Amicus Curiae Brief — Brady v. New York

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NO. 92-1720 i 2%

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, i992

Lawrence J. Brady, Barbara A. Brady,

Deborah R. Labovitz, and Judah I.

Labovitz,

Petitioners,

Vv.

The State of New York, Mario Cuomo,

and James Wetzler,

Respondents.

BRIEF OF AMICUS CURIAE COMMONWEALTH OF

PENNSYLVANIA AND NEW HAMPSHIRE IN SUPPORT

OF PETITION FOR WRIT OF CERTIORARI

JAMES J. HAGGERTY ERNEST D. PREATE, JR.

General Counsel of Attorney General of

Pennsylvania Pennsylvania

Gregory E. Dunlap Michael A. Roman*

Deputy General Chief Deputy Attorney

Counsel General

Office of General Tax Litigation

Counsel Section

333 Market Street Office of Attorney

Harrisburg, PA General

17120 Strawberry Square

(717) 783-6563 Harrisburg, PA 17120

(717) 783-1460

ATTORNEYS FOR AMICUS CURIAE

COMMONWEALTH OF PENNSYLVANIA

*Counsel of Record

3FST AVAILABLE COPY

TABLE OF CONTENTS

Page

yO) ee ae er $33

INTEREST OF AMICUS CURIAR

A. PRELIMINARY

DEE 6 6:6 & 46 460 a: 1

B. IMPACT OF NEW YORK

TAX LAW ON

PENNSYLVANIA......... 4

i. Pennsylvania Tax

SO ese ss eee 4

2 New York Tax

BS ewe baeeweb es 10

GC. INTERESTS OF |

CA 66.5 2666006504 %% 14

ARGUMENT

A. STATE COURT

PROCEEDINGS.......cee 17

1. Appellate

See WS 6 5 4 oo 00 e seek 17

2. Court of

Eee ee ee 23

B. SECTIONS 601(D) AND (E) OF THE

NEW YORK TAX LAW VIOLATE THE

DUE PROCESS RIGHTS OF

NONRESIDENTS.......... 31

Cc. NEW YORK TAX LAW INTERFERES

WITH PENNSYLVANIA’S RIGHT

TO DEFINE THE LEGAL

RELATIONSHIPS OF ITS MARRIED

COUPLES ........ ceccccse 38

D. SECTIONS 601(D) AND (E),

WHEN COMPARED TO SECTION

651(B)(4), VIOLATE THE

PRIVILEGES AND IMMUNITIES

AND EQUAL PROTECTION CLAUSES

OF THE UNITED STATES

CONSTITUTION.......... 47

COMCLUS ION. cccccccccccccccessces 54

TABLE OF AUTHORITIES

Page(s)

CASES

Brady v. State of New York, 80 N.Y.2d

596, 592 N.Y.S.2d 955, 607 N.E.2d 1060

(1992)... creer cece ceecees 17,426,228

Brady v. State of New York, 172 A.D.2d

17, 576 N.Y.S.2d 896 (3rd Dept.

1991)... cc creveveccveeces 18,21

Denoncourt v. State Ethics Commission,

504 Pa. 191, 470 A.2d 945

(1983)... cere reece eevcees 14,41

Complete Auto Transit, Inc. v. Brady,

430 U.S. 274 (1977)...----- 10

Estate of Grossman, 486 Pa. 460, 406

A.2d 726 (1979)... eeeeeeeceees 41

Miller Bros. Co. v. Maryland, 347 U.S.

340 (1954)... eee cree eer eeccees 20,36

National Bellas Hess, Inc. v. Illinois,

386 U.S. 753

(1967). cece cere reece cece reccces 36

New York, L.E. & W. R. Co. v.

Pennsylvania, 153 U.S. 628

(1894)... cece cccccececceerccces 35

Paul v. Virginia, 75 U.S. (8 Wall.)

168 (1969)... cece eee cere eeces 49

St. Louis v. Wiggins Ferry Co., 11 Wall.

(78 U.S.) 423 (1871).---++---e- 35,37

Supreme Court of Virginia v. Friedman,

iii

il el

a ke of: | eer 49

STATUTES

New York

New York Tax Law

BOCEIOR G01 ssc cebass passim

Section 651(b)(2).... passim

Section 651(b)(4).... 47,48,51

Pennsylvania

Tax Reform Code of 1971, Act of

March 4, 1971 (P.L. 6, No. 2),

as amended, Pa. Stat. Ann. tit.

