Cove Hollow Farm, Inc. v. State of N.Y. Tax Com'n

• Decision Date: 23 March 1989
• Parties: In the Matter of COVE HOLLOW FARM, INC., Appellant, v. STATE OF NEW YORK TAX COMMISSION, Respondent.
• Court: New York Supreme Court — Appellate Division

Page 127

539 N.Y.S.2d 127

146 A.D.2d 49

In the Matter of COVE HOLLOW FARM, INC., Appellant, v. STATE OF NEW YORK TAX COMMISSION, Respondent.

Supreme Court, Appellate Division,

Third Department.

March 23, 1989.

Winthrop, Stimson, Putnam & Roberts (Dan S. Dunham, New York City, of counsel), for appellant.

Robert Abrams, Atty. Gen. (Francis V. Dow, Albany, of counsel), for respondent.

Before MAHONEY, P.J., and WEISS, LEVINE, MERCURE and HARVEY, JJ.

LEVINE, Justice.

In 1979 petitioner acquired a 118-acre unimproved parcel of land in Suffolk County, which had been subdivided into 42 lots for one-family residences pursuant to a plan filed and recorded in the Suffolk County Clerk's office. Some 27 of the 42 plots had been sold prior to the effective date of the State's real property transfer gains tax (Tax Law art 31-B, as added by L.1983, ch. 15, § 181, eff. Mar. 28, 1983). Thereafter, at various times from 1983 through 1985, petitioner sold seven additional lots in five separate transfers to four unrelated purchasers. The consideration for each of those conveyances was less than $1 million. Thus, each transfer individually would have been entitled to a statutory exemption from the tax (Tax Law § 1443[1] ). However, the Department of Taxation and Finance aggregated the sales and assessed petitioner for its gains on that basis. Respondent upheld the assessment. Petitioner then brought this CPLR article 78 proceeding to challenge the determination on statutory and constitutional grounds, and now appeals from Supreme Court's dismissal of its petition.

There should be an affirmance. Petitioner's statutory argument centers on the language of Tax Law § 1440(7) which authorizes aggregation of individual conveyances. That section, as it read when the sales herein were made, defined "transfer of real property" for the imposition of the tax, in pertinent part, as "the transfer or transfers of any interest in real property by any method" and expressly included "partial or successive transfers * * * pursuant to an agreement or plan to effectuate by partial or successive transfers a transfer which would otherwise be included in the coverage of this article" (Tax Law § 1440[7] ). Petitioner concedes that a plan existed here for "partial or successive transfers" of the entire parcel it purchased. It argues, however, that aggregation cannot be imposed unless the successive transfers are "otherwise * * * included in the coverage of this article", i.e., otherwise taxable (id.). Petitioner suggests that, given the apparent purpose of the clause in question to prevent avoidance of the tax by breaking up a single transfer worth at least $1 million into smaller transactions, the "otherwise" must refer to proof either of a tax evasion motive for division of the transfer into multiple conveyances or of an intent to include all of the multiple conveyances in a single transaction. Since the parties stipulated here that the transfe were bona fide, arms' length individual transactions, petitioner urges that the statutory conditions permitting aggregation were not met and that the sales were exempt. At the least, petitioner argues, the language of Tax Law § 1440(7) is ambiguous, and the lack of clarity requires resolution in favor of the taxpayer (citing, e.g., Matter of Bloomingdale Bros. v. Chu, 119 A.D.2d 41, 43, 505 N.Y.S.2d 258, affd. 70 N.Y.2d 218, 519 N.Y.S.2d 347, 513 N.E.2d 233).

We disagree. First, the Legislature clearly did not intend that aggregation under Tax Law § 1440(7) is to be triggered only if the transferor engages in partial or successive transfers for purposes of tax avoidance, since respondent is otherwise statutorily authorized to ignore such devices (see, Tax Law § 1448[1] ). Moreover, the language of Tax Law § 1440(7) (as amended by L.1983, ch. 150), "partial or successive transfers pursuant to an agreement or plan to effectuate * * * a transfer * * * otherwise [taxable]", is broader than an agreement or a plan to accomplish what is in reality a single sale, as petitioner would interpret it. Had the Legislature intended to limit aggregation of partial or successive transfers solely to those which are actually single transfers, it could have easily done so. Proof of a scheme to sell multiple parcels in a single transaction only serves to establish the existence of an agreement or plan required for purposes of aggregation; it is not a separate requirement (see, Matter of Bombart v. Tax Commn. of State of N.Y., 132 A.D.2d 745, 747, 748, 516 N.Y.S.2d 989). Furthermore, petitioner's construction of the statutory clause, to the effect that only those partially successive transfers intended to be part of a single transaction are subject to aggregation, would render superfluous the specific exemption from aggregation in Tax Law § 1440(7) for "the subdividing of real property and the sale of such subdivided parcels improved with residences to transferees for use as their residences". Obviously, if Tax Law § 1440(7) generally requires proof of an intent to effectuate a single sale through multiple transfers in order to aggregate, the sales of separate parcels improved with residences to individual transferees for their respective use as such would be immune from aggregation without the special statutory exemption.

We think respondent...