Constitutional law — Remitting penalties and interest on delinquent taxes — Section 2590-1, General Code, unconstitutional — Equal protection of laws — Retroactive legislation — Section 2, Article I, and Section 28, Article II, Ohio Constitution — Section 1, Article XIV, Amendments to U.S. Constitution.
BY THE COURT.
The single question here involved is the constitutionality of Section 2590-1, General Code, which reads as follows:
"Whenever any penalty, interest or other charge for nonpayment when due of any real estate tax and/or assessment is paid by any person, firm or corporation charged with or legally authorized to pay same, which said penalty, interest or other charge after such payment is or has been remitted or abrogated, conditionally or otherwise, by act of the Legislature or otherwise, any such penalty, interest or other charge paid since the 20th day of June, 1930 and prior to January 1st, 1937, is hereby expressly remitted and abrogated, on application to the county auditor by such person, firm or corporation on or before the first day of January, 1940, such penalty, interest and charges so paid shall be refunded to such person, firm or corporation on the order of the county auditor directed to the county treasurer."
The relator and the Common Pleas Court place great reliance upon the decision of this court in the case of Commissioners v. Rosche Bros., 50 Ohio St. 103, 33 N.E. 408, 40 Am. St. Rep., 653, 19 L.R.A., 584; 98 A.L.R., 288, but no reference is made to it in the majority opinion of the Court of Appeals. The first paragraph of the syllabus in that case is as follows:
"The act entitled 'an act to provide for refunding of taxes erroneously paid under Section 2742, Revised Statutes of Ohio, in counties containing a city of the first grade of the first class,' passed April 16, 1890 (87 Ohio Laws, 212), in so far as it imposes an obligation on the county of Hamilton, on account of past transactions, is retroactive and in conflict with Section 28, of Article II, of the Constitution of this state."
On the question of the retroactive nature of the statute now under scrutiny, the rationale of Judge Bradbury is so cogent and pertinent that the following part of his opinion is here quoted:
"However steadily we may keep in mind the general rule, that statutes should be construed to operate prospectively only, when susceptible of that construction, there still remains little, if any, doubt, that the Legislature intended the above quoted statute to operate retrospectively; and it is only little less certain that the object was to vitalize the claims of the defendants in error, and of others in Hamilton county in like situation. At least the language of the statute is explicable upon no other hypothesis than that it was intended to operate upon past transactions; the only doubt in this respect is whether its operation should not be limited to past events, and its prospective operation denied altogether. The words of the statute uniformly refers [refer] to the past, in presenting the circumstances that are to set it in operation. The language is, 'If any * * * auditor "has sent" a blank with instructions, which instructions "have been" erroneous, and a return "has been made" accordingly,' etc., then a recovery may be had. The statute, therefore, should be held to be retroactive, and apply to the state of facts that constitutes the cause of action of the defendant in error.
"However every statute that is designed to act retrospectively is not retroactive within the terms of Section 28, of Article II, of the Constitution of 1851, which forbids the General Assembly of this state to pass 'retroactive' laws. Whether a statute falls within the prohibition of this provision of the Constitution depends upon the character of the relief that it provides. If it creates a new right, rather than affords a new remedy to enforce an existing right, it is prohibited by this clause of the Constitution of this state.
"Judge Story defines a retrospective, or retroactive law, as follows: 'Upon principle, every statute, which takes away or impairs vested rights acquired under existing laws, or creates a new obligation, imposes a new duty, or attaches a new disability in respect to transactions or considerations already past, must be deemed retrospective.' The Society, etc., v. Wheeler, 2 Gall. 104-139. This definition was approved by this court in Rairden et al. v. Holden, 15 Ohio St. 207. It was also adopted by the Supreme Court of the United States in Sturges v. Carter, 114 U.S. 511.
