Homier Distributing Co., Inc. v. City of Albany

• Citation: 681 N.E.2d 390,90 N.Y.2d 153,659 N.Y.S.2d 223
• Parties: , 681 N.E.2d 390, 65 USLW 2773 HOMIER DISTRIBUTING COMPANY, INC., Appellant, v. CITY OF ALBANY, Respondent.
• Decision Date: 13 May 1997
• Court: New York Court of Appeals

Page 223

659 N.Y.S.2d 223

90 N.Y.2d 153, 681 N.E.2d 390, 65 USLW 2773

HOMIER DISTRIBUTING COMPANY, INC., Appellant, v. CITY OF ALBANY, Respondent.

Court of Appeals of New York.

May 13, 1997.

Wiley, Rein & Fielding (Thomas W. Kirby, of the District of Columbia Bar, admitted pro hac vice, of counsel), Iseman, Cunningham, Riester & Hyde, L.L.P., Albany (Frederick C. Riester and Brian M. Culnan, of counsel), and James M. Johnstone, of the District of Columbia Bar admitted pro hac vice, for appellant.

Vincent J. McArdle, Jr., Corporation Counsel of City of Albany (Stacy Kitt, of counsel), for respondent.

Dennis C. Vacco, Attorney General, Albany (Denise A. Hartman, Barbara G. Billett and Peter H. Schiff, of counsel).

OPINION OF THE COURT

TITONE, Judge.

Plaintiff brought this action to challenge a City of Albany ordinance which imposes a special tax on "transient" retailers who operate at temporary business sites. At the heart of plaintiff's complaint is its claim that the tax discriminates in favor of local retail businesses and therefore violates the Commerce Clause of the Unites States Constitution (U.S. Const., art. I, § 8, cl. [3] ). The City, in contrast, contends that the ordinance is inoffensive to the Constitution because it applies even-handedly to both in-state and out-of-state transient retailers and serves a legitimate public purpose. Having reviewed the relevant Supreme Court precedent, we conclude that the challenged ordinance is unconstitutionally discriminatory and that, accordingly, it is invalid.

Plaintiff is an Indiana corporation authorized to transact business in this State and 40 others. Plaintiff's business, the wholesaling and retailing of hardware, electrical tools and related consumer products, is conducted at pre-scheduled sales held over three- to four-day periods. Plaintiff generally reserves facilities in a particular community, conducts advance advertising in that community and then makes its sales from a temporary location within the community. The merchandise is brought onto the sale site before the sale and any unsold goods are taken to the next site when the local sale is over. It is undisputed that plaintiff collects sales tax and files sales tax returns for the transactions it completes within the State.

The present dispute arose from a sale plaintiff conducted between August 20 and August 23, 1992 at a rented site within the City of Albany. Pursuant to the challenged ordinance (Albany City Code §§ 7-240, 7-243), the City required plaintiff to obtain a transient business license, to pay a tax calculated on the basis of its gross sales and to post a $2,500 bond to insure compliance with its tax obligation. The amount of the tax, $3,031.16, was calculated by reducing plaintiff's gross sales ($283,451.43) by the City's applicable real property tax equalization rate (8.75%) and applying the City's 1992 real property tax rate ($134.31 per $1,000) to the resulting "assessed value" ($24,802). ¹ Plaintiff paid the tax under protest and then commenced the present action, seeking, among other things, a declaration that the ordinance violates the Commerce Clause.

On plaintiff's motion for summary judgment, the Supreme Court rejected plaintiff's arguments and dismissed its causes of action based on the Commerce Clause (but cf., Lanza v. Wagner, 11 N.Y.2d 317, 334, 229 N.Y.S.2d 380, 183 N.E.2d 670). Relying on a line of Supreme Court decisions known as the "peddler" cases (e.g., Machine Co. v. Gage, 100 U.S. 676, 25 L.Ed. 754), the court initially concluded that the challenged ordinance is "even-handed" and therefore not discriminatory because it differentiates not between in-state and out-of-state goods, but rather between permanent and transient retailers regardless of the geographical area in which they operate (163 Misc.2d 723, 729-731, 621 N.Y.S.2d 826). Since it concluded that the ordinance does not involve "direct" discrimination, the court went on to consider whether the ordinance's "indirect or incidental effect" on interstate commerce is outweighed by the local benefit it confers (id., at 732, 621 N.Y.S.2d 826). The local benefit, the court reasoned, is to produce revenues "by requiring transient retailers to pay their fair share of municipal costs already paid by permanent retailers in the City" (id., at 732, 621 N.Y.S.2d 826). Noting that plaintiff had not shown that it had been required to pay more than its "fair share," the court upheld the ordinance on the theory that its "de minimis burden" on commerce does not exceed its legitimate governmental purpose (id., at 732, 621 N.Y.S.2d 826).

The Appellate Division affirmed the Supreme Court's order on the basis of that court's opinion. Having stipulated to the discontinuance of its remaining cause of action based on the Equal Protection Clause of the Fourteenth Amendment, plaintiff then appealed as of right from the stipulation, deemed a judgment, bringing up for review the prior nonfinal Appellate Division order (see, Voorheesville Rod & Gun Club v. Tompkins Co., 82 N.Y.2d 564, 568, 606 N.Y.S.2d 132, 626 N.E.2d 917; CPLR 5601[d] ).

