OPINION OF THE JUSTICES TO THE SENATE AND THE HOUSE OF REPRESENTATIVES.

The following order was adopted by the Senate on March 6, 1929, and by the House of Representatives in concurrence on March 7, 1929, and was transmitted to the Justices of the Supreme Judicial Court on March 15, 1929:

WHEREAS, There is pending before the General Court a bill entitled "An Act imposing a general graded tax on personal incomes," printed as Appendix A, in current House document numbered ten hundred and seventy-five, a copy of which is hereto annexed; and

WHEREAS, Doubt exists as to the constitutionality of said bill if enacted into law; therefore be it

ORDERED, That the opinions of the Honorable the Justices Of the Supreme Judicial Court be required on the following important questions of law:

1. In imposing taxes on incomes, may the General Court, conformably to the provisions of the Constitution of the Commonwealth, provide for the grading of said taxes in respect to the amount of income received?

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2. May the General Court, conformably to the provisions of the Constitution of the Commonwealth, impose graded taxes on incomes substantially as provided in section three of said bill?

3. Would any provision of said section three contravene the Constitution of the United States or of the Commonwealth?

4. Assuming that said bill would be construed to provide for a tax on gross income derived from interest on loans secured by mortgage of real estate, may the General Court, conformably to the provisions of the Constitution of the United States and of the Commonwealth, authorize such a tax and continue in force existing provisions of law taxing the mortgagee's interest as real estate?

The proposed act, a copy of which was annexed to the order, proposed to amend the General Laws by striking out chapter 62 and inserting a new chapter in place thereof entitled "Taxation of Personal Incomes." Section 3 of the proposed new act read as follows:

SECTION 3. There shall be assessed, levied, collected and paid for each taxable year by every inhabitant of the commonwealth a tax upon net income as hereinbefore defined and computed at the following rates, after deducting the credits provided in section five:

On the first five thousand dollars of taxable income or any part thereof, one per cent;

On the next five thousand dollars of taxable income or any part thereof, one and one half per cent;

On the next fifteen thousand dollars of taxable income or any part thereof, two per cent;

On all taxable income in excess of twenty-five thousand dollars, three per cent.

The tax imposed hereby shall apply only to income received by individuals who are at the time of receipt inhabitants of the Commonwealth except as provided in the case of fiduciaries by section ten and in the case of partnerships by section fourteen, and shall not apply to income when received

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by corporations while acting otherwise than in a fiduciary capacity, nor to the income of property of an unincorporated association or organization when such property is exempt, from taxation under clause seventh, eighth, ninth, tenth or thirteenth of section five of chapter fifty-nine. Income received by an unincorporated association, partnership or trust the beneficial interest in which is represented by transferable certificates of participation or shares, which is the measure of a tax under chapter sixty-three shall be taxable under this chapter after distribution in the hands of the distributees, but only to the extent actually distributed.

On March 27, 1929, the Justices returned the following answer:

To The Honorable the Senate and the House of Representatives of the Commonwealth of Massachusetts:

The Justices of the Supreme Judicial Court respectfully submit these answers to the questions of an order adopted by the Senate on March 6, 1929, and by the House of Representatives on March 7, 1929, and transmitted to us on March 15, 1929, a copy whereof is hereto annexed.

These questions relate to a bill entitled "An Act imposing a general graded tax on personal incomes." The fundamental inquiry is whether, under the Constitution of the Commonwealth, a tax may be laid on incomes graded as to rate according to the amount of income received by the taxpayer. It is plain from the discussions in advisory opinions hitherto rendered and from decided cases that no such tax on incomes can be laid under the general taxing power conferred by c. 1, § 1, art. 4, of the Constitution. An income tax is a tax on property and under this constitutional mandate must be proportional and reasonable. Opinion of the Justices, 195 Mass. 607; 208 Mass. 616; 220 Mass. 613, 619-627. Perkins v. Westwood, 226 Mass. 268, 276. Tax Commissioner v. Putnam, 227 Mass. 522, 531, 532.

