You are here: / Tax Law
, , , ,

The Language of the NYC Rent Control Law, Unlike the Language of the NYC Rent Stabilization Law, Does Not Allow “Luxury Deregulation” After the Expiration of J-51 Tax Benefits

The First Department, in a full-fledged opinion by Justice Sweeny, determined that the relevant provision of the NYC Rent and Rehabilitation Act (Rent Control Law or RCL) could not be interpreted to allow “luxury deregulation” of a rent-controlled apartment upon the expiration of “J-51” tax benefits.  “Luxury deregulation” refers to the removal of rent controls where the tenant can afford to pay market rates. The opinion focused upon the wording of the Rent Stabilization Law (RSL) versus the wording of the Rent Control Law (RCL) .  The RSL specifically allows the owner of an apartment to apply for luxury deregulation upon the expiration of the J-51 tax benefits, while the RCL (the controlling regulation here) does not.  The opinion includes a discussion of court-review of an administrative agency’s interpretation of a statute where specialized knowledge is not involved, and statutory-interpretation criteria:

At the outset, we note that the question before us turns purely on statutory interpretation. As such, we need not defer to the agency’s interpretation of the statutes in question, as we are not called upon “to interpret a statute where specialized knowledge and understanding of underlying operational practices or . . . an evaluation of factual data and inferences to be drawn therefrom’ is at stake” … . * * *

The owner argues that the rationale of [the RSL] should also apply to apartments subject to rent control, because, inter alia, to hold otherwise would be inconsistent with the purpose of the luxury deregulation law, which attempted to “restore some rationality to a system which provides the bulk of its benefits to high income tenants” … . We are not unmindful that the legislative history indicates a preference not to have people who can easily afford market value rental property inhabit rent-regulated housing. However, this history does not offer sufficient evidence to alter the unambiguous language of Administrative Code § 26-403(e)(2)(j). To do so would require us to import new language into the RCL and “give it a meaning not otherwise found therein” … . Indeed, “where the language of a statute is clear, there is little room to add to or take away from that meaning'” … . If the application of such long-established principles of statutory construction produces “an undesirable result, the problem is one to be addressed by the Legislature” … . Matter of RAM I LLC v NYS Div of Hous & Community Renewal, 2014 NY Slip Op 06784, 1st Dept 10-7-14

 

, ,

County Could Seek Judicial Intervention Re: the Collection of a County Hotel Tax Without Exhausting Administrative Remedies—Constitutional Underpinning of Local Tax Laws Explained

The Second Department, in determining the plaintiff county was not required to exhaust its administrative remedies (and then commence an Article 78 proceeding) in order to seek judicial review of whether the defendant has been paying the correct amount of a county hotel and motel accommodation tax, explained the underpinning of local tax law in New York:

The appellants contend that the branch of their motion which was pursuant to CPLR 3211(a)(2) to dismiss the first cause of action seeking enforcement of the Hotel Tax against them for lack of subject matter jurisdiction should have been granted because, inter alia, the Enabling Act required the plaintiff to exhaust certain administrative remedies before judicial intervention could be obtained, and that the plaintiff failed to do so.

In New York, local governments do not have an independent power to tax. The New York Constitution vests the taxing power in the State Legislature and authorizes the Legislature to delegate that power to local governments (see NY Const, art. XVI, § 1…). The New York Constitution places fundamental limitations on such delegations. The Legislature must describe with specificity the taxes authorized by any enabling statute (see NY Const, art XVI, § 1…). In turn, local governments can only levy and collect taxes within the expressed limitations of specific enabling legislation (see NY Const, art IX, § 2[c][8]…).

As a general rule, tax statutes should be strictly construed and limited to their terms, which should not be extended by implication … . Any ambiguity in a tax law should be resolved in favor of the taxpayer and against the taxing authority … .

