T-Mobile Ne., LLC v. Debellis

• Decision Date: 13 December 2018
• Docket Number: No. 140,140
• Citation: 118 N.E.3d 873,94 N.Y.S.3d 211,32 N.Y.3d 594
• Parties: In the Matter of T–MOBILE NORTHEAST, LLC, Appellant, v. Anthony V. DEBELLIS, as Commissioner of Assessment of the City of Mount Vernon, et al., Respondents, et al., Respondents/Defendants.
• Court: New York Court of Appeals Court of Appeals

32 N.Y.3d 594

118 N.E.3d 873

94 N.Y.S.3d 211

In the Matter of T–MOBILE NORTHEAST, LLC, Appellant,

v.Anthony V. DEBELLIS, as Commissioner of Assessment of the City of Mount Vernon, et al., Respondents, et al., Respondents/Defendants.

No. 140

Court of Appeals of New York.

Decided December 13, 2018

Ingram Yuzek Gainen Carroll & Bertolotti, LLP, New York City (John G. Nicolich and Roger Cukras of counsel), for appellant.

Hodgson Russ LLP, Buffalo (Michael B. Risman, Joel J. Terragnoli and Joseph S. Brown of counsel), and Lawrence A. Porcari, Corporation Counsel, Mount Vernon (Brian Johnson of counsel), for Anthony V. DeBellis and others, respondents.

Ingerman Smith L.L.P., Harrison (Thomas Scapoli of counsel), for The Board of Education for the Mount Vernon City School District and another, respondents.

New York State Conference of Mayors and Municipal Officials, Albany (Rebecca J. L. Ruscito of counsel), and Association of Towns of the State of New York, Albany (Sarah Brancatella of counsel), for New York State Conference of Mayors and Municipal Officials and another, amici curiae.

DLA Piper LLP (US), New York City (Naftali Z. Dembitzer of counsel), for CTIA-The Wireless Association, amicus curiae.

Eversheds Sutherland (US) LLP, New York City (Elizabeth S. Cha and Eric S. Tresh of counsel), for Broadband Tax Institute, amicus curiae.

OPINION OF THE COURT

Chief Judge DiFIORE.

This dispute over whether certain telecommunications equipment is taxable property comes to us in the wake of historic and fundamental changes in the telecommunications industry during the last century prompting a legislative overhaul of the Real Property Tax Law (RPTL), including the enactment of RPTL 102(12)(i). Under that statute, certain "lines, wires, poles, supports and inclosures for electrical conductors" used for transmission of electromagnetic data qualify as taxable real property. We are asked to decide whether certain large cellular data transmission equipment owned by petitioner T–Mobile Northeast, LLC (T–Mobile) and mounted to the exterior of buildings throughout its service area in Mount Vernon constitutes taxable real property under the RPTL. Because we agree with respondent tax authorities and the Appellate Division that the equipment is taxable pursuant to RPTL 102(12)(i), we affirm the Appellate Division order.

I.

To provide necessary context for the discrete statutory interpretation issue at the heart of this appeal, we review the evolution of the statutory scheme and the events that have driven it. The telecommunications industry operated as a regulated monopoly until the divestment of American Telephone & Telegraph Company (AT & T) in 1982. Prior to that critical shift, AT & T dominated the market, supplying almost all telephone service nationwide. Long-distance service was provided through its Long Lines department and local exchange service through the Bell System – a network of subsidiary operating companies, each serving a different geographic region.

During this period, the network of equipment constituting the telephone system was generally taxable under the RPTL. Former RPTL 102(12)(d) defined as taxable real property "[t]elephone and telegraph lines, wires, poles and appurtenances; supports and inclosures for electrical conductors and other appurtenances, upon, above and under ground." Prior to 1975, the term "appurtenances" was broadly interpreted to encompass essentially all equipment involving use of telephone lines, whether located on telephone company property or customer premises, even when it was detachable and otherwise would have been treated as personalty (see State Board of Equalization and Assessment, Report to Governor Mario M. Cuomo on the Taxation of Telecommunications Property at 6 [Jan.1985], available at https://www.tax.ny.gov/pdf/publications/orpts/taxation _telecommunications_prop.pdf [hereinafter 1985 SBEA Report]; see also Matter of Crystal v . City of Syracuse, Dept. of Assessment, 47 A.D.2d 29, 31, 364 N.Y.S.2d 618 [4th Dept. 1975], affd 38 N.Y.2d 883, 382 N.Y.S.2d 745, 346 N.E.2d 546 [1976], citing Matter of New York Telephone Co. v . Ferris, 282 N.Y. 667, 26 N.E.2d 805 [1940] and Matter of New York Telephone Co. [Canough], 290 N.Y. 537, 49 N.E.2d 999 [1943] ). Until 1969, these taxable "appurtenances" were typically owned by the telephone utility because the Federal Communications Commission (FCC) required that a telephone company furnish all equipment connected to its service (see FCC Tariff No. 132). Thus, telephones, private branch exchanges, and associated wiring on customer property – referred to in the industry as "customer premises equipment" (CPE) – were owned by the telephone utility that owned the lines supplying service and whatever equipment it connected to the service on its own property.