The inquiry, therefore, is narrowed to the point whether a tax on incomes graded as to rate according to the amount of income received by the taxpayer is permissible under art. 44

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of the Amendments to the Constitution of the Commonwealth. That Amendment, so far as here material, is in these words: "Full power and authority are hereby given and granted to the general court to impose and levy a tax on income, in the manner hereinafter provided. Such tax may be at different rates upon income derived from different classes of property, but shall be levied at a uniform rate throughout the commonwealth upon incomes derived from the same class of property. The general court may tax income not derived from property at a lower rate than income derived from property, and may grant reasonable exemptions and abatements." The first sentence confines the exercise of the otherwise ample power to levy income taxes within limitations specified thereafter in the Amendment. The second sentence restricts that power to the imposition of a "uniform rate throughout the commonwealth upon incomes derived" from the same kind of property, although permitting different rates on income derived from different kinds of property. This is more circumscribed than the limitation on the power to tax conferred on the Congress by art. 1, § 8, cl. 1 of the Constitution of the United States, to the effect simply that "all duties, imposts and excises shall be uniform throughout the United States." Those words have been held to exact only a geographical uniformity. Billings v. United States, 232 U. S. 261, 282. The words of Amendment 44 exact also geographical uniformity, but permit variation from intrinsic uniformity as to rates only with respect to reasonable classifications of property as to sources of income. A further intrinsic variation in rates is permitted by the third sentence to the extent that income not derived from property may be taxed at a lower rate than income derived from property, and to the extent also that reasonable exemptions may be made. Thus permissible differences in rates of taxation on incomes are mentioned. Except in these particulars the tax must be "at a uniform rate throughout the commonwealth." These words not only confer power to levy a tax on incomes at rates not uniform, but confine and limit variation from uniformity within strictly defined bounds. Under those words "property" may be classified

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for the purpose of establishing different rates upon the income derived therefrom. But nothing in the Amendment authorizes the classification of the owners of property or of taxpayers for the same purposes. These two classifications are radically and inherently different. Power to make one classification cannot be inferred from power to make the other classification. If it had been intended that there might be differences in rates based upon differences in amounts of income received by the taxpayers, as well as upon differences in sources of income received by the taxpayers, it would have been simple to express that purpose in art. 44 of the Amendments. No words of that article can be stretched to include that variation from the "uniform rate." The omission of such words is significant. The Legislatures of the political years 1914 and 1915, which proposed art. 44 of the Amendments, and the people of the Commonwealth in 19101, who ratified and approved it, were not unfamiliar with taxes graded as to rates and progressively increasing in proportion to the amount of property involved. Such graded rates by way of an excise on legacies and inheritances were established by St. 1907, c. 563, § 1 (not required to be uniform or proportional because an excise instead of a property tax, c. 1, § 1, art. 4, of the Constitution of Massachusetts), and have continued to be a part of our system of taxation since that time. See now G. L. c. 65, § 1; Pratt v. Dean, 246 Mass. 300, 307, 309; Magoun v. Illinois Trust & Savings Bank, 170 U. S. 283, 295-300; Knowlton v. Moore, 178 U. S. 41, 109. An income tax increasing progressively in rate as to those receiving more than a defined amount subject to the normal tax was in the Act of Congress of October 3, 1913, c. 16, § 2, 38 U. S. Sts. at Large, 166, and was matter of general knowledge. Such tax was permissible because of the very wide power to tax conferred by art. 1, § 8, cl. 1, and art. 16 of the Amendments, to the Constitution of the United States and the holding that such tax was an excise and not a property tax. Brushaber v. Union Pacific Railroad, 240 U. S. 1, 17, 21, 24, 25.