Applying these principles here, contrary to the appellants’ contention, the plaintiff was not required to exhaust administrative remedies before commencing this action, and judicial review is not limited to a proceeding pursuant to CPLR article 78 … . County of Nassau v Expedia Inc, 2014 NY Slip Op 06049, 2nd Dept 9-1014

 

,

Corporation Dissolved for Failure to Pay Franchise Taxes Can Be Sued On Its Pre-Dissolution Obligations

The Second Department explained that a corporation that has been dissolved by the Secretary of State for failure to pay franchise taxes continues to exist for winding up its affairs and may be sued on its pre-dissolution obligations:

Pursuant to Tax Law § 203-a, a corporation can be dissolved by proclamation of the Secretary of State for failure to pay its franchise taxes. A dissolved corporation may not carry on new business (see Business Corporation Law § 1005[a][1]) and no longer has the right to commence an action in the courts of this State, except in specific circumstances permitted by statute … . Business Corporation Law § 1006 provides, in relevant part, that a dissolved corporation “may continue to function for the purpose of winding up the affairs of the corporation . . . The dissolution of a corporation shall not affect any remedy available to or against such corporation, its directors, officers or shareholders for any right or claim existing or any liability incurred before such dissolution, except as provided in sections 1007 . . . or 1008.”

A corporation therefore “continues to exist after dissolution for the winding up of its affairs, and a dissolved corporation may sue or be sued on its obligations, including contractual obligations and contingent claims, until its affairs are fully adjusted” … . The Business Corporation Law requires that the claim was to have existed before dissolution … . MMI Trading Inc v Nathan H Kelman Inc, 2014 NY Slip Op 05632, 2nd Dept 8-6-14

 

, ,

Power Company Must Pay Town’s Ad Valorem Sewer Taxes Whether Or Not It Owns the Land On Which Its Transmission Facilities Are Located and Whether or Not It Produces Sewage

The Fourth Department determined that as long as the power company owns the land on which its mass properties (transmission facilities) are located, it must pay the “ad valorem” sewer taxes, even if no sewage is generated. The court further determined that even if the power company did not own the land, it would still be liable for the tax because the town’s storm water sewer system protects the facilities from flooding:

If petitioner owns the land, it must pay the sewer taxes regardless of whether the properties currently produce sewage inasmuch as it is theoretically possible that the properties could be ” developed in a manner that will result in the generation of [sewage]’ ” …, and it is immaterial that the Town taxes the land separately from the improvements thereon and that petitioner challenges only the tax on the improvements.

We further conclude that the court properly granted respondents’ application for summary judgment based on the fact that petitioner may still benefit from the sewer district even if it does not own the land on which its mass properties are located. Respondents established that a significant amount of storm water infiltrates the Town’s sewer system and that “the sewer district encompasses storm sewers that actually or might potentially safeguard [petitioner]’s transmission and distribution facilities from flooding” … . Matter of Niagara Mohawk Power Corp v Assessor, Town of Cheektowaga, 2014 NY Slip Op 04627, 4th Dept 6-20-14

 

,

Land Owned by Power Company Which Does Not Now Produce Sewage and Garbage Properly Subject to Ad Valorem Taxes for Sewage and Garbage

The Fourth Department determined land owned by a power company was properly subject to ad valorem taxes for sewer and garbage because it was possible the land, at some point, could be used in a way that would generate sewage and garbage:

The test for determining whether real properties are benefitted, thus warranting special district assessment, is whether the properties are capable of receiving the service funded by the special ad valorem levy’ ” … . “An ad valorem tax will not be deemed invalid unless the taxpayer’s benefit received from the imposition of the tax is reduced to the point where it is, in effect, nonexistent” … .

Here, ” there is a sufficient theoretical potential of the properties to be developed in a manner that will result in the generation of garbage [and sewage]’ ” … . Unlike the plaintiff in Long Is. Water Corp. v Supervisor of Town of Hempstead (77 AD3d 795, lv denied 16 NY3d 711), plaintiff herein owns the land on which its “mass” properties sit, and we conclude that it is theoretically possible that such land, if put to a different use, could generate garbage and sewage. Matter of Niagara Mohawk Power Corp v Town of Marcy Assessor, 2014 NY Slip Op 04312, 4th Dept 6-13-14

 

,

Sufficient Evidence Supported Finding that Sole Shareholder, Who Did Not Oversee the Day to Day Operations of a Corporation, Was a “Responsible Person” Who Could Be Held Personally Liable for the Failure to Pay Corporate Sales and Use Taxes

The Third Department determined that petitioner, who was the sole shareholder of a corporation, was a “responsible person” personally liable under Tax Law 1131 and 1133 for outstanding sales and use taxes.  Petitioner did not oversee the day to day operations of the corporation, did not sign checks, hire or fire employees, or assist in the preparation of tax returns.  However, she had the capacity to appoint officers and directors, had appointed her husband as the sole director, co-signed an alcoholic beverage license, , and alone signed an application for registration as a sales tax vendor:

