Shapiro v. City of New York

• Decision Date: 19 October 1971
• Parties: Meyer SHAPIRO, on behalf of himself and all other self-employed professionals practicing individually, similarly situated v. The CITY OF NEW YORK and Richard Lewisohn, Finance Administrator of the City of New York.
• Court: New York Supreme Court

Page 787

325 N.Y.S.2d 787

67 Misc.2d 1021

Meyer SHAPIRO, on behalf of himself and all other

self-employed professionals practicing individually, similarly situated v. The CITY OF NEW YORK and Richard Lewisohn, Finance

Administrator of the City of New York.

Supreme Court, Special Term, Kings County, Part I.

Oct. 19, 1971.

Meyer Shapiro pro se.

J. Lee Rankin, Corp. Counsel, Samuel J. Warms and Isaac C. Donner, New York City, of counsel, for defendant City of New York.

Brooklyn Bar Association, amicus curiae, by Stephen M. Raphael, Brooklyn.

MEMORAMDUM

J. COURTNEY McGROARTY, Justice.

Plaintiff, an attorney, by order to show cause containing a stay against the City from enforcing collection of the Unincorporated Business Tax against self-employed practitioners, seeks a declaration of unconstitutionality of Local Law No. 36 passed by the City Council June 22, 1971 and approved by the Mayor on June 30, 1971 (published in The City Record 7/2/71, p. 3111). Said Local Law, effective immediately and applicable to all taxable years beginning on or after January 1, 1971, repeals the exemption heretofore enjoyed by self-employed doctors, lawyers, architects and practitioners 'of any other profession' from the Unincorporated Business Tax of the City of New York. The exemption of employees, as a class, is unaffected.

The spearhead of plaintiff's attack is that the repealing statute discriminates against 'self-employed professionals in favor of salaried professionals' and that including professions within the classification of business creates a double tax on the self-employed professionals; thereby denying 'plaintiff and those similarly situated the equal protection of the law' and takes 'their property without due process of law.'

Plaintiff annexes in support of his application copies of the papers submitted by the Association of the Bar of the City of New York, the New York County Lawyers Association and the New York State Bar Association to the New York City Council in opposition to the enactment of the repealing statute. The Brooklyn Bar Association's request for permission to appear as Amicus curiae is granted and its memorandum of law will be considered as a part of the moving papers.

In 1966, Chapter 772 of the Laws of the State of New York was enacted 'to enable any city having a population of one million or more to raise tax revenue by authorizing the imposition of taxes * * * on unincorporated businesses.' An unincorporated business was defined as 'any trade, business or occupation * * *' Specifically excluded from such definition were 'The performance of services by an individual as an employee * * *' and 'The practice of law, medicine, dentistry or architecture, and the practice of any other profession * * *.' The tax to be imposed was to 'be in addition to any other taxes imposed' and '(no) deduction shall be allowed for income taxes imposed by the city, this state or any other taxing jurisdiction' (McKinney's 1966 Session Laws of New York, Chapter 772, Preamble, p. 941 and §§ 101, 103 and 106(4); also, McKinney's General City Law Appendix, §§ 103 and 106).

Pursuant to Chapter 772, the City enacted its 'City Unincorporated Business Income Tax' (L.L.1966, No. 21, § S46--1.0 et seq. of the New York City Charter and Administrative Code) and made it applicable to income beginning with the calendar year 1966. The language of Chapter 772 was adopted by the City to define the tax, the exemptions therefrom and that the tax was in addition to other taxes, without any deduction of income taxes.

On June 9, 1971, Chapter 412 of the Laws of the State of New York was enacted "to enable any city having a population of one million or more to raise tax revenue" and "to repeal article two-B of the general city law, authorizing the imposition of a general business and financial tax by such city', in relation to including professions in the definition of unincorporated businesses subject to the unincorporated business tax * * * and in relation to repealing the specific exclusion of certain professions from such tax' (Preamble). Section 1(a) of the Act now defines an unincorporated business as'any trade, business, Profession or occupation.' In addition section 2 of the Act repealed the exclusion of the practice of a profession by all excepting employees. The Act was made effective immediately and applicable to all tax years beginning with January 1, 1971. The City followed Chapter 412 with the enactment of Local Law No. 36 (being here attacked as unconstitutional), again adopting the language of the Legislature.