Article 44 of the Amendments to the Constitution of the Commonwealth was ratified and adopted after prolonged

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study by successive Legislatures of the legal and practical aspects of income taxes, and after the proposal and consideration of numerous plans for the establishment of a general and inclusive income tax ineffectual by reason of the requirements of c. 1, § 1, art. 4, of the Constitution that property taxes must be proportional and reasonable. That article conferred upon the General Court power to tax incomes as property. Under its provisions a tax on incomes had long been a part of our revenue system. One purpose of the Forty-fourth Amendment was to escape the requirements of c. 1, § 1, art. 4, of the Constitution that income taxes must be proportional. Tax Commissioner v. Putnam, 227 Mass. 522, 526, 527. If it had been intended or desired that every restriction of that nature should be removed, it would have been easy to express that intention or desire. Absence of words indicative of that design cannot be thought to have been inadvertent; it must have been deliberate.

An Amendment to the Constitution is a solemn and important instrument. Its words are to be interpreted in the "sense most obvious to the common understanding at the time." It is assumed to be capable of comprehension by those qualified to vote. Attorney General v. Methuen, 236 Mass. 564, 573. Loring v. Young, 239 Mass. 349, 372. Applying this test, it seems to us clear that it would not have been the common understanding of the words of the Forty-fourth Amendment by the voters of the Commonwealth in 1915 that power was thereby conferred upon the General Court to levy and collect a tax on incomes graded according to the amount of income received by the taxpayer. The limitations imposed upon absolute freedom of legislative action and the flexibility of action expressly prescribed exclude the idea of want of uniformity in the rate of taxation varying in proportion to the amount of income received by the taxpayer.

This conclusion is in harmony with the statement in Knights v. Treasurer & Receiver General, 237 Mass. 493, 495, that "By art. 44 of the Amendments to the Massachusetts Constitution the General Court is given power to levy taxes

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at different rates upon incomes derived from different classes of property, but at a uniform rate upon income from the same class of property." The statement touching St. 1916, c. 269, in Tax Commissioner v. Putnam, 227 Mass. 522, 531, that "It does not levy a tax at a different rate upon incomes derived from the same class of property," is in accord.

The Constitution of the United States and its Amendments in our opinion do not forbid the classifications and gradations of taxes on incomes substantially as set forth in § 3 of the proposed bill. Magoun v. Illinois Trust & Savings Bank, 170 U. S. 283, 295-300. Knowlton v. Moore, 178 U. S. 41, 109. Brushaber v. Union Pacific Railroad, 240 U. S. 1, 21, 24, 25. Salomon v. State Tax Commission of New York, 278 U. S. 484, decided by the Supreme Court of the United States on February 18, 1929.

We answer "No" to question 1.

We answer "No" to question 2.

We answer question 3, "Yes, so far as concerns the Constitution of the Commonwealth," and "No, so far as concerns the Constitution of the United States."

We are not certain that in these circumstances an answer is desired to question 4. It does not now seem necessary to discuss this question at large. It has been held that the Fourteenth Amendment to the Constitution of the United States does not forbid double taxation by the several States. Swiss Oil Corp. v. Shanks, 273 U. S. 407, 413. It was said in Otis v. Boston, 12 Cush. 44, 48, that "All taxation upon the inhabitants shall be equal as far as practicable; no citizen, therefore, can be twice rightfully taxed for the same property, the same year." Worcester v. Board of Appeal in Tax Matters, 184 Mass. 460. United States Trust Co. v. Commonwealth, 245 Mass. 75, 78. Opinion of the Justices, 250 Mass. 591, 603. Double taxation in theory not infrequently results from the taxation of a debt as well as of the property by which it is secured. Williams v. Brookline, 194 Mass. 44, 46. We incline to the view that no provision of the Constitution of the Commonwealth would be violated by such a tax as is described in this question.

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Therefore, we answer "Yes" to question 4, assuming that a bill should be framed otherwise conformable to the provisions of the Constitution of the Commonwealth.

Mr. Justice Field, before his appointment as a justice of the court, was a member of the special commission which drafted the bill referred to in the questions propounded in the order. lie therefore asks to be excused from answering these questions.

ARTHUR P. RUGG.

JOHN C. CROSBY.

EDWARD P. PIERCE.

JAMES B. CARROLL.

WILLIAM C. WAIT.

GEORGE A. SANDERSON.