In re Atlas Television Co.

• Citation: 273 N.Y. 51,6 N.E.2d 94
• Parties: In re ATLAS TELEVISION CO., Inc.
• Decision Date: 31 December 1936
• Court: New York Court of Appeals

273 N.Y. 51

6 N.E.2d 94

In re ATLAS TELEVISION CO., Inc.

Court of Appeals of New York.

Dec. 31, 1936.

Proceeding in the matter of the general assignment for the benefit of creditors of the Atlas Television Company, Inc., assignor, to Nathaniel H. Mandelker, assignee, wherein the City of New York filed a claim for taxes. The court at Special Term held that the city's claim was entitled to priority in payment, and the Appellate Division (248 App.Div. 835,291 N.Y.S. 138), reversed, but granted leave to the city to appeal, and certified a question.

Order of Appellate Division reversed, order of the Special Term affirmed, and the question answered. Appeal from Supreme Court, Appellate Division, First department.

Paul Windels, Corp. Counsel, of New York City (Paxton Blair, Oscar S. Cox, and Sol Charles Levine, all of New York City, of counsel), for appellant.

Frederic E. Hammer, Nathaniel H. Mandelker, and Benjamin N. Brody, all of New York City, for respondent.

LEHMAN, Judge.

In April, 1936, Atlas Television Company, Inc., made an assignment for the benefit of creditors. The city of New York filed a claim for ‘taxes imposed pursuant to the provisions of Local Law No. 24 of the City of New York for the year 1934 [page 164].’ The assignee allowed the claim but refused to accord it priority over claims filed by other creditors. The court at Special Term held that the city was entitled to priority in the payment of its claims. The Appellate Division by a divided court held otherwise, but granted leave to appeal and certified the question: ‘In a general assignment for the benefit of creditors made pursuant to the statutes of this State, is the claim of the City of New York for sales taxes which the assignor was obligated under Local Law No. 24 of 1934 to pay to the Comptroller, entitled to a preference?’

No statute in express terms provides a general priority in favor of the state or of a governmental agency of the state in the payment of debts due from an insolvent debtor. Even without such statutory provision the state as the holder of the sovereign power has a preference over other creditors in insolvency proceedings. Matter of Carnegie Trust Co., 206 N.Y. 390, 99 N.E. 1096,46 L.R.A.(N.S.) 260. That is not true generally of debts due to cities of the state, though such cities at times exercise governmental powers delegated to them. Matter of Northern Bank of New York, 85 Misc. 594, 148 N.Y.S. 70, affirmed on the opinion of Mr. Justice Lehman, 163 App.Div. 974,184 N.Y.S. 70, affirmed, 212 N.Y. 608, 106 N.E. 749.

In the opinion at Special Term I wrote: ‘The power to tax is a sovereign power and the city in laying a tax is acting as part of the state under authority given it by the people of the state, and in the exercise of this power it is entitled, I think, to all the prerogatives enjoyed by the sovereign under our common law, and its right to a preference in the distribution of the assets of an insolvent corporation has been declared in Matter of the Receivership of Columbian Insurance Co., 3 Abb.Ct.App.Dec. [239], 242, and in Matter of Atlas Iron Construction Co., 19 App.Div. 415 , and recognized in Matter of Carnegie Trust Co., supra. See, also, Id., 151 App.Div. 606 . In this case, however, the city seeks to go further, and claims a preference for taxes already collected by the city authorities. It seems to me that as soon as the taxes have been collected and deposited, the city's claim to these moneys ceases to be the claim of a sovereign.’ Page 596 of 85 Misc., 148 N.Y.S. 70, 71.

The Court of Appeals in affirming without opinion the decision in that case that upon the liquidation of an insolvent bank the city has no preference for moneys collected as taxes and deposited in the bank, has not necessarily approved of the assumption in my opinion that the city would have preference in the collection of a tax due from an insolvent corporation. The assignee does not, however, challenge the distinction pointed out in the Northern Bank Case. It is supported by authority, and seems to rest in reason. A tax has been defined as ‘a statutory liability imposed upon all the inhabitants of the state defined as taxable, to the end that they may contribute their just share to the expenses of government.’ Village of Charlotte v. Keon, 207 N.Y. 346, 348,100 N.E. 1116,46 L.R.A.(N.S.) 135, Ann.Cas.1914C, 338. Where taxes are not collected, the burden which one taxpayer escapes is placed upon those who do pay. Thus justice and fairness in government dictates equality in collection of taxes required to maintain the government, and justifies the assertion of the prerogatives of a sovereign in demanding a preference in collection over the claims of creditors. The courts below, too, have assumed that the city has such a preference in the collection of taxes. Preference has been denied in this case because in the opinion of the Appellate Division the city's claim is not for taxes due to the city from the insolvent, but for moneys collected by the insolvent as agent for the city.

The city of New York was empowered by the Legislature to impose taxes for relief. Laws 1934, Ex.Sess., c. 873. Pursuant to that statute the local legislative body of the city passed ‘Local Law No. 24’ (published as Local Law No. 25, Local Laws of 1934, pp. 164-175), which provides that ‘there shall be paid a tax of two per centum upon the amount of the receipts from every sale in the city of New York of: (a) Tangible personal property sold at retail,’ etc. Section 2. Concededly the insolvent assignor has sold proerty at retail, and has not paid any tax upon the receipts of the sales. It is the contention of the assignee that, even though the vendor of property is the person entitled to the ‘receipts...