"The statute under consideration, when tested by these principles, operates retroactively in its application to the claim of defendants in error. The last payment of the taxes that they sought to recover, was made more than nine years before the law was passed. The property had been listed and the taxes thereon paid voluntarily. They interposed no objection or protest to the payment, nor was any threat or offer made by the county treasurer to compel payment by summary or other process provided by statute for that purpose. For money paid under these circumstances the well settled law of this state, as it then stood, and remained up to the time of the passing of this statute, forbid a recovery. Mays v. Cincinnati, 1 Ohio St. 268; Marietta v. Slocomb, 6 Ohio St. 471; Wilson v. Pelton, 40 Ohio St. 306; Whitbeck, Treas., v. Minch, 48 Ohio St. 210. Nor did the circumstances under which it was listed constitute such an error as might be corrected, and a refunding order drawn by the county auditor by virtue of Sec. 1038, Revised Statutes, for the excess that was thus paid. State v. Commissioners, 31 Ohio St. 271; State, ex rel., v. Cappellar, 5 W. L. B., 833. Therefore when the defendants in error voluntarily, though erroneously, listed their property, and voluntarily paid the taxes assessed upon it, neither by statute nor by any principle of the common law as administered in Ohio, was an obligation imposed upon the county of Hamilton to refund the money received. If such an obligation had existed, the forms of procedure then provided by our system of practice, were ample to afford complete relief. The obstacle in the way of the defendants in error was not inadequate methods of procedure, but the absence of a law vesting in them a right to recovery. This want the statute under consideration attempted to supply.
"This statute, it is contended, is remedial, and remedial statutes may be retroactive. It is remedial no doubt, in that enlarged sense of that term, where it is employed to designate laws made to supply defects in, or pare away hardships of, the common law, but not remedial in the sense of providing a more appropriate remedy than the law before afforded, to enforce an existing right or obligation. The statute under consideration provided no new method of procedure; it simply imposed upon Hamilton county an obligation towards these plaintiffs in error that did not attach to the transaction when it occurred. In attempting to accomplish this result the Legislature transcended its constitutional powers.
"Counsel contend that the statute is in furtherance of natural justice, and that the clause of the Constitution under consideration does not prohibit retroactive laws of that character. Lewis, Trustee, v. McElvain, 16 Ohio, 347; Trustees v. McCaughy, 2 Ohio St. 152; Acheson v. Miller, 2 Ohio St. 203; Burgett et al. v. Norris, 25 Ohio St. 308.
"To uphold a statute on this ground, where it seeks to create a liability upon a past transaction, where none existed when it occurred, if it can be done at all, the natural justice of the object sought to be accomplished should be indisputable."
It should be observed that the Rosche case related to a statute providing for the refunding of taxes illegally assessed and erroneously paid. It is inescapable that if such legislation be constitutionally invalid, a fortiori the same defect is inherent in the present statute involving a refunding of revenues legally assessed and properly paid. The decision in the Rosche case has not been overruled or modified by this court. However, it is claimed by the respondents that this decision cannot be considered as decisive of the instant question inasmuch as the former involved "taxes" while the latter relates merely to "penalties" and "interest." It is true that in certain jurisdictions a distinction has been drawn between taxes on one hand and interest and penalties on the other. But the controlling question here is whether they are so considered by the statutes of Ohio. Counsel agree that in this state the law requires that such interest and penalties be charged upon the tax duplicate, that they be collected as a part of the taxes, and that they be distributed as taxes. As illustrative of this view of the Legislature, Section 5678, General Code, provides that when taxes, assessments and penalties are not paid "the total of such amounts shall constitute the delinquent taxes and assessments on such real estate to be collected in the manner prescribed by law." Section 5679, General Code, similarly provides in part as follows:
"If the first half of the taxes and assessments charged upon any real estate is paid on or before the twentieth day of December, as provided by law, but the remaining half thereof is not paid on or before the twentieth day of June next thereafter, or collected prior to the next September settlement, as provided by law, or if the total amount of such taxes and assessments payable in monthly installments as provided by law is not collected prior to such September settlement, a like penalty shall be added to such unpaid taxes and assessments, and they shall be treated as delinquent taxes and assessments, and, with the taxes and assessments of the current year, collected as aforesaid.