72, §§7101-10004 (Purdon 1990 &

Purdon Supp. 1992)...... 5

Section 302(b)(2), as amended,

Pa. Stat. Ann. tit. 72,

§7302b)(2) (Purdon Supp.

$y) Pee eee ee ee eae ee ee 5

Section 308, as amended, Pa.

Stat. Ann. tit. 72, §7308

(PurGom 1990). .ccsessees 6

Section 309, as amended, Pa.

Stat. Ann. tit. 72, §7309

(Purdon 1990)... ccecccese “§

Section 314, as amended, Pa.

Stat. Ann. tit. 72, §7314

(Purdon 1990)....ccceses 3

Section 331, as amended, Pa.

Stat. Ann. tit. 72, §7331

(Purdon 1990)...cccccsee 7

LEGISLATIVE MATERIALS

Commuter Tax Moratorium Bill: Hearing on

S. 800 Before the Senate Committee on

Finance, 10lst Cong., lst Sess.

(1990) cc cresceveccvecscseenecces 16

ADMINISTRATIVE MATERIALS

Pennsylvania

61 Pa. Code §§111.3-

2) are ee ee 3

INTEREST OF AMICUS CURIAE

A. PRELIMINARY STATEMENT

The effect of the provisions of the

New York Tax Law which the New York Court

of Appeals has upheld is to require

married Pennsylvania residents who work in

New York and file joint federal tax

returns to pay New York income tax not

only on the income they earned in New York

but also on their spouse’s income -- even

if the spouse resides and works in

Pennsylvania and has no New York source

income. This law violates the rights of

due process and equal protection of

Pennsylvania citizens who work in New York

and their spouses for the reasons

described in the Petition for Writ of

Certiorari. New York’s constitutional

error is founded in great part on its

Na ote eeeeeeeemnelll

illegitimate assumption that a married

couple residing in another state is

willing to be treated as a single taxable

unit for all purposes simply because they

filed a joint federal return.

The New York law also- erodes

Pennsylvania’s ability as a sovereign

state to tax incomes earned by its

residents within its borders. This result

occurs both because Pennsylvania allows a

limited income tax credit for income taxes

paid to other states and because New

York’s cross-border tax diminishes the

resources of Pennsylvania residents to

support their own state’s and local

communities’ tax efforts mecessary to

provide services to Pennsylvania

. 1

residents.

The New York law is not an isolated

example of this brand of extraterritorial

tax policy. Ohio already has a tax law

which emulates that of New York and,

therefore, adversely affects

Pennsylvanians who work in Ohio.

Moreover, based on the New York precedent,

other states bordering Pennsylvania may

well be tempted to enact tax laws modeled

after the New York law. According to the

petitioners, New Jersey is even now

‘Approximately 29,000 Pennsylvanians

have incomes derived from New York

sources and, thus, are liable to pay

income tax to New York. When a

Pennsylvanian pays income tax to New

York, the Commonwealth of Pennsylvania

(like most other states), in turn and in

fairness to its citizens, allows a credit

against the income tax which would

otherwise be due to Pennsylvania on that

New York income. See Pa. Stat. Ann. tit.

72, §7314 (Purdon 1990); 61 Pa. Code

§§111.3 - 111.5.

EEE

actively considering retaliation for New

York’s law. See Pet. for Writ of Cert.,

at 23-24 (quoting State Tax Notes 708

(Mar. 29, 1993)). Regardless of its

motivation, however, such retaliation by

New Jersey would skewer both residents of

New York and Pennsylvania who work in New

Jersey.

B. IMPACT OF NEW YORK TAX LAW ON

PENNSYLVANIA

oe Pennsylvania Tax Law

When a resident of one state earns

income in another, the state providing the

income is entitled, consistent with due

process under the United States

Constitution, to receive payment for the

benefits, protections and opportunities

provided to the cross-state commuter.

