Centurylink Commc'ns, LLC v. Schmidt

• Decision Date: 04 November 2021
• Docket Number: 531476
• Citation: 199 A.D.3d 1084,158 N.Y.S.3d 266
• Parties: In the Matter of CENTURYLINK COMMUNICATIONS, LLC, et al., Appellants, v. Michael R. SCHMIDT, as Commissioner of Taxation and Finance, et al., Respondents, et al., Respondents.
• Court: New York Supreme Court — Appellate Division

199 A.D.3d 1084

158 N.Y.S.3d 266

In the Matter of CENTURYLINK COMMUNICATIONS, LLC, et al., Appellants,

v.Michael R. SCHMIDT, as Commissioner of Taxation and Finance, et al., Respondents, et al., Respondents.

531476

Supreme Court, Appellate Division, Third Department, New York.

Calendar Date: September 13, 2021

Decided and Entered: November 4, 2021

Ingram Yuzek Gainen Carroll & Bertolotti, LLP, New York City (John G. Nicolich of counsel), for appellants.

Letitia James, Attorney General, Albany (Kate H. Nepveu of counsel), for Commissioner of Taxation and Finance, respondent.

Hodgson Russ LLP, Buffalo (Michael B. Risman of counsel), for Chautauqua County and others, respondents.

Roach, Brown, McCarthy & Gruber, PC, Buffalo (Kate L. Hartman of counsel), for Lake Shore Central School District and another, respondents.

Gibson, McAskill & Crosby, LLP, Buffalo (Timothy J. Graber of counsel), for Town of Hamburg, respondent.

Coughlin & Gerhart, LLP, Binghamton (Samuel M. Blakley of counsel), for Town of Union and others, respondents.

Bennett, DiFilippo & Kurtzhalts, LLP, East Aurora (Maura C. Seibold of counsel), for City of Buffalo and another, respondents.

Lippes Mathias Wexler Friedman LLP, Buffalo (James P. Blenk of counsel), for County of Erie, respondent.

Before: Egan Jr., J.P., Lynch, Clark, Pritzker and Colangelo, JJ.

MEMORANDUM AND ORDER

Colangelo, J. Appeal from an order of the Supreme Court (M.Walsh, J.), entered May 13, 2020 in Albany County, which, in a proceeding pursuant to RPTL article 7, among other things, granted certain respondents’ motions to dismiss the petition.

Petitioners are affiliated telecommunication companies that own fiber-optic cables and conduits that connect public rights-of-way to private customers in the various towns, villages, cities and counties around the state (hereinafter the local assessing jurisdictions). Such telecommunications services include the transmission of television and cable signals and other data at high rates of speed using light beams. The Real Property Tax Law requires that each year the local assessing jurisdictions assess the value of the local public utility mass real property (hereinafter LPUMRP) within their respective jurisdictions (see RPTL 499–hhhh [1] ; 499–jjjj).¹ The assessed value of such real property may not exceed the assessment ceiling established by respondent Commissioner of Taxation and Finance (see RPTL 499–kkkk [1] ; 499–qqqq [1]). The Commissioner first makes a tentative determination of the ceiling – which is the maximum taxable valuation for the property – and so advises the property owner and local assessing jurisdiction, either of which can then challenge the tentative determination in a hearing (see RPTL 499–oooo [1], [2] ). After such a hearing, the Commissioner certifies the final assessment ceiling, which may then be challenged in a proceeding under RPTL article 7 (see RPTL 499–pppp [1], [4] ; 700).

In 2019, the Commissioner calculated the tentative assessment ceilings for petitioners’ LPUMRP for every local assessing jurisdiction in the state and informed such jurisdictions and petitioners of the ceilings. Included in the assessment ceilings were petitioners’ fiber-optic cables and conduits. Petitioners then commenced an administrative proceeding alleging, in essence, that the ceilings should be reduced to zero dollars as the value of petitioners’ fiber-optic cables and conduits are not taxable real property and therefore any assessment of them would be unlawful. The Hearing Officer for respondent Department of Taxation and Finance found that the ceilings were not unlawful and recommended no adjustment to the calculations. The Commissioner adopted the Hearing Officer's recommendations and issued final assessment ceilings.

Petitioners then commenced this RPTL article 7 proceeding to challenge the 2019 assessment ceilings and reduce them to zero dollars, which would result in such reduction in the assessed value of their LPUMRP and in a refund of their 2019 local property taxes. Several local assessing jurisdictions intervened, joined issue and moved to dismiss the petition asserting, among other things, that the petition failed to state a cause of action. The Commissioner and the Department appeared but did not join issue or move to dismiss. Supreme Court first found that an RPTL article 7 proceeding was not the proper vehicle to challenge the unlawfulness of assessment ceilings, but nonetheless proceeded to analyze the petition and found that its several claims failed to state a cause of action and dismissed the petition in its entirety. Petitioners appeal.

