New York Ass'n of Convenience Stores v. Urbach

• Decision Date: 09 July 1998
• Citation: 699 N.E.2d 904,677 N.Y.S.2d 280,92 N.Y.2d 204
• Parties: , 699 N.E.2d 904, 1998 N.Y. Slip Op. 6989 In the Matter of NEW YORK ASSOCIATION OF CONVENIENCE STORES, et al., Respondents-Appellants, v. Michael H. URBACH, as Commissioner of the Department of Taxation and Finance of the State of New York, et al., Appellants-Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 280

677 N.Y.S.2d 280

92 N.Y.2d 204, 699 N.E.2d 904, 1998

N.Y. Slip Op. 6989

In the Matter of NEW YORK ASSOCIATION OF CONVENIENCE STORES et al., Respondents-Appellants, v. Michael H. URBACH, as Commissioner of the Department of Taxation and Finance of the State of New York, et al., Appellants-Respondents.

Court of Appeals of New York.

July 9, 1998.

Dennis C. Vacco, Atty. Gen., Albany (Andrew D. Bing, Barbara G. Billet and Peter H. Schiff, of counsel), for appellants-respondents.

Crane, Kelley, Greene & Parente, Albany (David M. Cherubin and James B. Crane, II, of counsel), for respondents-appellants.

Michael J. Hutter, Albany, for Independent Petroleum Marketers of New York, amici curiae.

Roland, Fogel, Koblenz & Petroccione, L.L.P., Albany (Emilio Petroccione and Usher Fogel, of counsel), for Empire State Petroleum Association, Inc., amicus curiae.

Dorsey & Whitney, L.L.P., New York City (Patrick J. Feeley and Thomas J. Peckham, of counsel), for Seneca Nation of Indians, amicus curiae.

OPINION OF THE COURT

TITONE, Judge.

The present appeal represents yet another chapter in the long-standing dispute over the enforcement of New York's cigarette and motor fuel taxes as applied to sales made on Indian reservations located within the State. Having spent over a decade litigating its right to collect such taxes, the State Department of Taxation and Finance has recently changed course and adopted a policy of forbearance. This proceeding, brought by competitors of the Indian reservation retailers who have benefitted from that policy, seeks a judicial directive compelling the State to resume tax enforcement with respect to that group.

Articles 12-A, 20 and 28 of the Tax Law impose sales and excise taxes on cigarettes and motor fuel sold within the State. In general, these taxes are collected through a system of prepayments and are then passed along the distribution chain to the ultimate consumers. Preemptive Federal law forbids collection of these taxes on goods sold on Indian reservations to enrolled tribal members (Moe v. Salish & Kootenai Tribes, 425 U.S. 463, 483, 96 S.Ct. 1634, 48 L.Ed.2d 96). However, when the goods are sold on the reservation to non-Indian consumers, the taxes may be collected (see, Washington v. Confederated Tribes, 447 U.S. 134, 100 S.Ct. 2069, 65 L.Ed.2d 10; Moe v. Salish & Kootenai Tribes, supra ).

In 1988, the State Department of Taxation and Finance promulgated a series of administrative regulations to facilitate collection of sales and excise taxes on reservation sales. Under these regulations, Indian tribes, traders and on-reservation retailers were to be allotted a specific quantity of cigarettes and motor fuel for which the taxes had not been prepaid. The allotted amounts were to be based on estimates of the demand for otherwise taxable goods by reservation members (see, 20 NYCRR 336.6, 336.7 [cigarette excise tax], 414.6, 414.7 [motor fuel excise tax], 435.1, 435.2 [diesel motor fuel excise tax], 561.17 [prepaid sales tax on motor fuel], 562.2 [prepaid sales tax on diesel motor fuel], 564.2 [prepaid sales tax on cigarettes] ). The State's efforts to implement these regulations were suspended, however, pending the disposition of litigation challenging their validity. ¹

That litigation was finally resolved in 1994, when the United States Supreme Court held that the State's regulations were not preempted by the Federal Indian Trader Statutes (Department of Taxation & Fin. of N.Y. v. Milhelm Attea & Bros., 512 U.S. 61, 114 S.Ct. 2028, 129 L.Ed.2d 52; see, 25 U.S.C. § 261 et seq.). Having concluded that "Indian traders are not wholly immune from state regulation that is reasonably necessary to the assessment or collection of lawful state taxes," the Court reasoned that New York's system of collecting taxes "early in the distribution stream" and imposing a quota on untaxed goods available for sale to reservation members was an acceptable method of preventing tax evasion (id., at 75, 114 S.Ct. 2028). The Court stressed, however, that its analysis was limited to the particular challenge before it, which was "essentially a facial one," and that its ruling did not address "each feature of New York's tax enforcement scheme that might affect tribal self-government or federal authority over Indian affairs," nor did it address the possibility that the State allocations of untaxed goods were not "sufficiently generous to satisfy legitimate [reservation member] demands" (id., at 69, 114 S.Ct. 2028).

