Great Lakes-Dunbar-Rochester v. State Tax Com'n

• Decision Date: 04 June 1985
• Docket Number: LAKES-DUNBAR-ROCHESTER
• Citation: 491 N.Y.S.2d 605,65 N.Y.2d 339,481 N.E.2d 237
• Parties: , 481 N.E.2d 237 In the Matter of GREAT, a Joint Venture, Respondent, v. STATE TAX COMMISSION, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 605

491 N.Y.S.2d 605

65 N.Y.2d 339, 481 N.E.2d 237

In the Matter of GREAT LAKES-DUNBAR-ROCHESTER, a Joint Venture, Respondent, v. STATE TAX COMMISSION, Appellant.

Court of Appeals of New York.

June 4, 1985.

Robert Abrams, Atty. Gen. (Julie Mereson, Robert Hermann, Peter H. Schiff and Maurice K. Peaslee, Albany, of counsel), for appellant.

Peter D. Cook, Buffalo, for respondent.

OPINION OF THE COURT

PER CURIAM.

There is substantial evidence in the record of the proceedings before the State Tax Commission to support the Commission's determination that designated "rental" and "lease" payments made by petitioner Great Lakes-Dunbar-Rochester, a joint venture, to the corporate venturers were, in fact, for rentals of vessels and equipment and, thus, subject to the use tax imposed by Tax Law § 1110. Therefore we reverse the order of the Appellate Division, 102 A.D.2d 1, 477 N.Y.S.2d 461, and reinstate the Commission's determination.

Great Lakes Dredge & Dock Co. and Dunbar & Sullivan Dredging Co. formed a joint venture in 1969 to bid on and, if successful, execute a contract to construct a sewer outfall in Lake Ontario for the City of Rochester. The joint venture agreement specifically limited the relationship to the Rochester construction project and required each party to furnish equipment and supervisory personnel to the project in the same proportion, insofar as reasonably possible, as its interest in the joint venture. The parties' interests in the joint venture were allocated 66 2/3 to Great Lakes and 33 1/3 to Dunbar. Supervisory personnel and heavy equipment, consisting of marine vessels such as tugs and scows together with clamshells and cranes mounted thereon, were assigned to the project. Each corporate venturer was to be reimbursed from time to time for equipment, tools and/or machinery it furnished for use in the performance of the project at "rental" rates set forth in the agreement. These reimbursement payments were characterized in the agreement as "rents" and invoiced as such between the joint venture and the corporate venturers. No sales or use taxes were paid on these "rental payments", however. Following an audit conducted by respondent in 1974, a determination was made that over $300,000, plus penalties and interest, was due as use tax on these rentals and on the purchase of certain parts and supplies charged to the vessels. Petitioner was partially successful in having some of the items on which the tax had been assessed eliminated, but the assessment of use tax due on the amounts that the corporate venturers were reimbursed for the equipment assigned to the project (the "rentals") was sustained by the Commission. An article 78 proceeding, transferred directly to the Appellate Division pursuant to CPLR 7804(g), ensued. A divided court found that there was no substantial evidence supporting respondent's conclusion that a lease of personal property took place between the parties, and therefore that there was no rational basis for respondent's assessment of the tax. We disagree.

In assessing a use tax on the reimbursement payments, the Tax Commission has treated the joint venture as a partnership, having an existence and entity separate and apart from the partners who comprise it, a treatment found by the majority at the Appellate Division to be contrary to "basic, established law" (102 A.D.2d, p. 4, 477 N.Y.S.2d 461). However, as pointed out by the dissenting Justice ( id., pp. 6-7, 477 N.Y.S.2d 461), this treatment is consistent with that accorded the relationship by the parties themselves, both in their written agreement and in their conduct.

Although terms of the agreement and the conduct of the parties are not determinative, support for the Commission's view that the partnership is an entity separate and apart from its constituent partners can be found in the Tax Law itself, which specifically defines a "person" to include a partnership, association or combination of individuals or corporations (Tax Law § 1101[a] ). Ordinarily, partnerships and...