CHAPTER XXIV.

CONSTITUTIONALITY.

There are few restrictions on taxation in the New York Constitution, but a provision that has given the courts some concern and that on its face does not appear to have any direct bearing on taxation, is what is known as the "Home Rule" provision which reads as follows:

"Article 10, Section 2. All county officers whose election or appointment is not provided for by this constitution, shall be elected by the electors of the respective counties or appointed by the boards of supervisors or other county officers as the legislature shall direct. All city, town and village officers whose election of appointment is not provided for by this constitution, shall be elected by the electors of such cities, towns and villages, or of some division thereof, or appointed by such authorities thereof as the legislature shall designate for that purpose. All other officers whose election or appointment is not provided for by this constitution, and all officers whose offices may hereafter be created by law, shall be elected by the people, or appointed, as the legislature may direct."

This provision was in 1903 invoked in People ex rel. Metropolitan Street Railway Co. v. Tax Commissioners, 174 N. Y. 417 Aff'd 199 U. S. 1, where the constitutional right of the legislature to pass the special franchise tax was involved. The point was raised that as the special franchise tax was required to be assessed by the State Tax Commission appointed by the Governor, this was taking away from the local tax assessors the right of valuation, since they were constitutional officers under this provision.

The Court of Appeals decided in this case that the special franchise tax act was constitutional on the ground that special franchises gave the state tax commission the power to assess a new form of property, and that while some real estate in the street was

assessed therewith, it was only incidental to the new form of taxation.

Judge Vann, in the opinion of the court, said that:

"Home rule, as understood and practiced in the past, giving to localities the right to govern themselves, but not to hamper the government of the state, should be carefully protected from open attack or indirect invasion. Shadows, however, should give way to substance, and the right to create a new system of taxation and bring in property of a new character, hitherto untaxed, with some other property incidental thereto and worthless without it, cannot, as we think, be denied upon principle and should not be withheld from the legislature unless required by some controlling decision of the court."

The same provision as that contained in the New York Constitution (Article X) has been embodied in the Wisconsin Constitution and its interpretation came before the Wisconsin Supreme Court in the case of State ex rel. Daniels v. Hussy, 143 Wisc. 649. In that case there was involved the validity of an act of the Wisconsin legislature which authorized a reassessment of the entire property of any town, city or village by the state tax commission, if it should be found that the original assessment had not been legally made, and public interests required a reassessment.

All the New York cases including the special franchise tax case, were reviewed in the Daniels suit, and the court held that a reassessment by a state officer, of an illegal assessment made by local. officers, was no deprivation of home rule.

The same section again came up for review before the Wisconsin Courts in State ex rel. Bolens v. Frear, 148 Wisc. 456. In this case the new Wisconsin Income Tax Law (Chapter 658 of the Laws of 1911), was attacked on the ground that it took away from the local assessor the power to tax personal property and turned over to a new officer called "Assessor of Incomes" appointed by the state tax commission, the power to tax property in the form of incomes.

The court held that the new office was neither a county, city, town or village office, nor an office existing at the time of the adoption of the constitution, or essential to the existence or efficiency

of either of said municipal divisions of the state, but rather an entirely new office whose election or appointment might be provided for by the legislature in its discretion.

The "Home Rule" provision contained in the present state constitution was taken from the same section and article of the constitution of 1846, with the change of but a single word. At the time of the adoption of the constitution of 1846, assessors were local officers exercising the functions of their offices in the various towns or villages, or in the several wards of cities. They had been recognized as local officers by the first constitution of this state, which provided that

"Town clerks, supervisors, assessors, constables and collectors and all other officers heretofore eligible by the people, shall always continue to be so eligible."

In 1915 there was submitted to the voters of New York, a proposed constitution which failed of adoption, and which contained among its provisions a new Article X, providing for a different form of assessing by assessors who might be either elected or appointed by such authorities as designated by law. Sections 2 and 3, Article X, of the proposed Constitution read as follows:

"The legislature shall prescribe how taxable subjects shall be assessed, and provide for officers to execute laws relating to the assessment and collection of taxes; any provision of Section 2 of Article 13 of this constitution to the contrary notwithstanding." (Section 2, Article 13, is the number of the "Home Rule" provision in the proposed constitution.)

