Robert Fleming, et al. v. Rudolph W. Giuliani, et al.

New York City Charter § 1127 requires an applicant for
City employment to enter into a contract with the City in which
the prospective employee agrees to make payments in lieu of
personal income taxes -- so-called "condition of employment

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payments" -- should he or she reside outside the City. The
primary issue we are asked to resolve in this case is whether
these condition of employment payments are to be computed using
total taxable income or only the City salary earned by the
employee. Based on the provisions of section 1127, as well as
its underlying purpose, we conclude that the City is entitled to
use total taxable income in determining the payments due and that
such application is constitutional.

The Administrative Code of the City of New York
requires City residents to pay a City personal income tax on all
of their taxable income received during the year, subject to
certain enumerated deductions, exemptions and modifications (see
Administrative Code of City of NY §§ 11-1701, 11-1711, 11-1712).
In contrast, individuals who are employed in the City but reside
outside the City pay a City earnings tax on their wages or on
their net earnings if self-employed (see Administrative Code
§ 11-1902). In 1973, the City adopted New York City Charter
§ 1127 (originally codified at section 822), which directs that
all persons seeking employment with the City must enter into a
written agreement, as a condition precedent to municipal
employment, obligating City employees -- if they are or become
nonresidents of the City during the course of their employment --
to make payments as if they were City residents paying City

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The City indicates that between 700 and 1000 agreements 1
pursuant to section 1127 are filed annually.

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personal income taxes. 1

Plaintiffs are 13 physicians employed part-time by the
New York City Police Department, holding the civil service title
of "District Surgeon." All of the plaintiffs reside outside the
City and some have been employed by the City for over 20 years.
In addition to their City employment, plaintiffs apparently
derive income from their private practices and other sources.
Plaintiffs commenced this action seeking injunctive relief and a
declaration that the City improperly deducted section 1127
payments from their salaries. Alleging that they had not
executed section 1127 preemployment agreements, plaintiffs
asserted that all payments withheld under that Charter provision
were therefore unlawful. After joinder of issue, plaintiffs
Avtar Josen, Israel Berkowitz, Bernard White and Stuart Eigen
moved for summary judgment on the ground that they had never
signed section 1127 agreements.

The City cross-moved for summary judgment to dismiss
the complaint in its entirety, and in support of its motion,
submitted written agreements signed by 10 of the plaintiffs,
including Eigen, that required the payments delineated in section
1127. The City also tendered a certification signed by White,
indicating that he agreed to "conform to Chapter 49 of the

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Section 1127 is contained in chapter 49. 2

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Charter," but it acknowledged that the relevant preemployment 2
agreements for Josen or Berkowitz could not be located. In
response, Eigen and the remaining nine plaintiffs argued that,
even though they had executed section 1127 agreements, the City
had wrongfully determined the amount of the section 1127 payments
owed by each plaintiff because the City based its calculations on
total income rather than just their salaries from City
employment.

Supreme Court denied plaintiffs' motion for summary
judgment and granted, in part, the City's cross motion for
summary judgment. The court held that section 1127 computation
of income covers all income and that the City therefore properly
withheld payments from the 10 plaintiffs who undisputedly signed
section 1127 agreements, as well as from White, since his chapter
49 certification constituted his consent to comply with section
1127. The court concluded, however, that Josen and Berkowitz had
raised triable issues of fact as to whether they had entered into
section 1127 agreements. The Appellate Division granted the
City's motion for summary judgment in its entirety, concurring
with Supreme Court that section 1127 applies to total income and
determining that the Josen and Berkowitz claims were barred under
the doctrine of laches. We granted plaintiffs leave to appeal.
Plaintiffs contend that section 1127 payments should
apply only to the salaries they earn from their City employment

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and not to any other income they derive from other sources. They
alternatively claim that the City's withholding of payments on
the basis of total income amounts to an unconstitutional tax on
nonresidents. The City counters that the plain language of
section 1127 demonstrates that nonresident employees are to make
payments equal to the City personal income tax and calculated as
if they were City residents and that this application is
constitutional. We agree with the City.
New York City Charter § 1127, entitled "Condition
precedent to employment," provides:

