Tug Buster Bouchard Corp. v. Wetzler

• Decision Date: 04 January 1996
• Citation: 217 A.D.2d 192,635 N.Y.S.2d 803
• Parties: In the Matter of TUG BUSTER BOUCHARD CORPORATION et al., Respondents, v. James W. WETZLER, as Commissioner of the New York State Department of Taxation and Finance, Appellant.
• Court: New York Supreme Court — Appellate Division

Page 803

635 N.Y.S.2d 803

217 A.D.2d 192

In the Matter of TUG BUSTER BOUCHARD CORPORATION et al., Respondents, v. James W. WETZLER, as Commissioner of the New York State

Department of Taxation and Finance, Appellant.

Supreme Court, Appellate Division,

Third Department.

Jan. 4, 1996.

Dennis C. Vacco, Attorney General (John McConnell, of counsel), Albany, for appellant.

Schulz & Associates (Craig B. Greenfield, of counsel), Melville, for respondents.

Before MIKOLL, J.P., and MERCURE, CREW, YESAWICH and SPAIN, JJ.

CREW, Justice.

Appeal from a judgment of the Supreme Court (Canfield, J.), entered July 27, 1994 in Albany County, which partially granted petitioners' application, in a proceeding pursuant to CPLR article 78, to, inter alia, cancel notices of deficiency issued by the Department of Taxation and Finance against petitioners under Tax Law article 13-A and declared Tax Law § 301 unconstitutional.

Petitioners are corporations duly organized and existing under the laws of this State that provide barge and/or towing services within New York Harbor and other ports located along the eastern seaboard of the United States. The vessels operated by petitioners are powered by petroleum fuel purchased from various out-of-State suppliers. In September 1991, the Department of Taxation and Finance conducted an audit of petitioners for the period January 1984 through August 1990, at the conclusion of which the Department issued an assessment in the aggregate amount of $258,313.74, including interest and penalties, pursuant to Tax Law article 13-A, commonly known as the "Tax on Petroleum Businesses" (see, Tax Law § 300 et seq.). This assessment was based upon a finding that, during the relevant period, petitioners had purchased fuel in New Jersey and thereafter imported and consumed such fuel in this State without paying the requisite "privilege" tax pursuant to Tax Law § 301. Petitioners subsequently requested conciliation conferences and filed timely objections to the notices of deficiency.

In November 1992, without having participated in any conciliation conferences, petitioners commenced this CPLR article 78 proceeding seeking cancellation of the notices of deficiency, a declaration that Tax Law § 301 facially discriminates against interstate commerce in violation of the Commerce Clause and 42 USC § 1983, and counsel fees pursuant to 42 USC § 1988. Respondent thereafter moved to dismiss the petition contending, inter alia, that petitioners had failed to exhaust their administrative remedies. Supreme Court denied the motion, finding that petitioners' constitutional challenge fell within an exception to the exhaustion rule and that the petition stated a cause of action. ¹ Thereafter, by judgment entered July 27, 1994, Supreme Court granted petitioners' application to the extent that it canceled the notices of deficiency, declared Tax Law § 301 facially discriminatory against interstate commerce and awarded petitioners costs. This appeal by respondent ensued.

Insofar as is relevant to this appeal, Tax Law § 301(a)(1) provides that:

Notwithstanding any other provision of this chapter, or of any other law, for taxable years commencing on or after [April 1, 1984] * * * and ending with (but not including) taxable years commencing on and after [September 1, 1990] * * * there is hereby imposed upon every petroleum business, for the privilege of engaging in business, doing business, employing capital, owning or leasing property, or maintaining an office in this state, for all or any part of each of its taxable years, an annual tax equal to two and three-quarters per centum * * * of (i) its gross receipts from sales of petroleum where shipments are made to points within the state, (ii) the consideration given or contracted to be given by it for petroleum (other than aviation fuel) which it imported or caused to be imported (by a person other than one which is subject to tax under this article) into this state for consumption by it in this state, and (iii) the consideration given or contracted to be given by it for aviation fuel consumed by it in this state. In no event shall the tax imposed * * * be less than [$250].

During the relevant time period, the phrase "petroleum business" encompassed "every corporation * * * regularly engaged in importing or causing to be imported (by a person other than one which is subject to tax under this article) petroleum into this state for consumption by it in this state" (Tax Law § 300 [former (c) ]; see, L 1984, ch 67, § 1).

It is well settled that a state taxing statute challenged under the Commerce Clause may be sustained if "the tax is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State" (Complete Auto Tr. v. Brady, 430 U.S. 274, 279, 97 S.Ct. 1076, 1079, 51 L.Ed.2d 326; accord, Goldberg v. Sweet, 488 U.S. 252, 257, 109 S.Ct. 582, 586, 102 L.Ed.2d 607). As petitioners do not argue that the statute at issue runs afoul of the substantial nexus, apportionment or fair relation requirements, our inquiry on appeal distills to whether the tax at issue discriminates against interstate commerce. To that end, the US Supreme Court has instructed that a taxing statute "may violate the Commerce Clause if it is facially discriminatory, has a discriminatory intent, or has the effect of unduly burdening interstate commerce" (Amerada Hess Corp. v. Director, Div. of Taxation, N.J. Dept. of Treasury, 490 U.S. 66, 75, 109 S.Ct. 1617, 1622-23, 104 L.Ed.2d 58). In this regard, discrimination means dissimilar treatment of in-State and out-of-State economic interests, benefiting the former and burdening the latter (see, Chemical Waste Mgt. v. Hunt, 504 U.S. 334, 340-342, 112 S.Ct. 2009, 2012-2014, 119 L.Ed.2d 121).

On appeal, respondent argues that Tax Law § 301 is not facially discriminatory because its "net practical effect"...