JAMES SQUARE ASSOCIATES LP v. MULLEN, DENNISJAMES SQUARE ASSOCIATES LP v. MULLEN, DENNIS
Eric T. Schneiderman, Attorney General, Albany (Owen Demuth of counsel), for appellants.
Bond, Schoeneck & King, PLLC, Syracuse (Jonathan B. Fellows of counsel), for respondents.
OPINION OF THE COURT
Green, J.
Plaintiffs are business enterprises that at one time were certified as eligiblе to receive benefits pursuant to the New York State Empire Zones Act (Empire Zones Act) (
I
In 1986 the Legislature enacted the Empire Zones Act “to stimulate private investment, private business development and job creation” in economically impoverished areas (
In an effort to ensure that those business enterprises benefiting from the Empire Zones Program were meeting the investment and employment goals of the program, the Legislature amended
“the business enterprise . . . caused individuals to transfer from existing employment with another business enterprise with similar ownership and located in New York state to similar employment with the certified business enterprise or if the еnterprise acquired, purchased, leased, or had transferred to it real property previously owned by an entity with similar ownership, regardless of form of incorporation or organization.”
That provision was intended to curb a practice colloquially known as “shirt-changing,” which creates the illusion that a business enterprise is creating jobs and making investments when it does not in fact provide tangible economiс benefits to the empire zone where the business is operating. The amended statute also added a cost-benefit criterion and permitted the DED Commissioner to revoke a certification upon finding that: “the business enterprise has failed to provide economic returns to the state in the form of total remuneration to its employees (i.e. wages and benefits) and investments in its facility greater in value to the tax bеnefits the business enterprise used and had refunded to it” (
The same legislation added a new subdivision (w) to
At the same time that it amended article 18-B of the General Municipal Law, the Legislature also amended several Tax Law provisions applicable to carryovers of empire zones’ tax credits (seе L 2009, ch 57, part S-1, §§ 11-22). Each of the pertinent Tax Law amendments provided in essence that “[a]ny carryover of a credit from prior taxable years will not be allowed if an empire zone retention certificate is not issued pursuant to [
The legislation further provided that the pertinent amendments to
II
Upon the reviews conducted by the DED Commissioner, the certifications of plaintiffs Pioneer Fulton Shopping Center, LLC and Pioneer Management Group, LLC were revoked based upon the “shirt-changing” provision, those of plaintiffs James Square Associates LP (James Square) and Waterfront Associates, LLC were revoked based upon the cost-benefit criterion, and the certification of plaintiff Mohawk Glen Associates, LLC was revoked based upon both the “shirt-changing” provision and the cost-benefit criterion. The DED Commissioner notified each plaintiff that thе effective date of the revocations was January 1, 2008. With the exception of James Square, all of the plaintiffs took administrative appeals to the empire zones designation board (EZDB) from the determinations revoking their certifications (see
III
Plaintiffs commenced the instant action during the pendency of the administrative appeals. Plaintiffs do not contend that they meet the revised eligibility criteria set forth in the amended statute or that their certification of eligibility to receive empire zones’ benefits was improperly revoked. Rather, plaintiffs challenge the effective date of those revocations and the retroactive
Plaintiffs moved and defendants cross-moved for summary judgment. In support of their motion, plaintiffs submitted a portion of the 2009-2010 budget bill proposed by the Governor that expressly provided that the decertification of a business enterprise pursuant to the review conducted by the DED Commissioner under
In support of their cross motion, defendants submitted an affidavit from the Director of the Empire Zones Program who asserted that, both before and after the 2009 amendments,
IV
The court granted plaintiffs’ motion and denied defendants’ cross motion. Based upon the language of the amended statute, the legislаtive history, and the rule of statutory construction that statutes are generally presumed to apply prospectively (see
The order and judgment was entered June 22, 2010, and the Legislature responded swiftly by enacting legislation on August 11, 2010 addressing the effective date of decertifications made pursuant to the 2009 amendments. That lеgislation provides in pertinent part:
“It is the intent of the legislature to clarify and confirm that the amendments made to the General Municipal Law by chapter 57 of the laws of 2009 that require the revocation of certification of certain business entities previously certified under the Empire Zones Program are intended to be effective for the taxable year in which the revocation of certification occurs and for all subsequent taxable years . . . and that such revocations of certification that occur in 2009 are deemed to be in effect for the taxable year commencing on or after January 1, 2008 and before January 1, 2009” (L 2010, ch 57, part R, § 1).
