SPxxxx, LD xxxx, item xx, 125th Maine State Legislature

An Act To Adopt an Alternative to Direct Taxation

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Maine Fiscal Assessment Act

CONCEPT DRAFT SUMMARY

This bill is a concept draft pursuant to Joint Rule 208.

This bill proposes to replace the current State taxation methods with a simple, annual assessment upon towns, cities, townships, etc. In concept, the State would cease all forms of directly taxing "taxpayers" other than fees for services. In its place, the State, upon determining its annual fiscal needs, would assess each municipality a portion of that need based on factors. Such factors would include valuation, population, income and other such indicators that are deemed fair and appropriate.

This bill also proposes that each municipality be allowed to tax its "taxpayers" in any manner it deems appropriate for its circumstances.

This bill is based on several principles including but not limited to:
1. Taxpayers have the most impact upon policy when managed at the local level
2. Competition among municipalities will encourage the development of tax models more tuned to the needs and choices of the individual communities.
This legislation has many ramifications for the competition between towns as to their ability to attract people, businesses and property owners with similar interests and expectations. It should also eliminate much of the State taxing bureaucracy and provide for consistency in State revenue.

Constitutionality


Article I. Declaration of Rights. Section 22.
Taxes. No tax or duty shall be imposed without the consent of the people or of their representatives in the Legislature.
This section sounds the familiar theme of no taxation without representation. Its immediate source is Article XXIII of the Declaration of Rights contained in the Massachusetts Constitution of 1780.

Under this section, a legislative body may not transfer the power to tax to non-elective officials (see City of Lewiston v. Lewiston Educational Directors, 503 A.2d 210, 214 [Me. 1985]). For purposes of this section, a tax is a charge designed to raise revenues and is distinguished from a license fee intended to cover the costs of administering a particular regulatory program (Board of Overseers of Bar v. Lee, 422 A.2d 998 [Me. 1980], appeal dismissed, 450 U.S. 1036 [1981]).


Article IX. General Provisions. Section 8.
Taxation; Intangible Property; Permits Valuation of Certain Land upon Current Use; Tax Recovery on Change to Higher Use; School Districts; Watercraft. All taxes upon real and personal estate, assessed by authority of this State, shall be apportioned and assessed equally according to the just value thereof.
  1. The Legislature shall have power to levy a tax upon intangible personal property at such rate as it deems wise and equitable without regard to the rate applied to other classes of property.
  2. The Legislature shall have power to provide for the assessment of the following types of real estate wherever situated in accordance with a valuation based upon the current use thereof and in accordance with such conditions as the Legislature may enact:
    1. Farms and agricultural lands, timberlands and woodlands;
    2. Open space lands which are used for recreation or the enjoyment of scenic natural beauty; and
    3. Lands used for game management or wildlife sanctuaries.
    In implementing paragraphs A, B, and C, the Legislature shall provide that any change of use higher than those set forth in paragraphs A, B, and C, except when the change is occasioned by a transfer resulting from the exercise or threatened exercise of the power of eminent domain, shall result in the imposition of a minimum penalty equal to the tax which would have been imposed over the 5 years preceding that change of use had that real estate been assessed at its highest and best use, less all taxes paid on that real estate over the preceding 5 years, and interest, upon such reasonable and equitable basis as the Legislature shall determine. Any statutory or constitutional penalty imposed as a result of a change of use, whether imposed before or after the approval of this subsection, shall be determined without regard to the presence of minerals, provided that, when payment of the penalty is made or demanded, whichever occurs first, there is in effect a state excise tax which applies or would apply to the mining of those minerals.
  3. The Legislature shall have power to provide that taxes, which it may authorize a School Administrative District or a community school district to levy, may be assessed on real, personal and intangible property in accordance with any cost-sharing formula which it may authorize.
  4. Beginning with the property tax year 1984, all watercraft as defined by the Legislature shall be exempt from taxation as personal property, provided that certain watercraft as defined by the Legislature shall be subject to an excise tax to be collected and retained by the municipalities.
This section elaborates on the implication in section 7 that taxation should be administered even-handedly. It first states the general requirement that taxes be assessed equally and according to just value and then recites a series of exceptions and limitations. Daniel Wilkins of New Charlestown proposed the amendment that added this section to Article IX on the floor of the convention. It originally consisted only of the first paragraph and applied just to real estate taxes." Taxes on "personal estate" were included in 1876 at the instigation of the first constitutional commission (Amend. XVII). What is now subsection 1, relating to intangible personal property, was added in 1915 (Amend. XXXVI), and all but the last sentence of what is now subsection 2, providing for valuation of certain lands at current use, emerged in 1970 (Amend. CXIV). In 1978 the entire text was repealed and replaced, but the only major change was the addition of subsection 3, dealing with taxes levied by a school district (Amend. CXL). Two 1984 amendments further swelled this section, the first inserting the last sentence of subsection 2, pertaining to minerals (CXLIX), and the second adding subsection 4, exempting watercraft (CLII).