Tax Law § 1133 (a) imposes personal liability on any person who is responsible for collecting tax under Tax Law article 28 … . A person required to collect tax includes “any officer, director or employee of a corporation . . . who . . . is under a duty to act for such corporation . . . in complying with any requirement of [Tax Law article 28];” (Tax Law § 1131 [1]). Moreover, a person who is not an officer, director or employee of a corporation is required to collect tax if he or she “possessed all the indicia of control that would impose liability upon an officer, director or employee of a corporation” … . Whether a person has a duty to act for a corporation and is responsible for collecting sales tax is a factual determination to be made on a case-by-case basis … . Such determination turns on a variety of factors, including the status of a stockholder, the authority to hire and fire employees and responsibility for the corporation's management … . In this regard, an important consideration is “petitioner's authority and responsibility to exercise control over the corporation, not his [or her]; actual assertion of such authority” … . Matter of Luongo v Tax Appeals Trib of the State of New York, 2014 NY Slip Op 03714, 3rd Dept 5-22-14

 

,

Explicit Terms of the Controlling Statute Required that Petitioner Be a Party to a Written Agreement In Order to Be Eligible for an Empire Zone Tax Credit/Therefore, Even though Petitioner Made the Required “Payment In Lieu of Taxes” Pursuant to a Sublease from a Party to the Agreement, Petitioner Was Not Eligible for the Credit

The Third Department determined the controlling statute required a written agreement between a qualified empire zone enterprise (QEZE) and the Town of Rotterdam Industrial Development Agency (IDA)  in order to be eligible for an empire zone tax credit.  Because the petitioner was not a party to the “payment in lieu of taxes (PILOT)” agreement, the tax credit was not available to it, even though the petitioner made the PILOT payments pursuant to a sublease from a party to the agreement (FM Ventures):

For the tax years in dispute, Tax Law former § 15 (e) set forth three types of payments that constituted eligible real property taxes for purposes of an empire zone credit. Two involved payment of taxes; first, by a QEZE that owned the real property and, second, a QEZE that was a lessee of real property. The third applied to petitioner’s situation since it addressed PILOT payments by a QEZE. It provided in relevant part: “In addition, the term ‘eligible real property taxes’ includes [PILOTs] made by the QEZE to the state, a municipal corporation or a public benefit corporation pursuant to a written agreement entered into between the QEZE and the state, municipal corporation, or public benefit corporation” (Tax Law former § 15 [e] [emphasis added]).

The pertinent language affirmatively requires in clear terms that, to qualify for the credit under such provision, the PILOT payments must be made pursuant to a written agreement between the QEZE and the appropriate entity. Here, FM Ventures had entered into the August 2005 PILOT agreement with the IDA. Petitioner was not a party to that agreement. Although petitioner’s separate agreement with FM Ventures provided that petitioner would make the payments and the various entities may have desired to structure the transactions so that petitioner could receive the empire zone tax credit, unfortunately petitioner’s PILOT payments do not qualify for such credit under the statutory language. It was petitioner’s burden to show that it was clearly entitled to the credit and, in fact, the statute manifestly provides otherwise. We cannot, under long settled principles of statutory interpretation, essentially rewrite an unambiguous provision of a statute by ignoring explicit language, no matter how equitable such a result may appear … . Matter of Golub Corp v New York State Tax Appeals Trib, 2014 NY Slip Op 02638, 3rd Dept 4-17-14

 

,

Corporate Officer Personally Liable for Outstanding Sales and Use Taxes

The Third Department determined the evidence was sufficient to hold a corporate officer personally liable for outstanding sales and use taxes.  The court explained the criteria for such personal liability:

