Jaksha v. State

Shanahan, J.,

dissenting.

With a boost from today’s decision, taxes of many Nebraskans are going up. Meanwhile, referring to its previous and fundamentally erroneous opinions, the majority whistles as it walks by a tax statute graveyard nearly filled to capacity with tax legislation garroted by this court’s decisions that fail or refuse to recognize the Legislature’s constitutional authority to *134set tax policy for the State of Nebraska.

DEFECTIVE CONSTRUCTION

As a preamble for its discussion about 1991 Neb. Laws, L.B. 829, the majority mentions generally accepted rules for construction of the Nebraska Constitution:

A state constitution is the supreme written will of the people of a state [and], as amended, must be read as a whole. ... A constitutional amendment becomes an integral part of the instrument and must be construed and harmonized, if possible, with all other provisions so as to give effect to every section and clause as well as to the whole instrument. ... If inconsistent, a constitutional amendment prevails over a provision in the original instrument; but a court will find distinct constitutional provisions repugnant to each other only when they relate to the same subject, are adopted for the same purpose, and are incapable of enforcement without substantial conflict.

However, in the majority’s usage, the Nebraska Constitution, the “supreme written will of the people,” becomes a vehicle for judicial expression of tax policy. An amended constitution, required to be read “as a whole” or single document with harmonized parts, becomes a black hole that results from this court’s tax decisions which have caused the collapse of constitutional power expressly conferred on the Legislature to classify and exempt tangible personal property for tax purposes. Regarding the principle that a “constitutional amendment prevails over a provision in the original” constitution, that rule of construction, after the majority’s lip service, sails into a constitutional sunset and apparently falls off the edge of the Earth, for preeminence of a constitutional amendment is never seen or heard again in the majority’s opinion.

THE 1919-1920 CONSTITUTIONAL CONVENTION

Rather than basing its decision on the content of the Nebraska Constitution, the majority refers to comments and cryptic “concerns” at the 1919-1920 constitutional convention, at which the uniformity clause was placed in this state’s *135Constitution some 72 years ago. Bear in mind that Nebraska’s electorate in 1970 adopted the constitutional amendment which expressly confers on the Legislature the power to enact laws exempting tangible property from taxation and classify personal property “as it sees fit, ” to the end that the Legislature “may exempt any of such classes, or may exempt all personal property from taxation.” Neb. Const, art. VIII, § 2. Thus, the majority operates from a premise that the 1919-1920 constitutional conventioneers enjoyed the gift of prophecy and, envisioning the 1970 constitutional amendment for tax exemption for property, elevated the uniformity clause to its zenith in a hierarchy of constitutional provisions pertaining to property taxation. Thus, foreseeing the future, those conventioneers chiseled into constitutional granite the monolithic uniformity clause, impervious to any later amendatory action by the people of Nebraska. So long as the •majority is captivated by William Jennings Bryan, consider some of his other remarks at the 1919-1920 convention:

Ours is a people’s government____The people will, if they have the power, destroy the breeding places of plutocracy. The initiative and referendum give them this power. They put the people in possession of their government and make it possible for them to secure through the ballot anything and everything they want.

(Emphasis in original.) 1 Proc. Const. Convention 327 (1919-1920). In light of the foregoing, imagine Bryan’s reverence for a constitutional amendment adopted by the people. By the way, records of the 1919-1920 constitutional convention show that Bryan was not even a delegate to the convention, and, after lecturing to the assembly and preparing to depart for Washington, D.C., to celebrate adoption of the 18th Amendment to the U.S. Constitution, imposing nationwide prohibition, Bryan informed the conventioneers: “[TJhere will never be another legalized saloon in the United States.” Obviously, Bryan did not share in the gift of prophecy that the majority attributes to the constitutional conventioneers, for the will of the people, expressed in the 21st Amendment adopted in 1933, repealed the 18th Amendment. The established lack of credibility for Bryan’s augury is no less *136than the lack of credibility for the constitutional conventioneers’ precognition of the 1970 amendment for tax classification and exemption of tangible property, when the uniformity clause was made a part of the Nebraska Constitution in 1920. The only salient fact is that the “will of the people” should never be underestimated or overlooked by a court construing a constitution.

