New York Ex Rel. Whitney v. Graves

Background

A Massachusetts resident who was a member of the New York Stock Exchange sold a "right" entitling him to part of a new membership in 1929 for $108,000. The New York Tax Commission assessed a tax under state law on the profit (sale proceeds minus original cost and dues). The member paid the tax under protest and challenged it in New York courts, which upheld the assessment. He then appealed to the United States Supreme Court.

Reasoning

The Court considered whether New York could tax the profit from selling a right tied to an Exchange seat owned by an out-of-state person. The Justices emphasized that the membership's key feature is the exclusive privilege to trade on the Exchange floor. That privilege can be exercised only in the Exchange building in New York and survives changes in ownership or resignation. Because the right is fundamentally linked to activity and benefits that occur at the Exchange, the Court treated the right as localized in New York. The Court therefore rejected the argument that the membership was only intangible property taxable solely at the owner’s home.

Real world impact

The ruling allows New York to tax gains from the sale of rights tied to Exchange membership even when the owner lives and does business elsewhere. Nonresident members who sell such Exchange-linked rights may face state taxation where the Exchange operates. The decision clarifies that states can tax intangible rights when their main use and value are fixed in that state.