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Tax Law

New York Court of Appeals Dismisses Commerce Clause Challenge For Lack of a “Substantial Constitutional Question”

New York’s highest court dismissed taxpayers’ appeal of an Appellate Division ruling that the payment of tax on intangible income to New York as statutory residents, without a credit for tax paid to Connecticut as domiciliaries, determining that the appeal did not raise a “substantial constitutional question.” Edelman v. New York State Dep’t of Taxation and Fin., 2019 NY Slip Op 66249 (N.Y. 2019). The intermediate court relied on the New York Court of Appeals decision in Tamagni v. Tax Appeals Tribunal, 91 N.Y.2d 530 (1998), which similarly determined that taxing statutory residents on intangible income without provided a credit for tax paid to the taxpayer’s state of domicile did not violate the Commerce Clause. As the Tamagni court held, the tax was imposed based only on the taxpayer’s status as a New York resident, without regard to any economic or interstate activity, and thus did not implicate the Commerce Clause.

More recently, however, the U.S. Supreme Court determined in Comptroller of Treasury of Maryland v. Wynne, 135 S. Ct. 1787 (2015), that a state’s “raw jurisdictional power” to tax its residents “says nothing about whether that tax violates the Commerce Clause.” Nevertheless, in Edelman, the Appellate Division distinguished Wynne on two grounds: Wynne did not involve a situation where double taxation arose from the taxpayer’s status as a domiciliary of one state and a statutory resident of another; and Wynne did not involve a tax on intangible income. Edelman v. New York State Dep’t of Taxation and Fin., 162 A.D.3d 574 (2018). The Court of Appeals’ dismissal of the case leaves the Appellate Division’s decision intact.

The taxpayers petitioned for certiorari to the U.S. Supreme Court on June 24, 2019. Docket Nos. 18-1569, 18-1570.