Case Name: In the Matter of Joseph E. Seagram & Sons, Inc., Appellant, v. Tax Commission of the City of New York et al., Respondents
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1964-06-10
Citations: 14 N.Y.2d 314
Docket Number: 
Parties: In the Matter of Joseph E. Seagram & Sons, Inc., Appellant, v. Tax Commission of the City of New York et al., Respondents.
Judges: 
Reporter: New York Reports
Volume: 14
Pages: 314–321

Head Matter:
In the Matter of Joseph E. Seagram & Sons, Inc., Appellant, v. Tax Commission of the City of New York et al., Respondents.
Argued April 28, 1964;
decided June 10, 1964.
Samuel I. Rosenman, Frederick J. Lind,, Seymour M. Klein, Max Freund, Lawrence R. Eno and Ernest A. Gleit for appellant.
I. The court below erred as a matter of law because it attributed nonexistent real property value to the building and, as a result, used recent construction cost as the test of value for this commercial building. As appears from the opinions below, the building is clearly overvalued if the normal test of economic market value, i.e., capitalization of income, be applied. (People ex rel. Parklin Operating Corp. v. Miller, 287 N. Y. 126; People ex rel. Hotel Paramount Corp. v. Chambers, 298 N. Y. 372; Matter of City of New York [Lincoln Sq. Slum Clearance Project], 15 A D 2d 153, 12 N Y 2d 1086; Matter of Pepsi-Cola Co. v. Tax Comm. of City of N. Y., 19 A D 2d 56; People ex rel. Manhattan Sq. Beresford v. Sexton, 284 N. Y. 145; Matter of 860 Fifth Ave. Corp. v. Tax Comm. of City of N. Y., 8 N Y 2d 29; Matter of 5 East 71st St. v. Boyland, 7 N Y 2d 859; Matter of Semple School for Girls v. Boyland, 308 N. Y. 382; People ex rel. New York Stock Exch. Bldg. Co. v. Cantor, 221 App. Div. 193, 248 N. Y. 533.) II. Assuming arguendo that the Seagram Building has advertising impact, prestige and like features that aid the sale of Seagram products and thus has additional value for Seagram’s principal enterprise, the liquor business, by producing income therefor, that is not real property value. (Matter of Knickerbocker Vil. v. Boyland, 16 A D 2d 223, 12 N Y 2d 1044; People ex rel. Gale v. Tax Comm. of City of N. Y., 17 A D 2d 225; Paddell v. City of New York, 50 Misc. 422, 114 App. Div. 911, 187 N. Y. 552, 211 U. S. 446; People ex rel. Delaware, L. & W. R. R. Co. v. Clapp, 152 N. Y. 490; People ex rel. Hotel Paramount Corp. v. Chambers, 298 N. Y. 372; Matter of Putnam Theat. Corp. v. Gingold, 16 A D 2d 413; Matter of Empire State Bldg. Corp. v. Boyland, 1 Misc 2d 518, 1 A D 2d 770, 5 N Y 2d 715; People ex rel. Metropolitan Jockey Club v. Mills, 190 Misc. 277, 273 App. Div. 971; Matter of City of New York [Walsh], 17 A D 2d 534.) III. There is no evidence in the record to support the theory of the court below that the building had additional value for Seagram in that its advertising impact, prestige and like features produced income for Seagram’s liquor business or, if it had, that such value constituted real property value. IV. In any event, assuming arguendo that we are in error in our contention that the building here should have been valued on the basis of capitalization of net income-, the court below erred in not reversing and remanding the case for evidence on whether the building’s advertising impact, prestige and other features do produce income for Seagram’s principal enterprise, and whether this constitutes real property value. (Matter of Peters [Bachmann], 296 N. Y. 974; Foreman v. Foreman, 251 N. Y. 237; Bobb v. Washington & Jefferson Coll., 185 N. Y. 485.) V. If value should be determined on the basis of capitalization of net income, the court below erred as a matter of law in rejecting as a proper annual expense the cost of tenant changes. (Matter of 100 Park Ave. v. Boyland, 309 N. Y. 685.)
Leo A. Larkin, Corporation Counsel (James J. McGowan and Edward J. McLaughlin of counsel), for respondents.
