dissenting. I respectfully dissent. In my view, the majority opinion is neither logically or legally sound. It is well established that an income tax is levied upon an income stream, whether derived from labor, or investments in capital. Certainly wages, interest, appreciation in property value, rents, royalties, social security distributions, and other such income streams are subject to income taxes.
By comparison, ad valorem taxes are levied on property owned by a person. Such taxes are levied annually, and must be paid regardless of whether the taxpayer derives any income from the taxable property. The source of the funds used in acquiring the property has no effect upon its taxable status for ad valorem tax purposes. For example, property acquired by gift, inheritance, savings distributions of marital property, appreciation of value in timber growth, or other means of acquisition of property, are all subject to an annual ad valorem tax, and are all subject to reappraisal of such property, no matter what source of funds are used to acquire the property.
Until the majority’s opinion, I do not find any decision in any jurisdiction that the nature of the property upon which ad valorem taxes may be levied depends upon the source of the funds from which the property is accumulated. Nor do I find any citation of authority declaring that a stream of income flowing from an investment account cannot be subjected to an income tax. It follows that there is no authority holding that an imposition of income tax upon such an income stream converts the statutory income tax into an illegal ad valorem tax.
The majority holds that if the corpus of the retirement account is derived from employer’s contributions, and employee’s contributions upon which no tax has been paid, together with the gain from such contributions, then an income tax on the distribution is valid. Flowever, the majority holds that if an income tax is paid by an employee upon the contributions that the employee makes to the plan, that the income tax levy upon the distribution is transformed into an illegal ad valorem tax. No citation of authority is given to support this conclusion.
The applicable law is articulated in Reinert v. State, 348 Ark. 1, 21 S.W.3d 52 (2002), where the court stated:
Statutes are presumed constitutional, and the burden of proving otherwise is on the challenger of the statute. If it is possible to construe a statute as constitutional, we must do so. Because statutes are presumed to be framed in accordance with the Constitution, they should not be held invalid for repugnance thereto unless such a conflict is clear and unmistakable.
Id. (citations omitted). The majority then cites applicable law established by our decision in Stanley v. Gates, 179 Ark. 886, 19 S.W.2d 100 (1926), where our court held:
It has been well said that “a tax on incomes is not a tax on property, and a tax on property does not embrace incomes.” Hence a majority of the court holds that “property,” as the term is used in article 16 § 5 of the Constitution, means the property itself, as distinguished from the annual gain or revenue from it.
Id.
Stanley should dispose of the legal issues. Here, there is no tax levied on the corpus of the fund accumulated for the purpose of funding periodic payments to recipients of that income stream. There is no ad valorem tax on “property,” but the periodic distribution of benefits paid monthly pursuant to a retirement plan are subjected to income taxes.
The majority cites no authority from this or any other state’s holding that an income tax imposed upon a stream of money distributed from the corpus of a retirement plan should be treated as an ad valorem tax. Such authority simply does not exist, and should not be brought into existence by the majority’s conclusion in this case.
There are many reasons that this interpretation is mistaken. First, the amount of money distributed to each individual retiree is not dependent upon the amount of money, if any, that an individual retiree has contributed to the pension plan. A retiree with a contribution minimally sufficient to qualify for the plan may receive much more in monthly distributions than he or she ever contributed, and by living long enough may enjoy benefits much greater than those received by a person who makes a huge contribution but only lives long enough to draw benefits for a few months. I know of no mechanism for computing an ad valorem tax upon an income stream, now classified by the majority as “property,” that is so impossible to quantify.
The money received from the distribution of a retirement plan is a matter of contract. If an individual has a vested interest in the retirement system, that individual draws a benefit paid in accordance with the provisions of the retirement plan, and hopes that the plan is actuarily sound. Some private plans have capsized and have left the hopeful beneficiaries without retirement benefits. In those cases there certainly is no property upon which an ad valorem tax could be levied.
The majority recognizes that the income stream distributed to a retiree pursuant to Ark. Code Ann. § 26-51-307 (1987) is properly taxed as income received by the retiree when the source of the fund from which the distribution made consists of the employer contribution to a retirement plan. Also the majority recognizes that the income stream derived from gains on investments is to be taxed as income when received by the retiree. The majority states: “[A]s noted, a retirement plan could contain pretax contributions upon which no income tax has ever been paid,” and states that there is no issue in this case as to levying of income taxes on a revenue stream produced by gains on investments, employer contributions, or pre-tax contributions by an employee.
In other words, according to the majority, an income tax may be levied upon the distribution of funds from the corpus of a retirement fund if the employee’s contribution was pre-tax but a statute levying an income tax is transmuted into an ad valorem tax by the alchemy of some payment of income taxes on post-tax contributions by an individual employee, and as an ad valorem tax, it becomes unconstitutional.
The application of this untenable principle becomes even more strained if an individual has paid a lower or no tax on her contribution than that paid by another more affluent contributor, or one with fewer dependants. Surely, this is not the intent of our constitution — that an individual with six dependants who therefore did not pay income taxes on her contribution to a retirement plan must pay income taxes on her retirement benefits, while another person is afforded a class action recovery under illegal exaction provisions of our constitution because he was in a higher income tax bracket, and therefore paid taxes before making his contribution.
The majority, in declaring this legislative act unconstitutional, is leading this state down a path that no other state has followed, and one that I an unwilling to travel. The decision in this case is untenable, and I respectfully dissent.