Opinion
No. 28004
Decided March 12, 1941.
Taxation — Certificate of immunity front examination and assessment from 1926 to 1932 — Sections 5398 and 5398-1, General Code — Tax Commissioner and Board of Tax Appeals governed thereby — Only question whether property listed fully and in good faith in 1932 — Examination as to intangible personal property taxes — Statutory authority of county auditor may be modified or terminated — Constitutional law.
1. The provisions of Sections 5398 and 5398-1, General Code, govern and control the action of the state Tax Commissioner and the Board of Tax Appeals in the matter of the issuance of certificates of immunity therein authorized. The only question thereby committed to them for consideration and determination is "whether or not the person whose returns are proposed to be investigated by the county auditor made a return in the year 1932 and fully and in good faith listed therein the taxable property required by the law in force in said year to be so listed." Under the mandatory provisions of the statute, upon finding such fact, the state Tax Commissioner should issue his certificate to that effect.
2. The authority of county auditors in the matter of conducting examinations relative to intangible personal property taxes for the years beginning with 1926 and ending with 1931 is conferred by statute and may be modified or terminated by statute.
3. The provisions of Sections 5398 and 5398-1, General Code, whereby the state Tax Commissioner is authorized to issue certificates of immunity from examination respecting returns of intangible personal property for taxation for the years prior to 1932 to all taxpayers applying therefor who had made full and complete returns of their intangible personal property for the year 1932, are not violative of any provision of either the state or federal Constitution.
APPEAL from Board of Tax Appeals.
This proceeding is an appeal from the Board of Tax Appeals of the Department of Taxation of Ohio. The decision appealed from affirmed the action of the Tax Commissioner wherein he denied an application of the executors of the estate of Frank B. Black, deceased, for a certificate of immunity from examination and assessment covering the years 1926 to 1930, inclusive, under the provisions of Section 5398-1, General Code.
Frank B. Black died in December 1937. The application of the executors was based upon the claim supported by proof that Black had made a return in 1932 and fully and in good faith listed therein all the taxable personal property required by law to be then listed. Upon consideration thereof, the Tax Commissioner found as follows:
"The auditor of Richland county is conducting an examination under Section 5398, General Code, into the alleged failure of Frank B. Black when living to return for taxation certain personal property which he was alleged to have owned in the years 1926 to 1930 pursuant to a writ of mandamus issued by the Court of Appeals for the Fifth District of Ohio;
"The effect of the decision of the Supreme Court in State, ex rel., v. Hunt, 132 Ohio St. 568, in the light of the writ of the Court of Appeals requiring the investigation hereinabove noted, is that the Tax Commissioner is without authority to issue the certificate of immunity as applied for.
"The application is therefore denied."
Upon appeal to the Board of Tax Appeals, the matter was presented upon the transcript of the proceedings of the Tax Commissioner and upon the evidence there adduced. Whereupon the Board of Tax Appeals found as follows:
"Frank B. Black 'made a return in the year 1932 and fully and in good faith listed therein the taxable property required by the law in force in said year to be so listed' within the spirit, intent, and purpose of this provision of Section 5398-1, General Code. The Board of Tax Appeals further finds, however, that the Supreme Court of Ohio in the cases of State, ex rel., v. Hunt, 132 Ohio St. 569, and State, ex rel. Greenward Realty Co., v. Zangerle, 135 Ohio St. 533, has decided and indicated the view that the tax immunity pro visions of Sections 5398 and 5398-1, General Code, as well as those of Section 5403-2, General Code, are unconstitutional and void; and solely for this reason the Board of Tax Appeals upon consideration of said appeal aforesaid affirms the action of the Tax Commissioner in denying the application of the executors of the estate of Frank B. Black, deceased, for said certificate of immunity as aforesaid * * *."
Appeal from that decision was perfected in this court. Thereafter Michael Hallabrin, taxpayer and relator in the mandamus action referred to above, and Norman L. Wolfe, auditor of Richland county, were made appellees in this action, and on January 11, 1940, this court issued an order staying the action and proceed ings of the auditor of Richland county relative to such matter pending final determination of this cause.
Messrs. Jones, Day, Cockley Reavis, Messrs. Weldon Huston, Mr. Earl W. LeFever and Mr. Chapman Rose, for appellants.
Mr. Thomas J. Herbert, attorney general, and Mr. Aubry A. Wendt, for appellee, William S. Evatt, tax commissioner.
Mr. Harold Lutz and Mr. Glen W. Marriott, prosecuting attorneys, for appellee, Norman L. Wolfe, county auditor.
Messrs. Hart, McHenry Jones, Mr. Joseph. A. Bayer and Mr. Chas. N. Hostetter, for appellee, Michael Hallabrin.
