Eby v. State

166 N.H. 321

96 A.3d 942

David P. EBY & a.

v.The STATE of New Hampshire

No. 2013–035

Supreme Court of New Hampshire.

Argued: November 14, 2013

Opinion Issued: June 13, 2014

Devine, Millimet & Branch, PA, of Manchester (Thomas Quarles, Jr. and Joshua M. Wyatt on the brief, and Mr. Wyatt orally), for the petitioners.

Joseph A. Foster, attorney general (Laura E.B. Lombardi, assistant attorney general, on the brief and orally), for the State.

LYNN, J.

The petitioners, David P. Eby and Leonard Willey, appeal orders of the Superior Court (McNamara, J.): (1) granting summary judgment in favor of the State; (2) denying the petitioners' motions for summary judgment; and (3) dismissing the petitioners' remaining claims in their putative class action challenge to the constitutionality of the state's tax on gambling winnings, RSA 77:38 – :50 (Supp.2009) (amended 2010; repealed 2011). We affirm.

I

Most of the relevant facts are not in dispute. Effective July 1, 2009, the Legislature imposed a ten percent tax on gambling winnings (Gambling Winnings Tax). Laws 2009, 144:249 (codified at RSA 77:38 – :50 (Supp.2009) (repealed 2011)). The legislation defined "gambling winnings" as "winnings from lotteries and games of chance including, but not limited to bingo, slot machines, keno, poker tournaments, and any other gambling winnings subject to federal income tax withholding." RSA 77:38, III (Supp.2010) (repealed 2011). The tax applied to gambling winnings of New Hampshire residents "from anywhere derived," and those of nonresidents "derived from New Hampshire entities." RSA 77:39, I (Supp.2010) (repealed 2011).

The Gambling Winnings Tax was repealed effective May 23, 2011. Laws 2011, ch. 47. The repeal was not retroactive, meaning that the tax was assessed on gambling winnings between July 1, 2009, and May 22, 2011. See Laws 2011, 47:3, :4.

Willey is a New Hampshire resident who, for the three years preceding the filing of this action, derived almost all of his earned income from gambling. For the 2009 tax year, he owed no federal income tax because his gambling losses exceeded his winnings. Under the Gambling Winnings Tax, he reported gambling winnings of $184,700 for that part of 2009 during which the tax was in effect and paid $18,470 in tax under the statute. All of his winnings during this period were from out-of-state casinos.

Eby was not an original party to this action, but was added as a substitute party later in the case. He is a New Hampshire resident who, in May 2011, purchased a scratch ticket offered by the New Hampshire Lottery Commission. Eby won ten dollars on the ticket, and was required to pay one dollar under the Gambling Winnings Tax as a result.

This class action was filed on May 20, 2010, by putative class representatives Dean T. Leighton and Leighton Family Enterprises, LLC (the Leighton Petitioners),¹ and Willey. The petitioners sought a declaratory judgment that the Gambling Winnings Tax was illegal and unconstitutional on its face, as applied to pre-enactment lottery winners receiving their winnings through annuities, and as applied to professional gamblers, as well as a refund of all such taxes collected or withheld.

The parties agreed that there were no genuine issues of material fact and that the case could be decided on the legal issues. They also agreed to postpone class certification until after all legal issues had been resolved. The parties requested, and the trial court approved, an interlocutory transfer without ruling so that the legal issues could be decided by this court. However, we declined to accept the interlocutory transfer.

On May 19, 2011, the Leighton Petitioners and Willey moved for summary judgment. Before the State's response and cross-motion for summary judgment was filed, the Leighton Petitioners resolved their claims against the State, after which Eby was added as a party. The trial court denied the petitioners' motion and granted the State's cross-motion in part. The court ruled that the Gambling Winnings Tax neither lacked uniformity nor was disproportional, unjust, or unreasonable in violation of the New Hampshire Constitution, and that it did not violate the Commerce Clause of the Federal Constitution. It also found a genuine issue of material fact as to whether Willey was a professional gambler. The trial court set forth factors, including those that the Internal Revenue Service considers when determining whether a taxpayer's activity constitutes a trade or business for federal tax purposes, see Treas. Reg. § 1.183–2(b) (1972), that it intended to consider in deciding whether Willey was a professional gambler.

Thereafter, the petitioners conceded that Willey would not qualify as a professional gambler under the test adopted by the court. They reserved their right to appeal the use of that test and disputed the court's ruling that only a professional gambler could raise as-applied constitutional arguments on behalf of other professional gamblers as a class representative.

