Source: http://www.originalsources.com/Document.aspx?DocID=CPK4F9WEHP1NCW7
Timestamp: 2018-09-22 10:02:50
Document Index: 238966926

Matched Legal Cases: ['§ 327', 'Art. 1', '§ 9', 'Art. 1', '§ 2', '§ 359']

Contents: Syllabus Stone, J., Lead Opinion Butler, J., Dissenting Citations
rent (including rent derived from real property situated outside the state), . . . it being intended to include all of the foregoing items, without regard to the source thereof, location of the property involved, or any other factor, except only a case where the inclusion thereof would be violative of constitutional restrictions.
Appellant, a resident of New York, brought the present certiorari proceeding in the courts of New York to review a determination of the State Tax Commission, appellees, denying her application for a refund of state income taxes assessed and paid for the years 1931 and 1932, so far as the taxes were attributable to rents received by appellant from New Jersey land, and interest paid on bonds secured by mortgaged real estate in New Jersey, where the bonds and mortgages were physically located. A ground for recovery of the tax assigned by appellant’s petition was that the tax was, in substance and effect, a tax on real estate and tangible property located without the state, in violation of the Fourteenth Amendment of the Constitution of the United States. Judgment for appellant (see 246 App.Div. 335, 286 N.Y.S. 485) was reversed by the New York Court of Appeals, 271 N.Y. 353, 3 N.E.2d 508. The case comes here on appeal under § 327(a) of the Judicial Code.
The stipulation of facts on which the case was tried in the state court does not indicate that appellant’s income has been taxed by New Jersey, and it does not define the precise nature of her interest in the properties producing the income. It sets out that appellant’s husband died testate, his will duly probated in New Jersey "devising and bequeathing to said taxpayer the entire net income from his estate for and during her widowhood," and that the taxed income included "rents from testator’s real estate" and "interest from testator’s real estate mortgages," all located in New Jersey. The terms of the will and the status of the estate during the tax years do not otherwise appear. There is nothing to show that the income-producing properties were in those years held upon an active trust, or that appellant did not receive the income as life tenant of the legal interest. See Paletz v. Camden Safe Deposit & Trust Co., 109 N.J.Eq. 344, 157 A. 456; cf. Passman v. Guarantee Trust & Safe-Deposit Co., 57 N.J.Eq. 273, 41 A. 953; Westfield Trust Co. v. Beekman, 97 N.J.Eq. 140, 128 A. 791. Any uncertainty arising from the ambiguity of the stipulation, if it has any present significance, is put at rest by the concession of appellant in brief, and in open court on the argument that she is the owner of a life estate or interest in the properties, and that she received, as a part of her income in the tax years, the rents and interest which have been collected by the executors acting, not in their capacity as executors, but as her agents for an annual compensation.
In any case, we may assume for present purposes that New York may not levy a property tax upon appellant’s interest, whether it be legal or equitable, see Senior v. Braden, 295 U.S. 422; Safe Deposit & Trust Co. v. Virginia, 280 U.S. 83. We accordingly limit our review to the question considered and decided by the state court, whether there is anything in the Fourteenth Amendment which precludes the New York from taxing the income merely because it is derived from sources, which, to the extent indicated, are located outside the state.
Income from rents. That the receipt of income by a resident of the territory of a taxing sovereignty is a taxable event is universally recognized. Domicil itself affords a basis for such taxation. Enjoyment of the privileges of residence in the state and the attendant right to invoke the protection of its laws are inseparable from responsibility for sharing the costs of government. "Taxes are what we pay for civilized society," see Compania General de Tabacos v. Collector, 275 U.S. 87, 100. A tax measured by the net income of residents is an equitable method of distributing the burdens of government among those who are privileged to enjoy its benefits. The tax, which is apportioned to the ability of the taxpayer to pay it, is founded upon the protection afforded by the state to the recipient of the income in his person, in his right to receive the income and in his enjoyment of it when received. These are rights and privileges which attach to domicil within the state. To them and to the equitable distribution of the tax burden the economic advantage realized by the receipt of income and represented by the power to control it bears a direct relationship. See Lawrence v. State Tax Comm’n, 286 U.S. 276; Maguire v. Trefry, 253 U.S. 12, 14; Virginia v. Imperial Coal Sales Co., 293 U.S. 15, 19; compare Shaffer v. Carter, 252 U.S. 37, 50.
Neither the privilege nor the burden is affected by the character of the source from which the income is derived. For that reason, income is not necessarily clothed with the tax immunity enjoyed by its source. A state may tax its residents upon net income from a business whose physical assets, located wholly without the state, are beyond its taxing power. Lawrence v. State Tax Comm’n, supra; see Shaffer v. Carter, supra, at 50. It may tax net income from bonds held in trust and administered in another state, Maguire v. Trefry, supra, although the taxpayer’s equitable interest may not be subjected to the tax, Safe Deposit & Trust Co. v. Virginia, supra. It may tax net income from operations in interstate commerce, although a tax on the commerce is forbidden, United States Glue Co. v. Oak Creek, 247 U.S. 321; Shaffer v. Carter, supra. Congress may lay a tax on net income derived from the business of exporting merchandise in foreign commerce, although a tax upon articles exported is prohibited by constitutional provision (Art. 1, § 9, cl. 5). Peck & Co. v. Lowe, 247 U.S. 165; Barclay & Co. v. Edwards, 267 U.S. 442, 447.