"The penalties provided for in Section 5678 of the General Code and in this section shall be in lieu of one year's interest on the principal amount of such unpaid taxes and assessments; but if any semi-annual installment of taxes and assessments payable on or before the twentieth day of December, or any such installment payable on or before the twentieth day of June, or any monthly installment of taxes and assessments payable on or before the date of the February settlement or any such installment payable on or before the date of the September settlement remains unpaid for more than a year after such date, interest at the rate of six per centum per annum on the amount thereof so remaining unpaid shall be charged upon the duplicate from the expiration of such year until such taxes, assessments, penalties, and interest are paid, or until the date of the September settlement next preceding the entry of such real estate upon the delinquent land list."
Other statutory references might be made but they are not necessary. Clearly interest and penalties upon delinquent taxes must be considered as part of the taxes for the purpose of solving the question here presented. Hence the decision in the Rosche case requires this court to hold that the statute involved in the instant case is retroactive in its nature and therefore violative of Section 28 of Article II of the Constitution of Ohio.
Likewise this court is of the opinion that this statute is patently repugnant to the equal protection clauses of Section 2 of Article I of the Constitution of Ohio and Section 1 of Article XIV of the Amendments to the Constitution of the United States. In this respect it is unnecessary to do more than note the arbitrary and unexplained date when the privilege is conferred and the equally arbitrary and unexplained date after which the privilege is denied. The discriminatory nature of the statute is shown by the further arbitrary requirement that payments of interest and penalties shall be refunded from the county treasury alone, irrespective of whether the monies are still in possession of the county or may have been distributed to the numerous taxing subdivisions entitled to receive them.
The decree of the Court of Appeals is reversed, and the relator is hereby granted the injunctive relief he asked and received in the Court of Common Pleas.
Judgment reversed.
WEYGANDT, C.J., MATTHIAS, DAY, ZIMMERMAN, WILLIAMS and MYERS, JJ., concur.
GORMAN, J., dissenting.
The provisions of the Ogrin Act (Section 2590-1, General Code, 116 Ohio Laws, 468) are so inextricably dependent upon the validity of the so-called Whittemore Acts that if they are disassociated entirely, it is impossible to ascertain the true intent of the Legislature.
The first Whittemore Act (115 Ohio Laws, 161) became effective April 5, 1933. It provided that a delinquent taxpayer, by paying all current taxes and agreeing to discharge the delinquent taxes in installments would be relieved of the payment of past penalties and interest. At each session of the Legislature the benefits of this act were extended by the enactment of legislation similar in form to the original statute effective April 5, 1933. See 115 Ohio Laws, Part 2, 228; 115 Ohio Laws, Part 2, 332; 116 Ohio Laws, Part 2, 14; 117 Ohio Laws, __________, Am. Sub. S. B. 87 and Am. H. B. 828.
The effect of these acts was to conditionally remit or abrogate tax penalties and interest. Consequently, since April 5, 1933, a delinquent taxpayer by paying his current taxes and entering into an agreement in reference to delinquencies could escape the payment of penalties, interest and other charges.
But the provisions of these acts were not available to all taxpayers. Up until September 4, 1935, upon foreclosure of a mortgage of property all taxes and penalties had to be paid. There were likewise short periods of time when the acts were not effective. Consequently, there were times between April 5, 1933, and January 1, 1937, when the taxpayers were unable to comply with the provisions of the so-called Whittemore Acts. Accordingly payments of penalties and interest were made by some taxpayers since the law did not extend the benefits to everyone.
The Ogrin Act merely provided that whenever any penalties or interest charges were paid, and an act of the Legislature remitted or abrogated penalties, that those who had made payments of penalties could obtain refunds. Such a measure clearly acts retroactively.
There is no specific provision in the Federal Constitution which prohibits a state from enacting a retroactive law so long as vested rights are not impaired. League v. Texas, 184 U.S. 156, 46 L.Ed., 478, 22 S.Ct., 475; Stockdale v. Atlantic Ins. Co., 87 U.S. (20 Wall.), 323, 22 L.Ed., 348; Brushaber v. Union Pacific Rd. Co., 240 U.S. 1, 60 L.Ed., 493, 36 S.Ct., 236; Tyee Realty Co. v. Anderson, Collector, 240 U.S. 115, 60 L.Ed., 554, 36 S.Ct., 281; Lynch, Collector, v. Hornby, 247 U.S. 339, 62 L.Ed., 1149, 38 S.Ct., 543; County of San Bernardino v. Industrial Accident Commission, 217 Cal. 618, 20 P.2d 673; Bateman v. Sterrett, Trustee, 201 N.C. 59, 159 S.E. 14. This state, however, has a provision in its Constitution which forbids the passage of retroactive laws. Article II, Section 28, Ohio Constitution. There are only six other states which have similar provisions. Article II, Section 11, Colorado Constitution; Article IV, Section 15, Louisiana Constitution; Article II, Section 15, Missouri Constitution; Part I, Article 23, New Hampshire Constitution; Article I, Section 20, Tennessee Constitution; Article I, Section 16, Texas Constitution; 11 American Jurisprudence, 1194, Section 366.
