Opinion
1929
The Justices of this court, excepting FIELD, J., in response to a question submitted to them under c. 3, art. 2 of the Constitution of the Commonwealth, stated as their opinions that (1) The General Court, conformably to the provisions of the Constitution of the Commonwealth, may not levy an excise tax on the transaction of business by associations, partnerships and trusts, the beneficial interest in which is represented by transferable certificates of participation or shares; (2) The transaction of business by an association, partnership or trust, the beneficial interest in which is represented by transferable certificates of participation or shares, is not a "commodity" within the meaning of c. 1, § 1, art. 4, of the Constitution of the Commonwealth authorizing the General Court "to impose and levy reasonable duties and excises upon any produce, goods, wares, merchandise, and commodities, whatsoever brought into, produced, manufactured, or being within the same"; (3) A statute, levying an excise tax on every association, trust or partnership, the beneficial interest in which is represented by transferable certificates of participation or shares, with respect to the carrying on or doing of business by it within the Commonwealth, would not contravene the Constitution of the United States.
The following order was adopted by the Senate on March 6, 1929, and by the House of Representatives in concurrence on March 7, 1929, and was transmitted to the Justices of the Supreme Judicial Court on March 15, 1929:
WHEREAS, There is pending before the General Court a bill entitled "An Act imposing excise taxes measured by income and otherwise upon certain corporations and analogous forms of organization," printed as Appendix D, in current House document numbered ten hundred and seventy-five, a copy of which is hereto annexed; and
WHEREAS, Doubt exists as to the constitutionality of said bill if enacted into law; therefore be it
ORDERED, That the opinions of the Honorable the Justices of the Supreme Judicial Court be required on the following important questions of law:
1. May the General Court, conformably to the provisions of the Constitution of the Commonwealth, levy an excise tax on the transaction of business by associations, partnerships and trusts, the beneficial interest in which is represented by transferable certificates of participation or shares?
2. Is the transaction of business by an association, partnership or trust the beneficial interest in which is represented by transferable certificates of participation or shares, a "commodity" within the meaning of Article IV of Section I of Chapter I of Part the Second of the Constitution of the Commonwealth authorizing the General Court "to impose and levy reasonable duties and excises upon any produce, goods, wares, merchandise, and commodities, whatsoever, brought into, produced, manufactured, or being within the same?"
3. May the General Court, conformably to the provisions of the Constitution of the Commonwealth, levy an excise tax on such associations, partnerships and trusts, substantially as provided in section four of said bill?
4. Would any provision of said section four contravene the Constitution of the United States?
The proposed act, a copy of which was annexed to the order, proposed to amend the General Laws by striking out chapter 63 and inserting a new chapter in place thereof entitled "Taxation of Corporations and Analogous Forms of Organization," section 4 of which would read as follows:
SECTION 4. Every association, trust or partnership, the beneficial interest in which is represented by transferable certificates of participation or shares, shall pay annually, with respect to the carrying on or doing of business by it within the Commonwealth, the excise levied by section two; provided, in lieu thereof, that if it appears that such an association, trust or partnership has its principal place of business outside the Commonwealth, and that it is not within the taxing jurisdiction of the Commonwealth except as to property actually located in and business attributable to the Commonwealth, it shall, with respect to the carrying on or doing of business therein, pay annually the excise levied by section three. The word "corporation" or "company" as used in this chapter, except where the context otherwise requires, shall include an association, trust or partnership subject to this section.
On March 27, 1929, the Justices returned the following answer:
To The Honorable the Senate and the House of Representatives of the Commonwealth of Massachusetts:
The Justices of the Supreme Judicial Court respectfully submit these answers to the questions of an order adopted by the Senate on March 6, 1929, and by the House of Representatives on March 7, 1929, and transmitted to us on March 15, 1929, copy whereof is hereto annexed.
These questions relate to a bill entitled "An Act imposing excise taxes measured by income and otherwise upon certain corporations and analogous forms of organization." The fundamental inquiry is whether the General Court may conformably to the Constitution of the Commonwealth levy an excise on the transaction of business by associations, partnerships and trusts, the beneficial interest in which is represented by transferable certificates of participation or shares. The inquiry relates to an excise and not to a property tax. The answer depends upon the scope of that part of the power conferred upon the General Court by the words "to impose and levy reasonable duties and excises upon any produce, goods, wares, merchandise, and commodities, whatsoever, brought into, produced, manufactured, or being within the same," in c. 1, § 1, art. 4, of the Constitution. Manifestly the only one of these descriptive words possibly applicable to the transaction of business by such associations, partnerships and trusts is "commodities." Is such transaction of business a commodity?
