*1 To summarize: we hold that admissible legally Hazel to over- presented by inadequate evidence was prima come the facie presented by case the executors and that unable to her claim sbe was evidence prove precise which was and convincing. clear, reversed. Judgment
Mr. Cohen took no part Justice the decision of this case. Appellants,
Amidon et Kane. al., 1971. Before J., C. May Bell, Argued Jones, Pomeroy JJ. Roberts, Barbieri, O’Brien, Eagen, *2 him Walter T. Perrin C. with Hamilton, Darmopray, Mal- A. Joseph Malloy, Jr., Hamilton, Darmopray, for appellants. Milner, plaintiffs, &loy for M. DeAngelis, plaintiff, appellant. Sidney with him E. Tru- Wayman, Wayman, Robert Irvin, appellants. for plaintiffs, MeAvdey, shel him Frank P. Wil- Packel, Lawley, Jr., Israel J. Shane dreamer, Gen- Smith, Attorney H. liam et of Revenue appellees. Secretary al., eral, by Opinion June 24, 1971: Mr. Justice Roberts, we are asked appeal, consolidated In this review of the decree Commonwealth Court dis 20, May complaints separate equity three missing challenging of the constitutionality recently enacted Personal Article III of provided Tax Tax Reform Income adopted March Act No. Code et seq.1 P.S. §7107 four argu-
The various advance plaintiff-appellants In- that Personal of their ments claims support Constitu- come to the repugnant Article contended that the violates tion. it is First, enactment without Section virtue 12(a) VIII, General to the Assembly submission Governor’s it urged Second, a balanced operating budget. an illegal delegation legislative the tax constitutes 1. of Article Section II, Third, contravention power the tax illegally exempts property claimed that of Article Section 5. And VIII, taxation violation the mandate ignores it is argued finally, Section 1 that 11 taxes shall be of Article VIII, “[a] within class of subjects, the same uniform, . . .” authority tax, . limits levying territorial *3 we conclude careful and considerable study, After the constitutional re- in offends question that it and that for this uniformity reason quirement invalid. it that is noted we are not unmind-
Preliminarily, problems besetting and difficulties ful of fiscal We must at same time, however, Commonwealth. appreciation our awareness and full emphasize cannot or any way enlarge problems these otherwise role in constitutional adjudica- our limited this affect tion. subjects their
The selection classifi taxation, of collection method are legislative and the mat cation, Taw Assessment Laughlin Jones 405 Case, & Pa. ters. 1 by a divided rendered Commonwealth was The decision Court. opinion support Judge an of the Court’s filed decree Wilkinson joined. Judge judges President Bowman filed three other in which joined. Judge Judge dissenting opinion Menceb which Menceb a Judge opinion dissenting Kramer separate filed a con- a filed curring dissenting opinion.
41
Court
421,
may
175 A. 2d
856 (1961). Thus,
tax or the purpose
consider
wisdom
challenged
of its
330
v.
Blauner’s,
Philadelphia,
enactment.
Inc.
Pa.
as a statute
198
889
So
342,
(1938).
long
Atl.
of its
is the
Legislature
judge
sole
constitutional,
or
cannot
refuse
court
necessity
expediency
in
it on
it
unwise,
enforce
ground
unjust,
any
supposed policy
or contrary
obsolete
expedient,
v.
Corporation
Olin
Chemical
custom.
Mathieson
A. 2d
White Cross
Pa.
199
266,
414
95, 98,
Stores, Inc.,
Conversely, however, it seem may because merely enactment constitutional necessary be just, wise, our view to expedient, support. The unanimous popular because enjoys supreme law law is in state Constitution matters Legisla- acts of the all this Commonwealth are subordinate, agency any governmental ture Port Allegheny County v. Co. Railways Pittsburgh Cali (1964) ; A. 2d Authority, *4 (1962), 177 A. 2d Philadelphia, consider wheth- only to responsibility duty our it is re- constitutional meets or violates the legislation er 2d 250 A. Kelley, Stander quirements. from the instant aside quite Accordingly, (1969). we must merit, economic other social, possible tax’s man- determine whether satisfies the constitutionally dated standard uniformity. in Personal Income contained Article III
of the Tax Reform Code as follows: operates
Section the Code to a tax purports impose privilege or otherwise earning receiving, “[f]or .” income from source . . . acquiring any whatsoever However, the annual is levied not all upon 3%% only income “from source whatsoever” but rather taxable income “Taxable taxpayer”. “the in to 302(q) income” is defined Section mean “the 'taxable income’ few variations same as as specific . .”2 Internal Revenue Code . . defined provides 302(q) in full: Section “ provided herein, Except ‘Taxable income.’ as otherwise ‘tax- as income’ as able income’ means same ‘taxable defined following and will the sum of the Internal Revenue Code include preference as section 57 of the items defined Internal Reve- interest; Code, amended, (ii) (i) excess investment accel- nue depreciation property; (iii) depreciation on real accelerated erated subject lease; (iv) personal property net amortization facilities; (v) pollution control amortization of railroad certified options; (vii) stock; (vi) rolling reserves for losses on stock bad institutions; (viii) depletion; (ix) capital of financial debts required gains to and to be returned ascertained subject pursuant code, following to said Government Federal adjustments: obligations (1) income derived from of interest Subtraction adjusted the extent Government to included States
the United gross income. obligations (2) income derived from of interest Addition public subdivisions, political instrumentalities and states, authori- political subdivisions, or its in- than other thereof ties public the extent not included in authorities strumentalities gross adjusted income. individual, nonresident of a estate or (3) case trust In the adjustments required by and the income’ ‘taxable or trust estate only (b) include (a) above shall derived subsections this Commonwealth. within sources
The of in taxable income Internal concept the Reve nue Code is of an course artificial in construct, many far ways removed from the common and mean ordinary of ing the term income. For income derived example, from gifts and interest the obligations inheritances, of a or state contributions em political subdivision, by health and ployers employee accident and the plans, first one hundred dollars received aby taxpayer dividends domestic is all corporations specifically excludable from In taxable income.3 the In addition, ternal of permits Revenue Code deduction myriad items from or actual income in order to gross compute taxable 5Some of more income.4 common and well known examples such deductions are real estate taxes, interest on real estate and other mortgages personal other financing, payments, various alimony state and local taxes.5
(4) respective shares of an estate or trust and its bene- in ficiaries the additions and subtractions to taxable income shall proportion respective in be to their shares of distributable net income of the or trust in estate as defined Internal Revenue If or no Code. the estate trust has net distributable income for year, beneficiary the taxable the share of each in the additions proportion subtractions shall be to his share of the estate or year, income for local trust such under law or the terms instrument, required currently any which is to be distributed year. Any amounts of such income distributed such other balance and subtractions shall be additions to the allocated estate or trust. trust, (5) respective estate In the case a nonresident or or trust and of of the estate shall be shares beneficiaries deter- by (q) ; however, set forth this subsection the manner mined determining income of a or the taxable nonresident estate trust or of thereof, beneficiary there shall be nonresident taken into trust, only beneficiary’s income the estate account thereof, within from sources derived Commonwealth.” share 1954, §§102,103,106,116. Rev. Code See Int. §§141-217. Code Int. Rev. See exemptions 5Many deductions and allowed federal raising equal- to considerations unrelated revenue law are Income Personal
