Lacidem Realty Corp. v. Graves

Hill, P. J. Review under article 78 of the Civil Practice Act of a determination of the State Tax Commission denying petitioner’s application for a refund of taxes levied under section 186-a of article 9 of the Tax Law, as amended by chapter 137 of the Laws of 1941, in effect March 20, 1941. Petitioner is the owner of a ten-story building located in the city of New York, tenanted by physicians, dentists, a private hospital, drug store and a pathological laboratory. It sells to its tenants electric current which it obtains from the Consolidated Edison Company of New York, Inc., at wholesale rates, and bills the tenants at the rate they would have to pay the public utility. The refund asked covers the tax on sales made after May 7, 1937, to which time section 186-a is made retroactive by the 1941 amendment (chap. 137). The amount of the tax is two per cent of the gross income which petitioner received from the sale of the current. A levy in all respects like the one under consideration was held illegal under section 186-a as it existed before the 1941 amendment. (Matter of 339 Central Park West, Inc., v. Graves, 284 N. Y. 691, affg. 260 App. Div. 265.) The legality of a tax levied and collected under a New York city local law very similar to section 186-a after its amendment was considered in Matter of 320 West 37th St., Inc., v. McGoldrick (281 N. Y. 132). The opinion states (p. 136): “ The appellant contends that it is not a utility or a person engaged in the business of selling electricity within the intent of that law, and that if the law be construed to include petitioner it is unconstitutional. In support of its contention it relies upon the decision of this court in Matter of Merchants Refrigerating Co. v. Taylor (275 N. Y. 113).” The opinion then discusses the similarity between the McGoldrick case, where a sale of electric energy was involved, and the Taylor case, where refrigeration was sold, and continues (p. 137): *' The decision in the Refrigerating Company case was placed upon the ground that it did not appear that the appellant had characteristics differentiating it from business in general and [430] hence that no reason appeared why the appellant should be subject to the tax while business in general was exempted. * * * Respondent argues that here the appellant has the benefit of a so-called underlying franchise, that is, the franchise held by the Consolidated Edison, upon which it is dependent for the service which it sells. So might have been the refrigerating company dependent upon an electric, gas, water or other franchise bo make possible its production of refrigeration. Such argument is without merit.” In Matter of Merchants Refrigerating Co. v. Taylor (supra) the New York city local law, which included refrigeration, was held to be unconstitutional as to the service rendered to the tenants of the refrigerating company and as to refrigeration used in cooling warehouses in which the company stored merchandise for the general public, but was sustained as to “ off-premises ” sales where the delivery was made through pipes laid in the streets under a franchise from the city. The opinion states the issue in the form of a question (p. 122): “ The test to be applied in such cases as the present one is — does the statute arbitrarily and without genuine reason impose a burden upon one group of taxpayers from which it exempts another group, both of them occupying substantially the same relation toward the subject matter of the legislation? ” The answer contained in the opinion is (p. 123): “ Most of those utilities included within the classification have common chaiacteristics that differentiate them from business in general. The classification was, as to them, held reasonable. Appellant does not share that common characteristic. No reason appears why appellant should be included within the incidence of the tax while business in general was exempted.” Under the foregoing authorities, petitioner is entitled to a refund upon the ground of unconstitutionality of the statute under which the tax was levied unless the amendment of 1941 made constitutional a tax which previously had been unconstitutional. The principal change in the body of the section is that the words “ regardless of whether such activities are the main business of such person or are only incidental thereto, or of whether use is made of the public streets ” were added to the description of those persons who were to be included under the word “utility” (subd. 2). These words obviously were included because mention was made in the Taylor opinion that the principal business of the petitioner was conducting a warehouse and leasing space therein, with the sale of refrigeration incidental, and in the McGoldricJc case, that the petitioner was engaged in the real estate business, owning a loft building rented to small manufacturers, with the sale of electricity incidental; also in the Taylor case, the portion of the sales held to be subject to the tax involved the use of conduits laid in [431] the streets under a franchise from the city. The statute was not held unconstitutional because of either of the above facts, but because the petitioners did not share common characteristics with those who legally could be taxed and because they were not differentiated from business in general, which was exempt from the tax. Thus nothing remedial was added by the phrase quoted. As to the ex post facto “ declaration of legislative intent ” that was implicit in the section before the amendment, and the taxing authorities of the city and State acted thereon. A tax was levied which was discriminatory, assuming such to have been the intent. It did not change the nature of petitioner’s business, or make it more similar to utilities, or differentiate it from business in general which was exempted. The statement of intent in no wise affected the constitutionality of the tax levied against this petitioner. In view of the above conclusion, a discussion of retroactivity is unnecessary. However, if decisions by the court of last resort are to be regarded as predictions of what the law will be in a case, it seems to have been settled until March 20, 1941 (Laws of 1941, chap. 137), that petitioner was not liable for this tax. It is recognized that a person may not with safety place reliance upon pronouncements less final than those of the court of last resort, which do have force until modified by statute. Petitioner was not forewarned of the tax, and had a right to believe that it was not subject to such a levy. The order of the Tax Commission should be annulled and the matter remitted, with direction to respondents to cause a refund to be made in accordance with the prayer of the petition. Crapser, Bliss and Schenck, JJ., concur; Heffernajst, J., dissents, in an opinion.