Lincoln First Commercial Corp. v. New York State Tax Com'n
| Decision Date | 24 July 1987 |
| Citation | 136 Misc.2d 478,518 N.Y.S.2d 904 |
| Court | New York Supreme Court |
| Parties | LINCOLN FIRST COMMERCIAL CORPORATION, Plaintiff, v. NEW YORK STATE TAX COMMISSION, City of New York Department of Taxation and Finance, Philip Morris, Inc., Brown & Williamson Industries, Inc., R.J. Reynolds Industries, Inc., the American Tobacco Company, Lorillard Corporation, City of New York, Peerless Insurance Company American Manufacturers Mutual Insurance Company, Philip R. Ruta, Concetta Ruta, Henry Palumbo, Lillian Palumbo, Ernest Palumbo, Lenore Palumbo, the State of New York, St. Paul Fire & Marine Insurance Company and Lumbermens Mutual Casualty Company, Defendants. |
Margolis & Ryan, New York City, for Lincoln First Commercial corp.
Robert Abrams, Atty.Gen., New York City, for N.Y.S. Tax Com'n.
Peter L. Zimroth, Corp. Counsel, New York City, for City of New York.
Hart & Hume, New York City, for American Manufacturers Mut. Ins. Co., St. Paul Fire & Marine and Lumbermens Mut. Cas. Co.
Gottesman, Wolgel, Smith & Secunda P.C., New York City, for Peerless Ins. Co.
Arutt, Nachamie, Benjamin, Lipkin & Kirschner, P.C., New York City, for Philip Ruta, Concetta Ruta, Henry Palumbo, Lilliam Palumbo, Ernest Palumbo, Lenore Palumbo.
Anes, Friedman, Leventhal & Rubin, New York City, for R.J. Reynolds Inc., American Tobacco Co., Lorillard Corp.
Conboy, Hewitt, O'Brien & Boardman, New York City, for Philip Morris Inc.
Plaintiff moves for partial summary judgment pursuant to CPLR § 3212(e). Defendants New York State Tax Commission ("State") and City of New York Department of Taxation and Finance ("City") informally cross move for summary judgment.
Plaintiff is a commercial lending corporation which advanced funds to Joseph Schrager, Inc. ("Schrager"), a wholesale distributor of cigarettes in the New York Metropolitan area. In return for advancing funds to Schrager, plaintiff received a security interest in Schrager's general intangibles and proceeds thereof which was perfected on October 26, 1977. Plaintiff and Schrager then executed a supplemental security agreement which granted plaintiff a security interest in Schrager's inventory. This security interest was perfected in March 1978. Schrager filed for bankruptcy in December 1978. Pursuant to an order of the Bankruptcy Court, plaintiff was permitted to liquidate Schrager's inventory of cigarettes and establish two escrow accounts. The right to possession of these two escrow accounts is the subject of this action. Plaintiff requested and received permission from the Bankruptcy Court to commence this action for a declaratory judgment on April 15, 1980.
Plaintiff's right to possess one of the two escrow accounts is challenged by both the State and the City. One of these escrow accounts consists of the proceeds from the sale of inventory covered by plaintiff's security interests. Manufacturers of the cigarettes sold to Schrager did at one time claim an interest in this inventory but have not presented opposition to plaintiff's motion for partial summary judgment. The second escrow account includes the proceeds of the sale of the tax stamps affixed to the cigarette boxes. Both the State and the City claim an interest in this account which is superior to plaintiff's.
Pursuant to § 473 of the New York Tax Law and Title D of Chapter 46 of the Administrative Code of the City of New York, cigarettes may not be sold in New York State and City without a tax stamp affixed to it. Pursuant to D46-4.0(b) of the Administrative Code and § 472 of the New York Tax Law, Schrager was an agent of the City and State for the collection of the cigarette tax through the act of affixing the tax stamps. Schrager was required to post a bond in order to maintain its status as an agent and also to apply for a license to operate as a wholesaler of cigarettes (State of New York v. Peerless Ins. Co., 108 A.D.2d 385, 489 N.Y.S.2d 213, affd., 67 N.Y.2d 845, 501 N.Y.S.2d 651, 492 N.E.2d 779). In addition, pursuant to § 472 of the Tax Law, the State allowed Schrager thirty days in which to pay for the tax stamps. While the City and State did extend this credit to Schrager, Schrager paid for several series of these tax stamps with checks which were subsequently dishonored. Between November-December 1978, the State issued four Notices of Determination of Tax Due against Schrager.
Plaintiff contends that since its security interest...
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