Court Opinion

ID: 2784262
Source: CourtListenerOpinion
Date Created: 2015-03-05 16:08:05.985522+00
Date Added: 2024-06-11T12:45:53.542885
License: Public Domain

State of New York
                   Supreme Court, Appellate Division
                      Third Judicial Department
Decided and Entered: March 5, 2015                     517504
________________________________

In the Matter of EXXON MOBIL
   CORPORATION,
                    Petitioner,
      v                                     MEMORANDUM AND JUDGMENT

STATE OF NEW YORK TAX APPEALS
   TRIBUNAL et al.,
                    Respondents.
________________________________

Calendar Date:   January 12, 2015

Before:   McCarthy, J.P., Lynch, Devine and Clark, JJ.

                             __________

      McCarter & English, LLP, New York City (David J. Shipley of
counsel), for petitioner.

      Eric T. Schneiderman, Attorney General, Albany (Robert M.
Goldfarb of counsel), for Commissioner of Taxation and Finance,
respondent.

                             __________

Clark, 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,
sustained a sales and use tax assessment imposed under Tax Law
articles 28 and 29.

      At all relevant times, petitioner owned, operated or was
responsible for environmental concerns at numerous facilities in
New York where petroleum was used. The Department of Taxation
and Finance conducted an audit of petitioner, after which it
issued a notice of determination finding that petitioner owed
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approximately $500,000 in sales tax on payments made to
contractors from 2000 through 2004. Specifically, those payments
were made for required testing and monitoring on properties
affected by petroleum spills. Petitioner challenged the notice
of determination and, following a hearing, an Administrative Law
Judge upheld it. Respondent Tax Appeals Tribunal thereafter
affirmed. Petitioner commenced this CPLR article 78 proceeding
seeking review of the Tribunal's determination, and we now
confirm.

      Tax Law § 1105 (c) (5) imposes a sales tax on purchases of
services related to "[m]aintaining, servicing or repairing real
property, property or land . . . as distinguished from adding to
or improving such real property, property or land, by a capital
improvement." 20 NYCRR 527.7 (a) (1) further defines
"[m]aintaining, servicing and repairing" as "all activities that
relate to keeping real property in a condition of fitness,
efficiency, readiness or safety or restoring it to such
condition." Petitioner asserts that the monitoring and testing
services paid for here were not taxable, as they were only
intended to ascertain the condition of the affected property and
not to remediate the petroleum spills. We disagree.

      Under well-established principles of law, "an agency's
interpretation of the statutes it administers must be upheld
absent demonstrated irrationality or unreasonableness" (Lorillard
Tobacco Co. v Roth, 99 NY2d 316, 322 [2003] [internal quotation
marks and citation omitted]; accord Matter of Xerox Corp. v New
York State Tax Appeals Trib., 110 AD3d 1262, 1264 [2013]; Matter
of Island Waste Servs., Ltd. v Tax Appeals Trib. of the State of
N.Y., 77 AD3d 1080, 1082 [2010], lv denied 16 NY3d 712 [2011]).
Petitioner points out that no deference will generally be
afforded to administrative agencies in matters of pure statutory
interpretation (see Matter of O'Brien v Spitzer, 7 NY3d 239, 242
[2006]; Matter of Xerox Corp. v New York State Tax Appeals Trib.,
110 AD3d at 1264). Inasmuch as the present case involves the
specific application of broad statutory language, however,
deference to the agency that is charged with administering the
statute is appropriate (see Matter of Xerox Corp. v New York
State Tax Appeals Trib., 110 AD3d at 1264; Matter of Island Waste
Servs., Ltd. v Tax Appeals Trib. of the State of N.Y., 77 AD3d at
                              -3-                517504

1082; compare Matter of Michael A. Goldstein No. 1 Trust v Tax
Appeals Trib. of the State of N.Y., 101 AD3d 1496, 1497 [2012],
lv denied 21 NY3d 860 [2013]). Contrary to petitioner's further
assertion, the burden rested upon it to establish that the
specific sales at issue here were not taxable (see Tax Law § 1132
[c] [1]; Matter of Cecos Intl. v State Tax Commn., 71 NY2d 934,
937 [1988]; compare Matter of Building Contrs. Assn. v Tully, 87
AD2d 909, 910 [1982] [challenge to regulatory provision imposing
sales tax on specified sales of services]).