Thus, when a New York resident earns

income in Pennsylvania, Pennsylvania is

entitled to receive from the New York

commuter a fair share of his income,

through taxation, as compensation for the

services, opportunities, protections and

benefits he receives by virtue of his

employment in Pennsylvania. Consistent

with the limits of due process,

Pennsylvania imposes under its Tax Reform

Code of 19717 a tax upon a nonresident, at

a rate of 2.8 percent, on "that part of

his income derived from sources within

[Pennsylvania]." Pa. Stat. Ann. tit. 72,

§§7302(b)(2), 7308 (Purdon 1990 & Supp.

1992) (emphasis added). However, also

consistent with the requirements of due

process, any income a resident of New York

* Act of March 4, 1971 (P.L. 6, No.

2), as amended, Pa. Stat. Ann. tit. 72,

§§7101-10004 (Purdon 1990 & Supp. 1992).

Or any other state might earn outside of

Pennsylvania is entirely excluded from

taxation by Pennsylvania or from

consideration in the computation of

Pennsylvania income tax liability.

Some residents of New York and other

states who earn income in Pennsylvania are

married to a spouse who also earns income

in Pennsylvania. For those couples --

both of whom are subject to Pennsylvania’s

tax of 2.8 percent on their respective

incomes derived from sources in

Pennsylvania -- Pennsylvania provides an

option. The couple may, if they elect to

do_so, file a Single joint return and

determine a joint taxable income for which

both spouses are jointly and severally

liable. id., §§7309, 7331 (Purdon 1990).

However, if a nonresident should choose to

file a return Only for himself, then his

income from sources within Pennsylvania

would be determined separately from the

income of his spouse; and the taxpayer’s

income tax liability would be deemed to be

the separate and individual liability of

that taxpayer without regard to his

spouse’s income. Id., §§7309(a), 7331(a);

61 Pa. Code §117.2(@). These options,

provided to all nonresident Pennsylvania

taxpayers, are the same options

Pennsylvania accords to its own citizens.

Indeed, Pennsylvania recognizes, as a

matter of its constitution, that couples

in a marriage are not a single economic

entity but individuals with an independent

social, economic and legal status. See

Denoncourt v. State Ethics Commission, 504

Pa. 191, 420 A.2d 945 (1983); Estate of

Grossman, 486 Pa. 460, 406 A.2d 726

(1979).

Consistent with due process under the

United States Constitution, no person from

New York or any other state who derives

income from Pennsylvania is required to

report or to pay tax to Pennsylvania based

on income that is derived from New York or

any other state. Consistent with both due

process and fundamental principles of

privacy, Pennsylvania also does not

require a nonresident taxpayer to report

to Pennsylvania his or her spouse’s income

Or to pay income tax based upon his or her

spouse’s income. Thus, Pennsylvania

recognizes that, consistent with due

process, New York residents who derive

income from Pennsylvania may fairly be

taxed based solely upon the income which

they individually earn in Pennsylvania ar

derive from Pennsylvania sources.

These rules under Pennsylvania’s Tax

Reform Act and implementing regulations

are based upon three important governing

principles:

(1) Respect for the

sovereignty of New

York and other states

and their primary

authority to impose

income taxes on their

own residents without

undue overreaching by

Pennsylvania.

(2) Respect for the

exclusive rights of

other states to

establish the legal

rules governing the

economic relationships

between married

couples domiciled in

that state and, to the

extent not determined

by another state’s

law, respect for the

Spetivecy and

independence of the

partners to a marriage

to choose the rules of

relationship,

including those

affecting their

financial dealings

between each other and

with the government;

| |

and

(3) Imposition of

taxes on only that

portion of income

which "bears fiscal

relation to the

Protections,

Opportunities and

benefits given by the

state," consistent

with due process. See

Complete Auto Transit .

Inc. vy. Brady, 430

U.S. 274, 279 (1977).

Y New York Tax Law

Under TRARA, New York has seriously

invaded Pennsylvania’s and other states’

important interests and prerogatives as

Sister states. First, New York has

improperly invaded the taxing prerogatives

of Pennsylvania and other states. When

New York imposes additional taxes on

Pennsylvanians and other nonresidents

beyond those which fairly reflect the

services, protections and opportunities

provided to nonresidents by New York, New

York takes directiy from Pennsylvania and

other states important revenue upon which

those states depend to provide services

and protections to their own citizens.

