State of New York

Supreme Court, Appellate Division

Third Judicial Department

Decided and Entered: July 16, 2015 519639 

________________________________

In the Matter of CONSTELLATION

NUCLEAR POWER PLANTS LLC,

Petitioner,

v OPINION AND JUDGMENT

TAX APPEALS TRIBUNAL OF THE

STATE OF NEW YORK et al.,

Respondents.

________________________________

Calendar Date: June 2, 2015

Before: Peters, P.J., Lahtinen, Garry and Lynch, JJ.

__________

Hodgson Russ, LLP, Buffalo (Christopher L. Doyle of

counsel), for petitioner.

Eric T. Schneiderman, Attorney General, Albany (Kathleen M.

Arnold of counsel), for Commissioner of Taxation and Finance,

respondent.

__________

Garry, J.

Proceeding pursuant to CPLR article 78 (initiated in this

Court pursuant to Tax Law § 2016) to review a determination of

respondent Tax Appeals Tribunal which, among other things, denied

petitioner's application for a refund of investment tax credits

under Tax Law article 9-A.

Petitioner is the owner and operator of the Nine Mile Point

Nuclear Power Station (hereinafter Nine Mile) in the Town of

Scriba, Oswego County, and the R.E. Ginna Nuclear Power Station

(hereinafter Ginna) in the Town of Ontario, Wayne County. Both

Nine Mile and Ginna use nuclear fission to generate electricity,
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but the two plants employ different processes to do so.1 Nine

Mile has two units, both of which are boiling water reactors. In

these facilities, water – known as feedwater – is pumped into a

reactor vessel mounted inside a containment structure, where

nuclear fission generates heat that causes the feedwater to boil,

creating steam. Pressure forces the steam out of the vessel and

through a steam line into a separate turbine building, where the

steam causes a turbine to spin, generating electricity. The

steam then enters a condenser where it is cooled and condensed

into water, which is then pumped into the reactor vessel as

feedwater, to be converted again into steam. The water never

leaves the system as the cycle of conversion from water to steam

and back again repeats itself.2

The Ginna power plant is a pressurized water reactor in

which feedwater and steam do not pass directly through the

reactor vessel. Instead, the feedwater enters a steam generator,

where it is heated by exposure to water that has been superheated

by passing through the reactor vessel at a pressure too high to

boil. The pressurized water is never mixed with the feedwater or

steam, but remains in a separate system where it is cooled and

then returned to the reactor to repeat the heating cycle. 

Meanwhile, the heated feedwater is converted to steam and forced

by pressure out of the generator to the turbine building, where

it spins the turbine, generates electricity and enters a

condenser to be converted back to water that is fed into the

steam generator. As at Nine Mile, the steam and water never

leave the system while the cycle is repeated.3

1 The parties stipulated to the relevant facts.

2 When a turbine is shut down, a bypass line allows the

steam to enter a condenser without passing through the turbine. 

During the years at issue here, this occurred about 1.4% of the

time in one of Nine Mile's reactors, and .5% of the time in the

other reactor. 

3 When the turbine at Ginna is shut down – which occurred

roughly 1% of the time – a bypass line allows the steam to enter

a condenser directly without generating electricity.
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Beginning in 2005, petitioner filed timely claims for

certain investment tax credits and industrial manufacturing

business credits (hereinafter collectively referred to as

manufacturing tax credits)4 for the years 2001 through 2005,

alleging that the assets used at both facilities to convert water

to steam and steam to water were "principally used by

[petitioner] in the production of goods by manufacturing [or]

processing" (Tax Law former § 210 [12] [b] [i] [A]).5 Petitioner

also filed claims for certain other investment tax credits

(hereinafter pollution tax credits), alleging that specific

assets at Nine Mile and Ginna were used in the treatment of

industrial waste and air pollution control (see Tax Law former §

210 [12] [b] [i] [B]). Finally, petitioner filed claims for

employment incentive credits that were available to taxpayers who

were, among other things, eligible for the foregoing tax credits

(see Tax Law former § 210 [12-D]). In March 2007, the Division

of Taxation and Finance denied petitioner's claims. After the

Bureau of Conciliation and Mediation Facilities sustained the

denial, petitioner filed a petition with the Division of Tax

Appeals. In April 2013, an Administrative Law Judge (hereinafter

ALJ) sustained the denial and denied the petition. 

