Court Opinion

ID: 5382809
Source: CourtListenerOpinion
Date Created: 2022-01-08 09:09:40.463339+00
Date Added: 2024-06-11T08:30:10.004691
License: Public Domain

Wasservogel, J. (dissenting in part).
This is a proceeding, under article 78 of the Civil Practice Act, to review an assessment by the City of New York against the taxpayer of a deficiency and penalties in taxes.
The taxpayer is a public utility, operating under the supervision of the Public Service Commission, and is engaged in the production, distribution and sale of manufactured gas and its by-products in New York City. The challenged assessment, in the amount of $91,580.96 plus interest and penalties, is imposed under the New York City Utility Tax Laws, and covers the period from July 1, 1937, to June 30, 1941 (Local Laws, 1937, No. 23 of City of New York; Local Laws, 1938, No. 22 of City of New York; Local Laws, 1939, No. 104 of City of New York; Local Laws, 1940, No. 80 of City of New York).
The tax provided for in these local laws is at the rate of 1% on public utilities operating in New York City, and is measured *196by the gross receipts as therein defined. This local definition of gross income is the origin of the present dispute. The city defines taxable gross income to include the proceeds of all sales, whether for resale or for consumption. The taxpayer, having paid the tax upon sales for consumption, failed to return, as income, its receipts from sales for resale by the purchaser. The deficiency assessment followed.
The taxpayer is also subject to a State utility tax, under section 186-a of the Tax Law, at the rate of 2% of gross income. The State, however, in its definition of the measure of the tax, excludes the proceeds of sales for resale.
The controversy turns upon legislation originally adopted by the State of New York in 1933 to enable the city to cope with the rapidly growing problem of unemployment. The Legislature, declaring that an emergency existed, authorized the city “ to adopt and amend local laws imposing in any such city any tax which the Legislature has or would have power and authority to impose ” (L. 1933, ch. 815). It has been said that this license to tax is “ broad and unprecedented ” (New York Steam Corp. v. City of New York, 268 N. Y. 137,145, per Loughran, J.).
Pursuant to this authority, the city, by local law duly enacted, imposed a tax upon the gross receipts of public utilities' at the rate of 1%% (Local Laws, 1933, No. 19 of City of New York, pp. 127-135). Thereafter, with some modification which will be referred to, the State annually renewed this broad taxing authority of the city. Similarly, the city utility tax was enacted, each year by appropriate local legislation, the rate of the tax, however, being increased to 3% in 1935 (Local Laws, 1933, No. 19 of City of New York; Local Laws, 1934, Nos. 10, 20 [published as No. 21] of City of New York; Local Laws, 1935, Nos. 2, 30 of City of New York; Local Laws, 1936, No. 30 of City of New York). In each of these local laws, the tax was levied upon gross income, including receipts from sales for resale.
In 1937, the State itself required additional revenue for unemployment relief. Governor Lehman accordingly recommended to the Legislature that an additional appropriation be made for this purpose and proposed that the necessary funds be raised by the imposition, beginning July 1, 1937, of a 2% tax on the gross receipts of public utility companies in the State (N. Y. Legis. Doc., 1937, No. 91).
The Governor added that since the City of New York was still in need of the extraordinary taxing power conferred upon it annually since 1933, this authority should be renewed. Lest an
*197unreasonable burden be placed on utilities, however, the Governor recommended that a limitation of 1% be placed on the city utility tax. Thus, the Governor stated, “ the aggregate tax on public utility companies furnishing services in the City of New York will not be increased but will remain at three per cent as to-day; two per cent will be imposed by the State for unemployment relief, one by the City for the same purpose ” (N. Y. Legis. Doc., 1937, No. 91, p. 4).
The Governor further found that cities, other than New York City, were similarly in need of additional taxing authority to raise funds for unemployment relief, and proposed that such municipalities be given permissive authority to impose a 1% tax on utility services rendered within their territorial limits.
Acting upon these recommendations of the Governor, the Legislature enacted the following legislation:
(a) It added section 186-a to the Tax Law, imposing a 2% tax on the gross income of utilities (L. 1937, ch. 321). “ Gross income ”, however, was limited to receipts from sales “ for ultimate consumption or use ” in this State (Tax Law, § 186-a, subd. 2, cl. [2]).
(b) The General City Law was amended by the adoption of a new section, 20-b (L. 1937, ch. 321), which authorized any city of the State to impose a tax “ such as is imposed by section one hundred eighty-six-a of the tax law, except that the rate thereof shall not exceed one per centum of gross income ’ ’. This section also provided that the provisions of section 186-a of the Tax Law should apply to the taxes thus authorized “ so far as the same are or can be made applicable, with such limitations as are set forth in this section, and such modifications as may be necessary in order to adapt such taxes to local conditions ”.