However, beginning in the 1960s, a series of regulatory and legal changes resulted in greater competition in the telecommunications markets, leading to significant restructuring of the industry. This, in turn, raised questions about the taxability of certain equipment. First, the FCC invalidated the requirement that telephone customers use only utility-issued equipment, allowing customers to connect privately-purchased or leased telephones at their premises (see In the Matter of Use of the Carterfone Device in Message Toll Tel. Serv., 13 FCC2d 420, 425 [1968] ). Then, in 1975, in Matter of Crystal v . City of Syracuse, Dept. of Assessment , 38 N.Y.2d 883, 382 N.Y.S.2d 745, 346 N.E.2d 546 [1976], we affirmed an Appellate Division order holding that customer-owned telephones were not taxable under RPTL 102(12)(d), at least where not "incorporated as part of the real estate." As the Appellate Division explained in Crystal, when it enacted RPTL 102(12)(d), the Legislature intended to expand the definition of real property when owned by a utility ( Matter of Crossman Cadillac v. Board of Assessors of County of Nassau, 44 N.Y.2d 963, 964, 408 N.Y.S.2d 326, 380 N.E.2d 157 [1978], citing Crystal, 47 A.D.2d at 31, 364 N.Y.S.2d 618 ). Thus, under this interpretation of section 102(12)(d), equipment that would not be taxable if owned by the customer or leased to the customer by a non-utility was taxable when owned by a telephone utility.

After Crystal, the scope of RPTL 102(12)(d) was narrowed even further by judicial decisions holding that it did not encompass a removable system of privately-owned telephone equipment on customer premises ( Crossman Cadillac, 44 N.Y.2d at 964–65, 408 N.Y.S.2d 326, 380 N.E.2d 157 ) or cable television equipment owned by a television company ( Matter of Manhattan Cable TV Servs., Div. of Sterling Info. Servs. v. Freyberg, 49 N.Y.2d 868, 427 N.Y.S.2d 933, 405 N.E.2d 178 [1980] ; see also Matter of Cablevision Sys. Dev. Co. v. Board of Assessors of County of Nassau, 98 A.D.2d 818, 470 N.Y.S.2d 37 [2d Dept. 1983] ; Matter of American Cablevision of Rochester v. Jacobs, 101 A.D.2d 65, 474 N.Y.S.2d 653 [4th Dept. 1984] ). Thus, by 1984, only utility-owned equipment was taxable under RPTL 102(12)(d). Additionally, technological advancements and deregulation in the CPE and telephone service markets resulted in a more diverse range of property ownersin the industry, which – because the taxable status of certain equipment turned on its ownership by traditional utilities – further threatened the tax base and created a system of unequal taxation.

Throughout this period, AT & T was the target of antitrust litigation resulting in a settlement under which AT & T would divest itself of its Bell System local-service operating companies ( U.S. v. American Tel. and Tel. Co., 552 F.Supp. 131, 140–141 [D.D.C. 1982] ). Thereafter, AT & T provided only long-distance service and the Bell System operating companies reorganized as independent regional companies providing local service. In addition to accelerating the growth of competition spawned by deregulation, the divesture further complicated taxation of CPE. The FCC permitted AT & T to participate in the deregulated, competitive CPE market only through a fully separated subsidiary – AT & T Information Systems (ATTIS) (see Matter of Procedures for Implementing the Detariffing of Customer Premises Equip. & Enhanced Servs. [Second Computer Inquiry], 95 FCC2d 1276 [1983] ). The CPE owned and leased to customers by ATTIS was not taxable under New York law because the subsidiary was not a utility – but CPE leased by telephone utilities not required to use a subsidiary was taxable (1985 SBEA Report at 9).

Because the transfer of CPE to ATTIS threatened to significantly impact state tax revenue, the Legislature enacted a temporary measure in 1984 providing that any CPE and central office equipment taxable in 1983 that was transferred to another owner engaged in the sale or lease of such equipment (such as ATTIS) would be taxable "notwithstanding whether such transferee is considered a utility" (L 1984, ch 895). That same year, ATTIS brought an equal protection challenge asserting that the statute was discriminatory because it treated ATTIS differently from other CPE owners and suppliers – a challenge that was ultimately sustained ( AT & T Info. Sys. v. City of New York, 137 A.D.2d 7, 527 N.Y.S.2d 10 [1st Dept. 1988], affd sub nom. AT & T Info. Sys. v. City of New York, 73 N.Y.2d 842, 537 N.Y.S.2d 482, 534 N.E.2d 320 [1988] ).

II.

Thus, throughout the 1970s and early 1980s, the propriety of the RPTL's treatment of telecommunications equipment had increasingly come under scrutiny and the scheme's apparently unequal treatment of different types of owners was called into doubt. The State sought to clarify the taxability of such property and to develop a comprehensive legislative solution. At the direction of the Governor, after meeting with industry representatives, academics, and government officials, the State Board of Equalization and Assessment (SBEA) issued a 1985 report with recommendations to address the problem (1985 SBEA Report at 1). The SBEA Report...