Notwithstanding all of these changes, the core of section 8 remains the original principle of equal taxation. The purpose of this section is to equalize public burdens so that each taxpayer contributes to the entire tax burden in proportion to his or her share of the total value of all property subject to the tax (Eastler v. State Tax Assessor, 499 A.2d 921, 924 [Me. 1985]). To effectuate this purpose, this section imposes both a valuation requirement and an apportionment requirement.

Under the valuation requirement, the taxing authority must determine the just value of the property, which usually is equivalent to the market value (Shawmut Inn v. Inhabitants of Town of Kennebunkport, 428 A.2d 384, 389 [Me. 1981]; Sweet, Inc. v. City of Auburn, 134 Me. 28, 180 A. 803 [1935]). However, because of the deference that the courts pay to the assessor's judgment, a taxpayer claiming an overvaluation must prove more than mere error in computation or methodology (Frank v. Assessors of Skowhegan, 329 A.2d 167, 173 [Me. 1974]; Shawmut Manufacturing Co. v. Town of Benton, 123 Mc. 121, 130, 122 A. 49, 53 [1923]). The taxpayer must show that the judgment of the assessor was irrational or so unreasonable in light of the circumstances that the property is substantially overvalued and an injustice results, or that there is unjust discrimination, or that the assessment was in some way fraudulent (Kittery Electric Light Co. v. Assessors of Town of Kittery, 219 A.2d 728, 734 [Me. 1966]; Sears Roebuck & Co. v. Inhabitants of City of Presque Isle, 150 Me. 181, 189, 107 A.2d 475, 479 [1954]).

Under the apportionment requirement, the assessor must apportion the tax equally and uniformly. This requirement is paramount, so that if it is impossible to secure both the standard of true value and the requirement of uniformity and equality, the latter requirement must prevail (Farrelly v. Inhabitants of Town of Deer Isle, 407 A.2d 302, 307 [Me. 1979]; Spear v. City of Bath, 125 Me. 27, 29, 130 A. 507, 508 [1925]). When it is shown that the method used by the assessors usually would result in different valuations being placed on two pieces of property that are basically identical, the courts will find that in effect, there has been a conscious, purposeful, and systematic discrimination, requiring an abatement (Farrelly v. Inhabitants of Town of Deer Isle; Kittery Electric Light Co. v. Assessors of Town of Kittery).

Although the legislature by uniform laws can exempt from taxation any particular class of property, as a general rule it does not have authority to provide for one mode of assessment as to one class of property and another mode as to another class (Opinion of Justices, 155 Me. 30, 47, 152 A.2d 81 [1959]). This general rule is subject to a number of exceptions and restrictions. First, this section explicitly provides that taxes on intangible personal property need not be levied at the same rate as other property (Opinion of Justices, 141 Me. 442, 42 A.2d 47 [1945]).

Second, as this section applies only to property taxes, it does not affect excise, income, business, occupational, or gross receipts taxes (Opinion of Justices, 159 Me. 420, 425, 191 A.2d 627 [1963]; Opinion of Justices, 133 Me. 525, 178 A. 621 [1935]). An excise tax differs from a property tax in that the latter is levied on the ownership of property, whereas the former may only be levied on a use of the property (Opinion of Justices, 501 A.2d 16, 20 [Me. 1985]; Eastler v. State Tax Assessor).

