Black v. Graves

Bliss, J.

(concurring). For many years the Constitution of the State of New York has provided that the compensation of all judges and justices shall not be diminished during their respective terms of office. (Const, art. VI, § 19.) On January 1, 3937, plaintiff entered upon a new term of office as a justice of the Supreme Court. At that time paragraph p of subdivision 2 of section 359 of the Tax Law expressly exempted the salary of a justice of any court in the State from inclusion in gross income under article 16 of the Tax Law which imposes a tax upon residents with respect to their income. On May 28, 1937, by chapter 744 of the Laws of 1937, a new subdivision 4 was added to section 359 so as to provide that the term “ gross income ” should include the salaries of judges, notwithstanding that such judges held constitutional offices and their salaries were not subject to being diminished during their terms of office. The plaintiff refused to include his official salary in gross income on his income tax return for 1937 and to pay a tax based thereon, upon the ground that chapter 744 of the Laws of 1937 was uncon*177stitutional. The defendants seek to compel its payment. The parties have submitted their controversy to us for determination.

Article 16 of the Tax Law (§ 351) imposes a tax upon every resident of the State, which tax shall be levied, collected and paid annually upon and with respect to his entire net income as therein defined. A statutory formula for the determination of a resident taxpayer’s net income is set up. Not all income is to be included in the taxpayer’s “ gross income ” (Tax Law, § 359) and many deductions are allowed in computing net income (Tax Law, § 360) while other items are not deductible. (Tax Law, § 361.) Certain exemptions are allowed. (Tax Law, § 362.) The tax is measured by the net income. (Tax Law, § 351.)

The tax is non-discriminatory and imposed on all residents alike. The power to tax is comprehensive, admitting of few exceptions, and these exceptions are rapidly disappearing with the present trend of authority. A claimed immunity from this common incident of citizenship must be clearly demonstrated to be upheld. (Pacific Co. v. Johnson, 285 U. S. 480.) It is asserted by plaintiff in this case that he has such an immunity by virtue of holding one of certain offices, of which article VI, section 19, of the State Constitution declares of their compensation that such compensation shall not be diminished during their respective terms of office.” Plaintiff contends that an income tax levied against his income may not include that part of his income which is derived from his salary as a justice of the Supreme Court of this State. This contention compels an examination of the nature and incidence of an income tax.

An income tax is an excise for the privileges and immunities which the State provides and its residents enjoy. It is not a tax on property. Nor is it a levy on the source of the income. (New York ex rel. Cohn v. Graves, 300 U. S. 308; Helvering v. Gerhardt, 304 id. 405.) It is laid upon the privilege of receiving the income and is paid from the taxpayer’s private funds after he has received such income. (Graves v. New York ex rel. O’Keefe, 306 U. S. 466, decision handed down March 27, 1939.) In the case of Hale v. State Board (302 U. S. 95, 108), Mr. Justice Cardozo, writing for the majority of the court, said, in referring to the basis of an income tax: The returns from his occupation and investments are thrown into a pot, and after deducting payments for debts and expenses as well as other items, the amount of the net yield is the base on which his tax will be assessed.”

Mr. Justice Stone of the same court recently stated of an income tax: That the receipt of income by a resident of the territory of a taxing sovereignty is a taxable event is universally recognized. *178Domicil 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. * * *

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.” (New York ex rel. Cohn v. Graves, 300 U. S. 308.)

In Graves v. New York ex rel. O’Keefe (supra) it was held that a tax on the salary of an employee of the Home Owners’ Loan Corporation, an instrumentality of the Federal government, is laid upon “ income which becomes the property of the taxpayer when received as compensation for his services; and the tax laid upon the privilege of receiving it is paid from his private funds and not from the funds of the government, either directly or indirectly.”

Counsel for the plaintiff has advanced the argument that to compel a judge to include his official salary in the computation of his taxable net income impinges upon that officer’s independence and that the limitation is imposed in the public interest. Evans v. Gore (253 U. S. 245) is strongly urged as controllingly persuasive because of the close analogy to the case at bar. The situation there was for our purpose identical with the one now before us and the constitutional provision in the very same words. The majority opinion traces the separation of powers in our Federal government and concludes that the primary purpose of the prohibition against diminution was not to benefit the judges but to attract good and competent men to the bench and to promote that independence of action and judgment which is essential to the maintenance of the guaranties, limitations and pervading principles of the Constitution. The limitation imposed by the Constitution was held to be in the public interest and compelling a judge to pay an income tax based in part upon his official salary was a *179diminution of such salary. Dobbins v. Comrs. of Erie County (16 Pet. 435), Collector v. Day (11 Wall. 113) and Pollock v. Farmers’ Loan & Trust Co. (157 U. S. 429) were the three principal cases cited in support of these conclusions. The authority of Evans v. Gore has recently been greatly weakened by the overruling of Collector v. Day and Dobbins v. Comrs. of Erie County in Gmves v. New York ex rel. O’Keefe (supra) and the distinguishing of Pollock v. Farmers’ Loan & Trust Co. in New York ex rel. Cohn v. Graves (supra). The weight of Evans v. Gore has thus been minimized by the United States Supreme Court itself.

