Young v. Gerosa

• Decision Date: 21 June 1960
• Citation: 11 A.D.2d 67,202 N.Y.S.2d 470
• Parties: Application of Charles L. YOUNG and John J. Barry doing business as Roosevelt Chevrolet Company, Petitioners, For an Order against Lawrence GEROSA, as Comptroller of the City of New York, as to New York City business taxes, pursuant to Article 78 of the Civil Practice Act, Respondent.
• Court: New York Supreme Court — Appellate Division

Page 470

202 N.Y.S.2d 470

11 A.D.2d 67

Application of Charles L. YOUNG and John J. Barry doing business as Roosevelt Chevrolet Company, Petitioners, For an Order against Lawrence GEROSA, as Comptroller of the City of New York, as to New York City business taxes, pursuant to Article 78 of the Civil Practice Act, Respondent.

Supreme Court, Appellate Division, First Department.

June 21, 1960.

Howard F. Ordman, New York City, of counsel (Lemuel Skidmore, New York City, with him on the brief, Putney, Twombly, Hall & Skidmore, New York City, attorneys) for petitioners.

Morris L. Heath, New York City, of counsel (Stanley Buchsbaum, Brooklyn, and Charles M. Fox, New York City, with him on the brief, Charles H. Tenney, Corporation Counsel, New York City, attorney), for respondent.

Before BREITEL, J. P., and RABIN, FRANK, McNALLY and STEVENS, JJ.

STEVENS, Justice.

This is a proceeding to review a final determination of respondent after a statutory hearing, which assessed petitioner with general business tax deficiencies for three privilege years ending June 30, 1954, June 30, 1955 and June 30, 1956, respectively. The proceedings were transferred to this court on consent, pursuant to order of Special Term (Civil Practice Act, § 1296).

The petitioner is a partnership engaged in the business of selling and servicing new Chevrolet automobiles at retail and of selling and servicing used automobiles of various manufacture.

In the course of its operation and in accordance with the general practice of dealers similarly engaged, petitioner from time to time, when a particular model or combination of vehicle was desired which it did not have in stock, would obtain the desired model from another dealer. This would be accomplished by giving in exchange a model which it had in its inventory in order to supply its customer with the car demanded. Where the exchanges were of units of equal wholesale or factory invoice price no tax was imposed. When there was a difference in the factory invoice price in the cars exchanged the difference was paid in cash. Sometimes petitioner paid and sometimes it received such difference.

When an exchange occurred in which some cash payment was made, respondent treated it as an outright sale and imposed a full tax on both parties. The tax included both the wholesale car value and the cash surplus. One of the issues before us is the contention of the petitioner that the exchange of new vehicles between dealers, when some cash is paid, does not produce taxable receipts as that term is used in the statute and in the Code.

Petitioner points out that there are so many combinations or variables of cars that no one dealer could maintain an inventory to supply every demand. Not infrequently exchanges are made between several dealers before the model desired for the customer is obtained.

A second question arises where retail sales of new cars are made and used cars are accepted as a trade-in and as a part of the purchase price. The question in such cases is whether the taxable receipt is the sale price stated in the bill of sale, or whether the taxable receipt, that is, the sale price, should be reduced by the difference in value of the used car as appraised by the dealer and the amount that he credited the buyer.

The third question arises when a used car received as a trade-in is sold thereafter. Respondent treats the amount received as a taxable receipt. The contention of petitioner is that it is double taxation to tax the full sale price received when a used car is traded in as part of the purchase price of a new car, and to treat as a taxable receipt the amount received by the dealer on a subsequent sale of the used car.

The relevant portion of the Business Tax Law is found in Title B, Ch. 46, § 1.0, of the Administrative Code and in General City Law, § 24-a. Both provide in part as follows:

'a. For the privilege of carrying on or exercising for gain or profit within the city any trade, business, profession, vocation or commercial activity * * * or of making sales within such city * * * every person shall pay an excise tax * * * upon all receipts received in and/or allocable to the city from such profession, vocation, trade, business or commercial activity exercised or carried on by him during each calendar year * * *.

'3. 'Receipts.' The gross receipts received in, or by reason of any sale made or services rendered or commercial or business transaction had in the city, including cash, credits and property of any kind or nature, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service or other cost, interest or discount paid, or any other expense whatsoever'.