      As this Court and the Court of Appeals have "noted, both
the statute and regulation contain broad language" (Matter of
Island Waste Servs., Ltd. v Tax Appeals Trib. of State of N.Y.,
77 AD3d at 1082; see Matter of Rochester Gas & Elec. Corp. v New
York State Tax Commn., 71 NY2d 931, 933-934 [1988]). The removal
of hazardous waste from a property constitutes a taxable
maintenance service and, indeed, petitioner does not dispute that
a purchase of services related to the remediation of spilled
petroleum is taxable (see Matter of Island Waste Servs., Ltd. v
Tax Appeals Trib. of State of N.Y., 77 AD3d at 1082; Matter of
Tonawanda Tank Transp. Serv. v Tax Appeals Trib. of State of
N.Y., 168 AD2d 748, 750 [1990]). Petitioner claims that the
services at issue here are not related to the improvement of
property affected by a petroleum spill, but that claim is not
borne out by the record. Petroleum discharges are prohibited in
New York and, when a spill occurs, petitioner is obliged to
notify the Department of Environmental Conservation and may
coordinate with that Department to remediate the spill
(see Navigation Law §§ 173, 175, 176 [7]). Petitioner is
required to conduct an environmental investigation of the spill
area, including the monitoring and testing services at issue
here, as part of its remediation effort. While an active cleanup
of a spill site is not required in every case, the same
monitoring and testing procedures are always employed, and it may
take years for those procedures to reveal what type of
remediation is required. Moreover, if active remediation is
conducted, further monitoring and testing is required to ensure
that the remedial system may be safely removed. Under these
circumstances, there was nothing irrational in the finding that
the monitoring and testing services at issue constituted an
"integral part of the" taxable remediation efforts, even if they
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were billed separately (Matter of Tonawanda Tank Transp. Serv. v
Tax Appeals Trib. of State of N.Y., 168 AD2d at 750; see Matter
of Cecos Intl. v State Tax Commn., 71 NY2d at 936; Matter of
Penfold v State Tax Commn. of State of N.Y., 114 AD2d 696, 697
[1985]). As a result, the Tribunal properly found them to be
taxable services under Tax Law § 1105 (c) (5), to wit,
"activities that relate to keeping real property in a condition
of fitness, efficiency, readiness or safety or restoring it to
such condition" (20 NYCRR 527.7 [a] [1]; see Matter of Island
Waste Servs. v Tax Appeals Trib. of State of N.Y., 77 AD3d at
1083; Matter of Tonawanda Tank Transp. Serv. v Tax Appeals Trib.
of State of N.Y., 168 AD2d at 750).1

      Petitioner's remaining arguments have been considered and
found to be lacking in merit.

        McCarthy, J.P., Lynch and Devine, JJ., concur.

      ADJUDGED that the determination is confirmed, without
costs, and petition dismissed.

                               ENTER:

                               Robert D. Mayberger
                               Clerk of the Court

    1
        The Tribunal noted its belief that all services related
to "cleanup" of a petroleum spill, as that term is used in the
Navigation Law, were taxable under Tax Law § 1105 (c) (5) (see
Navigation Law §§ 172 [4], [5]; 176; State of New York v Neill,
17 AD3d 802, 803 [2005], appeal dismissed 5 NY3d 823 [2005]). We
need not, and do not, resolve that broader question because the
Tribunal found that the specific activities here were taxable
under Tax Law § 1105 (c) (5), even without reference to the
Navigation Law.