THE USE OF INCOME AS A MEASURE OF SCHOOL DISTRICT FISCAL CAPACITY: A LEGAL INTERPRETATION

The problem active in this study was the use of income as a measure of fiscal capacity of local school districts. More specifically, the research concerned the legal ramifications of incorporating such a measure into a public school finance system. The research included a review of the principles of taxation and legal precedents concerning uniformity and equality of taxation, a discussion of the quantitative evaluation of the use of income as a measure of fiscal capacity, and an analysis of the legal precedents that could influence the future use of an income measure in a public school finance system.;In analyzing these criticisms of the income measure, the study surveys the judicial posture toward quality and uniformity of taxation. After reviewing the adjudication, it is a conclusion that the courts have been quite lenient in their interpretation of uniformity of equality principles of taxation and the probability of the income measure being declared illegal is low.;Many of the results from the quantitative evaluation of income and property valuation as measures of fiscal capacity indicate the absence of a relationship between the two measures. Also, computer simulations of tax structures that include an income plus property measure indicate that taxpayer equity would be improved by the use of an income measure of fiscal capacity. However, some researchers have argued that only measures of fiscal capacity that are accessible to the school districts should be used in school tax structures. The use of theoretical taxpaying ability would cause greater individual horizontal equities than exist in the present finance systems.;The final chapter contains a review of the legal precedents concerning delegation of taxing authority and the laws and court decisions surrounding the authority to levy income and property taxes. From the analyses, it would appear that the state has the power to delegate taxing authority to local school districts which would allow local access to tax income. The problems seem to arise in states that prohibit a state income tax or a graduated income tax. The possibility of utilizing an income plus property measure of fiscal capacity in these states would probably be limited.;The use of an income measure has been viewed by some authorities as a positive step towards taxpayer equity due to its close relation to the ability-to-pay principle of taxation and the progressive effect it has on the taxpayers. However, other authors have criticized the use of the measure on the basis that most school districts do not have the authority to tax income. Consequently, the use of theoretical taxpaying ability in the form of average district income would cause the violation of the taxation principle of individual horizontal equity.;Just as the laws concerning taxation differ among the states, the legal precedents will also differ dependent upon the laws. There is no pervasive rule that will determine the legality of a tax system that includes an income factor. The major determinant will come from the precedents that come from the legal challenges that will occur in the states, and these precedents will influence the design and implementation of the tax structure within each state.