The general principle is that all acts of a retroactive nature, despite specific constitutional provisions, are not invalid. As we shall see later where the object or effect of the act is to correct an innocent mistake, remedy a mischief, execute the intention of the parties and promote justice, then both as a matter of right and of public policy, laws with retrospective provisions have been sustained.
The Ogrin Act as we said before is clearly retroactive in its nature, and the only question to determine is whether it is to be included within some of the exceptions above mentioned.
Authorities may be cited to the effect that attempts to tax retroactively have been frustrated by the constitutional provision. Miller v. Hixson, Treas., 64 Ohio St. 39, 59 N.E. 749; Safford, Supt. of Ins., v. Metropolitan Life Ins. Co., 119 Ohio St. 332, 164 N.E. 351; Smith v. Dirckx, Clerk, 283 Mo., 188, 223 S.W. 104, 11 A. L. R., 510; State, ex rel. Koeln, Collector, v. Southwestern Bell Telephone Co., 316 Mo., 1008, 292 S.W. 1037. But see Succession of Stauffer, 119 La. 66, 43 So. 928.
The majority relies entirely in the support of its position upon the decision in Commissioners v. Rosche Bros., supra. The law before the court in that case attempted to refund taxes paid by certain persons in Hamilton county, and, since it did not operate generally throughout the state, violated the provisions of Article II, Section 26 of the Ohio Constitution. True, it was likewise held violative of Article II, Section 28 of the Ohio Constitution, but Judge Bradbury recognized that there was an exception to retroactive provisions when the act was passed in the furtherance of natural justice. At page 113 he said: "Counsel contend that the statute is in furtherance of natural justice, and that the clause of the Constitution under consideration does not prohibit retroactive laws of that character. Lewis, Trustee, v. McElvain, 16 Ohio, 347; Trustees v. McCaughy, 2 Ohio St. 152; Acheson v. Miller, 2 Ohio St. 203; Burgett v. Norris, 25 Ohio St. 308.
"To uphold a statute on this ground where it seeks to create a liability upon a past transaction, when none existed when it occurred, if it can be done at all, the natural justice of the object sought to be accomplished should be indisputable. * * * Under these circumstances, the natural justice of requiring the taxpayers of Hamilton county to refund the entire sum is a question upon which minds may differ."
This statement while recognizing to an extent moral claims not founded upon a legal obligation has been said to be too narrow in at least two cases.
In Spitzig v. State, ex rel. Hile, 119 Ohio St. 117, 120, 121, 162 N.E. 394, Judge Kinkade held that neither the constitutional provision nor the Rosche case would invalidate an act to pay a moral claim against the state arising out of a past transaction if the claim was not in dispute. See also, Board of Education v. State, ex rel. Lindsay, 51 Ohio St. 531, 541, 38 N.E. 614, 46 Am. St. Rep., 588, 25 L.R.A., 770.
If there was ever any doubt that a state could levy taxes to pay claims that created equitable and moral obligations arising out of past transactions I thought that was effectively put at rest by the able decision of the late Judge Severens, concurred in by Justice Harlan and Judge Thompson in New York Life, Ins. Co. v. Board of Commrs. of Cuyahoga County, Ohio, 106 F., 123.
The facts in that case disclose that bonds issued and sold to acquire a site for an armory were declared invalid in this court. The Legislature then adopted an act requiring Cuyahoga county to recognize and pay the holders of the bonds. The district court held the act void as retroactive on the authority of the Rosche case. See New York Life Ins. Co. v. Bd. of Commrs. of Cuyahoga County, Ohio, 99 F., 846.