Under the provisions cited the Comptroller issued the following regulation:

'Art. 216. Property traded in.

'Whenever tangible personal property of any kind is sold and allowance is made for other tangible personal property which is traded in and is accepted by the vendor in part payment of the property sold, the allowance made for the property traded in shall not be deducted from the selling price of the property sold in computing gross receipts upon which a tax is imposed. The vendor must include in the measure of the tax the full selling price of the property sold without any deduction therefrom for any allowance made on property traded in. Where the property traded in is subsequently sold by the vendor, the latter must include in his gross receipts the total selling price from the sale of such property.

'Where dealers engaged in similar lines of business exchange articles of tangible personal property and one of them makes payment to the other in addition to the property exchanged by him, the transactions constitute sales to each other. The receipt of each dealer is measured by the gross value of the consideration received by him. Where a dealer transfers property, such as an automobile, to another dealer with the understanding that property of indentical description will be returned at a subsequent date, such transaction does not constitute a sale and the value of the property exchanged need not be included in the gross receipts tax base of either dealer.' (N. Y. City Agencies Rules and Regulations [1946-1952 Supp.], p. 14.)

'Art. 220. Accommodation transactions.

'Receipts from accommodation sales or other transactions of an accommodation nature are subject to inclusion in the measure of the tax even though no profit may be realized from such transactions. However, where two persons engaged in the same type of business occasionally effect an exchange or loan of inventory or stock in trade, as in case of an emergency, the receipts from such transactions may be excluded from the measure of the tax provided:

'(1) That the transactions are casual and infrequent;

'(2) That the transactions are not entered into for profit; and

'(3) That the transactions are in the nature of loans for the purpose of meeting emergencies.' (N. Y. City Agencies, Rules and Regulations, p. 89.)

As pointed out, when the exchange of cars between dealers is of exactly the same value no tax is imposed on either dealer. The question arises when a cash payment is made whether that single fact constitutes a reasonable basis for a determination that a tax be imposed on both dealers, on the total exchange value, including the car exchanged and the cash payment made. Is the character of the transaction so changed as to warrant the distinction?

Exchanges of cars between dealers with or without cash payments are essentially exchanges in kind for their mutual accommodation and are not primary sales for which the business is conducted. The objective is to facilitate a retail sale and when that is consummated, the revenue derived is fully taxed. The general connotation of the term 'exchange' denotes 'a commutation of property for property, i. e., the price or consideration is always paid in money if the transaction is a sale, but, if it is a barter or exchange, it is paid in specific property susceptible of valuation.' (Black's Law Dictionary, 4th Ed.) Generally a sale does not involve an exchange in kind, but a complete transfer of title or property in goods for a cash consideration called the price, though it must be recognized that the price may be made payable in personal property. Personal Property Law, §§ 82, 90; 46 American Jurisprudence, Sales, § 10.

The statute provides that every person is to pay an excise tax upon all gross receipts by reason of any sale made (General City Law, § 24-a, section 1, subd. 3). These are not words of special or technical meaning but are common words (Steinbeck v. Gerosa, 4 N.Y.2d 302, 308, 175 N.Y.S.2d 1, 5). 'Words of ordinary import are to be construed according to their ordinary and popular significance' (McKinney's Consol.Laws of N.Y., Book 1, Statutes, § 232) and a tax law should be interpreted as the ordinary person reading it would interpret it (Saltser & Weinsier v. McGoldrick, 295 N.Y. 499, 508, 68 N.E.2d 508, 509).

'The determination of what articles or transactions are taxable is a legislative function * * * 'A statute which levies a tax is to be construed most strongly against the government and in favor of the citizen. The government takes nothing except what is given by the clear import of the words used, and a well-founded doubt as to the meaning of the act defeats the tax.'' Good Humor Corporation v. McGoldrick, 289 N.Y. 452, 455, 46 N.E.2d 881, 882, citing People ex rel. Mutual Trust Co., v. Miller, 177 N.Y. 51, 69 N.E. 124.

To hold that every exchange between dealers looking to an ultimate retail sale is taxable in its entirety merely by reason of a cash payment in part, and this irrespective of the amount involved, when such exchange without a cash payment would be exempt from taxation in its entirety, is to sanction a distinction which has no valid basis in reason or in law. Neither dealer experiences any additional benefit...