Thereafter, petitioner submitted a notice of exception to

the ALJ's determination to respondent Tax Appeals Tribunal. In

June 2014, the Tribunal affirmed the ALJ's determination,

finding, among other things, that the assets utilized in the

steam conversion cycle were not eligible for the manufacturing

tax credits because they were not used in the production of goods

by manufacturing or processing, and that the assets claimed to be

4 The industrial manufacturing business credits are

available under a different statutory provision from the

investment tax credits (see Tax Law former §§ 210 [12] [b] [i]

[A]; [26-a]). The two categories of credits are treated together

here because the parties agree that petitioner's eligibility for

the industrial manufacturing business credits depends solely on

whether it is eligible for the investment tax credits.

5 Tax Law former § 210 was repealed effective January 1,

2015; the pertinent provisions are now found at Tax Law § 210-B. 
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air pollution control and waste treatment facilities were not

eligible for the pollution tax credits because petitioner had

failed to obtain required certifications from the Department of

Environmental Conservation (hereinafter DEC) (see Tax Law former

§ 210 [12] [b] [iii]). Petitioner then commenced this CPLR

article 78 proceeding seeking review of the Tribunal's

determination (see Tax Law § 2016).

Petitioner first contends that the Tribunal erred in

determining that its assets are not eligible for the

manufacturing tax credits. This Court defers to the Tribunal's

construction and application of statutory provisions pertaining

to investment tax credits and will uphold the Tribunal's

determination if it is supported by a rational basis (see Matter

of Brooklyn Union Gas Co. v New York State Tax Appeals Trib., 107

AD3d 1080, 1081 [2013]). Exemptions from taxation such as tax

credits "[are] not a matter of right, but [are] allowed only as a

matter of legislative grace" (Matter of Grace v New York State

Tax Commn., 37 NY2d 193, 196 [1975]; accord Matter of 677 New

Loudon Corp. v State of N.Y. Tax Appeals Trib., 19 NY3d 1058,

1060 [2012], cert denied ___ US ___, 134 S Ct 422 [2013]). As

such, statutes that create tax credits are construed against the

taxpayer, and, in addition to establishing its entitlement to the

credits, the taxpayer must also "demonstrate that its own reading

is the only reasonable construction of the statute" (Matter of

Astoria Fin. Corp. v Tax Appeals Trib. of State of N.Y., 63 AD3d

1316, 1318 [2009] [internal quotation marks, brackets, ellipsis

and citations omitted]; see Matter of We Care Transp. v Tax

Appeals Trib. of State of N.Y., 298 AD2d 717, 719 [2002]).

Petitioner contends that it is eligible for manufacturing

tax credits because the assets in the Nine Mile and Ginna

facilities are principally used to manufacture or process goods

in the form of steam and water (see Tax Law former § 210 [12] [b]

[i] [A]).6 For this purpose, the term "goods" is defined as

"tangible movable personal property having intrinsic value"

(Matter of Leisure Vue v Commissioner of Taxation & Fin., 172

6 The parties stipulated that petitioner satisfies the

other statutory requirements for the manufacturing tax credits.
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AD2d 872, 873 [1991] [internal quotation marks and citation

omitted]). The statute specifically provides that the "the term

'goods' shall not include electricity" (Tax Law former § 210 [12]

[b] [i]). Although petitioner concedes that the Nine Mile and

Ginna plants produce electricity and that electricity is the only

product that petitioner sells, it nevertheless asserts that its

claim satisfies the statutory requirements because it does not

seek manufacturing tax credits for turbines, generators or other

equipment directly used to produce electricity. Instead, it

seeks the credits for assets such as the containment structures,

reactor vessels, nuclear fuel and fuel assemblies, steam

generators and condensers that are continuously engaged – even

when the turbines are shut down and no electricity is being

produced – in producing steam from water and in converting the

steam back to water again. 