The structure clari perhaps illustrated and may alternatively schematic sum of the following fied consideration the offici Form of Internal Revenue Service mary form for federal individual ally prescribed returns.6 *6 I
TABLE 1040 FORM Description LimeNo. SALARIES, WAGES, 12 TIPS -¡-DIVIDENDS 13 -¡-INTEREST
14 income; gains; capital (business -¡-OTHER 15 INCOME annuities, pensions rents and royalties, partnerships, and etc.; trusts, farm estates or income) income; miscellaneous 12-15) (LINES TOTAL 16 (sick pay; moving expenses; 17 —ADJUSTMENTS expense; employee business self- plan)
employed retirement GROSS INCOME 18 ADJUSTED they pertain burden; to the instead furtherance ization See, e.g., policies. United States v. national non-tax of various (1939) (charitable Pleasants, deduc S. Ct. 305 U.S. Bliss, (1934) (ex Helverimg tions) ; Ct. 17 293 U.S. S. municipal bonds) ; E. and F. from state derived of income clusion 1968) (8th (same). States, Cir. 2d 397 F. Fox v. United Proxmire, Chairman of the Joint Economics William Senator Congress, just public has made United States Committee Department Treasury indicating compiled that the statistics groups types activity and af- special certain to consideration provsions result in total Federal tax Federal various forded amounting approximately annually. billion dollars preferences Prothonotary file office of the is on copy statistics of these A this Court. concerning (a) Reg. §6011 §601.602 Code: Treas. See developed by are the Internal Revenue instructions “Forms requirements of the internal explain revenue laws Service taxpayers for the issued assistance of are regulations and (medical expenses; 47 —DEDUCTIONS and dental
taxes; contributions; interest; mise.) 49 —PERSONAL EXEMPTIONS TAXABLE INCOME Pennsylvania
In other Personal words, Income directly tied “line 50” of Form IES appearing subject being amount line to the annual tax. 31/2% readily apparent
As is from an examination Table discrepancies most of the between an individual’s I, actual total income “from source whatsoever” his “taxable income” as a conse- arise quence adjustments, of the subtraction of the various exemptions appearing lines deductions, between taxpayers, 16 and 50. As to some line 16 even however, does not reflect all income from As whatever source. *7 provides stated the Internal Revenue Code above, species altogether of certain income are excludable person example, from taxable income. for a whose Thus, only income is the form of interest received from municipal (tax exempts) report state or need not bonds any prior of on such income of the lines to line 16 the result that the amount entered on line 16 with will be zero. defining income in of
After taxable terms the federal provides of tax the Tax Reform Code four base,7 rights discharging exercising their their and duties under the in- Regulation stating . .” The laws. . continues ternal revenue necessary may copies and of all forms instructions be ob- 481, directors and also that Publication from district No. tained Returns, Principal Forms, Description Federal Tax of Related and may purchased Superintendent from the of Docu- Publications Printing Office, ments, Washington, Government D. S. 20402. U. O. earlier, concept the of taxable mentioned income in As the vary concept Pennsylvania somewhat from the tax does of federal of tax for credits. Section a credit types allows income taxes imposed by another Section 317 state, provides a similar credit of certain local taxes, 30% and Section 318 for taxes a paid by with credit deals on trust accumulated income. Section 319 Finally, sets out variable of tax credits” for “vanishing schedule the benefit of individuals whose state taxable does not exceed $9,900. then of the scheme taxation conform foregoing
Does the Clause? requirements Uniformity The constitutional of in the imperative uniformity of taxes has remained its imposition unchanged since Constitution of Pennsylvania. the adoption first 1 of Article Section that constitution directed 1874.8 IX, “All qualification that: taxes shall be uniform, without the the same class within territorial subjects, the the and shall be levying tax, limits of authority under general Legislative collected laws.” levied and generaUy income. Internal Revenue Code in- taxable Whereas obligations income interest on United States cludes taxable obligations political or their interest on the states excludes and obligations subdivisions, excludes interest on the the instant tax obligations includes interest states United States Pennsylvania political political other than subdivisions Compare Rev. with the §108 Int. Code subdivisions. (2). (q) (1), addition, In §§302 Code of Reform give any preference Pennsylvania tax tax does not “items preference” in Int. Rev. Code of §57. See contained Finally, §302(q). Code Tax Reform respect adjustments with to nonresident individuals certain mates respect or trusts. See Tax Reform Code of to estates with (3), (5). (4), 1971,§§302(q) express no had been state there constitutional to 1874 Prior Rights power tax other than BUI provision on *8 unjust, palpably “against unreasonable and un- implication all pretext.” Washington any Avenue, name or equal under exactions Philadelphia, (1869) ; ; (1871) v. 65 Pa. Hammett 146 Pa. Pennsylvania Requirement Constitutional of Uni- Note, The see (1938). Taxation, R. Rev. 219 Pa. 87 U. formity in proposals Uniformity rejected to amend the Clause were May, the electorate in 1913 and and the 1928,9 people Pennsylvania referendum submitted to the concerning whether a constitutional convention would specifically provided be called that the convention would portion not revise that of the constitution. Likewise, enabling the constitutional convention act stated no part uncertain terms that “. . . nor shall that of Article providing Section 1 of TX, the Constitution that: ‘All taxes shall be uniform . . .’ altered be modified, changed respect whatsoever.” ofAct March 16, (Emphasis added.) L.P. Pa. Laws 7. 2, §7, [1967] continuity,
In addition to its unbroken historical uniformity possesses constitutional standard also widespread application. reaching and far While some jurisdictions uniformity other adhere the view that particular applies only property our constitu taxes,10 tional mandate that ll taxes shall be uniform .” “[a] . . quite applies and it is settled this mandate clear, species Saulsbury to all of taxes. As was stated v. (1964) 2d Bethlehem Steel 413 Pa. A. : Co., 316, 196 question “The of whether not the constitutional re applies quirement uniformity particular to a kind of depends peculiar require upon wording Pennsylvania specifically The Constitution ment itself. ‘All taxes be shall uniform, same states subjects.’ (Emphasis supplied.) language This class comprehensive possibly as it could broad and be is as necessarily construed to be include all and must kinds property they in the nature excise taxes, provision constitutional all levies. clearly requiring not limited to uni- and is inclusive Kalodner, 180, 192, (1935) Kelley ; 181 Atl. Revised?, Callendar, It Be The Constitution—Should see (1958). B.A.Q. 205 (4th 1924). Taxation, 10 Cooley ed. §267 *9 48 See alone.
