Roosevelt Raceway, Inc. v. Monaghan

• Decision Date: 23 March 1961
• Citation: 213 N.Y.S.2d 729,9 N.Y.2d 293,174 N.E.2d 71
• Parties: , 174 N.E.2d 71 In the Matter of ROOSEVELT RACEWAY, INC., Respondent, v. George P. MONAGHAN, as Commissioner of Harness Racing, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 729

213 N.Y.S.2d 729

9 N.Y.2d 293, 174 N.E.2d 71

In the Matter of ROOSEVELT RACEWAY, INC., Respondent, v. George P. MONAGHAN, as Commissioner of Harness Racing, Appellant.

Court of Appeals of New York.

March 23, 1961.

Louis J. Lefkowitz, Atty. Gen. (Paxton Blair and Edward Siegfried, Albany, of counsel), for appellant.

Samuel I. Rosenman, New York City, George Morton Levy, Mineola, Max Freund, Robert A. Kirtland and Ernest A. Gleit, New York City, for respondent.

Samuel D. Smoleff and Earle K. Moore, New York City, for Citizens Union of City of New York, amicus curiae.

J. Clement Johnston, Buffalo, for Edward C. St. Clair, amicus curiae.

Samuel Gottlieb, Louis Haimoff and Frank A. Fritz, New York City, for Yonkers Raceway, Inc., amicus curiae.

FULD, Judge.

The Constitution of this State was amended in 1939 to permit such 'pari-mutuel betting on horse races as may be prescribed by the legislature and from which the state shall derive a reasonable revenue for the support of government' (art. I, § 9). And, in 1940, the Legislature enacted the Pari-Mutuel Revenue Law authorizing several types of horse racing under State supervision (L.1940, ch. 254) McK.Unconsol.Laws, § 7561 et seq. This statute placed harness racing, which is here involved, under the supervision of the State Harness Racing Commission and, in order to protect the public and to derive 'reasonable revenue for the support of government', it provided in section 45 for the following division of the betting pool at each harness track: the holders of winning tickets were to share in 85% of the proceeds, while the operator of the track was to pay the State as a privilege tax about 5% and retain approximately 10% for itself. The tax is declared by the statute to be 'for the privilege of conducting pari-mutuel betting on the races run at the harness horse race meetings'. By amendments in 1949 and 1954, the measure of the tax, representing the State's portion of the 15%, was increased and there was introduced a system of graduated tax rates.

In 1956, section 45-a was added to the Pari-Mutuel Revenue Law L.1956, ch. 837), and it is from this amendment that the present controversy stems. The section opens with a legislative finding that 'the state has lost substantial revenues and income' as a result of the depreciation and inadequacy of the existing physical plant of some of the State's harness race tracks and that 'enlargement and modernization of plant and structures of such tracks in this state would result in increased admissions and larger sums being deposited in pari-mutuel pools'. In order to accomplish the enlargement and modernization desired, section 45-a provided for a reduction in the State's tax or percentage of the betting pool and placed the difference in a 'construction account' from which the tracks would be reimbursed for capital improvements.

More specifically, under section 45-a, the holders of the winning tickets at the tracks were to receive the same percentages of the betting pool as they had before, namely 85%, but the State's share of the pool was to be reduced by the application of the following formula: the tax was to continue to be calculated at the then existing rates and the State was to receive, from any given track, in any year, an amount equal to that paid by that track in the year 1955. Any tax above this 'base tax' was then to be divided, half to be paid to the State and the other half to be deposited by the track in its own name in a so-called 'construction account'. Thus, in effect, 50% of the taxes due the State, above the amount it had collected in 1955, was to be segregated and placed into a construction account.

As to the use of the moneys thus placed in the construction accounts, subdivision 7 of section 45-a provided that any harness track might apply to the Harness Racing Commission for permission to make capital improvements. And subdivisions 6 (par. (b)) and 10 prescribed that, at the end of each year, a harness track which had completed a capital improvement with the approval of the Commission could transfer to its own general account the money in its construction account, 'until such date as the amounts paid to such harness race track from the construction account, less income taxes paid thereon to the United States by such harness race track, equals the cost of the capital improvement'. And, the statute went on to recite, 'In determining the amount of taxes paid * * * in any calendar year it shall be deemed that said amounts were taxed at the highest rates actually paid to the United States by such harness race track for the particular year involved.'

