Never mind about whether the votes are there for passage of an income tax. Or how Gov. Don Sundquist proposes to lobotomize 132 legislators to get them to vote for the ultimate incumbency ruination legislation.
Perhaps the real question is whether a broad-based levy on income is even constitutional.
Three separate times, the state Supreme Court has ruled an income tax is prohibited by the Tennessee Constitution, the state’s guiding document which dates to 1870. And as the debate over whether the state should adopt the tax has heated during recent years, Tennessee lawyers have been building a body of scholarly work on the subject.
A 1991 state attorney general’s opinion says that an income tax could be defended. Likewise, heralded Nashville attorney Lewis Donelson, a former state finance commissioner who’s long been an advocate of an income tax, has written an article explaining his position. Those two documents have been frequently cited in defense of an income tax. (Ironically, Donelson’s great-great grandfather, A.O.P Nicholson, was one of the authors of the section within the 1870 state constitution which some scholars believe absolutely forbids an income tax.)
But there are several compelling legal articles written in recent years that argue a flat tax on income is strictly forbidden. Then-Gov. Ned McWherter thought the question was serious enough that when he called the General Assembly into special session in January 1992 to consider a 3-percent income tax, he asked the Legislature to call a constitutional convention to revise the part of the constitution argued to prohibit an income tax.
But unlike McWherter, Sundquist, who this week proposed a 3.75-percent “flat tax” on income—coupled with reduction of the state sales tax to 3.75 percent, repeal of state sales taxes on grocery food, and other tax code revisions—has made no call for the General Assembly to clear up the constitutional issue.
In 1992, shortly after McWherter called for the special session, Bass, Berry & Sims attorney Bob Cooper Jr. wrote an article for the Tennessee Bar Journal making the same point that only a handful of people seem to have brought up in the renewed debate over an income tax.
“Absent from the political debate on taxes has been the more basic question of whether a broad-based tax on personal income is constitutional in Tennessee,” Cooper wrote in 1992. Cooper’s lengthy article goes to great depth on the subject, even recounting some of the proceedings of the 1870 constitutional convention. “The constitution does prohibit a broad-based income tax in Tennessee,” Cooper concludes. Instead, the 1870 convention created a Tennessee revenue system “based on taxation of property and privileges.”
Cooper cites comments made by Pulaski’s John Calvin Brown, who was president of the 1870 convention and elected governor the following year. “The theory of taxation in Tennessee is not based upon the idea of incomes or profits from wealth, but upon absolute values, privileges, etc.,” Gov. Brown said in his 1871 legislative message.
Less frequently cited is a passage in the state constitution that excepts from taxation “...the entire amount of money deposited in an individual’s personal or family checking or savings accounts.”
Attorney John Jay Hooker, who wrote a letter to the governor last week threatening to file suit over the constitutionality of the income tax if the Legislature passes it during next month’s special session, says the settled law in Tennessee is clear. “Our history ever since 1870” has prohibited taxes on income, Hooker says.
He likens the political debate to the process of yes-no retention elections for appellate judges in Tennessee, which he has challenged and which Democratic Party executive committee members are considering challenging. “This is very much identical to the judgeship thing,” Hooker says. “A lot of people think that the income tax is a better tax because it’s less regressive than the sales tax, and therefore they don’t want to be against it on the basis that it’s unconstitutional because they really want it.
“I never said an income tax is not a better tax,” Hooker says. “It may be. But it’s unconstitutional. And selecting judges is unconstitutional. And I don’t know why it is that I’m the only person who seems to care enough.”
While it’s true the constitutional issue of the tax isn’t getting much play in the debate, Hooker’s not the only person who cares.
Forrest Shoaf, an investment banker with J.C. Bradford, and a former partner at Bass, Berry & Sims, wrote a counterpoint to Lewis Donelson’s pro-income tax argument in last month’s Tennessee Bar Journal.
Like Cooper and Hooker, and other attorneys such as Maclin Davis Jr., Shoaf cited the state Supreme Court opinions, the state constitution, and weak arguments from income tax boosters.
“Of course, no one can know how the present court would vote if another case involving the constitutionality of a general income tax comes before it,” Shoaf wrote. “But if the court does validate such a tax, it will have to resort to creative avoidance....”
The Harvard Law School graduate characterizes the absence of the constitutional issue from the debate as “the dumbfounding issue of the day.” And he says that in the event of passage, he will, as an “aggrieved citizen,” file suit. “I think somebody will be there ahead of me, but I’ll do it if no one else does.”
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