I. SCOPE OF REVIEW

As this Court has said on so many occasions, the role of the Judiciary is not to judge the wisdom, prudence or expediency of an act of the Legislature. E.g., Opinion of the Justices (Property Taxation of Tel. Poles) , 142 N.H. 102, 108 (1997). Thus, the traditional test of a statute's constitutionality is whether or not it has a "rational basis''.

The fact that HB 117 is designed to finance the State's constitutional duty to provide for an adequate education should not change the Court's scope of review. The constitutional issue which is posed by HB 117's phase-in of the new state property tax in the donor towns relates to the prescription in Article 5, Part II that all taxes levied within the taxing district must be "proportional and reasonable''. See also, Article 6, Part II & Article 12, Part I, N.H. Const. However, no one's right to an adequate education is affected by whether or not the property tax is uniform throughout the State; with or without the phase-in, educational adequacy will still be funded at $825 million and any town eligible for an adequate education grant will still get its grant. See HB 684. Even accepting, therefore, the dictum in Claremont II about the possible application of the strict scrutiny test to statutes which impair the right to an adequate education, there is no basis for even suggesting the use of such a test in this case.

Likewise, the fact that the issue presented by the phase-in arises in the context of the constitutional requirement of tax uniformity should not itself cause this Court to temper its traditional deference to the Legislature's judgment. To begin with, tax legislation is a subject specially consigned by the Constitution to the Legislature. E.g., Opinion of the Justices (Tax Plan Referendum), 143 N.H. ___, ___ (March 11, 1999). As the Court stated in one of its first advisory opinions on the subject, the breadth of the legislative prerogative in this area is extremely wide:

To establish the rules by which each individual's just and equal proportion of a tax shall be determined is a task of much difficulty, and a very considerable latitude of discretion must be left to the Legislature on the subject ... Within the limits of this discretion, as to the selection of proper subjects of taxation and the proportion of the tax that shall be laid on each subject, the authority of the Legislature is, without question, supreme.

Opinion of the Justices, 4 N.H. 565, 570 (1829), quoted with approval most recently in Smith v. N.H. Dept. of Revenue Admin., 141 N.H. 681, 687 (1997).

How, then, does the constitutional requirement that all taxes be "proportional and reasonable'' distinguish the Court's scope of review over such matters from its scope of review over other types of legislation? In my opinion, it doesn't. We all know that the case law prescribes that a lack of tax uniformity must be supported by "good cause'' or "just reason''. However, neither of these concepts has ever been interpreted to involve anything more than a requirement that there be a rational basis for the inequality. E.g ., Smith v. N.H. Dept. of Revenue Admin., 141 N.H. 681, 687 (1997). For example, this Court has often held that the question of whether there is good cause for a disparity in taxes is to be determined by whether or not the disparity is "rational''. E.g., Opinion of the Justices , 110 N.H. 117, 124 (1970); Opinion of the Justices, 97 N.H. 533, 540 (1951). Similarly, the Court has frequently stated that the test of good cause is whether the distinction in question is "arbitrary'' or "unreasonable''. E.g., Opinion of the Justices (Property Taxation of Tel. Poles) , 142 N.H. 102, 106 (1997); Cagan's, Inc. v. Dept. of Rev. Admin., 126 N.H. 239, 246 (1985); Havens v. Attorney General, 91 N.H. 115, 117 (1940); Opinion of the Justices, 97 N.H. 543, 544 (1951). Quite clearly, these statements are nothing more than alternative expressions of the rational basis test.

II. PRESUMPTION OF CONSTITUTIONALITY

On the other hand, the requirement of "good cause'' or "just reason'' to support a lack of equality in taxation does impact the presumption of constitutionality which normally attends all legislative acts. See, e.g. , Rich v. Flanders, 39 N.H. 304 (1859). Most legislation is afforded a presumption of constitutionality irrespective of whether or not the Legislature has specifically articulated its reasons for the statute. In other words, if the Court can conjure up any rational basis for the statute - even if the Legislature failed to identify such a reason for having enacted the law - the statute is presumed to have been an enacted for such reason and is deemed constitutional.

