El Paso Corporation v. New York State Department of Taxation and Finance

• Decision Date: 16 January 2007
• Docket Number: 2005-04201.
• Citation: 828 N.Y.S.2d 209,2007 NY Slip Op 00265,36 A.D.3d 655
• Parties: EL PASO CORPORATION et al., Appellants, v. NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE et al., Respondents.
• Court: New York Supreme Court — Appellate Division

36 A.D.3d 655

828 N.Y.S.2d 209

2007 NY Slip Op 00265

EL PASO CORPORATION et al., Appellants, v. NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE et al., Respondents.

2005-04201.

Appellate Division of the Supreme Court of the State of New York, Second Department.

Decided January 16, 2007.

In an action, inter alia, for a judgment declaring that the defendants exceeded their authority in assessing a real estate transfer tax on certain transfers of property, the plaintiffs appeal, as limited by their brief, from so much of an order of the Supreme Court, Westchester County (Bellantoni, J.), entered April 12, 2005, as granted those branches of the defendants' motion which were pursuant to CPLR 3211 (a) to dismiss the first and second causes of action of the complaint, and denied, as academic, those branches of their cross motion which for summary judgment on those causes of action.

Ordered that the order is modified, on the law, by deleting the provision thereof granting that branch of the defendants' motion which was to dismiss the first cause of action, and substituting therefor a provision denying that branch of the motion; as so modified, the order is affirmed insofar as appealed from, without costs or disbursements, upon searching the record, the defendants are awarded summary judgment on the plaintiff's first cause of action, and the matter is remitted to the Supreme Court, Westchester County, for the entry of judgment declaring that the subject easements constitute interests in real property subject to the jurisdiction of the New York State Department of Taxation and Finance for purposes of assessment of the New York real estate transfer tax.

Through a series of corporate transactions, the plaintiffs came into ownership of two natural gas pipelines within the State of New York, together with the easements in which those pipelines are located. The defendant New York State Department of Taxation and Finance (hereinafter the Department) determined that the acquisition of the easements was subject to the real estate transfer tax (Tax Law § 1400 et seq.), and notified the plaintiffs accordingly. In response, the plaintiffs commenced this action for a declaratory judgment.

The real estate transfer tax is imposed on any "conveyance of real property or interest therein" (Tax Law § 1402 [a]). There is no dispute that the transactions by which the plaintiffs came into ownership of the easements constituted conveyances within the meaning of the taxing statute (see Tax Law § 1401 [e]). The issues presented are whether the Department's determination to impose the tax may be adjudicated in this action and, if so, whether the easements constitute real property subject to such taxation. We conclude that the plaintiffs' claim that the easements are not subject to the real estate transfer tax is properly raised by this action, but that claim is incorrect as a matter of law, and that the plaintiffs' remaining claims are not properly presented here.

Actions by taxing officers may be reviewed only in the manner prescribed by statute (see Bankers Trust Corp. v New York City Dept. of Fin., 1 NY3d 315, 321 [2003]). The relevant statutes provide that the Department's determinations with respect to imposition of the real estate transfer tax are subject to judicial review in a proceeding pursuant to CPLR article 78 only after the Department's appeals process is exhausted (see Tax Law §§ 1411, 1413, 2016). Nevertheless, even where a tax statute imposes such requirements, a court may entertain an action for a declaratory judgment where the tax statute is alleged to be unconstitutional or is challenged as "wholly inapplicable" (Bankers Trust Corp. v New York City Dept. of Fin., supra at 321, quoting Matter of First Natl. City Bank v City of N.Y. Fin. Admin., 36 NY2d 87, 92 [1975]; see Slater v Gallman, 38 NY2d 1 [1975]).

"To challenge a statute as wholly inapplicable, the taxpayer must allege that the agency had no jurisdiction over it or the matter that was taxed" (Bankers Trust Corp. v New York City Dept. of Fin., supra at 322; see National Bank of Chemung v City of Elmira, 53 NY 49, 59 [1873]; Debevoise & Plimpton v New York State Dept. of Taxation & Fin., 149 Misc 2d 571 [1991], affd 183 AD2d 521 [1992], affd 80 NY2d 657 [1993]). The plaintiffs' argument that the easements do not constitute an interest in real property within the meaning of the statute is such a claim and, therefore, this declaratory judgment action for a determination of that claim is proper (see Bankers Trust Corp. v New York City Dept. of Fin., supra at 322; Debevoise & Plimpton v New York State Dept. of Taxation & Fin., supra at 574).

Accordingly, the Supreme Court should not have dismissed the plaintiffs' first cause of action but,...