Manzara v. State

MARY R. RUSSELL, Judge.

Two taxpayers filed a petition for declaratory judgment challenging the constitutional validity of section 99.1205,1 the Distressed Areas Land Assemblage Tax Credit Act (Act). They claimed that the tax credits provided by the Act constituted an unconstitutional grant or lending of public money to private persons, associations, or corporations. The trial court declined to enter declaratory judgment because the taxpayers did not have standing to challenge the statute.

The taxpayers appealed to this Court, arguing that they had standing because the tax credits were direct expenditures of funds generated through taxation. They also argued that the tax credits given under the Act are unconstitutional. Reaching the merits of the taxpayers’ claims is unnecessary because the taxpayers did not meet their burden to prove they had standing to bring a challenge to the statute as the issuance of tax credits does not constitute a direct expenditure of funds generated through taxation. Further, this Court agrees with the recent statement of the Supreme Court of the United States that tax credits are not public expenditures. The trial court’s judgment is affirmed.

I. Background

A. Distressed Areas Land Assemblage Tax Credit Act

The Act establishes tax credits to encourage redevelopment of historically distressed or disadvantaged areas. Qualified redevelopers may apply for a land assemblage tax credit to offset the acquisition and interest costs incurred by the redevel-oper in obtaining the land.

The eligibility requirements and limitations are regulated by the statute. To receive the tax credit, preconditions must be met. First, for land to be an “eligible parcel,” it must be located within an eligible project area,2 slated for redevelopment, acquired without the commencement of condemnation proceedings, and have no outstanding taxes, fines, or bills owed to *658the municipal government. Section 99.1205.2(7).

Second, the person or entity seeking the tax credit must be an applicant, as defined in the statute. An applicant is a person, firm, partnership, trust, limited liability company, or corporation that has acquired enough land to constitute an eligible project area. Section 99.1205.2(2). In addition, the applicant must have been appointed or selected as a redeveloper by a municipal authority under an economic incentive law. Id.

Once an applicant acquires an eligible parcel, the Act allows a tax credit to issue. An applicant is entitled to a tax credit for 50 percent of the acquisition costs and 100 percent of the interest incurred five years after acquisition. Section 99.1205.3. The tax credit may be applied to taxes imposed under chapters 143,3 147,4 and 148,5 except for sections 143.191 to 143.265.6 Id. If the amount of the credit exceeds the total tax liability for the year in which the applicant qualifies for a tax credit, the remaining tax credit may be carried over for the succeeding six years. Section 99.1250.4. Further, the tax credits may be transferred, sold, or assigned. Id. The transferee, purchaser, or assignee may use the tax credits to offset 100 percent of the tax liability imposed under chapters 143, 147, and 148, except for sections 143.191 to 143.265. Section 99.1205.5.

B. Procedural History

Barbara Manzara and Keith Marquard (the taxpayers) are taxpayers who live within a qualified census tract, as designated under 26 U.S.C. § 42, and within a distressed community, as defined by section 135.530. They filed a petition for declaratory judgment challenging the validity of the Act, claiming that section 99.1205 violates article III, section 38(a) of the Missouri Constitution because the tax credit is a “grant of public money or property” to a “private person, association or corporation.” Alternatively, taxpayers contended that the Act violates article III, section 39(l)-(2) of the Missouri Constitution because the tax credit is a “lending of the credit of the state in aid or to any person, association, municipal or other corporation,” or a “pledge [of] credit of the state for the payment of the liabilities ... of any individual, association, municipal or other corporation.”

The circuit court rejected the taxpayers’ argument, finding that they lacked standing to bring their claims and that, even if they did have standing, section 99.1205 was constitutional because it serves a public purpose. The taxpayers appeal, arguing that the circuit court erred in finding that they lacked standing and that the Act was constitutional.7

II. Standing

The preliminary issue before this Court is whether taxpayers have standing to challenge the tax credits given to rede-velopers under the statute. See E. Mo. Laborers Dist. Council v. St. Louis County, 781 S.W.2d 43, 45-46 (Mo. banc 1989) (“Regardless of an action’s merits, unless the parties to the action have proper standing, a court may not entertain the *659action.”). Standing is an antecedent to the right to relief. Comm. for Educ. Equal. v. State, 878 S.W.2d 446, 450 n. 3 (Mo. banc 1994).

