Consolidated Edison Co. of New York v. State Tax Commission

• Decision Date: 29 July 1965
• Citation: 261 N.Y.S.2d 769,23 A.D.2d 477
• Parties: In the Matter of CONSOLIDATED EDISON COMPANY OF NEW YORK, Inc., Petitioner, v. STATE TAX COMMOSSION of the State of New York, Respondent.
• Court: New York Supreme Court — Appellate Division

Page 769

261 N.Y.S.2d 769

23 A.D.2d 477

In the Matter of CONSOLIDATED EDISON COMPANY OF NEW YORK Inc., Petitioner, v. STATE TAX COMMOSSION of the State of New York, Respondent.

Supreme Court, Appellate Division, Third Department.

July 29, 1965.

Whitman, Ransom & Coulson, New York City (Patrick H. Sullivan and Bernard L. Sanoff, New York City, of counsel), for petitioner.

Louis J. Lefkowitz, Atty. Gen. (Paxton Blair and Edwin R. Oberwager, Albany, of counsel), for respondent.

Before GIBSON, P. J., and HERLIHY, TAYLOR, AULISI and HAMM. JJ.

FELIX AULISI, Justice.

This is a proceeding pursuant to Article 78 of the Civil Practice Law and Rules brought by the petitioner to review the final determination made by the respondent on October 27, 1964, upholding a franchise tax assessment for the quarterly period ending July 31, 1960. The proceeding was transferred by Special Term to this Court for initial determination.

The parties have entered into a stipulation of the facts upon which petitioner's request for a refund was denied, the only question before us being whether the amounts received by petitioner (1) as reimbursements for property damage and insurance claims and (2) from the sale of capital assets consisting of real property, scrap and used machinery, are receipts from the employment of capital so as to be taxable (Tax Law, § 186). The statute, enacted in 1896, exacts a franchise tax from utility companies measured by a certain percentage of their 'gross earnings'. By amendment in 1907 (L.1907, ch. 734, § 3) the Legislature added a definition of 'gross earnings', as 'all receipts from the employment of capital without any deduction'.

Petitioner contends that the amounts received are nonprofit receipts representing a return of capital or a conversion into cash of capital assets no longer being employed and can not be taxed under section 186 because they were not receipts from the 'employment of capital'. It is urged by the Tax Commission that all of the petitioner's receipts are taxable under said section since that tax is not on gross earnings but on gross receipts and furthermore the term 'employment of capital' as used in section 186 refers to both active and inactive employment and thus includes the real property, scrap and used machinery owned but not actively employed by the company.

Prior to the 1907 amendment, aforementioned, which added the definition of 'gross earnings', it was held in People ex rel. Brooklyn Union Gas Co. v. Morgan, 114 App.Div. 266, 99 N.Y.S. 711, affd. People ex rel. Brooklyn Union Gas Co. v. Gaus, 195 N.Y. 616, 89 N.E. 1108, that the cost of raw materials which were converted into the manufactured product (gas) had to be deducted from the company's gross receipts from the sale of such gas. The Legislature thereafter amended section 186 to define 'gross earnings'. This definition was held in People ex rel. Westchester Lighting Co. v. Gaus, 199 N.Y. 147, 92 N.E. 230, 1910, to have effectively changed the law from a tax on gross earnings, not capital, to a tax on gross receipts, including capital.

Whether or not, as petitioner alleges, this is the first time the Tax Commission has attempted to assess franchise taxes against the items herein, the Commission cannot be estopped from changing an interpretation of statutes (Matter of Marx v. Goodrich, 286 App.Div. 913, 142 N.Y.S.2d 28).

In our view the cases cited by the petitioner are not in point. To be of value, comparisons must be made between almost idential statutes. However, in our opinion, the money received by the petitioner as reimbursements for damages to its property and for insurance claims on destroyed or damaged property were not intended by the Legislature to come within its definition of gross earnings. These reimbursements were in no way produced by the petitioner's capital. Such receipts are not derived from the 'employment of capital' but from the accidental destruction of capital. The stipulated facts do not indicate whether or not the reimbursements for the damaged property exceeded its cost less depreciation value, that is, whether petitioner has made any profit on paid reimbursements. We will assume, as apparently the parties do, that no profits were made (cf., for analogy Regulations of the New York City Comptroller, Reg. Arts. 150 and 151 in 4 C C H, State Tax Reporter, N.Y.City Gross Receipts, paras. 169-105, 107).

We reach a different conclusion on the question of receipts from the sale of real property no longer employed by the petitioner and from the sale of scrap and obsolete machinery. The petitioner has failed to show that the assessment of these items was illegal (People ex rel. Freeborn & Co., Inc. v. Graves, 257 App.Div. 587, 14 N.Y.S.2d 4) or that the determination of the Tax Commission was clearly erroneous (People ex rel. Hull v. Graves, 289 N.Y. 173, 45 N.E.2d 161). It is our belief that said items must be regarded as receipts from the use of capital as held by Westchester Lighting, (supra), where in construing the 1907 amendment the court said:

In this amendment it cannot be denied that the Legislature has chosen to give a definition to the term 'gross earnings,' which makes it include all receipts, and caps its mandate, in that respect, by adding the words 'without any deduction'. When the statute provides for taxing 'gross earnings from all sources,' and adds that that means 'all receipts from the employment of capital...