New York Rapid Transit Corporation v. City of New York Brooklyn Queens Transit Corporation v. Same

Decision Date28 March 1938
Docket Number436,Nos. 435,s. 435
Citation303 U.S. 573,82 L.Ed. 1024,58 S.Ct. 721
CourtU.S. Supreme Court

Appeals from the Supreme Court of the State of New York.

[Syllabus from pages 573-575 intentionally omitted] Messrs. Harold L. Warner, of Brooklyn, N.Y., and Paul D. Miller and Henry R. Stern, both of New York City, for appellants.

Messrs. Paxton Blair, Oscar S. Cox, Davidson Sommers, Sol Charles Levine, and Paul Windels, all of New York City, for appellee.

Mr. Justice REED delivered the opinion of the Court.

The question for decision is the constitutional validity of Local Laws of the City of New York, Local Law No. 21 (published as No. 22), p. 151 of 1934, as amended by Local Law No. 2, p. 94, of 1935, and extended by Local Law No. 30, p. 157 of 1935, which provide, section 2, that 'for the privilege of exercising its franchise or franchises, or of holding property, or of doing business in the city of New York' an excise tax shall be paid by every 'utility' doing business in the City of New York during 1935 and the first six months of 1936.

'Utility' is defined, section 1(e), to include 'any person subject to the supervision of either division of the department of public service,' and every person, whether or not subject to such supervision, engaged 'in the business of furnishing or selling to other persons gas, electricity, steam, water, refrigeration, telephony and/or telegraphy' or service in these commodities. Each utility is required to pay a tax 'equal to three per centum of its gross income' (section 5) received during the effective period of the Local Laws, with a minor variation not here assailed for utilities not subject to the specified supervision.1 The Local Laws specify that all revenues from the tax 'shall be deposited in a separate bank account or accounts, and shall be available and used solely and exclusively for the purpose of relieving the people of the city of New York from the hardships and suffering caused by unemployment'. Section 14. The Local Laws, admittedly passed under authority granted by the state Legislature,2 are assailed under the United States Constitution. For convenience we shall discuss the contentions of the New York Rapid Transit Corporation alone, as determination of the objections raised by it is conclusive of those advanced by the Brooklyn and Queens Transit Corporation.

The New York Rapid Transit Corporation operates rapid transit railroads in the City of New York under a contract known as contract No. 4, dated March 19, 1913, made pursuant to the New York Rapid Transit Act Laws 1891, c. 4, as amended, between its predecessor (New York Municipal Railway Corporation) and the city. As a common carrier engaged in the operation of rapid transit railroads, the corporation is under the supervision of the transit commission, the head of the metropolitan division of the state department of public service. Accordingly, but under protest, it paid the taxes imposed by the Local Laws set out above, for the months January, 1935, to June, 1936, inclusive. It brought this action against the City of New York to recover the amounts paid, § 1,408,697, with interest, on the ground that the Local Laws are unconstitutional. The case arises on the city's motion to dismiss the complaint.

The Supreme Court of New York, Special Term, denied the motion to dismiss the complaint and found that the Local Laws denied equal protection because of gross inequality of burden in comparison with other utilities. This order was affirmed by the Appellate Division of the Supreme Court, without opinion, on a 3—2 vote. Brooklyn & Queens Transit Corp. v. City of New York, 251 App.Div. 710, 296 N.Y.S. 1006. The Court of Appeals reversed (New York Rapid Transit Co. v. City of New York, 275 N.Y. 258, 9 N.E.2d 858), upheld the Local Laws against all attacks, and ruled that the complaint did not state a cause of action. Appeal was taken to this Court under section 237(a) of the Judicial Code, 28 U.S.C. § 344(a), 28 U.S.C.A. § 344.

The corporation challenges the Local Laws as violative of the equal protection and due process clauses of the Fourteenth Amendment and the contracts clause of article 1, § 10, of the Constitution.

I. Classification. No question is or could be made by the corporation as to the right of a state, or a municipality with properly delegated powers, to enact laws or ordinances, based on reasonable classification of the objects of the legislation or of the persons whom it affects. 'Equal protection' does not prohibit this. Although the wide discretion as to classification retained by a Legislature often results in narrow distinctions, these distinctions, if reasonably related to the object of the legislation, are sufficient to justify the classification. German Alliance Ins. Co. v. Lewis, 233 U.S. 389, 418, 34 S.Ct. 612, 58 L.Ed. 1011, L.R.A. 1915C, 1189; Atchison, Topeka & S.F.R.R. v. Matthews, 174 U.S. 96, 105, 19 S.Ct. 609, 43 L.Ed. 909; Giozza v. Tiernan, 148 U.S. 657, 13 S.Ct. 721, 37 L.Ed. 599. Indeed, it has long been the law under the Fourteenth Amendment that 'a distinction in legislation is not arbitrary, if any state of facts reasonably can be conceived that would sustain it.' Rast v. Van Deman & Lewis Co., 240 U.S. 342, 357, 36 S.Ct. 370, 374, 60 L.Ed. 679, L.R.A.1917A, 421, Ann.Cas.1917B, 455; Borden's Company v. Baldwin, 293 U.S. 194, 209, 55 S.Ct. 187, 191, 79 L.Ed. 281; Metropolitan Casualty Co. v. Brownell, 294 U.S. 580, 584, 55 S.Ct. 538, 540, 79 L.Ed. 1070. 'The rule of equality permits many practical inequalities.' Magoun v. Illinois Trust & Savings Bank, 170 U.S. 283, 296, 18 S.Ct. 594, 599, 42 L.Ed. 1037; Breedlove v. Suttles, 302 U.S. 277, 281, 58 S.Ct. 205, 82 L.Ed. 252; Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 509, 57 S.Ct. 868, 872, 81 L.Ed. 1245, 109 A.L.R. 1327. 'What satisfies this equality has not been, and probably never can be, precisely defined.' Magoun v. Illinois Trust & Savings Bank, supra, 170 U.S. 283, 293, 18 S.Ct. 594, 598, 42 L.Ed. 1037.