Standing is a question of law, which is reviewed de novo. Mo. State Med. Ass’n v. State, 256 S.W.3d 85, 87 (Mo. banc 2008). To have standing, the party seeking relief must have “a legally cognizable interest” and “a threatened or real injury.” E. Mo. Laborers, 781 S.W.2d at 46. As the parties seeking relief, the taxpayers bear the burden of establishing that they have standing. See Kansas City v. Douglas, 473 S.W.2d 101, 102 (Mo.1971).

Taxpayer standing has a long history in Missouri. The issue of taxpayer standing first arose in Newmeyer v. Missouri & Mississippi Railroad, 52 Mo. 81 (1873). There, the court held that taxpayers had standing to bring a suit to challenge the county’s subscription to capital stock of a railroad. Id. at 89. The court reasoned that the county’s taxpayers suffered a peculiar injury — the burden of paying for the subscription. Id. After Newmeyer, Missouri courts have held that when a public interest is involved and public monies are being expended for an illegal purpose, taxpayers have the right to enjoin the action. See, e.g., Civic League of St. Louis v. City of St. Louis, 223 S.W. 891 (Mo.1920); Berghorn v. Reorganized Sch. Dist. No. 8, Franklin Cnty., 364 Mo. 121, 260 S.W.2d 573 (1953); Tichenor v. Mo. State Lottery Comm’n, 742 S.W.2d 170 (Mo. banc 1988).

In Eastern Missouri Laborers, this Court in 1989 revisited taxpayer standing. The court acknowledged that the mere filing of a lawsuit does not confer taxpayer standing upon a plaintiff. E. Mo. Laborers, 781 S.W.2d at 46. Instead, a taxpayer must establish that one of three conditions exists: (1) a direct expenditure of funds generated through taxation; (2) an increased levy in taxes; or (3) a pecuniary loss attributable to the challenged transaction of a municipality. Id. at 47. The taxpayers rely on the first option as their basis for standing, arguing that the tax credits given under the Act are a direct expenditure of funds generated through taxation.8

Taxpayer standing is available “so that ordinary citizens have the ability to make their government officials conform to the dictates of the law when spending public money.” Ste. Genevieve Sch. Dist. R-II v. Bd. of Aldermen of the City of Ste. Genevieve, 66 S.W.3d 6, 11 (Mo. banc 2002). As this Court has recognized,

Public policy demands a system of checks and balances whereby taxpayers can hold public officials accountable for their acts.... Taxpayers must have some mechanism of enforcing the law. Today’s decision provides the door through which taxpayers may enter the courts to seek enforcement.

E. Mo. Laborers, 781 S.W.2d at 47.

A. Is a Tax Credit a Direct Expenditure of Funds Generated Through Taxation?

While this Court has put forth the test for taxpayer standing, it never has interpreted what “a direct expenditure of funds generated through taxation” consti*660tutes. Dictionary definitions provide guidance. Direct, when used as an adjective, is defined as “without any intervening agency or step.” Webster’s Third New International DiCtionary Unabridged 640 (1993). An expenditure is “[a] sum paid out.” Blaok’s Law Dictionary 658 (9th ed.2009). A fund is “[a] sum of money or other liquid assets.” Id. at 743. Generate is defined as “to come into existence.” Webster’s Third New International DiCtionary Unabridged at 945. Taxation is “the means by which the state obtains the revenue required for its activities.” Black’s Law Dictionary at 1598. Therefore, “a direct expenditure of funds generated through taxation” is a sum paid out, without any intervening agency or step, of money or other liquid assets that come into existence through the means by which the state obtains the revenue required for its activities.

