Berkshire Fine Spinning Associates, Inc. v. City of New York

• Decision Date: 12 March 1959
• Citation: 5 N.Y.2d 347,157 N.E.2d 614,184 N.Y.S.2d 623
• Parties: , 157 N.E.2d 614 BERKSHIRE FINE SPINNING ASSOCIATES, INC., Appellant, v. CITY OF NEW YORK et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 623

184 N.Y.S.2d 623

5 N.Y.2d 347, 157 N.E.2d 614

BERKSHIRE FINE SPINNING ASSOCIATES, INC., Appellant, v. CITY OF NEW YORK et al., Respondents.

Court of Appeals of New York.

March 12, 1959.

Truman Henson and Robert D. Cole, New York City, for appellant.

Charles H. Tenney, Corp. Counsel, New York City (Stanley Buchsbaum, Bernard H. Sherris and John J. Lyden, New York City, of counsel), for respondents.

DESMOND, Judge.

This suit was brought for a declaratory judgment that the New York City General Business and Financial Tax Laws (Administrative Code of City of New York, § B46-2.0, subd. a; see enabling act, General City Law, § 24-a) are, if and as applied to plaintiff, unconstitutional because plaintiff's New York City activities constitute interstate commerce exclusively. As further relief plaintiff demanded judgment for $23,813.41 in refund of such taxes paid to the city by plaintiff under protest for the years 1947, 1948 and 1951. At Special Term each side moved for summary judgment in its favor and plaintiff was granted all the relief it had prayed for. However, the Appellate Division reversed and dismissed the complaint.

The problem is a familiar one. Are plaintiff's New York City activities so substantial and separable from its interstate commerce as to be subject to this local tax? A negative answer will end the lawsuit and give plaintiff judgment. An affirmative answer will leave unanswered further inquiries as to whether the allocation formula of this tax law (see Administrative Code, § B46-11.0, subd. 8, and City Comptroller's Regulations, art. 211) as applied to plaintiff is arbitrary and discriminatory and, if so, whether relief as to that can be granted in a plenary action like this one.

The facts are undisputed. Plaintiff is a Massachusetts corporation with its principal business and executive office in Providence, R. I., authorized to do business in New York State (but holding no corporate meetings here) and engaged in manufacturing textile fabrics and curtains in factories outside this State. All plaintiff's receipts come from the sale of those fabrics and curtains. One of plaintiff's out-of-State offices arranges for the purchase of cotton in the South, then has the cotton shipped to plaintiff's factories in Rhode Island, Massachusetts and Vermont from which plaintiff ships out to its customers in various States greige goods (unbleached fabrics) and curtains and curtain materials. Some of the unbleached fabrics are sent for refinishing by plaintiff to dyeing plants (some of them in New York State) owned by others, where the greige goods are dyed or printed as required by accepted orders from plaintiff's customers. In New York City plaintiff has two separate offices, one in the 'curtain trade district' and one in the 'textile district'. A vice-president of plaintiff supervises both offices and is head also of its finished goods department. Under him are two other vice-presidents, each managing one of the two New York City offices. The New York offices employ altogether about 90 people (out of its total force of 8,500 people) of whom 20 or so are salesman, the rest being clerks, receptionists, telephone operators, a credit manager, etc. The rent for the two New York City offices runs to about $50,000 a year. Plaintiff has no factory, warehouse or store in New York State, keeps no stock of goods in this State and owns no property here except the furnishings of its New York City offices.

The functions of plaintiff's New York City offices and staff are well described in its own complaint in this suit as follows: 'to maintain contact with the trade by soliciting established and prospective accounts; to receive, and to reject, modify or accept, offers to buy; to forward accepted offers to one of plaintiff's plants or warehouses outside the State of New York to be filled; to perform credit investigations and functions; to make up and dispatch invoices of sales of finished goods, but not of greige goods or curtains; and to receive and deposit payments from customers.' Plaintiff's New York City salesmen take from prospective customers and submit through their department heads to one of the New York City vice-presidents oral proposals to buy plaintiff's goods (the minimum order is for 3,000 yards). If the price offered by the customer is up to plaintiff's established price and the order is of a size which does not create special production problems, the offer is accepted and a contract entered into by plaintiff's New York City personnel without further reference to plaintiff's other offices or factories. If there is doubt in the minds of New York City personnel as to adequacy of the price offered or as to availability of the goods, there is consultation between the New York City and Providence offices. If the doubt is resolved, the offer is accepted by means of a contract made and signed for plaintiff at and by the New York City office (except that in some instance the customer by preference uses his own purchase form which is accepted by plaintiff at New York City). No goods, however, are shipped from anywhere in New York State to any customer anywhere. Goods are shipped f. o. b. out-of-State points.