Initially, we disagree with Supreme Court's decision that RPTL article 7 is not the appropriate vehicle for petitioners to challenge the assessment ceilings. RPTL 499–pppp (4), which sets forth the judicial mechanism by which a property owner may challenge the assessment ceilings calculated by the Commissioner, provides that "[a]ny final determination of an assessment ceiling by the [C]ommissioner ... shall be subject to judicial challenge by the owner of [LPUMRP] or a local assessing jurisdiction in a proceeding under [RPTL] article [7]," and "[a]ny judicial proceeding shall be commenced in the [S]upreme [C]ourt in the County of Albany." This is what petitioners did here. Moreover, RPTL 524(2) and 706 provide that the grounds for reviewing an assessment include that the assessment to be reviewed "is excessive, unequal or unlawful or that real property is misclassified." This is also what petitioners did here by asserting that an assessment to their fiber-optic cables and conduits in any amount would be unlawful, as such cables and conduits are not real property subject to taxation (see Turtle Is. Trust v. County of Clinton, 125 A.D.3d 1245, 1246, 5 N.Y.S.3d 536 [2015] ["Under RPTL article 7, a property owner claiming to be aggrieved by an assessment of real property on the basis that the assessment is excessive, unequal or unlawful, or that property is misclassified, may file a petition challenging the assessment."], lv denied 26 N.Y.3d 912, 2015 WL 7386979 [2015] ). Accordingly, the proceeding was properly commenced under RPTL article 7.²

Petitioners asserted seven causes of action in their petition, the first six of which pertain to the alleged illegality of the Commissioner's ceiling assessment determinations.

Petitioners initially contend that their first four causes of action were improperly dismissed because their fiber-optic cables and conduits fall outside the statutory definition of LPUMRP under exclusions set forth in RPTL 102(12)(i). As a general rule, "when the matter at issue is subject to the taxing statute, but the question is whether taxation is negated by a statutory exclusion or exemption, ... the presumption is in favor of the taxing power" ( Matter of Wegmans Food Mkts., Inc. v. Tax Appeals Trib. of the State of N.Y., 33 N.Y.3d 587, 592, 107 N.Y.S.3d 769, 131 N.E.3d 876 [2019] [internal quotation marks and citations omitted]). Indeed, as the Court of Appeals has held, "the burden rests on [the taxpayer] to establish that the item comes within the language of the exclusion. Moreover, a statute authorizing a tax [exclusion] will be construed against the taxpayer unless the taxpayer identifies a provision of law plainly creating the [exclusion]. Thus, the taxpayer's interpretation of the statute must not simply be plausible, it must be the only reasonable construction" ( Matter of Charter Dev. Co., L.L.C. v. City of Buffalo, 6 N.Y.3d 578, 582, 815 N.Y.S.2d 13, 848 N.E.2d 460 [2006] [internal quotation marks and citations omitted]).

As a threshold matter, we note, as did Supreme Court, that the Court of Appeals conclusively determined that "fiber-optic cables are taxable as ‘lines’ under the statute despite the fact that they do not conduct electricity" ( Matter of T–Mobile Northeast, LLC v. DeBellis, 32 N.Y.3d 594, 608, 94 N.Y.S.3d 211, 118 N.E.3d 873 [2018] ). Further, the Fourth Department logically and, in our view, properly extended that rule to include "enclosures for fiber[-]optic cables that do not conduct electricity" ( Matter of Level 3 Communications, LLC v. Erie County, 174 A.D.3d 1497, 1502, 108 N.Y.S.3d 246 [2019], lv denied 35 N.Y.3d 906, 2020 WL 3096802 [2020] ), such as the conduits at issue here.

With respect to petitioners’ first cause of action, they allege that their fiber-optic cables are used, at least in part, to transmit radio and television signals and are therefore exempt from taxation under RPTL 102(12)(i)(D), which provides that "such property used in the transmissions of news or entertainment radio, television or cable television or signals for immediate, delayed or ultimate exhibition to the public" is exempt from taxation. However, the Fourth Department, the only appellate court to address this issue, has held that such "fiber[-]optic installations are non-taxable only where they are primarily or exclusively used for one of the exempt purposes in RPTL 102(12)(i)(A)-(D)" ( id. at 1501, 108 N.Y.S.3d 246 ; see Matter of Charter Dev. Co., L.L.C. v. City of Buffalo, 6 N.Y.3d at 582, 815 N.Y.S.2d 13, 848 N.E.2d 460 ; Matter of Level 3 Communications, LLC v. Chautauqua County, 174 A.D.3d 1502, 1502, 103 N.Y.S.3d 895 [2019], lv denied 35 N.Y.3d 906, 2020 WL 3096810 [2020] ). Significantly, petitioners do not allege that their fiber-optic lines are used primarily or exclusively for the transmission of such radio, television or cable television signals. Although this Court is not bound by the Fourth Department's decision, "if no relevant precedent is available from this Court or the Court of Appeals ... [,] we should accept the decisions of a sister Department as persuasive, ... [unless] we disagree with such Court's legal analysis" ( Matter of Wayne Ctr. for Nursing & Rehabilitation, LLC v. Zucker, 197 A.D.3d 1409, 1412, 153 N.Y.S.3d 666 [2021] [internal quotation marks, brackets and citations omitted]). We find the reasoning of the Fourth...