formity
property
Banger’s Appeal,
taxes
Pa. 79
191
The substantive content
susceptible
precise
definition than
course less
certain
application.
is the
of its
scope
However,
gen
are well
this Court de
eral
established. As
principles
Allentown
District Mercantile
School
clared
87
2d 480
:
161,
(1952)
370 Pa.
A.
Uni
Case,
“[The
the classification
means that
formity Clause]
tax
must be reasonable and the
must
legislative body
upon similar
kinds
busi
applied
uniformity
or
and with substantial
equality
ness
property
Common
all
of the same class:
tax burden to
members
Life
305 Pa.
158
Co.,
558,
v. Girard
Insurance
wealth
196 Pa.
In to these two general principles, addition our pertinent Court of this are particularly decisions appeal. disposition this Kelley
The first
these,
Kalodner,
a 1935
stat
Pennsylvania
The second of the two decisions most significant to Saulsbury instant case is v. Bethlehem Steel Com- decided in 1964. In that pany, case we supra, ruled “occupation then an and occupational privilege tax” with an exempted individuals annual income of of transgressed than limits less In uniformity. $600 this Court reaffirmed the rule of holding, so Kelley on the of Kalodner and basis that largely decision con- “If levied on that: a tax is an occupational cluded privi- all to who share the it must apply lege, privilege. Part not be excused, regardless of class of may this the mo- the action.” 413 Pa. at tive behind A. 2d at added). 666 (emphasis constitutionality that the challengers
It is true in their a burden heavy or local taxation bear of state Common legislation. See, e.g., such efforts overturn Pennsylvania, Company Assurance wealth v. of Life 2d 214. Nevertheless, 214 A. at at 376-77, supra, and Saulsbury in Kelley scheme taxing comparing the conclusion in the instant case, that involved tax presently income the personal unescapable is Tax Re Although uniformity. challenged violates tax a flat purports impose form Code of 3%% of “taxable income” concept “taxable upon income”, for personal exemptions federal reflects already Table dependents. (See qualified and his the taxpayer to the Tax built-in 50.) 49 and Thus, lines I, supra, the same elements of exactly 1971 are Reform Code Kelley condemned both as were nonuniformity Saulsbury. feature noteworthy inequality
A further of all in- from taxable income exclusion tax’s instant of the Commonwealth obligations on the received terest Reform subdivisions. political any tax terms a its own imposes of 1971 “[f]or Code acquir- otherwise receiving, earning privilege . . . .” The hold- whatsoever source income ing en- securities certainly exempt er is not taxed receiving yet privilege this joys preference. a tax given but instead the privilege for to our manifestly contrary holding situation This a “. . . must privilege apply a tax Saulsbury In despite the privilege.” addition, share all who favoring this policy type legislative of a existence obligations and local state preference prevail cannot legislative policy such Commonwealth, mandate uniformity. constitutional clear over *12 present our limit however, analysis not, needWe for the Personal Income inequalities, particular these 52
Tax is replete other commonly occurring instances nonuniformity, which can be many conveniently illustrated tables. The con following examples tained these tables have been consciously chosen reflect the state income tax liability typical taxpayers claiming representative exemptions deductions.12
TABLE II Taxpayers or otherwise “receiving, earning acquiring [$10,000] source whatsoever” (Sec. 305)
ABC SELF WAGE WAGE EMPLOYED EARNER EARNER $20,000 $20,000 Home: Renter Mortgage: $10,000 $10,000 None INCOME $10,000 $10,000 $10,000 DEDUCTIONS:
Medical
Insurance 150 150 Other 200 200 Tames (30 mills)
Real Estate 600 600 Local Income Tax 100 100 1% (Standard Income Tax 180 210 3.5% deduction) Pa. Sales Tax 100 100 Gasoline Tax 80 Oontrlbutions Contributions
3%
Interest
Mortgage (7%%)
Auto Loan hypothetical closely deductions included in this table approximate average general annual deduction taken in these categories according to the most recent statistics available. See Service, Internal Revenue Individual Income Tax Returns: Statistics (Table by Type of Income 1968 at 65 2.4—Itemized Deductions by Adjusted Classes.) Gross Income
53 Special 1,000 Employment Plan
Self 2,670 3,640 DEDUCTIONS TOTAL 1.300 1,300 1,300 (2) Exemptions 1.300 4,940 3,970 2,600 INCOME FROM DEDUCTIONS 7,400 5,060 6,030 TAXABLE INCOME PA. 211.05 259.00 TAX 177.10 PA. INCOME 3.5% RATE EFFECTIVE ACTUAL RECEIVED, ON INCOME EARNED, OTHERWISE OR ANY “FROM
ACQUIRED 1.77% 2.11% 2.59% AVHATSOEVER” SOURCE
TABLE III or otherwise “receiving, acquiring earning, Taxpayers source whatsoever” (Sec. [§20,000] 305) A B C D Wage Wage Wage Self
Employed Earner Earner Earner $40,000 $40,000 Home: Renter Renter $20,000 Mortgage: $20,000 None None $20,000 $20,000 $20,000 $20,000 INCOME DEDUCTIONS:
Medical 150 150
Insurance 150 400 Other 400 400 Tawes mills) 1,200 (30 1,200
Real Estate Tax Local Income 200 200 200 1% (Stand- Tax 410 Income 480 570 3.5% Tax 200 200 Pa. Sales 200 ard 100 Gasoline 100 deduc- tion) Contributions Contributions 3%
Interest
Mortgage (7%%) 1,500 1,500 Auto Loan Special Employment 2,000
Self Plan 7,030 5,100 1,500 2,490 TOTAL DEDUCTIONS Exemptions (2) 1,300 1,300 1,300 1,300 8,330 6,400 2,800 3,790 DEDUCTIONS PROM INCOME 11,670 13,600 16,210 17,200 *14 TAXABLE PA. INCOME PA. TAX 408.45 476.00 567.35 INCOME 602.00 3.5% EFFECTIVE RATE ACTUAL RECEIVED, ON INCOME
EARNED, OR OTHERWISE “FROM ANT