The Legislature also added the following language to
“[W]ith respect to any business . . . whose certification has been revoked pursuant to subparagraph five or six of this paragraph, that revocation (I) will be effective for a taxable year beginning on or after January first, two thousand eight and before January first, two thousand nine and for subsequent taxable years . . . and (II) thereafter will be effective for the taxable year during which the commissioner makes his or her determination (prior to any appeal) to revoke the certification of a business . . . and for subsequent taxable years” (L 2010, ch 57, part R, § 2).
Based upon the 2010 legislation, defendants moved for leave to renew. The court granted defendants’ motion, and upon re-
V
Contrary to the contention of plaintiffs and the conclusion of the court, we agree with defendants that the record establishes the intention of the Legislature that the revocation of plaintiffs’ certifications pursuant to the 2009 amendments would be effective for the taxable year commencing January 1, 2008. In reaching that conclusion, wе are mindful that, in interpreting a statute, our role is to effectuate the intent of the Legislature, and that the clearest indicator of the legislative intent is the language of the statute (see Patrolmen‘s Benevolent Assn. of City of N.Y. v City of New York, 41 NY2d 205, 208 [1976]). Here, the Legislature provided that the amendments at issue were to “take effect immediately.” When a statute is to take effect and whether that statute applies retroaсtively, however, are distinct issues. As the Court of Appeals noted in Majewski v Broadalbin-Perth Cent. School Dist. (91 NY2d 577, 583 [1998]), “[w]hile the fact that a statute is to take effect immediately evinces a sense of urgency, the meaning of the phrase is equivocal in an analysis of retroactivity” (internal quotation marks omitted). Indeed, both parties rely on the phrase to support their respective positions on retroactivity and, “[u]nder the circumstances, the proviso that the subject provisions were to ‘take effect immediately’ contributes little to our understanding of whether retroactive application was intended on the issue presented” (id. at 583-584).
When the court ruled on the original motion and cross motion, the Legislature had not expressly stated when the revocation of a business enterprise‘s certification was to be effective. The court‘s decision, however, seemingly prompted the Legislature “to clarify and confirm” its intent in no uncertain terms that the decertification of empire zones’ businesses that occurred during 2009 were “deemed to be in effect for the taxable year commencing on or after January 1, 2008 and before January 1, 2009” (L 2010, ch 57, part R, § 1). While “[t]he Legislature has no power to declare, retroactively, that an exist-
Further, “[o]ne crucial legislative function is to clarify the meaning and purpose of the Legislature‘s enactments; it is the essence of the judicial function to honor legislative intent” (Phillips v City of New York, 66 AD3d 170, 188 [2009]). As noted, the Legislature acted swiftly to clarify the effective date of the 2009 amendments in response to the court‘s initial decision and, “when the Legislature does tell us what it meant by a previous act, its subsequent statement of earlier intent is entitled to very great weight” (Matter of Chatlos v McGoldrick, 302 NY 380, 388 [1951]; see RKO-Keith-Orpheum Theatres, Inc. v City of New York, 308 NY 493, 501-502 [1955]).
