Wegmans Food Markets, Inc. v. Tax Appeals Tribunal of State

Decision Date27 June 2019
Docket NumberNo. 56,56
Citation131 N.E.3d 876,33 N.Y.3d 587,107 N.Y.S.3d 769
Parties In the Matter of WEGMANS FOOD MARKETS, INC., Respondent, v. TAX APPEALS TRIBUNAL OF the STATE of New York, Respondent, Commissioner of Taxation and Finance of the State of New York, Appellant.
CourtNew York Court of Appeals Court of Appeals
OPINION OF THE COURT

FEINMAN, J.

Tax Law § 1105(c)(1) imposes a sales tax on certain information services, "but exclud[es] the furnishing of information which is personal or individual in nature and which is not or may not be substantially incorporated in reports furnished to other persons." In this CPLR article 78 proceeding, we hold that respondent Tax Appeals Tribunal of the State of New York (the Tribunal) rationally determined that the information services receipts at issue were not excluded from the tax.

I.

Petitioner Wegmans Food Markets, Inc. is a regional supermarket chain that operates throughout New York. Wegmans monitors its competitors' retail prices as part of its pricing strategy. Since 1995, Wegmans has engaged RetailData, LLC to perform such monitoring through competitive price audits (CPAs). Wegmans selects the products and period covered by a CPA and which of its competitors, and their specific locations, RetailData should surveil. RetailData's data collectors then travel to the locations specified in Wegmans's request and collect the information by scanning prices from the store shelves using scanners or smart phones. After collecting the prices, RetailData validates the information, creates reports, and furnishes the reports to Wegmans in its requested format. The CPAs and the resulting reports are kept confidential to prevent Wegmans's competitors from discovering the products it monitors and its pricing strategies.

The New York State Department of Taxation and Finance (the Department) conducted an audit of Wegmans's sales and use tax liability for the period June 2007 through February 2010. During the audit, the Department concluded that Wegmans's purchases of CPAs and the corresponding reports from RetailData were taxable receipts under Tax Law § 1105(c)(1). After the Department issued a notice of determination imposing additional sales tax, Wegmans petitioned the Division of Tax Appeals challenging the determination. Wegmans sought a refund of the money it paid to satisfy the tax liability, arguing that "the services rendered by RetailData qualify as an exempt information service which is ‘personal and individual in nature.’ "

Following an evidentiary hearing, an administrative law judge (ALJ) denied the petition. Upon Wegmans's exception to the ALJ's determination, the Tribunal, among other things, affirmed.

It concluded that the information services at issue do not qualify for section 1105(c)(1)'s exclusion because the data in the CPA reports was culled from supermarket store shelves, which are widely-accessible and contain non-confidential data. In addition, although there was some customization of the information, that process did not render the information personal or individual in nature. Given its determination, the Tribunal declined to reach the exclusion's second requirement, that is, whether the information may be substantially incorporated into reports furnished to RetailData's other clients. Wegmans commenced this CPLR article 78 proceeding against the Tribunal and respondent Commissioner of Taxation and Finance of the State of New York (the Commissioner) in the Appellate Division pursuant to Tax Law § 2016, seeking a judgment annulling the Tribunal's determination.

The Appellate Division granted the petition and annulled the Tribunal's determination. Initially, the Court stated that "in the event of ambiguity, where, as here, an exclusion rather than an exemption is involved, the statute must be strictly construed in favor of the taxpayer" ( 155 A.D.3d 1352, 1354, 65 N.Y.S.3d 296 [3d Dept. 2017] [internal quotation marks and citation omitted] ). The Court recognized "that Matter of Mobil Oil Corp. v. Finance Adm'r of City of N.Y., 58 N.Y.2d 95, 99, 459 N.Y.S.2d 566, 446 N.E.2d 130 (1983) indicates that exclusions are to be construed against the taxpayer" ( 155 A.D.3d at 1354 n. 1, 65 N.Y.S.3d 296 ). However, the Court disagreed with our statement of law, explaining that "the proposition in [Matter of Mobil Oil Corp. ] relies upon precedent that refers to exemptions rather than exclusions" (id. ).

Turning to application of the statutory exclusion, the Court acknowledged that "the pricing information that RetailData collects on [Wegmans's] behalf is information that is available to the public," but nonetheless concluded that "such information does not derive from a singular, widely accessible common source or database as that test has previously been applied and commonly understood in determining the applicability of the subject tax exclusion" ( id. at 1355 ). The Court further determined that "the information furnished to [Wegmans] was uniquely tailored to [its] specifications and was related exclusively to implementation of its confidential pricing strategy" ( id. at 1356 ). Accordingly, Wegmans's "purchase of these information services should have been excluded from taxation" because "the information services that [Wegmans] purchased from RetailData were personal or individual in nature and were not substantially incorporated into reports of others" (id. ).1 We granted the Commissioner leave to appeal from the Appellate Division judgment, and now reverse.

II.