The tax credits created by the Act do not meet the definition of “a direct expenditure of funds generated through taxation,” as tax credits are not expenditures. Expenditures typically occur in government when checks are written by the state treasurer based on appropriations or warrants. No such withdrawal of public funds or such “expenditure” occurs with the granting of a tax credit. While “expenditures” and “tax credits” might be compared in that their end result is “less” money in the state treasury, the similarity is superficial. Said differently, a tax credit expresses the legislature’s wish to declare a portion of the pool of taxable assets off-limits to its own power to collect taxes. Properly understood, this does not result in “less” money in the treasury because the legislature never wished it to be there in the first place. A tax credit is not a drain on the state’s coffers; it closes the faucet that money flows through into the state treasury rather than opening the drain.

Further, taxpayers never argued that the money at issue was received by the State or that it ever belonged to the public. The legislature, through approving the Act, decided to leave the money in the hands of a particular person or entity. Its passage of the Act constituted an acknowledgment that the State never would have the tax revenue to spend because it was waived by tax credits. Lowering tax liability by such means does not move money out of the public treasury; it leaves it in private hands. A particular person or entity would retain the power to spend the money instead of paying the money over to the government as taxes. Insofar as the purpose of taxpayer standing is to give taxpayers a way to conform government spending to the law, that purpose is not served if the State is spending nothing.

B. Missouri Case Law

Although no reported Missouri case has considered whether a tax credit is a direct expenditure of funds generated through taxation for the purpose of taxpayer standing, in W.R. Grace & Co. v. Hughlett, 729 S.W.2d 203 (Mo. banc 1987), the court considered whether a taxpayer had standing to bring a constitutional challenge against the “manufacturers tax,” which gave exemptions for certain types of tangible personal property. The taxpayer argued that the exemptions resulted in a lack of tax uniformity violative of the Missouri Constitution. Id. at 204-05. Before considering the constitutional validity of the exemptions, W.R. Grace determined whether appellant had standing to challenge the validity of the statute. Id. at 206. The court stated that it “fail[ed] to see how it can be said that [the taxpayer] has been ‘adversely affected by the statutes in question ’ when those statutes ... merely excuse the tax obligations of others.” Id. at 206-07 (quoting Ryder v. *661Cnty. of St. Charles, 552 S.W.2d 705, 707 (Mo. banc 1977)); cf. State ex rel. Kansas City Power & Light Co. v. McBeth, 322 S.W.3d 525, 529 (Mo. banc 2010) (noting that taxpayers “lack standing to challenge other taxpayers’ property tax assessments, as they are not injured personally by others’ assessment calculations”). The taxpayer was not “adversely affected” because, if the “exemptions” were ruled unconstitutional, the taxpayer would not have been entitled to receive a refund of the taxes it paid under a wholly separate taxing statute. W.R. Grace, 729 S.W.2d at 207.

Although the taxpayer in W.R. Grace did not claim that it had taxpayer standing to challenge the statute, the court considered the possibility and analyzed the issue. Id. W.R. Grace recognized that “it might well be argued that [the taxpayer] has standing because the net result of granting an exemption to others would not seem to differ in substance from the spending of tax monies.” Id. The court acknowledged that in each situation, the result is the same: the state treasury will be diminished. Id. It rejected that contention because there is no “public interest” when the appellant challenges the statutory “exemptions” given to other taxpayers. Id.; see also Civic League of St. Louis v. City of St. Louis, 223 S.W. 891, 893 (Mo.1920) (finding that a taxpayer has standing to challenge public funds dissipated for an illegal purpose if there are “public interests” involved).

