Trouble with the Neighbors

TAXES Trouble with the Neighbors

Among the perils of daily commuting to Manhattan from neighboring states is the New York income tax. For 39 years, New Jersey and Connecticut commuters, who now number roughly 172,000, have paid taxes on the salaries they make in New York. The argument is that they ought to, since Manhattan must pay for municipal services for the companies employing them. Result: they pay $26.5 million a year, more than 5% of New York's total income tax revenue. At the same time, their own states, like 15 others, have no income tax.

Last month New York's nonresidents began to howl. It was the first real fuss since 1920, when the U.S. Supreme Court ruled that a state may tax income earned by nonresidents so long as it is not discriminatory. Studies show that non-New York residents may be paying 45% more New York tax than residents with equal income and number of dependents. One big reason: out-of-state commuters may deduct only expenses directly connected with New York earnings. The great majority of them may claim only a flat 10% deduction on gross income or $500, whichever is less. But a New York resident may deduct interest, property taxes, medical costs, some life insurance, gasoline and sales taxes.

New Jersey's Democratic Governor Robert Meyner and Connecticut's Democratic Governor Abraham Ribicoff took up the campaign in hopes of winning the votes of commuters, mostly presumed to be Republican. Furthermore, both states are pressed for cash and would like to get some of the money going to New York. The governors descended on New York's Governor Averell Harriman, another Democrat. But Harriman was cool to their heat: New York is already worried about a $20 million drop in all revenue. There may be discrimination, he agreed, but tax laws cannot be written to take into account every individual's situation." To study the situation further, the governors set up a tristate committee of tax experts.

Also pressured to act last week was New Jersey s Republican Senator Clifford Case whose commuter constituents are taxed not only by New York but by Delaware and Philadelphia as well. Case introduced a Senate resolution calling for a constitutional amendment to prevent any state or local government from taxing nonresidents. His proposal also plugged by Rhode Island's Governor Dennis J. Roberts, whose constituents are taxed by Massachusetts, has very little chance. Even if it should get by the Senate Judiciary Committee, an amendment would need ratification by 36 states, and about a dozen are already taxing nonresidents.

Actually, the eventual solution for New Jersey and Connecticut is to pass their own income tax laws instead of depending so heavily on sales and property taxes as they do now. Then commuters could credit taxes paid to their own states on their New York tax. But so far, neither New Jersey nor Connecticut want such a cure, for political reasons. Governor Ribicoff' who is up for reelection, says he is "unalterably opposed."

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