Case Name: In the Matter of Gulf Oil Corporation, Petitioner, against Lazarus Joseph, as Comptroller of the City of New York, Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1954-02-16
Citations: 283 A.D. 309
Docket Number: 
Parties: In the Matter of Gulf Oil Corporation, Petitioner, against Lazarus Joseph, as Comptroller of the City of New York, Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 283
Pages: 309–316

Head Matter:
In the Matter of Gulf Oil Corporation, Petitioner, against Lazarus Joseph, as Comptroller of the City of New York, Respondent.
First Department,
February 16, 1954.
Matthew 8. Gibson for petitioner.
Bernard H. Sherris of counsel (Stanley Buchsbaum with him on the brief; Denis M. Hurley, Corporation Counsel, attorney), for respondent.

Opinion:
Per Curiam.
The petitioner, a Pennsylvania corporation, does an extensive interstate as well as intrastate business. It brings this article 78 proceeding to review a final determination of the comptroller of the City of New York, denying its application for a refund of gross receipts taxes paid during the years 1945 through 1949 for the privilege of doing business in the city (Administrative Code of City of New York, ch. 41, tit. BB). The law provides that where receipts cannot be taxed in their entirety by reason of the Federal Constitution, the comptroller shall establish rules, regulations and methods of allocation to the end that only such part of the receipts as is attributable and allocable to the doing of business in the city shall be taxed. The comptroller has promulgated certain rules and allocation formulae for apportioning such taxable receipts from sales in interstate commerce.
We regard Matter of Olive Coat Co. v. McGoldrick (287 N. Y. 769, affg. 261 App. Div. 1070) as controlling on every aspect of this proceeding and as compelling a confirmation of the comptroller's determination. That case reviewed and approved the same local tax law and the same allocation formulae as are involved here. (See, also, Spector Motor Service v. O'Connor, 340 U. S. 602, 609-610; International Shoe Co. v. Shartel, 279 U. S. 429; Joseph v. Carter & Weekes Co., 330 U. S. 422, 428, and Matter of United Air Lines v. Joseph, 282 App. Div. 48.)
Some of us entertain reservations concerning the soundness of certain ingredients of the comptroller's allocation formula. Roughly, this is a three-factor formula which seeks to allocate the appropriate percentage of interstate sales subject to tax by striking ratios between, first, the value of the taxpayer's property in the city and the value of its property elsewhere in the United States, and second, between wages paid locally and elsewhere in the country. For the third factor the comptroller has devised what purports to be a basis for computing a proper percentage of gross receipts. The total of the three percentages thus obtained is then averaged through dividing by three. If the result exceeds 66%% it is reduced to that figure; if it is less than 33%% it is increased to that figure. The resultant computation becomes the percentage of interstate commerce allocated to the gross receipts tax.
There is no doubt that the formula will operate unevenly and in some instances work hardships; and it can be argued with some persuasiveness that the receipts factor is weighted in favor of the city. But something short of laboratory uniformity will satisfy the constitutional requirements. In this connection it was said in Illinois Cent. R. R. Co. v. Minnesota (309 U. S. 157, 161): " That the apportionment may not result in mathematical exactitude is certainly not a constitutional defect. Rough approximation rather than precision is, as a practical matter, the norm in any such tax system."
More vexing is that provision in the regulations which fixes a minimum allocation of 33%% of the interstate receipts as subject to the tax. Conceivably, the imposition of such an arbitrary figure could discriminate against interstate commerce. For example, if the three-factor formula has integrity, and results in an indicated allocation of, let us say, 2% of interstate receipts, it might be difficult to justify a 33%% allocation as reasonably apportioned to the taxpayer's activities within the city.
However, the taxpayer in the Olive Coat Co. case (supra) explicitly argued in the Court of Appeals that the allocation formula, including its 33%% minimum, was arbitrary, capricious and a denial of due process of law. True, the 33%% minimal allocation did not become operative in the Olive Coat Co. case, since the averaging of the three factors produced a figure of 55%. But in this case, the computations under the three-factor formula were 32.2%, 30.85% and 31.9% in the three years that the minimum requirement came into play — scarcely a shocking margin in the application of a formula that at best is calculated to produce approximate figures.
Furthermore, the petitioner did not avail itself of the opportunity to make application for a different and more appropriate method of allocation, pursuant to article 210 of the comptroller's regulations, which provides that a taxpayer may make such application, and if " any of the prescribed allocation formulae works unfairly or inequitably to a particular taxpayer or class of taxpayer, he [the comptroller] may provide for a different or other method of allocation ", etc. Also, since the petitioner operates a refinery in Staten Island, it could probably have used an alternative formula (Comptroller's Regulations, art. 211, subd. II), which is based on the cost of the interstate goods that were manufactured here.
The determination of the comptroller should be confirmed.