ACQUIRED WHATSOEVER" SOURCE 2.04% 2.38% 3.01% 2.83% present For purposes, most significant feature the above tables the fact that each in taxpayer Tables II and III, respectively, enjoy same privilege, that of wit: or “receiving, earning otherwise acquir- the same dollar amount of ing” annual income “from source whatsoever.” Yet no any two taxpayers are re- the same dollar quired pay amount of nor taxes, are two any taxpayers required pay the same effective rate taxation upon their percentage respective total (The range incomes. rates extends from a low of to a high 3.01%.) Thus, effect of the Per- 1.77% Tax in Income these sonal illustrative situations is en- nonuniform imposing tirely differing tax burdens identical enjoying persons upon privileges. inequalities result, These course, from the mani afforded preferences fold taxpayers depending other whether a things upon particular among taxpayer or self-employed, earner renter wage home own for example, Thus, Table etc.13 A er, II, enjoys a 4, supra. notes 3 See preference merely B Ms substantial tax over because of self-employment plan, deduction for a retirement $1,000 wage wholly to B a deduction unavailable iswho prefer- enjoys greater an even earner. B, turn, merely C owns his own ence over because unlike he, C, profitably home itemize deductions in the and can his Because C a renter cannot avail sum who $2,670. deductions for real estate taxes himself substantial mortgage only his recourse is to claim interest, Similar much smaller standard deduction of $1,300. inequalities dealing III are contained Table with twenty typical taxpayers earning than ten thou- rather year, per examples other sand dollars countless just easily constructed. could be myriad or not all of Whether these preferences implicit in III of Article other tax might thought to of 1971 serve some Reform Code unequal policy, social the fact remains that bur- useful imposed being privileges are similar dens vio- pervasive Uniformity Clause. These lation similarly impermissible discriminations between situ- taxpayers III render Article invalid. ated agree cannot Commonwealth’s conten We *15 Pennsylvania Corporate Net that since the Income tion May P. of L. 1935, Act Act, 16, 208, amended, Tax seq., held §3420a has been et see P.S. constitutional, Paint Varnish Co. Kalodner, & Pa. 421, Turco (1936), imposed Tax the Personal Income 184 Atl. permissible. is Code 1971 likewise Tax Reform the validity corporate passing of the the net In emphasized that it “. not Court was . . this tax, considering an but excise tax for the income tax, an doing in the privilege Commonwealth. .” business . . Theatres, Bros. Inc., v. Warner Commonwealth (1942) (emphasis added), 2d 27 A. 62, 271, analogy attempted the tax instant and the between unpersuasive. Corpora- is income tax corporate net with the per- tions are artificial entities created legal maximizing of the for the mission state purpose net income and the corporate profits shareholders, . the net a tax . is tax is base imposed upon supra Turco Paint, income attributable to state.” this Atl. at 40. at lik- on the other cannot
Natural persons, hand, spend Individuals ened entities. to profit-maximizing unre- for an infinite reasons variety their resources unlike “profit”. to the making Thus, lated if be exceedingly difficult, would corporate context, income tax designed personal to create a impossible, individual the “cost” producing take into account attempt tax not even the instant does income. Certainly ac- are net income taxes corporate to do so, inapposite. cordingly III of Article our decision that
In light tax widespread preferences of 1971 creates Code Reform mandate in direct conflict with and thus is- the other not pass upon need we Clause, Uniformity the validity appeal, namely, this presented sues of the validity credit provision, vanishing the tax is whether credit, local thirty percent a bal- failed to submit the Governor because invalid addi- recommending budget prior operating anced of revenue. sources tional the decree Com- reasons, foregoing
For Each to pay own party reversed. Court monwealth costs. opinion and joins files Justice Chief
Mr. Bell opinion. concurring Opinion Concurring Chief Mr. Justice Bell: and the Governor passed signed, Legislature of 1971,” Reform Code Article “Tax March referred to as the commonly Pennsyl of which III I Tax. have believed for a *16 Income cou Personal vania in Penn of income tax was inevitable an years pie Constitu means a of that, course, sylvania.* However, it particularly in this case tional tax—and the Uni not violate means tax which does an income in our Constitution. provisions State formity ** In an able at Opinion. I join Justice Roberts’s or distinguish many tempt explain to implement ex been the rationale have of view and points I in the feel be compelled, pressed Opinions, various of this income importance cause of the tremendous to Justice to of supplement millions Pennsylvanians, further attempt to explain, and to Opinion Roberts’s reasonings answer or which have refute some been advanced others. taxes. taxes everybody However, hates
