National Tax Association

CONSTITUTIONAL LIMITATIONS OF TAX LEGISLATION

Author(s): E. S. OAKLEY
Source: The Bulletin of the National Tax Association, Vol. 4, No. 8 (May, 1919), pp. 208-211
Published by: National Tax Association
Stable URL: https://www.jstor.org/stable/41785311
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208 BULLETIN OF THE NATIONAL TAX ASSOCIATION [Vol. IV

that the tax legislation could be success-

legislative discretion of the state, cannot be
fully attacked. made applicable to the income tax legisla-
Judge Finch considers invalid
tion.aSurely
law the
en-adoption of uniform bases
for state
acting that the rate of interest inand federal taxation is in itself
New
a desirable
York for the loan of money should result for all taxpayers. The
be such
and the same as that which should from convenience, the simplification of account-
time to time be prescribed by the law
ing,of
and the consequent stability of business
any other state, for example, Maine, and
are, in themselves, ample reasons for adopt-
states as the reason for such invaliditying the federal measure of income and for
that
such a law would be a pure case of abdica-changing the state measure from time to
tion of its function by the legislature time
be-with the changes in the federal law.
cause there would be no dependent or We thus find that the two objections
causative connection between the domestic urged in the Fire Association case, which
and the foreign law. The only discussion seem to be the only objections which can
on the merits could be in Maine, and Judgebe urged against the validity of the tax
Finch goes on to say after stating the sup- laws, are comprehensively dealt with in the
posititious interest case : decision of the Court of Appeals, and it
seems
" There is thus developed the clear and wide that the reasoning there set forth ap-
difference between the two laws. One has merits plies fully to these cases. It is true that
of its own; the other has none. The one is en- there were two earlier cases in Alabama
acted because of the foreign law; the other only and in Indiana which held to the contrary,
according to the foreign law. The one is passed
for legislative reasons and out of a legislative dis- they are satisfactorily dealt with in the
but
cretion which the foreign law and its possible opinion of the Court of Appeals. This
mutations engender; the other without any such opinion has stood for so long without ques-
reasons and with no reason whatever, but only tion, and its reasoning is so clear and con-
through trust in a foreign reason. It seems to us
that the difference is plain and decisive." vincing, that it seems safe to assume that
the courts in other jurisdictions will fol-
It is, however, clear that the objection to
low this decision, and that the adoption of
the supposed interest law, viz., that it in-
the uniform basis for income taxation will
be sustained.
volved the yielding to other agencies of the

CONSTITUTIONAL LIMITATIONS OF TAX

LEGISLATION
E. S. OAKLEY
Deputy Attorney General, State of Minnesota

An address read at the meeting of the Minnesota Tax Association, January 16, 19 1

Taxes are burdens and chargesupon imposed

the powers which the states inherently
upon persons or property to raise money
possess.
for public purposes. The power to tax Our supreme court has held that the
rests upon necessity and is inherent in any provisions of our state constitution do not
sovereignty. Such power is restricted only confer any powers upon the legislature, but
by constitutional grant or limitation. are mere limitations; and the legislature
The government of the United States is has all the powers of an absolute sovereign,
one of enumerated powers, the national of which it has not been deprived by the
constitution being the instrument which constitution. It therefore follows that in
specifies them, and in which authority Minnesota the legislature may tax prop-
should be found for the exercise of any erty, persons, possessions, incomes, privi-
power which the national government as- leges and occupations, subject only to the
sumes to possess. In this respect it differs existing constitutional limitations.
from the constitution of the several states, What are these limitations? Prior to
which are not grants of power to the states, 1906, our constitution provided that " all
but which apportion and impose restrictions taxes to be raised in this state shall be as

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 No 8] MAY, 1019 209

nearly aswithmay
other assessment values,
be for byequ
so
throughout doing the
the power of taxation
state." as to such A
stitution property would in effect be surrendered
provides as or
foll
suspended, and an exemption, for practical
" The power of taxation sha
dered, purposes,
suspended would be granted
or contrary
contrato the
be uniform constitutional upon limitations.the same
shall be levied Courtsand
generally have held that a con-
collected
but public burying grounds
stitutional enumeration of exemptions, such
public hospitals, academies,
and all seminaries as we have in Minnesota,
of precludes
learnin the
property, granting of
and any other exemptions.
houses of The wo
purely public charity,
result, then, is that the legislature in thisand
exclusively for any
state has nothing to do withpublic
tax exemption p
from taxation, and there m
taxation personal except in one instance, to wit
property : It may ex- n
$200.00, forempt eachpersonal property not exceeding
household,
a family, as $200.00
the in valuelegislature
for each household, indi-
vided, that vidual the or head legislature
of a family. The legisla^
cipal corporations to levy an
for local ture must provide for the taxation of prop-
improvements upo
thereby without erty not exempt. It may classify such prop- to
regard
provided erty on a logical basis. that
further, But suppose it noth
.shall be construed to
should provide by classification affect
for the
existing law providing for the taxation of the
gross earnings of railroads." assessment of the land alone; what would
be the result? I predict that the tax levy
It is to be noted that under the constitu- would be held invalid as violative of the
tional provision just read : constitutional provision, which provides
(a) The; power of taxation cannot bethat no person shall be deprived of his
surrendered or suspended. property without due process of law. Such
(b) Taxes must be uniform upon thedue process of law provision is found in
same class of subjects. both the state and federal constitutions.
(c) Certain properties are specifically The Supreme Court of the United States,
exempted from taxation. in considering the 14th amendment to the
Federal Constitution, has made numerous
(d) The legislature is authorized to ex-
empt from taxation, personal property notdecisions affecting state taxation. Among
such we find holdings to the following
exceeding $200.00 in value for each house-
hold, individual or head of a family. effect :

