April 23, 2009

Repeal of tax credits is within bounds of Constitution, even if retroactively applied

Filed under: Hawaii State Politics — Doug @ 7:27 pm

The Senate balked at passing SB 199 CD1 which would suspend and amend certain tax credits, which led Representative Marcus Oshiro to suspend budget conference negotiations, according to the Advertiser. I don’t recall where I first read it, but a version of the argument that may have caused the Senators to reconsider the adjustments is posted at Hawaii Reporter . The crux of the argument from the Hawaii Science and Technology Council (a trade association) is:


Bill reduces the investor credit from 100% to 90%. It is unconstitutional because it retroactively restricts the rights of investors to claim Act 221 investment tax credits for past investments made in years prior to 2009. This is because Act 221 requires investors to wait 5 years to claim all of their investment tax credits for investments made in the first year. Therefore, this bill restricts investors rights to claim credits for investments that may have been made as far back as 2005. Additionally, the credit reduction would apply to taxable years beginning January 1, 2009.


Applying this restriction retroactively to past year investments will trigger lawsuits from many investors for potentially hundreds of millions of dollars against the state. Eliminates any carryover for credits generated between Jan. 1, 2009 and Dec. 31, 2010, including credits generated from past investments made from years prior to 2009.

This argument is not compelling. States and the federal courts (to include SCOTUS) have ruled that retroactive tax increases are Constitutional. It may not be “fair” to renege on those who had acted in a certain way in order to obtain a tax advantage, but it’s legal. So says the Heritage Foundation, the Oregon Courts, and (from that Oregon link) the U.S. Supreme Court:

Legislation adjusting the benefits and burdens of economic life are presumed constitutional, even when retroactive. Usery v. Turner Elkhorn Mining Co., 428 US 1, 96 S Ct 2882, 49 L Ed 2d 752 (1976). The standard set forth by the United States Supreme Court for application of the Due Process Clause to retroactive legislation merits repeating.

“Provided that the retroactive application of a statute is supported by a legitimate legislative purpose furthered by rational means, judgments about the wisdom of such legislation remain within the exclusive province of the legislative and executive branches[.]
“* * * * *

“[R]etroactive legislation does have to meet a burden not faced by legislation that has only future effects. * * * But that burden is met simply by showing that the retroactive application of the legislation is itself justified by a rational legislative purpose.” Pension Benefit Guaranty Corp. v. Gray & Co., 467 US 717, 729-30, 104 S Ct 2709, 81 L Ed 2d 601, 611 (1984).

Hmmm. This all sounds rather similar to the legal canards that contributed to (and/or provided a pretext for) the failed vote to recall the civil unions bill. I wonder if the same principals (and/or political prinicples) are involved…

1 Comment »

  1. Remind me of the timeline, please. How many days do they have to get the budget decked, up to Gov, and vetoed, etc. etc. etc – all within session? Ticktockticktock, people!

    DOUG: Fiscal bills (including the budget) have final decking deadline of May 1. Both chambers must approve before sine die (duh). Governor’s approval, approval by inaction, or veto must occur within 45 days of passage, since it is now less than 10 days before end of session.

    Comment by hipoli — April 23, 2009 @ 9:15 pm

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