Ammex Warehouse Co., Inc. v. Procaccino, AMMEX-CHAMPLAIN

• Decision Date: 05 January 1976
• Docket Number: AMMEX-CHAMPLAIN
• Citation: 378 N.Y.S.2d 848,85 Misc.2d 327
• Court: New York Supreme Court
• Parties: AMMEX WAREHOUSE COMPANY, INC., Plaintiff, v. Mario A. PROCACCINO et al., Defendants.CORP., Plaintiff, v. Mario A. PROCACCINO et al., Defendants.

Page 848

378 N.Y.S.2d 848

85 Misc.2d 327

AMMEX WAREHOUSE COMPANY, INC., Plaintiff, v. Mario A. PROCACCINO et al., Defendants.

AMMEX-CHAMPLAIN CORP., Plaintiff, v. Mario A. PROCACCINO et al., Defendants.

Supreme Court, Special Term, New York County, Part I.

Jan. 5, 1976.

Lovejoy, Wasson, Lundgren & Ashton, New York City, for plaintiffs, by Walter C. Lundgren and Douglas Foster, New York City, of counsel.

Louis J. Lefkowitz, Atty. Gen., Albany, for defendants, by Thomas P. Zolezzi, Asst. Atty. Gen., of counsel.

ARNOLD L. FEIN, Justice:

This is a motion by plaintiffs in two actions for summary judgment declaring that assessments made by defendants pursuant to the New York Tax Law are unconstitutional and void under the commerce, import-export and supremacy clauses of the United States Constitution and pertinent statutes and regulations. Defendants in each action cross-move for summary judgment declaring that the assessments made pursuant to the New York taxing statutes are constitutional.

Plaintiffs, Ammex Warehouse Company, Inc. and Ammex-Champlain Corp. (collectively, Ammex), commenced these actions after the dismissal of companion actions brought by them in the United States District Court for the Southern District of New York for injunctive and declaratory judgment relief against the members of the New York State Tax Commission on the ground that the assessment of taxes against them violated these clauses of the United States Constitution. A three-judge federal district court, convened because plaintiffs' complaints sought a 'permanent injunction restraining the enforcement, operation or execution of any State statute by restraining the action of any officer of such State' (28 U.S.C. Sec. 2281), held it was without jurisdiction to consider the claim, in the light of 28 U.S.C. 1341:

'The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.'

The federal court stated such a remedy was available to plaintiffs under CPLR 3001, declining to decide whether 'an alternate state remedy--judicial review under (CPLR Article 78), of an administrative proceeding challenging the tax before the State Tax Commission is 'plain, speedy and efficient'.' (Ammex-Champlain v. Gallman et al. & Ammex Warehouse v. Gallman et al., U.S.D.C., S.D.N.Y., 72 Civ. 306 and 72 Civ. 310, Mem. Opinion, p. 4 and fn. 6, March 15, 1973). As the court noted, the state had stipulated that no attempt to collect any of the taxes assessed would be made until after the final resolution of plaintiffs' declaratory judgme action in the state courts. On this basis, plaintiffs commenced these actions.

A declaratory judgment action is the appropriate vehicle to challenge the constitutionality of a statute, whereas an Article 78 proceeding is the proper means to determine whether the statute has been applied by a state officer in an unconstitutional manner. However, a cause will not be dismissed because the wrong procedure has been selected. If the court has jurisdiction over the parties, the court will convert it into the appropriate action or proceeding and decide the matter (Kovarsky v. HDA of the City of N.Y., 31 N.Y.2d 184, 335 N.Y.S.2d 383, 286 N.E.2d 886; CPLR 103(c); McLaughlin, N.Y. Trial Practice, N.Y.L.J. November 10, 1972, p. 3, c. 4). Here, plaintiffs attack the constitutionality of state taxing statutes as applied to them. Accordingly, an Article 78 proceeding is the appropriate vehicle. Although the three-judge federal district court, in declining jurisdiction, chose not to determine whether an Article 78 proceeding is 'plain, efficient and speedy', within the meaning of the federal statute, the court will convert the action into an Article 78 proceeding and determine the issues.

Plaintiffs are New York corporations engaged in the business of selling cigarettes, liquor and other items for export at seven locations within the State of New York to persons crossing the border into Canada from New York. Plaintiffs operate under 'Export Warehouse proprietor' permits or licenses from the United States government. They are not registered or licensed under New York State law to distribute or sell alcoholic beverages (New York Tax Law, Section 421; Alcoholic Beverage Control Law, Section 60 et seq.). The facilities of plaintiffs at each crossing location consist of a sales office and warehouses bonded by the United States Custom Service or the United States Internal Revenue Service. All the merchandise received and entered at plaintiffs' bonded warehouses is produced or originates outside New York State. It is transported by a U.S. Government bonded carrier to plaintiffs' warehouses at the designated border points and is then received and entered in plaintiffs' bonded warehouses by U.S. Customs officers who keep records of all merchandise received and withdrawn. So much of the merchandise as consists of American cigarettes and bourbon whiskey contains no federal tax stamps. The cigarettes contain no health warnings as required by federal law for cigarettes to be sold for consumption in the United States. The bourbon is contained in forty ounce bottles (Imperial Quart), illegal for sale in New York State. All the other merchandise including scotch whiskey, foreign tobacco and perfumes, received and entered in plaintiffs' bonded warehouses comes from abroad. It allegedly cannot be legally soid in the United States market for similar reasons and because it is packaged and marked for the Canadian market.

