Travis v. Yale Towne Mfg Co, 548

• Citation: 64 L.Ed. 460,252 U.S. 60,40 S.Ct. 228
• Decision Date: 01 March 1920
• Docket Number: No. 548,548
• Parties: TRAVIS, Comptroller of State of New York, v. YALE & TOWNE MFG. CO
• Court: United States Supreme Court

252 U.S. 60

40 S.Ct. 228

64 L.Ed. 460

TRAVIS, Comptroller of State of New York,

v YALE & TOWNE MFG. CO.

No. 548.

Argued Dec. 15 and 16, 1919.

Decided March 1, 1920.

Messrs. James S. Y. Ivins, of Albany, N. Y., and Jerome L. Cheney, First Deputy Atty. Gen., for appellant.

[Argument of Counsel from pages 61-66 intentionally omitted] Messrs. Louis H. Porter and Archibald Cox, both of New York City, for appellee.

[Argument of Counsel from pages 66-72 intentionally omitted]

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Mr. Justice PITNEY delivered the opinion of the Court.

This was a suit in equity, brought in the District Court by appellee against appellant as comptroller of the state of New York to obtain an injunction restraining the enforcement of the Income Tax Law of that state (chapter 627, Laws 1919) as against complainant, upon the ground of its repugnance to the Constitution of the United States because violating the interstate commerce clause, impairing the obligation of contracts, depriving citizens of the states of Connecticut and New Jersey employed by complainant of the privileges and immunities enjoyed by citizens of the state of New York, depriving complainant and its nonresident employes of their

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property without due process of law, and denying to such employes the equal protection of the laws. A motion to dismiss the bill equivalent to a demurrer—was denied upon the ground that the act violated section 2 of article 4 of the Constitution by discriminating against nonresidents in the exemptions allowed from taxable income; an answer was filed, raising no question of fact; in due course there was a final decree in favor of complainant; and defendant took an appeal to this court under section 238, Judicial Code (Comp. St. § 1215).

The act (section 351) imposes an annual tax upon every resident of the state with respect to his net income as defined in the act, at specified rates, and provides also:

'A like tax is hereby imposed and shall be levied, collected and paid annually, at the rates specified in this section, upon and with respect to the entire net income as herein defined, except as hereinafter provided, from all property owned and from every business, trade, profession or occupation carried on in this state by natural persons not residents of the state.'

Section 359 defines gross income, and contains this paragraph:

'3. In the case of taxpayers other than residents, gross income includes only the gross income from sources within the state, but shall not include annuities, interest on bank deposits, interest on bonds, notes or other interest-bearing obligations or dividends from corporations, except to the extent to which the same shall be a part of income from any business, trade, profession, or occupation carried on in this state subject to taxation under this article.'

In section 360 provision is made for deducting in the computation of net income expenses, taxes, losses, depreciation charges, etc.; but, by paragraph 11 of the same section:

'In the case of a taxpayer other than a resident of the state the deductions allowed in this section shall be allowed only if, and to the extent that, they are connected with income arising from sources within the state. * * *'

By

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section 362, certain exemptions are allowed to any resident individual taxpayer, viz. in the case of a single person a personal exemption of $1,000, in the case of the head of a family or a married person living with husband or wife, $2,000, and $200 additional for each dependent person under 18 years of age or mentally or physically defective. The next section reads as follows:

'Sec. 363. Credit for Taxes in Case of Taxpayers Other Than Residents of the State.—Whenever a taxpayer other than a resident of the state has become liable to income tax to the state or country where he resides upon his net income for the taxable year, derived from sources within this state and subject to taxation under this article, the comptroller shall credit the amount of income tax payable by him under this article with such proportion of the tax so payable by him to the state or country where he resides as his income subject to taxation under this article bears to his entire income upon which the tax so payable to such other state or country was imposed; provided that such credit shall be allowed only if the laws of said state or country grant a substantially similar credit to residents of this state subject to income tax under such laws.'

