In re New York, O. & W. Ry. Co.

• Decision Date: 03 December 1937
• Citation: 25 F. Supp. 709
• Parties: In re NEW YORK, O. & W. RY. CO.
• Court: U.S. District Court — Southern District of New York

25 F. Supp. 709

In re NEW YORK, O. & W. RY. CO.

District Court, S. D. New York.

December 3, 1937.

Paul Windels, Corp. Counsel, of New York City (Oscar S. Cox and Meyer Bernstein, both of New York City, of counsel), for City of New York.

Elbert N. Oakes, of New York City, for trustee.

HULBERT, District Judge.

The Trustee of the Debtor, by this application, seeks to have this Court determine, under Section 64a of the National Bankruptcy Act, 11 U.S.C.A. § 104 (a), whether the Debtor is liable for a utility tax imposed by the City of New York, and if so, that this Court review, revise and fix the Debtor's liability therefor.

Pursuant to enabling legislation of the State of New York (Chapter 815, Laws of 1933; Chapters 302 and 873, Laws of 1934; Chapter 601, Laws of 1935; Chapter 414, Laws of 1936; Chapter 327, Laws of 1937), the Municipal Assembly of the City of New York adopted certain Local Laws imposing taxes at the rate of 1½% (later increased to 3%) upon the gross income of certain utilities as therein defined covering the period subsequent to September 1, 1933, which are by statute to be devoted exclusively to the relief of the needy unemployed. The constitutionality and validity thereof have heretofore been sustained in both State and Federal Courts. New York Steam Corporation v. City of New York, 1935, 268 N.Y. 137, 197 N.E. 172, 99 A.L.R. 1157; Southern Boulevard Railroad Company v. City of New York, 2 Cir., 1936, 86 F.2d 633, certiorari denied May 24, 1937, 301 U.S. 703, 57 S.Ct. 932, 81 L.Ed. 1357.

The pertinent provisions of Local Law No. 30, of 1935, p. 157, which are representative of all the local laws concerned, read as follows:

"§ 2. Imposition of excise tax. Notwithstanding any other provision of law to the contrary, for the privilege of exercising its franchise or franchises, or of holding property, or of doing business in the city of New York, from January first, nineteen hundred and thirty-six, to June thirtieth, nineteen hundred and thirty-six, or any part of such period, every utility doing business in the city of New York and subject to the supervision of either division of the department of public service, shall pay to the comptroller of the city of New York an excise tax which shall be equal to three per centum of its gross income for the period from January first, nineteen hundred and thirty-six to June thirtieth, nineteen hundred and thirty-six, and every other utility doing business in the city of New York shall pay to the comptroller of the city of New York an excise tax which shall be equal to three per centum of its gross operating income for the period from January first, nineteen hundred and thirty-six, to June thirtieth, nineteen hundred and thirty-six. Such tax shall be in addition to any and all other taxes and fees imposed by any other provision of law and shall be paid at the time and in the manner hereinafter provided, but any utility subject to tax hereunder shall not be liable to any tax under local law of the local laws of the city of New York for the year nineteen hundred and thirty-five, board of estimate and apportionment introductory number ninety-five of the year nineteen hundred and thirty-five, with respect to its gross income or gross operating income as the case may be."

Section 6 provides for:

1. Notification to the Debtor by the comptroller of his determination of tax liability;

2. Application within thirty days thereafter to the comptroller for a hearing;

3. Presentation to the comptroller of evidence in support of the Debtor's contentions as to tax liability;

4. Final notice of determination by comptroller; and

5. Judicial review thereof.

Section 6, in part, reads as follows: "In case the return required by section four hereof shall be insufficient or unsatisfactory to the comptroller, or if such return is not made as required, and if the maker fails to file a corrected or sufficient return within twenty days after the same is required by notice from the comptroller, the comptroller shall determine the amount of tax due from such information as he is able to obtain, and if necessary, may estimate the tax on the basis of external indices. * * * Such determination shall finally and irrevocably fix such tax unless the person against whom it is assessed shall within the thirty days after the giving of notice of such determination apply to the comptroller for a hearing or unless the comptroller of his own motion shall reduce the same. * * * The determination of the comptroller may be reviewed by certiorari if application therefor is made within thirty days after the giving of notice of such determination. An order of certiorari shall not be granted unless the amount of any tax sought to be reviewed, with penalties thereof, if any, shall be first deposited with the comptroller and an undertaking filed with the comptroller, in such amount and with such sureties as a justice of the supreme court shall approve, to the effect that if such order be dismissed or the tax confirmed the applicant for the writ will pay all costs and charges which may accrue in the prosecution of the certiorari proceeding."

In accordance with these statutes, the New York, Ontario & Western Railroad Company filed returns with the Comptroller of the City of New York. These returns contained no figures but in lieu thereof it was stated: "Counsel advises we have no gross income from business conducted wholly within the City of New York."

No tax has been paid to the City.

On July 2, 1936, the Comptroller made a determination of deficiency in tax and penalties under Local Law No. 19 of 1933, p. 127, for the period Sept. 1, 1933 to Feb. 28, 1934, amounting to $1,425.03; under Local Law No. 10 of 1934, p. 115, for the period from March 1, 1934 to Dec. 31, 1934 amounting to $2,869.18; under Local Law No. 21 (published as No. 22) of 1934, p. 151, for the period from Jan. 1, 1935 to Dec. 31, 1935 amounting to $6,814.86, which, with penalties thereon, amounted to a total sum of $12,940.06.

In compliance with the statute, the Railroad Company protested the determination within the thirty day period and applied for a hearing and such hearing was held before the Comptroller's representative. The Railroad Company appeared and offered testimony in support of its contention that it was not liable for the tax as determined by the Comptroller. No further action was taken by the Comptroller with respect thereto for several months.

Meanwhile the Debtor, which is a corporation organized and existing under the laws of the State of New York, having its principal place of business at 370 Lexington Avenue, Borough of Manhattan, New York City, N. Y., engaged for many years as a common carrier in the transportation of persons and property in the States of New Jersey, New York and Pennsylvania, on May 20th, 1937, filed a petition in proceedings for reorganization pursuant to the provisions of Section 77 of the National Bankruptcy Act, 11 U.S.C. A. § 205. The petition was duly approved on that date and Frederic E. Lyford was thereafter appointed Trustee by order dated June 15, 1937, and qualified as such.

Subsequent thereto, the Comptroller of the City of New York, without having made any decision upon said protest and hearing upon the tax for the period ending December 31, 1935, determined the tax due under Local Law No. 30 of 1935, p. 157, for the period from Jan. 1, 1936 to June 30, 1936, in the amount of $3,401.13, and under Local Law No. 30 of 1936, p. 137, from July 1, 1936 to May 30, 1937, in the amount of $6,057.62, with penalties thereon aggregating $1,020.99, and on August 31, 1937, filed proof of claim with the Secretary of the Debtor for the entire sum claimed to be due in the amount of $24,995.59, including the said sum of $12,940.06 as determined July 2, 1936, with the additional penalties thereon claimed to have accrued since the previous determination.

The Debtor likewise protested this further determination and applied to the Comptroller on September 2, 1937, for a hearing which was fixed for October 7, 1937, but at the Debtor's request was adjourned to November 8, 1937.

Meanwhile, objections and amended objections to the City's claim was filed in this proceeding.

By direction of this Court, the Trustee of the Debtor, on October 22, 1937, presented a report and recommendations upon all claims of creditors filed...