Opinion
Submitted April 29, 1998
Decided May 7, 1998
Dennis C. Vacco, Attorney-General, Albany ( Andrew D. Bing of counsel), for appellant.
Christopher H. Lunding, respondent pro se, and Cleary, Gottlieb, Steen Hamilton, New York City, for Christopher H. Lunding and another, respondents.
SUMMARY
REARGUMENT, upon remand by the United States Supreme Court (___ U.S. ___, 118 S Ct 766), of an appeal, on constitutional grounds, from a judgment of the Appellate Division of the Supreme Court in the Third Judicial Department, entered March 14, 1996, which partially converted a proceeding pursuant to CPLR article 78 to an action for a declaratory judgment, declared Tax Law § 631 (b) (6) unconstitutional, granted the remainder of the petition, and annulled a determination of respondent Tax Appeals Tribunal of the State of New York.
Petitioners Christopher H. Lunding and his wife Barbara J. Lunding are Connecticut residents. In 1990, Mr. Lunding, a partner in a New York City law firm, derived substantial income from the practice of law in this State. On their joint New York nonresident tax return filed for the year 1990, they reported a Federal adjusted gross income of $788,210, which included an adjustment of $108,000 for the full amount of alimony that Mr. Lunding had paid that year to his former spouse, also a Connecticut resident. On their return petitioners adjusted their New York State gross income by 48.0868% of the alimony payments — equaling $51,934 which represented the percentage of Mr. Lunding's 1990 claimed New York business income. Relying on Tax Law § 631 (b) (6) the Audit Division of the Department of Taxation and Finance denied the alimony deduction and recalculated petitioners' New York tax liability, concluding that they owed an additional $3,724. A Notice of Deficiency in that amount followed. Petitioners then filed an administrative petition with the Division of Tax Appeals challenging the Notice of Deficiency on the ground that Tax Law § 631 (b) (6) was unconstitutional. Specifically, petitioners claimed that the tax which was the subject of the Notice of Deficiency cannot be collected because the statute and the Department's actions discriminate illegally against nonresidents in violation of the Privileges and Immunities, Equal Protection and Commerce Clauses of the United States Constitution. The Administrative Law Judge sustained the disallowance, holding that the Tax Appeals Tribunal lacked authority to declare the statute unconstitutional. Thereafter, petitioners commenced an article 78 proceeding. The Appellate Division converted the constitutional challenge into a declaratory judgment action, retained as an article 78 proceeding the remaining portion seeking annulment of the Tribunal's decision, and declared the statute violate of the Privileges and Immunities Clause.
The Court of Appeals reversed ( 89 N.Y.2d 283), concluding that New York's disparate tax treatment of alimony paid by a nonresident is fully justified in light of the disparate treatment of income: nonresidents are taxed only on income earned in New York, while residents are taxed on all income earned from whatever sources; that the advantage granted residents is offset by the additional burden of being taxed on all sources of income; that nonresidents are not denied all benefit of the alimony deduction since they can claim the full amount of such payments in computing the hypothetical tax liability "as if a resident" under Tax Law § 601 (e); that the disallowance is substantially justified by the fact that petitioner's alimony payments are wholly linked to personal activities outside the State; that New York's treatment of alimony deductions is rationally related to its substantial policy of taxing only those gains realized and losses incurred by a nonresident in New York, while taxing residents on all income from whatever sources; and that the challenged treatment is rationally related to the State's policy of limiting a nonresident's deductions to those attributable to income-producing activities in New York.
The United States Supreme Court granted certiorari and reversed and remanded (___ U.S. ___, 118 S Ct 766), concluding that New York failed to adequately justify its discriminatory treatment of nonresidents and, thus, its taxing scheme violated the Privileges and Immunities Clause.
Matter of Lunding v Tax Appeals Tribunal, 218 A.D.2d 268, affirmed.
OPINION OF THE COURT
Upon reargument, following remand by the Supreme Court of the United States, judgment affirmed, with costs ( Matter of Lunding v Tax Appeals Tribunal, ___ U.S. ___, 118 S Ct 766).
Concur: Chief Judge KAYE and Judges TITONE, BELLACOSA, SMITH, LEVINE, CIPARICK and WESLEY.