Hodgson Russ LLP, Buffalo (Timothy P. Noonan of counsel), for
T. Schneiderman, Attorney General, Albany (Kate H. Nepveu of
counsel), for respondents.
Renwick, J.P., Gische, Kapnick, Gesmer, Kern, JJ.
Supreme Court, New York County (Manuel J. Mendez, J.),
entered June 13, 2017, which granted defendants' motion
to dismiss the complaint for failure to state a cause of
action, and denied plaintiffs' motion to convert
defendants' motion into a motion for summary judgment
pursuant to CPLR 3211(c), unanimously affirmed, without
appeal turns on whether Matter of Tamagni v Tax Appeals
Trib. of State of N.Y. (91 N.Y.2d 530');">91 N.Y.2d 530 , cert
denied 525 U.S. 931');">525 U.S. 931 ), in which plaintiffs'
present arguments were rejected by the Court of Appeals, was
abrogated by the decision of the U.S. Supreme Court in
Comptroller of the Treasury of Maryland v Wynne (___
U.S. ___, 135 S.Ct. 1787');">135 S.Ct. 1787 ). We conclude that
Tamagni was not abrogated by Wynne and
therefore that the instant complaint was correctly dismissed
for failure to state a cause of action.
argument is that New York's tax scheme violates the
dormant Commerce Clause by unfairly permitting double
taxation of their intangible income by both New York, where
they were "statutory residents," and Connecticut,
where they were domiciled (see 20 NYCRR 120.4[d]). Plaintiffs
contend that this taxation burdens interstate commerce,
particularly by inhibiting their free movement into New York
State to work and their ability to buy or lease a home in New
York due to the risk of being deemed a resident and subject
to double taxation of intangible income. Further, they
maintain that New York's tax scheme fails the
"internal consistency" test, which requires fair
apportionment of income between states and nondiscrimination
against interstate commerce (see generally Complete Auto
Tr., Inc. v Brady, 430 U.S. 274, 279 ; Matter
of Zelinsky v Tax Appeals Trib. of State of N.Y., 1
N.Y.3d 85, 90 , cert denied 541 U.S. 1009');">541 U.S. 1009
to plaintiffs' argument, Wynne is
distinguishable from Tamagni, and from the instant
case, in two critical respects. First, it did not involve
individuals who faced double taxation on intangible
investment income by virtue of being domiciliaries of one
state and statutory residents of another. Second, the income
subject to tax in Wynne was not intangible
investment income, but business income, traceable to an
out-of-state source. Notably, New York tax law does not
permit double taxation of such out-of-state income, but
provides for a credit for taxes paid to the other state.
contend that, unlike Tamagni, Wynne makes
clear that a tax scheme is not immune from Commerce Clause
scrutiny simply because it is "residency-based,"
i.e., imposed on taxpayers by virtue of their status as New
York statutory residents. Indeed, the Supreme Court said that
the state's "raw power to tax its residents'
out-of-state income does not insulate its tax scheme
from scrutiny under the dormant Commerce Clause"
(Wynne, 135 S.Ct. at 1799 [emphasis added]).
However, the income at issue in Tamagni (and in the
instant case) was not "out-of-state income" but
intangible investment income, which "has no identifiable
situs," "cannot be traced to any jurisdiction
outside New York," and is "subject to taxation by
New York as the State of residence" (Tamagni,
91 N.Y.2d at 536). Further, while Tamagni referred
to the "inapplicability of dormant Commerce Clause
analysis to State resident income taxation" (91 N.Y.2d
at 544), which is inconsistent with Wynne, it did so
only after recognizing that the statute "dictate[s] some
level of dormant Commerce Clause scrutiny" (id.
at 538-539) and engaging in a thorough analysis that
concluded that the taxation scheme did not violate the
dormant Commerce Clause.
does Wynne, by establishing that the "internal
consistency" test must be applied wherever there is
Commerce Clause scrutiny, abrogate Tamagni's
"core holding" that, even if Commerce Clause
scrutiny was necessary, there was no reason to apply the
test. Where Commerce Clause scrutiny reveals that the statute
at issue does not affect interstate commerce, there is no
need for a test determining whether the statute unduly
burdens interstate commerce.
motion court correctly denied plaintiffs' motion pursuant
to CPLR 3211(c). In the context of defendants' motion
pursuant to CPLR 3211(a)(7), the court's focus was on
whether plaintiffs had stated a claim for declaratory relief
under the Commerce Clause, not on whether they could prevail
on such a ...