The Albany City ordinance challenged in this proceeding imposes a tax burden on "transient" retailers that is not imposed on retailers who operate from fixed locations within the City. ² The local law was enacted pursuant to the enabling provisions of General Municipal Law § 85-a, which gives localities the power "to provide that a tax shall be levied upon all persons or corporations conducting transient retail businesses therein * * * based upon the gross amount of sales and [calculated] at the same rate as other property is taxed for the year [within the locality]."

Adopted in 1917 (L. 1917, ch. 199, § 1), General Municipal Law § 85-a supplemented former section 85, which until 1968, authorized municipalities to impose a fixed "license" fee of up to $100 on transient retailers engaging in fire or bankruptcy liquidation sales. Former section 85 was held unconstitutional in People ex rel. Moskowitz v. Jenkins, 202 N.Y. 53, 58, 59-60, 94 N.E. 1065 because of its impermissible purpose "to safeguard * * * local shopkeepers from competition" as well as its "arbitrary and unreasonable" character as a tax. To remedy these flaws, the Legislature broadened the statute's coverage to include all transient retailers. Further, it attempted to rationalize the tax by linking it to the merchant's gross receipts and the local real property tax rate (see, 18 N.Y. St Dept Rep 444, 446 [1918] ).

Despite the 80 years that have elapsed since its enactment, this Court has not yet had occasion to address the constitutionality of General Municipal Law § 85-a or of any of the municipal ordinances that may have been adopted under its authority. Indeed, this proceeding represents the first reported case in which a local transient-retailer tax ordinance has been challenged. As we did in Moskowitz, we now conclude that the tax cannot be sustained, although, unlike in Moskowitz, our current conclusion is based solely on modern Commerce Clause principles.

The literal language of the Commerce Clause contains only an affirmative grant of authority to Congress. The Supreme Court, however, has long construed the Clause to imply a corresponding prohibition against State measures that unduly or discriminatorily burden interstate commerce (e.g., Cooley v. Board of Wardens, 12 How [53 U.S.] 299, 319, 13 L.Ed. 996; Gibbons v. Ogden, 9 Wheat [22 U.S.] 1, 6 L.Ed. 23; see, Oklahoma Tax Commn. v. Jefferson Lines, 514 U.S. 175, 178-182, 115 S.Ct. 1331, 1335-1336, 131 L.Ed.2d 261; Quill Corp. v. North Dakota, 504 U.S. 298, 309, 112 S.Ct. 1904, 1911, 119 L.Ed.2d 91; Matter of Orvis Co. v. Tax Appeals Tribunal, 86 N.Y.2d 165, 170-171, 630 N.Y.S.2d 680, 654 N.E.2d 954; see generally, Enrich, Saving the States From Themselves: Commerce Clause Constraints on State Tax Incentives for Business, 110 Harv L Rev 378, 424-425). This "dormant" or "negative" aspect of the Commerce Clause has a meandering judicial history. However, at this point in the jurisprudence surrounding the Commerce Clause, a clear set of governing principles has emerged.

A regulation or tax that discriminates in favor of local economic interests is invalid unless it is narrowly tailored to accomplish a compelling local purpose or, in the case of a tax, can meet the stringent standards of the "compensatory tax" doctrine (see, C & A Carbone v. Clarkstown, 511 U.S. 383, 390, 114 S.Ct. 1677, 1682, 128 L.Ed.2d 399; Oregon Waste Sys. v. Department of Envtl. Quality, 511 U.S. 93, 114 S.Ct. 1345, 128 L.Ed.2d 13; Associated Indus. v. Lohman, 511 U.S. 641, 647-650, 114 S.Ct. 1815, 1820-1822, 128 L.Ed.2d 639). Under this principle, local statutes that facially discriminate against interstate trade are subject to a "virtually per se rule of invalidity" and are " 'routinely struck down' " on the theory that local economic protectionism is incompatible with the maintenance of a single national economic unit Oregon Waste Sys. v. Department of Envtl. Quality supra, at 98-100, 114 S.Ct. at 1349-51; see, (West Lynn Creamery v. Healy, 512 U.S. 186, 192-193, 114 S.Ct. 2205, 2210-2211, 129 L.Ed.2d 157, quoting New Energy Co. v. Limbach, 486 U.S. 269, 273-274, 108 S.Ct. 1803, 1807-1808, 100 L.Ed.2d 302; Associated Indus. v. Lohman, supra, at 647, 114 S.Ct. at 1820-1821; Hughes v. Oklahoma, 441 U.S. 322, 337, 99 S.Ct. 1727, 1736-37, 60 L.Ed.2d 250; Hood & Sons v. DuMond, 336 U.S. 525, 537-538, 69 S.Ct. 657, 664-65, 93 L.Ed. 865). In contrast, local laws that regulate even-handedly with only incidental effects on interstate commerce are generally upheld unless "the burden imposed on such commerce is clearly excessive in relation to the putative local benefits" (Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174; accord, Oregon Waste Sys. v. Department of Envtl. Quality, supra, at 99, 114 S.Ct. at 1349-50). Thus, whether a particular local regulation or tax...