Debevoise & Plimpton v. New York State Dept. of Taxation

• Decision Date: 19 May 1992
• Citation: 584 N.Y.S.2d 298,183 A.D.2d 521
• Court: New York Supreme Court — Appellate Division
• Parties: DEBEVOISE & PLIMPTON, Plaintiff-Respondent, v. NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE and Roderick G.W. Chu, as Commissioner of Taxation, Defendants-Appellants.

Page 298

584 N.Y.S.2d 298

183 A.D.2d 521

DEBEVOISE & PLIMPTON, Plaintiff-Respondent, v. NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE and Roderick G.W. Chu, as Commissioner of Taxation Defendants-Appellants.

Supreme Court, Appellate Division First Department.

May 19, 1992.

Before MURPHY, P.J., and WALLACH, KUPFERMAN, ASCH and SMITH, JJ.

MEMORANDUM DECISION.

Order and judgment (one paper), Supreme Court, New York County (Beverly S. Cohen, J.), entered on March 1, 1991, affirmed, without costs, for the reasons stated by Beverly Cohen, J.

All concur except WALLACH and SMITH, JJ., who dissent in a memorandum by SMITH, J. as follows:

I would reverse the judgment of the motion court.

The issue here is whether the provision of overtime heating, ventilation and air conditioning services is subject to a sales tax pursuant to Tax Law § 1105(b).

This is a declaratory judgment action in which plaintiff seeks a ruling that overtime heating, ventilation and air conditioning (HVAC) services are not subject to Tax Law § 1105(b). Plaintiff is a law firm and the commercial tenant of premises located on Third Avenue in Manhattan. Pursuant to its lease, "[i]f Tenant shall require heating, ventilating or air conditioning service at any time other than during business hours [8:00 A.M. to 6:00 P.M.] on business days ('after hours') ... Tenant shall pay landlord's then established charges therefor as Additional Rent on demand." HVAC services provided during business hours on business days were included in the "fixed rent" and not separately charged. These "after hours" HVAC services were billed by the landlord as overtime charges and included the New York State sales tax pursuant to Tax Law § 1105(b). Section 1105(b) provides for a tax on "[t]he receipts from every sale, other than sales for resale, of gas, electricity, refrigeration and steam, and gas, electric, refrigeration and steam service of whatever nature ..."

Before the motion court, plaintiff sought summary judgment, chiefly relying upon the affidavit of Donald E. Ross, the "Engineer of Record" for the premises at issue. Mr. Ross's affidavit described the HVAC systems and their operation. Air conditioning was described as "the control of temperature, humidity, air velocity, and air purity." The reduction of interior air temperature was described as resulting from the "transfer of glycol [cooled through exposure to a refrigerant] to cooling coils" which then cooled the air. The Ross affidavit also stated that a hot water convection system provided the heating. This system utilizes steam, purchased by the landlord from Consolidated Edison, to heat the water which is then transferred to "finned pipes" which heat the premises. Hence, plaintiff contended that the refrigeration and steam utilized were components of the HVAC system and not within the ambit of § 1105(b). Plaintiff also alleged that its payments for overtime HVAC services covered the landlord's entire cost of providing them, including taxes. Finally, plaintiff argued that it was subjected to double taxation because its HVAC overtime payments were included in the total rent that was subject to New York City commercial rent or occupancy tax (McKinney's Uncons. Laws of N.Y. § 9447 [L.1963, ch. 257, § 1, as amended].

In opposition to the motion, defendants submitted the affidavit of Arnold M. Glass, an Associate Attorney in the Law Bureau of defendant New York State Department of Taxation and Finance. Mr. Glass cited his 24 years in the Law Bureau and his experience in interpreting the sales tax at issue and drafting its regulations. Mr. Glass asserted that this case presented the first challenge to the agency's interpretation of the Tax Law on this issue. He relied upon the plain language of the statute and cited an agency ruling and a regulation that specifically held that air conditioning was taxable as refrigeration. Specifically, 20 NYCRR 527.2(c) states:

Refrigeration and refrigeration service. (1) The sale of air conditioning is a sale of refrigeration service.

Example: A lease provides that a landlord will furnish the tenant with air conditioning service during normal business hours and further provides for an additional charge, for air conditioning service during other hours at $10 an hour. This additional charge is for the sale of refrigeration service.

It was also argued, inter alia, that the Ross affidavit established that steam and refrigeration services were utilized and that the double taxation claim was without merit because this was a case of "different jurisdictions [imposing] the different taxes." Defendants also cross-moved for summary judgment on the grounds that plaintiff had failed to exhaust administrative remedies and that the claim was not ripe for adjudication because a full record as to factual issues was needed.

The motion court rejected defendants' claim of a need for a full record "in view of the procedural context of the present [summary judgment] motion." 149 Misc.2d 571, 573, 565 N.Y.S.2d 973. Defendants had failed to identify the facts to be elicited. The exhaustion argument was rejected as inapplicable because plaintiff was contending that the...