621 NYS2d 826 | N.Y. Sup. Ct. | 1995
OPINION OF THE COURT
Plaintiff Homier Distributing Company (Homier) has instituted this action against the defendant City of Albany (City) and moved for partial summary judgment declaring section 7-240 of the Code of the City of Albany (the ordinance) to be in violation of the Commerce Clause of the United States Constitution (US Const, art I, § 8, cl [3]). Plaintiff further seeks a directive that the City reimburse it for taxes it paid pursuant to that ordinance. Homier also requests a hearing to determine costs and attorney fees to which it claims entitlement pursuant to 42 USC §§ 1983 and 1988. The City has answered, raising a variety of affirmative defenses and, on the merits, contending that the ordinance in all respects should survive constitutional challenge.
The material facts are undisputed. Homier is an Indiana corporation that is authorized to and transacts business in
The instant dispute arises from the fact that when Homier rented a site (the Armory at 130 New Scotland Avenue) in the City and conducted a sale from August 20-23, 1992, the City required it, pursuant to the challenged ordinance, to obtain a transient retail business license to conduct the sale, to pay the City a tax on the gross sales generated by that sale, and to post a bond in the amount of $2,500 to ensure compliance with the taxing requirements. After the sale, Homier, under protest, paid the transient retail business tax required by the ordinance in the amount of $3,031.16. That tax was calculated by taking Homier’s gross sales for that event ($283,451.43) reduced by the City’s then applicable property tax equalization rate (i.e., 8.75%) to arrive at an assessed value of $24,802, to which the 1992 tax rate (i.e., $134.31 per $1,000) was applied to arrive at a transient retail business tax due of $3,031.16.
The City ordinance taxing transient retail business — not judicially challenged until this litigation — dates back to its passage on February 16, 1931. It imposes a tax based on the gross amount of sales of a transient retailer, "at the same rate as other property[
General Municipal Law § 85-a was passed by the Legislature in 1917 (see, L 1917, ch 199, § 1), after its predecessor, General Municipal Law § 85 (repealed by L 1968, ch 435, § 2), was declared to be unconstitutional by the New York State Court of Appeals in People ex rel. Moskowitz v Jenkins (202 NY 53 [1911]). General Municipal Law § 85 had required a license for the sale in the City of goods represented or advertised as bankrupt stock, assigned stock, or damaged by fire, water or otherwise. The permissible fee payable to the City ranged from $25-$100 per month and operation of a transient business without a license was a misdemeanor subject to a fine. The Court held that an ordinance imposing a $100 monthly fee passed thereunder could not be sustained as an exercise of municipal police power designed to prevent fraud, since the payment of a license fee did not combat the targeted evil of false representations regarding merchandise (supra, at 57). The Court concluded that the evident purpose of the ordinance, which imposed a fee exceeding the prevailing commercial rents in the City, was to protect local merchants against outside competition, and not to safeguard customers (supra, at 58). The Court also determined that the ordinance was not a valid exercise of the municipal taxing power, as the distinction drawn between transient retailers who advertised goods as bankrupt or damaged stock and thus were taxed at $100 per month, and transient retailers who refrained from such
General Municipal Law § 85-a was enacted in 1917 to attempt to authorize municipalities to tax retail sales by transient businesses without the constitutional infirmities of General Municipal Law § 85. Research has not revealed any reported decision in which General Municipal Law § 85-a or an ordinance adopted thereunder has been challenged on constitutional or other grounds. In a 1918 opinion, the Attorney-General concluded that General Municipal Law § 85-a’s provisions for taxing transient merchants were constitutional in that "an effort ha[d] been made to subject transient retailers to a reasonable tax in accordance with the suggestion of the court in [Jenkins]” (Matter of Construing General Municipal Law, §§ 85, 85-a, 18 NY State Dept Rep 444, 446 [Nov. 26, 1918]). Relying thereon, the State Comptroller decades later upheld an ordinance "drafted directly from § 85-a” concluding that "A city may impose a tax on transient retail business therein based upon the gross amount of sales of such business” (1967 Opns St Comp No. 67-523, at 465-466). Neither opinion expressly analyzed section 85-a or any municipal ordinance under either the Commerce Clause or other specific Federal constitutional provision.
Homier’s primary contention is that the City ordinance
The Federal Commerce Clause provides that the Congress shall have power "To regulate commerce * * * among the several States” (US Const, art I, § 8, cl [3]). Although phrased as a grant of congressional authority, it is well established that it "also embodies a negative command forbidding the States to discriminate against interstate trade.” (Associated
The United States Supreme Court has formulated a two-prong approach to analyzing State economic regulation under the Commerce Clause. "When a state statute directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests, [the Court has] generally struck down the statute without further inquiry” as virtually per se invalid (Brown-Foreman Distillers Corp. v New York State Liq. Auth., 476 US 573, 579 [emphasis supplied]; see also, Associated Indus. of Mo. v Lohman, supra, 511 US, at —, 114 S Ct, at 1815; Armco, Inc. v Hardesty, 467 US 638, supra; Oregon Waste Sys. v Department of Envtl. Quality, 511 US —, 114 S Ct 1345). However, when "a statute has only indirect [and incidental] effects on interstate commerce and regulates evenhandedly, [the inquiry is] whether the State’s interest is legitimate and whether the burden on interstate commerce clearly exceeds the local benefits.” (Brown-Foreman Distillers Corp. v New York State Liq. Auth., supra, 476 US, at 579, relying on Pike v Bruce Church, Inc., 397 US 137, 142 [origin of second-tier balancing approach]; see also, Hughes v Oklahoma, 441 US 322, 336.) Upon judicial scrutiny under either approach, the critical consideration is the "practical operation” of the challenged statute/ ordinance, i.e., its over-all and actual effect on local and interstate activity (Brown-Foreman Distillers Corp. v New York State Liq. Auth., supra; American Tel. & Tel. Co. v New York State Dept. of Taxation & Fin., 84 NY2d 31, 35). The burden to show discrimination, of course, rests on the party challenging the validity of the taxing statute/ordinance, here Homier, but once it demonstrates discrimination the burden
The parties to this dispute, expectedly, disagree as to which prong of the analysis this ordinance falls under. Homier contends that the ordinance is per se invalid as facially and directly discriminatory against out-of-State retailers, whereas the City maintains it has at most only an incidental effect on interstate commerce. This court cannot agree with the plaintiff for the reasons that follow.
