holding that the Pennsylvania personal income tax statute, which imposed a flat 3-1/2% tax on taxable income, but also incorporated the definition of an individual’s taxable income used by the United States Internal Revenue Code, violated the Uniformity Clause because the federal definition of taxable income “already reflects the federal personal exemptions for the taxpayer and his qualified dependents. Thus, built-in to the [Pennsylvania Income Tax] are [ejxactly the same elements of nonuniformity as were condemned in both Kelley and Saulsbury.” (emphasis original and citation omitted)
How later courts described this case
- holding that the Pennsylvania personal income tax statute, which imposed a flat 3-1/2% tax on taxable income, but also incorporated the definition of an individual’s taxable income used by the United States Internal Revenue Code, violated the Uniformity Clause because the federal definition of taxable income “already reflects the federal personal exemptions for the taxpayer and his qualified dependents. Thus, built-in to the [Pennsylvania Income Tax] are [ejxactly the same elements of nonuniformity as were condemned in both Kelley and Saulsbury.” (emphasis original and citation omitted)
- explaining that “[njatural persons ... cannot be likened to profit-maximizing entities” for purposes of determining whether a statute’s method of computing taxable income comports with the Uniformity Clause
- holding that the Internal Revenue Code’s personal exemptions, deductions, and other tax preferences violated the Uniformity Clause
- “So long as a statute is constitutional, the Legislature is the sole judge of its necessity or expediency and a court cannot refuse to enforce it on any ground that it is unjust, unwise, inexpedient, obsolete or contrary to any supposed policy or custom.”
Written by the judges who cited it.
The opinion
Dissenting Opinion by
Judge Mdncbr:
I respectfully dissent. Article VIII, §1, of the Pennsylvania Constitution specifically states that “[a] 11 taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax. . . .” In Kelley v. Kalodner, 320 Pa. 180 , 181 A. 598 (1935), it was held that a statute levying an income tax from which certain individuals were exempted because their incomes did not exceed stated amounts was void, in that it was lacking in uniformity and violated the constitutional rule of uniformity. See Banger’s Appeal, 109 Pa. 79 (1885); Cope's Estate, 191 Pa. 1 , 43 A. 79 (1899). Likewise, in Saulsbury v. Bethlehem, Steel Company, 413 Pa. 316 , 196 A. 2d 664 (1964), it was held that the imposition of an occupational privilege tax upon each individual engaged in an occupation, when his gross earnings amounted to $600 or more during the taxable year, was unconstitutional because it lacked uniformity. It was reasoned that, if a tax is levied on a privilege, it must apply to all who share the privilege. Part of the class may not *385 be excused even though the legislative motive behind the excusing action is laudable.
The defendants would have us completely disregard the above cases and the legal reasoning that supports them on the assertion that this has all been changed by Article VIII, §2(b) (ii) of the Pennsylvania Constitution. This section provides, inter alia, that the General Assembly may, by law, establish as a class of subjects of taxation the property or privileges of persons who, due to poverty, are determined to be in need of tax exemption or of special tax provisions under uniform standards and qualifications. The General Assembly undoubtedly had this constitutional provision in mind when it placed section 319 in Article III of the Tax Reform Code of 1971. Act of March 4, 1971, P. L. , No. 2, 72 P.S. §§7101 et seq., 1 Pa. Leg. Serv. *71, p. 5 et seq. Section 319 provides for what has become known as the vanishing tax credit. In accordance with a schedule under section 319, a class of taxpayers is entitled to claim a credit against the amount of tax which would otherwise be due under Article III of the Tax Reform Code of 1971. This is simply the forbidden graduated income tax in reverse. Although now in miniform, the majority’s approval today invites for tomorrow an expanded schedule of vanishing tax credits. Further, the approval of this tax credit scheme allows by indirection the same elimination of certain taxpayers which our Supreme Court struck down in Saulsbury v. Bethlehem Steel Company, supra. Can it be unconstitutional to exclude persons from a tax- who do not earn $600, as in Saulsbury, and yet be constitutional to exclude persons from a tax who do not earn $600 by allowing them a credit equal to the tax due? Have we become so sophisticated that we can achieve a graduated income tax result in the face of the constitutional mandate that all taxes be uniform?
*386 Further, all computations of the vanishing tax credit are a percentage of “net taxable income”. This term is not defined anywhere in the Act and it is anyone’s guess what it includes or what it means. It is all well and good to speculate, as defendants’ counsel did at oral argument, that it means “taxable income”, but why is such speculation any more valid than that it means “net income” or “taxable income after subtracting the credits allowed by sections 316, 317 and 318”?
, ■ It is also interesting to note that section 317 allows a tax credit for a percentage of taxes imposed by political subdivisions of the Commonwealth. Such variations of credits will result in a situation that will be tantamount to having a different tax rate for each individual county. Such authorized variations surely lack the uniformity required by Article VIII, §1 of our Pennsylvania Constitution.
The violation of constitutional authority expressed in Article VIII, |2.(b)(ii), occurs in section 319(b) of the Code wherein the class of subjects of taxation is declared to be the taxpayers, not their property or privileges, as specified in the constitutional provision. The credit schedule that follows does not cure this fatal defect, since it does not establish any property or privileges of taxpayers for class of subjects. It merely sets out a graduated income tax in reverse which is simply unconstitutional as long as the uniformity requirement of Article VIII, §1 remains in our Constitution. We should not forget that the constitutional mandate for uniformity in the imposition of taxes has remained unchanged since its first adoption in the Constitution of 1874. It was pointed out very early in Appeal of Fox and Wife, 112 Pa. 337, 352 (1886), that an act which conflicts with the uniformity clause of the Pennsylvania Constitution “must fall, no matter what inconvenience may result to the state. This portion of *387 the constitution is too important and valuable to be overridden by the Legislature, or frittered away by judicial construction. It was intended to, and does, sweep away forever the power of the Legislature to impose unequal burdens upon the people under the form of taxation.”
In addition, the vanishing tax credit schedule of section 319(c) is arranged only on the basis of dollars and number of dependents. There is simply no determination of poverty nor any determination of a need for a tax exemption or special tax provision. Surely the absence of these essential determinations in the Code results in the uniformity provision of Article VIII, §1 and the cases decided under that requirement prevailing over a tax code that alludes to the provisions of Article VIII, §2(h) (ii) but does not adhere to its provisions. The conclusion is inescapable that, while different subjects may be reasonably classified for tax purposes, there must be no lack of uniformity within the class, either on the given subjects of the tax or the persons affected as payers. It is this controlling principle that makes Article III of the Tax Reform Code of 1971 unconstitutional since it excuses part of the class by a scheme of tax credits that results in a lack of uniformity.
The courts have recognized that a statute may be in part valid and in part invalid and, if the parts are distinct and not so interwoven as to be inseparable, that the valid portions should be sustained. See Murray v. Philadelphia, 361 Pa. 157 , 71 A. 2d 280 (1950). I do not believe this is the case here. The statute must be capable of separation in fact. In my opinion, the provisions of Article III of the Tax Reform Code of 1971 are indivisible and not separable in fact. See Sutherland Statutory Construction, Vol. 2 (3rd ed. 1913) §§2103, 2101, and cases cited.
*388 I would grant the plaintiffs the relief they seek and declare Article III of the Tax Reform Code of 1971 unconstitutional for lack of uniformity as required by Article VIII, §1 of the Pennsylvania Constitution.