The power to make distinctions exists with full vigor in the field of taxation, where no 'iron rule' of equality has ever been enforced upon the states. Bell's Gap R. Co. v. Pennsylvania, 134 U.S. 232, 237, 10 S.Ct. 533, 33 L.Ed. 892; Giozza v. Tiernan, 148 U.S. 657, 662, 13 S.Ct. 721, 37 L.Ed. 599. A state may exercise a wide discretion in selecting the subjects of taxation (Magoun v. Illinois Trust & Savings Bank, 170 U.S. 283, 294, 18 S.Ct. 594, 12 L.Ed. 1037; Quong Wing v. Kirkendall, 223 U.S. 59, 62, 32 S.Ct. 192, 56 L.Ed. 350; Heisler v. Thomas Colliery Co., 260 U.S. 245, 255, 43 S.Ct. 83, 84, 67 L.Ed. 237) 'particularly as respects occupation taxes.' Oliver Iron Mining Co. v. Lord, 262 U.S. 172, 179, 43 S.Ct. 526, 529, 67 L.Ed. 929; Brown-Forman Co. v. Kentucky, 217 U.S. 563, 573, 30 S.Ct. 578, 54 L.Ed. 883; Southwestern Oil Co. v. Texas, 217 U.S. 114, 121, 126, 30 S.Ct. 496, 54 L.Ed. 688; see Ohio Oil Co. v. Conway, 281 U.S. 146, 159, 50 S.Ct. 310, 313, 74 L.Ed. 775.

Since carriers or other utilities with the right of eminent domain, the use of public property, special franchises or public contracts, have many points of distinction from other business, including relative freedom from competition, especially significant with increasing density of population and municipal expansion, these public service organizations have no valid ground by virtue of the equal protection clause to object to separate treatment related to such distinctions. Carriers may be treated as a separate class (compare Seaboard Air Line v. Seegers, 207 U.S. 73, 28 S.Ct. 28, 52 L.Ed. 108) and, as such, taxed differently or additionally. Southern R. Co. v. Watts, 260 U.S. 519, 530, 43 S.Ct. 192, 197, 67 L.Ed. 375. This Court has approved the adoption of modes and methods of assessment and administration peculiar to railroads (Kentucky Railroad Tax Cases, Cincinnati, N.O. & T.P.R. Co. v. Kentucky, 115 U.S. 321, 337, 6 S.Ct. 57, 29 L.Ed. 414), and upheld tax rates for railroads differing from those on other property, and as between railroad taxpayers, Michigan Central R. Co. v. Powers, 201 U.S. 245, 300, 26 S.Ct. 459, 50 L.Ed. 744; Ohio Tax Cases, 232 U.S. 576, 590, 34 S.Ct. 372, 58 L.Ed. 737; Columbus & G. Ry. Co. v. Miller, 283 U.S. 96, 51 S.Ct. 392, 75 L.Ed. 861. Similarly, we have explicitly recognized that a state may subject public service corporations to a special or higher income tax than individuals or other corporations. Atlantic Coast Line R. Co. v. Daughton, 262 U.S. 413, 424, 43 S.Ct. 620, 624, 67 L.Ed. 1051. The corporation concedes this general right to set apart the utilities in New York for taxation.

The corporation is brought within the purview of the Local Laws because 'utility' is defined to include those 'subject to the supervision * * * of the department of public service.' Section 1(e). It contends that classification in an excise tax, however, should be made by specific reference to the character of the business to be taxed, and that it is arbitrary to make taxability depend on whether a person is subject to the supervision of a commission. Valid reason for the definition utilized appears from the fact that the Local Laws merely adopted the classification previously established in the New York Public Service Law, N.Y.Laws 1910, c. 480, as amended, Consol.Laws, c. 48, which had selected those offering several kinds of public services, including the transportation of persons and property, section 25, 3 and made them subject to the supervision of the department of public service.

Several reasons may be suggested for the selection for special tax burdens of the utilities embraced by the Local Laws under discussion. We mention a few. Those subject to the supervision of the department of public service are assured by statute that new private enterprises may not enter into direct competition...

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