New York's tax, therefore, harms

Pennsylvania and other states directly

when it overreaches the borders’ by

depriving the other state of income tax

revenue.

Equally important, the new tax policy

imposed by New York under TRARA has the

destructive effect of draining the

resources of the Commonwealth of

Pennsylvania and other states, their local

taxing jurisdictions and the people of

Pennsylvania and other states surrounding

New York. When New York reaches across

——————————

State lines -- as it does under TRARA --

to impose taxation based upon income

earned by individuals in Pennsylvania and

other states who receive no income in New

York (i.e., spouses of nonresident New

York taxpayers), or to impose taxation

based upon income with no connection to

New York (i.e., non-New York source income

of nonresident taxpayers and their

spouses), New York invades the very core

of Pennsylvania’s and other states’

-abilities as sovereign states to sustain

themselves and the abilities of their

local school districts and municipalities

to maintain essential human services.

Thus, when New York commands a

Pennsylvania couple to pay a tax to New

York based upon income earned in

Pennsylvania or from other non-New York

sources, New York not only violates the

personal civil rights of the citizens of

Pennsylvania, at erodes the very

sovereignty of the Commonwealth.

Third, the New York Tax Law, as

amended by TRARA, substantially intrudes

into the individual privacy interests of

Pennsylvania citizens and their families

in a manner deeply offensive to

Pennsylvania constitutional law. Through

its income reporting requirements, New

York trammels upon the basic foundations

of the marital relationship of

Pennsylvania citizens in which

Pennsylvania has the most compelling of

interests. The New York Tax Law strikes

at the heart of Pennsylvania’s

constitutionally protected rights of

privacy and individuality between married

couples who live in Pennsylvania by

requiring a New York taxpayer who resides

in Pennsylvania to disclose to New York

not only his own income but the income of

sin eieeeeeenineeneneemeeneeaeenl

his Pennsylvania resident spouse. In this

way, New York requires Pennsylvanians to

disclose information to New York which

Pennsylvania itself would not be able

constitutionally to require of its own

citizens. See Denoncourt yv. State Ethics

Commission, 504 Pa. 191, 470 A.2a 945

(1983).

Cc. INTERESTS OF COMITY

By reaching across State lines to

include, for tax calculation purposes,

Pennsylvania source income -- including

the income of Pennsylvanians who have no

connection with New York —- New York

invites other states to retaliate in a way

which Substantially undermines the

delicate comity among the states. Indeed,

retaliation by New Jersey or other states

for New York’s interstate taxation would

neieidentehiietieenntiniieiainia

also negatively impact Pennsylvania since

such retaliatory legislation would skewer

Pennsylvanians as well as New Yorkers who

work in New Jersey or in other states

which impose retaliatory taxation.

Governor Robert P. Casey of

Pennsylvania expressed that very concern

when he presented testimony to the United

States Congress four years ago. In a

statement submitted to the Committee on

Finance of the United States Senate on

June 13, 1989, Governor Casey said:

New York's cross-

border tax policy has

created hostility

between the states and

raised the specter of

retaliatory

legislation. If all

of the states

bordering New York are

to provide a full

range of services to

residents and

nonresident- commuters

alike, unilateral

aggrandizement like

the New York system

must be avoided. In

the final analysis,

unneighborly attempts

to shift the tax

burden onto

nonresidents can only

lead to interstate

conflict.

Commuter Tax Moratorium Bill: Hearing on

S. 800 Before the Senate Committee on

Finance, 10lst Cong., lst Sess. 101 (1990)

(statement of Robert P. Casey, Governor of

Pennsylvania).

Governor Casey’s words are no less

true today than they were in 1989.

Indeed, under the pressures increasingly

placed upon states to raise additional

revenues, it would be surprising if

retaliatory taxation were not launched in

other jurisdictions, such as New Jersey,

which have a progressive form of income

taxation.

ARGUMENT

A. STATE COURT PROCEEDINGS

l. Appellate Division

Under section 651(b)(2) of the New

York Tax Law, as amended by TRARA, New

York required "nonresident taxpayers and

their nonresident spouses, like resident

taxpayers and their resident spouses, [to]

file a joint state income tax return

(thereby reporting their aggregate

incomes) if they filed a joint federal tax

return." Brady v. State of New York, 172

A.D.2d 17, 20, 576 N.Y.S.2d 896, 898 (3rd

Dept. 1991) (App. 18a). As amicus curiae

in the New York Supreme Court, Appellate

Division, the Commonwealth of Pennsylvania

Supported the petitioners’ Claim that

section 651(b)(2) denies to nonresidents

substantive due process and equal

protection under the Fourteenth Amendment

to the United States Constitution since it

imposes tax Obligations to New York upon

persons who have no contact with New York.

