Friedsam v. State Tax Com'n

• Decision Date: 18 December 1984
• Citation: 473 N.E.2d 1181,64 N.Y.2d 76,484 N.Y.S.2d 807
• Parties: , 473 N.E.2d 1181 In the Matter of Lance J. FRIEDSAM, Respondent, v. STATE TAX COMMISSION, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 807

484 N.Y.S.2d 807

64 N.Y.2d 76, 473 N.E.2d 1181

In the Matter of Lance J. FRIEDSAM, Respondent, v. STATE TAX COMMISSION, Appellant.

Court of Appeals of New York.

Dec. 18, 1984.

Robert Abrams, Atty. Gen. (Francis V. Dow, Peter H. Schiff and Diane DeFurio Foody, Asst. Attys. Gen., of counsel), for appellant

Rayner M. Hamilton and Stephen M. Piga, New York City, for respondent.

OPINION OF THE COURT

JASEN, Judge.

We are asked to decide whether the determination of the State Tax Commission denying nonresident taxpayer an income tax deduction to which a resident taxpayer is entitled for payment of alimony conforms with the State's tax policy (Tax Law, § 632, subd. par. § 635, subd. par. ).

During the tax year 1979, petitioner, Lance Friedsam, was a resident of Connecticut and employed by the International Business Machines Corporation (IBM) in White Plains, New York. Petitioner's total compensation from IBM was $61,750, of which $52,710 was considered to be derived from employment duties performed in New York. Petitioner's total income for the tax year 1979 was $65,836, which was based upon the IBM salary ($61,750), earned interest income ($4,577), and a capital loss ($491). In July 1979, petitioner was divorced from his wife, who, along with their three children, were residents of Connecticut. In 1979, petitioner paid alimony of $10,417 pursuant to a Connecticut divorce decree.

Petitioner timely filed a New York State Income Tax Nonresident Return (Form IT-203) for 1979, and in computing his New York adjusted gross income modified his Federal adjusted gross income, as required by section 632 (subd. par. ) of the Tax Law, so as to take credit for alimony paid only in the same proportion as was represented by the New York portion of his IBM salary, to wit: $7,813. The State Income Tax Audit Division disallowed the alimony deduction of $7,813 ruling that it did not relate to the production of New York income. Subsequently, petitioner appealed the ruling to the State Tax Commission contending that the disallowance of his 1979 alimony adjustment violated his constitutional rights under the privileges and immunities clause (U.S. Const. art. IV, cl. 2) and his statutory right to substantial equality in taxation under section 635 (subd. par. ) of the Tax Law, since residents of New York were entitled to deduct their alimony payments.

The State Tax Commission, characterizing the $7,813 adjustment of gross income as a deduction, disallowed it. The majority of the Commission concluded that "alimony is not a deduction attributable to petitioner's profession carried on in this state, within the meaning of Tax Law section 632(b)(1)(B)" and, therefore, not a proper adjustment to income in computing petitioner's New York adjusted gross income.

Upon disallowance of the alimony adjustment, petitioner commenced an article 78 proceeding to annul the determination. Special Term, Albany County, granted petitioner's application and held that because a resident is allowed alimony paid as an adjustment against income while a nonresident is not, the difference in treatment, without a substantial reason, was violative of the privileges and immunities clause of article IV. In affirming the judgment of Special Term, the Appellate Division, Third Department, held respondent's contention, that the disparate treatment of nonresident petitioner was justified by the "personal" nature of the alimony deduction, to be without merit. 98 A.D.2d 26, 470 N.Y.S.2d 848. While we now affirm the order of the Appellate Division, we do so upon statutory, not constitutional, grounds.

We begin our analysis by recognizing that section 215 of the Internal Revenue Code of 1954 provided that alimony payments by a taxpayer to his former wife are deductible from his gross income. (26 U.S.C. §§ 71, 215.) When New York passed its personal income tax effective April 18, 1960, the Legislature provided:

"that the adoption by this state for its personal income tax purposes of the provisions of the laws of the United States relating to the determination of income for federal income tax purposes will (1) simplify preparation of state income tax returns by taxpayers, (2) improve enforcement of the state income tax through better use of information obtained from federal income tax audits, and (3) aid interpretation of the state tax law through increased use of federal judicial and administrative determinations and precedents.

"The legislature does therefore declare that article twenty-two be construed so as to accomplish the foregoing purposes." (Historical Note, McKinney's Cons.Laws of N.Y., Book 59, p. 262.) Beyond that declaration, the Legislature provided a statutory mandate to assure conformity: "Any term used in this article shall have the same meaning as when used in a comparable context in the laws of the United States relating to federal income taxes, unless a different meaning is clearly required." (Tax Law, § 607.)

Section 632 of the New York Tax Law defines New York adjusted gross income for nonresidents as follows:

"(a) General. The New York adjusted gross income of a nonresident individual shall be the sum of the following:

"(1) the net amount of items of income, gain, loss and deduction entering into his federal adjusted gross income, as defined in the laws of the United States for the taxable year, derived from or connected with New York sources * * *

"(b) Income and deductions from New York sources.

"(1) Items of income, gain, loss and deduction derived from or...