W.R. Grace’s analysis regarding the effect of tax exemptions on the state treasury is instructive here. The standing test asserted by taxpayers here is whether there is a direct expenditure of funds generated through taxation. The tax exemptions in W.R. Grace and the tax credits here are similar in that they both result in a reduction of tax liability. The government collects no money when the taxpayer has a reduction of liability, and no direct expenditure of funds generated through taxation can be found. The tax credits provided by the Act merely excuse the tax liability of redevelopers or persons to whom it is assigned or sold. The court in W.R. Grace correctly concluded that the taxpayer did not have standing as there was no direct expenditure of funds generated through taxation. Likewise, tax credits are not from monies paid into the state treasury by taxpayers as tax revenue and are not direct expenditures of funds generated through taxation.

Judge Wolffs concurrence cites Ste. Genevieve School District as support for its conclusion that tax credits given under the Act are a direct expenditure of public money generated through taxation. There, the court held that a taxpayer had standing to challenge whether the city had authority to amend a redevelopment plan without reconvening the Tax Increment Financing (TIF) commission. 66 S.W.3d at 11. That case is distinguishable from the facts here. In Ste. Genevieve School District, unlike here, it appears there was a challenge to the proposed expenditure of funds generated through taxation under the amended redevelopment plan. Further, it is distinguishable in that the holding in Ste. Genevieve School District arose in the unique context of analyzing the TIF statutes.

The taxpayers and Judge Wolffs concurrence incorrectly rely on Curchin v. Missouri Industrial Development Board, 722 S.W.2d 930 (Mo. banc 1987), to support their position that tax credits are a grant of public money resulting in taxpayer standing. In Curchin, the court decided that the allowance of a tax credit constitutes a grant of public money or property in violation of article III, section 38(a), which bans the grant of public money or *662property to private entities.9 Id. at 933. The court held that there was a violation of the constitution by stating that a “tax credit is as much of a grant of public money or property and is as much a drain on the state’s coffers as would be an outright payment by the state.” Id.

But any reliance on Curchin is misplaced. The issue of standing was not raised or addressed in Curchin. The court in Curchin adjudicated the merits of the case by analyzing the constitutional question of whether tax credits are the grant of public money. But that question is different from the preliminary issue before this Court — whether taxpayers have standing. Curchin is not relevant. There is a dispositive distinction between the test for standing — whether there is a direct expenditure of funds generated through taxation — as opposed to the constitutional question — whether a tax credit is a grant of public money or property to a private person, association, or corporation.

By relying on Curchin as support for its position that taxpayers have standing, Judge Wolffs concurrence conflates the requirements for standing and constitutional validity under article III, section 38(a). By merging the two requirements into one, it would require this Court to abandon over a century of precedent. Since Newmeyer, which was decided in 1873, taxpayer standing has required a challenge to an expenditure of public funds.10 This Court is mindful of stare decisis and declines to overrule Newmeyer and its progeny. See Sw. Bell Yellow Pages, Inc. v. Dir. of Revenue, 94 S.W.3d 388, 390 (Mo. banc 2002) (“Under the doctrine of stare decisis, a decision of this court should not be lightly overruled, particularly where, as here, the opinion has remained unchanged for many years.”).

C. Supreme CouH of the United States

While this case was under submission, the Supreme Court of the United States issued an opinion in which it determined that a tax credit is not a direct expenditure of funds generated through taxation.11 In Arizona Christian School Tuition Organization v. Winn, — U.S. -, 131 S.Ct. 1436, 1440, 179 L.Ed.2d 523 (2011), a group of taxpayers challenged an Arizona statute that provided for tax credits for contributions made to school tuition organizations. The school tuition organizations then would distribute the contributions as scholarships to students attending private schools, many of which are religious. Id. The taxpayers challenged the Arizona statute as violative of the Establishment Clause. Id.