(c) The 1937 enabling act, conferring general authority upon the City of New York to impose such levies as the State could adopt, contained this proviso: “ This act shall not authorize the imposition of a tax * * * upon gross incomes or gross operating incomes subject to taxation under the provisions of section one hundred eighty-six-a of the tax law, except in accordance with the provisions of section twenty-b of the general city law.” (L. 1937, ch. 327, § 1.)
Subsequent to these 1937 enactments, the State continued each year the taxing authority conferred upon the city, with the same limitations as to utility taxes. The city, as required by this restriction, reduced its tax to 1% on the gross receipts of utilities. But the measure of the tax continued, as before, to include the proceeds of sales for resale. This, the taxpayer contends, the city may not do.
*198It is urged that the enabling acts provide that the city may not tax gross incomes subject to taxation under section 186-a-, save in accordance with section 20-b of.the General City Law; that the gross income of the taxpayer is subject to taxation under section 186-a; that section 20-b of the General City Law, therefore, is controlling, and that, under that provision, the City of New York, as in the case of other municipalities, may levy only such a tax as is imposed by section 186-a.
If the measure of the city’s tax is controlled by section 20-b of the General .City Law, its position here cannot be sustained. Under that- provision, all the cities of the State are authorized to impose a tax such as is imposed by section 186-a, and it is further enacted, that the provisions of section 186-a shall govern, wherever applicable. The restricted definition of gross income, contained in section 186-a seems thus clearly applicable to the taxing authority of municipalities under section 20-b of the General City Law.
But the applicability of section 20-b to New York City does not appear. The enabling act provides that the city shall not tax incomes which are “ subject to taxation ” under section 186-a, except in accordance with section 20-b. But the receipts of utilities derived from sales for resale are not subject to taxation under section 186-a. On the contrary, that law expressly excludes these sales from the measure of the tax. As to incomes not taxed under section 186-a, there is no restriction imposed by the statute on the taxing authority delegated to the city.
Any other view runs counter to the clearly expressed legislative .intent. The origin of the limitation upon the city lies in the State utility tax. The Legislature, having determined to levy a 2% tax, sought to relieve utilities of-the combined burden of a 2% State tax and a 3% city tax. To that end, therefore, the city was limited to a 1% levy. But where the State did not tax, it imposed no burden on utilities. There was, therefore, no occasion to restrict the city impost.
It is said that unless the city’s authority is circumscribed as the petitioner contends, the city might impose a tax at any rate upon the receipts of utilities derived from sales for resale. This, it is urged, circumvents the legislative purpose to relieve, the utilities of a tax in excess of 3%. Prior to 1937, however, the city was clearly free to tax the gross receipts of utilities, including the proceeds of sales for resale, and at any rate deemed advisable. The 1% restriction created in 1937 arose solely out of the circumstance that the State had entered the field of utility taxation. In the area of the State tax (sales for consumption), the Legislature provided that the maximum total levy should be *1993%. But there is no restriction in the law covering the city’s authority to tax incomes not covered by the State impost. In the latter sphere, the city’s taxing authority, in respect to utilities, is identical with that generally applicable to all persons doing business in the city.
Nor does the extent of the city’s taxing authority warrant the creation of limitations not provided for by the Legislature. As was pointed out when the validity of the original enabling act was challenged: “ Broad and unprecedented as is the license so conferred, we are without jurisdiction to circumscribe or modify it.” (New York Steam Corp. v. City of New York, 268 N. Y. supra, 145.)
It is to be remembered that this tax, imposed by the city, is not to be regarded as being inferior for any purpose to the State tax. In dealing with emergency unemployment relief, the city “ is collecting funds to be used, not for city purposes, but solely for emergency relief which is a matter of State concern.” (Matter of Brown Printing Co., 285 N. Y. 47, 52.) There is, therefore, no occasion to impose limitations not expressly created by the applicable legislation.
A modification of the enabling act, adopted in 1940 (L. 1940, ch. 245), is further relied upon by the taxpayer to support its contention. In that year, the city’s taxing authority was restricted by a proviso that it was not to impose a tax “ upon interest or dividends received from a corporation by a person reí'erred to in this paragraph.” The paragraph in question is that which contains the limitation upon the city’s utility tax. At the same time, the proviso was further amended by the addition of the words “ of persons ” after the phrase “ upon gross income or gross operating incomes ”. Thus, the provision, so far as here relevant, provided: “ This act shall not authorize the imposition of a tax * * * upon gross incomes or gross operating incomes of persons subject to taxation under the provisions of section one hundred eighty-six-a of the tax law, except in accordance with the provisions of section twenty-b of the general city law ”. (New matter in italics.)