A NOVEL FISCAL IMPACT TEST FOR CONSTITUTIONALITY

At this point, it is instructive to consider the plain language of the Nebraska Constitution and the statutory provision which this court declares unconstitutional today. The uniformity clause, Neb. Const, art. VIII, § 1, adopted by the 1919-1920 constitutional convention, provides that “[t]axes shall be levied by valuation uniformly and proportionately upon all tangible property and franchises, except that the Legislature may provide for a different method of taxing motor vehicles . . . .” The classification clause, Neb. Const, art. VIII, § 2, adopted by popular vote in 1970, provides in pertinent part that “[t]he Legislature may classify personal property in such manner as it sees fit, and may exempt any of such classes, or may exempt all personal property from taxation.” L.B. 829, § 7(12), which the court condemns as a violation of the foregoing constitutional provisions, states that “[f]or tax year 1991, all personal property... other than motor vehicles ... shall be exempt from property taxation.”

Given the principles of constitutional construction previously mentioned, and the fact that the Legislature enacted a statute precisely in accord with the authority expressly granted by the constitutional amendment embodied in article VIII, § 2, no prolonged examination of L.B. 829’s constitutionality should have been necessary.

Instead of applying those accepted principles for construing a constitution, the majority delves into the tax axiom: maintaining or increasing a particular level of tax revenue, while granting exemptions from taxation, necessitates an increase of taxation on the remaining objects of taxation. Resorting to that axiom, the majority declares that “because *137the grant of exemptions to one group necessarily entails raising the taxes of another disfavored group,” the uniformity clause focuses on the “effect of [property tax exemption] classifications on the remaining tax base.” (Emphasis in original.) Thus, according to the majority, the purpose of the uniformity clause is prevention of new property tax exemptions that increase the tax burden borne by owners of property remaining subject to taxation. At that point, and without any suggestion by the parties, the majority conjures up its fiscal impact theory of “fully funded” tax exemptions and creates a constitutionally estranged and peculiarly novel test to determine validity of a tax exemption statute. “Creates” is the appropriate term in reference to the majority’s new test, for the Nebraska Constitution contains nothing textually or by implication that serves as a basis for the majority’s test announced today. As used by the majority, “fully funded” means that for constitutional validity, tax exemptions must be accompanied by a corresponding and contemporaneous tax measure to assure full compensation or restitution for tax revenue lost through the exemptions. Hence, the majority today reveals a test that requires a court to consider “(1) whether the exemptions improperly shift the property tax burden to the remaining tax base, and (2) whether there is a substantial difference of situation or circumstance justifying differing legislation for the objects classified.” Consequently, the majority concludes that any exemption which is not “fully funded” results in an “unfair shift of the tax burden to the remaining taxpayers,” violates the uniformity clause, and, therefore, is unconstitutional. For this court’s majority, then, “unfair” is equated with “unconstitutional,” terms that are used interchangeably and synonymously in determining constitutionality of a tax statute.

In some rather slipshod sophistry as an attempt to explain “fully funded,” and as a veil over the void in its position, the majority diverts attention to the sales and income tax programs enacted before the 1970 constitutional amendment that authorized exemption of property from taxation. Even to an alien in the world of taxation, sales and income taxes are different from and essentially unrelated to ad valorem taxation *138of tangible property. Nevertheless, revenues from sales and income taxes, the majority says, softened the impact on political subdivisions that suffered a loss of tax revenue, taxes that would have been collected if there were no exemptions from property taxation as a result of the exemptive legislation in 1972. When distribution of sales and income taxes to political subdivisions was subsequently discontinued by the State in 1980, but local budgets retained demands for the lost revenue, taxing authorities turned their eyes to taxable tangible property and increased property taxes to offset or compensate for the loss of sales and income tax revenue. That ensuing increase of property taxes, the majority asserts, makes the exemptions authorized by the 1970 constitutional amendment “unfair” and, therefore, “unconstitutional.” Yet, the majority fails to explain how changes in sales and income tax laws are inextricably and constitutionally interwoven with property tax exemptions which, according to the majority’s new test, must be evaluated on the basis of an exemption’s relationship to and immediate direct effect on the burden imposed on taxable property. In short, by dragging the sales and income tax program into the picture, the majority subverts and flunks its own novel test revealed today.

