In 1997, the New Hampshire Supreme Court issued the Claremont school funding decision. In that decision, the court disregarded two centuries of history by concluding that by definition all taxes used to fund education are state taxes and as such require a uniform rate throughout the state. As the court stated, “Although the taxes levied by local school districts are local in the sense that they are levied upon property within the district, the taxes are in fact State taxes that have been authorized by the legislature to fulfill the requirements of the New Hampshire Constitution.”
This conclusion has significant consequences for New Hampshire because the state Constitution requires that taxes be reasonable and proportional within the respective taxing district. If the taxing district is the state, the tax must be imposed at a uniform state rate. If the taxing district is the municipality, the tax must be imposed at a uniform rate within the municipality. By ruling that any tax imposed to fund an adequate education is a state tax, the court essentially issued a directive to the New Hampshire legislature to enact a broad based flat rate income or sales tax to fund education. A flat rate income tax or a sales tax are the only state tax options that would provide sufficient revenues to fund education throughout the state. Operationally and practically, a statewide property tax is not a viable option.
For the nearly 30 years since the court issued its directive, the legislature has been unwilling to abdicate its constitutional authority over taxation to the court system. This explains why compliance with the Claremont decision is not achievable. The legislature’s refusal to abdicate its constitutional prerogative to the courts is underscored by the lack of any legal foundation to the Claremont court decision. Neither the Constitution nor case law support the court’s conclusion in Claremont that all education taxes are state taxes and that state taxation for education is an essential component of educational adequacy.
In New Hampshire, the state holds plenary political power and is charged with carrying out all functions of government. The Constitution does not place any limits on the state’s ability to delegate its authority to carry out and raise funds for delegated functions of government. Political subdivisions, using local taxes, carry out many state duties, including for over 200 years providing schools to educate children in the district.
While the court in Claremont described the question of whether property taxes for schools are local or state taxes as an issue of first impression, for over 200 years school taxes have been commonly recognized as local taxes and treated as local taxes in judicial opinions.
There are articulated and accepted standards developed in state case law to distinguish state and local taxes. These established standards focus on factors such as who votes on the tax, who appropriates the revenue raised, where the funds are deposited, the machinery for assessment and payment and how the funds are distributed for distinguishing a local tax from a state tax. Had the court applied these established legal standards, as the trial court did, it would have found that local property taxes are local taxes, not state taxes, and could be imposed at different rates throughout the state.
The problem is that following established law would not have achieved the court’s desired result of mandating the enactment of a broad based state tax. To reach its chosen result, the court in Claremont, under the fiction of addressing an issue of “first impression,” crafted a new standard for distinguishing state and local taxes based solely on the purpose of the tax with no consideration given to budgeting, appropriation, assessment, collection or any other factors previously considered determinative. The standard is simple: if money raised by the tax is used for an adequate education it’s a state tax. This new test upends 200 years of history and legal precedents and fundamentally violates the constitutional separation of powers.
By making the purpose of the tax dispositive of the character of the tax, the court created many legal absurdities, including its finding that local school districts that budget and appropriate funds for their schools are in reality either imposing a state tax, or appropriating money that is not needed to provide an adequate education. In addition, the 1997 decision directly conflicts with the court’s initial decision in 1993 that stressed the importance of originalism and the historical understanding of state and local taxation in reaching its decision.
When it issued its first decision in 1993, the court had not yet discovered purpose as dispositive in characterizing a school tax. Had it known this in 1993, there would have been no need for a remand, years of preparation and months of trial. This critical insight only came to the court only after the trial court issued a comprehensive opinion, supported by hundreds of factual findings, that the plaintiffs’ schools provided adequate educations and that the individual plaintiffs and others within their districts were not unfairly burdened by disproportionate or unreasonable taxes. As Justice Batchelder described the case, “The Claremont II case did not involve a great deal of constitutional exercises or constitutional law. To use the vernacular, it was a non-brainer.” On that, we can agree.
Leslie Ludtke lives in Concord.