The contention is that the city is thus debarred from taxing gross incomes of “ persons ” subject to taxation under section 186-a, save in accordance with section 20-b; and that utilities clearly are such “ persons ”. This interpretation overlooks the other exception contemporaneously engrafted upon the enabling act. It was provided that the city was not to tax interest or divireceived from a corporation “ by a person referred to in this paragraph.” Since it was intended that the city should not *200be permitted to tax the interest or dividend income of utilities, the form of the language used made it necessary to add the worcjs of persons ” to the preceding clause. The phrase “ subject to taxation ”, however, must still be deemed to modify gross incomes, not persons. The statute still confines the limitation to gross incomes subject to taxation under section 186-a.
This construction finds further support in the legislative history of the various limitations placed upon the city. Whenever it was intended to restrict the city, the limitation was phrased in express language. By successive enáctments over the years, the city was denied the right to impose “ a tax on incomes or upon the transfers of estates of deceased persons, or upon the gross income from the operation of hotels, multiple dwellings or office buildings by persons ” engaged in certain transportation activities (L. 1940, ch. 245). Had there been a purpose to exclude utility sales for resale from the city’s sphere of taxation, it is reasonable to expect that the legislative policy of expressly stating the limitation would have been adhered to.
While rules of statutory construction are to be used with care, they represent a salutary guide. It is well settled that a proviso which restricts the application of a remedial statute is to be strictly construed and is not to be enlarged to include any case not clearly within the purpose or express terms of the exception (Gregg Cartage Co. v. U. S., 316 U. S. 74; Piedmont & Northern Ry. v. Comm., 286 U. S. 299; Wheeler v. Wheeler, 134 Ill. 522; Dean v. McMullen, 109 Ohio St. 309).
Here, the limitation derives from a legislative purpose to avoid multiple taxation by State and city. Where the State does not tax, the limitation is without purpose. There is no such limitation in the express language of the statute, and none should be read into it by implication.
The course of the legislation, which ultimately culminated in section 186-a of the Tax Law, in the Assembly and Senate, further buttresses the city’s position. Initially, the bill introduced defined the measure of the tax identically with that contained in the city’s levy, and included the proceeds of sales for resale (Assem. Pr. No. 3085, Sen. Pr. No. 2422; Assem. Int. No. 2487, Sen. Int. No. 1989 [1937]). This bill, further, in its proposed amendments to the General City Law, which finally became section 20-b of that law, provided that any local law passed pursuant to the legislative authority conferred, was to be “ identical with the tax imposed by section one hundred eighty-six-a
*201Thereafter, the Legislature varied its definition of gross income to exclude the proceeds of sales for resale. It was then that the provision, which became part of section 20-b, was modified to read that the provisions of section 186-a should govern local taxes “ so far as the same are or can be made applicable * * *"
The elimination of the requirement of identity, as to the taxing authority of municipalities generally, is significant evidence of the fact that there was no legislative purpose to impose upon New York City the State’s definition of gross receipts. Whether other municipalities are similarly free to adopt a base differing from that of the State, need not now be decided.
On this phase of the case, the city refers further to subdivision 13 of section 186-a, which authorizes the State Tax Commission to arrange with the city to collect the State and city taxes jointly “ with respect to items that enter into the tax base for both the tax imposed by said city and that imposed pursuant to this section ”. Here, again, is legislative recognition of possible variations in the State and city tax base. The determination of the comptroller should therefore be confirmed, subject to a modification now to be considered.
The taxpayer contends that, apart from the foregoing, the 'city had no authority to impose any tax on utilities for the period between January 1, 1939, and July 1, 1939. This contention rests upon section 1 of article XVI of the New York Constitution, which became effective on January 1, 1939. Under that section, the State was prohibited from delegating its taxing power, except by a statute which “ shall specify the types of taxes which may be imposed thereunder ”. The enabling act, adopted by the State Legislature in 1938 and effective for the period from January 1 to July 1, 1939 (L. 1938, ch. 444), contained no such specification. The delegation, therefore, of the taxing authority is in clear violation of the constitutional provision, and must fall. It follows that this contention of the taxpayer should be sustained.
Martin, P. J., Townley and Cohn, JJ., concur with Callahan, J.; Wasservogel, J., dissents in part in opinion.
Determination, insofar as it imposed a tax upon income from sales of personal property made by utility corporations for resale by the purchaser thereof, annulled, with $50 costs and disbursements to the petitioner, and any collections which were made based thereupon directed to be refunded, with penalties and interest. Settle order on notice.