Havens v. Attorney-General , 91 N.H. 115 ( 1940 )

It seems to me that the decision is based upon a position which is a revolutionary departure from the views expounded and developed in this State in construction of the constitutional mandate of equality. It adopts a new theory of classification in conflict with that heretofore made the proper test, and by judicial process accomplishes what has been thought could be brought about only by constitutional amendment. The conception that if a subject of taxation has been, or may be, specially regulated in the exercise of the police power, it may be specially and exclusively taxed, is a radical change from the view understood heretofore to prevail that it must be in the public interest to exempt subjects not taxed in order to sustain the validity of the subject taxed. No contention respecting the existence of the right to classify arises. The inequality produced by taxing one form of property and not taxing another does not violate the principle of equality, provided the inequality is one that promotes the public welfare. Selection of a specific form of property for taxation without a public interest that other forms be exempted is believed to rest upon a theory of classification, the adoption of which reverses a long and uniformly accepted construction of our Constitution. That the selection may be made because of the subjection, actual or possible, of the property taxed to police regulation does not relieve it from the charge of an arbitrary character. A classification in which a subject is selected for taxation without regard to subjects exempted does not observe equality. The equality among those paying the tax is not enough. There must be a proper reason for the exemption.

As the majority opinion is understood, it advances a doctrine that any article, or its sale, may be taxed, separately and exclusively if it is an appropriate subject of taxation, the test of appropriateness being that it is under some regulation of the police power, and is in a distinctive class of its own. Whether the subjection to regulation creates the class distinction, or whether the distinction may be based on other and additional grounds, is not clear. The favor of economists for the tax is pointed out. The favor hardly seems relevant. It also extends to progressive taxes, but that is no reason for validating them. But whatever the interpretation, and conceding the desirablity [desirability] of the tax from an economic standpoint, the opinion adopts a formula which is considered so greatly at variance with the views of constitutional equality long and consistently advanced that a statement of the reasons for dissent seems demanded.

Classification in taxation is accomplished by taxing one kind or use of property and not taxing another. There being no tax on what is not taxed, it is necessarily exempt from taxation, and classification is thus established among taxables between those taxed and those not taxed. Exemptions which are reasonable may be made (Thompson v. Kidder,74 N.H. 89, 97; Opinion of the Justices, 84 N.H. 557, 558). And one is reasonable if it may be deemed just. (Opinion of the Justices, 82 N.H. 561,573). It is just if it may be considered for the welfare of the State, i.e., an exercise of the protective power. Opinion of the Justices,87 N.H. 490, 491; Opinion of the Justices, 88 N.H. 500, 510, 511. "The general object of all these exemptions is to promote the prosperity and welfare of the state. The policy is justified on the ground that the advantages arising from the exemptions largely exceed the disadvantages due to the inequality in taxation introduced by them, so that, upon the whole the public good is promoted." Petition of Union c. Bank, 68 N.H. 384, 387, cited in Opinion of the Justices, 82 N.H. 561, 571.

"Classification creates inequality unless it reasonably promotes a matter of the general welfare." Rosenblum v. Griffin, 89 N.H. 314, 321. It is understood that this rule is a test for valid taxation as well as for valid police legislation. But it does not follow that because a subject may be specially selected for regulation, it may therefore be specially selected for taxation. The public interest as a reason for special regulation may be absent as a reason for special taxation. A reason of health, morals or safety to support regulation may wholly fail as a reason to support taxation. To say that tobacco may be specially taxed because it may be specially regulated, is believed to be fallacious reasoning in construction of the constitutional requirement of equality.

The act taxing sales of tobacco products without taxing sales of other property necessarily exempts all other sales. Unless it is in the public interest that the sale of no property be taxed except of tobacco products, the rule of equality is disregarded. While relief from taxation is of public benefit, relief for one, to be valid, must be given to others similarly circumstanced. Eyers Woolen Co. v. Gilsum, 84 N.H. 1, 28, and cases cited. Otherwise the classification is one of unfair discrimination. To say that there is good public reason to tax the sale of tobacco products and of nothing else asserts that a public benefit is served by exempting from taxation the sale of each and every form of property except tobacco products. The proposition seems indefensible.

