New York Rapid Transit Corp. v. New York City, 303 U.S. 573 1938) (1938)
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U.S. Supreme Court NEW YORK RAPID TRANSIT CORP. v. CITY OF NEW YORK,
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the city of New York' an excise tax shall be paid by every 'utility' doing business in the City of New York during 1935 and the first six months of 1936 'Utility' is defined, section 1(e), to include 'any person subject to the supervision of either division of the department of public service,' and every person, whether or not subject to such supervision, engaged 'in the business of furnishing or selling to other persons gas, electricity, steam, water, refrigeration, telephony and/or telegraphy' or service in these commodities. Each utility is required to pay a tax 'equal to three per centum of its gross income' (section 5) received during the effective period of the Local Laws, with a minor variation not here assailed for utilities not subject to the specified supervision. [Footnote 1] The Local Laws specify that all revenues from the tax 'shall be deposited in a separate bank account or accounts, and shall be available and used solely and exclusively for the purpose of relieving the people of the city of New York from the hardships and suffering caused by unemployment'. Section 14. The Local Laws, admittedly passed under authority granted by the state Legislature,2 are assailed under the United States Constitution. For convenience we shall discuss the contentions of the New York Rapid Transit Corporation alone, as determination of the objections
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excise tax, however, should be made by specific reference to the character of the business to be taxed, and that it is arbitrary to make taxability depend on whether a person is subject to the supervision of a commission. Valid reason for the definition utilized appears from the fact that the Local Laws merely adopted the classification previously established in the New York Public Service Law, N.Y.Laws 1910, c. 480, as amended, Consol. Laws, c. 48, which had selected those offering several kinds of public services, including the transportation of persons and property, section 25, 3 and made them subject to the supervision of the department of public service.
Several reasons may be suggested for the selection for special tax burdens of the utilities embraced by the Local Laws under discussion. We mention a few. Those subject to the supervision of the department of public service are assured by statute that new private enterprises may not enter into direct competition without a showing of convenience and necessity for the public service. [Footnote 4] See New York Steam Corp. v. City of New York, 268 N.Y. 137, 147, 197 N.E. 172, 99 A.L.R. 1157. The corporation suggests that the statute does not curb competition from the city's own rapid transit lines and from taxicabs. Freedom from unlimited, direct, private competition is of itself a sufficient advantage over ordinary businesses to warrant the imposition of a heavier tax burden. Reports which must be filed with the department of public service on the basis of approved systems of accounting suggest an administrative convenience in the collection and verification of the
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tax5 which might properly have been taken into account by the city's Legislature. See Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 511, 57 S.Ct. 868, 873, 109 A.L.R. 1327, and cases cited. The Legislature may reasonably have conceived that the revenues of utilities furnishing indispensable services are subject to relatively little fluctuation, even in depression times, and reasonably have shaped its tax system accordingly.
II. Discrimination. The corporation urges here, as the lower state courts held, that these general principles of classification are not effective to validate legislation where, as in these Local Laws, arbitrary, unreasonable and hostile discrimination against certain railroad companies is shown. This unlawful discrimination appears, because 'they are,' as the corporation sees it, 'in a far poorer position to bear the burden of unemployment relief than is business in general.' Business may pass on taxes. Other utilities may apply to the commission and perhaps to the courts for an adequate rate increase. This corporation cannot do so as by contract No. 4 with the city it is bound to furnish transportation for a five-cent fare, which by city charter provision cannot be changed without the approval of the proposal by a majority of the qualified voters, on referendum. [Footnote 6] It is alleged in the complaint that rapid transit corporations are less able to pay a gross receipts tax than other utilities, whose
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of sales' the graduated tax under consideration exacted not only a larger gross amount but one 'larger in proportion to sales' (at page 564 of 294 U. S., 55 S.Ct. 525, 531).
III. Relation to Object of Legislation. As a further ground for the invalidity of the Local Laws the corporation urges that 'the classification must rest upon some ground of difference, having a fair and substantial relation to the object of the legislation.' It is asserted and correctly so, that the Local Laws in question, as well as the state enabling statutes, show by their titles and content that the proceeds of the challenged taxes were for the relief of unemployment. [Footnote 7] Violation of the rule invoked, it is asserted, occurs from the discrimination shown by the legislation in raising 'a special fund for the particular purpose' from taxpayers no more responsible than others for the conditions. The corporation seems to be of the opinion that no 'state or city can, without conflict with the Constitution, adopt a tax statute, which states a specific object sought to be accomplished thereby and which at the same time puts the entire burden of the tax
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IV. Contracts Clause. [Footnote 8] The corporation contends that, in contravention of the Constitution, article 1, 10, the Local Laws impair the obligation of the contract known as contract No. 4, entered into March 19, 1913, between its predecessor and the city, under which it operates its owned and leased properties in New York.
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render is made must be clear and unmistakable.' At the present term, the Court has reiterated that contracts of tax exemption are 'to be read narrowly and strictly.' Hale v. State Board, 302 U.S. 95, 109, 58 S.Ct. 102, 107. See, also, Pacific Co. v. Johnson, 285 U.S. 480, 491, 52 S.Ct. 424, 426; Puget Sound Power & Light Co. v. Seattle, 291 U.S. 619, 627, 54 S.Ct. 542, 546.