Tax Law § 1133 (a) imposes personal liability on any person who is responsible for collecting tax under Tax Law article 28. A person required to collect tax (a responsible person) includes “any officer, director or employee of a corporation . . . who . . . is under a duty to act for such corporation . . . in complying with any requirement of [Tax Law article 28]” (Tax Law § 1131 [1]). Whether a person has a duty to act for a corporation and is responsible for collecting sales tax is a factual determination to be made on a case by case basis (…20 NYCRR 526.11 [b] [1], [2]). The factors that the courts have considered relevant to this determination include (1) authority to sign corporate checks, (2) responsibility for managing the corporation and maintaining its books, (3) ability to hire and fire employees, (4) status as a corporate officer, and (5) receipt of substantial income from the corporation or stock ownership … . Significantly, this Court has stressed that “[w]hat must be considered is [the person’s] authority and responsibility to exercise control over the corporation, not his [or her] actual assertion of such authority” … . Matter of Ippolito v Commissioner of NY State Dept of Taxation & Finance, 2014 NY Slip Op 02475, 3rd Dept 4-10-14

 

, ,

Tax Law Amendment Allowing New York to Collect Capital Gains Tax from a Nonresident Shareholder in an S Corporation Should Not Have Been Applied Retroactively to a Transaction Which Took Place Three and a Half Years Before the Amendment

In a full-fledged opinion by Justice Richter, over a dissenting opinion, the First Department determined an amendment to the tax law should not be applied retroactively.  The amendment allowed New York to collect capital gains tax from a nonresident shareholder in an S corporation which has distributed an installment obligation under section 453 (h)(1)(A) of the Internal Revenue Code:

Determining whether the retroactive application of a tax statute violates a taxpayer’s due process rights “is a question of degree” and “requir[es] a balancing of [the] equities”… . In James Sq. [21 NY3d 233], the Court of Appeals recently reaffirmed a three-prong test to determine whether the retroactive application of a tax statute passes constitutional muster. “The important factors in determining whether a retroactive tax transgresses the constitutional limitation are (1) the taxpayer’s forewarning of a change in the legislation and the reasonableness of . . . reliance on the old law,’ (2) the length of the retroactive period,’ and 3) the public purpose for retroactive application'”… .

…[P]laintiffs had “no warning and no opportunity [in 2007] to alter their behavior in anticipation of the impact of the [2010 amendment]”…. . * * *

In James Sq., the Court concluded that a retroactive period of 16 months “should be considered excessive and weighs against the State” (21 NY3d at 249). Here, the period of retroactivity was 3 1/2 years — nearly three times longer than the period found excessive in James Sq. As in James Sq., we conclude that this excessive period was “long enough . . . so that plaintiffs gained a reasonable expectation that they would secure repose in the existing tax scheme” … . * * *

The legislative history indicates that enactment of the legislation was necessary to implement the 2010-2011 executive budget by raising tax revenues by $30 million in that fiscal year. Indeed, defendants expressly state in their brief that the legislature made the law retroactive to prevent revenue loss. But “raising money for the state budget is not a particularly compelling justification” and “is insufficient to warrant retroactivity in a case [as here] where the other factors militate against it” (James Sq., 21 NY3d at 250). Caprio v New York State Dept of Taxation & Finance, 2014 NY Slip Op 02399l 1st Dept 4-8-14

 

,

County Not Necessary Party In Suit to Recover Taxes Wrongfully Paid to Town

The Second Department determined plaintiff [Verizon] could seek the refund of wrongfully collected taxes against the town which collected them and the town could then seek reimbursement from the county.  The county was not a necessary party in the action brought by the plaintiff.  Plaintiff was the owner of “mass property” (power lines, poles, transformers, etc) which had been subject to taxes for refuse collection.  The Court of Appeals ruled “mass property,” which produced no garbage, could not be so taxed:

Pursuant to the County Guaranty, the County is liable for refunds of tax payments made in connection with levies for special ad valorem taxes … . However, in the actions at bar, Verizon chose to seek refunds from the Town, to which the payments had been made, rather than from the County directly. That was proper in light of our determination that the County is not a necessary party to actions seeking refunds of tax payments made in connection with levies for special ad valorem taxes … . Accordingly, while the Town may seek indemnification from the County pursuant to the County Guaranty, the Supreme Court correctly determined that the Town is liable for these refunds in the first instance, and can be sued directly by a taxpayer. Thus, the Supreme Court did not err in entering the judgments against the Town defendants.  New York Tel Co v Supervisor of Town of Hempstead, 2014 NY Slip Op 01726, 2nd Dept 3-19-14

 

Categories

Sign Up for the Mailing List to Be Notified When the Site Is Updated.

  • This field is for validation purposes and should be left unchanged.

Copyright © 2025 New York Appellate Digest, Inc.
Site by CurlyHost | Privacy Policy