Nearly and nomenclature are nearly description kind and every provided they and Constitutionally legally permissible, or any of the Constitution not violate any provision do of the Constitu- provisions Of all the statute. pertinent application and those interpretation provi- tion, Uni- and pertain taxes, especially sions which the most difficulties. Some of present formity Clause, subject of taxes are confus- this Court’s decisions similar diffi- Moreover, irreconcilable. others ing, interpretation application culties arise An ordinances. illustration this statutes and tax found in recent case of National may difficulty 98 A. 2d Philadelphia, Biscuit Co. a tax on the held that privilege Court which this was an excise and was tax, business transacting corporate net income tax, duplicative foreign corporation stock tax, capital State’s * Legis- Aet of an is a matter for the or fairness The wisdom not for the Courts. lature opportunity tell Commonwealth **I take wish speedy appreciate their consideration much we how Court cases—they very helpful. been have disposition these *17 franchise because tax, those taxes were property taxes, whereas the challenged Philadelphia ordinance .tax was an or excise privilege tax. That decision was made by this Court in 1953 and lasted four Four years. years later (in Commonwealth v. 1957), National Biscuit Company, 136 A. 2d Court 642, repudi- ated that interpretation and held that cor- foreign poration franchise tax was not a but property was tax, an excise tax. tax, i.e., privilege interpretation This and conclusion was arrived at by determining (1) whether the tax is challenged a tax on the same subject matter and whether the (2) measure of the tax “is base yardstick which the tax by is applied.” Irrespec- tive said tax what and actually was legally (and the aforesaid cases was correctly decided), these cases demonstrate that a provision the Consti- or of a or of an ordinance tution, statute, pertaining taxes is oftentimes difficult of very as interpretation, well as application.
Senator Tilghman that contends Pennsylvania Tax Personal Income under passed Article III of the Reform Code of 1971 and approved the Governor March by 4, 1971, unconstitutional because was passed by Legislature without an annual operating budget submitted by benefit 12 of Article Till Covernor. Section the Constitu- tion that the Governor shall provides submit to Assembly the General at the “annually times set by law . a balanced operating budget . . (a) ensuing forth detail year setting (i) proposed fiscal expendi- department by classified agency tures pro- estimated revenues from all gram (ii) sources.” Section Moreover, Administrative Code, P. L. April as Act amended, P.S. that the Governor shall provides submit §222, to the operating a balanced “as Legislature soon budget possible* organization after the of the General Assem bly.” helpful While it would be both wise and if the complied provisions, pe Governor with these the time generalization, riod is an indefinite and it should be only realistically. reasonably construed not but also unanimously (although The Commonwealth Court strongly raised) divided as to the other held that issues Tilghman’s They contention is meritless. concluded, agree, nothing we there the record to show reasonably realistically aforesaid when Act, complied was the Governor. construed, nothing importantly, More in the there Constitution impli- specifically by necessary or in the *18 Act, prohibits Legislature enacting legis- cation from tax receipt from lation before the Governor of a bal- operating budget. anced present imposing
The Income Tax Act tax Personal on the on Line amount shown 50 the Federal Income provides, Tax Return of at because least a dozen items, exemptions, deductions, classifications, discriminations, provisions, a different basis** thousands and/or people—including, exemption all inter alia, many taxes of millionaires. appellants
The contention of the
that
the Act is
delegates
unconstitutional because
the tax and the
power
by adopting
to tax to the Federal Government
Income Tax Return
Line 50 of the Federal
as the basis
Pennsylvania Personal Income
for the
Tax is without
Pennsylvania Legislature
merely
The
merit.
has
taken
adopted,
the base for the
Tax
Income
levied
(net)
the taxable
at
Commonwealth,
arrived
reported
Line 50 of the Federal
Income
Re-
Tax
Campbell v. Coatesville Area School
turn. See
District,
60
v.
108 A.
Commonwealth
Budd,
563;
379 Pa.
2d
159,
27 A. 2d
Turco Paint
Brothers,
62;
345 Pa. 270,
Warner
Pa.
37.
Kalodner,
&
v.
Atl.
Varnish Co.
421,
even a
statute,
Act
Every
Legislature,
must
presumed
challengers
and its
to be Constitutional
it violates
prove
palpably
clearly, plainly
Clause. Wan
Uniformity
Constitution—in
case,
this
Pa.
Philadelphia
567,
amaker v.
School District,
Area
District,
A.
v. Coatesville
School
Campbell
2d 524;
School District Mercantile
Allentown
supra;
440 Pa.,
Evans v. West
Tax
I believe, likewise deals 317, that Section which with Opinion, Eagan's Common- political subdivisions imposed by taxes lacks because unconstitutional, patently wealth, In Allentown Dis- operation. School its uniformity 370 the Court Case, Pa., Mercantile Tax supra, trict “Article Section 170): IX, 1, 167-168, said (pages ‘All taxes Pennsylvania, provides, Constitution class of upon the same subjects, with- uniform, be shall authoritj^ levying limits the tax, territorial in the collected under general law; levied shall be
61
legisla
. . .’ This means that
classification
be ap
tive
must be reasonable and the tax must
body
or
upon similar kinds of business
plied wtih uniformity
bur
and with substantial
the tax
property
equality
Commonwealth
den
all
the same class:
members
A. 262;
Girard Life Insurance
305 Pa.
v.
Co.,
558,
Dufour v.
v.
196 Pa.
46 A.
Knisely
614,
861;
Cotterel,
Mc
A. 2d
Commonwealth v.
358 Pa.
Maize,
309,
675;
“Uniformity requires
equality
substantial
Pa.
200 A.
den: Com. v. Overholt &
Co., Inc.,
182,
35 A. 2d
Com.
Coal
348 Pa.
849;
Repplier
Co.,
372,
v.
School
338 Pa.
Pittsburgh
466,
Moore v.
