Claremont School District v. Governor (Motion for Extension of Dead lines), 143 N.H. 154, 158 (1998).

Almost a month after the Court's Claremont II implementatio n deadline of April 1, 1999, the Legislature decided to fund the State's educational efforts through a variety of funding mechanisms, with the maj or component of this plan being a statewide property tax of $6.60 per tho usand of assessed valuation. Although this is a state tax, the Legislatu re directed that it would be collected by the towns, pursuant to warrants issued by the state commissioner of revenue. This legislation also prov ided that property taxpayers in property-poor towns would pay the full $6 2E60 rate immediately, while the rate is imposed gradually over five yea rs in fifty property-rich towns.

The "phase-in" was created by section 41 of the bill (to be codifi ed at R.S.A. 198: 46), which reduces the tax rates for "municipalities for which the education property tax exceeds the amount necessary to fund an adequate education [in their own communities]." (Emphasis added) 2E Because of high property values in these towns, levying the state pr operty tax at the uniform rate of $6.60 raises the funds necessary to mee t the "adequate education per pupil cost" for the students in these distr icts, plus varying amounts of "excess" funds. These property-rich towns would ordinarily be required to remit to the State all of the "excess" fu nds, which are state taxes they have collected as agents of the Commissio ner of Revenue. However, the bill allows these towns to reduce the state property tax rate in their towns, in some cases quite significantly, bec ause the "excess" payments are "phased in" over a five-year period. The bill provides the following timetable:

Tax Year Percent of "Excess" to be Collected

1. 10%
2. 20%
3. 30%
4. 50%
5. 75%
6. 100%

In Pittsfield, Allenstown, Claremont, Lisbon, Franklin, and 201 ot her towns and cities, all homeowners will pay the full $6.60 rate this ye ar. However, because of the "phase-in," the state education property tax rate for 50 property-rich towns will be less than $6.60 for five years. For example, the tax rate in 1999 in Moultonborough will be $3.18 ; in Rye, $3.79; in Lincoln, $3.06; in Newington, $1.53, and in Watervill e Valley, $1.43. Thus, the taxpayers of Pittsfield will pay the new stat ewide education property tax in 1999 at a rate that is 208% higher than t he rate to be paid by the taxpayers of Moultonborough.

In Claremont II, this Court said that a 400% difference in tax rates between Pittsfield and Moultonborough was "precisely the kind o f taxation and fiscal mischief from which the framers of our State Consti tution took strong steps to protect our citizens." 142 N.H. at 465. As t he second anniversary of that decision approaches, the constitutional vio lation at the heart of Claremont II continues at a level that is s till grossly disproportionate. The disproportional rates will not be ful ly eliminated until the 2004 tax year. During these five years, resident s of the property-poor towns, no matter how deserving, will not be able t o seek any "phase-in" of this new state tax in any of the years it is off ered, while all taxpayers in the property-rich towns, regardless of their individual circumstances in any tax year, will automatically receive a r ate reduction.

It is apparent from the face of the "phase-in" provision that it p erpetuates, for another half-decade, the unconstitutional disproportional ity and unfairness that this Court, in Claremont II, said the Stat e must bring to an end. Therefore, this Court must strike down the "phase -in" as a clear violation of Part II, Article 5.

1. This Court has already held that tax rate advantages available to residents of

The "phase-in" now under scrutiny is remarkably similar in pur pose and operation to the "special abatement" proposal that this Court sa id "violates both the plain wording of Part II, Article 5 and the express language of Claremont II." Opinion of the Justices (School Fi nancing), 142 N.H. 892, 902 (1998). In that opinion, the Court noted that as a result of the special abatement, the "effective tax rate is re duced below the uniform State education tax rate in any town that can rai se more revenue than it needs to provide the legislatively defined 'adequ ate education' for its children." 142 N.H. at 899. Similarly, the phase -in lowers the effective tax rate of the new state property tax only for those taxpayers who happen to live in 50 property-rich towns which can co llect more than they need to pay for the state-mandated "adequate educati on per pupil cost" for the students in their towns.

As was the case with the special abatement, no taxpayer in a prope rty-rich town need actually apply for a tax rate reduction, because the p hase-in applies automatically to all taxpayers in the protected towns, re gardless of the individual taxpayer's circumstances. Like the special ab atement, the phase-in will not be available to any taxpayer in a property -poor town at any time during the five-year phase-in period, no matter ho w much hardship that taxpayer is actually enduring.

In the Opinion of the Justices in which this Court found th e special abatement to be unconstitutional, the Court summarized its juri sprudence on tax abatements and exemptions, setting out the conditions fo r upholding a legislatively created exception to the constitutional requi rements that tax rates be proportional and reasonable. The Court noted t hat the Constitution does not explicitly authorize abatements and exempti ons, but said that, nonetheless, the Legislature has "wide discretion" in classifying certain property for taxation while exempting other property 2E 142 N.H. at 900. Because abatements and exemptions necessarily creat e disproportionate tax burdens on the remaining property in a district, a batements must be supported by "good cause" and exemptions by "just reaso ns" in order to satisfy Part II, Article 5. Id.

