Parsons v. State Tax Commission

• Decision Date: 15 May 1974
• Citation: 356 N.Y.S.2d 593,313 N.E.2d 57,34 N.Y.2d 190
• Parties: , 313 N.E.2d 57 In the Matter of Lewis C. PARSONS et al., Appellants, v. STATE TAX COMMISSION, Respondent.
• Court: New York Court of Appeals Court of Appeals

Page 593

356 N.Y.S.2d 593

34 N.Y.2d 190, 313 N.E.2d 57

In the Matter of Lewis C. PARSONS et al., Appellants, v. STATE TAX COMMISSION, Respondent.

Court of Appeals of New York.

May 15, 1974.

Andrew Halloran, North Creek, and John C. Lemery, Glens Falls, for Andrew Desmond Fitzgerald and Lewis C. Parsons, appellants.

Lambert L. Ginsberg, Troy, for Paul V. Piedmont, appellant.

Louis J. Lefkowitz, Atty. Gen. (Vincent P. Molineaux and Ruth Kessler Toch, Albany, of counsel), for respondent.

SAMUEL RABIN, Judge.

Petitioners are officers and directors of a corporation which properly filed its sales tax returns but failed to pay the amounts due. In its efforts to recover the taxes admittedly owing, the respondent State Tax Commission proceeded against petitioners individually by serving them with notices of determination and demand for the taxes and holding hearings pursuant to the notices. Claiming that the commission is acting in excess of its statutory authority, petitioners brought this CPLR article 78 proceeding to prohibit administrative action pursuant to the notices. They assert that since the corporation filed correct returns and since there is no dispute as to the amounts owing, the commission lacks authority to employ its administrative procedure. Its remedies for recovery of the taxes from them are claimed to be limited by statute to plenary suit for collection and the warrant procedures set forth in section 1141 of the Tax Law, Consol.Laws, c. 60.

The facts are undisputed. Parsons of Glens Falls, Inc., a corporation engaged in the sale and rental of automobiles, duly filed returns for sales taxes it collected for four quarters from December 1, 1968 to November 30, 1969. The Tax Commission does not contest the correctness or sufficiency of the amounts stated to be due on the returns, totaling approximately $90,000. During the period for which the taxes have not been paid, petitioners were all officers or directors of the corporation, which has since sought an adjudication in bankruptcy.

In November of 1970, the respondent served each of the individual petitioners with a 'Notice of Determination and Demand Under Jeopardy for Payment of Sales and Use Taxes Due' for the full amount of the tax liability. The notices stated that the tax due had been determined in accordance with section 1138 of the Tax Law. This first notice was canceled and replaced by a second, dated January 20, 1971, again for the full amount of the tax due. This time the notice stated that the named individual was personally liable for the tax under subdivision 1 of section 1131 and section 1133 of the Tax Law. Both notices informed that the tax determination would be final unless an application for a hearing were filed with the commission within 90 days from the date of the notice. All but one of the petitioners requested a hearing.

When the hearings began on March 16, 1971, petitioners protested that since the corporation had filed returns containing correct computations of taxes owing, the commission lacked authority both to have issued the notices of determination against them and to conduct administrative hearings pursuant to the notices. The hearings proceeded, however, after the hearing officer stated that he lacked authority to rule on a question of law. Two days later the hearings were adjourned due to illness of counsel for the commission. Petitioners then commenced the instant article 78 proceeding alleging that the commission was acting in excess of its jurisdiction. Petitioners do not assert that the commission lacks power to proceed against them as persons who may be liable for the tax, but only that the method it has employed to recover the tax from them lacks statutory authorization.

Special Term granted petitioners' motion for summary judgment, canceled the notices of determination and restrained the Tax Commission from continuing the hearings arising from the notices. The court ruled that while the procedure employed by the commission might be worthy of recommendation to the Legislature, there was no present statutory support for it. The Appellate Division reversed, finding authority for the administrative procedure in section 1138 of the Tax Law and in the general powers granted to the commission in subdivision 6 of section 1142, '(t)o assess, determine, revise and readjust the taxes imposed by this article'.

We agree with Special Term that the Tax Commission exceeded its statutory authority in proceeding administratively against petitioners after the corporation had filed returns containing correct computations of tax liability. We can find no support in the provisions of the Tax Law relied upon by the commission for the use of its administrative procedure in this case.

The authority granted the commission to assess and collect sales taxes is found in the administrative provisions of part IV of article 28 of the Tax Law (§§ 1131--1148). The commission claims that the use of administrative process against petitioners is sanctioned by the Tax Law (§ 1131, subd. (1); §§ 1133, 1138, 1142, subd. 6). Inspection of these particular provisions fails to sustain this assertion. Subdivision (1) of section 1131 contains the definition of 'Persons required to collect tax'. It includes 'any officer or employee of a corporation or of a dissolved corporation who as such officer or employee is under a duty to act for such corporation in complying with any requirement of this article'. Section 1133, in relevant part (subd. a) provides that '(e)very person required to collect any tax imposed by this article shall be personally liable for the tax imposed, collected or required to be collected under this article'. We do not on this appeal reach the issue of whether petitioners as officers and directors of the corporation at the time the unpaid taxes were required to be collected are 'persons required to collect tax' as defined in subdivision (1) of section 1131 and therefore personally liable by virtue of subdivision (a) of section 1133. We consider only the proper Remedies available to the commission to recover taxes from such persons and note that neither subdivision (1) of section 1131 nor section 1133 of the Tax Law empowers the commission to issue notices of determination and hold hearings pursuant to those notices.

The sole provision for the administrative procedure which the commission seeks to employ against petitioners is contained in section 1138. That section authorizes the commission to determine the amount of tax due, notify the persons it deems liable and conduct hearings if requested--but only in two specified circumstances, neither of which is present in this case. Subdivision (a) of section 1138 authorizes the administrative procedure '(i)f a return required by this article is not filed, or if a return when filed is incorrect or insufficient'. As previously indicated, correct and sufficient returns for the amounts owing were duly filed by the corporation.

The second situation in which the administrative procedure is authorized is set forth in subdivision (b) of section 1138. It provides that '(i)f the tax commission believes that the collection of any tax will be jeopardized by delay it may determine the amount of such tax and assess the same * * * against any person liable therefor Prior to the filing of his return and prior to the date when his return is required to be filed' (emphasis added). In this case, while the likelihood of...