The Supreme Court’s threshold question was whether the taxpayers had standing to bring their claim. Id. The taxpayer standing doctrine is applied narrowly in federal courts, as it only pertains to alleged violations of the Establishment Clause. Id. at 1445. Taxpayers have standing in federal courts in such cases if: (1) there is a “logical link” between taxpayer status and the legislative enactment; and (2) there is “a nexus” between taxpayer status and the constitutional infringe-*663ment alleged. Id. (citing Flast v. Cohen, 392 U.S. 83, 102, 88 S.Ct. 1942, 20 L.Ed.2d 947 (1968)). “ ‘The taxpayer’s allegation in such cases would be that his tax money is being extracted and spent in violation of specific constitutional protections against such abuses of legislative power.’ ” Id. at 1446 (quoting Flast, 392 U.S. at 106, 88 S.Ct. 1942).

The task for the Supreme Court was to determine whether a tax credit constituted public money that was extracted and spent in violation of the Establishment Clause. See id. at 1447. In that context, the Court concluded that a tax credit is not a government expenditure. Id. While tax credits and government expenditures have similar consequences, a tax credit does not implicate all taxpayers like a government expenditure does. Id. A government expenditure implicates every taxpayer. Id. “A dissenter whose tax dollars are ‘extracted and spent’ knows that he has in some small measure been made to contribute to an establishment in violation of conscience.” Id. (quoting Flast, 392 U.S. at 106, 88 S.Ct. 1942). “[T]he taxpayer’s direct and particular connection with the establishment does not depend on economic speculation or political conjecture.” Id. On the other hand, a tax credit merely has an effect on the taxpayer who claims it. Id. There is no specific connection between the dissenting taxpayer and the establishment. Id. “Any financial injury [to the dissenting taxpayer] remains speculative.” Id.

The taxpayers here argue that Arizona Christian School is inapplicable because federal taxpayer standing is distinct from Missouri taxpayer standing. It is true that the United States Constitution does not have provisions that are similar to article III, sections 38 and 39 of the Missouri Constitution, which prohibit the State from expending taxpayer money or lending credit to private persons, associations, or organizations. And the test for taxpayer standing in federal courts is narrower than the standard for taxpayer standing in Missouri courts.

Despite the Supreme Court’s decision in Arizona Christian School arising in a different context, it is instructive because the taxpayer standing in both federal and Missouri courts is similar: both require an expenditure. Before the Court determined whether there was an Establishment Clause violation under the federal constitution, it analyzed generally whether a tax credit is an expenditure of public money. The same analysis is required in this case; determining whether tax credits are a direct expenditure of funds generated through taxation must be analyzed as a preliminary matter before reaching the constitutional question.

As discussed previously, this Court agrees with the Supreme Court’s holding in Arizona Christian School. Here, the redeveloper tax credit does not implicate every taxpayer as a government expenditure does. When a government expenditure extracts money from the public treasury, every taxpayer’s dollars contribute to the disbursement. A tax credit, on the other hand, merely affects the taxpayer who claims it. Because the money never is deposited into the state’s coffers, any effect on the taxpayers in general is “merely speculative.” See Arizona Christian School, 131 S.Ct. at 1447.

III. Taxpayers’ Right to Complain

The prediction in Judge Wolffs concurrence that today’s holding will result in a taxpayer not having a right of recourse if he disagrees with the legislature’s decision to issue tax credits is an exaggeration. Our system of government provides for checks and balances whereby taxpayers can hold public officials accountable for *664their acts. Taxpayers always retain the power at the ballot box to remove elected officials who support unpopular tax credits; And taxpayers, through the initiative process, may propose a law or an amendment to our state constitution to prohibit the issuance of tax credits. See Mo. Const, art. Ill, sec. 49 (“The people reserve power to propose and enact or reject laws and amendments to the constitution by the initiative, independent of the general assembly... .”).

To illustrate its concern that taxpayers do not have a remedy, Judge Wolffs concurrence forecasts that if tax credits are not considered public money, then taxpayers would not have standing to challenge the legislature’s establishment of a tax credit program to help build new churches. The parties do not make this argument, nor is there any evidence in the record that the legislature ever has granted churches or other religious institutions tax credits. This Court does not rule on hypo-theticals or speculative issues not raised by the case. This is a false alarm because it is unlikely that the legislature would set up such a tax credit program in the future for churches because religious institutions typically are exempt from taxes. See, e.g., section 137.100(5) (providing property tax exemption for property ordinarily used for religious purposes); section 144.030.2(19) (providing sales tax exemption for sales made by or to religious institutions). As tax credits lower tax liability, they are given to entities or persons who meet eligibility requirements and have potential liability such as redevelopers here, as opposed to churches, which have no potential tax liability. Any tax credit for religious institutions is pointless.