The statement appears in Canaan v. District, 74 N.H. 517, 540, that "no case has been found" holding a tax on property invalid because of the exemption of other property. It is regarded as only a statement that no enacted tax legislation had been found to produce unfair discrimination rendering it invalid. It is not a statement that a tax on any item or subject of property is valid although it is not laid on other items or subjects similarly circumstanced. If it had such a meaning, then the rule of reasonable classification would be discarded. Nor is it a statement that a law taxing certain property is not one exempting other property. What is not taxed is necessarily exempted, and it is immaterial whether or not special statement of what is not taxed is made. Omission to tax, however accomplished, produces exemption. If out of ten subjects or forms of property only one is taxed, the others are exempted. In equality of effect a law taxing only tobacco or its sale, with no statement in it that other commodities are not taxed, is no different than if the law contained such a statement. That a constitutional difference may exist by reason of the form of expression in two laws differently framed but producing identical results, is not thought to be within proper interpretation. A tax statute which either by its terms or by its operation furnishes exemptions is, in that respect, an exemption statute, and any legal difference of classification produced by designating one as primarily an exemption statute, while the other is only to be regarded secondarily, if at all, as having an exemption purpose and policy, seems based on narrow and unsustainable grounds. The obvious intent of the legislature was not to tax, and hence was to exempt, all subjects of taxation except tobacco or its sales. It is as clear in such respect as though the purpose and policy had been set forth in terms. If the cited statement in the Canaan case should be otherwise construed, it may be said that it was dictum, that the opinion containing it was concurred in by no other member of the court unless one, and that the summary of the opinion was that the express exemption under consideration was "not an unreasonable exercise of the protective power." Ib., 545.

It is not questioned that many exemptions from a sales tax are proper. It could not be successfully claimed that a law taxing luxuries and exempting necessaries would be invalid. The economic welfare of the State might thereby be well served. And even the exemption of certain luxuries might be sustained as a measure in furtherance of the cause of public health or of some other concern of public welfare. But it is not perceived how it can be found to be for the public welfare, in taxing the sale of tobacco products, to exempt the sale of such articles, for example, as smoking accessories, chewing gum, playing cards, certain forms of cosmetics, and certain forms of jewelry. If, however, the protective power may be properly exerted in advancing the general interest by taxing sales of tobacco exclusively, then it would seem that any selection might be found just and reasonable and the legislative will be uncontrolled. The line between reasonable and arbitrary discrimination is at times difficult to draw, but it is thought that all fair minded persons would say that no public advantage is furthered by granting relief from the taxation of the sale of every article, whatever its kind or use, except tobacco products.

The majority opinion stresses tobacco as standing "in a class of its own," for the purpose of making it "an appropriate subject of taxation." Conceding a plausible appropriateness, equality is denied if it is separately and alone taxed, when no public benefit is gained by not taxing other subjects. The thought is expressed that the police power has been employed in regulation of its sale to show "a line of demarcation" between it and other commodities. But the sales of many other commodities are under regulation. If it may be harmful to health to smoke tobacco, so also impurities may make food harmful to eat. Regulation to prevent the impurities is as appropriate as regulation to prevent smoking. But regulation is not thought to make either food or tobacco an appropriate subject of exclusive taxation merely because of the fact that they may be harmful, or because of the regulation. The form of regulation may vary, but whatever the form, a restriction upon the sale is imposed. The "line of demarcation" is only a line marking the difference of manner of regulation. The restrictions of sales of narcotics (Laws 1935, c. 156) and of certain weapons (P. L., c. 149) are far heavier than those of sales of tobacco. Regulations permitting sales only upon certain conditions are restrictions, and may be substantially prohibitive.