Not only is the corporation unable to point to an unmistakable exemption, but the contract itself contains an express provision permitting the deduction of taxes from the gross receipts. [Footnote 9] Its language is broad. It refers to 'all taxes ... of every description (whether on physical property, stock or securities, corporate or other franchises, or otherwise) assessed or which may hereafter be assessed against the Lessee in connection with ... the operation of the ... Railroads.' The taxes under discussion clearly come within its terms.
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'Nothing is said about taxation, and it does not seem to have entered into the contract between the parties, but was obviously left where the law had placed it before the act was passed, nor was any provision made for the payment of taxes unless it may be held that the disbursements for that purpose may fairly be included in such as are required to pay the current expenditures in carrying on the ordinary business of the corporation.'
In our opinion, as the contract does not prohibit this tax, the legislation does not violate the contracts clause.
AFFIRMED.
Mr. Justice STONE and Mr. Justice CARDOZO took no part in the consideration or decision of this case. Footnotes
[Footnote *] Rehearing denied 304 U.S. 588, 58 S.Ct. 939, 82 L.Ed. --.[ New York Rapid Transit Corp. v. City of New York (1938) ]
Footnote 1 Utilities subject to the supervision of the department of public service pay 3 per cent. of their 'gross income,' as defined by section 1(c ); the other utilities pay 3 per cent. of their 'gross operating income,' as defined by section 1(d).
Footnote 2 N.Y.Laws 1934, Ex.Sess., c. 873, authorized any city of a million inhabitants to impose for purposes of unemployment relief any tax within the powers of the state Legislature, including a tax on gross income or gross receipts of those doing business in the city. The act specifically provided, section 2, that the revenues shall be deposited in a separate bank account and used solely for the relief purposes. The authority granted by this statute expired December 31, 1935, but was extended, with certain restrictions not material here, until July 1, 1936, by N.Y. Laws 1935, c. 601.
Footnote 3 Others are the production and/or furnishing of gas, electricity, steam, and water, communication by telegraph or telephone, omnibus transportation. New York Public Service Law, 64, 78, 89-a, 90, 60.
Footnote 4 New York Public Service Law, Laws 1910, c. 480, as amended, Consol. Laws, c. 48: section 53 (railroad; street railroad); section 63-d (omnibus ); section 68 (gas; electricity); section 81 (steam); section 89-e (water); section 99(1) (telephone and telegraph).
Footnote 5 Operating revenues are reported by railroads. See, e.g., Transit Commission, Summary of Reports of Rapid Transit, Street Surface Railway and Bus Companies operating in the City of New York for the Quarter April- June, 1935, and for the Fiscal Year Ended June 30, 1935; Id., Quarter, April-June, 1936, and for the Fiscal Year Ended June 30, 1936.
Footnote 6 City of New York, Local Law No. 16, p. 106, of 1925, adding 242-d to Greater New York Charter.
The argument is applicable in No. 436. There the limitation on fare exists in a franchise, alleged in the complaint to be beyond the regulatory power of the transit commission.
Footnote 7 N.Y. Laws 1934, Ex.Sess., c. 873 (the enabling act):'An Act to enable, temporarily, any city of the state having a population of one million inhabitants or more to adopt and amend local laws, imposing in any such city any tax and/or taxes which the legislature has or would have power and authority to impose to relieve the people of any such city from the hardships and suffering caused by unemployment and to limit the application of such local laws. ...'s 2 as amended by Laws 1935, c. 601. Revenues resulting from the imposition of taxes authorized by this act shall be paid into the treasury of any such city and shall not be credited or deposited in the general fund of any such city, but shall be deposited in a separate bank account or accounts and shall be available and used solely and exclusively for paying the principal amount of any installment of principal and of interest due during the aforesaid period on account of the ten-year serial bonds sold to obtain moneys to pay for home relief and work relief in any such city in the month of November, nineteen (fol. 48) hundred thirty- three, and for the relief purposes for which the said taxes have been imposed under the provisions of this act.'
Local Law No. 21 (published as No. 22) pp. 151, 157 of 1934, as amended by Local Law No. 2, pp. 94, 101 of 1935:'A local law to relieve the people of the city of New York from the hardships and suffering caused by unemployment and the effects thereof on the public health and welfare, by imposing an excise tax on the gross income of every person doing business within such city and subject to supervision of either division of the department of public service, and of any and all other utilities doing business within such city to enable such city to defray the cost of granting unemployment work and home relief. ...'s 14 Disposition of revenues. All revenues and monies resulting from the imposition of the taxes imposed by this local law shall be paid into the treasury of the city of New York and shall not be credited or deposited in the general fund of the city of New York but shall be deposited in a separate bank account or accounts, and shall be available and used solely and exclusively for the purpose of relieving the people of the city of New York from the hardships and suffering caused by unemployment including the repayment of moneys borrowed for such purpose.'
Footnote 8 In No. 436, the legislation is not challenged as an impairment of an obligation of contract. The Brooklyn and Queens Transit Corporation 'does not operate under Contract 4, but under street railroad franchise from the City.'
Footnote 9 The clause reads as follows: 'Taxes, if any, upon property actually and necessarily used by the Lessee in the operation of the Railroad and the Existing Railroads, together with all taxes or other governmental charges of every description (whether on physical property, stock or securities, corporate or other franchises, or otherwise) assessed or which may hereafter be assessed against the Lessee in connection with or incident to the operation of the Railroad and the Existing Railroads. Also such assessments for benefits as are not properly chargeable to cost of construction or cost of equipment.'
Footnote 10 See supra note 2.
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