Judge Severens disposed of this claim by saying: "It is not questioned that the Legislature of Ohio has, in some circumstances, at least, the power to recognize and provide for the discharge of obligations binding only in conscience and honor. This has always been admitted by the highest court of the state. In the nature of things, the moving facts must have already occurred. Otherwise, there could be no recognition or any estimate of the particular merits of the claim, or the measure of relief which justice would require. A statute of this kind, enacted for the purpose of providing for future transactions, would be an anomaly. To deny the power of recognition of a moral obligation because it rests upon past transactions is to deny it altogether. That such a statute is not obnoxious to the prohibition of retroactive laws by the Constitution of Ohio has been so many times held by the Supreme Court of the state, sometimes by necessary implication, and sometimes in express terms, that we can have no doubt of its being the settled rule in the state."
In support of these views were cited State, ex rel. Anderson, v. Harris et al., Commrs., 17 Ohio St. 608; State, ex rel. Bates, v. Trustees of Richland Township, 20 Ohio St. 362; Board of Education v. McLandsborough, 36 Ohio St. 227, 38 Am. Rep., 582; State v. Board of Education, 38 Ohio St. 3.
After distinguishing the Rosche case, the court said: "If the Legislature has power to recognize a moral obligation of the state, it has power to recognize a moral obligation of a county. Confessedly, there is no other depository of such power. The Legislature judges for it what moral obligations it should satisfy. * * * Beyond question, the Legislature may compel a county to pay a legal obligation. Upon the same authority, it may compel it to pay one which it is bound only in good conscience and honor to pay. It is inadmissible to revert to the proposition that the claim was originally invalid in point of law. That has become immaterial."
Despite anything to the contrary moral obligations of the state may be paid by the Legislature. In fact, the state never having permitted itself to be sued, all claims against the state partake of a pure moral nature. Only equity and good conscience on the part of the Legislature can decree satisfaction of any such claim.
While a state may not retroactively tax individuals, there is no constitutional reason which prevents the Legislature from giving bounties or rewards for past services. As said by Judge Lurton when on the Supreme Court of Tennessee: "All release acts or resolutions settling, compromising, or releasing liabilities due to the State are in one sense retrospective, but there can be no doubt that a state may pass such retroactive laws as only waive her own right without violating the Constitution. Black's Constitutional Prohibitions, Sec. 221; Davis v. Dawes, 4 Watts S., 401; Lewis v. Turner, 40 Ga. 416; Myers v. Byrne, 19 Ark. 308.
"That such a release act may have been unwise furnishes no reason for declaring it void. The policy of such legislation may be debatable, but the Legislature must settle all such questions under their responsibility to their constituents." Demoville Co. v. Davidson County, 87 Tenn. 214, 223, 10 S.W. 353.
The county cannot have any vested rights in any taxes already paid, if the state decides otherwise by its Legislature. The county is but a wholly subordinate part of the state. See Cincinnati, W. Z. Rd. Co. v. Commrs. of Clinton County, 1 Ohio St. 77; Bd. of Commrs. of Portage County v. Gates, 83 Ohio St. 19, 93 N.E. 255; State, ex rel. Doerfler, Pros. Atty., v. Price, Atty. Genl., 101 Ohio St. 50, 128 N.E. 173. If the county has no rights other than those given it by the state, neither can a taxpayer of that county, who is the relator in this action. He can have no vested right if the county has none.
Was there a moral obligation in existence prior to the adoption of the Ogrin Act?
If the Whittemore Acts are constitutional we would have a situation where some of the taxpayers would not pay penalties or interest over a seven-year period, and yet those who were more diligent and had paid them could not recover the payments. Such legislation would reward the dilatory and punish those who were more prompt in payments.
It is my opinion that the Whittemore Acts were passed for the sole purpose of facilitating the collection of taxes, and, being prospective in their operation and not retrospective, were clearly valid. See Jones v. Williams, Tax Collector, 121 Tex. 94, 45 S.W.2d 130, 79 A. L. R., 983, and annotations 68 A. L. R., 431.