In Matter of Mobil Oil Corp., we concluded: "In the case of statutory exclusions, the presumption is in favor of the taxing power" ( 58 N.Y.2d at 99, 459 N.Y.S.2d 566, 446 N.E.2d 130 ). We reaffirm this straightforward statement of law in light of the Appellate Division's refusal to apply it. By doing so, we neither state a new rule under which "the taxpayer always loses" (concurring op. at 596, 107 N.Y.S.3d at 775, 131 N.E.3d at 882) nor overrule Matter of Grace v. New York State Tax Commn., 37 N.Y.2d 193, 371 N.Y.S.2d 715, 332 N.E.2d 886 [1975], rearg. denied 37 N.Y.2d 816 [1975] ), despite the concurrence's hyperbolic claims to the contrary. We reiterate our settled rule of construction to ensure consistent application of taxing statutes in the face of our colleagues' apparent invitation for continued evasion (see concurring op. at 602, 107 N.Y.S.3d at 779, 131 N.E.3d at 886; Wilson, J., dissenting op. at 604, 107 N.Y.S.3d at 780–81, 131 N.E.3d at 887–88).

In general, "[a] statute which levies a tax is to be construed most strongly against the government and in favor of the citizen" (Matter of Grace, 37 N.Y.2d at 196, 371 N.Y.S.2d 715, 332 N.E.2d 886 [internal quotation marks and citation omitted]; see Matter of Mobil Oil Corp., 58 N.Y.2d at 99, 459 N.Y.S.2d 566, 446 N.E.2d 130 ). "The principle is, however, applicable only in determining whether property, income, a transaction[,] or event is subject to taxation" (Matter of Grace, 37 N.Y.2d at 196, 371 N.Y.S.2d 715, 332 N.E.2d 886 ). "[T]he rule is otherwise with respect to the taxpayers' right to exclude items from taxation" (Matter of Mobil Oil Corp., 58 N.Y.2d at 99, 459 N.Y.S.2d 566, 446 N.E.2d 130 ). In other words, when the matter at issue "is subject to the taxing statute," but the question is whether taxation is negated by a statutory exclusion or exemption, "a different rule applies" (Matter of Grace, 37 N.Y.2d at 196, 371 N.Y.S.2d 715, 332 N.E.2d 886 ). In that instance, "the presumption is in favor of the taxing power" (Matter of Mobil Oil Corp., 58 N.Y.2d at 99, 459 N.Y.S.2d 566, 446 N.E.2d 130 ; see Matter of Grace, 37 N.Y.2d at 196, 371 N.Y.S.2d 715, 332 N.E.2d 886 ).

In defining the applicable rules for construing tax statutes, we have not differentiated between exemptions, exclusions, and deductions (see Matter of 677 New Loudon Corp. v. State of N.Y. Tax Appeals Trib., 19 N.Y.3d 1058, 1060, 955 N.Y.S.2d 795, 979 N.E.2d 1121 [2012], rearg. denied 20 N.Y.3d 1024, 960 N.Y.S.2d 60, 983 N.E.2d 1244 [2013], cert denied 571 U.S. 952, 134 S.Ct. 422, 187 L.Ed.2d 280 [2013] ; Matter of Charter Dev. Co., L.L.C. v. City of Buffalo, 6 N.Y.3d 578, 582, 815 N.Y.S.2d 13, 848 N.E.2d 460 [2006] ).2 Contrary to the Appellate Division's conclusion (see also Matter of Towne–Oller & Assoc. v. State Tax Commn., 120 A.D.2d 873, 874 n., 502 N.Y.S.2d 544 [3d Dept. 1986] ) and Wegmans's argument, our cases in this regard do not turn on syntactical errors conflating these concepts. Rather, we have adopted a functional analysis that affords a singular and workable rule for construing exemptions, exclusions, and deductions, each of which operate to negate the taxpayer's obligation to pay the otherwise applicable tax.

In Matter of Grace, for instance, we concluded that "[t]he same rules apply" to deductions and exemptions because "[a] deduction is functionally a particularized species of exemption from taxation" ( 37 N.Y.2d at 197, 371 N.Y.S.2d 715, 332 N.E.2d 886 ). We explained that "[a]n exemption from taxation" and, therefore, a deduction, "must clearly appear, and the party claiming it must be able to point to some provision of law plainly giving the exemption" ( id. at 196, 371 N.Y.S.2d 715, 332 N.E.2d 886 [internal quotation marks and citation omitted] ). "Indeed, if a statute or regulation authorizing an exemption is found, it will be construed against the taxpayer" (id. [internal quotation marks and citation omitted] ). "This is because an exemption is not a matter of right, but is allowed only as a matter of legislative grace" (id. ). Still, "the interpretation should not be so narrow and literal as to defeat [the exemption's] settled purpose" (id. ).

The concurrence concedes, as it must, that Matter of Grace did "not expressly state that ambiguities in statutory exclusions are interpreted in favor of the taxpayer" (concurring op. at 598, 107 N.Y.S.3d at 776, 131 N.E.3d at 883). Matter of Grace did not make this statement because it is not the law. Rather than...

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