David P. Eby & a. v. State of New Hampshire
166 N.H. 321
N.H.2014Background
- In 2009 New Hampshire enacted a 10% Gambling Winnings Tax on winnings from lotteries and games of chance, applying to residents’ winnings from anywhere and nonresidents’ winnings derived from New Hampshire; the tax was repealed effective May 23, 2011 but not retroactively.
- Willey (New Hampshire resident) reported $184,700 in out-of-state gambling winnings for 2009 and paid $18,470 under the statute; Eby (added later) paid $1 on a $10 in-state scratch ticket win.
- A putative class action was filed challenging the statute as facially unconstitutional (uniformity; disproportionality/unreasonableness) and as-applied to pre-enactment annuitants and professional gamblers, seeking refunds and declaratory relief.
- The trial court granted summary judgment for the State on facial challenges, found factual issues whether Willey was a professional gambler (adopting IRS/Groetzinger factors), and later dismissed remaining claims; petitioners appealed.
- On appeal the Supreme Court of New Hampshire reviewed constitutionality de novo, analyzed uniformity/proportionality under the NH Constitution, and considered standing issues for Commerce Clause and as-applied claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Uniformity under NH Constitution | Gambling winnings are part of “gross income” and must be taxed at same rate as interest/dividends (5%) | Legislature may classify different types of income; gambling winnings are distinguishable | Court: Tax does not violate uniformity — gambling winnings are a valid separate class with just reasons for different rate |
| Disproportionality / unreasonable (no deduction for losses) | Taxing gross gambling winnings without offset for losses is unfair and disproportional | Legislature may tax gross income; gross-income taxes are constitutional | Court: No facial violation — taxing gross gambling winnings without loss offsets is permissible |
| Dormant Commerce Clause (negative aspect) | Tax improperly burdens interstate commerce by taxing residents’ out-of-state winnings and nonresidents’ in-state winnings; should be judged under Complete Auto test | No cognizable Commerce Clause injury shown; petitioners lack standing | Court: Petitioners lack standing to bring Commerce Clause challenge; issue not reached on merits |
| As-applied claims for annuitants and professional gamblers | Petitioners (class) may raise retrospective and as-applied claims on behalf of annuitants and pros; 2012 declaratory-judgment amendment grants taxpayer standing | Petitioners lack personal injury in those specific circumstances; statutory appeal routes limit RSA 491:22 expansion | Court: Petitioners lack standing to pursue annuitant and professional-gambler as-applied claims; trial court properly required proof Willey was a professional gambler and petitioners cannot rely on class posture or RSA 491:22 to cure lack of standing |
Key Cases Cited
- Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) (articulates the four-part test commonly applied in Commerce Clause tax cases)
- Commissioner v. Groetzinger, 480 U.S. 23 (1987) (factors for determining whether activity constitutes a trade or business for tax purposes)
- City of Concord v. State of N.H., 164 N.H. 130 (2012) (standards for reviewing summary judgment and presumption of constitutionality)
- First Berkshire Bus. Trust v. Comm’r, N.H. Dep’t of Revenue Admin., 161 N.H. 176 (2010) (discusses New Hampshire constitutional requirements of uniformity, proportionality, and reasonableness)
- N. Country Envtl. Servs. v. State of N.H., 157 N.H. 15 (2008) (Legislature may classify property for tax purposes so long as classes are sufficiently distinguishable)
- Groton v. (Opinion of the Justices), 110 N.H. 117 (1970) (advisory discussion that gross and net income may be taxed as separate classes)