The precise question now to be considered was decided in Gleason v. McKay, 134 Mass. 419. The excise tax upon corporations theretofore established was by St. 1878, c. 275, extended to associations and partnerships like those described in the present order. That statute was held to be not in conformity to the clause of the Constitution just quoted. The reasoning of the opinion in that case, succinctly stated, was that such associations enjoyed no franchises conferred by the Legislature but were exercising a common right, and that the factor of transferable certificates of participation or shares did not make the doing of business by such associations a commodity. This general subject was much discussed in Opinion of the Justices, 196 Mass. 603, where there was some diversity of view between the Justices. A majority of the Justices, although entertaining ideas differing among themselves as to the answer to be made to one of the questions there propounded, were of opinion that Gleason v. McKay, 134 Mass. 419, both in its reasoning and in its result, stated the law of the Commonwealth and had not been overruled but affirmed by Minot v. Winthrop, 162 Mass. 113, and that the reasoning upon which it rested had been again affirmed in O'Keeffe v. Somerville, 190 Mass. 110. Those views are expressed in 196 Mass. at pages 620, 621, 624, 625, 627, 628. A minority of three of the Justices entertained the view that Gleason v. McKay, 134 Mass. 419, in its reasoning was out of harmony with earlier decisions and was overruled as to its reasoning but not as to its result by Minot v. Winthrop, 162 Mass. 113, and that the decision in O'Keeffe v. Somerville, 190 Mass. 110, could stand on a different ground. Those three Justices, however, interpreted Minot v. Winthrop as holding that the conclusion reached in Gleason v. McKay was sound, but on the ground that "the excise there in question not having been imposed on all unincorporated companies, copartnerships and associations, did not come within the limits of the Constitution which confines the power of the General Court to imposing and levying 'reasonable' duties and excises." See 196 Mass. at pages 615, 616, 617, 618, for an amplified statement of those views. Thus it appears that the Justices were unanimous in the opinion that the conclusion reached in Gleason v. McKay, 134 Mass. 419, had not been overruled, the differences between them arising solely as to the grounds upon which that decision rightly might rest. So far as concerns the binding force of Gleason v. McKay upon the question here presented, it makes no difference whether the view of the majority or of the minority of the Justices as set forth in 196 Mass. 603, at the pages heretofore cited may ultimately prevail, because they agreed that the statute under consideration in Gleason v. McKay could not be upheld as in conformity to the taxing power conferred by c. 1, § 1, art. 4, of the Constitution, according both to that decision itself and to all that was said in Minot v. Winthrop concerning that decision. It hardly needs to be added that adjudicated cases decided by the court after a hearing and arguments by counsel cannot be overruled by opinions rendered by the Justices under c. 3, art. 2 of the Constitution, when not acting as a court but as the constitutional advisers of the other departments of government, although such opinions necessarily presuppose judicial examination and consideration. Opinion of the Justices, 126 Mass. 557, 566. Inspector of Buildings of Lowell v. Stoklosa, 250 Mass. 52, 59, and cases there collected. Juggins v. Executive Council, 257 Mass. 386, 389.
The statute under consideration in Gleason v. McKay, although differing widely in details, is indistinguishable in its essential features from the one here proposed as to the points raised by the questions stated in the present order. If resort be had to the reasoning stated in the opinion in Gleason v. McKay, it is plain that the present bill, in the particulars specified in the order, cannot be thought to be in conformity to that part of c. 1, § 1, art. 4, of the Constitution already quoted, because the thing on which the excise is laid is not included within the definition of the word "commodities." If resort be had to the statements of the grounds on which the decision in Gleason v. McKay ought to rest, as set forth in the opinion of the three Justices in 196 Mass. at pages 615 to 617, and the quotations there made from Minot v. Winthrop, 162 Mass. 113, the present bill in the particulars specified in the order cannot be thought to be in conformity to that part of the Constitution, because the proposed excise does not operate equally upon all persons exercising the employment or business taxed, in that the distinction between associations, partnerships and trusts with transferable certificates of participation or shares, and those without such transferable certificates or shares, renders the excise unequal and unreasonable, such discrimination between the two classes being founded upon an immaterial fact.
Other provisions of law, which have come into existence since Gleason v. McKay, do not affect that decision. The regulation of voluntary associations, partnerships and trusts by G.L.c. 182, as amended by St. 1922, c. 272, St. 1924, c. 190, and St. 1926, c. 290, does not constitute their method of doing business a franchise or privilege from government. As was said in Hecht v. Malley, 265 U.S. 144, 147, "They are not organized under any statute; and they derive no power, benefit or privilege from any statute. The Massachusetts statutes, however, recognize their existence and impose upon them, as 'associations,' certain obligations and liabilities." Bouchard v. First People's Trust, 253 Mass. 351, 354-360.
We do not mean to say that the device of voluntary unincorporated associations or trusts, with complicated contractual or fiduciary provisions for the transfer of fractional interests therein by certificates, depending for their validity upon an elaborate and intricate agreement, for the enforcement and interpretation of which resort is frequently and necessarily had to the courts, belongs to that class of natural rights which is above the power of the Legislature. Opinion of the Justices, 196 Mass. at page 620. Hemphill v. Orloff, 277 U.S. 537, 548-551.
On the authority of Gleason v. McKay, 134 Mass. 419, the first three questions contained in the order are answered in the negative.
In our opinion no provision of § 4 of the bill contravenes the Constitution of the United States. We regard that as so clearly settled by Hecht v. Malley, 265 U.S. 144, as to require no discussion. The fourth question is answered in the negative.
Mr. Justice Field, before his appointment as a justice of the court, was a member of the special commission which drafted the bill referred to in the questions propounded in the order. He therefore asks to be excused from answering these questions.
ARTHUR P. RUGG. JOHN C. CROSBY. EDWARD P. PIERCE. JAMES B. CARROLL. WILLIAM C. WAIT. GEORGE A. SANDERSON.