Court Opinion

ID: 5859388
Source: CourtListenerOpinion
Date Created: 2022-01-13 01:14:04.993629+00
Date Added: 2024-06-11T08:44:22.992230
License: Public Domain

Main and Mikoll, JJ., dissent and vote to annul in the following memorandum by Mikoll, J. Mikoll, J. (dissenting).
We respectfully dissent. The determination of the State Tax Commission on this record is arbitrary and unreasonable. The franchise tax imposed does not bear a reasonable relationship to the privilege granted. The franchise tax is a tax imposed on every domestic corporation, with some exceptions, “for the privilege of exercising its corporate franchise, that is to say, for the mere possession of the privilege” (58 NY Jur, Taxation, § 513, p 682; see Brady v State Tax Comm., 176 Misc 1053, affd 263 App Div 955, affd 289 NY 585). However, “[a] franchise tax should bear a reasonable relationship to the privilege granted, and if the assessment is all out of proportion to the amount of business done within this State it is arbitrary and unreasonable” (People ex rel. Sheraton Bldgs. v Tax Comm. of State of N. Y., 15 AD2d 142,144, affd 13 NY2d 802). The audit division based its finding on the clear statutory language of section 210 (subd 1, par [a]) of the Tax Law which requires the computation to be made that produces the greater tax. But where the method of assessment adopted by the Tax Commission technically comes within the framework of the statute and the regulations but its application reaches an unfair and inequitable result, as in this case, the procedure cannot be justified (see People ex rel. Sheraton Bldgs. v Tax Comm. of State of N. Y. (supra). The franchise tax as recomputed here by respondent results in an absurd result in view of Morton’s ministerial role as a payment conduit for Division. Morton was simply a conduit through which Division paid its employees in order to better facilitate the record keeping required for Division’s monthly NASD reports. The salaries paid its officers cannot really be termed compensation because the officers performed only minimal services for Morton, and all compensation was reimbursed by Division. There is no dispute that the corporate officers were indeed officers of Morton, but their salaries should not be considered as such because they were not taken as Federal deductions and because Morton was fully reimbursed. In view of the foregoing, the application of this income-plus-compensation method results in an unfair imposition of franchise tax liability. The determination should be annulled.