Such a presumption, however, does not appear to apply in tax cases. In view of the express constitutional prescription of proportionality in taxation, if the Legislature is to deviate from this requirement, it must do so consciously and deliberately. This is the point that this Court made in an advisory opinion concerning the constitutionality of a proposed sales tax which would have imposed different tax rates upon the sale of hundreds of taxable products, but where the Legislature had provided no statement of its reasons for imposing such variable rates: "[T]he legislative discretion as to the selection has not been exercised, and the proposals do not enjoy the presumption of validity which accompanies a deliberate legislative enactment.'' Opinion of the Justices, 97 N.H. 546, 547 (1951). In other words, if a disparity in taxation may only be sustained if "the advantages of the exemption largely exceed the disadvantages of inequality'' (Petition of Union Five Cents Sav. Bank, 68 N.H. 384, 387 (1896), the Court must be assured that the Legislature has truly engaged in weighing these competing interests and has intentionally chosen to prefer some other public goal over the equality of taxes.

An analysis of this Court's numerous advisory opinions concerning the constitutionality of tax schemes which include some element of inequality indicates that the characteristic feature of those opinions in which the Court has determined the proposed legislation to be unconstitutional is that there has been no legislative statement of the reasons for the inequality. E.g., Opinion of the Justices, 118 N.H. 343 (1978) (tax on power plants generating more than 500,000 kilowatts of power); Opinion of the Justices , 115 N.H. 306, 309 (1975) (exemption from business profits tax of income from sale of liquor to State Liquor Commission); Opinion of the Justices , 111 N.H. 131, 134-5 (1971) (tax on sales of rooms and means @ 5% and tax on sales of all other services @ 3%); Opinion of the Justices, 99 N.H. 517 (1955) (tax on sale of cigarettes @ 20% and tax on all other tobacco sales @ 15%); Opinion of the Justices, 95 N.H. 537 (1949) (differing income tax rates on various kinds of income); Opinion of the Justices, 76 N.H. 609, 610-11 (1913) (tax on standing timber @ 75% of its value and tax on all other property @ 100% of its value). In general, therefore, the Court declines to speculate in tax cases as to whether some good cause or just reason might be available to support a lack of uniformity. ¹

Indeed, it appears that this Court's ruling last year that the abatement feature of the so-called ABC Plan was unconstitutional was greatly influenced by the bill's lack of a legislative statement of purpose. Opinion of the Justices (School Financing), 142 N.H. 892 (1998). Because the Legislature failed to articulate any good cause or just reason for the abatement provision, supporters of the ABC Plan's constitutionality were compelled to hypothesize its rationale. As a result, the Court was left with nothing but theoretical good causes, none of which dispelled the Court's intuition that the abatement was in fact merely designed "to achieve disproportionality for disproportionality's sake''. Id. at 901.

This, of course, is one place where HB 117 and the ABC Plan differ. Unlike the ABC Plan, HB 117 contains an extensive statement of legislative purpose, including a specific rationale for the phase-in of the new State education property tax. RSA 17:1 VI. Accordingly, the phase-in should be afforded the customary presumption of constitutionality and struck down only if it is completely devoid of rationality.

WHAT IS A GOOD CAUSE OR A JUST REASON?

Where the Legislature has clearly articulated the basis for its classification, one can count on the fingers of one hand the cases in which this Court has struck down a tax law on the grounds that the legislative classification was irrational. As the Court stated in Opinion of the Justices , 82 N.H. 561, 574 (1974), "The reasons which may justify the use of the selective power as to the subjects of taxation may be as various as the motives which induce any rational action.'' (Emphasis supplied.)

