Chapman v. Commissioner of Revenue

STRINGER, J.

Concurring in part, dissenting in part.

I agree with the conclusion of the majority that Minnesota’s alternative minimum tax provision allowing a tax deduction for charitable contributions to charitable organizations “located in and carrying on substantially all of its activities within this state,” but denying deductions to non-Minnesota charities, discriminates against interstate commerce and therefore violates the Commerce Clause of the United States Constitution. In doing so, we reverse the tax court, but because the tax court held the law constitutional, it went no further in its analysis. Thus the concept of severance of the unconstitutional provision of the statute and the remedy were not addressed by the tax court, and were neither briefed nor argued to this court. I therefore dissent from the court’s ruling on those issues, as I think it is inappropriate for the court to address them in the absence of a record and briefing from the parties.

Relators offer no substantive suggestion as to how severance can be achieved and make only a passing reference to the remedy, and the Commissioner recommends that if this court rules the law unconstitutional, the matter be remanded to the tax court to determine what the legislature might have done had it known it could not constitutionally deny the deduction for contribution to out-of-state charities and at the same time allow it for in-state charities. I agree with the Commissioner’s recommendation.

The majority relies heavily on the statutory principle of severance set forth in Minn.Stat. § 645.20:

Unless there is a provision in the law that the provisions shall not be severa-ble, the provisions of all laws shall be severable. If any provision of a law is found to be unconstitutional and void, the remaining provisions of the law shall remain valid, unless the court finds the valid provisions of the law are so essentially and inseparably connected with, and so dependent upon the void provisions that the court cannot presume the *842legislature would have enacted the remaining valid provisions without the void one; or unless the court finds the remaining valid provisions, standing alone, are incomplete and are incapable of being executed in accordance with the legislative intent.

Id.

Based on this principle of severance, the majority concludes that the only way to render constitutional Minnesota’s disallowance of the deductibility of contributions to non-Minnesota charities, while allowing contributions to Minnesota charities, is to strike Minn.Stat. § 290.091, subd. 2(a)(2)(1994), the provision permitting the deduction of contributions to in-state charities. By doing so, the majority rules, the playing field is leveled because all contributions, whether to in-state charities or out-of-state charities, are denied.1 The majority bases its severance remedy on a review of the legislative history of the alternative Minnesota tax provision, pointing out that it shifted from time to time, but historically seemed to favor a concept of disallowance of the charitable contribution. The fallacy of this analysis however, is that at best it relates to the legislative attitude toward allowance or disallowance over a broad span in history and is no value at all in arriving at a presumption as to whether the legislature enacting the current version of section 290.091, subd. 2(a)(2) in 1994 “would have enacted the remaining valid provisions without the void one.” I see no basis for the conclusion of the majority, and on a matter of great importance relating to tax policy, the tax court should hold an evidentiary hearing to permit the parties to produce evidence as to what tax policy actually drove the legislation — the general rule of permitting deductions for all charitable contributions, or a special rule for AMT taxpayers denying the deduction. In the absence of a record on the issue, the court could well have reached a result opposite from the conclusion reached by the majority.

My further concern is that while the majority raises the question whether the curative interpretation of the statute should be applied prospectively only, it does not resolve the question. And while it rules that the relators are entitled to “backward looking relief’ under McKesson Corp. v. Division of Alcoholic Beverages & Tobacco, 496 U.S. 18, 110 S.Ct. 2238, 110 L.Ed.2d 17 (1990), it seems to ignore the fact that in ruling that the offending provision of the statute is the allowance of deduction to in-state charities, and that this must be severed, there is “no backward looking relief’ available to relators. They can’t be allowed the deduction for their out-of-state contribution because the provision of the statute prohibiting allowance remains intact; and the obverse— disallowing their deductions for their instate contribution — would surely be the most perverse of all “backward looking relief.” Relators may have won the battle but they would surely have lost the war.

This conundrum seems wholly unnecessary. A remand to the tax court to fashion a severance under Minn.Stat. § 645.20 consistent with the court’s unconstitutionality ruling will set the parameters for a remedy that does provide relators relief.

. In reaching this conclusion, the majority notes that relators failed to explain how they get to their conclusion that all contributions should be exempt from the AMT, or to explain how severance of the statute could be fashioned to reach that result. This is not surprising, as the Commissioner notes, because the issue was not before the tax court, there was no record of any kind and neither the Commissioner nor relators addressed it to this court.