New York Ex Rel. Cohn v. Graves

Background

A New York resident received rents and mortgage interest from real estate and mortgages located in New Jersey under her late husband’s will, which gave her the income for life. She paid New York income tax for 1931–1932, sought a refund, and argued the tax was really a tax on out-of-state property and therefore unconstitutional. New York courts split, and the case reached this Court for review.

Reasoning

The central question was whether the Constitution forbids a state from taxing income received by a resident solely because the income comes from property outside the state. The Court said domicile and the protections a state gives its residents provide a sufficient basis to tax the income a resident receives and enjoys. The opinion explained that a tax on income is different from a tax on land: taxing the receipt and enjoyment of income at a person’s home is not the same as taxing the out-of-state property itself. The Court also noted the record did not show New Jersey had taxed the income or that the bonds had a business location outside New York, and the taxpayer bore the burden of proving such facts.

Real world impact

The decision allows a state to include income from rents and mortgage interest tied to property in another state when taxing its residents. People who live in one state and receive rental or interest income from property elsewhere can be taxed by their home state. The Court declined to decide separate questions about retroactive statute changes because those objections were not raised below.

Dissents or concurrances

A dissenting Justice argued that taxing rents is effectively taxing the land and so should be invalid when the land lies outside the taxing state; another Justice joined that view.