If it be assumed that the sale of tobacco products may be regulated to the extent of complete prohibition, as in the case of poisons, intoxicants and certain weapons, it remains that no such regulation has been undertaken. The common right, or the right of all in common, to sell has not been taken away, and the right exists as freely and fully as in the case of sales in general. All that is taken away by regulation is the right to sell to minors. No license for permission to sell is required. When in regulation the common right is taken away, and the right to sell exists only under special permission or license, the imposition of a price for the privilege, to produce revenue as well as to meet enforcement expense, is valid. The price paid is a license fee and not a tax, and the State's dictation of terms is not a violation of equality, so long as there is no unfair discrimination among those applying for the privilege. The law under consideration is not a license law, destructive of the common right, and while the common right to sell tobacco continues, the sale may not rightfully be subjected to a tax merely because the right may be destroyed, if it rightly may be. From the standpoint of equality, in special applications any article or substance, the now subsisting common right to sell which may be taken away, cannot, it is thought, be demarked from tobacco, in taxing its sale. The similarity of circumstances is too pronounced. Although the legislature may select its objects of regulation and prescribe the extent of regulation, it may not select an article, or its sale, for taxation, merely by reason of its power to regulate or of an exercise of its powers, not going to the extent of destroying the common right. The majority opinion, however, in effect holds that it may.

The act under consideration is not a police measure, but is solely one for revenue. While a statute may combine both features, a revenue act is not also a police regulation for the mere reason that it might have been made one. The power to exercise the police power does not prove its exercise. Was it exercised, is the inquiry.

The preamble to the act states only a revenue purpose and the regulations relate only to collection of the tax. It is probable that only revenue was the object of the law. If it is possible that regulation, in a purpose to lessen consumption because the use of tobacco products was thought to be harmful, the possibility is not enough. What was not probably intended, although it may have been, is not the enactment. What the probabilities are, is determinative. That is the rule of construction to which it is understood there are no exceptions. It cannot be reasonably inferred or assumed that anything other than revenue was in mind. An inference of a purpose of protection would be a fictitious one, contrary to all the evidence, and not rightly to be countenanced. In this aspect imagination may not properly displace realism. A constitutional quality of the act ought not to be supported by the assumption of a fact which cannot honestly be believed to exist. If the law is constitutional only if a certain condition exists, the condition must be found to exist. The normal presumption that the legislature intends to pass no invalid laws is to receive its due recognition, and may be irrebutable. But when the purpose of what is enacted is clear, the presumption has no application. Otherwise, no legislation could be invalidated. State v. Gerry, 68 N.H. 495, 503. The question then is, regardless of the legislative interest to act within constitutional bounds, has it done so?

But even if the act were a protective as well as a revenue measure, the exercise of the protective power, short of licensing provisions taking away the common right to sell enjoyed by all, would not justify taking tobacco as a sole subject of taxation.

As the logical effect of the decision, any article, even though a necessary of life, might be deemed "appropriate" for taxation, if it is or may be under regulation in connection with its sale, and accordingly be taxed separately and by itself. But a law taxing only bread, for example, would not be validated by including in the law requirements for the weight and quality of the bread. The opinion sets forth no test of appropriateness which would defeat such a tax. The line of demarcation between tobacco and many other commodities in respect to regulation is at most in the manner of regulation. The prohibition of the sale of tobacco to minors is no different, from the standpoint of regulation, than the requirements of measure, quality, and manner in the sale of innumerable articles. Appropriateness being a matter of legislative discretion as the test adopted, the requirement of equality would be confined within a narrow range of application. This is not regarded as equality in the constitutional sense.

Exemptions based on generic classifications of property are readily sustainable, because of the evident public interest to relieve the class exempted. But as to sub-classifications, their development requires consideration of the balance between the public interest and private gain. "Aiding a private manufacturing corporation is not a public purpose" (Eyers Woolen Co. v. Gilsum, 84 N.H. 16), although it may be of great economic advantage to the community where it is located. Aiding storekeepers in general may be a public purpose, but to aid some of them without aiding others can be justified only by a line of distinction based on a public benefit for those aided not applicable to those not aided. If the stock in trade tax were limited to that of shoe stores, the burden of public expense upon their proprietors would be constitutionally unfair, because no fair ground of public interest for the differentiation between them and other storekeepers in general could exist. The favor to those enjoying the exemption would be personal and not public in benefit. This example is no more extreme than that of the taxation of tobacco sales. The physical characteristics of tobacco are not a feature of constitutional distinction. Nor is its use as a luxury a reason for distinction when the sales of all other luxuries are exempt. Nor does the regulation of its sale make it an appropriate subject of taxation when the sale of many other things are under regulation, and when regulation is no purpose of the act. ". . . all exemptions from taxation are practically equivalent to a direct appropriation." (Canaan v. District, 74 N.H. 517, 537, cited in Eyers Woolen Co. v. Gilsum, 84 N.H. 1, 10), and an appropriation to all storekeepers except of tobacco is an unfair expenditure. It is true that by the act the consumer ultimately pays the tax. But that is immaterial. It needs no argument that the tax added to the "usual selling price" is a burden on the business. The tax on rented real estate may be passed along to the tenant, by economic process, but the tax affects rentability and thereby value. Whether the dealer or seller pays the tax or is only a tax-collector is merely a point of technique, in respect to the tax burden. The dealer's business is burdened by the tax because the price to his customers is increased, in the same manner that the federal tax adds to the cost. It would be a strange view of the constitutional doctrine of equality if the tax were invalid if he were the taxpayer but would be valid if he were a collector, treating a sale as made up of the two items of regular price and the tax. The tax is on an event or incidence. The statement that "`Property can be classified for tax purposes. The taxpayers cannot.' The test for taxability here proposed relates strictly to the property." (Opinion of the Justices, 84 N.H. 559, 569), is applicable.

