O'Kane v. State

• Decision Date: 24 July 1940
• Citation: 283 N.Y. 439,28 N.E.2d 905
• Parties: O'KANE et al. v. STATE.
• Court: New York Court of Appeals Court of Appeals

283 N.Y. 439

28 N.E.2d 905

O'KANE et al.

v.STATE.

Court of Appeals of New York.

July 24, 1940.

Appeal from Court of Claims.

Action by John J. O'Kane, Jr., and Philip C. Kullman, Jr., copartners doing business as John J. O'Kane, Jr., & Company, against the State of New York, pursuant to the Tax Law, s 280, on a claim for money alleged to have been erroneously paid in the form of stock transfer taxes. From a judgment of the Court of Claims, 172 Misc. 829, 16 N.Y.S.2d 520, dismissing the claim, plaintiffs appeal directly to the Court of Appeals pursuant to the Civil Practice Act, s 588, subd.

Affirmed.

LEHMAN, C. J., and LOUGHRAN and CONWAY, JJ., dissenting. Earl Q. Kullman, of New York City, for appellants.

John J. Bennett, Jr., Atty. Gen. (Henry Epstein, Sol. Gen., of Albany, and Leon M. Layden and Jacob S. Honigsbaum, Asst. Attys. Gen., of counsel), for respondent.

FINCH, Judge.

Appellants challenge the constitutionality of a tax statute. They have affixed the tax stamps as required and bring this action pursuand to section 280 of the Tax Law (Consol. Laws, c. 60) to obtain a refund. The application was made in the first instance to the Tax Commission, which denied the claim, and thereafter to the Court of Claims. From a judgment of that court, dismissing the claim on the merits, appellants appeal directly to this court (Civil Practice Act, s 588, subd. 3), and have thus chosen to present for decision as the only question involved the validity under the Constitution of the United States of a statute which, as applied to the facts in the case at bar, imposes a tax upon an agreement for the sale of shares of stock which are to be sold and delivered across State lines.

The facts are as follows: Appellants are partners in an investment and securities business, with offices in New York City. As a result of negotiations conducted by telephone, telegraph and mail, appellants entered into contracts to sell securities to Kennedy & Co., and to Butcher and Sherred, both of Philadelphia, Pennsylvania, and to Babbage & Co. of Washington, D. C. The purchasers mailed confirmations to appellants, who mailed confirmations of the sales to the purchasers. These memoranda are indispensable incidents of such transactions. Appellants mailed to banks in Philadelphia and in Washington, D. C., sight drafts for collection with the securitiesattached, and the banks remitted the proceeds by mailing checks to appellants in New York city. Title to the stock involved did not pass until payment was received by appellants.

In regard to the sale to Babbage & Co., there is a finding that the shares in question were delivered to MacKubin, Logg & Company of New York on behalf of the purchaser. Thus, in regard to this transaction, the record contains two inconsistent findings, to wit, that appellants delivered the shares to the purchaser via the collection bank, and that the appellants delivered the shares to an agent of the purchaser in New York.

Throughout all the transactions, the several memoranda exchanged between sellers and buyers stated that each party acted as a principal in the transaction. The agreements to sell were made in New York city, and the shares of stock which were the subject of the agreements were located in New York city both prior to and after the making of such agreement, and up to the time they were shipped in interstate commerce.

Section 270 of the Tax Law provides for a tax at the rate of one and one-half cents per share sold for less than twenty dollars, and of two cents per share sold for more than twenty dollars, upon ‘all sales, or agreements to sell, or memoranda of sales and all deliveries or transfers of shares * * * whether made upon or shown by the books of the * * * corporation * * * or by any assignment in blank, or by any delivery, or by any paper or agreement or memorandum or other evidence of sale or transfer * * *.’ The seller is required to buy tax stamps, affix them, and have them canceled. When the transaction is consummated by the transfer of a certificate of stock, the stamps must be affixed to the certificate itself; ‘and in cases of an agreement to sell, or where the sale is effected by delivery of the certificate assigned in blank, there shall be made and delivered by the seller to the buyer, a bill or memorandum of such sale to which the stamp * * * shall be affixed and canceled.’

Section 270-a imposes an additional emergency tax at the same rate, so that the total tax is now three cents per share sold for less than twenty dollars, and four cents per share sold for more than twenty dollars.

The statute as applied to the transactions in the case at bar is said to offend the Constitution of the United States, particularly the due process clause (Fourteenth Amendment), the import-export clause (Art. 1, s 10, cl. 2), and the commerce clause (Art. I, s 8, cl. 3).

