Associated Industries of Missouri v. State Tax Commission of Missouri

BLACKMAR, Judge.

Individual and corporate taxpayers filed a declaratory judgment action, challenging the constitutionality of § 137.016, RSMo Supp.1984 classifying as residential “all real property improved by a structure .., which contains not more than four dwelling units.... ” By reason of this classification, the involved property is assessed at 19% of its fair market value, whereas other rental property is classified in the general classification and assessed at 32% of its value. The trial court held that the statute violated the due process and equal protection clauses of the Fourteenth Amendment of the U.S. Constitution and the “uniformity” clause of the Missouri Constitution, art. X, § 3, because it was arbitrary and unreasonable, and that it established a prohibited subclass of real property, in violation of art. X, § 4(b) of the Missouri Constitution. We conclude that the statute is not shown to be arbitrary or capricious and that the challenges have failed to overcome the presumption of constitutionality. We therefore reverse and remand for the entry of a declaratory judgment sustaining the validity of the statute against the challenges made.

In 1982, art. X, § 4(b) of the Missouri Constitution was amended to permit the establishment of three subclasses of real property. The amended provision reads as follows:

Property in classes 1 [real property] and 2 [tangible personal property] and subclasses of those classes, shall be assessed for tax purposes at its value or such percentage of its value as may be fixed by law for each class and for each subclass. Property in class 3 and its subclasses shall be taxed only to the extent authorized and at the rate fixed by law for each class and subclass, and the tax shall be based on the annual yield and shall not exceed eight percent thereof. Property in class 1 shall be subclassed in the following classifications:
(1) Residential property;
(2) Agricultural and horticultural property;
(3) Utility, industrial, commercial, railroad and all other property not included in subclasses (1) and (2) of class 1. Property in the subclasses of class 1 may be defined by law, however subclasses (1), (2), and (3) shall not be further divided, provided, land in subclass (2) may by general law be assessed for tax purposes on its productive capability. The same percentage of value shall be applied to all properties within any subclass. No classes or subclasses shall have a percentage of its true value in money in excess of thirty-three and one-third percent.

The legislature then adopted the following statute (§ 137.016.1(1)):

As used in section 4(b) of article X of the Missouri Constitution, the following terms mean:
(1) “Residential property”, all real property improved by a structure which is used or intended to be used for residential living by human occupants and which contains not more than four dwelling units or which contains single dwelling units owned as a condominium or in a cooperative housing association. ...

Several taxpayers filed a declaratory judgment suit, asserting that the statute was unconstitutional on grounds as set out above. Other taxpayers intervened. The trial court upheld the challenges. The *918State Tax Commission appealed, as did some taxpayers who contended that the relief awarded by the circuit court was not appropriate. We have jurisdiction under art. V, § 3 of the Missouri Constitution, because the case involves the construction of the revenue laws of the state.

The fact that our Constitution and statutes permit the establishment of subclasses of real property, and provide for different rates of assessment of property in different subclasses, does not demonstrate a constitutional violation under either the due process or equal protection clauses of the Fourteenth Amendment of the United States Constitution. Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. 522, 527, 79 S.Ct. 437, 441, 3 L.Ed.2d 480 (1959); Pacific Express Co. v. Seibert, 142 U.S. 339, 12 S.Ct. 250, 35 L.Ed. 1035 (1892); Bell’s Gap Railroad Company v. Pennsylvania, 134 U.S. 232, 10 S.Ct. 533, 33 L.Ed. 892 (1890). The plaintiffs do not make their case simply by showing that different classes of real property are assessed at different rates.

They argue, however, that the “rule of four” is wholly arbitrary and without reason, citing such cases as State ex rel. Transport Manufacturing & Equipment Co. v. Bates, 359 Mo. 1002, 224 S.W.2d 996 (banc 1949) (portion of statute exempting from use tax motor vehicles seating ten passengers or more held invalid as violating uniformity clause, Mo. Const, art. 10, § 3); Airway Drive-In Theatre Co. v. City of St. Ann, 354 S.W.2d 858 (Mo. banc 1962) (portion of ordinance levying annual license tax on drive-in theaters at $1.50 per speaker and on other motion picture theaters at $50.00 per year, resulting in drive-ins being taxed 17 to 30 times greater than motion picture theaters, held arbitrary and abuse of taxing power); State ex rel. Garth v. Switzler, 143 Mo. 287, 45 S.W. 245 (banc 1898) (law imposing inheritance tax at rate of five percent for property valued under $10,000, whereas rate was seven and one-half percent on value of estate in excess of $10,000, held unconstitutional).

