Liberman v. Gallman

• Decision Date: 07 June 1977
• Citation: 41 N.Y.2d 774,396 N.Y.S.2d 159,364 N.E.2d 823
• Parties: , 364 N.E.2d 823 In the Matter of Max LIBERMAN, Respondent, v. Norman S. GALLMAN et al., Constituting the State Tax Commission, Appellants.
• Court: New York Court of Appeals Court of Appeals

Page 159

396 N.Y.S.2d 159

41 N.Y.2d 774, 364 N.E.2d 823

In the Matter of Max LIBERMAN, Respondent, v. Norman S. GALLMAN et al., Constituting the State Tax Commission, Appellants.

Court of Appeals of New York.

June 7, 1977.

Louis J. Lefkowitz, Atty. Gen., Albany (George M. Thorpe, Ruth Kessler Toch and John F. Forner, Jr., Albany, of counsel), for appellants.

Neil H. Rivchin, Albany, for respondent.

JASEN, Judge.

The sole issue presented on this appeal is whether the determinations of the State Tax Commission that petitioner shoe salesman was not an employee of the shoe manufacturer and, hence, was subject to the unincorporated business tax are erroneous as a matter of law.

Petitioner Max Liberman, a resident of New York City, has been engaged in the business of manufacturing, designing and selling children's shoes for approximately 40 years. Ever since 1940, he has served as a sales representative of the Reider Shoe Manufacturing Company of Schuylkill Haven, Pennsylvania. The latest contract between petitioner and the shoe manufacturer was executed in 1955 and is renewable from year to year. His primary function was to solicit orders for Reider shoes from retail outlets in a territory stretching along the eastern seaboard from Maine to Florida. His efforts accounted for approximately 75% of Reider's sales. Petitioner worked for Reider exclusively. Secondary responsibilities included the rendition of advice on such matters as shoe design and marketing techniques.

In return for his services, Liberman received a straight commission on the shoe sales that he arranged. On occasion, however certain accounts he had established would unilaterally be designated "house accounts" by the company and his commission would be terminated. To compensate him for his design and merchandising assistance, the company paid him an additional commission based upon a set percentage of the company's total monthly sales. He was also entitled to an "override commission" in the event that the company's total sales for the calendar year exceeded specified levels. Reider deducted both Social Security and disability benefits taxes from the commissions paid to Liberman. The company, however, did not withhold amounts due for Federal or New York State income taxes.

Liberman maintained an office in a New York City building primarily occupied by business concerns active in the shoe industry. The lease for the office space was for a term of two or three years and was in Liberman's name. Liberman was responsible for payment of the rent, but he and the company divided the cost of office furnishings. The names of both the company and Liberman are posted in the building directory. The company name appears on the office door with Liberman's name listed in smaller print as the company representative. The telephone and the office stationery are in Reider's name.

The nature of the business required Liberman to travel extensively to visit customers and to solicit new business. He spent approximately 35 to 45% of his time outside of New York City. The selection of locations to be visited and the timing of the visits were left primarily to Liberman's discretion, although, periodically, the company would direct him to visit particular sales areas or customers. This was done to insure that petitioner was covering his assigned territory. All payments from customers are made directly to Reider and all new customers obtained by petitioner must have their credit approved by Reider before orders would be accepted. Liberman was directed to report frequently on his sales activities. The company occasionally required petitioner to concentrate on specific duties, to attend to specific accounts, to emphasize the sale of certain shoe styles and to attend sales meetings and conventions. When Reider selected additional salesmen to work in petitioner's territory, petitioner was responsible for instructing them.

Reider required that the New York City office be open even when Liberman was traveling out of town. Reider also required that Liberman hire a secretary. Liberman was responsible for selecting the secretary and establishing her rate of compensation and paying her salary. However, when Reider had complaints regarding the secretary's performance, Liberman would discharge her. The secretary answered the telephone in Reider's name. Liberman established the office hours, but could not take time off without company permission. Petitioner used the New York office to entertain visiting officers of Reider and to display merchandise to potential customers. However, orders arising from office displays would be credited to other salesmen.

The State of New York imposes a tax upon the income of every unincorporated business wholly or partially carried on within the State. (Tax Law, § 701, subd (a).) An unincorporated business is defined as any trade, business or occupation engaged in by an individual or an unincorporated entity. (Tax Law, § 703, subd (a).) However, "(t)he performance of services by an individual as an employee * * * of a corporation * * * shall not be deemed an unincorporated business, unless such services constitute part of a business regularly carried on by such individual". (Tax Law, § 703, subd (b).)

In 1965, petitioner Liberman was found tax deficient for failing to pay unincorporated business taxes for the years 1960 through 1963. Petitioner commenced an administrative proceeding for a redetermination of the deficiency. After a hearing, the State Tax Commission found that "(t)he taxpayer has not carried the burden of proof to show that he is under the direction and control of his principal so as to be an employee rather than independent contractor." Therefore, the commission determined that the deficiencies were valid and denied the applications for redetermination.

Petitioner brought an article 78 proceeding to review the determinations of the State Tax Commission. The Appellate Division, to which the case had been transferred, annulled the determinations by a divided court. The majority stated that "(w)e are persuaded that Reider exercised all the direction and control that it could realistically be expected to exert under the circumstances to continue petitioner as an employee within the intendment of the Tax Law." (53 A.D.2d 766, 767, 384 N.Y.S.2d 252, 253.) Two Justices dissented, taking the view that "(w)here, as here, there are facts or reasonable inferences from the facts to sustain it, the court must confirm the Tax Commission's determination." (53 A.D.2d, at p. 767, 384 N.Y.S.2d, at p. 254.) We agree with the dissenting Justices that the petitioner failed to carry his burden of establishing his entitlement to a tax exemption. We would, therefore, reverse the judgment of the Appellate Division.

It is well settled that the burden of overcoming a tax assessment rests with the taxpayer. An exemption from taxation "must clearly appear, and the party claiming it must be able to point to some provision of law plainly giving the exemption". (People ex rel. Savings Bank of New London v. Coleman, 135 N.Y. 231, 234, 31 N.E. 1022, 1022.) Further, the judicial function is limited. "If there are any facts or reasonable inferences from the facts to sustain it, the court must confirm the Tax Commission's determination. Thus, a determination of the Tax Commission will not be disturbed by the courts unless shown to be erroneous, arbitrary or capricious". (Matter of Grace v. New York State Tax Comm., 37 N.Y.2d 193, 195-196, 371 N.Y.S.2d 715, 718, 332 N.E.2d 886, 888; accord Matter of Young v. Bragalini, 3 N.Y.2d 602, 605-606, 170 N.Y.S.2d 805, 807-808, 148 N.E.2d 143, 145; People ex rel. Hull v. Graves, 289 N.Y....