In determining whether a Legislative decision to provide an exemption or abatement is proper, the Court "does not concern itself with the wisdo m or practicality" of proposed legislation, leaving such public policy ma tters to the Legislature. Id. Instead, "[t]he Court's duty is to safeguard constitutional mandates, . . . by interpreting the plain and c ommon meaning of the constitution in light of the framers' purpose and in tent. . . " (Citations omitted). Id.

This Court has upheld the constitutionality of exemptions for elde rly homeowners, Opinion of Justices, 115 N.H. 228 (1975); "cu rrent use" of open land, Opinion of Justices, 137 N.H. 270 (1 993); and, most recently, industrial expansion, Opinion of Justices, 142 N.H. 95 (1997). In those cases, this Court held that the Legislat ure has wide discretion to create tax exemptions, provided that the exemp tions promote a legitimate public purpose:

Opinion of Justices, 142 N.H. at 99 (citations omitted) (emphas is added).

The purpose of the phase-in, according to section 1, paragraph VI, of the bill, is to prevent "business failures," "foreclosures," and "bankrup tcies" that "sharp increases in property taxes may cause. . . " in prope rty-rich towns. The Legislature had a variety of policy choices, within the parameters of the constitution, about how to address these concerns d uring implementation of the new state property tax. The tax could have b een gradually increased across the State, in a statewide phase-in. Alter natively, the Legislature could have provided for an abatement or exempti on for individual taxpayers, in any town in the State, who could demonstr ate undue hardship or other good cause. The Legislature has ample experie nce in creating exemptions for individual taxpayers: see the elderly tax exemption provided by R.S.A. 72:39-a; the tax deferral for the disabled a nd elderly authorized by R.S.A. 72:38-a; and the "current use" protection set out in R.S.A. 79-A.

The legislative concerns about potential adverse economic conseque nces of the new property tax could have been addressed by the creation of a procedure for individual property owners, commercial or residential, i n any town in New Hampshire, to seek relief from any hardship caused by t he new tax. Such an option would have dealt with any transitional proble ms caused by the new state tax, while not creating any further delay in t he State's compliance with the Court's mandate that school tax rates be e qual across the state.

Instead of choosing one of these approaches, or some other constit utional means of addressing its concerns, the Legislature decided to impo se the full state property tax rate immediately on all taxpayers in some towns, while providing a blanket phase-in to all taxpayers in others. No other exemption from, or abatement of, any state tax is provided to all taxpayers in certain towns and not at all to those in other towns. Every other form of tax relief is provided to individual taxpayers whose parti cular circumstances must match statutory criteria which apply to all taxp ayers in the State. In such cases, the taxpayers must demonstrate that t hey have "good cause" or "just reasons" for the tax relief they seek, and every taxpayer in the state is potentially eligible.

In the case of the phase-in, however, eligibility is limited to ta xpayers who live in towns with high aggregate property values. These tax payers receive this tax rate reduction without even applying for it, let alone proving any "just reason" or "good cause." No other taxpayers, howe ver desperate their individual circumstances, are given the opportunity t o seek a phase-in of this new, and supposedly uniform, state tax. A quar ter-century ago, this Court, in an opinion written by Chief Justice Kenis on, held that the Legislature's wide latitude in creating exemptions does not extend to tax shelters skewed in favor of those who own more valuabl e property:

Felder v. Portsmouth, 114 N.H. 573, 580 (1974).

In creating a very selective phase-in of the new state property ta x, the Legislature transformed its concern for the possible future economic hardship of those who had benefited from the old system into a five-year extension of the unfair protection they had received under that unconstitutional scheme. As this Court said last year when evaluating t he constitutionality of the special abatement, "While good cause or just reasons can be created by public policy determined by the legislature, p ublic policy cannot undermine the constitutional requirement of proportio nality." Opinion of the Justices (School Financing), 142 N.H. at 901.

The phase-in does not serve the "general welfare" or the common go od, but, much like the special abatement, perpetuates the narrow sense of responsibility that crippled the prior unconstitutional system. The ena ctment of the phase-in, together with the use of the term "donor town," d emonstrates that there is still not complete understanding or acceptance of the core principles of the Court's Claremont I and Claremont II rulings, that taxes raised to fulfill the State's duty under Part II, Article 83 are state taxes, because all of us, as New Hampshire citizens, bear a common responsibility to provide, and pay for, the education of all of our children, wherever they live. For this reas on, the state property tax rate for education must be equal across the st ate. Any abatement or exemption which results in unequal rates must be a vailable to all taxpayers depending on their individual circumstances. Ab atements or exemptions may not be completely unobtainable to taxpayers in some towns and automatically awarded to everyone in others.

While some members of the Legislature may not yet understand or ac cept these constitutional ground rules, as this Court has already said, " [t]he vitality of these principles cannot be allowed to yield simply beca use of disagreement with them." Claremont School District v. Governor (Motion for Extension), 143 N.H. at 158, quoting Brown v. Board o f Education, 349 U.S. 294, 300 (1955).