The case is before us solely on the record disclosed by the findings of the Board of Tax Appeals. Facts growing out of the investigation of the Black estate are not in this record, and statements thereof or arguments based thereon may not be considered in this case.
The provisions of Sections 5398 and 5398-1, General Code, govern and control the action of the Tax Commissioner and the Board of Tax Appeals in the matter under consideration. Under the very specific terms thereof, the only question committed to them for consideration and determination upon timely application being made is "whether or not the person whose returns are proposed to be investigated by the county auditor made a return in the year 1932 and fully and in good faith listed therein the taxable property required by the law in force in said year to be so listed."
Under the mandatory provisions of the statute, the board, upon finding such fact in the affirmative, "shall issue its certificate to that effect." The application in this proceeding was rejected, however, upon the sole ground of the unconstitutionality of the immunity provision of Section 5398-1, General Code.
The conclusion of the Board of Tax Appeals was that the applicant was entitled to the certificate of immunity sought if the statute authorizing it is valid. The sole question presented to this court, therefore, is whether the Tax Commissioner was in error in rejecting the application for the certificate of immunity sought upon the ground that the immunity provisions of the statute involved have in effect been held by this court to be unconstitutional in the eases referred to above.
In the case of State, ex rel. Greenward Realty Co., v. Zangerle, County Aud., 135 Ohio St. 533, 21 N.E.2d 662, all that was actually decided was that the petition in mandamus failed to allege facts sufficient to indicate that the county auditor believed or had reasonable grounds to believe that the taxpayers had been delinquent in returning their personal property for taxation and hence there was no showing he was under a duty to act.
The constitutionality of Sections 5398 and 5398-1, General Code, was not directly in issue and the decision, insofar as it referred to the immunity provisions in question, was based upon the case of State, ex rel. Hostetter, v. Hunt et al., Exrs., 132 Ohio St. 568, 9 N.E.2d 676, where the effect of the certificate there involved was to remit the tax which had been actually assessed. In the latter case, Section 5403-2, Page's General Code (114 Ohio Laws, 776, Section 5), alone was under consideration and the question considered and determined, as clearly stated in the opinion, was whether the Legislature had the authority to grant power to the Tax Commission "to issue certificates of immunity from the collection of omitted taxes for the years 1926 to 1930, inclusive, where such taxes had been placed on the duplicate by the county auditor and certified to the county treasurer as provided by law." (Italics ours.) As there further stated: "The tax, therefore, had become a liability by statute and the county had a right to proceed to collect the same."
The decision in the Hostetter case declared invalid any procedure under Section 5403-2, Page's General Code, which would have the effect of cancelling or preventing the collection of taxes theretofore assessed, which assessment was in 1931 and prior to the effective date of the intangible tax law. The question here is the validity of Sections 5398 and 5398-1, Greneral Code, which withdrew the previously conferred authority of the county auditor to conduct investigations in 1932 or thereafter with a view of levying assessments of taxes for the years preceding 1932 upon the finding by the Tax Commissioner of compliance with the conditions enumerated in such statute by the taxpayer applying for a certificate of immunity.
The same vital distinction was made in the case of State, ex rel. Struble, v. Davis et al., Tax Comm., 132 Ohio St. 555, 9 N.E.2d 684, where legislation exempting taxes, the assessment of which had been completed at the time such acts had become laws, was held violative of the provisions of Section 28 of Article II of the state Constitution providing that "the General Assembly shall have no power to pass retroactive laws."
The certificate of immunity sought here would not have the effect of remitting any taxes which had been assessed. It would only preclude further action by the county auditor in the matter of examination relative to intangible property taxes for the years beginning with 1926 and ending with 1931. The authority of county auditors to conduct such examination is conferred by statute and of course may be modified or terminated by statute. The question of policy is one for the Legislature and not for the court.
If the immunity certificate was found to be warranted by the facts and accordingly issued, authority theretofore granted the auditor to conduct such examination would be immediately arrested. He would "not be authorized to proceed further therein." Liability for taxes is fixed only where there has been an assessment thereof which has become final.
It cannot be claimed that a liability has been released which has never come into existence, or a tax remitted which had not been assessed. The immunity provision in question, therefore, not having the effect of remitting back taxes or cancelling liability for back taxes, cannot be deemed retroactive.