Furthermore, the majority announces that property tax exemptions which are not fully funded are unconstitutional because those exemptions unfairly shift an additional property tax burden to the remaining taxable property. What has escaped the majority’s attention is the fact that L.B. 829 follows the majority’s fully funded requirement exactly. In § 7 of L.B. 829, the Legislature exempted all personal property from taxation in 1991, but at the same time, in § 20 of L.B. 829, replaced all lost tax revenues by imposing a 2 percent surcharge on depreciation claimed by a taxpayer property owner as a deduction for determining income subject to federal taxation under the Internal Revenue Code of 1986. Of course, that depreciation surcharge, as a source of tax revenue, has been today struck down and eliminated as inseparable from the exemptive provisions at issue in this case. See Bahensky v. State, post p. 147, 486 N.W.2d 883 (1992). This leaves the court in the remarkably illogical position of striking down property tax *139exemptions in L.B. 829 because the exemptions have not been fully funded by a provision for replacement of lost tax revenue, and then striking down the replacement funding provision in L.B. 829 because there are no longer any exemptions that require funding to replace lost tax revenues.

Beyond question, a lack of confidence and the absence of a constitutional foundation for its new test have prompted the majority to rewrite several of its recent tax decisions concerning the uniformity clause in relation to the legislative power of classification and exemption for tax purposes. Before today, this court has not suggested, or even remotely indicated, that the uniformity clause permits ununiform or variable taxation so long as an exemption is fully funded, or so long as an increased tax burden is not shifted to remaining taxable property. The majority dismisses the actual language of previous tax decisions and instead misreads between the lines for obscure “indicat[ions],” “implications,” “concerns,” and even “implicit . . . concerns.” For instance, in MAPCO Ammonia Pipeline v. State Bd. of Equal., 238 Neb. 565, 471 N.W.2d 734 (1991), this court never concluded or laid judicial groundwork for striking down exemptions because their “burden on the remaining taxpayers was too great.” Whatever else today’s majority may attribute to MAPCO Ammonia Pipeline, the fact remains that the MAPCO Ammonia Pipeline majority struck down certain exemptions believed to result in ununiform taxation contrary to the classification clause in article VIII, § 2, and contrary to preemptive federal law. that eventually affected Nebraska’s tax structure. Thus, the majority rewrites MAPCO Ammonia Pipeline in an abortive attempt to fashion some precedent for its novel and constitutionally indefensible approach to a test for validity of exemptions from property taxation. However, rewriting previous decisions, compared with rewriting the Constitution, is a feat of rather small import.

As one additional observation at this point, the majority, elevating the uniformity clause to a position of constitutional preeminence in property taxation, has characterized the uniformity clause as a measure “to prevent a plethora of special-interest-driven exemptions from the tax on tangible *140property.” Ironically, L.B. 829, exempting all tangible property from taxation, was not the product of concerted effort by special interest groups, but was necessitated by this court’s constitutionally unwarranted unwillingness to recognize the Legislature’s power to classify property and exempt property from taxation.

Ultimately and unfortunately, the majority offers an illusory explanation in striking down L.B. 829, definitely disregards the Legislature’s explicit constitutional power to “exempt all personal property from taxation,” and declares L.B. 829 unconstitutional because the Legislature “improperly shift[s] the property tax burden to the remaining tax base.” The burden of taxation, as an incident of the power to tax, is a political matter for consideration and determination by the Legislature, not by this court.

As Aldous Huxley noted: “Facts do not cease to exist because they are ignored.” While this court ignores the Legislature’s constitutional power to classify and exempt property for tax purposes, this does not mean that the people of Nebraska have not conferred those powers on their Legislature.

EQUAL PROTECTION

Steeped in its perception of tax “fairness,” the majority seeks refuge in the “principles of equal protection.” Indeed, this court has specifically held that the analysis required under the uniformity clause comes from the Equal Protection Clause of the 14th Amendment to the U.S. Constitution. See State ex rel. Douglas v. State Board of Equalization and Assm’t, 205 Neb. 130, 286 N.W.2d 729 (1979).