It would be pressing the protection which the due process clause throws around the taxpayer too far to say that, because a state is prohibited from taxing land which it neither protects nor controls, it is likewise prohibited from taxing the receipt and command of income from the land by its resident, who is subject to its control and enjoys the benefits of its laws. The imposition of these different taxes, by the same or different states, upon these distinct and separable taxable interests is not subject to the objection of double taxation, which has been successfully urged in those cases where two or more states have laid the same tax upon the same property interest in intangibles or upon its transfer at death. Safe Deposit & Trust Co. v. Virginia, supra; Farmers’ Loan & Trust Co. v. Minnesota, 280 U.S. 204; Baldwin v. Missouri, 281 U.S. 586; Beidler v. South Carolina Tax Comm’n, 282 U.S. 1; First National Bank v. Maine, 284 U.S. 312. These considerations lead to the conclusion that income derived from real estate may be taxed to the recipient at the place of his domicil, irrespective of the location of the land, and that the state court rightly upheld the tax.
Nothing which was said or decided in Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429, calls for a different conclusion. There, the question for decision was whether a federal tax on income derived from rents of land is a direct tax requiring apportionment under Art. 1, § 2, clause 3 of the Constitution. In holding that the tax was "direct," the Court did not rest its decision upon the ground that the tax was a tax on the land, or that it was subject to every limitation which the Constitution imposes on property taxes. It determined only that, for purposes of apportionment, there were similarities in the operation of the two kinds of tax which made it appropriate to classify both as direct, and within the constitutional command. See Pollock v. Farmers’ Loan & Trust Co., supra, pp. 580-581; Brushaber v. Union Pacific R. Co., 240 U.S. 1, 16. And in Union Refrigerator Transit Co. v. Kentucky, 199 U.S. 194, 204, decided ten years after the Pollock case, the present question was thought not to be foreclosed.
It is by a parity of reasoning that the immunity of income-producing instrumentalities of one government, state or national, from taxation by the other has been extended to the income. It was thought that the tax, whether on the instrumentality or on the income produced by it, would equally burden the operations of government. See Collector v. Day, 11 Wall. 113, 124; Pollockv. Farmers’ Loan & Trust Co., supra,583; Gillespie v. Oklahoma, 257 U.S. 501. But, as we have seen, it does not follow that a tax on land and a tax on income derived from it are identical in their incidence or rest upon the same basis of taxing power, which are controlling factors in determining whether either tax infringes due process.
Income from bonds secured by New Jersey mortgages. What has been said of the power to tax income from land without the state is decisive of the objection to the taxation of the income from interest on bonds because they are secured by mortgages on land without the state, compare Kirtland v. Hotchkiss, 100 U.S. 491. Appellant also argues that the interest from the bonds is immune from taxation by New York because they have acquired a business situs in New Jersey within the doctrine of New Orleans v. Stemple, 175 U.S. 309; Metropolitan Life Ins. Co. v. New Orleans, 205 U.S. 395; Wheeling Steel Corp. v. Fox, 298 U.S. 193. This contention, if pertinent to the present case, is not supported by the record. The stipulation of facts discloses only that the bonds and mortgages were located in New Jersey. See Baldwin v. Missouri, supra; Blodgett v. Silberman, 277 U.S. 1, 14-15. The burden rested on the taxpayer to present further facts which would establish a "business situs." Beidler v. South Carolina Tax Comm’n, 282 U.S. 1, 8.
Retroactive application of the tax. Appellant insists that, in upholding the tax upon her income for 1931 and 1932, the state court infringed due process by giving retroactive effect to the 1935 amendment of § 359 of the New York Tax Law, which specifically declared that rents, embraced in taxable income by the section before amendment, should include rent from real property without the state. In support of this contention, appellant points to the decision in People ex rel. Pierson v. Lynch, 266 N.Y. 431, 195 N.E. 141, aff’g Pierson v. Lynch, 237 App.Div. 763, 263 N.Y.S. 259, that rents from land outside the state were not taxed by that section before its amendment, and to the dismissal by this Court of the writ of certiorari to review the judgment for want of a properly presented federal question. 293 U.S. 52.
It is unnecessary for us to determine whether or to what extent the state court, in sustaining the tax in this case, rested its decision on the amendment of 1935, or whether it regarded it as anything more than a clarifying act pointing out the meaning properly attributable to the section before amendment. The record does not disclose that appellant raised in the state court the objection which she presses here to the retroactive application of the statute. In reviewing the judgment of a state court, this Court will not pass upon any federal question not shown by the record to have been raised in the state court or considered there, whether it be one arising under a different or the same clause in the constitution with respect to which other questions are properly presented. Bolln v. Nebraska, 176 U.S. 83; New York v. Kleinert, 268 U.S. 646; Saltonstall v. Saltonstall, 276 U.S. 260.
Title: New York Ex Rel. Cohn v. Graves, 300 U.S. 308 (1937)
Chicago: Stone, "Stone, J., Lead Opinion," New York Ex Rel. Cohn v. Graves, 300 U.S. 308 (1937) in 300 U.S. 308 300 U.S. 311–300 U.S. 317. Original Sources, accessed September 22, 2018, http://www.originalsources.com/Document.aspx?DocID=CPK4F9WEHP1NCW7.
MLA: Stone. "Stone, J., Lead Opinion." New York Ex Rel. Cohn v. Graves, 300 U.S. 308 (1937), in 300 U.S. 308, pp. 300 U.S. 311–300 U.S. 317. Original Sources. 22 Sep. 2018. www.originalsources.com/Document.aspx?DocID=CPK4F9WEHP1NCW7.
Harvard: Stone, 'Stone, J., Lead Opinion' in New York Ex Rel. Cohn v. Graves, 300 U.S. 308 (1937). cited in 1937, 300 U.S. 308, pp.300 U.S. 311–300 U.S. 317. Original Sources, retrieved 22 September 2018, from http://www.originalsources.com/Document.aspx?DocID=CPK4F9WEHP1NCW7.