In petitioner's view, the Tribunal erred in analyzing the

disputed assets as part of a larger system that generates

electricity as an end product. Instead, petitioner contends that

the Tribunal was required by this Court's precedent to consider

the function of each claimed asset separately, and that when the

assets are thus analyzed in isolation, they are eligible for

manufacturing tax credits because each of them produces steam or

water. We reject this contention. Our decision in Matter of

Brooklyn Union Gas Co. v New York State Tax Appeals Trib. (107

AD3d 1080 [2013], supra) did not, as petitioner contends, mandate

an asset-by-asset approach or any other specific form of inquiry

as the prescribed method by which the Tribunal must determine

eligibility for investment tax credits. Instead, this Court

found that the record supported the Tribunal's determination that

a taxpayer's integrated gas delivery system, considered as a

whole, was principally used for the distribution and delivery of

natural gas rather than for processing the gas to make it

suitable for consumer use (id. at 1081-1082). We further found

record support for the Tribunal's alternate determination that

certain component parts of the gas delivery system that performed

actions such as adding odorants to the gas, considered

individually, were not used for manufacturing or processing (id.

at 1082). Significantly, the purpose of this individualized

assessment was to determine whether these assets were used for

the separate purpose of manufacturing rather than distribution;
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the Tribunal analyzed the assets in terms of their relationship

to the overall system and found that they were not used for

manufacturing because they did not significantly change the

nature of the gas (id.). 

Here, by contrast, all of the disputed assets are necessary

to the power plants' ultimate purpose of producing electricity,

and the separate components create water and steam only to serve

that purpose. The Tribunal found that the power plants utilized

"unified, integrated processes that harnessed the energy from

nuclear fission and produced electricity," that "it is

inappropriate to artificially divide a unitary process when the

facts show that the parts and steps operate interdependently and

indivisibly in accomplishing a singular task," and thus, that the

claimed assets were principally used in the production of

electricity rather than water or steam. The record supports this

assessment, and we find nothing irrational in the Tribunal's

analysis of the facts or its interpretation of the governing

statute (compare Matter of Niagara Mohawk Power Corp. v

Wanamaker, 286 App Div 446, 449 [1955], affd 2 NY2d 764 [1956]). 

Moreover, even when the claimed assets are analyzed in

isolation, there is a rational basis for the Tribunal's

determination that they were not engaged in manufacturing or

processing. Manufacturing is defined as "the process of working

raw materials into wares suitable for use or which gives new

shapes, new quality or new combinations to matter which already

has gone through some artificial process by the use of machinery

. . . and other similar equipment" (Tax Law former § 210 [12] [b]

[ii] [A]), and "'processing' speaks to an industrial activity

related to manufacturing" (Matter of General Mills Rest. Group v

Chu, 125 AD2d 762, 764 [1986]; accord Matter of Brooklyn Union

Gas Co. v New York State Tax Appeals Trib., 107 AD3d at 1081). 

Here, the water that is converted to steam by petitioner's assets

is then converted back to its original form as water and then to

steam again in an ongoing, continuous cycle that makes no

permanent change in the water and yields no final product. This 

is more akin to recycling than to manufacturing. On these facts,

we cannot find it irrational for the Tribunal to conclude that

the claimed assets were not principally engaged in producing any

tangible property other than electricity (see Matter of Brooklyn
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Union Gas Co. v New York State Tax Appeals Trib., 107 AD3d at

1082; compare People v Knickerbocker Ice Co., 99 NY 181, 183-185

[1885]; Matter of Plattekill Mountain Ski Ctr., Inc., NY St Dept

of Taxation & Fin Advisory Op No. TSB-H-85[28]C, *2 [1984]). 

Petitioner has neither established that its interpretation of the

governing statute is the only reasonable construction nor that

the Tribunal's interpretation was "irrational or unreasonable"

(Matter of General Mills Rest. Group v Chu, 125 AD2d at 763) and,

thus, has not shown that the Tribunal's determination that it is

ineligible for the manufacturing tax credits should be reversed.

Petitioner likewise failed to establish its entitlement to

pollution tax credits available to certain "industrial waste

treatment facilities or air pollution control facilities, used in

the taxpayer's trade or business" (Tax Law former § 210 [12] [b]

[i] [B]). The statute specifically provides that the credits

were available only to facilities that have been certified by the

DEC as compliant with applicable state environmental, public

health and sanitary statutes, rules and other requirements (see

Tax Law former 210 [12] [b] [iii]). Petitioner concedes that its

assets did not have this certification. Accordingly, it did not

meet its burden to prove that it was entitled to the credits (see

Matter of Grace v New York State Tax Commn., 37 NY2d at 197;

Matter of XO N.Y., Inc. v Commissioner of Taxation & Fin., 51

AD3d 1154, 1154-1155 [2008]). We decline to accept petitioner's

suggestion that its facilities should be excused from the

certification requirement on the ground that they satisfy federal

licensing procedures and specifications that, according to

petitioner, meet or exceed those imposed by the state, as the

courts do not "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., 116 AD3d 1261, 1263 [2014]).

