Court Opinion

ID: 3606020
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:51:27.529295+00
Date Added: 2024-06-11T13:46:52.906064
License: Public Domain

In my opinion the validity of the retroactive amendment was presented and decided in *Page 411 People ex rel. Cohn v. Graves (271 N.Y. 353; affd.,300 U.S. 308). I should reach the same conclusion if the question were open. A new article (16) imposing a tax upon every resident of the State "with respect to his entire net income," as therein defined, was added to the Tax Law by chapter 627 of the Laws of 1919. "Net income" was defined as "the gross income of a taxpayer less the deductions allowed by this article." (§ 357.) Section 359, before its amendment, stated, so far as material to the question before us, "the term `gross income:' (1) includes gains, profits and income derived from * * * dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property." Giving to the words of the statute their ordinary meaning, the tax authorities of the State and taxpayers alike assumed that gross income included income derived from real property outside the State. The Appellate Division unanimously gave the statute the same construction, but this court, in order to escape serious doubt as to the power of the State to tax such income, gave to the statute in the Pierson
case a strained construction, excluding such income from its scope. The amendment made to section 359 of the Tax Law by chapter 933 of the Laws of 1935 was intended and could have no effect other than to include in taxable income all income received by the taxpayer "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."
The Legislature cannot, I agree, in the guise of "clarification" of a statute, change retroactively theconstruction which the courts have placed upon the statute in original form. Income not subject to tax prior to 1935 becomes taxable after that date by force of the amendment of the statute. The question here is whether the Legislature may retroactively subject to the tax income previously exempt. It may be conceded that ordinary tax legislation enacted in 1935 intended to subject to an income tax income received during the previous sixteen years by a taxpayer *Page 412 
who during all those years had no notice that he might be required to pay a tax on such income would be so arbitrary that it would constitute a depreciation of property without due process of law. That is not the purpose or effect of the statute. The Legislature has merely given to the statute retroactively the meaning which courts other than this court, tax authorities and taxpayers, including these appellants, placed upon the statute until the Pierson case. The narrow construction which this court placed upon the statute was inextricably connected with doubt as to the constitutionality of the statute otherwise construed. That doubt has now been removed. Differentiation between income received from property within the State and income received from property outside of the State has no longer any basis in economics or in law. The theory "which once won a qualified approval, that a tax on income is legally or economically a tax on its source, is no longer tenable," citingNew York ex rel. Cohn v. Graves (300 U.S. 308); Graves v.New York (83 U.S. Sup. Ct., Law Ed. 577). The taxpayers are not challenging a new assessment unexpectedly imposed upon them. On the contrary, they are seeking a refund of taxes which they voluntarily paid on income received for the calendar years 1930 and 1931 and an order canceling the assessment for the year 1933, when the relators well knew that the State was claiming, as it had claimed for fourteen years before, that the tax as assessed
was due under the statute as it then existed. The provision that the amendatory statute is retroactive to the date when the original statute was enacted does not give the State any power to make a new assessment, except within the short period fixed by the statute for revision of returns filed or for making an estimate of taxable income where the taxpayer has failed to make a return. (Cf. Tax Law, § 373.) The burden placed upon the taxpayer by such retroactive legislation seems to me fair and reasonable.
The order of the Appellate Division should be affirmed.
LOUGHRAN, FINCH and RIPPEY, JJ., concur with HUBBS, J.; LEHMAN, J., dissents in opinion in which CRANE, Ch. J., and O'BRIEN, J., concur.
Ordered accordingly. *Page 413