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

• Decision Date: 11 February 1993
• Citation: 593 N.Y.S.2d 974,80 N.Y.2d 657,609 N.E.2d 514
• Parties: , 609 N.E.2d 514 DEBEVOISE & PLIMPTON, Respondent, v. NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE, et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

Page 974

593 N.Y.S.2d 974

80 N.Y.2d 657, 609 N.E.2d 514

DEBEVOISE & PLIMPTON, Respondent, v. NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE, et al., Appellants.

Court of Appeals of New York.

Feb. 11, 1993.

[80 N.Y.2d 658] [609 N.E.2d 515] Robert Abrams, Atty. Gen., New York City (Laura M. Nath, Jerry Boone and Frederic L. Lieberman, of counsel), for appellants.

[80 N.Y.2d 659] Debevoise & Plimpton, New York City (Andrew C. Hartzell, John S. Kiernan and Robert D. Goodman, of counsel), respondent pro se.

O. Peter Sherwood, Corp. Counsel of New York City [80 N.Y.2d 660] (Edward F.X. Hart and Frances J. Henn, of counsel), for New York City Dept. of Finance, amicus curiae.

OPINION OF THE COURT

HANCOCK, Judge.

The issue in this case is whether the Department of Taxation and Finance (the Department) may tax the provision of overtime heat, ventilation and air conditioning (HVAC) services as a sale of "refrigeration and steam service" under Tax Law § 1105(b). We conclude that section 1105(b) authorizes a tax on a utility service only when furnished in an identifiable sale transaction as a commodity or article of commerce. The statute, therefore, does not authorize a tax on HVAC services provided by landlords incidental to the rental of office space. Accordingly, the order of the Appellate Division should be affirmed.

Plaintiff, a partnership engaged in the practice of law, rented office space in Manhattan pursuant to a lease agreement calling for plaintiff to pay a fixed rent for the premises, which included the supply of HVAC services from 8:00 A.M. to 6:00 P.M. on regular business days. The lease further required plaintiff to pay "additional rent" for HVAC services during nonbusiness hours and days. The tax in dispute for the amount of additional rent for overtime HVAC services was imposed by the Department on the landlord and paid by plaintiff with the additional rent.

Plaintiff commenced this declaratory judgment action challenging the Department's authority to tax the supply of overtime HVAC services as a sale of "refrigeration and steam service" under section 1105(b). The IAS Court granted plaintiff's motion for summary judgment, 149 Misc.2d 571, 565 N.Y.S.2d 973, and the Appellate Division affirmed, 183 A.D.2d 521, 584 N.Y.S.2d 298. Our decision depends entirely on the construction to be given section 1105(b) which provides:

"[T]here is hereby imposed and there shall be paid a tax of four percent upon * * *

"(b) The 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".

In construing section 1105(b), as with any statute, we apply the basic rule that words "of ordinary import in a statute are to be given their usual and commonly understood meaning, unless it is clear from the statutory language that a different meaning was intended" (We're Assocs. Co. v. Cohen, Stracher & Bloom, 65 N.Y.2d 148, 151, 490 N.Y.S.2d 743, 480 N.E.2d 357; see, Price v. Price, 69 N.Y.2d 8, 15, 511 N.Y.S.2d 219, 503 N.E.2d 684; McKinney's Cons.Laws of N.Y., Book 1, Statutes § 94). When the particular statute is one which levies a tax, it is well established that it must be narrowly construed and that any doubts concerning its scope and application are to be resolved in favor of the taxpayer (see, Matter of Bloomingdale Bros. v. Chu, 70 N.Y.2d 218, 223, 519 N.Y.S.2d 347, 513 N.E.2d 233; Matter of American Cyanamid & Chem. Corp. v. Joseph, 308 N.Y. 259, 263, 125 N.E.2d 247; Matter of Good Humor Corp. v. McGoldrick, 289 N.Y. 452, 455, 46 N.E.2d 881). Thus, a taxing agency may not extend the meaning of legislation so as to permit the imposition of a tax in situations not embraced within the statute (see, Matter of Bloomingdale Bros. v. Chu, supra, 70 N.Y.2d at 223, 519 N.Y.S.2d 347, 513 N.E.2d 233).

Applying these rules, it seems evident that if the words of section 1105(b) are given their natural and most obvious meaning, the statute authorizes a tax only on the receipts from those transactions which can be identified as independent sales of utilities or utility services. Thus, by its plain import, the statute applies only to separate transactions which have as their primary purpose the furnishing of utilities or utility services. The Department would broaden the reach of section 1105(b) and read into it by implication the authority to impose a tax not only on sales of utilities and utility services but also on rent paid when HVAC services are supplied by the landlord to the tenant purely as an incident to a lease of premises. The Department's broad construction, however, contravenes the accepted tenet that a tax statute must be strictly construed with any doubts being resolved in favor of the taxpayer (see, Matter of Bloomingdale Bros. v. Chu, supra; Matter of American Cyanamid & Chem. Corp. v. Joseph, supra; Matter of Good Humor Corp. v. McGoldrick, supra ).

Our construction of section 1105(b) as not applying to additional rental for HVAC services when supplied incidentally as part of the rental of premises is consistent with this Court's interpretation of tax statutes in analogous circumstances. In Matter of Merchants Refrig. Co. v. Taylor, 275 N.Y. 113, 9 N.E.2d 799, we held that the provision of refrigeration service as an incident of the rental of cold storage in a warehouse was not taxable as a sale of refrigeration service under the New York City sales tax. The Court noted that the purpose of the transaction was the rental of storage space, not the "sale of refrigeration or a sale of refrigeration service" (id., at 119, 9 N.E.2d 799). In rejecting the City's argument that the supply of refrigeration was a taxable sale, the Court concluded that "[t]he temperature may attract customers and increase the charge but safe storage is the service sought and paid for" (id., at 119, 9 N.E.2d 799; see, Matter of Holmes Elec. Protective Co. v. McGoldrick, 262 App.Div. 514, 517, 30 N.Y.S.2d 589, aff'd, 288 N.Y. 635, 42 N.E.2d 737 [burglar alarm service involving the transmission of signals over telephone lines not taxable as "telephonic or telegraphic" service since the purpose of the service is the "protection of the customers' premises" and not "the sale of electric, telephone or telegraph service"]; see also, Matter of Time, Inc. v. Michael, 91 A.D.2d 1207, 458 N.Y.S.2d 965, confirming City Audit No. UB 10437 [overtime HVAC charges are subject to the City's commercial rent or occupancy tax and not the section 1105(b) sales tax since section 1105(b) imposes a tax on utilities when sold as commodities or articles of commerce--not when provided as part of the rental].

Here, the HVAC services in question are furnished under a lease agreement for the rental of office space. In section 12.01 of the lease, the landlord agrees to furnish to the premises "sufficient chilled or hot water as may be necessary to maintain a reasonably comfortable occupancy of the Premises" during business hours on business days. Section 12.02 simply provides that if the tenant requires HVAC services at times...