I. The Appellate Division correctly held that the construction cost of a newly erected building, suitable for the site, is prima facie proof of its value for the purpose of real estate taxation in the absence of a satisfactory explanation that the cost was excessive. (Matter of 860 Fifth Ave. Corp. v. Tax Comm. of City of N. Y., 8 N Y 2d 29; Matter of City of New York [Lincoln Sq. Slum Clearance Project], 15 A D 2d 153; Matter of 5 East 71st St. v. Boyland, 7 N Y 2d 859; Matter of Pepsi-Cola Co. v. Tax Comm. of City of N. Y., 19 A D 2d 56.) II. The Appellate Division correctly held that petitioner’s “ explanation ” of the discrepancy between the actual construction cost of $36,000,000 and the alleged capitalized building value of $14,400,000 was not a satisfactory one. (Matter of City of New York [A. & W. Realty Corp.], 1 N Y 2d 428; Matter of Huie [Fletcher—City of New York], 2 N Y 2d 168.) III. The Appellate Division correctly held that there was no credible evidence to support petitioner’s expert’s allowance óf $288,000 for alleged amortization of so-called “tenant installations”. (Matter of 100 Park Ave. v. Boyland, 284 App. Div. 1033, 309 N. Y. 685; People ex rel. Manhattan Sq. Beresford v. Miller, 284 N. Y. 145; Matter of 666 Fifth Corp. v. Tax Comm. of City of N. Y., 11 N Y 2d 915.)
Paul Windels, Whitney North Seymour, C. McKim Norton and Edward R. Finch, Jr., for Regional Plan Association and others, amici curiae.
I. Excess cost is not per se a measure of value. II. A corporate sponsor of esthetics in a metropolis should be encouraged instead of penalized as this sponsor was penalized in the opinions below.

Opinion:
Chief Judge Desmond.
In this proceeding to review tax assessments the contest is as to the values ($20,500,000 in two of the years, $21,000,000 in" the third year) assigned by the Tax Commission to the building which was completed just before the first of these tax years at a cost of $36,000,000. Summarized, the position of appellant is that capitalization of rental income, including estimated rent for the offices occupied by appellant itself, would not justify a building value of more than about $17,000,000.
Unlike many of the real property tax proceeding orders reviewed in this court, this order comes to us from an Appellate Division affirmance of Special Term so that questions of fact and of weight of evidence are not before us. We cannot reverse or modify in such a situation unless the record is without any substantial evidence to support the conclusion below or there has been error of law in the use of an erroneous theory of! valuation, or otherwise. We find no such errors here.
Although we do not concur in everything said in the two Appellate Division opinions, we agree that for an office building like this, well suited to its site, the actual building construction cost of $36,000,000 is some evidence of value, at least as to the tax years soon after construction (Matter of 5 East 71st St. v. Boyland, 7 N Y 2d 859; Matter of 860 Fifth Ave. Corp. v. Tax Comm. of City of N. Y., 8 N Y 2d 29, 32). Petitioner urges, however, that for a building built to rent and rentable, capitalization of net income is the only basis for valuation and that the building assessment here can be justified only by assigning an inflated value to the office space occupied by petitioner itself. This, says petitioner, really means that petitioner, having for its own reasons constructed an unusually costly and beautiful building, is being taxed ostensibly for building value but really for the prestige and advertising value accruing to petitioner because the " Seagram Building" has become world-renowned for its striking and imposing beauty. We do not agree with this interpretation of the opinions and order of the Appellate Division.
Usually, the assumed rent for the space occupied by a building owner would for purposes of capitalization of net rent income be computed at about the same rate as the rents actually paid by other tenants. But there can be many reasons why, as both of the Appellate Division opinions state, " the building as a whole bearing the name of its owner includes a real property value not reflected in commercial rental income" since " the owner did not build for commercial rental-income purposes alone, and, as a consequence, capitalization of such income without adjustments produces a false result " and, therefore, " one must not confuse investment for commercial rental income with investment for some other form of rental value unrelated to the receipt of commercial rental income ". In other words, the hypothetical rental for owner-occupied space need not be fixed at the same rate as paid by tenants. This does not mean that advertising or prestige or publicity value is erroneously taxed as realty value. It certainly does not mean that a corporate sponsor of esthetics is being penalized for contributing to the metropolis a monumental and magnificent structure.
The order should be affirmed, with costs.