People ex rel. Tower v. State Tax Comm'n

• Decision Date: 16 April 1940
• Parties: PEOPLE ex rel. TOWER et al. v. STATE TAX COMMISSION.
• Court: New York Court of Appeals Court of Appeals

282 N.Y. 407

26 N.E.2d 955

PEOPLE ex rel. TOWER et al.

v.STATE TAX COMMISSION.

Court of Appeals of New York.

April 16, 1940.

Appeal from Supreme Court, Appellate Division, Third Department.

Proceeding by the People of the State of New York, on the relation of Duane L. Tower and others, as copartners under the firm name and style of C. H. Tower & Sons, against the State Tax Commission to review a determination assessing against relators an unincorporated business tax for the year 1935. From an order of the Appellate Division, 257 App.Div. 1064, 13 N.Y.S.2d 727, unanimously confirming the determination in which rehearing was denied in 257 App.Div. 1084, 14 N.Y.S.2d 1003, petitioners appeal.

Affirmed.

Paul P. Cohen, of Niagara Falls, for appellants.

John J. Bennett, Jr., Atty. Gen. (Joseph M. Mesnig, of Albany, of counsel), for respondent.

LEWIS, Judge.

Does the term ‘profession’ as employed in article 16-A, section 386, of the Tax Law (Consol.Laws, ch. 60), which makes provision for the collection of the unincorporated business tax, include a customhouse broker?

The question is presented upon an appeal by leave of this court from an order of the Appellate Division in a proceeding under article 78 of the Civil Practice Act (section 1283 et seq.) unanimously confirming an assessment of an unincorporated business tax for the year 1935 against the appellant copartnership.

Responsive to recommendations contained in reports filed in 1922 and 1925 by the New York Joint Legislative Committee on Taxation and Retrenchment and the report filed in 1932 by the New York State Commission for the Revision of the Tax Laws, the Legislature enacted article 16-A of the Tax Law (Laws of 1935, ch. 33), known as the Unincorporated Business Tax Law. The reports mentioned above and the debates during the Legislature's consideration of the measure indicate that the legislative purpose was not only to create a new source of revenue but also to lay a tax upon various types of non-corporate enterprise competing with corporations in this State which are required to pay a corporate franchise tax measured by net income. Tax Law, art. 9-A, s 215. See Legislative Document (1932), vol. 18, No. 77, pp. 183, 184.

The incidence of the unincorporated business tax is upon those businesses or vocations which, if conducted by corporations, would be subject to tax. The tax itself is ‘equal to four per centum of the entire net income within this state of (any) unincorporated business and shall be payable by the taxpayer conducting the same.’ Tax Law, s 386-a.

Our present problem arose in the course of administering section 386 which, after indicating the type of trades, businesses or occupations to be included within the term ‘unincorporated business,’ and thus subject to the tax, contains the following exclusionary clause: ‘* * * but exclude the practice of law, medicine, dentistry, architecture which under existing law cannot be conducted under corporate structure, and any other case in which more than eighty per centum of the gross income is derived from the personal services actually rendered by the individual or the members of the partnership or other entity in the practice of any other profession and in which capital is not a material income producing factor.’

It is not disputed that within the terms of the statute ‘eighty per centum of the gross income’ of the appellant copartnership ‘is derived from the personal services actually rendered by the * * * members'; nor is it claimed that in the services which the copartnership renders capital is ‘a material income producing factor.’

Our inquiry is thus narrowed to the question whether the appellant ‘C. J. Tower & Sons,’ doing business as a customhouse broker, is engaged in the practice of a ‘profession’ and thus exempt by section 386 from the unincorporated business tax.

The appellant copartnership was organized in 1917. It consists of three partners, all of whom devote their business hours to partnership affairs. One of the partners is admitted to the bar in this State. The other two partners studied ‘customhouse law’ while attending high school and thereafter under the tutelage of their father, who founded the firm. Each of the three present partners has qualified for a customhouse broker's license required by the United States Treasury Department. In this instance, however, the license has been issued in the name of the copartnership, as is permitted by Treasury Department regulations.

Neither admission to the bar nor special education is required of the partners to quality themselves or the partnership for a license...