If, in any given year, the State's tax revenue from all tracks was less than in 1955, it was provided that each construction account was to be assessed a prorata share to make up the difference. Furthermore, if by the end of a given year no capital improvements had been made, or if the improvements made had already been paid for from its construction account, the balance in such account was to be paid to the State. Finally, it should be noted, actual reimbursement depended upon the consent of the Harness Racing Commission for, by one of its rules, all withdrawals from the construction fund accounts required its countersignature.

This statutory scheme remained intact, in all its essentials, until 1959. In that year, the Legislature, at the behest of the Governor who called a special session for the purpose, amended section 45-a so as to prohibit the approval, by the Harness Racing Commission, of any new capital expenditures thereunder (L.1959, ch. 881, § 7). Although it made no change in the provision of section 45-a under which each harness track would be reimbursed from the construction account for the cost of capital improvements already made, the 1959 enactment expressly provided that no harness track 'shall be reimbursed' from the construction account 'for any income taxes paid to the United States', whether paid before or after the effective date of the amendment (L.1959, ch. 881, § 7, amdg. § 45-a, subd 10; see also, L.1959, ch. 881, § 10).

With this review of the statutory background, we turn to the facts of this case. Roosevelt Raceway, Inc., applied for and received approval to make capital improvements under section 45-a and they were completed in 1957 at a cost of $19,605,281. The amount in its construction account for that year was $2,858,495, and that sum was transferred to its general account with the permission and countersignature of the Harness Racing Commission.

Thereafter, Roosevelt notified the Commission that receipt of such sum had resulted in a Federal income tax of $1,404,665, and, accordingly, Roosevelt asked the Commission on note this amount in its records as a 'credit' against future construction account funds. The Commission, relying upon an opinion of the Attorney-General, declined to do so and Roosevelt thereupon brought the present proceeding, pursuant to article 78 of the Civil Practice Act, to review the Commission's decision.

Although the proceeding was instituted before the 1959 amendment to section 45-a, it was not heard or decided until after its effective date. The order sought by Roosevelt was granted at Special Term and was affirmed by a divided Appellate Division (11 A.D.2d 206, 202 N.Y.S.2d 646). The appeal is in this court as of right.

The courts below were concerned principally with contentions, raised in a companion case which is not before us (Matter of Blaikie, 11 A.D.2d 196, 202 N.Y.S.2d 659; and see, for exposition of contrary views, dissenting opinions of Stevens and Valente, JJ., in present case), that section 45-a violates several provisions of the New York State Constitution and is void in its entirety. We are pressed to place our decision upon such constitutional grounds and declare the statute 'totally unconstitutional'. It is, however, wise and settled policy to hold a statute unconstitutional 'only as a last resort' (Ahern v. South Buffalo Ry. Co., 303 N.Y. 545, 555, 104 N.E.2d 898, 903, affirmed 344 U.S. 367, 73 S.Ct. 340, 97 L.Ed. 395; see, also, Ashwander v. Tennessee Valley Auth., 297 U.S. 288, 346, 347, 56 S.Ct. 466, 80 L.Ed. 688, per Brandeis, J., concurring) and, since we have concluded that Roosevelt's petition must be dismissed even if the serious constitutional questions presented by section 45-a were to be resolved in its favor, we do not now pass upon them.

In granting the relief sought by Roosevelt, the courts below rightly rejected the contention of the Attorney-General that the 1956 statute, properly construed, did not provide for inclusion of the Federal income tax in ascertaining and determining the amount of reimbursement. Payments to a harness track from the construction account are to be made, subdivision 10 of section 45-a provided before its amendment in 1959, 'until such date as the amounts paid to such harness race track * * *, less income taxes paid thereon to the United States by such harness race track, equals the cost of the capital improvement'. And, in determining the amount of taxes paid, the statute further recited, 'it shall be deemed that said amounts were taxed at the highest rates actually paid * * * for the particular year involved'. There can, therefore, be no doubt that this provision required reimbursement for Federal income taxes paid by the tracks on the amounts received from their respective construction accounts for capital improvements. Even supposing a fanciful construction might be found whereby 'less income taxes' could be taken to mean 'ignoring income taxes', we could not overlook the fact that the Legislature provided that income taxes paid should be determined 'at the highest rates actually paid'. The specification of a method for determining the amount of income taxes precludes the possibility that reimbursement for taxes was not intended.

The formula provided in section 45-a was unquestionably designed to...