"a. Notwithstanding the provisions of any
local law, rule or regulation to the
contrary, every person seeking employment
with the city of New York or any of its
agencies regardless of civil service
classification or status shall sign an
agreement as a condition precedent to such
employment to the effect that if such person
is or becomes a nonresident individual . . .
such person will pay to the city an amount by
which a city personal income tax on residents
computed and determined as if such person
were a resident individual . . . during such
employment, exceeds the amount of any city
earnings tax and city personal income tax
imposed on such person for the same taxable
period.

"b. Whenever any provision of this charter,
the administrative code of the city of New
York or any rule or regulation promulgated
pursuant to such charter or administrative
code employs the term 'salary',
'compensation', or any other word or words
having a similar meaning, such terms shall be
deemed and construed to mean the scheduled
salary or compensation of any employee of the
city of New York, undiminished by any amount
payable pursuant to subdivision a of this
section."

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We previously discussed the operation of section 1127
in Matter of Legum v Goldin (55 NY2d 104 [1982]). In that case
we upheld the validity of section 1127, determining that the
obligation imposed by this provision does not constitute a tax
payment; instead it is a valid payment pursuant to a contract
voluntarily entered into as a condition precedent to municipal
employment. In Matter of Ganley v Giuliani (94 NY2d 207 [1999]),
we further clarified that section 1127 does not apply to
nonresidents who have not executed section 1127 agreements and
whose employment was transferred from a public benefit
corporation to City agencies as a result of a merger. But in
neither case did we have occasion to address whether section 1127
applies to all taxable income of a nonresident employee or only
to the employee's City salary.

We first analyze whether section 1127 covers total
taxable income attributed to a nonresident City employee.
Section 1127(a) requires that an individual seeking City
employment must enter into an agreement with the City wherein the
prospective employee promises to pay the City, if the employee
resides or later moves outside the City during the course of
employment, the difference between the "city personal income tax
. . . determined as if [the nonresident] were a resident" and
"any city earnings tax and city personal income tax" actually
imposed on the nonresident. To understand how this provision
operates, it is necessary to compare the definition of "city

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Based on the amount of a resident's City taxable income, 3
the City personal income tax rate in 2004, for example, varies
between 2.907% and 4.45% (Administrative Code
§ 11-1701[g][1][B]).

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personal income tax," which is paid by City residents, with the
definition of "city earnings tax," which all nonresidents who
work in the City must pay.

The City personal income tax is imposed on the "city
taxable income" of all City residents (Administrative Code
§ 11-1701). The term "city taxable income" refers to a 3
resident's "city adjusted gross income less his city deduction
and city exemptions" (Administrative Code § 11-1711[a]).
Significantly, the term "city adjusted gross income" is denoted
as a resident's "federal adjusted gross income as defined in the
laws of the United States for the taxable year, with the
modifications specified in this section" (Administrative Code
§ 11-1712[a]). Hence, the City personal income tax is clearly a
tax imposed on all taxable income of City residents -- subject to
appropriate deductions, exemptions and modifications -- and not a
tax limited to City wages.

In contrast, the City earnings tax is paid by all
persons who are employed in the City but reside elsewhere.
Currently, the tax consists of "[a] tax at the rate of one-fourth
of one percent on all wages" and "[a] tax at the rate of threeeighths
of one percent on all net earnings from self-employment"
(Administrative Code § 11-1902[a][1]). Unlike the City personal

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income tax, which encompasses taxable income from all sources,
the City earnings tax applies only to City wages and selfemployment
earnings.

