Gulf Oil Corp. v. Joseph

Per Curiam. In this article 78 proceeding petitioner, a foreign corporation, which carried on substantial local intracity and intrastate sales activities as well as interstate business, seeks an annulment of the final determination of the comptroller of the City of New York, denying its application [347] for a refund of gross receipts taxes paid during the years 1946 through 1949 for the privilege of doing business in the city (Administrative Code of City of New York, ch. 41, tit. RR; ch. 46, tit. B). The Administrative Code of the City of New York provides in part that: ‘1 Where a receipt in its entirety cannot be subjected to the tax imposed by this title by reason of the provisions of the constitution of the United States * * * the comptroller shall establish rules and regulations and/or methods of allocation and evaluation to the end that only that part of such receipt which is properly attributable and allocable to the doing of business in the city shall be taxed hereunder.” (Administrative Code, § RR41-2.0, subd. b; § B46-2.0, subd. b.) Pursuant to the authority granted, the comptroller has promulgated certain rules and an allocation formula for determining, in a case where a gross receipt cannot in its entirety be subjected to the tax by reason of the Constitution of the United States, what portion is attributable and allocable to the doing of business within the city of New York. The formula adopted (Comptroller’s Begulations, art. 211.-I) contains three factors: (1) The property factor. (The percentage which the average value of real and tangible personal property within the city of New York bears to the total average value of real and personal property employed in business throughout the United States.) (2) The wages and salaries factor. (The percentage which the wages, salaries and other personal service compensation paid in connection with business carried "on in New York City bears to the total wages, salaries and other personal service compensation paid in connection with business carried on throughout the United States.) (3) The receipts factor. (The percentage which the sum of the wholly taxable receipts plus one third of the allocable receipts bears to the sum of the wholly taxable receipts plus the entire allocable receipts.) (It Should be noted that under the formula this receipts factor can never work out to less than 33⅓%.) [348] The three percentages arrived at are then added together and divided by three to obtain the average of the three percentages. ‘ ‘ Where the resultant average of the three percentages exceeds 66⅔%, it shall be reduced to 66⅔% for the purpose of allocation. Where the resultant average of the three percentages is less than 33⅓% it shall he increased to 33⅓% for the purpose of allocation.’ ’ (Comptroller’s Regulations, art. 211.-I; emphasis supplied.) In the present case for three of the four tax years involved the computations under the three-factor formula were 32.2%, 30.85% and 31.84%. Accordingly, those percentages were raised to meet the 33⅓% minimum. The questions presented are: (1) whether in a case such as this where the taxpayer is engaged in both intrastate and interstate commerce the city may include in the measure of its gross receipts tax, imposed for the privilege of doing business in New York City, a share of the receipts from interstate sales which is properly attributable and allocable to the doing of business within the city; (2) whether the formula applied by the comptroller reasonably and lawfully measured the tax, and (3) whether the local law discriminates against petitioner in favor of those engaged solely in intrastate activities. As to (1): In the case of Matter of Olive Coat Co. v. McGoldrick (261 App. Div. 1070, affd. without opinion 287 N. Y. 769), we answered that question in the affirmative, and the United States Supreme Court decisions since that time are to the same effect (see, e.g., Spector Motor Service v. O’Connor, 340 U. S. 602, 609-610; Interstate Oil Pipe Line Co. v. Stone, 337 U.S. 662, 667-669). " As to (2): In the Olive Coat Co. case (supra), we held that each of the three factors contained in the formula certainly has some degree of relation to the play of local activity and investment in the acquisition of the total of allocable receipts and that in making an allocation rough approximation is all that is necessary (see Illinois Central R. R. Co. v. Minnesota, 309 U. S. 157, 161; Harvester Co. v. Evatt, 329 U. S. 416, 422-423). There, however, the fraction was 55.75% and we were not called to pass upon the prescribed minimnm of 33⅓%. Likewise, we did not there give consideration to the charge [349] that the receipts factor was weighted in the city’s favor. Here, we reach those questions and we hold that the comptroller in using such minininm figures acted arbitrarily and out of harmony with the declared legislative purpose of taxing only that part of the interstate receipts which is properly attributable and allocable to the doing of business in the city. In setting up minimum figures no attempt at rough approximation or apportionment has been made by the comptroller. As to (3): An unfair apportionment by one State could result in the risk of multiple taxation which would discriminate against petitioner as one engaged in interstate commerce. A fair apportionment eliminates that risk and here the matter must be remitted to the comptroller for the purpose of making-such an apportionment. There is no merit in the argument that petitioner had its remedy in an alternative formula pursuant to article 210 of the Comptroller’s Regulations, for the availability of an alternative method of allocation, which may not be arbitrary, cannot save the formula which has in fact been used and which is arbitrary. We pass upon no other question. The order of the Appellate Division should be reversed and the matter remitted to the comptroller for further proceedings not inconsistent with this opinion. Lewis, Ch. J., Conway, Desmond, Dye, Fuld, Froessel and Van Voorhis, JJ., concur. Order reversed, etc.