"Section 3. For the assessment of real property, heretofore locally assessed, the legislature shall establish tax districts, none of which, unless it be a city, shall embrace more than one county. The assessors therein shall be elected by the electors of such districts or appointed by such authorities thereof as shall be designated by law. The legislature may provide that the assessment roll of each larger district shall serve for all the lesser tax districts within its boundaries. No such tax district larger than a town, except a city, shall be established until the law providing therefor shall have been adopted by a vote of a majority of the electors voting thereon in such proposed district at an election for which provision shall be made by law. The legislature may, however, provide for the assessment by state author

ities of all the property of designated classes of public service corporations."

In submitting these changes to the electorate, the framers of the proposed article stated:

"That these sections vest complete and unhampered power in the legislature to deal effectively with the subject of taxation to the end that property now notoriously escaping taxation may be made to bear a fair and just share of the burdens of government."

There evidently was a realization here that the "Home Rule" provision did not permit the taxation of property unless the same was assessed by local assessors. In a recent case, People ex rel. Town of Pelham v. Pelham, 215 N. Y. 374, in which a law transferring the duties of village collector to a town collector, was declared unconstitutional, the "Home Rule" provision was again upheld in these words:

"Local functions, however, cannot be transferred to a state officer. The legislature has the power to regulate, increase or diminish the duties of the local officer but it has been steadfastly held that this power is subject to the limitation that no essential or exclusive function belonging to the office can be transferred to an officer appointed by central authority."

Is the tax on incomes an assessment on a new form of property? In the Metropolitan Street Railway Company case, supra, the special franchise tax law was upheld because it conferred the power to assess a new form of property. Will it be held that the income tax act brings in property of a new character? As far back as 1778, the state raised some of its revenue by means of an income tax (Chapter 17, Laws of 1778). Under this provision of the New York law, the local assessors were required to assess

"each and every person within their respective districts, whom they shall know or suspect to have gained by trade merchandise, traffic or manufactory, one thousand pounds or upwards since the twelfth day of September in the year of our Lord, One thousand seven hundred seventy-six"

a tax of fifty pounds over and above the one penny half-penny to be assessed upon his personal estate for over one thousand pounds so gained.

While the Home Rule Provision is essentially the same in the Wisconsin constitution as in that of New York, the history of local assessors' duties and powers in this state differs somewhat from that of the western state in that at a very early period in New York's history, the power was conferred upon local assessors to tax incomes. Our Courts have jealously guarded this provision of the constitution, but it is not easy to predict what position they may take on this doubtful point in view of the opinion in the New York special franchise tax case, People ex rel. Metropolitan Street Railway Co. v. Tax Commissioners, supra. If the New York Courts hold that the personal income tax has taken away the local assessors' powers and transferred them to a state official and that this is an infringement of the "Home Rule" provision, such a decision would undoubtedly annul the entire law.

Is the New York income tax contrary to the federal constitution? There seems to be little doubt that New York may levy a tax upon inhabitants or residents of the state based on the entire net income whether derived from property, business or occupations. In so far as non-residents are concerned, it may levy a tax based on net income from sources within the state, provided it does not contravene the federal constitution. In general, it may be said that the State of New York cannot prevent the citizens of a sister state from doing business in this state on any other basis than that accorded to her own citizens. The federal constitution has guaranteed this in the 4th amendment under which the citizens of each state are entitled to all the privileges and immunities of every other state. The federal government does not grant a non-resident alien a personal exemption of $1,000 or $2,000, as the case may be. The State of New York has copied this provision in its income tax law and denied the citizens of other states residing beyond its jurisdiction, the personal exemption, although all the income of such citizens may be derived from sources within the state. There is a distinction between the right of the United States to tax a nonresident alien and that of the state to tax a citizen of another state. The federal government can prevent aliens from coming into this