To the extent classification can be applied in taxing sales, it can be applied to taxing ownership. It would be thought a novel discrimination if the stock in trade of a shoe store might be exempt from taxation while taxing that of a food store. Each is distinctively in a class of its own, as much as tobacco is, and the conduct of a food store is under regulation in contrast with that of a shoe store. The parallel with the tobacco sales tax persists. Unless some ground of the public welfare in exempting the shoe dealer's stock while taxing that of the proprietor of the food store, might be discerned, the discrimination, it is thought, would be unjust, as a favor to the individual rather than a benefit to the public. It is said that tobacco is a luxury, but so, for example, are diamonds. The public advantage in taxing tobacco, or its sales, only for revenue, and not taxing diamonds, or their sales, is not perceived; the advantage is entirely personal and individual for the seller or buyer of diamonds, and that is an inequality of which it is thought the tobacco seller or buyer may justly complain.

As has been stated, facts which justify classification for regulation do not for that reason justify a corresponding classification for taxation. Regulations for the weight, measure and quality of articles offered for sale vary in their application to different kinds of articles, but selection for taxation according to variations of regulation would be arbitrary. Real estate may be zoned for special uses, but the right to classify for taxation, as, for example, between single residence and two tenement zones, does not thereby follow. Even when the common right to sell an article is taken away by the requirement of a license, a license fee for revenue purposes may be invalid. A license requirement to sell drugs and medicines does not necessarily connote a right to levy a special tax on their sale. It is only when regulation might go so far as to completely destroy, that a license fee, amounting in practical reality to a tax for revenue, may be charged. The legislature may exercise the police power in full, or partial extent, or not at all, in respect to a particular subject of application. But in respect to taxation, the selection of property taxed is more limited in range and specification. Equality in taxation and equality in regulation do not coordinate.

The majority opinion argues that since it has been thought that the franchises of gas and electric utilities may be taxed while the franchises of other utilities and of corporations other than utilities are not, tobacco may therefore be selected for taxation to the exclusion of other commodities. The opinion ignores the basis for the special taxation of the franchises of such utilities. They may operate only upon the permission and approval of the public service commission, and it is the "right, privilege, or franchise," as a natural or artificial monopoly, which "does not belong to the utility as of common right. It is acquired by the state's grant. It is desired because it has been taken out of the field of common right; and its exclusive character may give it value, . . . comparison has been made with the right to use a manufacturing plant. This lacks the essential element that in the case of the public utility competition is excluded, . . . No one not a public utility can engage in the business (P. L., c. 236, s. 4; Ib., c. 240, s. 21), and the meaning of the proposed act is the same as though it read `all property used in the public utility business shall be taxed.'" Opinion of the Justices,84 N.H. 559, 568, 569. Whether the Opinion expresses the view that if gas and electric utility franchises may be taxed to the exclusion of the franchise of other utilities, is doubtful. Reference was made to the contention that "if the franchises of these utilities are taxed other franchises must be." (p. 569). By "other franchises," other utility franchises do not appear to have been in mind, but only franchises of corporations other than utilities. The discussion proceeds and is conducted on that basis. But if an opposite construction of the language used were adopted to include other utilities, of which water companies are now suggested as an example, it may be said that the exemption of their franchises might be reasonable, because of their special service to the public. Light, heat and power may be produced by other agencies than gas and electricity, while there is no substitute for water as an indispensable essential of life.

