Hotel Waldorf-Astoria Corp. v. State Tax Com'n

• Decision Date: 13 May 1982
• Docket Number: WALDORF-ASTORIA
• Citation: 86 A.D.2d 330,451 N.Y.S.2d 261
• Parties: In the Matter of HOTELCORPORATION, Respondent, v. STATE TAX COMMISSION of the State of New York, Appellant.
• Court: New York Supreme Court — Appellate Division

Page 261

451 N.Y.S.2d 261

86 A.D.2d 330

In the Matter of HOTEL WALDORF-ASTORIA CORPORATION, Respondent, v. STATE TAX COMMISSION of the State of New York, Appellant.

Supreme Court, Appellate Division,

Third Department.

May 13, 1982.

Robert Abrams, Atty. Gen., Albany (Francis V. Dow, Asst. Atty. Gen., Albany, of counsel), for appellant.

Hale, Russell & Gray, New York City (Peter J. Wade and Mark I. Silberblatt, New York City, of counsel), for respondent.

Before KANE, J. P., MIKOLL, YESAWICH, WEISS and LEVINE, JJ.

OPINION FOR AFFIRMANCE

WEISS, Justice.

On December 7, 1977, the New York State Employees' Retirement System loaned petitioner $45,000,000, taking back a first mortgage as security. Although requested, both the Miscellaneous Tax Bureau and the New York City Register refused to give prior opinions on petitioner's claim that no mortgage recording tax was due because the mortgagee enjoyed immunity from taxation as an agency of the State of New York. Petitioner, under protest, was required to pay $562,500 as a mortgage tax upon recording the mortgage. A petition seeking review of the determination denying exemption from the tax was filed with respondent within 20 days, and ultimately, respondent determined that the mortgage was exempt from the recording tax, but denied interest on the refund. Respondent has appealed from the judgment at Special Term ordering payment of interest on the refund at the rate of 6% per annum.

Respondent initially attacked the petition as insufficient for its failure to include the City of New York as a necessary party respondent. Special Term rejected this argument on the grounds that respondent's failure to raise the issue at any time during the three-year history of the case precluded raising such contention at this late date, and on the further ground that the city itself failed to move to intervene either at the administrative level or in this article 78 proceeding. We agree with these reasons and further hold that the city was not a necessary party. The mortgage recording tax was created and is imposed pursuant to article 11 of the Tax Law, and is administered, supervised, and enforced by the State Tax Commission (Tax Law, § 171, subd. 6). The City Register, like a county clerk, is merely the collection agent for the State Tax Commission, whose actions are subject to review by the State Tax Commission (Matter of Brodsky v. Murphy, 30 A.D.2d 904, 905, 292 N.Y.S.2d 193, affd. 25 N.Y.2d 518, 307 N.Y.S.2d 435, 255 N.E.2d 700, citing Matter of City of New York v. New York Univ., 3 A.D.2d 954, 162 N.Y.S.2d 386, mot. for lv. to app. den. 4 A.D.2d 844, 168 N.Y.S.2d 615). Moreover, and significantly, section 251 of the Tax Law makes all refund procedures subject to control by the State Tax Commission. The city has the right to seek judicial review of respondent's determination under section 251 of the Tax Law, and indeed, has done so in a separate proceeding decided simultaneously with this case. Finally, although CPLR 1003 permits dismissal of an action for failure to join a party who should be joined, and CPLR 1001 (subd. ) describes such a party, CPLR 1001 (subd. ) provides guidance to the court in permitting an action to proceed in the event of non-joinder of such a party. This court has held that, where the interests of a nonparty, although affected by a judgment, are adequately protected and any possible prejudice is avoided, dismissal should not be granted (Matter of Sandor v. Nyquist, 45 A.D.2d 122, 356 N.Y.S.2d 703). Under the circumstances present, we hold that failure to join the City of New York as a respondent should be excused in the interests of justice (CPLR 1001, subd. Matter of Greaney v. Poston, 50 A.D.2d 653, 374 N.Y.S.2d 815).

The right to recovery of interest on the refund is a more complex issue. Prior to 1969, the leading case on entitlement to interest on refunds of taxes was Matter of O'Berry, 179 N.Y. 285, 72 N.E. 109, where a transfer tax had been imposed upon the vested remainder under the provisions of a will admitted to probate. The imposition of such a tax upon remainders vested prior to the passage of the taxing statute had been previously held void as being in conflict with the Constitution (Matter of Pell, 171 N.Y. 48, 63 N.E. 789). The Comptroller, therefore, was directed to refund the tax paid with interest. In the Court of Appeals, a benevolent Associate Judge O'Brien wrote, "obligation to refund money received and retained without right implies and carries with it the right to interest" (Matter of O'Berry, supra, 179 N.Y. p. 288, 72 N.E. 109). In the case of Matter of Brodsky v. Murphy, 25 N.Y.2d 518, 307 N.Y.S.2d 435, 255 N.E.2d 700, in departing from Matter of O'Berry, the Court of Appeals held that a taxpayer is not entitled to interest on a refund of mortgage taxes paid under a valid taxing statute which was erroneously interpreted. The court distinguished between refunds of taxes paid under an unconstitutionally void statute as in Matter of O'Berry, and those taxes paid because of an erroneous interpretation of a valid tax statute. Then Associate Judge Breitel, writing for the majority, said:

With respect to such tax refunds, interest is not authorized unless the tax statute or other statute applicable to refunds explicitly makes provision for the payment of interest, and perhaps with such limitations, conditions, and qualifications as may be appropriate to correct whatever injustice has resulted from the imposition and collection of the tax under a valid statute (Matter of Brodsky v. Murphy, supra, p. 523, 307 N.Y.S.2d 435, 255 N.E.2d 700) (emphasis added). Both parties in this proceeding cite this latter clause for support of their respective arguments, respondent urging that the recording tax statute is not void or unconstitutional, and that absent a statutory provision for the payment of interest, none may be recovered. Petitioner, on the other hand, would have this court hold that the emphasized part of the sentence creates a window of vulnerability to permit a court to correct a manifest injustice even in the absence of an explicit statutory provision for the recovery of interest. ^*

The entitlement to interest issue again appeared in the case of Matter of First Nat. City Bank v. City of New York Finance Admin., 43 A.D.2d 823, 351 N.Y.S.2d 401, mod. 36 N.Y.2d 87, 365 N.Y.S.2d 493, 324 N.E.2d 861, where a national bank sought a refund of commercial rent or occupancy taxes paid...