Based on the foregoing definitions, plaintiffs'
contention that section 1127 applies only to their City salaries
finds no support in the language of the Charter. Simply put,
section 1127 treats nonresident City employees as if they were
residents of the City by requiring them to agree to make payments
equivalent to the City personal income tax, which by definition
includes all taxable income (subject to specified deductions,
exemptions and modifications), to the extent that amount exceeds
any City earnings tax already paid to the City. Section 1127
therefore indicates that the computation of these payments is
premised on an employee's entire taxable income as reflected in
the employee's federal adjusted gross income.

Plaintiffs' reliance on the terminology used in section
1127(b) is misplaced. Section 1127(a), the dispositive provision
here, incorporates express references to the "city personal
income tax" and "city earnings tax." By the corresponding
definitions, the provision is not limited to the salary or wages
earned from City employment. Although section 1127(b) defines
the terms "salary" and "compensation" for purposes of the City
Charter and the Administrative Code, those terms do not appear in
section 1127(a). Rather, section 1127(b) merely explains that
section 1127(a) payments do not diminish a City employee's salary

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for purposes of, for example, pension benefits.

Our interpretation is fully consistent with the
legislative purpose of section 1127. Section 1127 was enacted
more than 30 years ago to discourage City employees from moving
out of the City for tax purposes (see 2 Proceedings of Council of
City of NY, Dec. 13, 1972, at 1543; see also Ganley, 94 NY2d at
216; Matter of City of New York v Lieutenants Benevolent Assn.,
285 AD2d 329, 331 [2001] [section 1127 enacted "to mitigate such
a financial incentive that otherwise might contribute to City
employees relocating their residences outside of the City"]).
If, as plaintiffs allege, section 1127 applies only to a
nonresident's City salary, a considerable financial incentive
would still exist for City employees to reside outside the City.
As viewed by plaintiffs, a City employee who lives in the City
would be required to pay the City personal income tax on all
taxable income while a City employee residing outside the City
would only have to pay an amount equal to the City personal
income tax owed on the employee's City salary. Calculating
section 1127 payments using total taxable income, on the other
hand, places resident and nonresident City employees on equal
footing, thereby promoting the City Council's goal of encouraging
employees to maintain their residences in the City.
We next address plaintiffs' contention that the
application of section 1127 in this case amounts to an
unconstitutional tax. Plaintiffs' reliance on Matter of Zelinsky

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In Zelinsky, we stated that "[a]lthough a state may tax 4
all the income of its residents, even income earned outside the
taxing jurisdiction, it may constitutionally tax nonresidents
only on their income derived from sources within the state" (1
NY3d at 89-90).

We decline to consider whether New York City Charter 5
§ 1127 applies to the income attributed to the spouse of a
nonresident City employee because this case does not
differentiate the implications of the tax elections available to
spouses under Administrative Code § 11-1751.

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v Tax Appeals Tribunal of State of New York (1 NY3d 85 [2003])4
"confuses the fundamental distinction between a tax imposed by
the sovereign and a contractual provision agreed to by two
parties" (Legum, 55 NY2d at 107). We established in Legum that
any payments made pursuant to a section 1127 agreement arise from
voluntary contractual employment arrangements. Plaintiffs have
not cited any constitutional provision that would prevent a
nonresident City employee from contracting to make payments to
the City based on total income and not just income derived from a
City salary. The argument that section 1127 imposes an
unconstitutional tax on employees who sign section 1127
agreements therefore fails. 5

Finally, the Appellate Division did not abuse its
discretion as a matter of law in concluding that Josen's and
Berkowitz's claims are barred by the doctrine of laches (see
Matter of Vickery v Village of Saugerties, 64 NY2d 1161, 1163
[1985]; Amsterdam Sav. Bank v City View Mgt. Corp., 45 NY2d 854,

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We also agree with the Appellate Division's conclusion 6
that White's "certification stating 'I have read and shall
conform to Chapter 49 of the City Charter' (in which section 1127
is found) constitutes his agreement to have section 1127 applied
to his income" (307 AD2d 866, 868 n1 [2003]).

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856 [1978]). Plaintiffs' remaining contentions are without 6
merit.