197 A.D. 131 | N.Y. App. Div. | 1921
Lead Opinion
The estate represented by the relator was the owner of certain real estate ’mortgages on which the recording tax required by section 253 of the Tax Law had been duly paid. Section 251 of that law provides as follows: “ All mortgages of real property situated within the State which are taxed by this article and the debts and the obligations which they secure, together with the paper writings evidencing the same, shall be exempt from other taxation by the State, counties, cities, towns, villages, school districts and other local subdivisions of the State,” except as therein provided which is not here material. The relator contends that the interest* on such mortgages may not be considered for the purpose of ascer-, taming the “ net income ” constituting the basis of the income tax imposed by section 351 of the Tax Law. The Comptroller has included such interest as one of the elements in determining such “ net income ” of the relator and has assessed .the income tax against the relator on the basis thereof. The purpose of this proceeding is to test the propriety of the position taken by the Comptroller.
The action of the Comptroller is clearly within the provisions of the Tax Law (§§ 351, 352, 357, 359, as added by Laws of 1919, chap. 627), relating to the imposition of income taxes, and known as the Income Tax Law. The principal contention of the relator is that section 251 of the Tax Law (as amd. by Laws of 1916, chap. 323, and Laws of 1917, chap. 485), which “with correlated sections is in article 11, known as the Mortgage Tax Law, was in effect á contract between the State and. mortgage investors that the latter on payment of the recording tax imposed by section 253 of the Tax Law (as amd. by Laws of 1916, chap. 323) should be exempt from all other taxation in respect to such mortgages and that the provisions of' the so-called Income Tax Law requiring the interest oh such mortgages to be considered in fixing the net income with respect to which the income tax is imposed is inconsistent with said section 251 and consequently impairs the obligation of the State’s contract with such mortgagees. For the purposes of this discussion it may be assumed without so deciding that the purpose of section 251 was to encourage mortgage investments and that it possesses the characteristics
There is still another view to take of this question. The income tax is not directly at least imposed on any particular income. The recording tax is imposed on the mortgage (§ 253); the income tax is a tax on the individual. It is “ imposed upon every resident of the State” (§ 351). His income is used only in fixing the measure of such tax. It is the “ net income ” on which the tax is computed (§ 351). The “ net income ” means the “ gross income ” of the taxpayer less legal deductions (§ 357) and in determining the “ gross income ” mortgage interest as well as all other income is
The determination should be confirmed, with fifty dollars costs and disbursements.
All concur, except John M. Kellogg, P. J., dissenting, with an opinion.
Dissenting Opinion
(dissenting):
The State is bound by its contracts which are based upon an actual and not a speculative consideration. (People ex rel. N. Y. C. & H. R. R. R. Co. v. Mealey, 224 N. Y. 187, 197; First Construction Co. v. State of New York, 221 id. 295.) Here, in order to induce the taking of real estate mortgages, the Legislature imposed a recording tax by sections 251, 253 and 254 of the Tax Law, and agreed with the relator, who corm plied with the act, to exempt “ all mortgages * * * and the debts and the obligations which they secure, together with the paper writings evidencing the same * * * from other taxation by the State,” and the subdivisions of the State, except from taxes imposed under certain sections of the statute which we are not interested in. In effect section 253 requires a payment in advance of a sum which is agreed to be in lieu of all future taxes on account of the mortgage, the debt and the obligation secured, together with the writings evidencing the same. Section 254, relating to mortgages made before the act, whether recorded or unrecorded, is a request to the owner to come within the act and obtain the benefits of the exemption. There the consideration of the contract more clearly appears.
The mortgage secured the payment of the interest as well as the principal; in fact the interest was clearly the moving
Where the law gives interest' as damages for the breach of a contract, it may be considered an incident to the debt; but where the original contract requires the payment of interest, the agreement to pay the interest is as much a part of the debt and obligation as is the agreement to pay the principal. (Southern Central R. R. Co. v. Town of Moravia, 61 Barb. 180, 189; Fake v. Eddy, 15 Wend. 76; Pollock v. Farmers’ Loan & Trust Co., 157 U. S. 429, 583.)
The State income tax is imposed upon net incomes. Interest, to be taxable as income, need not be actually paid. Unpaid interest, which has accrued and is payable, is subject to the tax. (Tax Law, § 350, subd. 6.) The taxpayer must include in his return all interest which .is accrued and payable. Subdivision 1 of section 359 speaks of income “ received,” but subdivision 6 of section 350 provides that the word “ received ” means “ received or accrued.” “ Accrued ” means “ due.” (Allen v. Armstrong, 58 App. Div. 427; 1 C. J. 733.) In Pollock v. Farmers’ Loan & Trust Co. (supra) it was held, under the old Federal Income Tax Law of 1894 (28 U. S. Stat. at Large, 509, chap. 349; Id. 553, § 27 el seq.), that income from municipal bonds could not be taxed by the Federal authorities, as they had no right to tax the bonds themselves.
The past due interest upon a mortgage, which by its terms draws interest, forms a part of the net income for taxation. It has not been paid, and the only right to it is that it is payable by the terms of the mortgage, the obligation upon which the tax has been paid; it is a part of the debt secured by the mortgage, and is exempt. Needless to say that mortgage loans were made under the act, and old mortgage loans were continued, in rebanee upon the exemption provision. The State is bound to keep its obligation with the mortgagees and cannot be permitted to change its position.
If there is a fair doubt as to the proper construction of section 359 of the Tax Law, the court will be solicitous to adopt the construction which makes for validity rather than
In my. judgment a fair construction of the Tax Law exempts the interest upon mortgages which have paid a recording tax. If this construction is wrong, then the part of the statute attempting to destroy the exemption is unconstitutional. I favor reversal.
Determination confirmed, with fifty dollars costs and disbursements.