In 2012, the declaratory judgment statute was amended so as to provide for expanded "taxpayer standing" to challenge governmental actions. See Laws 2012, ch. 262; RSA 491:22 (Supp.2013). Thereafter, the petitioners filed a motion for summary judgment arguing that the amendment gave them standing to raise all constitutional issues, including those related to professional gamblers. The State objected and moved to dismiss the petitioners' remaining claims. On December 4, 2012, the court denied the petitioners' motion for summary judgment and granted the State's motion to dismiss. This appeal followed.

II

On appeal, the petitioners contend that the trial court erred by granting the State's motions for summary judgment and to dismiss their claims, and by denying their motions for summary judgment. In reviewing the trial court's rulings on cross-motions for summary judgment, we consider the evidence in the light most favorable to each party in its capacity as the nonmoving party. City of Concord v. State of N.H., 164 N.H. 130, 133, 53 A.3d 576 (2012). Where, as here, the parties agree that there are no genuine issues of material fact in dispute, our task in reviewing the trial court's summary judgment rulings is to determine whether the moving party is entitled to judgment as a matter of law. See id. In such circumstances, the analysis for summary judgment purposes is not meaningfully different from that employed in ruling on a motion to dismiss. See Belcher v. Paine, 136 N.H. 137, 142–43, 612 A.2d 1318 (1992).

We review the constitutionality of statutes de novo . N.H. Assoc. of Counties v. State of N.H., 158 N.H. 284, 288, 965 A.2d 1012 (2009). "In reviewing a constitutional challenge to a legislative act, we presume the act to be constitutional and will not declare it invalid except on inescapable grounds; that is, unless a clear and substantial conflict exists between the act and the constitution." City of Concord, 164 N.H. at 134, 53 A.3d 576. "A party may challenge the constitutionality of a statute by asserting a facial challenge, an as-applied challenge, or both." Huckins v. McSweeney, ––– N.H. ––––, 90 A.3d 1236 (2014) (quotation omitted). "A facial challenge is a head-on attack of a legislative judgment, an assertion that the challenged statute violates the Constitution in all, or virtually all, of its applications." Id. (quotation omitted). "To prevail on a facial challenge to a statute, the challenger must establish that no set of circumstances exists under which the Act would be valid." Id. (quotation omitted). "An as-applied challenge, on the other hand, concedes that the statute may be constitutional in many of its applications, but contends that it is not so under the particular circumstances of the case." Id. (quotation and brackets omitted).

III

We first address the petitioners' facial challenges to the constitutionality of the Gambling Winnings Tax under the New Hampshire Constitution. The petitioners allege that: (1) the tax violates the uniformity requirement of the State Constitution; and (2) the tax is disproportional and unreasonable.

A

The petitioners argue that the Gambling Winnings Tax violated the uniformity requirement of the State Constitution because it taxed gambling winnings at a ten percent rate while interest and dividends are taxed at a five percent rate. They argue that "gambling winnings" and "interest and dividends" are both part of the broader class of "gross income," and that in order to achieve constitutional uniformity throughout that class, the taxes had to be assessed at an equal rate. See Opinion of the Justices, 95 N.H. 537, 539, 64 A.2d 320 (1949) ("[G]ross income ... constitutes a class of property taxable under ... our Constitution ... subject, however, to the constitutional requirement of proportionality or equality of rate within [that] class."). They base this assertion on the premise that our previous decisions and advice require that taxes within the separate classes of "gross income" and "net income" be uniform within each class. We disagree with this premise.

In general, "there is no other state in the union with a structure of taxing powers and limits comparable to New Hampshire's." Hurn, State Constitutional Limits on New Hampshire's Taxing Power: Historical Development and Modern State, 7 Pierce L.Rev. 251, 252 (2009). We, therefore, begin with a review of this unique constitutional structure, which frames our analysis.

"Three provisions of the New Hampshire Constitution work in conjunction to ensure the fairness of any scheme of taxation enacted by our legislature." First Berkshire Bus. Trust v. Comm'r, N.H. Dep't of Revenue Admin., 161 N.H. 176, 183, 13 A.3d 232 (2010). "These three constitutional provisions require that taxation be just, uniform, equal, and proportional." Id. at 184, 13 A.3d 232. "A tax must be in proportion to the actual value of the property subject to tax, and it must operate in a reasonable manner." Id.

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