In addition to its 20 salesmen working in New York City, plaintiff has other salesmen in other parts of the United States. Purchase offers obtained by those out-of-State salesmen are sent by them to one of the two New York City offices and thereafter the offers are processed at New York City just like the offers which originate in New York City. All checking of a customer's credit is done at New York City and no orders are accepted until the credit has been approved by the credit manager and his employees at one of the New York City offices. All plaintiff's sales records and its accounts with its customers are kept at the New York City offices as is an inventory of all plaintiff's goods wherever located. All payments for goods sold are received and banked in New York City but billing to customers for greige goods only is from Providence.

Plaintiff's brief asserts that its 'sole and only activity in the City, or the State, of New York consists of the negotiation of such interstate sales.' However, the record shows activities going much beyond or outside sale negotiating. Plaintiff's principal vice-president in New York City, a Mr. Kennedy, not only has charge of the selling of all plaintiff's finished goods but supervises a department in New York City which creates designs and purchases designs for fabrics. Also, on the basis of information as to trends brought in by his salesmen, Kennedy gives directions to Providence as to colors and amounts of various dyeings. The New York City offices, in response to the discovered demands of the market, instructs Providence as to 'the type of fabrics that we (New York) wished to be made'. The New York City curtain trade office similarly gives instructions direct to plaintiff's curtain factory in Warren, Rhode Island, to manufacture more of certain curtain material when the inventory record kept at New York City showed an insufficient amount of that material on hand. The New York City offices carry on other incidental activities such as placing advertising in trade publications and making adjustments or settlements on at least some complaints of customers.

Is there anything in all this 'that can be regarded as a local business as distinguished from interstate commerce' (Cheney Bros. Co. v. Com. of Massachusetts, 246 U.S. 147, 153-154, 38 S.Ct. 295, 296-297, 62 L.Ed. 632)? Or is plaintiff's local activity 'such an integral part of the interstate process, the flow of commerce, that it cannot realistically be separated from it' (Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U.S. 157, 166, 74 S.Ct. 396, 401, 98 L.Ed. 583)? The applicable rule of law is old and simple to state but less simple to apply. A local privilege tax like that of New York City may not be imposed upon interstate sales or solicitations by an interstate business (United Piece Dye Works v. Joseph, 307 N.Y. 780, 121 N.E.2d 617, certiorari denied Gerosa v. United Piece Dye Works, 348 U.S. 916, 75 S.Ct. 298, 99 L.Ed. 718). Mere local 'drumming up' of orders does not without more authorize local taxation of the transaction when the goods are located and delivered in another State (Norton Co. v. Department of Revenue, 340 U.S. 534, 537, 71 S.Ct. 377, 380, 95 L.Ed. 517). On the other hand, the local authorities may validly tax the privilege of doing business locally if the local business operations though related to interstate movements of goods extend substantially beyond the sale and promotion of the products and include a 'local incident' which is 'sufficient to bring the transaction within its taxing power' (Norton Co. v. Department of Revenue, supra, 340 U.S. at page 537, 71 S.Ct. at page 380).

Scores of decisions are cited to us by the parties but to reach decision on this phase of the case we will examine three only of those cited cases. The first if United Piece Dye Works v. Joseph, 282 App.Div. 60, 121 N.Y.S.2d 683, affirmed 307 N.Y. 780, 121 N.E.2d 617, supra. United was a New Jersey corporation which at three plants (none of which was in New York State) dyed, printed and finished fabrics owned by others and which were received by United from its customers' textile mills, all of which were outside the State. After its operations on the fabrics were completed, United shipped the goods back to the customers, sometimes at New York State points. In New York City United had a sales, promotional and clerical staff. The sales representatives carried about and showed to prospective customers samples of the work done at the out-of-State dyeing plants of United and furnished other information as to United's services. The United Piece case record makes it clear that the New York office did no more than 'solicit or promote'. Sales and contracts were never consummated in New...