Forest City Realty Trust, Inc. v. Tax Appeals Tribunal of N.Y.

• Decision Date: 05 November 2020
• Docket Number: 528420
• Citation: 188 A.D.3d 1317,135 N.Y.S.3d 173
• Parties: In the Matter of FOREST CITY REALTY TRUST, INC., Formerly Known as Forest City Enterprises, Inc., Petitioner, v. TAX APPEALS TRIBUNAL OF the STATE of New York et al., Respondents.
• Court: New York Supreme Court — Appellate Division

188 A.D.3d 1317

135 N.Y.S.3d 173

In the Matter of FOREST CITY REALTY TRUST, INC., Formerly Known as Forest City Enterprises, Inc., Petitioner,

v.TAX APPEALS TRIBUNAL OF the STATE of New York et al., Respondents.

528420

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

Calendar Date: September 9, 2020

Decided and Entered: November 5, 2020

McConville, Considine, Cooman & Morin, PC, Rochester (Kevin S. Cooman of counsel), for petitioner.

Letitia James, Attorney General, Albany (Owen Demuth of counsel), for Commissioner of Taxation and Finance, respondent.

Before: Egan Jr., J.P., Mulvey, Devine, Aarons and Colangelo, JJ.

MEMORANDUM AND JUDGMENT

Colangelo, J.

Proceeding pursuant to CPLR article 78 (initiated in this Court pursuant to Tax Law § 2016 ) to review a determination of respondent Tax Appeals Tribunal sustaining a notice of disallowance to certain tax credits against a corporate franchise tax imposed under Tax Law article 9–A.

The Empire Zones Program is an incentive program implemented by the Legislature to encourage economic development in disadvantaged areas of the state (see General Municipal Law art 18–B). Petitioner, a developer and operator of real estate projects throughout this state, claimed a qualified empire zone enterprise (hereinafter QEZE) tax credit for the 2009 tax year in the amount of $327,866 for real property taxes owed by FC Yonkers Associates, LLC, a subsidiary of petitioner that was formed in 2001 for the purpose of owning and developing Ridge Hill, a retail and residential development project located in the City of Yonkers, Westchester County.¹ To qualify for the QEZE tax credit, petitioner was required to show that FC Yonkers, among other things, increased its workforce by one employee during the 2009 tax year above the zero employees that it claimed to have had in its test year, a period that precedes its year of QEZE certification (see Tax Law §§ 14[b][1] ; 15[b], [d] ). Petitioner claimed that Theron Russell, a project manager for the Ridge Hill project, was an employee of FC Yonkers during the 2009 tax year and that petitioner therefore increased the workforce of FC Yonkers from zero, the number of employees that it claimed prior to becoming a QEZE participant, to one.

The Division of Taxation and Finance subsequently issued a notice of disallowance denying petitioner's claim for the QEZE tax credit due to petitioner's failure to supply information requested by the Division. Petitioner contested the denial, and, following a hearing, an Administrative Law Judge granted the petition, finding, among other things, that the evidence showed that Russell was a common-law employee of FC Yonkers for the 2009 tax year and, therefore, that petitioner qualified for the QEZE tax credit. The Division sought administrative review with respondent Tax Appeals Tribunal, which reversed the Administrative Law Judge's decision and upheld the Division's disallowance of the QEZE tax credit. In doing so, the Tribunal determined that petitioner was unable to show that Russell was an employee of FC Yonkers and not an employee of Forest City Ratner Companies, LLC (hereinafter FCRC), which is another subsidiary of petitioner and an overhead management company that provides centralized services and payroll costs for Russell and other personnel working at the Ridge Hill project. Petitioner subsequently commenced this CPLR article 78 proceeding challenging the Tribunal's determination.

Petitioner contends that the Tribunal, in determining that Russell was an employee of FCRC and not FC Yonkers, ignored its own regulation, which establishes "direction and control" as the determinative test for finding a common-law employer-employee relationship, and arbitrarily adopted a "form over substance" test. In so doing, petitioner avers that the Tribunal rendered a determination that is unsupported by substantial evidence and contrary to law. We disagree and confirm.

Petitioner, as a taxpayer seeking a tax credit, "bears the burden of proving an unambiguous entitlement thereto" ( Matter of Suozzi v. Tax Appeals Trib. of the State of N.Y., 179 A.D.3d 1253, 1255, 116 N.Y.S.3d 778 [2020] [internal quotation marks and citations omitted]; see Matter of Level 3 Communications, LLC v. Erie County, 174 A.D.3d 1497, 1500, 108 N.Y.S.3d 246 [2019], lv denied 35 N.Y.3d 906, 2020 WL 3096802 [2020] ; Matter of Wilmorite, Inc. v. Tax Appeals Trib. of the State of N.Y., 130 A.D.3d 1388, 1389, 14 N.Y.S.3d 574 [2015] ), and the Tribunal's determination with respect to employment status will be confirmed "if it is rationally based upon and supported by substantial evidence" ( Matter of Ingle v. Tax Appeals Trib. of the Dept. of Taxation & Fin. of the State of N.Y., 110 A.D.3d 1392, 1393, 973 N.Y.S.2d 877 [2013] [internal quotation marks and citation omitted]; see Matter of Wegmans Food Mkts., Inc. v. Tax Appeals Trib. of State of N.Y., 33 N.Y.3d 587, 594, 107 N.Y.S.3d 769, 131 N.E.3d 876 [2019] ; Matter of XO Communications Servs., LLC v. Tax Appeals Trib. of the State of N.Y., 182 A.D.3d 717, 718, 122 N.Y.S.3d 412 [2020] ). To that end, 20 NYCRR 5–9.3(b) provides that, "[f]or purposes of calculating the empire zone wage tax credit, the term individuals employed includes any individual for which the relationship of employer and employee exists when the taxpayer has the right to control and direct the individual not only as to the result to be accomplished by the individual [but] also as to the means by which such result is to be accomplished. If the relationship employer and employee exists, the designation or description of the relationship, and the measure, method or designation of the compensation are immaterial." As indicia of an employment relationship, the Tribunal has relied on such factors as "the authority to hire and fire, authority to control and direct the work of the employee, and the payment of wages" ( Matter of the Petitions of Knowledge Learning Corp. & Kindercare Learning Ctrs., Inc., 2014 WL 4824177, *14 [N.Y. Tax Appeals Trib. DTA Nos. 823962, 8232963, Sept. 18, 2014] ; see Matter of the Petition of Manhattan Fire Extinguisher, Inc., 1997 WL 594457, *11, 1997 N.Y. Tax LEXIS 400, *24 [N.Y. Tax Appeals Trib. DTA No. 813561, Sept. 16, 1997...