The concluding paragraph of this Court's analysis of the special a batement proposal pinpointed the unconstitutional essence of that proposa l, and, with the simple substitution of "phase-in" for "special abatement ," could likewise serve as the epitaph for the phase-in:

Opinion of the Justices (School Financing), 142 N.H. at 902. & #9;

The phase-in also creates an impermissible classification of property in violation of Part II, Article 6 of the New Hampshire Constitution. Thi s Court has recently reaffirmed that Part I, Article 12, along with Part II, Articles 5 and 6, should be considered together when evaluating the c onstitutionality of any tax proposal: "Three provisions of the New Hampshire Constitution work in conjunction to ensure the fairness of any scheme of taxation by our legislature." Smith v. New Hampshire De pt. of Revenue Admin., 141 N.H. 681, 685 (1997). The phase-in also vi olates the proportionality and equality requirements of Part I, Article 1 2.

This Court has held that the Legislature has considerable discreti on in classifying property for the purpose of imposing particular taxes, "provided just reason exists for the selection made." Opinion of the Justices, 142 N.H. 95, 99 (1997). However, this Court has also made it clear that: "[O]ur constitution demands that classification s be made between property but not taxpayers." Smith v. New Hampshire Dept. of Revenue Admin., 141 N.H. at 685. In language directly appl icable to the "phase-in," the Court has said that: "Distin ctions in tax treatment must rest upon reasonable classifications of prop erty, not upon classifications of taxpayers owning a common class of prop erty." Opinion of the Justices, 132 N. H. 777, 781 (1990). < /P>

The phase-in will not be available to all taxpayers owning a common c lass of property, but only to taxpayers who happen to own such property i n 50 property-rich towns. Homes and businesses of identical use and valu e in Pittsfield and Moultonborough are not classified together, but are t reated very differently under the phase-in. The property owner in Moulto nborough would receive a reduction in the state education tax rate from $ 6.60 to $3.18, while the Pittsfield taxpayer would not. The difference b etween these two taxpayers is not in the nature of their property, but in the happenstance of its location. The Pittsfield taxpayer is excluded f rom the benefit of the phase-in solely because he resides in Pittsfield. The phase-in is, quite simply, a tax classification by class of taxpayer , not class of property. This Court has said that "[the Legislature] . . .may not create alternative systems of taxation which inevitably result in two classes of taxpayers, paying differing rates of taxes on essential ly the same class of property. . . " Opinion of the Justices, 123 N. H. 296, 301 (1983). That is exactly what the State has done here. < /P>

In a case that construed Part I, Article 12 of the Constitution, this Court held long ago that a state tax scheme that provided for differing t ax rates from town to town was impermissible and unconstitutional. In Gould v. Raymond, 59 N.H. 260, 276 (1879), in an opinion written by Chief Justice Doe, the Court said:

The taxpayers of the five petitioner districts and more than two hundr ed other towns should not be forced to continue to endure the unequal tax rates that the phase-in perpetuates. Instead, this Court should rule th at the phase-in constitutes an improper classification scheme that violat es Part II, Article 6 of our Constitution and a disproportional and unequ al tax burden that violates Part I, Article 12. As Chief Justice Doe sai d in the final sentence of the Gould opinion: "The obligation of every member of the community to contribute his share of the public e xpense, is part of the foundation which neither branch of the government is authorized to remove." 59 N.H. at 278.

This Court should strike down the phase-in of the new state pr operty tax, because it is a clear and direct affront to the proportionali ty guarantees of Part II, Article 5, and this Court's three recent decisi ons enforcing that right in the context of school funding. The phase-in' s applicability for five years also contravenes this Court's plain direct ive that no extensions beyond April 1, 1999 were to be granted to the Sta te, because the constitutional rights of New Hampshire taxpayers to propo rtional and reasonable taxation "are not to be denied any longer." Cl aremont School District v. Governor (Motion for Extension), 143 N.H. at 158. Any legislative concerns about the economic consequences of the transition to a new state property tax could be addressed without any fur ther delay in complying with the constitutional requirement that state ta x rates for education must be equal across the state. Finally, the phase -in also violates the other two important tax clauses of our Constitution , Part II, Articles 6 and 12, because it improperly imposes a tax classif ication based not on classes of property but on the residence of the taxp ayer.

For all these reasons, the petitioners respectfully request that this Court declare that section 41 of HB 117 to be unconstitutional and theref ore null and void.

Respectfully submitted,

The Claremont Petitioners

By Their Attorneys

___________________________

Andru H. Volinsky, Esq.

Stein, Volinsky & Callaghan, P.A.

One Barberry Lane

P.O. Box 2159

Concord, NH 03302-2159

(603) 228-1109

John E. Tobin, Jr., Esq.

60 Stone Street

In accordance with Supreme Court Rule 26 (2) and (3), a copy of the within Brief has this_____day of__________, 1999 been forwarded by first class mail, postage prepaid, to Phillip T. McLaughlin, Attorney General.

____________________________________

Andru H. Volinsky

Andru H. Volinsky, Esquire herewith requests oral argument of 25 minutes. John E. Tobin, Jr., Esquire, herewith requests oral argument of 20 minutes.