Although there is no equal protection clause in the Nebraska Constitution, this court has often noted that the special legislation clause of article III, § 18, is the equivalent of the Equal Protection Clause of the 14th Amendment to the U.S. Constitution in reference to disparate treatment. See, Porter v. Jensen, 223 Neb. 438, 390 N.W.2d 511 (1986); Farm Bureau Life Ins. Co. v. Luebbe, 218 Neb. 694, 358 N.W.2d 754 (1984). Also, this court has directly tied its analysis of article III, § 18, to the U.S. Supreme Court’s analysis of the 14th Amendment’s Equal Protection Clause. See Willis v. City of Lincoln, 232 *141Neb. 533, 441 N.W.2d 846 (1989). This accounts for the attempt by some members of this court to use the 14th Amendment’s Equal Protection Clause as a reason for striking down property tax classifications and exemptions in earlier property tax cases. See Natural Gas Pipeline Co. v. State Bd. of Equal., 237 Neb. 357, 466 N.W.2d 461 (1991) (White and Fahrnbruch, JJ., concurring) (Grant, J., concurring). See, also, MAPCO Ammonia Pipeline v. State Bd. of Equal., 238 Neb. 565, 471 N.W.2d 734 (1991) (Fahrnbruch, J., concurring). The equal protection echoes are heard again in today’s decision, when the majority states that “principles of equal protection form much of this court’s uniformity clause jurisprudence.”

Very recently, in Nordlinger v. Hahn, 60 U.S.L.W. 4563 (U.S. June 18, 1992) (No. 90-1912), the U.S. Supreme Court considered a California property tax system that included unequal or disparate real estate taxes on similar pieces of property, depending on the date of acquisition by the property owner. Under the California system, property taxes might vary as much as 1,700 percent, since long-term owners paid lower taxes, reflecting historic property values at the time of acquisition, while newer, owners paid higher taxes, reflecting more recent values based on the current real estate market. In upholding the constitutionality of the California tax law challenged under the Equal Protection Clause of the 14th Amendment to the U.S. Constitution, the U.S. Supreme Court expressed the standard for correct consideration of property tax classifications:

The appropriate standard of review is whether the difference in treatment [between the classes] rationally furthers a legitimate state interest. In general, the Equal Protection Clause is satisfied so long as there is a plausible policy reason for the classification, [citation omitted], the legislative facts on which the classification is apparently based rationally may have been considered to be true by the governmental decisionmaker, [citation omitted], and the relationship of the classification to its goal is not so attenuated as to render the distinction arbitrary or irrational, [citation omitted]. This standard is especially deferential in the context of classifications made by *142complex tax laws. “[I]n structuring internal taxation schemes ‘the States have large leeway in making classifications and drawing lines which in their judgment produce reasonable systems of taxation. [’]” Williams v. Vermont, 472 U.S. 14, 22 (1985), quoting Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 359 (1973). See also Regan v. Taxation with Representation of Washington, 461 U.S. 540, 547 (1983) (“Legislatures have especially broad latitude in creating classifications and distinctions in tax statutes”).

Nordlinger, 60 U.S.L.W. at 4566.

In Nordlinger, the Court found at least two rational bases for the California tax program and further noted that “[f]or purposes of rational-basis review, the ‘latitude of discretion is notably wide in . . . the granting of partial or total exemptions upon grounds of policy.’ ” Id. at 4567. The Nordlinger Court concluded:

Time and again, however, this Court has made clear in the rational-basis context that the “Constitution presumes that, absent some reason to infer antipathy, even improvident decisions will eventually be rectified by the democratic process and that judicial intervention is generally unwarranted no matter how unwisely we may think a political branch has acted”____

Id. at 4568.

