Heller v. State

180 A.D.2d 299, 585 N.Y.S.2d 579, 1992 N.Y. App. Div. LEXIS 8179

Opinions

OPINION OF THE COURT

Mercure, J. P.

In this action we are asked to determine whether the transfer gains tax imposed by Tax Law article 31-B is a "transfer tax” within the meaning of EDPL 702 (A) (1).

Footnotes

•

* The facts are simple and undisputed. In 1982, claimant purchased real property known as Barcelona Point in the Town of East Hampton, Suffolk County. In August 1989, the State, through its Department of Environmental Conservation, acquired the property from claimant under its power of eminent domain. Because the condemned parcel was nonresidential and the consideration paid by the State was in excess of $1,000,000, claimant was required to pay a transfer gains tax in the amount of 10% of the net profit realized upon the conveyance (Tax Law §§ 1441, 1443). Claimant paid the $845,638.99 tax under protest and thereafter sought reimbursement from the State, claiming that the tax was a transfer tax within the meaning of EDPL 702 (A) (1) and, as such, the State was statutorily required to reimburse him. The State refused claimant’s reimbursement request and this action followed. After joinder of issue, the State moved to dismiss for failure to state a claim and for summary judgment on its counterclaim for claimant’s unpaid personal income taxes for 1989. Claimant cross-moved for summary judgment on his claim. The Court of Claims granted the State’s motion to dismiss the claim and granted judgment on the State’s counterclaim in the amount of $105,510 plus interest from the date of decision to the date of judgment. Claimant appeals the dismissal of his claim, and the State cross-appeals from the Court of Claims’ alleged failure to properly assess interest and penalties on the judgment in its favor.

"(A) The condemnor shall reimburse a condemnee an amount separately computed and stated, representing the following incidental expenses:

"(1) any recording fees, transfer taxes and other similar expenses in connection with the acquisition of the property by the condemnor or in connection with the transfer of the property to the condemnor”.

Initially, we agree with the conclusion of the Court of Claims that the tax on gains resulting from the sale of real property imposed by Tax Law article 31-B is not a transfer tax within the purview of EDPL 702 (A) (1). Accordingly, we would affirm so much of its judgment as dismissed claimant’s claim. In our view, the obvious purpose of the statutory provision is to relieve a condemnee of incidental recording fees and expenses attributable to the condemnor’s acquisition of the condemned property. The tax imposed by Tax Law article 31-B is neither "incidental” nor an "expense” incurred in connection with the transfer of the property. First, the applicable tax rate of 10% of the gain realized on the sale (see, Tax Law § 1441) is by no means incidental and far exceeds the tax rate generally imposed in connection with stamp and documentary transfer taxes (see, 995 Fifth Ave. Assocs. v New York State Dept. of Taxation & Fin., 963 F2d 503, 513). Second, although the property transfer is the event which triggers the imposition of the tax (see, Collins v United States, 946 F2d 864, 866), the tax bears no direct relationship to the consideration received for the property. Rather, computed on the surplus of the sale price over the cost of acquisition and of capital improvements to the property (see, Tax Law § 1440 [3], [5]), the tax is more in the nature of an income tax than a transfer tax.

It is our opinion that the dissent has placed entirely too much emphasis upon the fact that payment of the transfer tax is a prerequisite to recordation of the deed of conveyance. The nature of a tax is not determined by the means employed to collect it. More significantly, the dissent’s exclusive focus upon this secondary characteristic has caused it to lose sight of the essential fact that Tax Law article 31-B imposes a tax not upon a transfer of real property or the consideration received therefor but upon the gain, if any, resulting from the transfer (see, 995 Fifth Ave. Assocs. v New York State Dept. of Taxation & Fin., supra, at 512-513; Collins v United States, supra). Further, we view the September 21, 1983 and November 14, 1983 opinion letters and Publication No. 588 (Nov. 1984) of the Department of Taxation and Finance, which address the issue of whether the transfer gains tax is a deductible income or property tax for Federal income tax purposes, as wholly irrelevant to our inquiry. Finally, we agree with the dissent that, inasmuch as no State transfer taxes are payable in connection with a condemnation proceeding, the provision in EDPL 702 (A) (1) for reimbursement of transfer taxes is essentially meaningless. We cannot understand, however, how the unanticipated subsequent enactment of Tax Law article 31-B could retroactively ameliorate this defect.

Turning to the State’s cross appeal, inasmuch as Tax Law § 684 (a) prescribes that interest accrues at the administratively set rate from the date payment is due until the date it is paid, it was error for the Court of Claims to impose interest upon the outstanding balance only from the date of decision to the date of entry of the judgment. In view of the fact that the interest rate is subject to change and has indeed changed at least twice since January 16, 1991, the last date upon which interest was calculated upon the outstanding balance (see, Tax Law § 697 Q] [1]), and, further, that claimant evidently has made payments toward the outstanding balance, it is not possible to make a calculation based upon the evidence presented. Accordingly, the matter must be remitted to the Court of Claims for a recalculation of interest and the imposition of any applicable penalties.

EDPL 702 provides in relevant part: