People of State of New York Whitney v. Graves
| Decision Date | 04 January 1937 |
| Docket Number | No. 218,218 |
| Citation | 299 U.S. 366,57 S.Ct. 237,81 L.Ed. 285 |
| Parties | PEOPLE OF STATE OF NEW YORK ex rel. WHITNEY v. GRAVES et al., Tax Com'rs of State of New York |
| Court | U.S. Supreme Court |
Appeal from the Supreme Court of the State of New York.
Messrs. Marcien Jenckes, Claude R. Branch, and John L. Hall, all of Boston, Mass., for appellant.
[Argument of Counsel from pages 367-368 intentionally omitted] Mr. Joseph M. Mesnig, Asst. Atty. Gen., of Albany, N.Y. , for appellees.
The question here presented relates to the constitutional validity of a tax imposed by the State of New York upon the profits realized by a nonresident upon the sale of a right appurtenant to membership in the New York Stock Exchange.
The relator, C. Handasyde Whitney, is a resident of the Commonwealth of Massachusetts and a member of a firm doing business in Boston. He and his copartners own a membership in the New York Stock Exchange. The membership stands in the relator's name. In 1929, by virtue of an increase in the number of members of the Exchange, each member became entitled to a 'right' to one-fourth of a new membership. The relator sold that right for $108,000. The Tax Commission of New York, under sections 351 and 351-a of the Tax Law of that State (Consol.Laws, c. 60), assessed a tax upon the profits derived from the sale, which were calculated at the difference between original cost, together with contributions paid in the form of dues, and the proceeds of the sale. The tax was paid under protest, and the relator sought revision under the pertinent provision of the state law. The Tax Commission denied the application. The relator then obtained a writ of certiorari from the state court to review the Commission's action and the Commission made return embracing the record of its proceedings. In accordance with the state practice, the matter was heard by the Appellate Division of the Supreme Court which sustained the determination of the Commission. 246 App.Div. 652, 283 N.Y.S. 219. That ruling was affirmed by the Court of Appeals, without opinion. Subsequently that court amended its remittitur by reciting that upon the appeal the relator contended that the assessment of the tax under the provisions of the state act 'contravenes the Fourteenth Amendment of the Federal Constitution as an extraterritorial tax, and such question was presented and necessarily passed upon but not sustained by the court.' 271 N.Y. 594, 3 N.E.(2d) 201; 271 N.Y. 618, 3 N.E.(2d) 213. The case comes here on appeal.
Aside from a brief statement of facts, the state courts have not aided us by a discussion or analysis of the nature of the right involved or the grounds for the assertion of the authority to lay the tax. From the record it appears that the New York Stock Exchange is an unincorporated voluntary association, limited as to membership and governed by its own constitution, by-laws and rules; that it holds the beneficial ownership of the entire capital stock of a New York corporation which owns the building in which the business of the Exchange is transacted, with the land upon which it stands, situated in the city of New York; that membership or seat in the Exchange carries with it valuable privileges and has a market value for the purpose of sale; that the Exchange is supported by dues and charges paid by its members and that contributions are also made to a 'gratuity fund' which is in substance an insurance fund for the benefit of the widow and descendants of deceased members; that membership is evidenced by a certificate in the form of a letter signed by the secretary of the Exchange; that the membership can be transferred only through the Exchange and with its approval; that a member may personally buy or sell only in the Exchange building; that a member may buy or sell for the account of other members at a commission substantially less than that charged to a non-member; and that such rights and privileges are valuable and are exer- cisable only in transactions conducted at the Exchange building in the city of New York.1
The relator, in challenging the jurisdiction of the State of New York to lay the tax, stresses the points that the relator and his copartners have always been domiciled in Massachusetts; that they have never had an office or abode in New York and have never carried on business there; that while they advertise themselves in Boston as members of the New York Stock Exchange and accept orders from customers at their Boston office for execution on the New York Stock Exchange, none of that business is conducted by the relator or his copartners on the floor of that Exchange; that they do not buy and sell securities on the Exchange for their firm account; that orders requiring execution on the Exchange are telegraphed to members of the Exchange who have business offices in New York and who execute their orders on the Exchange in their own names, acting as correspondents, lending money on the security of the stock purchased and other collateral delivered to them. This business of relator's firm in 1929 involved approximately $150,000,000 worth of securities. And it appears that by reason of relator's membership in the Exchange, his firm was able to have their New York correspondents execute orders at 40 per cent. of the commission fixed for nonmembers. Relator's firm charges its customers the fixed minimum commissions which they would have to pay any stock exchange house, and these commissions are divided with their New York correspondents by mutual agreement.
The relator's argument is that the membership in the Exchange is intangible personal property, that as a gen- eral rule property of that sort is taxable only at the domicile of the owner, and that unless the membership has a 'business situs'...
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