The opinion of the court was delivered by: MUNSON
Plaintiff Donald B. Lamont brings this action to enjoin the State of New York from pursuing collection of $ 700,000 in an alleged personal income tax deficiency. The State insists that Mr. Lamont was a resident of New York for each of the years 1976, 1977 and 1978, although he timely filed non-resident returns in each of those years. The New York State Tax Commission has previously attempted the collection of a jeopardy assessment of more than one million dollars under Section 694 of the N.Y. Tax Law for taxes allegedly owed in those three years. The State proceeded with seizure of over $ 340,000 in plaintiff's assets to satisfy that assessment. Plaintiff not only obtained a stay of the assessment, but was also successful in obtaining a decision by N.Y. Supreme Court on August 20, 1980, declaring Section 694 an unconstitutional denial of due process protections afforded by the 14th amendment.
The present Notice of Deficiency represents a renewed attempt by the Commission to collect the alleged deficiency for the three years in question, and it stipulates that the total amount comes due on June 16, 1981.
Additionally, plaintiff requests that this Court declare Article 22, §§ 689(c) and 690 of N.Y. Tax Law unconstitutional as applied to the plaintiff, on grounds that they violate the Due Process protections guaranteed by the Fourteenth Amendment.
The parties contest the meaning and application of the Tax Injunction Act, 28 U.S.C. § 1341 to establish the propriety of federal court jurisdiction. The statute states:
The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such state.
Tax Injunction Act, 28 U.S.C. § 1341 (1948). When examining the application of such statutory authority, the court must not only evaluate all available state remedies, but must also take a close look at both the meaning and interpretation of the legislation itself.
However, at the outset, it is important to note that this Circuit has recognized limitations to § 1341, and that proper jurisdiction to challenge a taxing statute may lie in federal court. The decision of Mobil Oil v. Tully, 639 F.2d 912, 918 (2d Cir. 1981), found tax assessment to be actually an exercise of police power, and hence that § 1341 could not operate as a bar to this Court's jurisdiction.
Furthermore, the Second Circuit has recognized that § 1341 will not prevent federal court review of a suit where "a taxpayer contended that an unusual sanction for non-payment of a tax admittedly due violated his Constitutional rights, an issue which, once determined, would be determined for him and for all others." Wells v. Malloy, 510 F.2d 74, 77 (2d Cir. 1975). The court in Wells interpreted the purpose of § 1341 as preventative of taxpayers generally contesting the validity of tax assessments on grounds of state or federal law. That opinion was narrowed by factual circumstances that involved the unconstitutional imposition of a penalty for a tax legitimately owed, whereas the present case involves the imposition of a state income tax assessment that appears to be entirely incorrect, thus subjecting the plaintiff to immediate payment without the safeguard of a "plain, speedy and efficient remedy" before the courts of New York State.
Proper federal court jurisdiction then turns on the availability of a proper remedy under New York law. This Court must rely on the Supreme Court's recent and thorough analysis of what constitutes a "plain, speedy and efficient remedy" in their decision of Rosewell v. LaSalle Nat. Bank, 450 U.S. 503, 101 S. Ct. 1221, 67 L. Ed. 2d 464 (1981). That Court held that such a remedy under state law shall be measured in a "procedural" context. Id. at -- , 101 S. Ct. at 1229. Justice Brennan then went on to evaluate the petitioner's available state remedies, recounting that the Illinois refund procedure "provides the taxpayer with a "full hearing and judicial determination' at which she (the petitioner) may raise any and all constitutional objections to the tax." Id. The Court further added that, "(appeal) to the higher Illinois courts is authorized, Ill.Rev.Stat., ch. 20 § 675, and review is ultimately available in this Court, 28 U.S.C. § 1257." Id.
However, the present case exposes a set of circumstances where no such procedural review is available. Plaintiff correctly argues that any further administrative consideration will result not in judicial de novo review on appeal, but rather in a narrow administrative review process which may only address 1) the arbitrariness of the prior determination by the N.Y.S. Tax Commissioner, 2) any abuse of discretion involved in the decision, and 3) whether the determination finds the support of substantial evidence from the entire record. Furthermore, plaintiff correctly argues that no ...