Friedsam v. State Tax Commission

Levine, J. (dissenting).

I respectfully dissent. The majority, in further extending its holding in Matter of Golden v Tully (88 AD2d 1058, affd 58 NY2d 1047), effectively overrules Matter of Goodwin u State Tax Comm. (286 App Div 694, affd 1 NY2d 680, app dsmd 352 US 805) and with it casts into serious doubt the standing policy of this State since the Income Tax Law of 1919 (L 1919, ch 627) with respect to the taxation of the New York income of nonresidents. That policy has been to limit the ability of out-ofstaters to take full advantage of deductions available to State residents as to expenses unrelated to the production of New York income. This policy is a corollary to this State’s inability to tax non-New York income of nonresidents, as it does with its own citizens. In Goodwin, a New Jersey taxpayer challenged the disallowance of real estate taxes paid on his residence, interest payments, medical expenses and insurance premiums, all of which could have been subtracted from the gross income of a New York resident for tax purposes.* Toomer v Witsell (334 US 385) had already been decided as the leading case interpreting the privileges and immunities clause (US Const, art IV, § 2, cl 1). Responding to the Supreme Court’s holding in that case that disparity in tax treatment between residents *30and nonresidents is not invalid “in the many situations where there are perfectly valid independent reasons for it” (Toomer v Witsell, supra, p 396), this court in Goodwin gave three distinct, alternative rationales to uphold the statutory disallowance of deductions for such expenses on the part of a nonresident, each of which was held to be sufficient. The first of these reasons to permit favoring New York residents regarding deductions was that they were subject to an offsetting burden in being taxed on all sources of income, not just on their New York sources, as in the case of a nonresident taxpayer (Matter of Goodwin v State Tax Comm., supra, pp 696-698, citing Travis v Yale & Towne Mfg. Co., 252 US 60, and Shaffer v Carter, 252 US 37). The second justification was based upon the locus of the activity of the taxpayer giving rise to the expense for which the deduction was sought. The court held that it was sufficient that the deductions claimed were non-business-related, personal expenses of the taxpayer and, as such: “are clearly a part of the petitioner’s personal activities in his home State * * * If these expenditures are to be allowed as deductions at all, they should be allowed by the State of the taxpayer’s residence” (286 App Div, at p 701). Finally, Goodwin (at p 702) vindicated the disparity in treatment on the basis that deductions for certain personal (in contrast to business-related) expenses reflect State social policy “peculiarly related to * * * residence” to encourage its citizens to engage in the activities giving rise to such expenses. “In the exercise of its general governmental power to advance the welfare of its residents, the State may give aid or encouragement of the character embodied in the tax deductions to its own residents, without being constitutionally required to extend similar aid or encouragement to the residents of other States” (286 App Div, at p 702).

This court, in Matter of Golden v Tully (supra), dealt with the disparity in treatment between residents and nonresidents regarding the moving expense adjustment to gross income. It purported to follow Goodwin (supra), but actually focused exclusively on the third of the three Goodwin rationales for sustaining disparity of treatment on deductions for various expenses. In Matter of Golden v *31Tully (supra), it was held that for a State validly to differentiate between residents and nonresidents, in all cases, there must be an identified social purpose connected with the deduction and that purpose must relate to residence. Obviously, since allowance of a deduction for the expense of moving out of the State could not be shown to relate to any social policy connected to the fact of intrastate residence, the court held that the disparity in treatment was constitutionally defective.

The Court of Appeals affirmance in Golden (supra) was not based upon this court’s restricted application of Goodwin (supra). Instead, the disallowance of the nonresident’s moving expenses was struck on the narrow ground that, because the Tax Commission in its answer and bill of particulars had proffered “[n]o other rationale [than non-residence] * * * to justify the discrepancy in treating residents and nonresidents * * * it must be concluded that, in the present matter, respondent’s determination unconstitutionally discriminated against the nonresident taxpayers” (Matter of Golden v Tully, 58 NY2d 1047, 1049).

In my view, then, Matter of Golden v Tully (supra), as finally decided, does not impliedly overrule the Goodwin case, as suggested by petitioner’s counsel on the oral argument of the instant appeal. Thus, it remains appropriate to test the discriminatory tax treatment as to alimony payments involved here on the basis of each of the three grounds invoked in Goodwin for upholding a similar disparity. Applying each of the Goodwin rationales to the instant case, I have no difficulty in sustaining the Tax Commission’s determination. Just as in Goodwin, the tax advantage given a New Yorker paying alimony is offset by the additional burden of his being taxed on all, and not merely New York, sources of income. The second of the Goodwin grounds for sustaining the disparity in tax treatment also applies. Certainly it cannot be denied that petitioner’s alimony obligation arose totally from activities in Connecticut, which was the locus of his marriage, was and is his State of residence and that of his ex-wife, and was the forum State for his divorce. Thus, the alimony deduction, if any, should be allowed in Connecticut and there is nothing to “warrant the petitioner’s shifting the *32allowance for these expenditures, which are intimately connected with the State of his residence, to New York State” (.Matter of Goodwin v State Tax Comm., supra, p 701).

Finally, I differ with the majority’s view that the discrepancy in tax treatment cannot be justified on a residence-related social policy basis, the third, but not exclusive, Goodwin ground. It can be safely assumed, in the absence of evidence to the contrary, that in the vast majority of instances of New York residents claiming an allowance for alimony payments, the obligation arose in the context of a New York marriage and both parties have remained domiciled here. Thus, this State should be able validly to classify alimony payments for tax purposes in a manner which generally has the effect of furthering the sound policy objective of rewarding its residents for fulfilling their New York marital obligations. The mere possibility that such a residence-related social policy may not apply in some individual cases where the alimony adjustments may be allowed (e.g., because the alimony recipient lives elsewhere) is not sufficient to invalidate the statutory tax scheme. It is well established that the States are given a wide latitude in making classifications for tax purposes (Austin v New Hampshire, 420 US 656, 661). So long as there is not an invidious discrimination, the validity of the tax in its general application is sufficient to sustain it (Lehnhausen v Lake Shore Auto Parts Co., 410 US 356, 359-360; Travellers’ Ins. Co. v Connecticut, 185 US 364, 371-372).

For the foregoing reasons, I would reverse Special Term and dismiss the petition.

Sweeney, J. P., Kane and Casey, JJ., concur with Weiss, J.; Levine, J., dissents and votes to reverse in a separate opinion.

Judgment affirmed, with costs.

When Goodwin was decided, disallowance of all such expenses was absolute. Presently, by statute there is still total disallowance of such expenses, including alimony payments, as adjustments to New York gross income (Tax Law, § 632, subd [a], par [1]) but partial allowance of such expenses as itemized deductions (Tax Law, § 635, subd [c], par [1]).