Opinion ID: 1533028
Heading Depth: 1
Heading Rank: 6

Heading: The 1962 Accord

Text: The parties disagree over the existence and legal effect to be given the alleged accord, agreement or arrangement entered into by New York and New Jersey in 1962. See supra at 497-498. Plaintiffs argue that no such agreement ever existed and that the alleged accord was nothing more than a joint press release by the two governors. They note that the only agreement in the record relates solely to procedures for tax withholding. Defendant contends that the states of New York and New Jersey had entered into a reciprocal arrangement to apportion equitably the financial burdens of government among citizens who live in one state and earn income in the other. Since this arrangement insured that commuters from New York would suffer no additional overall tax burden, the State maintains that the scheme is not repugnant to the Privileges and Immunities Clause. The trial court agreed, noting that It boggles the mind to consider a situation where two states could not make adjustments between them and pass reciprocal-type legislation (which would allow either to pass tax laws) whereby the citizens of two states were not financially affected. The trial court erred in its assessment of the effect of such interstate agreement. We need not decide, therefore, whether the existence of an enforceable interstate agreement would save the present scheme from invalidity. Even assuming, as the State claims, that New York could restrict its prerogative for fashioning tax policy by agreement with New Jersey, it is clear that New York has not done so here. In the recent case of United States Steel Corp. v. Multistate Tax Commission, 434 U.S. 452, 98 S.Ct. 799, 54 L.Ed. 2d 682 (1978), the United States Supreme Court addressed claims that the Multistate Tax Compact entered into by seven states creating a Multistate Tax Commission violated the Compact Clause of the Federal Constitution, U.S.Const., Art. I, § 10, cl. 3, [25] since no congressional approval had been given. The Court held that no violation had occurred since no state had relinquished any of its sovereign power in entering the compact. Under Article VII of the compact, the Multistate Tax Commission was given the power to adopt advisory regulations which would have no force in any member State until adopted by that State in accordance with its own law. 434 U.S. at 457, 98 S.Ct. at 804, 54 L.Ed. 2d at 692. If any State chose to adopt the proposed regulations, it could request the Commission to perform an audit. The Commission could seek compulsory process in aid of its auditing power in the courts of any state that had specifically adopted Article VIII of the compact by statute. Individual states retained  complete control over all legislation and administrative action affecting the rate of tax, the composition of the tax base (including the determination of the components of taxable income), and the means and methods of determining tax liability and collecting any taxes determined to be due. 434 U.S. at 457, 98 S.Ct. at 805, 54 L.Ed. 2d at 692 (emphasis supplied). After an exhaustive survey of the history of the Compact Clause, the Court rejected a literal interpretation which would require the States to obtain congressional approval before entering into any agreement among themselves, irrespective of form, subject, duration, or interest to the United States. [434 U.S. at 459, 98 S.Ct. at 806, 54 L.Ed. 2d at 694] Instead, the Court reaffirmed the view that the application of the Compact Clause is limited to agreements that are `directed to the formation of any combination tending to the increase of political power in the States, which may encroach upon or interfere with the just supremacy of the United States.' [434 U.S. at 471, 98 S.Ct. at 812, 54 L.Ed. 2d at 701 (quoting New Hampshire v. Maine, 426 U.S. 363, 369, 96 S.Ct. 2113, 2117, 48 L.Ed. 2d 701 (1976) and Virginia v. Tennessee, 148 U.S. 503, 519, 13 S.Ct. 728, 734, 37 L.Ed. 537, 543 (1893)] Under that rule, the Multistate Tax Compact was held not to require congressional approval: [T]he test is whether the Compact enhances state power quo ad the National Government. This pact does not purport to authorize the member States to exercise any powers they could not exercise in its absence. Nor is there any delegation of sovereign power to the Commission: each State retains complete freedom to adopt or reject the rules and regulations of the Commission. Moreover, as noted above each State is free to withdraw at any time. [434 U.S. at 473, 98 S.Ct. at 812-813, 54 L.Ed. 2d at 702] Following this analysis it is clear that if the 1962 Accord were interpreted to bind New York's power over the extension of tax credit to its residents, it would involve an impermissible relinquishment of that state's sovereign power. New Jersey would then be able to dictate portions of New York's taxation policy by enforcing the terms of the Accord. Under the rule of United States Steel Corp. v. Multistate Tax Commission , such an agreement requires congressional approval. Since no such approval was given, the Accord cannot be relied on by the State here as an enforceable agreement. The credit granted by New York is a matter of legislative grace upon which New Jersey may not rely to support the constitutionality of the ETT: [T]he constitutionality of one State's statutes affecting nonresidents [cannot] depend upon the present configuration of the statutes of another State. [ Austin v. New Hampshire, 420 U.S. at 668, 95 S.Ct. at 1198, 43 L.Ed. 2d at 539] Since the present interaction of the ETT with New York's personal income tax law is susceptible to change at any time by the legislature of either state, the ETT must independently pass muster under the Privileges and Immunities Clause. The parties also disagree over the effect of a footnote in the Austin opinion regarding interstate cooperation in tax matters. The footnote reads: Neither Travis nor the present case should be taken in any way to denigrate the value of reciprocity in such matters. The evil at which they are aimed is the unilateral imposition of a disadvantage upon nonresidents, not reciprocally favorable treatment of nonresidents by States that coordinate their tax laws. [420 U.S. at 667 n. 12, 95 S.Ct. at 1198 n. 12, 43 L.Ed. 2d at 539 n. 12] In light of Austin's explicit statement that the constitutionality of a state's laws cannot depend upon the laws of a sister state, any reference to such interstate cooperation cannot be read to mean that the laws of an individual state need not withstand independent scrutiny under the Privileges and Immunities Clause. Reciprocally favorable treatment of non-residents does not violate the Privileges and Immunities Clause; New Jersey's unfavorable treatment of New York residents may. Resolution of this issue must await a full record.