Coley v. State

Justice BRADY,

concurring in part and dissenting in part.

While I fully concur with the majority’s conclusion that income taxation is encompassed by Article I, Section 16 of the North Carolina Constitution, I am compelled to dissent as to the majority’s determination that the tax increase at issue is not retrospective. The majority holds a tax rate increase on previously completed income-producing acts is a prospective tax. The necessary conclusion which emanates from the majority’s opinion is that the act of earning income does not occur until the end of the taxable year. This result defies logic.

An “act” is defined as “a thing done or being done.” Webster’s Third New International Dictionary 20 (16th ed. 1971). The definition of “retrospective” is “contemplative of or relative to past events.” Id. at 1941. Thus, to retrospectively tax an act means to tax a completed “thing” done in the past. The plain language of Article I, Section 16 prohibits the subsequent taxation of completed acts which either produce some sort of profit or entitle an individual to the receipt of income.

*505It is instructive to note the provision prohibiting retrospective taxation appears in the same section as the North Carolina constitutional prohibition against the enactment of ex post facto laws. While it is clear the prohibition on ex post facto laws applies only to criminal law, and not to civil laws, the concept behind the ban on both retrospective taxation and ex post facto criminal laws is strikingly similar. As a preeminent North Carolina constitutional law scholar has noted: “The rationale [for the Article I, Section 16 prohibition on retrospective taxation] would seem to be similar to that for the ban on retrospective criminal laws. To the extent one could have avoided the event that is taxed, it is unjust not to give the taxpayer the chance.” John V. Orth, The North Carolina State Constitution with History and Commentary 53 (1995). Following this analysis, it would seem “unjust not to give the taxpayer the chance” to avoid an income-producing activity before imposing an increased tax on that activity. Id. Unless the majority has access to H.G. Wells’s time machine, the acts performed by plaintiffs before the passage of this tax rate increase cannot be undone. Adherence to Article I, Section 16 allows the citizen to plan his or her dealings based upon the tax structure as it exists at the time the income-producing act is performed. An arbitrary definition of “earning income” created for administrative convenience robs the citizen of the opportunity to plan and shackles the taxpayer with an increased financial burden. I cannot turn a blind eye, as the majority does, to the lengthy nine month period covering this retrospective tax rate increase, which blatantly ignores the people’s expectation of stable and predictable taxation.

This Court’s precedent surrounding Article I, Section 16 strongly supports the proposition that this provision’s purpose is to prohibit the retrospective taxation of finite acts — epitomized by mercantile activities. One need look no further than the origin of the Article I, Section 16 prohibition on retrospective taxation to understand which activities the drafters meant to protect through this constitutional provision. Article I, Section 16 was amended in direct response to State v. Bell, 61 N.C. 78, 61 N.C. (Phil.) 76 (1867). In Bell, the Court was compelled to hold a retrospective tax on merchant activity constitutionally permissible because the Court found nothing in the North Carolina Constitution to prevent such legislation. Id. at 82-86, 61 N.C. (Phil.) at 81-86.

The finite merchant activities in Bell which prompted the amendment were very similar to those activities being retrospectively taxed *506in Young v. Town of Henderson, 76 N.C. 420, 423-24 (1877). Yet, the outcome was very different in Young. The Court, applying the then new Article I, Section 16 prohibition on retrospective taxation for the first time, found the retrospective taxation of the finite merchant activities to be unconstitutional. Id. at 424. We can confidently rely, from this Court’s precedent interpreting Article I, Section 16, that merchant-like activities, which are complete the moment they occur, cannot be retrospectively taxed.

The earning of income is very similar to the merchant activities subjected to what is now unconstitutional retrospective taxation as addressed in Bell and Young. North Carolinians are all merchants of their labor, and therefore the completion of a commercial mercantile transaction is essentially the same as the completion of one month, one day, or one hour of an individual’s toil and labor. Whether a merchant sells a product or an individual supplies eight hours of manual labor, an act has been completed. In both cases someone is entitled to, if not immediately presented with, some sort of compensation and incurs a corresponding tax obligation. The retrospective tax rate increase on completed income-producing activities, like the retrospective taxation of completed merchant transactions, violates Article I, Section 16.

In this regard, it seems illogical to cast aside the true definition of an income-producing act in favor of the General Assembly’s annual perspective on income-producing activities, as the majority does today. Were the General Assembly to tax income on a twelve year basis, would the public be subject to new taxes on income-producing acts that were completed nine years ago? In the simplest terms, the majority condones the General Assembly’s unconstitutional increase of the tax rate on income-producing activities up to nine months after completion of the activities subject to taxation. Simply because the State chooses to tax income on an annual basis does not negate the fact that income is truly earned moment by moment. I do not believe the General Assembly’s use of the word “annual” with regards to taxing income magically relieves the Assembly of its constitutional duty to refrain from retrospectively taxing acts. I respectfully dissent.