Today this court attempts to divert attention from its previously expressed misconception of the U.S. Constitution’s Equal Protection Clause related to state taxation. In Nordlinger, the U.S. Supreme Court has thoroughly discredited and rejected this court’s singular view of equal protection as a basis to repudiate the Legislature’s power to classify for tax purposes. Abruptly and quite noticeably backpedaling from equal protection concerns manifested in its earlier tax decisions, the majority now falls back on the comment that equal protection under “the federal Constitution represent[s] only a floor,” since obviously the U.S. Supreme Court has pulled the rug from under this court’s previous and erroneous equal protection analysis. Nevertheless, the Equal Protection Clause of the 14th Amendment to the U.S. *143Constitution, as construed by the U.S. Supreme Court, is the law of the land, even in Nebraska.

What is more curious about today’s decision is that after begrudgingly acknowledging that its previous and fallacious equal protection analysis is decimated by Nordlinger, the majority, apparently referring to tax classifications and exemptions, alludes to article III, § 18, Nebraska’s constitutional prohibition against impermissible classifications. Yet, amendment 1, the constitutional amendment pertaining to tax classifications and exemptions adopted in 1992, contains the language “[notwithstanding . . . Article III, § 18 ... of this Constitution or any other provision of this Constitution to the contrary,” which is immediately followed by the expression of legislative authority to classify and exempt tangible property for tax purposes. By specifically mentioning the Nebraska Constitution’s prohibition against impermissible classifications, is the majority foretelling a tax Armageddon involving article III, § 18, and amendment 1? More important and disconcerting, is the majority indicating, as surely seems to be the situation, that article III, § 18, will prevail to the chagrin of Nebraska voters who adopted amendment 1? Also, will amendment 1 suffer the same tortured fate that befell the 1970 constitutional amendment for tax classifications and exemptions as the result of today’s decision? If so, then this court has unfortunately arrived at the awkward judicial incongruity of creating lawsuits, not resolving them. We shall see; we shall see.

BACK INTO THE LITIGATION LABYRINTH

As a result of today’s decision, some Nebraska property owners will very likely find themselves in considerable tax trouble. According to the majority, the Legislature might constitutionally (1) tax all tangible property, real and personal, in an identical manner; (2) exempt all real and personal property from taxation; or (3) exempt some tangible property from taxation, but from some source replace tax revenue lost through exemptions and thereby prevent increasing the tax burden on remaining property owners. Consequently, under today’s decision, the Legislature cannot exempt all personal *144property from taxation, while retaining the property tax on real estate; therefore, Nebraska political subdivisions have either collected too much property tax from property owners who have paid an unconstitutional property tax, or not collected enough taxes from property owners who have availed themselves of unconstitutional property tax exemptions. This situation presents two courses of action: (1) honor claims for refunds on all property tax revenues which were unconstitutionally imposed and collected, or (2) collect additional taxes from those who were undertaxed or escaped taxation as the result of unconstitutional exemptions.

The majority’s novel test, proclaimed today, is in nowise limited to personal property exemptions. Although the Nebraska Constitution authorizes tax exemptions for property of charitable, religious, and educational organizations, exemptions are not automatic and require enabling legislation to achieve the actual exemption. See Indian Hills Comm. Ch. v. County Bd. of Equal., 226 Neb. 510, 412 N.W.2d 459 (1987) (Nebraska’s Constitution does not extend automatic tax exemptions to property of a charitable, religious, or educational organization, but authorizes exemption achieved by legislative implementation). Within the majority’s new test is a tax equation: if, as the majority announces, all real and personal property is entitled to equal tax treatment, and tax exemptions that are not fully funded are constitutionally impermissible, then, as a result, all Nebraska’s property tax exemptions, existing by legislation and unfunded, are unconstitutional. Consequently, in the absence of constitutionally valid property tax exemptions, all tangible property, whether real estate or personal property and without exception, must be placed on the tax rolls for 1991. The tax equation in today’s decision leaves no room for any property tax exemptions, including exemptions for business and .agricultural inventories, a private school building, or property previously exempt under Nebraska’s Employment and Investment Growth Act, that is, L.B. 775 enacted in 1987 and now codified as Neb. Rev. Stat. § 77-4105 et seq. (Reissue 1990). As a patent paradox springing from its novel test, the majority strikes down the tax exemptions available under L.B. *145775, which has generated new employment and an increase in Nebraska’s work force, with corresponding increases in revenue from sales and income taxes paid by new employees as consumers and taxpayers. Enabling legislation for the aforementioned illustrative exemptions of tangible property and many other personal property exemptions was contained in § 7 of L.B. 829 pertaining to 1991, legislation which has been struck down by this court. Therefore, as the result of the majority’s approach based on absolutely equal tax treatment for real estate and tangible personal property, all tangible property has become taxable for the year 1991. Thus, the potential tax horribles set out in the dissent in MAPCO Ammonia Pipeline v. State Bd. of Equal., 238 Neb. 565, 471 N.W.2d 734 (1991) (Shanahan, J., dissenting), have today become reality in Nebraska.