The Commonwealth of Pennsylvania also

joined with the petitioners in New York in

arguing that the New York Tax Law violates

the Equal Protection Clause of the

Fourteenth Amendment and the Privileges

and Immunities Clause of the United States

Constitution since it allows to a New York

resident taxpayer married to a nonresident

the option of filing either a separate or

joint state income tax return, while

denying that option to a nonresident New

York taxpayer. See Brady v. State of New

York, 172 A.D.2d at 20-21, 576 N.Y.S.2d at

898 (App. 18a).

Finally, Pennsylvania supported the

petitioners’ challenge to sections 601(d)

and (e) of the Tax Law, which require

inclusion of non-New York income in New

York’s “income tax calculation as a

violation of substantive due process and

equal protection.”

*In the Appellate Division of the

Supreme Court of New York, all parties

assumed in their briefs that sections

601(d) and (e) of the Tax Law did not --

independently of the joint filing

requirement of section 651(b)(2) --

require a nonresident New York taxpayer

to pay income tax to New York based upon

his nonresident spouse’s income as

reported on their joint federal income

tax retirn. Indeed, after the appellate

division ruled section 651(b)(2) of the

Tax Law to be unconstitutional, the

Commissioner of Taxation and Finance

announced that a nonresident New York

taxpayer would not be required to report

his spouse’s income or to pay tax based

on -his spouse’s income. Instead, he was

allowed to recalculate his federal

adjusted gross income as if he had filed

With respect to the issue of spousal

income, the Appellate Division of the

Supreme Court of New York reached only the

petitioners’ due process objection to

section 651(b)(2) of the New York Tax Law.

Striking down the joint filing

requirement, the court relied upon this

Court’s decision in Miller Bros. Co. v.

Maryland, 347 U.S. 340, 344-45 (1954),

holding as follows:

Out-of-state

cohabitation with a

spouse having New York

income and filing a

joint Federal income

tax return with that

spouse cannot

constitute the

necessary minimum

connection for the

extraterritorial

exercise of New York’s

taxing power. Thus,

we have concluded that

an individual federal return.

Tax Law §651(b)(2)

violates due process

insofar as it may be

applied to require a

nonresident spouse of

a nonresident taxpayer

to file a joint State

tax return solely by

reason of the marital

relationship and the

filing by the couple

of a joint Federal

income tax return.

Brady v. State of New York, 172 A.D.2d at

22, 576 N.Y.S.2d at 899 (App. 20a).

The New York appellate court did not

reach the question of whether a

requirement that spousal income be

included in the calculation of a

nonresident New York taxpayer’s income tax

liability would violate the Due Process or

Equal Protection Clauses of the Fourteenth

Amendment or the Privileges and Immunities

Clause of the United States Constitution.

The court did not reach the other issues

because it concluded that sections 601(d)

and (e) do not by themselves reach spousal

income. In the opinion of the court,

section 651(b)(2) was the sole Statutory

mechanism for reaching spousal income for

tax calculation purposes. The court said:

The foregoing

ruling regarding Tax

Law §651(b)(2) renders

academic plaintiffs’

constitutional

challenges to the

validity of Tax Law

$601(d) and (e) that

were based upon the

interaction of those

sections with section

651(b)(2). The

language of Tax Law

$601(d) and (e) is

"Marriage neutral".

Once _a__nonresident

Spouse having no New

York income is no

longer obligated to

file a joint return

the remaining sections

of the Tax Law at

issue here are not

s2att_=nere are not

subject to the

objection that the

increase a onresident

taxpayer’s State tax

liability on the basis

of the non-New York

income of that

taxpayer’ s nonresident

spouse.