Third, this section has been interpreted as permitting exemptions for specific pieces of property when such property is devoted to "public use" (Howard D. Johnson Co. v. King, 351 A.2d 524 [Me. 1976]; City of Portland v. Portland Water Co., 67 Me. 135, 137 [1877]). "Public use" has basically the same meaning in this context as it has in eminent domain cases (see Art. I, sec. 21).

Fourth, exemptions for the property of certain specified groups (such as veterans) are permissible, so long as the tax burden falls on all members of that group equally (Op. Mc. Att'y Gen. 87-2; see State v. Hamlin, 86 Me. 495, 30 A. 76 [1894]).

Fifth, under the "special purpose" doctrine, certain local taxes levied "for local benefits and improvements" do not fall under this section, even though the apportionment of such taxes might be unequal (Inhabitants of Town of Stonington v. Inhabitants of Town of Deer Isle, 403 A.2d 1181, 1184 [Me. 1979]; Smyth v. Titcomb, 31 Me. 272, 286 [1850]). The burden created by such special local taxes must be reasonably proportionate to the benefits conferred (Crabtree v. Ayer, 122 Me. 18, 21, 118 A. 790, 791 [1922]; Inhabitants of Sandy River Plantation v. Lewis & Maxcey, 109 Me. 472, 476-77, 84 A. 995, 997 [1912]). The legislature has considerable discretion in determining how great a burden will be proportionate to the benefits received; all that the courts appear to require is a good faith effort to arrive at reasonable apportionment, not an exact formula for allocating costs (Op. Me. Att'y Gen. 81-50).

Furthermore, subsection 2, which authorizes certain lands to be valued according to their current use, constitutes an exception to the just valuation scheme because true value is ordinarily based on a property's "highest and best use" (Op. Me. Att'y Gen. 82-28). This subsection provides for a penalty in the event of a change of use other than a change caused by eminent domain. The attorney general's office has opined that the penalties also should not apply when withdrawal of property from tree growth classification is effected by statutory change because this is analogous to eminent domain (Op. Me. Att'y Gen. [Feb. 23, 1980]). On the other hand, if such withdrawal occurs because of the landowner's failure to comply with new conditions imposed by the legislature, the penalty does apply (Op. Me. Att'y Gen. 82-2). Finally, the exception for watercraft in subsection 4 has not been interpreted.


Article IX. General Provisions. Section 9.
Power of Taxation. The Legislature shall never, in any manner, suspend or surrender the power of taxation.
This section originated with the constitutional commission of 1875 and became effective in 1876. Its original purpose was to curb a legislative practice of including in charters of railroads and canal companies clauses purporting to create permanent immunities from taxation." Similar constitutional provisions were adopted by several states, but the Maine version was unusual in including the phrase "in any manner" in the prohibition (Boston Milk Producers, Inc. v. Halperin, 446 A.2d 33, 40 [Me. 1982]).

This section embodies the premise that the sovereign right of taxation is so essential to the existence of government that it cannot be given up or bargained away (Morris v. Goss, 147 Me. 89, 103, 83 A.2d 556 [1951]). A tax exemption that purports to be permanent or to foreclose future repeal violates this section (Blair v. State Tax Assessor, 584 A.2d 957, 960 [ Me. 1984]; Greaves v. Houlton Water Co., 143 Me. 207, 213, 59 A.2d 217 [1948]). Furthermore, the language of this section creates a "strong and sweeping prohibition" against delegation of the legislature's power to tax (Maine Milk Producers, Inc. v. Commissioner of Agriculture, Food and Rural Resources, 483 A.2d 1213, 1220 n. 11 [Me. 1984]; Boston Milk Producers Inc. v. Halperin). Nevertheless, it is not an unconstitutional delegation for the legislature to allow certain tax rates to be based on standards not controlled by the legislature (for example, the Consumer Price Index), so long as such criteria have independent significance and provide meaningful standards (Maine Milk Producers, Inc. v. Commissioner of Agriculture, Food and Rural Resources; Opinion of Justices, 460 A.2d 1341, 1347-49 [Me. 1982]).

Source: The Maine State Constitution: A Reference Guide; Marshall J. Tinkle; Greenwood Pub.1992