Due process. Appellants suggest objection to the statute on this score, but they submit no supporting argument. Indeed, the question has been previously considered and answered contrary to the contention of appellants. People of State of New York ex rel. Hatch v. Reardon, 204 U.S. 152, 27 S.Ct. 188, 51 L.Ed. 415, 9 Ann.Cas. 736;Vaughan v. State, 272 N.Y. 102, 5 N.E.2d 53, 108 A.L.R. 950.

Import-export duties. It is now well settled that the constitutional proscription that no State shall lay ‘any imposts or duties on imports or exports' applies only to foreign commerce and not to interstate commerce. Woodruff v. Parham, 8 Wall. 123, 130, 19 L.Ed. 382;Coe v. Town of Errol, 116 U.S. 517, 527, 6 S.Ct. 475, 29 L.Ed. 715;Territory of New Mexico ex rel. E.J.McLean & Co. v. Denver & Rio Grande R. R. Co., 203 U.S. 38, 27 S.Ct. 1, 51 LEd. 78. Since the activities of appellants do not involve foreign commerce, they are in no position to question the application of the statute to transactions in foreign, as distinguished from interstate commerce. People of State of New York ex rel. Hatch v. Reardon, supra.

Interstate commerce. Appellants contend that the grant to Congress of power to regulate interstate commerce operates even in the absence of action by Congress to forbid the imposition of a non-discriminatory State tax, upon an agreement made within the State with respect to goods which are within the State and prior to their shipment in interstate commerce. ‘The question, it should be observed, is not with respect to the extent of the power of Congress to regulate interstate commerce, but whether a particular exercise of state power, in view of its nature and operation, must be deemed to be in conflict with this paramount authority.’ Bacon v. People of State of Illinois, 227 U.S. 504, 516, 33 S.Ct. 299, 303, 57 L.Ed. 615;Federal Compress & Warehouse Co. v. McLean, 291 U.S. 17, 54 S.Ct. 267, 78 L.Ed. 622. Cf. Santa Cruz Fruit Packing Co. v. National Labor Relations Board, 303 U.S. 453, 456, 58 S.Ct. 656, 82 L.Ed. 954. It is said that the very existence of the power of Congress to regulate interstate commerce necessarily precludes State regulation of events transpiring within the State when subsequent to such events interstate shipments are made by the taxpayer.

Cases concerned with the effect of the commerce clause upon State action are truly legion, and only a few in number will be adverted to here. One fundamental principle which is not now questioned is that State action is not necessarily unconstitutional merely because it has some effect on interstate commerce (Baldwin v. G. A. F. Seelig, Inc., 294 U.S. 511, cas. cit. 525, 55 S.Ct. 497, 79 L.Ed. 1032, 101 A.L.R. 55); and in regard to taxation, State levies are not necessarily invalid because they result in some increase in the cost of doing interstate business. Western Live Stock v. Bureau of Revenue, 303 U.S. 250, cas. cit. 254, 255, 58 S.Ct. 546, 82 L.Ed. 823, 115 A.L.R. 944. No simple test is available. ‘It being once admitted, as of course it must be, that not every law that affects commerce among the states is a regulation of it in a constitutional sense, nice distinctions are to be expected. * * * It appears sufficiently, perhaps from what has been said, that we are to look for a practical rather than a logical or philosophical distinction.’ Per Holmes, J., Galveston, Harrisburg & San Antonio Ry. Co. v. State of Texas, 210 U.S. 217, 225, 227, 28 S.Ct. 638, 639, 52 L.Ed. 1031. ‘This does not satisfy those who seek for mathematical or rigid formulas. But such formulas are not provided by the great concepts of the Constitution such as ‘interstate commerce,’ due process,' ‘equal protection.’ In maintaining the balance of the constitutional grants and limitations, it is inevitable that we should define their applications in the gradual process of inclusion and exclusion.' Per Hughes, Ch. J., Santa Cruz Fruit Packing Co. v. National Labor Relations Board, supra, 303 U.S. at page 467, 58 S.Ct. at page 660, 82 L.Ed. 954.

The validity of State regulation under the commerce clause is to be determined by the balancing of two considerations: that State government shall be able to derive revenue for its support, and that commerce among the States shall be unfettered by provincial impediments. Stated conversely, interstate commerce must bear its share of the tax burden along with intrastate commerce, but the States may not exact of interstate commerce a toll heavier than that which intrastate commerce is liable to pay. The consequences of these principles have been variously stated. The States may not impose a ‘direct’ tax or a tax on interstate commerce ‘as such;’ interstate commerce may not be subjected to multiple burdens to which intrastate commerce is not exposed. But however expressed, the guiding principle which limits the power of the States to tax is that the several States of the Union may not discriminate against interstate commerce in favor of intrastate commerce.

It is a matter of historical record that the Founding Fathers were concerned lest State rivalries should...