Id. (emphasis added) (App. 20a-2la)._

Thus, the Appellate Division of the

New York Supreme Court concluded that,

without the unconstitutional requirement

of section 651(b)(2) that a nonresident

spouse of a nonresident New York taxpayer

file a joint tax return with her spouse,

subsections (d) and (e) of section 601 do

not require a nonresident New York

taxpayer to include in his individual tax

return the income of his nonresident

spouse even if the couple had filed a

joint federal return.

7 2. Court of Appeals

New York did not appeal the decision

of the appellate division declaring

section 651(b)(2) of the New York Tax Law

to be unconstitutional. Nor did New York

appeal the ruling of the appellate

division that subsections (d) and (e) of

section 601 do not, independently of

section 651(b)(2), require a nonresident

New York taxpayer to include in his income

tax return the non-New York income of the

taxpayer’s nonresident spouse. Only the

petitioners appealed the appellate

division ruling.

The petitioners contended on appeal,

as they do in this Court, that sections

601(d) and (e) of the Tax Law are

unconstitutional because they require

inclusion of non-New York source income of

the individual nonresident taxpayer in the

tax calculation. However, even though

New York and its executive branch

officials did not appeal the appellate

division ruling, the New York Court of

Appeals overruled the appellate division’s

interpretation of sections 601(d) and (e).

Directly contrary to the opinion of the

appellate division, and contrary to the

arguments presented by the parties in the

lower courts, the court of appeals held

that sections 601(d) and (e),

independently of section 651(b)(2), do

require a nonresident taxpayer to report

his nonresident spouse’s income to New

York and to calculate his tax liability

based upon the joint income, regardless cf

the nonresident spouse’s lack of contact

with New York.

Thus, under the court of appeals’

interpretation of New York law, spousal

income is again attached by New York for

income taxation. Reversing his original

adherence to the appellate division’s

ruling, the Commissioner of Taxation and

Revenue no longer permits nonresident

taxpayers to recalculate their federal

adjusted gross income as if they had filed

individually rather than jointly.

The court of appeals described the

issue simply as "whether in fixing the

[state} tax rate, New York can refer to

Spousal income -included in the total

adjusted gross income on the couple’s

federal return ... ." Brady v. State of

New York, 80 N.Y.2d 596, 600n.1, 592

N.Y.S.2d 955, 956n.1, 607 N.E.2d 1060,

1061n.1 (1992) (emphasis added) (App. 4a).

The court of appeals held that New York's

authority to require the reporting of

spousal income for purposes of calculating

New York income tax liability, regardless

of the spouse’s lack of contact with New

York, "is unaffected by [the] holding" of

the appellate division that section

651(b)(2) requiring joint filing by the

spouse is unconstitutional. ee

Therefore, even though New York did not

appeal the appellate division

determination that sections 601(d) and (e)

of the Tax Law do not, without section

651(b)(2), in any way reach the income’ of

a nonresident spouse of a nonresident New

York taxpayer, the court of appeals held

that sections 60l(d) and (e) of the New

York Tax Law do provide that New York will

determine a nonresident’s tax liability by

“The appellate division clearly

disagreed with the court of appeals on

this issue of statutory construction

since the appellate division believed it

did not need to address the

constitutionality of requiring the

inclusion of spousal income in the

determination of income tax liability

once it struck down the joint filing

requirement. App. 20a-2la.

taking into account both the taxpayer’s

income and the income of his nonresident

Spouse -- as "determined by reference to

the taxpayer’s ‘federal adjusted gross

income’ (Tax Law §$612[a]})." Brady v.

State of New York, 80 N.Y.2d at 600, 592

N.Y.S.2d at 957, 607 N.E.2d at 1062 (App.

4a).

With one of the five judges

dissenting, the court of appeals rejected

each of the ‘arguments made by the

petitioners, including the argument that

Substantive due process does not permit

-New York to include in the tax calculation

of a nonresident taxpayer the separate

income of a nonresident spouse who has had

no contact with New York. The majority of

the court of appeals explained the

rationale for New York’s tax System as

follows:

A system of

progressive taxation

apportions the tax

burden based on

ability to pay --

higher income

taxpayers can pay more

and are therefore

taxed at a higher rate

than lower income

taxpayers.

Id., 80 N.Y.2d at 605, 592 N.Y.S.2d at

960, 607 N.E.2d at 1065 (App. 10a).