" The general rule is that, in classifying prop-

It must be kept in mind that the pro- erty for taxation, some benefit to the property
visions as to exemption from taxation taxed
of is a controlling consideration, and a plain
the mentioned educational, religious and abuse of this power will sometimes justify a
judicial interference."
charitable institutions are self -executing
"It was never contemplated, when the amend-
and mandatory. ment was adopted, to restrain or cripple the tax-
As to exemption, the only leeway pos-
ing power of the state, whatever the methods they
devised for the purpose of taxation, unless those
sessed by the legislature is as to the amount
of personal property not exceeding $200.00 methods by their necessary operations were in-
consistent with the fundamental principles em-
in value which, for each individual or headbraced by the requirements of due process of law
of a family, may be relieved from taxation.and the equal protection of the laws in respect to
As to the classification of subjects upon
the rights of property."
"The enforcement of a tax levied under a void
which the taxes must be uniform, primarily
law is a deprivation of property without due pro-
the legislature must create or define classes.
cess of law."
The legislative determination is binding" A taxing act which exceeds the legislative
upon the courts, unless it can be pointed
power of taxation, and violates the provisions of
the constitution, is not a law, and the person
out that the classification adopted is purely
subjected to said tax is deprived of his property
fanciful or arbitrary, and that no substan-without due process of law."
tial or logical basis exists therefor. " Illegal taxation is a deprivation of the citi-
In my opinion, our legislature could notzen's right of property without due process of
law."
legally provide that all property within a
properly prescribed class should be assessed In addition to levying so-called general
at a merely nominal value , as compared property taxes, the states, under their police

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210 BULLETIN OF THE NATIONAL TAX ASSOCIATION [Vol. IV

of collection
powers, have a right to enforce Article 9 of our
in
of license or inspection fees, or part
privilegeread as foll
taxes ; but it must be kept in attention
"5 that
states cannot enact a revenuedebts
law by for works of internal
decor-
party in carrying on such w
ating the same with garments usually worn
where grants of land or othe
by police regulations. In other
beenwords,
made the
to the state, espec
courts will remove the cloak and investi- grant to specific purposes,
state shall devote thereto the
gate as to whether or not an act is a bona
and may pledge or appropr
fide police regulation or a revenue measure
rived from such works in aid
in disguise. Speaking generally, the law " 16. For the purpose of len
struction and improvement
will be tested by the result of its operation
and bridges, there is hereby
and subsequent legislation on the subject.
known as the ( state road a
The legislature may make any business re-
fund shall include all money
quiring police regulation pay the expenses
income derived from investments in the internal
improvement land fund, or that may hereafter
of regulating it. The amount of the fees
accrue to said fund, and shall also include all
required is, within reasonable limits, for the
funds accruing to any state road and bridge fund,
legislature. however provided.
The following cases afford illustrations "The legislature is authorized to add to such
of invalid police regulations : fund, for the purpose of constructing or improv-
In Foote v. Maryland , 232 U. S. 494, for ing roads and bridges of this state, by providing,
in its discretion, for an annual tax levy upon the
the two years that the Oyster Inspection property of this state, of not to exceed in any
Law had been in force, the result was as year one mill on all the taxable property within
follows : the state. Provided that no county shall receive
Percentage cf in any year more than three (3) per cent or less
Year Receipts Expenses receipts used than one-half (^2) of one (1) per cent of the
for expenses . total fund thus provided and expended during
such year."
1909

