinion of the Justices, 101 N.H. 549, 556, 137 A.2d 726, 731 (1958); cf. Journal of the Convention to Revise the Constitution 82-83 (1956) (Resolution No. 48). "No just reason" is now suggested why corporate income should be taxed while the income of individuals derived from like business enterprises remains exempt. See Opinion of the Justices, 111 N.H. 131, 134, 276 A.2d 817, 820 (1971).
As stated in Opinion of the Justices, 106 N.H. 202, 206, 208 A.2d 458, 461-63 (1965), it is our view that if corporations are to be taxed upon the receipt of income, the tax burden must be shared by others enjoying like privileges. This is so, even though the income to be taxed may reasonably be classified as between the gross income of individuals and the net incomes of businesses so as to permit employment of a different rate for each class of income, provided proportionality and uniformity is maintained within each class.
The answer to your question is yes, it is necessary that the Constitution be appropriately amended before a statute can constitutionally provide for the taxation exclusively of corporate business profits. The proposed CACR No. 22 may not accomplish this purpose without giving consideration to the requirements of uniformity and proportionality contained in article 5, part II of the Constitution.
FRANK R. KENISON. LAURENCE I. DUNCAN. EDWARD J. LAMPRON. WILLIAM A. GRIMES. ROBERT F. GRIFFITH.
June 11, 1971.