Implicit in the court of appeals’

rationale upholding the New York Tax Law

is the assumption that a nonresident New

York taxpayers’ income is defined not

simply by his own income, but by the joint

incomes of the taxpayer and his spouse.

Based on that assumption, New York

requires the reporting of the incomes of a

nonresident New York taxpayer and his

nonresident spouse as the measure of the

nonresident New York taxpayer’s "ability

to pay" income tax to New York. By

implication, New York and its court of

appeals has concluded that all marriage

partners residing in another state

necessarily share their individual incomes

with one another and are a single economic

entity for purposes of income taxation by

New York. New York’s assumption as to the

unitary status of married couples is

evidenced by the court of appeals’

statements that "similarly situated

taxpayers are those with the same total

income," id., 80 N.Y.2d at 605, 592

N.Y.S.2d at 960, 607 N.E.2d at 1065 (App.

10a), and that the joint income of married

couples is the true measure of their

"ability to pay" New York tax. Id.”

By measuring a couple’s "ability to

Pay" New York tax, the "economic reality"

and “practical effect" of New York’s

taxing scheme is that nonresidents with

B. SECTIONS 601(D) AND (E) OF THE

NEW YORK TAX LAW VIOLATE THE DUE PROCESS

RIGHTS OF NONRESIDENTS

On its face, sections 601(d) and (e)

of the New York Tax Law mandate that every

nonresident who derives income from New

York file a New York tax return reporting

all of the taxpayer’s income, from

whatever jurisdiction derived. And as now

construed by the Court of Appeals of New

York, sections 601(d) and (e) also require

a non-resident to report as well the

income of his nonresident spouse if, for

that tax year, the couple has elected

no connection to New York whatsoever are

compelled by "economic realities" to

assist their spouses in paying income tax

to New York. The practical effect upon

the nonresident spouse is that he or she

is to pay income tax to New York without

having received individually any benefit

or protection from New York and without

having had any relevant contact with New

York.

under federal law to file a joint return

with the Internal Revenue’ Service.

Sectfons 601(d) and (e) then require a

nonresident New York taxpayer to pay

income tax to New York based upon his

total income and the total income of his

nonresident spouse.

As construed by the court of appeals,

therefore, a Pennsylvania resident who

receives some cr all of his income from

New York, but whose spouse receives all of

her income from Pennsylvania sources or

other non-New York sources, is

nevertheless ee by New York law

(subject to criminal and civil penalties)

to disclose to New York both his entire

income and the income of his spouse earned

solely outside New York or derived solely

from sources outside New York. Then, the

New York Tax Law requires that the

nonresident taxpayer pay tax to New York

based on both his income and income

received solely by his spouse -- income

which the taxpayer does not legally own or

control, and from which he may not even

derive any benefit. New York imposes

these filing and payment obligations

involving nonresident spousal income

solely on the basis that the nonresident

couple has filed a joint federal tax

return.

Contrary to the limits of due

process, the nonresident taxpayer is

required to report his nonresident

spouse’s income and to pay tax based on

his spouse’s income to New York even if

the spouse has had not even one solitary

transaction having any contact with the

State of New York. Indeed, under the New

York Tax Law, the nonresident spouse of

the nonresident New York taxpayer would

not even have had to step one foot into

New York for the spouse’s income to be the

subject of the New York disclosure end tax

requirements. Yet New York presumes to

command a nonresident taxpayer residing in

Pennsylvania or another state to pay tax

to New York based on the income of another

person, his spouse, who has had no contact

with New York.

No conceivable argument under the Due

Process Clause of the Fourteenth Amendment

to the United States Constitution can

constitutionally justify New York’s

overreaching into Pennsylvania to tax the

income of Pennsylvania residents based

upon the income of the taxpayer’s spouse

who has had no meaningful or relevant

business or contact with New York.

Because sections 601(d) and (e), as

construed by the court of appeals, do

impose disclosure and tax obligations

involving the income of Pennsylvanians and

residents of other states who have had no

contact with New York, i.e., spouses of

nonresident New York taxpayers, the law

exceeds the bounds of due process.

As this Court has held:

If the Legislature of

a State should enact

that the citizens or

property of another

State or country

should be taxed in the

same manner as_ the

persons and property

within its own limits

and subject to its

authority, or in any

other manner

whatsoever, such a law

would be as much 4

nullity as if in

conflict with the most

a a

Se SS a Ss t

constitutional

inhibition.