If those acts are valid then a situation was created whereby taxpayers are not being treated equally. It would create a situation whereby special benefits were conferred upon delinquent taxpayers not equally available to non-delinquent taxpayers, and which this court condemned in State, ex rel. Hostetter, v. Hunt, 132 Ohio St. 568, 9 N.E.2d 676.
The Legislature had the power in equity and good conscience to correct such a situation, and order refunds if in its wisdom it saw fit.
During the seven-year period we faced a depression which has not as yet ended. As early as March 21, 1932, Mr. Justice Brandeis said: "The people of the United States are now confronted with an emergency more serious than war. Misery is wide-spread, in a time, not of scarcity, but of over-abundance. The long-continued depression has brought unprecedented unemployment, a catastrophic fall in commodity prices and a volume of economic losses which threatens our financial institutions." See New State Ice Co. v. Liebmann, 285 U.S. 262, 306, 76 L.Ed., 747, 769, 52 S.Ct., 371, 385.
Two years later on January 8, 1934, Chief Justice Hughes quoted with approval this statement of Justice Olson of Minnesota: "The present nation-wide and world-wide business and financial crisis has the same results as if it were caused by flood, earthquake, or disturbance in nature. It has deprived millions of persons in this nation of their employment and means of earning a living for themselves and their families; it has destroyed the value of and the income from all property on which thousands of people depended for a living; it actually has resulted in the loss of their homes by a number of our people and threatens to result in the loss of their homes by many other people in this state; it has resulted in such widespread want and suffering among our people that private, state and municipal agencies are unable to adequately relieve the want and suffering, and Congress has found it necessary to step in and attempt to remedy the situation by federal aid. Millions of the people's money were and are yet tied up in closed banks and in business enterprises." Home Bldg. Loan Assn. v. Blaisdell, 290 U.S. 398, 423, 78 L.Ed., 413, 54 S. Ct., 231, 189 Minn. 437, 249 N.W. 340.
The Legislature had a right to consider such conditions when it passed the Ogrin Act. It could consider the large number of closed banks where to date the average depositor in this state has lost approximately twenty per cent of his savings. It had a right to consider that many borrowed and paid interest to prevent further penalties from being exacted. It had a right to consider that those who either lost their homes or were forced to sell them were charged penalties. If we can say that, when the Legislature perceived the present delinquent taxpayers relieved of penalties in years in which others had paid them, it felt no moral obligation to recompense the latter class, I would have to disregard rather well defined ethical principles which I learned years ago.
The penalties were assessed under legislative acts. These acts were neither covenants nor contracts with the counties or people. They could be amended or repealed by the Legislature so long as the rights of individuals were not invaded. It should be well settled, therefore, that the constitutional inhibition against retroactive laws does not apply to legislation recognizing obligations of the state or any of its subordinate agencies with respect to past transactions, but is designed only to prevent retroactive legislation injuriously affecting individuals. State, ex rel. Corry, v. Hoffman, 35 Ohio St. 435, 443; Commissioners of Union County v. Greene, 40 Ohio St. 318, 321; Ohio, ex rel. Holtz, v. Commissioners, 41 Ohio St. 423, 434; New Orleans v. Clark, 95 U.S. 644, 24 L.Ed., 521.
In attempting to refund the penalties paid the state is merely readjusting the burdens along the lines of equality and equity. That is a legitimate function of the state so long as justice to its citizens remains its chief concern.
It is said that the selection of the dates of payment between June 20, 1930, and January 1, 1937, makes the act discriminatory. Of course, those dates have a direct relation to the Whittemore Acts, and the same criticism could be leveled against them. Considering the existing economic conditions, the Legislature had a right to select such dates. An emergency does not, of course, create new legislative powers, but it does call into existence the exercise of powers.
In conclusion, courts have said frequently and rather positively that no law should be declared invalid until its invalidity is proved beyond a reasonable doubt. In this the courts employ a term used more frequently in criminal than in civil cases. With great deference for the opinions of my colleagues, if I were sitting on a jury and the legislators were charged with a violation of the provisions of Article II, Section 28, when they adopted the Ogrin Act, as they stand here charged, I could not on this record before me find them guilty of that charge.
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