In respect to the tax on income in the form of dividends and interest, other forms of income may be exempt from the tax, as forms of general property may be, so long as they are an exercise of the protective power. Rents may obviously be relieved, since the tax on the property producing them is concededly excessive in economic considerations. Likewise, earnings for service may be exempt, since they are the chief means of support for most persons. And if capital gains may be considered or treated as income, the public interest in economic development justifies their exclusion.

Any parallel between a tax on tobacco sales only and one on wood and timber upon the event of severance is one of words rather than realities. The latter tax would apply to "a distinctive class of property," and its incidence "would depend upon a characteristic event, not common to other property." Opinion of the Justices, 84 N.H. 559, 575. The tax could not be correlated with other taxes (Ib., 575), and is thus analogous to the legacy and inheritance tax. The sale of tobacco is an incident or event common to the sale of all property. And, as has been pointed out, it is not a distinctive class of property in comparison with many other forms of property similarly circumstanced. If the issue, as to which no opinion has been rendered, were whether one kind of timber, such as pine, might be taxed only on severance, while all other kinds were taxed annually as real estate owned, the comparison would be logical. Wood and timber have generic standing as a class of property, while tobacco and its sale have common attributes with other forms of property. If tobacco and its sale may be specially selected for taxation as being a distinctive class of property, it would seem that any article, like playing cards for amusement, jewelry for adornment, and perfume for vanity, might be separately classified. If regulation becomes a factor, then, as already pointed out, many articles and commodities are under regulation in connection with their sale.

The State has stressed "kind and use" as reasons for classification, citing Opinion of the Justices, 84 N.H. 559, 569. But taxation of one kind of property and exemption from another kind, and taxation of property when used one way and its exemption when used another, must not be arbitrary. "So long as there is a reasonable line of demarcation," the legislative action may not be questioned. Ib., 569. "Selection must be made for a just reason," (Opinion of the Justices, 82 N.H. 561, 576), and a just reason is one reasonably in the public interest. The exemption from tax when tobacco is used for purposes of utility inuring to the public welfare is undoubtedly valid, but to exempt other sales for no useful purpose of public interest seems as clearly invalid. It is true that tobacco is a kind of property in distinction from all other kinds. But tobacco itself may be assorted into different kinds. In their species cigars, cigarettes and pipe tobacco are of different kinds. It is not the physical character of an article that determines kind, for purposes of classification, but its relation in some aspect of public concern. The legislature not regarding tobacco smoking as a harmful practice except by minors, for purposes of taxation tobacco cannot be regarded as a different kind of property than many luxuries, the sale of some of which, as has been stated, is even under greater restriction than of tobacco sales. Nor does the fact that tobacco is used in one manner or for one purpose while other luxuries are used in a different manner or for other purposes alone create a constitutional difference sufficient to warrant a classification in taxation.

Buildings and lands are of various kinds and distinction from each other in use. But valid classification for tax purposes among them requires a public advantage for any to be exempted. Jewelry is of different kinds, and diamonds are distinctive from pearls, but, it is considered, not for classification in taxation. Milk is a distinctive article of food, but the fact that its sale is placed under regulation in certain areas does not show that the sale may be taxed while the sale of no other foods is taxed.

The inherent vice of the decision is in its effect to relieve individuals from taxation when no public interest is thereby gained. The proposition that no man should pay any part of his neighbor's share of the public expense of government needs no citation for its support. But if the sellers of goods which there is no public interest to exempt from tax are relieved, then in some measure the burden from which they are relieved falls upon the sellers whose sales are taxed. They are in every just and reasonable way similarly circumstanced. The injustice is particularly striking in the case of sales of narcotics, certain weapons and other harmful or dangerous substances, so far as the common right to sell them subsists. The incidental private benefit that may derive from the public benefit of an exemption is one thing. The private benefit that accrues from an exemption not in the public interest is another. The former is not a grant to individuals. The latter is.

Other questions bearing on the validity of the act have not been considered. This dissent discusses the act only upon its primary, underlying and general conflict, considered to be inherent in it, with the principle of equality embodied in the state, if not also in the Federal, Constitution.