319;
District,
A. 2d
taxation is not a matter
exact
29. While
and absolute equality
and perfect uniformity
science
Phila
(Wilson
in taxation can
ever
attained
v.
rarely
A.
the imposition
330 Pa.
352,
893),
delphia,
to a substantial degree unequal
of taxes which are
or
similar
effect
kinds
business
operation
their
in the same
upon persons
classification,
property,
&
Cf. Com. v. Overholt
Co.,
is prohibited:
Inc.,
Pollock
849;
A.
v. Farmers’ Loan
190-191,
Moreover
599.
while reasonable
157 U.S.
Co.,
Trust
are
where a
justifiable,
and practical
classifications
a taw
computing
oper
or method
will,
formula
or unrea
produce arbitrary
unjust
or effect,
ation
the constitutional pro
discriminatory results,
sonably
is violated: Turco Paint
relating
uniformity
vision
A.
Kalodner,
37;
Co. v.
& Varnish
North
“Uniformity of All shall be uniform, 1. taxes Section limits of territorial within the class subjects, same and shall be levied the tax, levying the authority laws. general collected under Provisions* and Special Exemptions lawby Assembly may General 2. (a) Section from taxation: exempt law: Assembly may, The General
(b) or classes subjects as a class Establish (ii) be- persons who, or privileges property taxation deter- poverty are infirmity disability, age, cause of or of special exemption of tax need to be mined class classes, such provisions, uniform for ...” and qualifications standards indicates that there clearly provision exemption This standards and different tests, Constitutionally may inapplic- are totally individuals for exemptions decisions with consequently corporations, able * New, Constitution. under are corporations to and taxes respect governing *21 on for individuals. requirements controlling uniformity in Mr. For the reasons set forth Justice Roberts’s for herein set and also reasons the additional Opinion, Income Tax the Personal I believe forth, and Unconstitutional. plainly is clearly, palpably by Pomeroy: Concurring Opinion Mr. Justice of of the need the Commonwealth Mindful exigent for reluctance tax it is with great additional revenues, in the of the Court that I feel to compelled join decision Reform of 1971 III of Code Article While I agree want of uniformity. unconstitutional in I do with much of the majority opinion, what said In view of the importance all it. with agree on me to briefly I deem it delineate incumbent case, points of my difference. income tax personal
The used in the new approach income taxable by adopting to define is, course, contained the Internal definition of taxable income adjustments. certain The federal Revenue Code, in simplest but terms definition is means complicated, Code) income defined certain ad- (as less gross From this income” are sub- “adjusted gross justments. a deductions standard deduction (or tracted allowable itemized) personal exemp- are not if deductions is “taxable income”. To resultant figure tions. The a rate of tax applies graduated code the federal tax credits. The certain state statute then permits rate. result this incorpora- flat a applies 3.5% federal definition as the is, reference tion by opinion President Judge majority opinion court in the make dissenting below, clear, Bowman, which base figure a something less as employ received taxpayer, may all than among even taxpayers considerably having vary particular their situa- gross depending same income, tions. clean I might we on a writing agree
Were slate, the built-in the federal base inequalities render same tax adopted when base, serve under non-uniform our impermissibly Pennsylvania, is not clean. Unlike the But the slate Constitution. I think decisions this Court approving majority, Income Tax, May Net Act 16, 1935, the Corporate seq. 72 P.S. et (C.N.I.), P. L. as amended, §3402a, income definition approval an taxable compel Reform Code of III the Tax Article insofar provisions corpo Revenue Code relating the Internal a/re to the parallel taxable income substantially rate *22 the Code to individual same tax provisions relating of beginning able income. The C.N.I., 1935, “net there the (which income” measure has defined as as “net income ... returned to meaning of the tax) Federal 72 the Government.” P.S. by and ascertained gross is in less cost figure general receipts, 3420b. This other of income operations, plus of sold goods and/or deductions.1 The federal less allowable tax items, thus the same whether the tax basically structure corporation. individual or a be an payer Varnish Paint Co. v. In Turco & 320 Pa. Kalodner, of one Atl. 37 the contentions of the (1936), 184 in a assault the broad constitutionality taxpayer although the tax was at was that a flat of the C.N.I. present (the of net income rate 12%), it was rate 6% process tax because the by a graded in effect This Court held was determined. income explicitly net C.N.I. The was contrary. again challenged to Bros., 345 Pa. v. Warner A. 2d Commonwealth interrelationship the C.N.I. and the Internal The Revenue corporation relating described, provisions to income are inter Code Co., alia, v. General 417 Pa. Commonwealth Refractories (1965). A. 2d (1942). incorporation The Court there held that the by applicable reference of the net income definition to corporations did as used the Internal Revenue Code power delegation legislative not in viola- involve 1 of tion Article Section the Constitution IX, not The 1874. said the “does Act, Court, power delegate to tax to Federal tribunal, by only takes net fixed the base for the income it as (345 privilege tax levied the Commonwealth.” excise 272). following Turco & at Court Paint The also, charge again rejected supra, Varnish that Co., uniformity Com- clause. See C.N.I. violated the also (1954). monwealth 2d 563 108 A. Budd, distinguish princi majority The these would cases corporations pally ground are “artificial profit, legal engaged entities” in business whereas spend persons for a resources number natural their profit-making, give unrelated to some which reasons corpor applicable tax deductions rise unimportant as far as the seems me ations.2 This power adopt federally determined the state to concerned.3 base is appear significant category to be those in this deductions alimony Corporations expenses payments.