We further reject petitioner's claim that the DEC

certification requirement is unconstitutional as applied to

petitioner.7 Petitioner first asserts that requiring DEC

7 Although a CPLR article 78 proceeding may not be used to

challenge the constitutional validity of a statute, it is the
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certification for petitioner's facilities violates the supremacy

clause of the US Constitution because "the federal government has

exclusive authority under the doctrine of pre[]emption to

regulate the construction and operation of nuclear power plants"

(Northern States Power Co. v State of Minnesota, 447 F2d 1143,

1154 [8th Cir 1971], affd 405 US 1035 [1972]; see US Const, art

VI, cl 2; Osarczuk v Associated Univs., Inc., 36 AD3d 872, 876

[2007]). To regulate is "[t]o control (an activity or process)

[especially] through the implementation of rules" (Black's Law

Dictionary [10th ed 2014], regulate), and making a tax credit

available to an eligible taxpayer does not constitute controlling

the taxpayer's activities or processes. Tax Law former § 210

(12) (b) (iii) grants no authority to taxing authorities or the

DEC to control petitioner's nuclear power facilities; instead, it

merely sets out the criteria for eligibility for pollution tax

credits and charges DEC with certifying that these criteria are

met. By logical extension, if the preemption doctrine prevented

state governments from establishing eligibility criteria for tax

credits for nuclear power plants, it would necessarily also

prevent them from allowing tax credits to such facilities at all

– an argument that petitioner does not espouse. Thus, petitioner

has not shown that, in charging the Nuclear Regulatory Commission

with the duty to regulate the operation and construction of

nuclear power plants, it was also "the clear and manifest purpose

of Congress" to preempt the allowance of state tax credits to

such facilities or the establishment of criteria for such credits

(Matter of Standard Mfg. Co. v Tax Commn. of State of N.Y., 114

AD2d 138, 142 [1986], affd 69 NY2d 635 [1986]).

Next, petitioner contends that the certification

requirement violates the equal protection clause by creating a

class of taxpayers who are ineligible for pollution tax credits –

that is, taxpayers who own and operate nuclear facilities. 

However, the record does not reveal that DEC's denial of the

requisite certifications was based upon petitioner's status as

appropriate vehicle where, as here, the claim is that the statute

is unconstitutional as applied to the challenger (see Matter of

Kovarsky v Housing & Dev. Admin. of City of N.Y., 31 NY2d 184,

191-192 [1972]).
-9- 519639 

the owner and operator of nuclear power plants. Rather, in

substance, the applications were denied on the ground that the

assets for which petitioner sought tax credits were not within

the categories of equipment eligible to receive DEC certification

for such credits under the Tax Law and Environmental Conservation

Law. Notably, petitioner failed to raise a timely direct

challenge to DEC's determinations and does not argue on review

that DEC misinterpreted the applicable statutes in reaching these

conclusions.

To establish its as-applied equal protection claim,

petitioner is required to show that "[it] has been intentionally

treated differently from others similarly situated and that there

is no rational basis for the difference in treatment" (Village of

Willowbrook v Olech, 528 US 562, 564 [2000]). Petitioner has

neither shown that it met the requirements for certification nor

that it was treated differently from similarly situated

taxpayers, and it has not "negat[ed] every conceivable basis

which might support" the certification requirement (Trump v Chu,

65 NY2d 20, 25 [1985], appeal dismissed 474 US 915 [1985]). 

Accordingly, it has not shown that it was denied equal protection

of the law (see Amazon.com, LLC v New York State Dept. of

Taxation & Fin., 81 AD3d 183, 205-207 [2010], affd sub nom.

Overstock.com, Inc. v New York State Dept. of Taxation & Fin., 20

NY3d 586 [2013], cert denied ___ US ___, 134 S Ct 682 [2013]).

Finally, as petitioner was not eligible for the

manufacturing tax credits or the pollution tax credits, the

Tribunal properly determined that it was likewise not eligible

for employment incentive credits pursuant to Tax Law former § 210

(12-D). 

Peters, P.J., Lahtinen and Lynch, JJ., concur.
-10- 519639 

ADJUDGED that the determination is confirmed, without

costs, and petition dismissed. 

ENTER:

Robert D. Mayberger

Clerk of the Court