Horner v. State

• Citation: 478 N.Y.S.2d 467,125 Misc.2d 1
• Parties: Jay HORNER, Plaintiff, v. STATE of New York et al., Defendants.
• Decision Date: 24 February 1984
• Court: United States State Supreme Court (New York)

Page 467

478 N.Y.S.2d 467

125 Misc.2d 1

Jay HORNER, Plaintiff, v. STATE of New York et al., Defendants.

Supreme Court, Albany County.

Feb. 24, 1984.

Herzog, Nichols, Engstrom & Koplovitz, P.C., Albany, for plaintiff Jay Horner; James M. Reilly, Albany, of counsel.

Robert Abrams, Atty. Gen., Albany, for defendants State of N.Y., New York State Tax Commission and New York State Dept. of Taxation & Finance; Robert B. Keyes, Asst. Atty. Gen., Albany, of counsel.

MEMORANDUM DECISION

HAROLD J. HUGHES, Justice:

Plaintiff seeks a preliminary injunction restraining defendants from issuing or filing any tax warrants against him or taking any steps to enforce his alleged tax liability arising from the notices of assessment annexed to the complaint, and staying all further administrative proceedings pending the final determination of this action. Defendants move for an order dismissing the complaint for failure to state a cause of action and for failure to exhaust administrative remedies.

The complaint, the factual allegations of which must be deemed to be true for purposes of this motion (Rovello v. Orofino Realty Co., 40 N.Y.2d 633, 389 N.Y.S.2d 314, 357 N.E.2d 970), alleges that plaintiff resides in Schenectady and since 1978 has been a shareholder of PJG Gasoline, Inc., the operator of a gasoline service station. It is alleged that on November 18, 1983 the Department of Taxation and Finance issued two assessment notices addressed to plaintiff demanding payment of $185,619.65 for sales and use taxes owed by PJG Gasoline, Inc. for the period from June, 1978 through August, 1983. The assessment notices were purportedly issued in accordance with sections 1131(1) and 1133 of the Tax Law on the ground that plaintiff was a responsible officer of the corporate taxpayer personally liable for the payment of the corporation's sales taxes. Section 1133 provides in pertinent part that "every person required to collect any tax imposed" pursuant to article 28 of the Tax Law "shall be personally liable for the tax imposed, collected or required to be collected" and subdivision 1 of section 1131 provides that the persons required to collect the tax imposed under section 1133 "include any officer or employee of the corporation ... who as such officer or employee is under a duty to act for such corporation in complying with ... this article". Plaintiff alleges that prior to receipt of the assessment notices he was given no notice or hearing with respect to his purported liability as a responsible officer of the corporate taxpayer. As to plaintiff's relationship with the corporation, the complaint alleges:

1. Plaintiff has never been an officer or employee of the corporation;

2. Plaintiff has never had any involvement with the financial affairs of the corporation;

3. Plaintiff has never had an involvement with the management of the corporation;

4. Plaintiff has never participated in the daily operation of the corporation;

5. Plaintiff has never been advised of the financial affairs, management or daily operations of the corporation;

6. Plaintiff has never prepared, filed or signed any tax returns for the corporation;

7. Plaintiff has never been a signatory on any bank accounts maintained by the corporation;

8. Plaintiff never had authority to hire or discharge employees of the corporation;

9. Plaintiff never had authority to direct which creditors of the corporation should be paid;

10. Plaintiff has never received any share of corporate profits or any other financial benefits of the corporation;

11. Plaintiff's sole financial dealings with the corporation were limited to his initial investment for certificates of stock and numerous short-term loans made to the corporation, only some of which have been repaid.

The complaint alleges that the statutes relied upon by defendants are not applicable to the plaintiff and he would be irreparably harmed if forced to resort to the purported administrative remedy, since in the event of an adverse administrative determination he could not obtain judicial review in an article 78 proceeding until he had either paid the tax or posted an undertaking (see section 1138 of the Tax Law). At Special Term plaintiff argued that he was financially unable to pay the tax or post an adequate undertaking, and a declaratory judgment was the only remedy that would avoid his financial ruin.

In seeking dismissal of the complaint defendants argue that since no sales tax returns were ever filed, the Tax Commission had the right under subdivision (a) of section 1138 of the Tax Law to determine the amount of the tax due and to give notice of that determination "to the person liable for the collection or payment of the tax". Defendants argue that the statutory authority to determine the amount of tax due also includes the concomitant power to determine who is liable for the tax. Defendants argue that under the statute the person against whom the tax is assessed has the right to apply to the Tax Commission for an administrative hearing and, upon an adverse administrative determination, to commence an article 78 proceeding after paying the taxes assessed or the giving of an undertaking. Defendants assert that under section 1140 of the Tax Law article 78 is the exclusive remedy since that statute states "no determination or proposed determination of tax or determination on any application for refund shall be enjoined or reviewed by any action for declaratory judgment, an action for money had and received, or by an action or proceeding other than a proceeding under article seventy-eight of the civil practice law and rules". In Matter of Parsons v. State Tax Comm., 34 N.Y.2d 190, 356 N.Y.S.2d 593, 313 N.E.2d 57 the Court of Appeals held that when a corporation had timely filed returns containing correct computations of its tax liability, the Tax Commission could not proceed administratively to determine if individual corporate officers or directors were "persons required to collect tax" under subdivision 1 of section 1131 of the Tax Law, but rather had to contest that issue in a judicial proceeding brought under section 1141. One of the major concerns of the Court of Appeals was:

"note that section 1138 contains a strict condition precedent to judicial review of the commission's post-hearing determination. The party seeking review is required to first deposit with the Tax Commission the amount of tax sought to be collected, with penalties and interest, together with an undertaking to cover the costs and charges of the proceeding if ultimately dismissed or if the tax is confirmed, or, alternatively, one undertaking must be deposited sufficient to cover those same taxes, penalties, interest, costs and charges. Thus the consequence of the commission's use of its administrative procedure is to require a taxpayer to post an undertaking in order to obtain judicial review of an adverse determination. The courts will not extend this exacting prerequisite to judicial review by implication to situations, such as the present, in which the Legislature has not expressly prescribed it" (Matter of Parsons v. State Tax Comm., 34 N.Y.2d 190, supra, 197, 356 N.Y.S.2d 593, 313 N.E.2d 57).

Thus the Court of Appeals recognized the onerous burden of having to pay the tax or post an undertaking prior to being permitted judicial review and held that the procedure should not be extended beyond the express situations described in section 1138. It has been held that "the deposit and undertaking requirements of section 1138 (subd par ) of the Tax Law are constitutional" (Matter of Top Tile Bldg. Supply Corp. v. New York State...