relating to medical limitations, may, charit- within certain deduct as individuals well contributions. able majority corpora is also made The distinction doing privilege be an excise for the has been held to tion tax *23 Bros., supra; (Commonwealth v. Warner but see Common business Express, Inc., 279, 298, 398 A. 2d Motor Pa. 157 v. Eastern wealth purportedly personal the (1959)) income tax is on the whereas 79 agree earning acquiring receiving, I privilege income. with opinion proper Hagen dissenting be that in whatever the his Justice same, taxes, applied two the result should be the to the to be label that “all taxes shall be uniform mandate is constitutional for the equivocation italics). without (my has stated This Court . . .” Co., says. Saulsbury v. Bethlehem Steel what it means “all” Kelly Kalodner, ; (1964) Pa. v. 320 181 Atl. A. 2d 664 authority Turco Paint Varnish the & although But far as the present legality the as tax, far to validate goes in my view, does not, of the federal base concerned, in addition to The reason way. that, the whole go no individuals have allowed to certain deductions to corporations (notably to allowed those similarity medical and alimony payments), deductions for expenses on corpo in federal tax no the parallel there is part integral which are an the exemptions rations with federal on individuals. The income tax of the federal well as is allows known, income tax individuals, |6254 and for for each taxpayer exemption personal an as allows additional dependents defined, of his each older, 65 years age if taxpayer exemption if is blind. exemption taxpayer an additional these exemptions, Judge I agree Bowman bear no ability pay, terms “while meritorious More a tax on net income.” relationship rational makes opinion clear, exemptions majority as over, tax in the federal income structure like those now very v. clause uniformity Kelly held violative were Atl. 598 (1935) Kalodner, In supra. Bethlehem Steel Co., Saulsbury, Saulsbury an occupational ordinance imposing a tax disapproving operation those excluded tax which privilege not amount would earnings per whose gross the tax . . . lacks uniformity “. . . Court said: year, of the constitutional While provision. in violation and is classified reasonably subjects may different be no lack uniformity must within there ... purposes of the subject on the given either class, . . . Part class payers. may affected persons Indeed, parties litigation and, to this (1935), do con- tion tend otherwise. This figure Internal Revenue will become $650 Code, as amended. $750 1973. Sec *24 behind the of the motive regardless not excused, action.” exemptions in these
The constitutional infirmity of a federal are part not because they cured merely tax in reference the new incorporated definition by not does mentioned in above, as law; holding Turco, counterpart no near them there give being sanction, to applicable the Internal Code provisions Revenue exemptions Neither are the saved corporation income. of the Article VIII 2(b) (ii) new Section es for the provides which Pennsylvania Constitution, are need who tablishing taxpayers classes because provision age, tax tax exemption special both because This is so poverty. infirmity disability, to such did establish undertake Legislature to the federal and be exemptions classes with respect of the amount exemptions apply regardless cause those income.5 the taxpayer’s per- of the impermissible aspect Because basic I of ex- view is not the result it, sonal income tax, in the Code but comes about by used press language federal there base, is, regret- adoption advantage severability no to take way tably, Reform Code of there the Tax (§1202) 1971; clause section clause, sentence, no single word, phrase, to as the lan- pointed can be offensive provision I Hence, must with the agree alone stricken. let guage, III in- Article must be declared the entire Court Assembly did undertake utilize the new classi- The General authority granted to it the 1968 constitutional amend- fication III, establishing vanishing so-called Article in §319 ment $10,000 persons respect whose incomes are un- wtih credits Eagen Judges agree Justice with M'enceb Kbamek der. I dissenting opinions respective that §319 as in their drafted below sought provided (I to be classes for. establish also fails Eagen the local tax credit as agree Justice contained lacking uniformity.) patently III of Article §317
valid. See Pa. R. v. R. Co. 391 Pa. Schwartz, 2d 525 Butcher A. cf. (1958); Philadelphia, A. 2d 298 (1938). 497,6
Dissenting Opinion by Eagen: Justice Mb. from Uniformity Neither the my understanding nor our Court in this past by decisions Clause, of the ma- nor indeed from the reasoning area law I am led to conclude that the general jority inexorably Tax (Article of the Income Tax III, features Personal March Act No. Reform Code of adopted 4, 1971, 1971, violate Article Section 72 P.S. 7107 et seq.) VIII, 2, I and for reason of the Constitution this Pennsylvania am to dissent. compelled NO resounding with a
In 1935 this Court answered could enact the whether question income tax which would graduated personal comport Taxation and Finance the the Clause Uniformity v. Pa. Constitution. Kelley Kalodner, of the Article just But we importantly A. 598 (1935). could never enact Legislature that say did injunction The was that simply of income tax. form mandate of must be ob- uniformity the constitutional served. decisions this Court encourages of the review
My
the Legislature
framing
in the conclusion
me
Reform Code has remained faith-
the Tax
III of
Article
and nice distinctions
guidelines
constitutional
to the
ful
down
Court.
as set
this
uniformity
concept
of the’
for
helpful
might
purposes
the outset
At
briefly
to review
comparison
majority’s
clarity
although
contention
It is their
position.
to impose a
purports
flat Sy2
of 1971
Code
Reform
the concept of “tax-
income”,
“taxable
percent
personal
reflects the federal
ex-
already
income”
able
qualified
and his
dependents
taxpayer
for
emptions
same
exactly
elements of non-
embodies
hence
v.
condemned in Kelley
Kalodner,
as were
uniformity
Steel
v. Bethlehem
Saulsbury
Company,
supra,
effect of
The contention in the Turco Paint & Varnish Com case pany corporate was that net income tax could *26 not be uniform because the process which net in by come was determined.1
Despite permitted the fact that deductions income gross might vary with drastically respect to the same corporations having gross income, there- fore in widely result taxable varying net our income, did not find Court this use net income returned to and ascertained the Federal Government as a Penn- tax to base be violative of sylvania the Uniformity Kephart Mr. Clause. As Chief Justice wrote: “Plaintiff corporate tax The base of this is net income as returned to adjust- and ascertained the Federal Government. Some which are involved under the Federal converting ments Tax Code in corporate gross corporate income to net income are: deductions for 1954) expenses, (I.It.C. 26 U.S.C.A. include, §162 business which can damages paid alia, penal to individuals for inter anti-trust viola- contributions, (§162(g)); charitable §170; tions U.S.C.A. net carryovers, §381; payments 26 U.S.C.A. operating pen- loss made to plans, §404, profit-sharing 26 U.S.C.A. “widespread etc. If sion not also built into preferences” are this tax then I do not know phrase means. what not pointed
has to a single the act provision a a Avould demonstrate intent legislative impose to tax. income The graded rate is the same used, 6%, all corporations. The tax to rate to base which this be is also identical. It is the net income attrib- applied utable to It this state. should axiomatic certainly subject- that the same impost when the same applied matter not make the tax because graded does simply par- the fact that one of the owning more association, ticular than subject taxable matter pays, another, at a sum total of tax.” 320 Pa. greater account, 426.