The immunity provision does not violate the equal protection of the law provision of the Constitution. Conditions long prevailing which brought about the enactment of the intangible tax law in 1931, as well as the object and purpose of such legislation, were widely recognized and well understood. In order that the desired results might be attained from such legislation, inducements for a full and complete return of intangible property in 1932 were provided by the amendment of Section 5398, General Code, and the enactment of Section 5398-1, General Code. For the very evident purpose of inducing all taxpayers in the year 1932 to list fully and in good faith their taxable property as then required by law, assurance of immunity from any examination respecting taxes for the five preceding years was provided by this statute. This inducement was extended to all taxpayers. It had reference to future action and was without discrimination.
Though the discussion in the briefs and oral argument in this case departed widely from the issue involved, the only question presented by the record, as previously indicated, is whether the Legislature, having conferred authority upon county auditors to examine and investigate tax returns during the period prescribed, also had power under the Constitution to revoke such authority or prescribe the conditions under which such examinations should be made. In no case previously before this court has that question been presented or decided.
The Board of Tax Appeals having found "that said Frank B. Black 'made return in the year 1932 and fully and in good faith listed therein the taxable property required by the law in force in said year to be so listed' within the spirit, intent, and purpose of this provision of Section 5398-1, General Code," should have reversed the determination of the Tax Commissioner and ordered him to issue the certificate of immunity sought in this proceeding in accordance with the requirements of the statute. The decision of the Board of Tax Appeals is accordingly reversed.
Decision reversed.
TURNER, ZIMMERMAN and BETTMAN, JJ., concur.
WEYGANDT, C.J., and WILLIAMS, J., dissent.
HART, J., not participating.
I concur in the foregoing opinion, believing the instant case to be distinguishable from the cases of State, ex rel. Hostetter, v. Hunt et al., Exrs., 132 Ohio St. 568, 9 N.E.2d 676, and State, ex rel. Greenward Realty Co., v. Zangerle, County Aud., 135 Ohio St. 533, 21 N.E.2d 662, and entertaining the view that the General Assembly possesses the power to limit a county auditor in the examination and investigation of tax returns for preceding years.
The presumption of the constitutional validity of statutes still prevails in Ohio and an act of the General Assembly should not be struck down by judicial pronouncement unless clearly violative of some provision of the state or federal Constitution. Neither have courts the right to usurp the functions of the legislative branch of the government upon questions of public policy. In this connection the following observation, based on public records, would seem pertinent:
For a long time prior to 1931 the tax rates on personal property were high. From 1926 through 1930 the average was in excess of two per cent. Many of the owners of intangible property, regardless of whether their holdings were large or small, considered the rates not only unjust but confiscatory, with the result that they felt no moral obligation to make complete returns and did not do so. Whether justified or not, a "taxpayer's strike" existed. For example, in 1924 there was approximately $3,514,334,261 on deposit in Ohio banks on tax listing day, but only $183, 234,261, or about five per cent, was returned for taxation. From a realistic standpoint the state taxing authorities faced a desperate situation about which something had to be done. So in 1931 a new and fairer taxing system was evolved and translated into law. In order to make this new system effective and to serve a public purpose, the General Assembly said in effect to the owners of personal property, "If you will make a full and complete disclosure of your property in 1932, you will be protected from the assessment of back taxes and penalties." The offer was certainly made in good faith to assure the success of the new law, and the response was wholehearted and gratifying. Despite the sharp decline in market values generally from 1930 to 1932, the report of the state Tax Commission for 1933 discloses that the value of intangible personal property returned for taxation rose from $902,194,870 in 1930 to $7,172,823,115 in 1932.
Under these circumstances, a holding that the immunity provisions of the statutes in question are unconstitutional would produce an unconscionable result.
The question presented is not whether power may be reposed in or taken away from the county auditor by the Legislature but whether taking away the auditor's authority to proceed further upon presentation of the certificate of immunity is unconstitutional. The constitutionality of an act is to be judged by its effect rather than its form.
The immunity provision of Section 5398, General Code, divides personal property taxpayers into two classes — those who have been honest and careful enough to make full returns and comply with the laws relating to taxation and those who have not made full returns and have thus dishonestly or heedlessly evaded taxation — and allows retention of taxes of those who have complied with legal requirements while in effect it releases those who have not. When we hold that such an enactment is not class legislation denying the equal protection of the law, we open the door to legislative discrimination against law-abiding taxpayers in favor of taxpayers who fail to make full and complete returns and thereby evade just taxation. Such discrimination is a violation of the guaranty contained in the equal protection clause of the organic law.
There are other grounds upon which the constitutionality of that provision could be challenged but the ground stated is all-sufficient.
Since the cause involves returns of deceased made during his lifetime, the right to a certificate of immunity pursuant to Section 5398-1, General Code, in order to avoid criminal prosecution is not involved.
WEYGANDT, C.J., concurs in the foregoing dissenting opinion.