Perhaps, there may be a question whether and how far the State or its political subdivisions can reach into past tax years to collect additional taxes from taxpayers who have already paid their tax liability under existing statutes. If the State or political subdivisions can reach back and collect additional taxes on property which was, at the time, unconstitutionally exempted from taxation, then Nebraskans owning tax-exempt tangible property may be subject to taxation for all their tangible property previously omitted from taxation. On the other hand, it may be unfair to collect additional taxes from those who, relying on existing tax statutes, were unknowingly undertaxed or untaxed.

If the State’s political subdivisions are forced to refund taxes that are unconstitutional as the result of the majority’s new test and tax equation, the amount of money at risk absolutely staggers the imagination. According to the majority, an unfair tax burden was shifted to owners of tangible property in 1980, when the State discontinued distribution of sales and income tax revenues to political subdivisions, that is, if local budget and tax revenue requirements remained constant or were increased after termination of the distributions. The inescapable conclusion, based on the majority’s test and decision, is that Nebraska’s property tax structure has continuously violated the uniformity clause since 1980 and, therefore, has been *146continuously unconstitutional since 1980. Assume a 2-year statute of limitations, although in view of today’s decision, the statute of limitations for a tax refund is no settled question. In the tax year 1990, Nebraska Department of Revenue figures show that the total of all Nebraska property taxes levied was $1,219 billion. Preliminary figures from the Department of Revenue indicate that the amount may be as high as $1,258 billion for 1991. After today, and with the assumed 2-year statute of limitations, every property tax dollar collected for 1990 and 1991 is potentially subject to refund. A billion here, a billion there, and pretty soon you are talking about a lot of money. The burden of such a cataclysmic tax refund would, paradoxically, fall on all the state’s taxpayers through higher property taxes, increases in sales and income taxes, or any other form of additional taxes earmarked as a source of revenue to defray property tax refunds.

APPLICABLE STATUTE OF LIMITATIONS

Since the majority has effectively concluded that Nebraska’s property tax has been unconstitutional since 1980, the ultimate cost of today’s decision is closely tied to the applicable statute of limitations. Obviously, more money is at risk the farther back in time that tax overpayments must be refunded or tax underpayments collected. L.B. 829, § 14, specified that any claim for a refund based on unconstitutionality of a property tax must be brought within the tax year of levy or assessment and that refunds might be obtained by only those who successfully contested constitutionality of the tax. However, because the majority has nullified § 14 of L.B. 829, other statutes of limitations may have to be examined regarding time limits for refunds and commencement of tax actions. Which statute or statutes apply is another question left for another day.

CONCLUSION

After the great public upheaval caused by this court’s previous tax decisions, the people of Nebraska adopted amendment 1 in May 1992 and constitutionally separated the uniformity clause from the classification and exemption clause in the Nebraska Constitution relative to taxation of personal property. Amendment 1 is an extensive constitutional *147amendment concerning taxation and exemption of personal property, although the amendment does not contain emphatic language by the voters — “and this time we really mean it!” While many might have hoped that amendment 1 would be the last turn in a legal labyrinth of tax turmoil, in reality today’s decision marks the entrance into yet another tax maze. As a consequence of the lack of judicial insight and explanation, many crucial questions that should have been answered today remain unanswered as subjects for future lawsuits. Although Benjamin Franklin believed that “in this world nothing is certain but death and taxes, ” if he were alive in Nebraska today he would likely add “with confusion and litigation.” One has to wonder whether the tax policy poltergeists, believed to have been exorcised by amendment 1, may yet haunt this court’s tax decisions.