Heavy Taxation on the Acquisition of Deluxe Amusement Center Case

[21-2(A) KCCR 498, 2007Hun-Ba87, September 24, 2009]

In this case, the Constitutional Court decided that it violates the rule against excessive restriction and principle of equality, thereby violating the Constitution, to apply Article 112 Section 2 Item 4 of the former Local Tax Act that stipulates the heavy taxation on the acquisition of luxury recreation centers to the acquisition not intended to enjoy such deluxe amusement.

Background of the Case

The petitioner, as a redeveloper, acquired the real property of this case to construct a condominium complex. The petitioner declared and paid acquisition tax and special tax for farming and fishing villages with the heavy acquisition tax rate for a hostess bar and the general acquisition tax rate for the rest of area.

The petitioner appealed the above acquisition tax and special tax for agricultural and fishing villages with Mayor of Daegu that eventually rejected the appeal. After the rejection, the petitioner filed the petition to review the appeal with Minister of Government Administration and Home Affairs, and Minister of Government Administration and Home Affairs made a partial correction of the tax payment (hereinafter, the rest of part that have not been corrected with regard to the disposition by declaration and payment will be referred as "the Instant Imposition").

Alleging the instant disposition is illegal, the petitioner brought a case to Daegu District Court for the cancellation of the disposition of acquisition tax, etc. and appealed to the appellate court when the district court rejected it. While the appellate proceeding is pending, the petitioner filed a motion to request for the constitutional review on Article 112 Section 2 Item 4 of the former Local Tax Act (revised by Act No. 7332, January 5, 2005, but before revised by Act No. 7843, December 31, 2005). When the court denied the said motion, the

petitioner filed this constitutional complaint.

Provision at Issue

Former Local Tax Act (revised by Act No. 7332, January 5, 2005, but before revised by Act No. 7843, December 31, 2005)

Article 112 (Tax Rates)

2) Acquisition tax rates in acquiring real estate falling under any of the following items (including cases of acquiring a portion of a villa by dividing it) shall be 500/100 of tax rates prescribed in Section 1. (Second sentence is omitted)

4. luxury recreation centers: Buildings and land attached thereto determined by Presidential Decree among buildings used for casinos, amusement and tavern quarters, special bathing rooms or other similar purposes

Summary of the Decision

In a vote of 7 to 2, the Constitutional Court held that it violates the Constitution to apply the above provision where the luxury recreation center was not acquired for the enjoyment of such recreation center, with the following reasons:

1. Court Opinion

A. Rule against excessive restriction

Article 1 of "Presidential Emergency Measure for the Stability of People's Lives (enacted on January 14, 1974 by Presidential Emergency Measure No. 3)", which is the matrix of the challenged provision, declares that the said presidential emergency measure intends to overcome the crisis of the national economy by taking the necessary actions for the stabilization of people' lives through the reduction of taxation for low-income class and the control of extravagance consumption.

The heavy acquisition tax on luxury recreation centers under the

challenged provision purposes the directing function to control the acquisition and enjoyment of deluxe amusement center, in addition to the traditional financing function. Theses purposes would justify the heavy acquisition taxation.

However, the above purpose does not imply that it is the legitimate means to impose the heavy acquisition tax on the acquisition of luxury recreation centers that would not be used for such recreational purposes.

The challenged provision prescribes the heavy acquisition tax on any acquisition of luxury recreation centers, regardless of the acquiring purpose. However, it does not give an enough consideration to minimize damages of the ones who acquire luxury recreation centers without the intent to enjoy such luxury recreation. It would not satisfy the requirement of the least restrictive means.

Further, the public interests designated by the challenged provision would not be achieved by the imposition of heavy acquisition tax on the 'acquisition without the purpose of the enjoyment of luxury leisure', as stipulated by the challenged provision. Accordingly, it would cause the imbalance between public interests and private interests because of the significant restriction on private interests, while no public interests are accomplished.

The challenged provision, therefore, violates the principle against excessive restriction if it applies to the acquisition without the intent to enjoy luxury leisure.

B. Principle of Equality

The challenged provision mainly intends to control the consumption of luxury properties and to promote the people's sound consumption propensity. It suggests that 'acquisition without the purpose of the enjoyment of luxury leisure' is different in nature from the 'acquisition with the purpose of the enjoyment of luxury leisure'.

The imposition of heavy acquisition tax should consider the acquisition purpose, accordingly. It would be unjustified discrimination to apply this challenged provision to the 'acquisition without the purpose of the enjoyment of luxury leisure' regardless of the purpose, thereby violating the principle of equality.

2. Dissenting Opinion of Two Justices (Constitutional)

A. Principle against excessive restriction

Despite the challenged provision intends the directing function, these are nothing but incidental. Rather, the real intention of the challenged provision is the increase of internal revenues through the imposition of heavy tax on the acquisition of luxury properties ('luxury recreation centers') that have the high tax-bearing capacity. Because it accords with the nature of acquisition tax, the purpose of legislation would be justified.

This interpretation regarding the legislative purpose does not suggest that the imposition of heavy acquisition tax should depend on the acquiring purpose of luxury recreation centers. Due to the limitation of legislation techniques, acquisition taxes are imposed according to the circumstances at the time of acquisition, not the future circumstances that may be altered. The subjective intention of acquisitors should not affect taxation.

Besides, considering the heavy taxation of the challenged provision regards men of wealth that are capable to acquire luxury recreation centers, the five times higher taxation rate than normal taxation rates would not be arbitrary, beyond the reasonable degree to achieve the purpose.

There would be no significant imbalances between the public interests that secure the finance of local governments through the heavy taxation on the acquisition of luxury properties such as luxury recreation centers under the challenged provision, and the private interests that are restricted by paying the heavy acquisition tax that are significantly more expensive than general acquisition taxes despite it was acquired without the intent to use luxury recreation centers.

Therefore, it would not violate the principle against excessive restriction to apply the

challenged provision to the acquisition without the intent to use luxury recreation centers.

B. Principle of Equality

With regard to the heavy acquisition taxation on luxury recreation centers, the 'acquisition purpose' should not be employed as the standard to classify into "two naturally different comparison groups". Because the challenged provision intends the financing of local governments, which is the traditional function of taxation, the 'acquisition of luxury recreation centers' should be equally treated, regardless of the acquiring purpose.

Therefore, the challenged provision does not violate the principle of equality despite it may be applicable to the acquisition without the purpose to use luxury recreation centers.