Careful examination of the ordinance makes clear that the tax is not imposed based on the in- or out-of-State origin of the merchandise sold by transient retailers or the location of the transient retailer in or out of this State (cf., Armco, Inc. v Hardesty, 467 US 638, 642, supra; Oregon Waste Sys. v Department of Envtl. Quality, 511 US —, 114 S Ct 1345, supra [surcharge facially invalid under negative Commerce Clause where it imposed fee on solid waste generated out of State and disposed of in State]). In Armco (supra), upon which Homier relies, the Supreme Court ruled that a wholesale gross receipts tax unconstitutionally discriminated against interstate commerce because it exempted in-State manufacturers, emphasizing that "a State may not tax a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State.” (467 US, at 642.) As such, the tax in Armco impacted companies selling tangible property at wholesale differently, depending on whether the retailer conducted manufacturing in the State or out of it, i.e., it discriminated between transactions based on some "interstate element” (supra, at 642, quoting Boston Stock Exch. v State Tax Commn., 429 US 318, 332, n 12). In comparison, the tax imposed by the City of Albany differentiates between retailers based upon whether they intend to conduct retail sales on a permanent or temporary basis in the City and without regard to any "interstate element”. Thus, goods manufactured in Troy, New York, Chicago, Illinois, or even Albany, New York, are treated the same if sold by a transient retail merchant in Albany. Indeed sales of goods produced out of State but sold by a permanent retail merchant in the City of Albany would not be subject to the transient retail tax at issue, demonstrating that the tax imposition is not based on an "interstate element.”
As this court understands the taxing ordinance, it imposes a gross receipts tax upon the retail sales of transient businesses conducted on a temporary basis in the City of Albany without regard to where the goods are produced. The ordinance does not differentiate based on whether the retailer’s permanent business is located in this or another State. Rather it exempts those merchants who conduct permanent retail businesses in the City while taxing the gross receipts of all other transient retail merchants, both from in State and out of State. Homier’s reliance on a long line of Supreme Court "drummer” cases, so named because they involve taxation upon the solicitation of interstate business by representatives of out-of-State retail merchants for the sale of goods not
These "drummer” cases are to be distinguished from a line of cases more conceptually and factually similar to the case sub judice, i.e., the so-called "peddler” cases in which the Supreme Court has upheld, against constitutional Commerce Clause challenges, State or municipal taxes on peddlers who bring goods into the taxing State where they are sold and delivered by the peddlers. In those cases, the tax applied equally to residents and products of the taxing State and those of other States, and the peddlers’ dealings and sales were not accompanied or followed by the interstate transfer of goods (Machine Co. v Gage, 100 US 676; see also, Annot., Supreme Court’s Views as to Constitutionality of State or Municipal Regulation of Peddlers, Drummers, Canvassers, and the Like, 48 L Ed 917, 924-930, §§ 6-8 [1977]). Indeed, Robbins (120 US, at 497, supra), a drummer case, recognized this key distinction between taxation of the sale or ordering of goods to be brought into the taxing State which is an unconstitutional tax on interstate commerce itself, and the sale of merchandise, as here, already in the taxing State and thus "part of its general mass of property” subject to taxation "provided that no discrimination be made against them as goods from another state”. Despite Homier’s contentions to the contrary, the ordinance does not discriminate against the transient retailers’ sale of goods as goods from another State. The differentiation made is between permanent and transient retailers without consideration of the geographic origin of the merchandise. There being no direct discrimination or favoritism accorded in-State retailers, the ordinance is not per se unconstitutional as Homier argues.
Turning to the second prong of the two-tiered approach to analyzing State or municipal economic regulation or taxa
Plaintiff also moves for summary judgment under its third cause of action alleging that the unconstitutional imposi
Since plaintiff’s summary judgment motion was based on a question of law, i.e., the unconstitutionality of section 7-240 of the Code of the City of Albany, and since there are no questions of fact, the decision herein is determinative of the issues.
Accordingly, the defendant City is entitled to and hereby is granted summary judgment dismissing plaintiff’s first and third causes of action. Because no motion was made regarding plaintiff’s second cause of action (raising an equal protection challenge to the ordinance), it remains intact.
. The "other property” statutory language has been understood to refer to the prevailing real property tax rate, i.e., requiring the gross retail sales to be taxed at the "same rate” as real property is taxed in the City. Neither party challenges this interpretation of the ordinance.
. As originally enacted, the presumption applied to businesses conducted and places rented for a period of two months or less. The presumption was amended in 1931 to extend that period to six months.
. While Homier challenges and focuses on the constitutionality of the ordinance rather than General Municipal Law § 85-a, since their wording is nearly identical the pertinent constitutional analysis will be equally applicable to both provisions.