A If de- now arises: compelling question federally exemptions one (and freighted termined base is held to meet the constitutional test deductions) income in the instance of the net uniformity corporate personal hold true for the same tax, why does it the base pass income how does come tax; the latter so defective? fatally tax is inapposite answer is that refer majority’s net income approval corporate to this Court’s being considered there was an ex- tax since was what in the Com- privilege doing tax on the business cise tax; implication being not an monwealth, excise former is an the latter levy, that while the shall and never the twain meet. property square cannot with what Mr. contention Such a Chief Justice wrote pellucidly now Justice, so Bell, Eastern Motor Express, Inc., Commonwealth 2dA. “The constitution- (1959); Pa. 279, *27 Net Income Act of May of the Corporate 16, ality was amended, sustained on the as reenacted 1935, tax property net it was in income, that ground Act that it anwas declaration excise spite Philadelphia, Inc. v. 342, Blauner’s 345, tax: Co. Biscuit v. National 374 Philadelphia, A. 889; v. Murray 182; 2d A. Philadelphia, 612, Pa. v. Philadelphia Pa. A. 2d 280; Samuels, 157, 169, 326, 12 2d . [Emphasis Pa. A. 79. . .” not ours] [footnote omitted]2 for argument
But even the sake of granting im- income tax excise corporate net is an tax, its conclusion port of the distinction (and majority’s continues to elúdeme. inappositeness) In Bethelem Steel Saulsbury Co., often 2d 664 what 196 A. we has so (1964), restated been “The Constitution that: repeated, Pennsylvania upon ‘All shall be states that taxes specifically uniform, same class of as broad subjects.’ language This is it could be and must comprehensive possibly as to include all of taxes, be construed kinds necessarily The the nature of or excise levies. be they property inclusive constitutional all provision limited to requiring uniformity and is clearly taxes alone.” property [citations omitted] if it Hence it is to ask that is constitu- again fair for the measure corporate tionally permissible paid the income which tax net income to be cannot be Government, why the Federal same apple income tax? An not an personal for a true tax is not an but property tax, excise orange we Clause Uniformity applies both, when how the latter can be deter- it does, have seen for using deter- federally defective mined with a 3.5 percent flat rate? conjunction base mined of taxation types two are of little these genetics analyzed purposes uniformity. when moment and must be that such denial of conclusion is My the instant tax and the corporate between analogy an not withstand analysis unless tax does we net statement, acknowledged Bell Mr. Justice to this In a footnote “confusing”, “Irreconcilable” decisions on of other existence wrong. opinion that such concludes cases are own point his but opinion. to this dissented of the Court member No
72 clock back thirty-five years to turn the willing
are Company Turco Paint Varnish brand the & retroactively case and its as aberrations. progency the borrow Court
To this has sanctioned reiterate, and has Federal Government of a tax base the ing uniform. that it not to was given arguments short shift Thea Bros. v. Warner said Commonwealth As was 62 “Net A. 2d (1942); 345 Pa. Inc., 270, 272, tres, the tax the base income as ascertained is fixed the it by not the tax itself. How was measured, offi the taxing is of no concern to Federal Authorities rate nor The to its statute. cers the Commonwealth computa or the method of income tax may vary, tion but as a base it is unvarying.”3 “Absolute Court has written that
Mindful
that
this
a mere
unattainable;
approxima-
is of course
equality
can
reasonably
expected”,
all that
tive
equality
Canal
Commonwealth v. Delaware Div.
Company,
and also that
there is
Pa.
Despite fact that the Commonwealth impaled has itself own good intentions here, this section of the Tax can Code be invalidated can (as section 319) without affecting constitutionality rest of the Code. See Butcher v. Philadelphia, A.6 2d 298 (1938) where the Court excised credits pro- vided Philadelphia income tax while upholding itself.
Mr. Justice joins Jones dissent. Appellant.
Commonwealth v. Hill, notes Kramer infirmity disability, any age, or of of devoid definition poverty. are infused Can be said that these terms any by reciting meaning of “The class more that taxpayers qualify for tax credit and the who such solely by reference amount be determined thereof shall exemption schedule. ...” to the taxable income and Something to income” needed more than “taxable permitted poor, aged, of dis- the classification make integrated infirm classification hence, and an and abled merely technical defect eas- a uniform. However this qualifying by ily of definitions. use corrected Tax The Local Credit: attempt of some the double taxa- In an to alleviate imposition personal resulting of in- tion Legislature in Tax included Code the tax, come following provision: credit “Establishing 319(b) provides: of Class: Credit— 4Section provisions said section the Constitution of Pursuant hereby legislatively determined and established there (c) section, provided subsection this class of in the schedule age, disability poverty, infirmity by taxpayers reason who class, special relief and the members of such tax on in need of are shall article be entitled to effective date claim after the against which would otherwise the amount be due credit taxpayers and The class members thereof this article. under and the credit amount thereof qualify such shall who solely by exemp- to the taxable income and reference determined (e) of this in subsection section.” forth set schedule tion 317. imposed political “Section Taxes subdivi- sions of this Commonwealth: “(a) resident or Every nonresident es- individual, tate or to tax subject trust under this article shall be allowed a credit the tax otherwise due under against this article equal of the amount of thirty percent imposed local taxes on such any paid individual, estate trust subdivision this Com- political the calendar during except monwealth year 1971, such credit shall not to local taxes apply imposed real transfers or amusements. realty estate, For local taxes described subsection “(b) (a) in the imposed paid taxable years after beginning December the amount of credit provided base 31, 1971, percent this section shall exceed thirty total amount of the local taxes imposed which were paid by such estate trust individual, during to political calendar year subdivisions of this the case Commonwealth, except where no such