What occurred after the United States Supreme Court's decision was handed down is described in affidavits submitted by several State officials responsible for intergovernmental policies relating to Indian nations and tribes. According to these affidavits, an Implementation Task Force that had been created in response to the decision issued Tax Department Notice N-94-16 (Sept. 1994), which stated that enforcement of the regulations approved in Milhelm Attea & Bros. (supra ) would be delayed until the next sales tax quarter. The reasons given for this delay included the need to finalize the plan's technical details, the need to assess the regulations against the "several potential legal obstacles to enforcement" that had been highlighted by the Supreme Court's opinion and, finally, the pendency of "serious discussions with several Indian Nations regarding our respective sovereign concerns."

The following quarter passed without implementation of the regulations. In August of 1995, several nonreservation convenience stores and their representative associations commenced the present proceeding. The petition sought an order directing the Tax Department "to immediately determine, assess, collect and enforce all New York State cigarette excise and sales taxes and New York State motor fuel excise and sales taxes applicable to on-reservation Indian retailers * * * and otherwise uniformly enforce New York State cigarette and motor fuel tax laws and regulations." Petitioners alleged that both their own competitive interests and the interests of all New York State taxpayers were being impaired by the Tax Department's differential enforcement of those taxes.

Respondents promptly moved to dismiss the petition on the ground that petitioners lacked standing to assert their grievance. Supreme Court rejected respondents' arguments, however, holding that petitioners' standing could be upheld under the analysis utilized by this Court in Matter of Dudley v. Kerwick, 52 N.Y.2d 542, 439 N.Y.S.2d 305, 421 N.E.2d 797; see, Matter of New York Assn. of Convenience Stores v. Urbach, 169 Misc.2d 906, 646 N.Y.S.2d 918.

Respondents' next motion was one for dismissal on the ground that the controversy was not justiciable. Supreme Court treated this request for relief as a motion for summary judgment (see, CPLR 3211[c] ) and, reaching the merits, held that the Tax Department's "failure to enforce the Tax Laws against some to whom they apply * * * is unconstitutional" and inconsistent with " 'a government of laws.' " The court directed equal implementation and enforcement of the tax laws "respecting sales of tobacco products and motor fuel by Indians to non-Indian retail consumers on Indian reservations," granted the State a 120-day stay of that order and, finally, directed that collection of all cigarette and motor fuel sales and excise taxes be suspended if implementation did not occur by the end of the stay period.

On appeal, a three-Justice majority at the Appellate Division agreed that petitioners had standing. However, the Court based its decision on the alternative theory that the favorable treatment afforded to businesses involved in on-reservation motor fuel and cigarette sales represented a "denial of equal treatment" and that this denial "establishe[s] petitioners' standing" (230 A.D.2d 338, 343, 658 N.Y.S.2d 468). Finding that the Tax Department's differential enforcement policy was based upon the suspect classification of race, the Court went on to hold that none of the rationales for the policy that respondents had proffered was sufficient to satisfy the government's heavy burden of showing that the policy was " ' "both constitutionally permissible and substantial, and that its use * * * is 'necessary * * * to the accomplishment' of its purpose or the safeguarding of its interest" ' " (id., at 342, 658 N.Y.S.2d 468, quoting Regents of Univ. of Cal. v. Bakke, 438 U.S. 265, 305, 98 S.Ct. 2733, 57 L.Ed.2d 750). Accordingly, like Supreme Court, the Appellate Division majority held that the Tax Department's nonenforcement policy was impermissible. ² Respondents appealed as of right pursuant to CPLR 5601(a) and (b)(1). We now conclude that the Appellate Division erred in applying the high degree of scrutiny reserved for governmental classifications based on race and other suspect classifications and that its order must be reversed.

With respect to the threshold question of petitioners' standing, we agree with the Appellate Division's conclusion that their grievance was essentially an equal protection claim based on differential enforcement of the tax laws and that, as members of the disadvantaged class, petitioners have a right to seek judicial resolution of that claim (see, Regents of Univ. of Cal. v. Bakke, supra, at 280-282, n. 14, 98 S.Ct. 2733 [opn per Powell, J.], cited with approval in Northeastern Fla. Ch. of Associated Gen. Contrs. v. City of Jacksonville, 508 U.S. 656, 665, 113 S.Ct. 2297, 124 L.Ed.2d 586). We find no merit in re...