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Comity or Tragedy? 2nd Circ. Nixes NY Parking Tax Challenge

By Robyn Hagan Cain | Last updated on

BigLaw attorneys may look forward to splurging on fancy new cars, but those attorneys who are commuting to Manhattan shouldn’t look to the federal courts for extra spending money coming from savings on New York parking taxes. This week, the Second Circuit Court of Appeals affirmed a district court decision denying jurisdiction over a New York parking tax challenge.

New York State authorizes New York City to impose taxes of 18.375 percent on parking lots and garages in Manhattan. Included in that rate is a city-implemented 8 percent surtax on parking services rendered in Manhattan.

In 1985, the New York legislature amended the tax law to provide an exemption from the 8 percent surtax for Manhattan residents for one parking space leased for one month or longer. The plaintiffs, (a group of commuters from New Jersey and New York outside of Manhattan, and a Queens resident who does not commute to Manhattan), sued New York City and the state, along with a number of city and state officials, challenging the tax exemption granted to Manhattan residents.

The district court granted the defendants' motion to dismiss based on comity, and the Second Circuit Court of Appeals affirmed.

The New York parking tax exemption is narrow; it exempts Manhattan residents from the 8 percent surtax only at their primary parking location, and only where the resident can demonstrate:

  1. Manhattan is their primary residence;
  2. They pay for parking services rendered on a monthly or longer-term basis;
  3. The vehicle is not used to carry on any trade, business, or commercial activity; and
  4. The vehicle is registered to the individual's primary residence in Manhattan.

The Second Circuit Court of Appeals, noting the narrow exemption and the defendant's comity arguments, affirmed summary judgment for three reasons.

First, federal courts generally abstain from hearing challenges to state taxation scheme on the basis of the comity: those claims are better resolved in state courts.

Second, the parking tax did not impede the plaintiffs' fundamental rights because there is no authority that the right to park one's vehicle at a particular rate relative to others is sufficiently fundamental to trigger protection under the Privileges and Immunities Clause.

Finally, the 1937 Taxation Injunction Act prevents federal courts from eliminating a source of tax revenue, so federal courts are limited in the remedies they may grant in a challenge to a state taxation scheme.

Second Circuit commuters: do you agree with the Second Circuit Court of Appeals that state court is the proper venue for this claim?

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