The fact is that the Court has accepted virtually any legislative determination of good cause or just reason for a disportionality in taxation so long as the Legislature had the constitutional power to accomplish its purpose through regulation (the so-called police power) or through public spending (the so-called protective power). For example, the Court held in Opinion of the Justices, 82 N.H. 561, 571 (1921), that, "[tax] exemptions are justified as an exercise of ... the other powers which provide for the common benefit, protection, and security, and which may be conveniently grouped under the name of the protective power.'' Accord , Smith v. N.H. Dept. of Revenue Admin., 141 N.H. 681, 687 (1997); State v. Company, 60 N.H. 219, 257 (1880). Similarly, in Opinion of the Justices, 97 N.H. 533, 537-8 (1951), the Court held that the constitutionality of a sales tax which taxed alcoholic beverages consumed on the premises, but exempted those consumed elsewhere, was justified by the breadth of the State's "police power'' to regulate the use of alcoholic beverages. See also, Havens v. Attorney General, 91 N.H. 115 (1940).

The Court's mode of analysis in these cases, therefore, is to look at whether the legislative goal which purports to justify the tax disparity is a proper subject for the State to encourage or discourage by other means. For example, in Opinion of the Justices, 95 N.H. 548 (1949), the Court was requested to give an advisory opinion on the constitutionality of a proposed exemption from the property tax for private airstrips whose owners allowed them to be used by the public. In determining that the exemption was supported by good cause, the Court looked to another of its advisory opinions (94 N.H. 513) in which it had upheld the expenditure of public moneys upon such airfields as an appropriate exercise of the Legislature's power to encourage the development of aviation. See also, Opinion of the Justices , 111 N.H. 136, 141-2 (1971) (tax credit for low and moderate income families is justified by whether Legislature could "administer the personal income tax independently and then return to the taxpayer the amount designated as a credit against the income tax''); Opinion of the Justices (Current Use Reimbursement Program), 137 N.H. 270, 276 (1993) (constitutionality of lower tax rate for property placed in current use sustained on grounds that conservation, protection and promotion of State's natural resources are "within the ambit of the public welfare'').

In view of the Legislature's virtually plenary power to pass laws and to spend money under the New Hampshire Constitution, it is not surprising that the occasions upon which this Court has rejected a legislative statement of good cause for a tax have been few and far between. In fact, it is probably more appropriate to say that the Court has accepted almost any legislative determination of good cause or just reason unless there is some constitutional prohibition upon what the Legislature wants to accomplish. In other words, the test of constitutionality in this area is actually dictated not by what is a good cause or a just reason, but by what is a bad cause or an unjust reason.

The most frequent ground upon the Court has declared a tax scheme unconstitutional is that the classification at issue was one which distinguished between taxpayers rather than the property to be taxed. For example, the Court has ruled on many occasions that individuals, partnerships, corporations, etc. can't be treated differently for tax purposes. E.g. , Opinion of the Justices, 128 N.H. 1 (1986); Opinion of the Justices , 111 N.H. 206 (1971); Opinion of the Justices, 106 N.H. 202, 206 (1965); Opinion of the Justices, 84 N.H. 559, 569 (1930); Opinion of the Justices, 82 N.H. 561, 564-6 (1927). Likewise, taxes may not be differentially imposed upon taxpayers according to their wealth, their size or their capital structure. E.g., Opinion of the Justices, 123 N.H. 296, 302 (1983); Opinion of the Justices, 118 N.H. 343 (1978); Public Service Co. of N.H. v. State, 101 N.H. 154 (1957); Opinion of the Justices, 95 N.H. 543 (1949). And, finally, the amount or rate of tax may not depend upon a taxpayer's occupation. E.g., Opinion of the Justices , 82 N.H. 561, 563-4 (1927).

The other major category of taxes which the Court has found to be unconstitutional consists of those in which the classification at issue conflicts with some independently protected constitutional right. For example, the Court has struck down a proposed $50 credit from the real estate tax for every person having at least one child in non-public schools as being in violation of the prohibition in Article 83, Part II of the Constitution upon the expenditure of public moneys for the support of sectarian schools. See also, Smith v. N.H. Dept. of Revenue Admin., 141 N.H. 681 (1997) (exemption from interest and dividends tax for earnings from domestic entities, but taxation of earnings from foreign entities, violates Commerce Clause of Federal Constitution).