The power to tax is an inherent right of government. It is not dependent on constitutional grant, for without it government could not exist or perform its functions. 'While it may be regulated and limited by the fundamental law, it exists 'independently of it as a necessary attribute of sovereignty" (People ex rel. Hatch v. Reardon, 184 N.Y. 431, 443, 77 N.E. 970, 973, affd. 204 U.S. 152, 27 S.Ct. 188, 51 L.Ed. 415). The exercise of such right may bear more heavily on various segments of our society for '(all) taxation is arbitrary * * * it compels the citizen to give up a part of his property; it is generally discriminating, for otherwise everything would be taxed, which has never yet been done, * * * and frequently it is unreasonable, but that does not make it unconstitutional, even if the result is double taxation' (People ex rel. Hatch v. Reardon, Supra, 443, 77 N.E. 973). It 'may not be successfully contended that the Legislature lacks the power to impose or to delegate to a municipality power to impose what is called 'double taxation" if the 'intention on the part of the Legislature * * * be clearly and distinctly expressed' (Socony-Vacuum Oil Co., Inc. v. City of New York, 247 App.Div. 163, 165, 287 N.Y.S. 288, 291, affd. 272 N.Y. 668, 5 N.E.2d 385). The 'pressures for new revenues become more and more insistent,' and the 'means of meeting them present to a state not only the baffling task of tapping fresh sources of revenue but of doing so with due regard to a state's existing taxing system.' Thus a supplementary income tax oftentimes becomes a matter of necessity and the court may not concern itself with the 'descriptive pigeonhole into which a state court puts a tax * * * in determining the constitutional significance of the exaction.' (Wisconsin v. J. C. Penny Co., 311 U.S. 435, 442, 443, 61 S.Ct. 246, 249, 85 L.Ed. 267).

The Unincorporated Business Tax, as indicated in its Preamble, was conceived and enacted as a revenue raising measure on behalf of cities having a million or more population. The State Legislature was sensitive to the needs of our larger cities for additional funds. Under our developing social consciousness the requirements for expanded services and facilities for the welfare of our citizenry are limited only by the economic ability to furnish them. That the Unincorporated Business Tax is basically an additional levy on income is recognized by the very fact that the 1966 Act specifically stated that it was to 'be in addition to any other taxes imposed' and that 'No deduction shall be allowed for income taxes.' This tax was considered by the Court of Appeals in People ex rel. Tower v. State Tax Commission, 282 N.Y. 407, 26 N.E.2d 955 but not on constitutional grounds. Its validity was not attacked; but what was sought was an interpretation of its exclusion of members of the professions to include a custom house broker. Significantly, the court stated at page 411, 26 N.E.2d at page 957:

'* * * the business of a customhouse broker may be conducted by a corporation. * * * by section 386 the Legislature chose to exempt the professions of the law, medicine, dentistry and architecture for the express reason that 'under existing law (they) cannot be conducted under corporate structure.' The reason for such exemptions thus stated in the statute makes clear the Legislature's intent to reach by tax those vocations which, if conducted in corporate form, would be the subject of taxation.'

This court will not determine plaintiff's application on the narrow ground that since members of the professions may now incorporate the repeal of the exemption may not be assailed.

Exemptions of a class from tax is wholly within the province of the Legislature so long as there is some underlying reason. 'Neither due process nor equal protection imposes upon a state any rigid rule of equality of taxation. * * * inequalities which result from singling out of one particular class for taxation or exemption, infringe no constitutional limitation' (Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 509, 57 S.Ct. 868, 872, 81 L.Ed. 1245). The basis of the selection of exemption need only be such 'that the classification must not be'so purely arbitrary as to have no reason, not even an insufficient or merely plausible reason, to justify it. '"""' Thus classifications for taxation purposes are valid so long as they are not "based on fictions or on arbitrary or unreasonable assumptions of fact' or unless they indicate 'hostile or oppressive discrimination * * *. " (Roosevelt Raceway, Inc. v. County of Nassau, 18 N.Y.2d 30, 39, 271 N.Y.S.2d 662, 667, 668, 218 N.E.2d 539, 543; appeal dismissed for want of a substantial federal question (385 U.S. 453, 87 S.Ct. 614, 17 L.Ed.2d 510)).

Stating the rule as a positive postulate, classifications must be presumed to rest on a rational basis 'if there is any conceivable state of facts which would support it (Carmichael v. Southern Coal, supra, 301 U.S. 509, 57 S.Ct. 872) and as observed by the court in State Board of Tax Commissioners of Indiana v. Jackson, 283 U.S. 527, 537, 538, 51 S.Ct. 540, 543, 75 L.Ed. 1248 'Our duty is to sustain the classification adopted by the Legislature if there are substantial differences between the occupations separately classified. Such differences need not be great.'

The crucible residue to be analyzed by this court is whether...