Further, Judge Wolffs concurrence’s attempt to distinguish types of tax credits is irrelevant to standing. Although this concurrence implies that some tax credits are good and others are not, it is not clear from a standing viewpoint, as opposed to a policy viewpoint, whether there is any difference. All tax credits are intended to encourage private citizens or entities to spend their own money on a particular project to improve the lives of the public, while avoiding the need to spend public money. Whether tax credits are a good idea or improve the lives of the public is a different issue, and taxpayers retain the power to challenge the issuance of tax credits as mentioned above.

This Court’s opinion does nothing to constrain the taxpayers’ right to use the courts to challenge the expenditure of public money if it is being spent on matters that the constitution forbids or on projects that have no public purpose.

IV. Conclusion

The taxpayers did not meet their burden to prove that they have standing. The trial court did not err in finding there was no taxpayer standing as the Act’s issuance of tax credits did not constitute a direct expenditure of funds generated through taxation. Further, this Court agrees with Arizona Christian School that tax credits are not government expenditures. Without standing, taxpayers cannot challenge the constitutional validity of the tax credits provided by the Act. Accordingly, the judgment is affirmed.

BRECKENRIDGE and FISCHER, JJ., concur; WOLFF, J., concurs in separate opinion filed; TEITELMAN, C.J., and PRICE, J., concur in opinion of WOLFF, J.; STITH, J., concurs in principal opinion and concurs in part in opinion of WOLFF, J., in separate opinion filed.

. All statutory references are to RSMo 2000, as amended by Supp.2010.

. An "eligible project area” is an area that satisfies five requirements: (1) it must consist of at least 75 acres; (2) at least 80 percent of the area must be located within a qualified census tract, as designated under 26 U.S.C. § 42, or within a distressed community, as it is defined in section 135.530; (3) at least 50 of the 75 acres of land must be eligible parcels; (4) the average number of parcels per acre must be four or more; and (5) less than 5 percent of the acreage within the area must consist of owner-occupied residences that the applicant for the tax credit has identified for acquisition under the 'redevelopment or renewal plan. Section 99.1205.2(8).

. Chapter 143 contains the provisions for Missouri’s income tax.

. Chapter 147 contains the provisions for Missouri's corporation franchise tax.

. Chapter 148 contains the provisions for the taxation of financial institutions in Missouri.

. Sections 143.191 to 143.265 concern employer withholding of income taxes from wages.

. This Court has jurisdiction pursuant to article V, section 3 of the Missouri Constitution.

. The taxpayers do not ask this Court to revisit the requirements for taxpayer standing in the context of challenging the validity of a statute granting tax credits. Without such briefing by the taxpayers, it would be inappropriate for this Court to analyze whether taxpayer standing should be expanded. See, e.g., Thummel v. King, 570 S.W.2d 679, 686 (Mo. banc 1978) (“It is not the function of the appellate court to serve as advocate for any party to an appeal. That is the function of counsel. It would be unfair to the parties if it were otherwise.... Courts should not be asked or expected to assume such a role.”).

. The dissenting judge disagreed, stating that "the tax credit provision does not constitute the 'lending of public credit' or the 'granting of public money’ as those phrases are employed in the constitution." Curchin, 722 S.W.2d at 937 (Rendlen, J., dissenting).

. While the nomenclature of this Court has changed throughout the years, taxpayer standing still requires expenditure of funds that the government generates through taxation.

.This Court sought additional briefing from the parties regarding the effect of that opinion on the case at hand.