Since the writing of the foregoing the United States Supreme Court has further weakened Evans v. Gore in the case of O’Malley v. Woodrough (307 U. S. 277), decided May 22, 1939. In this latter case Judge Woodrough was appointed a United States-Circuit judge on April 12, 1933. In the joint income tax return of himself and wife for the calendar year 1936 he listed his judicial salary and claimed it to be constitutionally immune from taxation. The tax was being imposed by section 22 of the Revenue Act of 1932, re-enacted in section 22, subdivision (a) of the Revenue Act of 1936 which act directed the inclusion under the term “ gross income ” the compensation of judges of courts of the United States taking office after June 6,1932. Inasmuch as the act of 1936 merely re-enacted the provisions of the act of 1932 with relation to the inclusion of such compensation in gross income, the constitutionality of the statute was judged on the basis of the validity of the act of 1932. The prevailing opinion of Mr. Justice Frankfurter states the meaning which Evans v. Gore imputed to the history which explains article III, section 1, of the Federal Constitution was contrary to the way in which it was read by other English speaking courts and calls attention to the fact that such decision has met wide and steadily growing disfavor from legal scholarship and professional opinion and had been rejected by most of the courts before whom the matter came thereafter. The reasoning of Evans v. Gore was rejected in this language: “ Having regard to these circumstances, the question immediately before us is whether Congress exceeded its constitutional power in providing that United States judges appointed after the Revenue Act of 1932 shall not enjoy immunity from the incidences of taxation to which everyone else within the defined classes of income is subjected. Thereby, of course, Congress has committed itself to the position that a non-discriminatory tax laid generally on net income is not, when applied to the income of a Federal judge, a diminution of his salary within the prohibition of Article III, § 1, of the Constitution. To suggest *180that it makes inroads upon the independence of judges who took office after Congress had thus charged them with the common duties of citizenship, by making them bear their aliquot share of the cost of maintaining the government, is to trivialize the great historic experience on which the framers based the safeguards of Article III, § 1. To subject them to a general tax is merely to recognize that judges are also citizens, and that their particular function in government does not generate an immunity from sharing with their fellow citizens the material burden of the government whose Constitution and laws they are charged with administering.”

The court further said that to the extent that its decision was inconsistent with what was said in Miles v. Graham (268 U. S. 501) the latter cannot survive. It was said by Mr. Justice Butler in his dissenting opinion, “ evidently the court intends to destroy the decision in Evans v. Gore.” It is thus apparent that the Supreme Court itself no longer considers Evans v. Gore as authority and has repudiated its reasoning.

Also, Evans v. Gore has not been followed by our State courts with that unanimity usually accorded a decision of our highest court. (See Taylor v. Gehner, 329 Mo. 511; 45 S. W. [2d] 59; Poorman v. State Board of Equalization, 99 Mont. 543; 45 P. [2d] 307; Martin v. Wolfford, 269 Ky. 411; 107 S. W. [2d] 267.) A rule contrary to Evans v. Gore preceded it in Wisconsin in State ex rel. Wickham v. Nygaard (159 Wis. 396; 150 N. W. 513). (See, also, Du Pont v. Green, 38 Del. 566; 195 A. 273, where Evans v. Gore was criticised and its reasoning repudiated.)

The gravamen of Evans v. Gore was that the tax affected the independence of the judiciary and that, therefore, public policy demanded the construction which the court there placed upon the constitutional provision. The argument does little credit to the bench. Surely a judge is made no less independent simply because he pays the same taxes that are imposed upon all other citizens. He can be wholly independent only if he does bear his full share of the duties of citizenship including the burden of taxation. The Federal government itself has completely disposed of this theory of public policy by requiring all judges entering a term of office after June 6, 1932, to include their official salary as gross income in their income tax return. (U. S. Code, tit. 26, § 22, subd. [a].) It does not believe that the payment of an income tax by a judge upon his official salary affects his independence.

New York State has also rejected this theory of public policy. The statute here under review (Laws of 1937, chap. 744) contains a declaration of policy directly contrary to that expressed in Evans v. Gore. It declares as the policy of the State that salaries and *181compensation of public officials and judges shall be subject to personal income taxation under the laws of the State, that equality of burden is a cornerstone of sound tax policy, and inequality results where the burden of taxation is unequally distributed. This declaration of the public policy of the State must be held to be paramount to the theory that the imposition of the tax affects the independence of the judiciary. Other considerations of the same nature must yield when the State has balanced them all and finds certain ones to be its policy.

The alleged advantage to the State in being able to obtain a better class of judges for the salary, if they are exempt from income tax, is too etherial and speculative and consequently too unsubstantial to form the basis for an implication of tax immunity. (Helvering v. Gerhardt, 304 U. S. 405.)

The inclusion of official salary in gross income is not in fact a diminution in salary within the constitutional provision. The income by way of judicial salary may not be affected at all or it may be affected at different rates for different judges. It is quite possible that a judge’s entire salary might be expended for purposes which would be proper deductions, or, as in the case of many judges of our lower constitutional courts, it might be less than his statutory exemptions. At most it is affected but indirectly. The tax is not on the judge’s compensation as such but is measured by the property of the taxpayer -without regard to source. As well might it be argued that a purchaser-paid sales tax, or many other of our excises reduced a judge’s salary and that he was, therefore, immune from them. The official salary is but one of many various elements that enter into the computation of net income by which the tax against the individual is measured.

The constitutional provision does not by its own language exempt a judge or his salary from taxation. There is no indication that it was intended as a limitation on the taxing power of the State over its residents. • It is only by implication that such a meaning is found. Presumably a statute is constitutional unless the contrary clearly appears and limitations on the taxing power must be interpreted narrowly. No clarity of purpose on the part of the People to render plaintiff or bis official salary immune from taxation appears. No principle of public policy demands such construction by implication. The defendants should have judgment.