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Summary of the New York State

Personal Income Tax Law

The new Income Tax Law of the State of New York imposing taxes "upon and with respect to personal incomes" became effective May 14, 1919. The tax is to be imposed annually and for the first year is to be levied, collected and paid in 1920 upon and with respect to taxable income for the calendar year 1919, or for any "taxable year" ending during 1919.

The new law follows very closely the Federal Income Tax Law embodied in the Revenue Act of 1918. In many places the statutes are verbatim the same.

The tax is levied with respect to the income of individuals in distinction to corporations, many of which were formerly taxed under the "Franchise Tax on Manufacturing and Mercantile Corporations” at the rate of 3% and which at present are taxed under the “Franchise Tax on Business Corporations" at the rate of 472%.

Individuals are divided into two classes resident and non-resident. As the treatment of each differs in many respects we shall comment first upon the law as it applies to residents and later on as it applies to non-residents. A brief analysis will also be made with respect to its application to partnerships, estates and trusts.

Imposition of Tax The income tax is imposed : (a) Upon residents of the State with respect to their

entire taxable income; (b) As to non-residents, upon and with respect to the

entire taxable income received from all property owned and from every business, trade, profession or

occupation carried on in this State; (c) Under certain conditions upon the taxable income of Estates and Trusts.

The Federal Income Tax Law levies a normal tax and surtaxes on successively higher ranges of income. In this

way the Federal taxes on income for 1919 will range from 4% to 73% on various levels of income.

The State tax is much simpler in form and the highest rate of tax imposed is 3%. The range is as follows:

1% on taxable income not exceeding $10,000;
2% on taxable income in excess of $10,000 but not in

excess of $50,000;
3% on taxable income in excess of $50,000.

Rates of



As in the Federal statute, the total income of the individual is not necessarily subject to taxation. Only that part known as gross income is considered and from this item certain deductions may be made in arriving a the net income. From net income certain credits in the form of personal exemptions may be deducted by resi dents before finally computing the amount of tax.

Gross income is defined and treated in practically the same manner as under the Federal Law. It includes in the case of residents of the State, all income excep certain items which are declared to be exempt. As ir the Federal statute all items of gross income shall be included in the taxable year in which they are receive unless, under the methods of accounting permitted by the law, such amounts may properly be accounted for as of a different period.

The items declared to be exempt, which are similar t: those classified in the same manner by the Federal Stat ute, are proceeds of life insurance policies, return pre miums, gifts, bequests, devises, and amounts receive from insurance under workmen's compensation acts ar as damages for personal injuries.


In addition, the State law exempts salaries, wages

Salaries and other compensation received from the Federal Gov- of U. s. ernment by officials or employees thereof, including per

Officials sons in the military or naval forces of the United States. The Attorney General has held that this exemption includes the compensation paid to persons engaged in the operation of telephone and telegraph lines, cables and railroads during the period of Federal control and operation.

There is also exempted the income received by any officer of a religious denomination or by any institution, Income of or trust, for moral or mental improvement, religious, Religious

Organizabible, tract, charitable, benevolent, fraternal, missionary, hospital, infirmary, educational, scientific, literary, library, patriotic, historical or cemetery purposes, or for the enforcement of laws relating to children or animals or for two or more of such purposes if such income be used exclusively for carrying out one or more of such purposes; but the statute provides that nothing therein shall be construed to exempt fees, stipends, personal earnings, or other private income of such officer or trustee.

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The law also exempts interest from the following: Exempt Obligations of the United States or its possessions; se- Securities ¿ curities issued under the provisions of the Federal Farm

Loan Act of July 17, 1916; bonds issued by the War Finance Corporation; and obligations of the State of New York or its political subdivisions; likewise, interest received from investments which have been made exempt under the provisions of the so called Investment Tax Law between June 1, 1917, and May 14, 1919, for the period of the exemption thereby obtained. June 1, 1917, is the date of the inception of the Investment Tax Law

and May 14, 1919, is the date the State Income Tax Law went into effect.

Tax Law

During the year 1906 the Mortgage Recording Tax was made a part of the tax laws of the State. Its provisions made mandatory a payment at the rate of $5.00 per thousand upon the recording of certain mortgages. It also provided that all such mortgages

“ * ** 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 * * * " Certain exceptions are made to this exemption, such as franchise taxes on insurance corporations, trust companies and savings banks, transfer taxes and taxes on bank stock. No mention of income taxes is made among the exceptions.

Tax Law

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The so-called Secured Debts Tax Law of 1911 provided that on payment to the State of $5.00 per thousand the secured debt, quoting the language of the law

* * shall thereafter be exempt from all taxation in the state or any of the municipalities or local divisions of

the state * * * » The exceptions to this exemption are practically the same as enumerated in the preceding paragraph describing the Mortgage Recording Tax.

In 1915 the Secured Debts Tax Law was amended, principally in respect to the amount paid and the period of exemption. The rate was made $7.50 per thousand and the period of exemption five years. This law expired by limitation on October 31, 1915, was re-enacted in the spring of 1916 and again expired by limitation on December 31, 1916.

Tax Law

On June 1, 1917, the so-called Investment Tax Law was enacted. This Act provides for payment at the rate of $2.00 per thousand per annum, in consideration of which the investment is exempted for a limited period from all State and local taxation, with the exceptions previously outlined.

In defining income which is exempt and need not be included in "gross income," the Act specifies interest received from investments which have been exempted under the provisions of the Investment Tax Law for the period of such exemption. The Law does not, however, exempt the income received from investments or mortgages which have been exempted under the provisions

of the original Secured Debts Tax Law of 1911, the Secured Debts Tax Law as amended and re-enacted and the Mortgage Recording Tax Law.

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Without undertaking to enter into a discussion of the technical or legal justification of the State in imposing a tax upon income from obligations upon which the socalled Secured Debts Tax or Mortgage Recording Tax has been paid, it seems unfortunate that the income tax should be so imposed. Especially, as those concerned complied in good faith with the provisions of the earlier statutes and assumed from the clear language used in the Acts that the State had entered a contract not to tax such obligations with the exceptions specified. The State Comptroller is understood to have stated publicly before the passage of the Act that the State of New York should recognize these contracts of tax exemption no matter how inadvisable it may have been for the State to have granted the exemptions in the first instance. The wording of the Act, however, seems to be

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