Boston Stock Exchange v. State Tax Commission

• Decision Date: 09 July 1974
• Citation: 357 N.Y.S.2d 116,45 A.D.2d 365
• Parties: BOSTON STOCK EXCHANGE et al., Plaintiffs-Respondents, v. STATE TAX COMMISSION et al., Defendants-Appellants.
• Court: New York Supreme Court — Appellate Division

Page 116

357 N.Y.S.2d 116

45 A.D.2d 365

BOSTON STOCK EXCHANGE et al., Plaintiffs-Respondents, v. STATE TAX COMMISSION et al., Defendants-Appellants.

Supreme Court, Appellate Division, First Department.

July 9, 1974.

Robert W. Bush, Voorheesville, of counsel (Ruth Kessler Toch, Albany, with him on the brief; Louis J. Lefkowitz, Atty. Gen.), for appellant.

Rober Pascal, Chicago, Ill., of counsel (Milton H. Cohen and Allan Horwich, Chicago, Ill., with him on the brief; Schiff, Hardin & Waite, Chicago, Ill., and Paul, Weiss, Rifkind, Wharton & Garrison, New York City, attys.), for respondents.

Samuel J. Warms, New York City, of counsel (Robert J. Metzler, II, New York City, with him on the brief; Adrian P. Burke, Corp. Counsel, New York City), for amicus curiae City of New York.

Before NUNEZ, J.P., and KUPFERMAN, STEUER, CAPOZZOLI and MACKEN, JJ.

MACKEN, Justice:

By this action, plaintiffs, stock exchanges located in states other than New York, seek a declaration that Section 270--a of the Tax Law, adopted in 1968 and effective July 1, 1969, amending the then existing stock transfer tax law (Tax Law, § 270) is constitutionally invalid, and defendants appeal from an order denying their motion to dismiss the complaint.

Since 1905 this state has imposed a tax 'on all sales, or agreements to sell, or memoranda of sales and all deliveries or transfers of shares or certificates of stock . . .'. Prior to July 1, 1969 all such transactions were taxed at a rate based on the sale price per share of the stock and neither the place where the sale was made nor the residence of the seller had any bearing on the rate of tax. None of the states or cities in which the plaintiffs are located had any such tax and, as found by the Legislature (Laws of 1968, ch. 827),

'The securities industry, and particularly the stock exchanges located within the state have contributed importantly to the economy of the state and its recognition as the financial center of the world. The growth of exchanges in other regions of the country and the diversion of business to those exchanges of individuals who are nonresidents of the state of New York, requires recognition that the tax on transfers of stock imposed by article twelve of the tax law, is an important contributing element to the diversion of sales to other areas to the detriment of the economy of the state. Furthermore in the case of transactions involving large blocks of stock, recognition must be given to the ease of completion of such sales outside the state of New York without the payment of any tax. In order to encourage the effecting by nonresidents of the state of New York of their sales within the state of New York and the retention within the state of New York of sales involving large blocks of stock, a separate classification of the tax on sales by nonresidents of the state of New York and a maximum tax for certain large block sales are desirable.'

Accordingly, the 1969 amendment provided that in the case of sales made within this state by a nonresident, the rate of tax was reduced by graduated annual steps to fifty percent on July 1, 1973 and thereafter, and further provided for a maximum tax to be imposed in the case of any sales made within the state relating to shares of the same class and issued by the same issuer, the said maximum by annual graduated steps being reduced to $350 on and after July 1, 1973.

As alleged in the complaint 'numerous securities which are bought and sold in the United States are delivered in the State of New York or are transferred . . . by banks and by other transfer agents located within the State of New York,' including many securities regularly traded on plaintiff exchanges. A large portion of the taxed securities traded on plaintiff exchanges is also traded on exchanges located in New York and plaintiffs further allege 'The legislative purpose and natural effect of the 1969 Amendments has been and will continue increasingly to be the diversion of such transactions from plaintiff exchanges to stock exchanges located within the State of New York and the diversion, in general, of securities business from those engaged in that business outside the State of New York to those engaged in the securities business within the State of New York' and that the Amendment is violative of (1) Clause 3 of Section 8 of Article I (the Commerce clause), (2) Section 2 of Article IV (the Privileges and Immunities clause), and (3) Section 1 of the Fourteenth Amendment (the Equal Protection clause), of the United States Constitution.

Before answering, defendants moved to dismiss on grounds (1) that the court lacks jurisdiction of the subject matter of the action; (2) that plaintiffs do not have legal capacity to sue since they are not subject to the transfer tax and are not legally aggrieved by its provisions; and (3) that the complaint fails to state a cause of action.

We agree with Special Term that our courts have jurisdiction to decide cases involving rights of litigants under the Federal Constitution unless deprived of that power by the Federal Constitution or Statute (1 Carmody Wait 2d, Courts and Their Jurisdiction, Sec. 2:92) and that plaintiffs have legal standing to maintain the action since the stated legislative findings (L.1968, ch. 827) and the Governor's memorandum of approval (McKinney's Session Laws 1968, Vol. 2, p. 2384) make it clear that indeed a purpose of the 1969 amendment was to discourage diversion of stock transactions from New York exchanges and to encourage transactions of securities in New York. Plaintiffs may therefore claim to be potentially injured by the amendment (Association of Data Processing Organizations, Inc. v. Camp, 397 U.S. 150, 152--154, 90 S.Ct. 827, 25 L.Ed.2d 184).

We fail to find, however, any constitutional infirmity in the statute here attacked.

In adopting the statute, the basic underlying motivation of the Legislature was not to favor New York stock exchanges over out of state exchanges but to fulfill its duty to enact legislation providing vehicles of taxation sufficient to permit the state and its subdivisions to raise the funds required to meet the ever increasing needs of the people of the state for governmental aid and services. The state-wide proceeds of the stock transfer tax are appropriated to the City of New York for the support of its local government (State Finance Law, § 92--b), and it appears from the record that such income for the 1968 city fiscal year was estimated at two hundred twenty-nine million dollars. As may well be inferred from the...