1910.... 43^72 14, 99* 34% In the case of Cook v. Iverson , 108
Minn.
In Bartles Northern Oil Company 388, v.
our Supreme Court held that
public is
Jackman , 150 N. W. 576, which highways
the are included in the pro-
hibition contained
North Dakota Oil case, the statute had in section 5 of Article 9,
to the effect that the state shall not be a
been in force five years, with the following
result : party to the carrying on of works of in-
ternal improvement. In that case, the court
Percentage of
Year Receipts Expenses receipts used further held that the power of the legisla-
for expenses .ture to aid in the construction of highways,
1909.... $45,603.55 $8,988.75 19%
1910
by appropriating money raised by a general
191 1 tax levy, is limited to the manner and
1912 amount prescribed by section 16 of Article
1913.... 119,494.97 13.382.79 11%. 9. In this connection I am informed that
In the Ohio Oil case, Castle v. Masona ,proposed constitutional amendment for
it was shown that the inspection lawlegislative
of consideration has been drawn,
and will remove all limitations as to the
Ohio, adopted in 1908, had the following
result : taxation of motor vehicles and provide for
Percentage of the distribution of funds derived from such
Year Receipts Expenses receipts used taxation on so-called trunk highways of the
for expenses . state.
1908

1909
Some people entertain the belief that all
1910
constitutional limitation as to taxation and
191 1.... 107,972 40,835 37% exemptions should be removed so that the
1912
legislature from time to time might provide
1913
for the raising of public revenue in any
In consideringmanner which it deems
the proper. A so-called
limitations o
wide-open
tion, especially intaxviewamendment would,
of generally
the g
speaking,
spirit, which is so bring about such result. Person-
commendable an
ally I do not believe
spread at the present that if all limitations
time, it is im
to note the were removed a chaotic orof
provisions disastrous result
sections

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 No 8] MAY, 1919 211

would " The rule of taxation shall be uniform and

necessarily follo
taxes shall be levied upon such property as the
we find liberal taxatio
legislature shall prescribe. Taxes may also be
instance, in Connecticut the constitution imposed on incomes, privileges and occupations,
contains absolutely no limitation of taxa- which taxes may be graduated and progressive,
tion except that the bill of rights has the and reasonable exemptions may be provided."
usual provision to the effect that property As there is no limitation on exemptions
of no person shall be taken for public use in Wisconsin, we find a larger exemption
without just compensation therefor. The list covering practically four statute pages.
courts of that state have held that taxation
In the list there is enumerated, among other
is not the taking of private property with-things, the following: growing crops, in-
out compensation but have, under the bill- cluding medicinal plants ; mechanics7 tools ;
of -rights provisions, placed a narrow con-firearms; honey bees; chickens and farm
struction on what constitutes public use. animals born after December 31st and be-
In Wisconsin it is provided by constitu-fore the date of assessment ; and beet sugar
tional provision: factories and plants.

THE FUTURE OF REAL ESTATE

RUFUS S. TUCKER
Harvard University

As a result of the war nearly all of interest determines the relation of the
govern-
ments, national, state or local, are assessed
faced bycapital value to net rentals.
the necessity of providing for larger Any attempt
ex- to foresee the future course
penditures than in the past, and of land has
there values must consist in an analysis
of each the
been some question as to whether of the above-mentioned factors.
Some
sources of revenue previously relied on of them are much affected by purely
will
be sufficient for the present need. local Inas-
circumstances; some on the other
much as the general property tax, hand more
are nation-wide phenomena, and it is
specifically the tax on real property, thisissecond
the class alone concerning which
chief reliance of local governments the following
in the notes are submitted.
United States, it is essential to ascertain Concerning immediate prospects there is
whether more revenue can be raised from not much to be said. This is dangerous
this source. From many sides comes a ground for prophets. One fact, however,
negative opinion : the rate of tax is now as is to be emphasized: the number of busi-
high as can be successfully administered or ness failures, and the amount of their lia-
tolerably borne; this is the opinion of the bilities, has been very small since April,
taxpayers and of many tax collectors, and 1917, and getting smaller right along. The
it is one I have no desire to dispute. But percentage of business firms failing in 1918
the yield of a tax depends not only on its was the smallest in thirty years ; the num-
rate, but also on the value of the taxed ber of firms in business decreased slightly,
property, and that value is the subject of but it was through solvent withdrawal, not
this paper. bankruptcy. Bradstreeťs figures for the
The value of land is fundamentally de- first three months of this year show a
termined by the demand for it. In cities smaller number of failures than for thirty-
this means the demand for buildings of all eight years past, with a total of liabilities
sorts, and for sites for them, and this de- considerably smaller than usual in the last
mand in turn results from the conditions decade. The year 1915 seems to have
weeded out the weaklings of business, and
or prospects of business and the growth of
population. if there is no more trouble in Europe, busi-
Besides the demand for buildings, the ness prospects are far from gloomy.
cost of erecting and maintaining them Whatever may be the case with respect
comes into the determination of landto business, there is another source of de-
values. This includes costs of material
mand for city land - the demand for resi-
and of labor, and taxes. Finally, the rate buildings, which depends of course
dential

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