And, finally, there is a category of cases in which the Court has held that the inequality in question was designed to benefit such a narrow category of taxpayers that it could not legitimately be said that the classification had a "public'' purpose. Compare, e.g., Eyers Woolen Co. v. Gilsum, 84 N.H. 1 (1829), with, Perry v. Keene, 56 N.H. 514 (1876). As this Court has stated, "It is a recognized principle of constitutional law that taxes may not be imposed for the benefit of private persons or for private uses.'' Opinion of the Justices, 88 N.H. 484, 486 (1937).

IS HB 117's PHASE-IN CONSTITUTIONAL?

Measured by the foregoing standards, there is no principled basis upon which HB 117's phase-in of the education property tax in the donor towns can be held unconstitutional:

1.The law is supported by a clear statement of legislative intent. See RSA 17:1 VI.

2.Eligibility for the phase-in is based upon the situs of the property (i.e., its location in a donor town), not the identity or character of the taxpayer. See generally, Smith v. N.H. Dept. of Revenue Admin. , 141 N.H. 681, 687-8 (1997); Opinion of the Justices, 95 N.H. 540, 542 (1949). See also, Opinion of the Justices, 88 N.H. 484, 490-1 (1937); State v. Griffin, 69 N.H. 1, 30 (1896).

3.The stated goal of ameliorating potential foreclosures and bankruptcies is clearly within the Legislature's protective and police powers. Petition of Union Five Cents Sav. Bank, 68 N.H. 384 (1896); see Opinion of the Justices, 85 N.H. 562 (1931).²

4.The use of a phase-in is compatible with the legislative finding of fact that "sticker shock'' in the donor towns could be a potential cause of foreclosures and bankruptcies. See generally, Opinion of the Justices , 113 N.H. 201, 203 (1973).

5.Although both rich and poor taxpayers are benefitted by the phase-in, the fact that all taxpayers capitalize their property taxes provides a reasonable basis for applying the phase-in across the board in the donor towns. See generally, Opinion of the Justices, 117 N.H. 512, 517-18 (1977); Opinion of the Justices, 115 N.H. 228, 231 (1975); see Nashua Sav. Bank v. Nashua, 46 N.H. 389, 396 (1866).

6.Because the phase-in does apply to all, not just some, taxpayers owning property in the donor towns, it does not implicate the prohibition upon the expenditure of public funds for private purposes. See Article 5, Part II, N.H. Const.

7.The goal of the phase-in of encouraging financial stability in the donor towns does not infringe upon any other constitutionality protected interest. On the contrary, building mechanisms into a tax system which account for the lack of ability to pay is not only constitutionally acceptable, but may even be constitutionally required. Compare, e.g., Opinion of the Justices , 112 N.H. 32 (1972); Opinion of the Justices, 110 N.H. 206 (1970), with, Felder v. City of Portsmouth, 114 N.H. 573 (1974).

8.Unlike the abatement feature of the ABC Plan, HB 117's phase-in is only temporary. This means that although there will indeed be a disparity in effective tax rates between the donor towns and the donee town for the period of the phase-in, uniformity will eventually be established. Compare , Opinion of the Justices (School Financing), 142 N.H. 892 (1998). ³

9. Finally, neither the length of the period nor the rate of progression of the phase-in is independently unreasonable. See Flanagan v. Town of Hollis, 112 N.H. 222 (1972) and Lachapelle v. Goffstown , 107 N.H. 485 (1967) (phase-out of a nonconforming use over reasonable time period is not an unconstitutional taking).

In summary, the phase-in is constitutional because it has a rational basis because it is supported by a definitive statement of legislative purpose; because such purpose is clearly within the ambit of the Legislature's regulatory and spending powers; because such purpose is a public purpose; and because the device chosen by the Legislature to achieve its purpose is suited to the task and does not go beyond what is reasonably necessary to accomplish such purpose.⁴

Respectfully submitted,

September 30, 1999 ____________________________________

Eugene M. Van Loan III, Esquire

as amicus curiae

CERTIFICATION

I, Eugene M. VanLoan, III, Esquire do hereby certify that on this date I forwarded a copy of the aforementioned Memorandum to Andru H. Volinsky, Esquire, counsel for the plaintiffs and Assistant Attorney General Anne M. Edwards, counsel for the defendants.

Eugene M. VanLoan, III

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