We do not agree. Statutes are presumed to be constitutional until the contrary is shown. Every indulgence must be made in favor of the legislature’s handiwork. Classifications based on number have often been sustained. Bopp v. Spainhower, 519 S.W.2d 281 (Mo. banc 1975) (reasonable basis exists for statute which allows majority of governing body of a city not within a county, a first-class county operating under charter and not containing a city of over 400,000 inhabitants and any city of 400,000 inhabitants within a first-class county to impose sales tax for transportation purposes without voter approval, whereas any other city with 500 or more inhabitants must obtain voter approval before levying tax); Crane v. Riehn, 568 S.W.2d 525 (Mo. banc 1978) (statute under which spouse and minor children of a decedent who is survived by one or both parents must bring wrongful death suit within one year, though spouse and minor children of a decedent not survived by a parent have two years in which to bring suit, held constitutional); Collins v. Director of Revenue, 691 S.W.2d 246 (Mo. banc 1985) (summary license suspension statute which allows for conviction of violators of drunk driving laws with blood alcohol content of .13 percent, rather than .10 percent required for misdemeanor conviction, held not arbitrary or capricious).

Rental housing has both residential and commercial aspects. The legislature might appropriately conclude that the commercial aspect predominates for buildings containing numerous units, whereas those containing only a few units have a predominantly residential character. It might conclude that the selection of a definite figure, such as four, offered the most effective means of classifying rental property into residential and commercial categories. There might be reluctance to burden the owner of a small complex with commercial taxes, which necessarily will be passed on to the tenants. Larger units, however, might be expected to bear the commercial rate. We are unable to say that the legislature’s choice lacked any rational basis.

*919The cases relied on, then, are distinguishable.

Our conclusion is not changed because some elaborate “fourplexes” may bear all indicia of being commercial property. The legislature’s judgment as to the overall picture must be respected. It should also be the function of the legislature to look for abuses and evasions of the governing principle and to take action if deemed appropriate. Perfect equity in the assessment of real property cannot be expected. The present constitutional and statutory provisions, coupled with state-wide reassessment, have the potential for relative equality of assessment of similarly classified property.

State ex rel. Transport Manufacturing and Equipment Co. v. Bates, supra, is characteristic of the cases holding that a taxing statute may be rendered unconstitutional by the presence of a wholly arbitrary exclusion or exemption. There a statute imposing use taxes on vehicles acquired out of the state did not apply by its terms to vehicles designed for 10 or more passengers. The court saw no rhyme or reason for the exclusion, and invalidated the statute. This case is distinguishable because the legislature might have concluded that there was a qualitative as well as a quantitative difference between smaller and larger housing complexes. It is of no moment that we as legislators might not have made the same choice.

The statute does not create a prohibited additional subclass of real property. Its purpose, rather, is to allocate rental property between two of the constitutionally approved subclasses. This allocation is within the power of the legislature, unless shown to be arbitrary or unreasonable.

Judge Donnelly points to the restrictions on classification of tangible and intangible personal property as set out in art. X, § 4(a) of the Constitution of 1945, and would apply these restrictions to the classification of real property. They are not made so applicable in the Constitution of 1945 or in the 1982 amendment to art. X, § 4(b). What the minutes of the 1945 convention show is that the members felt that, by allowing some classification of property for assessment purposes, it would be easier to obtain realistic valuations. The convention was not willing to permit subclassification of real property, but the 1982 amendment does so. It is the product of a long struggle to achieve greater uniformity in actual tax incidence. See State ex rel. Cassilly v. Riney, 576 S.W.2d 325 (Mo. banc 1979); Breckenridge Hotels Corp. v. Leachman, 571 S.W.2d 251 (Mo. banc 1978); Pierre Chouteau Condominiums v. State Tax Commission, 662 S.W.2d 513 (Mo. banc 1984).

We do not disagree with Judge Welliver’s assertion that real estate taxes on rental property may ultimately be borne by the tenants. By the same token, taxes on commercial property are ultimately borne by the general public. The problem he points to is inherent in the permissible classification of real property for tax purposes. It does not necessarily follow that the normal renter has a more severe tax burden than the normal homeowner. The classifying decision was made by the legislature, with its superior means of information about the effects of legislation on the public, and for the reasons stated we are not persuaded that it exceeded the authority conferred by the amended art. X, § 4(b), or that its choice was otherwise constitutionally infirm.

The case presents no disputed issues of fact and is appropriate for final judgment. We do not have to decide any question of the appropriateness of the relief the trial court granted, because we conclude that the plaintiffs are not entitled to any of the relief they seek.

The judgment is reversed and the case remanded with directions to declare that the statute is not shown to be unconstitutional on any of the grounds assigned.

HIGGINS, C.J., and MORGAN, Senior Judge, concur. ROBERTSON, J., concurs in separate opinion filed. *920DONNELLY, J., dissents in separate opinion filed. RENDLEN, J., dissents in separate opinion filed. WELLIVER, J., dissents in separate opinion filed and concurs in separate dissenting opinions of DONNELLY and RENDLEN, JJ. BILLINGS, J., not sitting.