Bray Terminals Inc. v. New York State Tax Appeals Tribunal

• Decision Date: 12 March 1998
• Citation: 248 A.D.2d 832,669 N.Y.S.2d 752
• Parties: , 1998 N.Y. Slip Op. 2247 In the Matter of BRAY TERMINALS INC., Petitioner, v. NEW YORK STATE TAX APPEALS TRIBUNAL et al., Respondents.
• Court: New York Supreme Court — Appellate Division

Page 752

669 N.Y.S.2d 752

248 A.D.2d 832, 1998 N.Y. Slip Op. 2247

In the Matter of BRAY TERMINALS INC., Petitioner, v. NEW YORK STATE TAX APPEALS TRIBUNAL et al., Respondents.

Supreme Court, Appellate Division,

Third Department.

March 12, 1998.

Featherstonhaugh, Conway, Wiley & Clyne LLP (James D. Featherstonhaugh, of counsel), Albany, for petitioner.

Dennis C. Vacco, Attorney General (Andrew D. Bing, of counsel), Albany, for Michael H. Urbach, respondent.

Roberts & Holland (Carolyn Joy Lee, of counsel), New York City, for Cafor Trust Reg. Vaduz and Zeckendorf Columbus Company, amicus curiae.

Before MIKOLL, J.P., and CREW, YESAWICH, SPAIN and CARPINELLO, JJ.

CARPINELLO, Justice.

Proceeding pursuant to CPLR article 78 (initiated in this court pursuant to Tax Law § 2016) to review a determination of respondent Tax Appeals Tribunal which sustained corporation franchise tax assessments imposed under Tax Law article 9-A.

Petitioner challenges a deficiency assessment imposed by the Department of Taxation and Finance for additional corporate franchise taxes claimed to be due for tax years 1984, 1985 and 1986, which, with interest, totaled $378,255.90 as of December 1994. This assessment arose from the Department's audit determination that petitioner's net income for franchise tax purposes should be determined without deducting taxes imposed under Tax Law article 13-A (Tax on Petroleum Businesses). The Department's determination was sustained in a thorough and well-reasoned decision by the Administrative Law Judge, which in turn was affirmed by respondent Tax Appeals Tribunal. Petitioner commenced the instant proceeding seeking annulment of the Tribunal's determination.

In rejecting petitioner's contention that the Tribunal's determination is arbitrary and capricious and an abuse of discretion, we rely principally on the fact (as did the Administrative Law Judge) that the only properly asserted claim in this proceeding has already been resolved on the merits in a prior action. In Bray Terms. v. New York State Dept. of Taxation & Fin., Sup.Ct., Nassau County June 19, 1990, 1990 WL 512260, Morrison, J., affd. 191 A.D.2d 668, 596 N.Y.S.2d 717, appeal dismissed 82 N.Y.2d 748, 602 N.Y.S.2d 806, 622 N.E.2d 307, lv. denied 82 N.Y.2d 664, 610 N.Y.S.2d 151, 632 N.E.2d 461, cert. denied 511 U.S. 1143, 114 S.Ct. 2165, 128 L.Ed.2d 888, petitioner commenced a declaratory judgment action challenging its inability to deduct Tax Law article 13-A taxes in computing its Tax Law article 9-A franchise taxes as violative of the Commerce Clause of the Federal Constitution and the Equal Protection Clauses of the Federal and State Constitutions. Supreme Court (Morrison, J.) awarded the Department a judgment dismissing the complaint, a determination which was affirmed by the Second Department (see, Bray Terms. v. New York State Dept. of Taxation & Fin., 191 A.D.2d 668, 596 N.Y.S.2d 717, appeal dismissed 82 N.Y.2d 748, 602 N.Y.S.2d 806, 622 N.E.2d 307, lv. denied 82 N.Y.2d 664, 610 N.Y.S.2d 151, 632 N.E.2d 461, cert. denied 511 U.S. 1143, 114 S.Ct. 2165, 128 L.Ed.2d 888).

Petitioner seeks to avoid the obviously preclusive effect of this prior determination by arguing that Tax Law article 13-A itself is unconstitutional and that this court's subsequent decision in Matter of Tug Buster Bouchard Corp. v. Wetzler, 217 A.D.2d 192, 635 N.Y.S.2d 803, affd. 89 N.Y.2d 830, 653 N.Y.S.2d 271, 675 N.E.2d 1223 should be extended to the facts of this case. With respect to the constitutionality of Tax Law article 13-A, we note that there is no such allegation in petitioner's June 1989 petition challenging the Tax Law article 9-A assessments nor is there any indication that petitioner ever protested a written notice of tax deficiency, determination of tax due or denial of a refund or credit of a tax paid under Tax Law article 13-A (see, Tax Law §§ 1087, 2008; see also, 20 NYCRR 3000.3[a], [b] ). Thus, while the doctrine of res judicata may not bar a challenge to the constitutionality of Tax Law article 13-A, it not having been raised by any party in the declaratory judgement action (see, Rudd v. Cornell, 171 N.Y. 114, 63 N.E. 823), petitioner's failure to properly commence a proceeding raising such a claim does (see, Tax Law §§ 1087, 2008; see also, 20 NYCRR 3000.3[a], [b] ).

Indeed, the only issue raised by petitioner's June 1989 pleadings is whether it is entitled to deduct taxes it paid under Tax Law article 13-A in computing its Tax Law article 9-A franchise taxes. ¹ There is no doubt that this issue (the deductibility of one tax in computing another) was squarely addressed on the merits in the prior action. Supreme Court noted that "under the Tax Law, no deduction is allowed for Article 13A taxes in the computation of franchise and personal income taxes" (Bray Terms. v. New York State Dept. of Taxation & Fin., Sup.Ct., Nassau County, June 19, 1990, Morrison, J., at slip opn. 1, supra). Significantly, "[a] duly rendered declaratory judgment is entitled to the full benefits of the res judicata and collateral estoppel doctrines" (Siegel, N.Y.Prac. § 440, at 669 [2d ed.]; see, Rockland Power & Light Co. v. City of New York, 289 N.Y. 45, 43 N.E.2d 803). Since the issue of the deductibility of Tax Law article 13-A petroleum business taxes for the purpose of determining Tax Law article 9-A franchise taxes was specifically pleaded and adjudicated on the merits in the prior action, petitioner is precluded from relitigating the same claim in this proceeding (see, Rudd v. Cornell, supra, at 128-129, 63 N.E. 823).

Nor do we agree with petitioner's contention that Matter of Tug Buster Bouchard Corp. v. Wetzler (supra) mandates a different result. Our decision in that case was expressly limited to the unconstitutionality of Tax Law § 301(a)(1)(ii), which applies to those who import petroleum for their own use. Petitioner imports petroleum for resale and is therefore governed byTax Law § 301(a)(1)(i). There being no properly pleaded constitutional issue before this court, we decline at this time to accept petitioner's invitation to extend the rationale...