146 A.D.2d 155 | N.Y. App. Div. | 1989
OPINION OF THE COURT
The facts which have been stipulated by the parties include
In March 1983, Berger and petitioners orally agreed that a designee of Berger, RPBLC Properties Corporation (hereinafter RPBLC), would acquire the Brefries Realty stock for $72,250,000, a sum commensurate with 85% of the appraised property value. By March 17, 1983, petitioners’ respective boards of directors approved the proposed sale by written resolution. By March 25, 1983, Berger and petitioners considered themselves legally bound to consummate the sale. Berger had activated RPBLC and arranged for funding of a down payment. In the meantime, counsel advised the parties that legislation was pending to implement a 10% gains tax on the sale of real estate in excess of $1,000,000. To ensure an exemption for the instant transaction, a written stock sale agreement was prepared during the week of March 21, 1983. The written contract was ready for execution by March 25, 1983, but neither Berger nor petitioners’ representative was available. The stock sale agreement was finally executed by counsel for both parties on March 29, 1983, one day after the effective daté of Tax Law article 31-B (see, L 1983, ch 15, § 181, eff Mar. 28, 1983). A down payment of $250,000 accompanied the execution of the contract. In June 1984, petitioners paid the resulting gains tax of $3,907,426.80 under protest and the sale to RPBLC was completed. A petition for a refund was filed with respondent, which, on the facts stipulated, sustained the refund denial. Petitioners commenced this proceeding seeking to annul respondent’s determination and to obtain a refund. Supreme Court upheld the decision (138 Misc 2d 27) and this appeal ensued.
We reach a contrary conclusion. In assessing whether a transaction is subject to taxation, the statute which levies a tax is construed in favor of the taxpayer (see, Matter of Sanjaylyn Co. v State Tax Commn., 141 AD2d 916, 919, appeal dismissed 72 NY2d 950). Nonetheless, we find that respondent rationally determined that the subject transaction was taxable pursuant to Tax Law article 31-B. Petitioners’ thesis hinges on a literal interpretation of the "transfer of real property” definition (Tax Law § 1440 [7]). This court has previously recognized, however, that the statute employs an expansive definition designed to maximize revenues (see, Matter of Iveli v Tax Appeals Tribunal, 145 AD2d 691, lv denied 73 NY2d 708; Matter of Bombart v Tax Commn., 132 AD2d 745, 747). The language utilized supports this construction. As noted above, the statute includes transfers of "any interest in real property by any method, including but not limited to” certain described formats (Tax Law § 1440 [7] [emphasis supplied]). The definition is comprehensive, but not all inclusive, and evinces a legislative deferral to respondent’s
Petitioner further maintains that the transfer to RPBLC was tax exempt pursuant to Tax Law § 1443 (6). Statutory exemptions are strictly construed against the taxpayer, who must demonstrate that the only reasonable interpretation of the provision proves his entitlement to the exemption (see, Matter of Auerbach v State Tax Commn., 142 AD2d 390; Matter of Yanowicz & Charney v Department of Taxation & Fin., 140 AD2d 866, 868; Matter of Estate of Dworetz v State Tax Commn., 128 AD2d 946, 947-948, lv denied 69 NY2d 612). Our inquiry is whether petitioners entered into a "written contract” with RPBLC on or before March 28, 1983 within the meaning of Tax Law § 1443 (6). This argument does not focus on the actual stock sale agreement, which concededly was not executed until March 29, 1983. Instead, petitioners reason that since they were legally obligated to sell the Brefries Realty stock prior to March 28, 1983, the statutory exemption applies. Petitioners’ thesis is that the buy-sell terms of the partnership agreement, the written board resolutions autho
Initially, we observe that respondent has been accorded considerable discretion in assessing whether the "written contract” exemption provision has been satisfied (see, Matter of Old Nut Co. v New York State Tax Commn., 126 AD2d 869, 871, lv denied 69 NY2d 609). Here, respondent determined that the partnership buy-sell provision essentially created a right of first refusal which did not satisfy the statutory exemption (see, Matter of Dworetz v State Tax Commn., 128 AD2d 946, supra; 20 NYCRR 590.30). Petitioners concede as much, but maintain that, upon passage of the written board resolutions by March 17, 1983, this right of first refusal ripened into an enforceable option agreement. Respondent recognizes that a written option granted prior to March 29, 1983 may form the basis of a Tax Law § 1443 (6) exemption (see, Tax Law § 1440 [7]; 20 NYCRR 590.23). The question raised is whether any such option materialized. Although petitioners claim otherwise, respondent’s decision indicates that the net legal effect of these documents was considered. Notably, the written board resolutions authorizing the sale of Brefri.es Realty stock for $72,250,000 were not unqualified, but conditioned on the approval of the remaining terms of sale by Martin Hoek, petitioners’ authorized representative. This contingency speaks against a binding option agreement. Nor does the record show that the payment and written notice provisions of the buy-sell agreement were implemented, a fact which indicates that the ultimate conveyance was not simply a direct exercise of a pretax option agreement, but the result of negotiations independent of any option rights. Although respondent acknowledges that the parties orally agreed to the terms of sale, as set forth in the stock sale agreement, by March 25, 1983, we find that respondent could rationally determine that the transaction was not exempt under Tax Law § 1443 (6).
Finally, we are not persuaded that the assessment of a gains tax against petitioners constitutes retroactive taxation
Nor can we overlook the fact that petitioners actually executed a written stock sale agreement one day after the gains tax went into effect. This is not an instance of an excessive retroactive period, and the legislation constitutes a legitimate revenue generating measure (supra, at 456-457; see, Trump v Chu, 65 NY2d 20, 23, appeal dismissed 474 US 915). Even were we to accept petitioners’ characterization of Tax Law article 31-B as a "wholly new type of tax”, a contention respondent sharply disputes (see, 3 Comeau, Helm and Murphy, New York Tax Service, Real Property Gains Tax § 80.22), under the analysis delineated in Matter of Replan Dev., we find that respondent’s imposition of the gains tax did not constitute an unconstitutional deprivation of due process. In practical terms, petitioners simply cannot be likened to the individual who, as described by Judge Learned Hand, "has no
Mikoll, Yesawich, Jr., Levine and Harvey, JJ., concur.
Judgment affirmed, without costs.
. We recognize that Supreme Court upheld respondent’s determination on the strength of 20 NYCRR 590.51, a regulation promulgated after the fact, which indicates that multitiered transactions can be taxable. Respondent, however, did not refer to this regulation and treated the conveyance as taxable on the basis of Tax Law § 1440 (7), a result with which we concur (see, Matter of Iveli v Tax Appeals Tribunal, 145 AD2d 691).
. In Trump v Chu (65 NY2d 20, appeal dismissed 474 US 915), the Court of Appeals rejected an equal protection challenge to the constitutionality of Tax Law article 31-B.