State Supreme Court could decide income tax issue

By Thomas Wilson
STAR STAFF
twilson@starhq.com

   The Tennessee General Assembly has spent four years flirting with the idea of whether to enact a a personal income tax.
   However, the final decision could be made by the state Supreme Court.
   "No one knows if a personal income tax is going to be found constitutional until it is reviewed by the state Supreme Court," said Donald Polden, dean of the Cecil Humphreys School of Law at University of Memphis.
   In order for that to happen, the Court must hear a legal challenge to the ruling.
   Some state legislators have cited past court rulings as obvious arguments that a tax on personal income would not stand up under the state constitution.
   "In 1870, the people voted to amend the constitution to tax investment income. They did not vote to tax earned income," Lt. Gov. John Wilder, D-Mason, told the STAR on Thursday.
   An attorney who has served 16 consecutive terms as Speaker of the Senate, Wilder said the state Supreme Court has issued four rulings that taxing earned income was unconstitutional in the past 74 years -- the last being in 1960.
   "The Senate is convinced it is not constitutional," said Sen. Dewey "Rusty" Crowe, R-Johnson City.
   Crowe felt the 1960 ruling of Cole v. Macfarland affirmed that a citizen's earning of general income is right -- not a privilege -- and cannot be taxed as such.
   However, since 1981, three state attorneys general have opined that a tax on personal income would be constitutional.
   The most recent opinion was issued by Attorney General Paul Summers in October 1999.
   Summers cited Article II, Section 28 of the state's Constitution to argue the General Assembly may impose a personal income tax by "taxing as privileges a broad range of occupations, investments and activities that produce earnings."
   Polden felt one of the most compelling arguments was the Court's past interpretations of the Legislature's taxation powers as being "broad and inherent."
   "The Supreme Court has been quick in a number of circumstances to find the inherent power under the Constitution for the Legislature to protect the citizens of the state," he said.
   That argument could be very powerful if it was presented to the Supreme Court that the state was in a critical economic juncture, he said.
   Polden also stated the 1931 Evans v. McCabe court ruling that the Constitution did not provide language granting the Legislature power to impose an income tax could be questioned today.
   He pointed out that the Constitution does not specifically allow a state sales tax, but the Supreme Court had ruled that tax constitutional as a part of the Legislature's taxation power.
   "There is nothing in the state Constitution that prohibits an income tax and there is no language that prohibits a tax on earnings of individual income," said Polden. "There is a provision that permits taxation of certain kinds of income."
   One of a handful of upstate lawmakers still opposed to a personal income tax, Crowe said he remained committed to his promise not vote for legislation that established a personal income tax.
   "They are controlling the situation in a way that I think is abusive to the people of Tennessee," said Crowe of pro-income tax legislators. "When (Governor) Ned McWherter saw he couldn't pass his income tax, he knew when to stop without hurting people."
   Crowe co-sponsored a bill allowing citizens to vote for a constitutional convention to be placed on the August 1 ballot of the state primary election.
   If the referendum passed, the citizens elected as delegates to the convention would have the opportunity to change the state's tax structure.
   Sen. Stephen I. Cohen, D-Memphis, called the unconstitutionality argument an "argument of convenience", and felt lawmakers opposed to a personal income tax did not want government growth or spending to increase in any form.
   A personal income tax supporter, he stated that several lawmakers had voted for other legislation that had been ruled unconstitutional -- such as displaying the Ten Commandments in state buildings -- when those bills could be used as political ammunition.
   "If they were consistent about it, that would be one thing, but that is not the case," said Cohen. "There are people who have been down here for years that have never made an important decision for state government."