One who is about to cross the border into Canada, and who wishes to buy duty and tax free merchandise, enters one of plaintiffs' sales offices near the border crossing. Each of these offices displays a notice required by the Bureau of Customs that 'articles are sold for export only. Purchases brought back to the United States must be declared and are subject to duty and/or tax.' This same legend or notice is contained on all of plaintiffs' invoices, used in selling the items for export. No merchandise is delivered at these stores. The customer receives an invoice recording the purchases and proceeds to a designated bonded warehouse, or to a designated location at the border crossing. He presents his invoice to an employee of Ammex and the items purchased are then turned over to the custody of the purchaser in his automobile, under the supervision of a Customs Bureau inspector. At each location the merchandise is turned over at a point where the customer is required to proceed directly to Canada. A Customs inspector observes each customer cross the border and certifies on a copy of the invoice that the merchandise has been exported.

In 1971, the New York State Tax Commission began assessing alcoholic beverage, tobacco and sales taxes against plaintiffs under Articles 18, 20 and 28 of the New York Tax Law.

This proceeding involves the imposition of these taxes upon goods thus sold by plaintiffs for export only.

With respect to the imposition of the alcoholic beverages tax, defendants rely upon the state's undoubted power to control and regulate the sale within and the transportation or importation of intoxicating liquors into the state. (Cooley v. Board of Wardens of Port of Philadelphia, 12 How., (53 U.S.) 299, 13 L.Ed. 996; the 'Wilson Act', 27 U.S.C. Section 121; the 'Webb Kenyon Act', 27 U.S.C. Section 122; the Twenty-First Amendment to the United States Constitution; In re Rahrer, 140 U.S. 545, 11 S.Ct. 865, 35 L.Ed. 572; Seagram & Sons v. Hostetter, 16 N.Y.2d 47, 262 N.Y.S.2d 75, 209 N.E.2d 701, aff'd 384 U.S. 35, 86 S.Ct. 10, 15 L.Ed.2d 51, reh. den., 384 U.S. 967, 86 S.Ct. 1583, 16 L.Ed.2d 674.) Defendants conclude from these and other authorities that the state has the power not only to regulate but to tax the sale and distribution of these alcoholic beverages in the state without contravening the commerce clause of the United States Constitution (Phillips v. Mobile, 208 U.S. 472, 28 S.Ct. 370, 52 L.Ed. 578; State Board of Equalization v. Young's Market Co., 299 U.S. 59, 57 S.Ct. 77, 81 L.Ed. 38).

Plaintiffs contend (1) these statutes, the Twenty-First Amendment and the cases relied on by defendants are inapplicable because they involve the state's power to regulate and tax alcoholic beverages transported or imported 'into' the state for delivery or use therein, whereas the transit of the liquor here involved was 'through' New York not 'into' the state, within the meaning of the Twenty-First Amendment; (2) the merchandise went through New York 'for export only'; (3) the export process carried on in New York was authorized by the federal government under its complete and exclusive power to regulate foreign commerce; (4) the taxes imposed constitute a burden and restraint upon foreign commerce thus violating the commerce clause; and (5) the congressional intent demonstrated by providing not only for tax free exports but tax free imports would be frustrated if a state may tax the exports or exportation process.

It is beyond dispute that Congress possesses the sole power to regulate commerce with foreign nations and among the several states (United States Constitution Article 1, Section 8, Clause 3). Although it is not constitutionally permissible for a state to impose taxes where it is evident that there would be an infringement upon the Congressional power to regulate commerce (Gulf Oil Corp. v. McGoldrick, 256 App.Div. 207, 9 N.Y.S.2d 544, aff'd 281 N.Y. 647, 22 N.E.2d 480, aff'd sub nom. McGoldrick v. Gulf Oil Corp., 309 U.S. 414, 60 S.Ct. 664, 84 L.Ed. 840), a state may exercise its police power to regulate commerce by imposing taxes for state purposes when the taxes do not infringe upon the authority of Congress to regulate commerce with foreign nations and among the several states (McGoldrick v. Berwind White Coal Mining Co., 309 U.S. 33, 45, 60 S.Ct. 388, 84 L.Ed. 565; State Bd. of...