Section 366 in terms requires that every 'withholding agent' (including employers) shall deduct and withhold 2 per centum from all salaries, wages, etc., payable to nonresidents, where the amount paid to any individual equals or exceeds $1,000 in the year, and shall pay the tax to the comptroller. This applies to a resident employe, also, unless he files a certificate showing his residence address within the state.

Complainant, a Connecticut corporation doing business in New York and elsewhere, has employes who are residents, some of Connecticut, others of New Jersey, but are occupied in whole or in part in complainant's business in New York. Many of them have annual salaries or fixed compensation exceeding $1,000 per year, and the

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amount required by the act to be withheld by complainant from the salaries of such nonresident employes is in excess of $3,000 per year. Most of these persons are engaged under term contracts calling for stipulated wages or salaries for a specified period.

The bill sets up that defendant, as comptroller of the state of New York, threatens to enforce the provisions of the statute against complainant, requires it to deduct and withhold from the salaries and wages payable to its employes residing in Connecticut or New Jersey and citizens of those states respectively, engaged in whole or in part in complainant's business in the state of New York, the taxes provided in the statute, and threatens to enforce against complainant the penalties provided by the act if it fails to do so; that the act is unconstitutional for the reasons above specified; and that, if complainant does withhold the taxes as required, it will be subjected to many actions by its employes for reimbursement of the sums so withheld. No question is made about complainant's right to resort to equity for relief; hence we come at once to the constitutional questions.

That the state of New York has jurisdiction to impose a tax of this kind upon the incomes of nonresidents arising from any business, trade, profession, or occupation carried on within its borders, enforcing payment so far as it can by the exercise of a just control over persons and property within the state, as by garnishment of credits (of which the withholding provision of the New York law is the practical equivalent), and that such a tax, so enforced, does not violate the due process of law provision of the Fourteenth Amendment, is settled by our decision in Shaffer v. Carter, State Auditor, 252 U. S. 37, 40 Sup. Ct. 221. 64 L. Ed. , this day announced, involving the Income Tax Law of the state of Oklahoma. That there is no unconstitutional discrimination against citizens of other states in confining the deduction of expenses, losses, etc., in the case of nonresident taxpayers, to such as are

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connected with income arising from sources within the taxing state, likewise is settled by that decision.

It is not here asserted that the tax is a burden upon interstate commerce; the point having been abandoned in this court.

The contention that an unconstitutional discrimination against noncitizens arises out of the provision of section 366 confining the withholding at source to the income of nonresidents is unsubstantial. That provision does not in any wise increase the burden of the tax upon nonresidents, but merely recognizes the fact that as to them the state imposes no personal liability, and hence adopts a convenient substitute for it. See Bell's Gap Railroad Co. v. Pennsylvania, 134 U. S. 232, 239, 10 Sup. Ct. 533, 33 L. Ed. 892.

Nor has complainant on its own account any just ground of complaint by reason of being required to adjust its system of accounting and paying salaries and wages to the extent required to fulfill the duty of deducting and withholding the tax. This cannot be deemed an unreasonable regulation of its conduct of business in New York. Erie Railroad v. Pennsylvania, 153 U. S. 628, 14 Sup. Ct. 952, 38 L. Ed. 846, cited in behalf of complainant, is not in point. In that case the state of Pennsylvania grantedto a railroad company organized under the laws of New York and having its principal place of business in that state the right to construct a portion of its road through Pennsylvania, upon prescribed terms which were assented to and complied with by the company and were deemed to constitute a contract, not subject to impairment or modification through subsequent legislation by the state of Pennsylvania except to the extent of establishing reasonable regulations touching the management of the business done and the property owned by the company in that state, not materially interfering with or obstructing the substantial enjoyment of the rights previously granted. Afterwards, Pennsylvania undertook by statute to re

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quire the company, when making payments of coupons upon bonds previously issued by it, payable at its office in the city of New York, to withhold taxes assessed by the state of Pennsylvania against residents of that state because of ownership of such bonds. The coupons were payable to bearer, and when they were presented for payment it was practically impossible for the company to ascertain who were the real owners, or whether they were owned by the same parties who owned the bonds....