VI
While we thus agree with defendants on the issue of legislative intent, we further conсlude that the retroactive application intended by the Legislature violates plaintiffs’ due process rights. Here, “[i]nasmuch as the transactions were complete and reimbursement was owed prior to the . . . effective date of the . . . [s]tatute, which ‘altered the substantive law governing [plaintiffs‘] conduct’ . . . , application of that statute to [plaintiffs‘] claims would render it ‘retroactive’ in the true sense of that term” (Matter of County of St. Lawrence v Daines, 81 AD3d 212, 216 [2011], lv denied 17 NY3d 703 [2011]). Thе 2009 amendments at issue are not, strictly speaking, retroactive tax laws, i.e., they do not retroactively impose a new tax
“In reaching the appropriate balance, several factors may be considered. First, and perhaps predominant, is the taxpayer‘s forewarning of a change in the legislation and the reasonableness of his [or her] reliance on the old law. This inquiry focuses on whether the taxpayer‘s reliance has been justified under all the circumstances of the case and whether his [or her] expectations as to taxation [have been] unreasonably disappointed. The strength of the taxpayer‘s claim to the benefit may be significant if he [or she] has obtained a sufficiently certain right to the money prior to the enactment of the new legislation. Additionally, the length of the retroactive period often has been a сrucial factor, and excessive periods have been held to unconstitutionally deprive taxpayers of a reasonable expectation that they will secure repose from the taxation of transactions which have, in all probability, been long forgotten. Finally, the public purpose for retroactive application is important because of the taxing authority‘s legitimate concеrn that evasive measures taken after introduction of a bill but before enactment might frustrate the purpose of the legislation” (internal quotation marks and citations omitted).
Those factors militate in plaintiffs’ favor. The time period at issue, measured from the enactment of the 2009 amendments, is approximately 16 months. Whether that period is excessive, in our view, cannot be resolved in the abstract, but only in light of the other factors, i.e., notice and reliance. “The constitutionality of [the retroactive decertification] turns primarily on whether [plaintiffs] could have reasonably foreseen the enactment and, if [they] could have anticipated [decertification], whether [plaintiffs] would have altered [their] behavior” (Wittenberg v City of New York, 135 AD2d 132, 137 [1988], affd 73 NY2d 753 [1988]). There is no indication in the record that plaintiffs had any warning that the criteria for certification of еmpire zones’ businesses were going to change, prospectively or retroactively, prior to April 2009. Further, and most significantly, it is undisputed that plaintiffs maintained their eligibility for empire zones’ tax credits throughout the tax year beginning January 1, 2008 pursuant to the criteria then in effect. As the court observed, here plaintiffs did not merely rely on the continuing benefit of a tax statute (cf. Matter of Varrington Corp. v City of N.Y. Dept. of Fin., 85 NY2d 28, 32-33 [1995]), but they were induced to conduct their businesses in a particular way in specified disadvantaged areas in reliance upon the availability of empire zones’ tax credits. Under the circumstances, those tax credits “have induced action in reliance thereon [and thus] . . . may not be invalidated by subsequent legislation” (People v Brooklyn Garden Apts., 283 NY 373, 380 [1940]).
Finally, we conclude that defendants have failed to explain what legitimate public purpose is served by retroactive application of thе 2009 amendments. This is not a situation in which “evasive measures taken after introduction of a bill but before enactment might frustrate the purpose of the legislation” (Matter of Neuner v Weyant, 63 AD2d 290, 302 [1978], appeal dismissed 48 NY2d 975 [1979]; see Replan Dev., 70 NY2d at 456). Plaintiffs were powerless to alter the conduct of their businesses for the tax year that ended before the 2009 amendments were introduced, and defendants offer no justification for retroactive application of the 2009 amendments apart from the additiоnal revenue that the State would realize by retroactively eliminating tax credits for certain participants in the Empire Zones Program. That justification by defendants, balanced against the inequity to plaintiffs, is insufficient. We are compelled to conclude that “the apparent absence of a persuasive reason for retroactivity, with its potentially harsh effects, offends constitutional limits, especially when the tax [credit eliminated] is one which might exert significant influence on . . . business transactions” (Holly S. Clarendon Trust v State Tax Commn., 43 NY2d 933, 935 [1978], cert denied 439 US 831 [1978]). The court therefore properly declared that the amendments at issue apply prospectively only, and that the revocations of plaintiffs’ certifications, to the extent they were made retroactive to January 1, 2008, are null and void.
Accordingly, the order and judgment should be affirmed.
Centra, J.P., Fahey and Gorski, JJ., concur.
It is hereby ordered that the order and judgment so appealed from is unanimously affirmed without costs.