1. introduction: the power of legislature to allocate wealth


TAXATION AS A MEANS OF ALLOCATING WEALTH



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2. TAXATION AS A MEANS OF ALLOCATING WEALTH
Iron Rules of Property

Rule 1: All property must be assessed at full market value



Rule 2: All people pay same % of assessed value for taxation

  • Cases between 1938 – 1973 show that the courts will not impose on states the iron rules of equal taxation = they have authority to do almost anything

  • There are 2 cases that support the iron rule: Sioux City Bridge and Quaker City Cab



A. General Rules of Taxation

  • States have wide discretion is making tax laws validity of a taxation derives from the police power of the state as per regulation

  • All similar property must be taxed equally = intentional and systematic unequal valuation for tax purposes is unconstitutional in the absence of a rational scheme (Sioux City)

  • Before, Congress could not have different taxes for different groups because this would be discrimination (Quaker City Cab)  this was later overruled by Lehnhausen which allowed corporations to be taxed differently than individuals

  • Now, the tax only needs to be REASONABLE and to serve a PUBLIC PURPOSE in order to comply with the Equal Protection Clause of the 14th amendment.

    • Reasonableness of purpose only need be able to be imagined by court and does not necessarily have to be the real motive of the tax

    • Courts should be very deferential to legislative enactments (Lehnhausen)

  • Able to justify a tax if:

    1. Going to achieve truer equality

    2. If government can regulate an item then it should be able to tax to accomplish the same thing

    3. Administrative Convenience - if administratively convenient to tax property in a certain manner (i.e. only changing assessments when land is sold b/c did not have computers) this will be acceptable

    4. Custom = hard to argue that a tax is arbitrary if it has been doing it for a long time

    5. If a tax can be passed on from primary payers to consumers, tax will be held constitutional (Pittsburgh v. Alco Parking)


Cases

  • Pollack v. Farmers’ Loan and Trust Co. (1985) – Court declared income taxes unconstitutional and because of this case Congress passed the 16th Amendment allowing income tax without regard to census of states

  • Sioux City Bridge Co. v. Dakota County (1923) – If all neighboring properties are undervalued for property tax purposes, an owner's land must also be undervalued so that his tax burden is equal to his neighbors

          • ­old case so might not be good law but gets cited in Webster County case

          • stands for proposition that gov’t can’t tax out of staters and out of state business at a higher rate than those in state

          • Equal protection laws in tax cases prohibits states from discriminating again out of state people

  • Quaker City Cab Co. v. Pennsylvania (1928) – Question of whether a corporation could be taxed at a higher rate than an individual. Court said no but later overruled by Lenhausen.

  • New York Rapid Transit Corp. v. City of New York

  • Allied Stores of Ohio, Inc. v. Bowers (1959) - The legislature has broad ability to set tax schemes as long as there is some rational policy purpose behind it

  • Lehnhausen v. Lake Shore Auto Parts Co. (1973) - corporate property may be taxed though individual property is exempt without violating Equal Protection.

      • overrules Quaker City

      • Corporations would have to prove that taxation is an invidious discrimination to prevail.

      • stands for the proposition that government can tax in any way it wants with no limits, but other cases show there may be some limitations
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