St. Louis v. Wiggins Ferry Co., ll Wall.

(78 U.S.) 423, 430 (1871) (emphasis

added). See also New York, L.E. & W. R.

se. we. Pennsylvania, 153 U.S. 628, 646

(1894). Thus, before New York can require

a resident of Pennsylvania to comply with

the requirements of its tax laws --

including the requirements of disclosure

and taxation of income to New York -- New

York must show some relevant "minimal

contact" between New York and the person

whose income it seeks to reach. National

Bellas Hess, Inc. y. Illinois, 386 U.s.

753 (1967); Miller Bros. Co. v. Maryland,

347 U.S. 340 (1954).

Sections 601(d) and (€), as construed

by the court of appeals, are Clearly an

attempt by New York to reach, for

taxation, the incomes of Pennsylvania

residents and other nonresidents of New

York having no contact with New York but

who happen to be married to nonresident

New York taxpayers. The New York law

disregards the individual contacts of each

member of a marital couple domiciled in

Pennsylvania and other’ states. The

economic reality and practical effect of

the tax is to force a nonresident spouse

who is constitutionally beyond the taxing

authority of New York to contribute money

to her spouse to pay tax to New York. It

is no less a tax upon the spouse’s income

than if New York were to impose a tax

directly upon the nonresident spouse, as

it attempted to do under section 651(b)(2)

before the appellate division ruled the

joint filing requirement and liability

obligation to be unconstitutional. MThis

is precisely the type of broad, sweeping,

extra-territorial tax law which this Court

has said is prohibited by due process "as

if in conflict with the most explicit

constitutional inhibition." Wiggins

Ferry, supra, at 430.

C. NEW _YORK TAX LAW INTERFERES WITH

PENNSYLVANIA’S RIGHT TO DEFINE THE LEGAL

RELATIONSHIPS OF ITS MARRIED COUPLES

In briefs filed in the New York

courts, New York and its officials

Suggested that a nonresident of New York

might have contacts with New York,

sufficient to justify the imposition of

income tax requirements or to require the

reporting of joint income, simply "by

virtue of the economic benefit derived

from the New York income Shared by the

couple," or some "other [unspecified]

contacts" which the nonresident spouse

might have with New York (emphasis added).

The suggestion of New York and its

officials apparently is that New York may

presume, in enacting its tax laws, that

married couples domiciled in other states

are effectively one economic unit for

purposes of the due process clause and

that, therefore, New York may reach both

of their incomes as the income of one tmx

entity.

Perhaps, in defining the marital

relationship for its own domiciliaries,

New York law permits the state to presume

such "mutual economic benefit" between

spouses. But Pennsylvania, for one,

clearly does not presume such a

relationship between married couples

domiciled in Pennsylvania. It offends

both due process and the most basic

principles of comity when New York

presumes to define and interfere with the

economic relationships between spouses

domiciled in Pennsylvania in direct

contravention of Pennsylvania

constitutional law.

The Supreme Court of Pennsylvania

held more than a decade ago that the °

government may not view spouses domiciled

in Pennsylvania as one economic entity.

It said:

Any presumption of

identity of interest

is based upon the same

Ooutmoded social

conditions and policy

as was the common law

legal fiction of unity

of person of husband

and wife. Judges,

like all others, live

and work in a real

flesh and blood world,

tempered by the social

and cultural climate

of the GAP... :

Experience indicates,

and all perceptive

individuals inside and

outside the legal

profession know, that

to say soe that

husband and wife are

one and that their

interests are

identical is an

unmitigated fiction,

an assumption

supported by nothing

more than the meager

strength of its own

weak assertion. This

Gourt cannot and must

rot disregard the

plain fact that

spouses are no longer

completely dependent

upon one another

either economically,

socially or legally.

Modern conditions

demand that courts no

longer engage in the

automatic and

unsupported assumption

that one’s pecuniary

or proprietary

interest is identical

to that of one’s

spouse. For many

years, parties to a

marriage have often

pursued independent

careers, businesses

and vocations... .

Estate of Grossman, 486 Pa. 460, 472-73,

406 A.2d 726, 732 (1979) (emphasis added).