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Frances J. Henn, for appellant.
Stephen P. Kramer, for respondents.
CIPARICK, J.:
Pursuant to State enabling legislation authorizing
the City of New York to amend its General Corporation Tax to conform to
provisions of the State Tax Law, the City amended its General Corporation
Tax to prohibit deductions for payment of State petroleum tax. The
issue on appeal is whether the City's disallowance of this deduction is
enforceable despite the
subsequent repeal of the predicate State Tax Law provision supporting
its enactment. We conclude that, under the terms of the enabling
act, the City is no longer authorized to prohibit
the deduction of payment of the petroleum tax.
I.
New York City's General Corporation Tax, which is based
on the net income of corporations doing business in the City, has a relatively
recent history. Before 1966, the City imposed a tax on the gross
receipts of corporations doing business within its borders. This
tax was thought to produce unfair results because it was not tied to a
company's profitability, prompting City leaders to ask the State
Legislature for the authority to impose a tax based on net income, rather
than gross receipts. By a 1966 Enabling Act, the State Legislature
granted the City the authority to enact local legislation imposing a net
income tax on businesses in a form "substantially" following a Model Local
Law appended to the Enabling Act (L 1966, ch 772). This Model Local
Law was patterned after the State franchise tax of article 9-A (see generally,
5 Comeau, Heckelman & Helm, New York Tax Analysis 142.21, at XI-205).
The following year, the Enabling Act was amended
to give the City the added authority to amend its corporation tax "for
the purpose of conforming" it to article 9-A of the State Tax Law, as then
in effect or as it might thereafter be amended: The terms of such
local law or local laws shall be, substantially, as follows [in the Model
Local Law] except that any such local law may be amended for the purpose
of conforming it with similar provisions of article[] nine-A . . . of the
tax law . . . as presently in effect or as they may be amended . . . (L
1966, ch 772, 1, as amended by L 1967, ch 699, 1).
This amendment was intended to provide a procedure
that would apply if the State Legislature were to amend article 9-A.
The City would then be authorized to enact a local law
paralleling the new State law provision without the need for separate
State enabling legislation (see, Mem of Budget Div, Bill Jacket, L 1967,
ch 699 [amendment "will permit continuing
conformity of the City tax provisions with . . . State tax statutes,
without separate State enabling legislation each time there is a change
in State law"]). Pursuant to the delegated
taxing power, the City Council passed Local Law No. 21 of 1966, which
established a General Corporation Tax that was based on the net income
of corporations doing business in New York City (codified as New York City
Admin Code R46-2.0 et seq., replaced by 11-602 et seq.).
The next statutory development relevant to
this appeal occurred in 1983, when the State Legislature enacted a petroleum
tax, set forth in article 13-A of the Tax Law, which was based on the gross
receipts of petroleum companies (L 1983, ch 400, 8). At the same
time, the Legislature amended article 9-A to prohibit the deduction
of the newly enacted article 13-A petroleum tax in calculating net income
for article 9-A franchise tax purposes (L 1983, ch 400, 5, amending Tax
Law 208[9][b][4]). Following the lead of the State Legislature,
the New York City Council amended its General Corporation Tax by Local
Law No. 3 of 1986 to impose a parallel provision prohibiting the deduction
of the article 13-A petroleum tax in calculating net income for purposes
of the City tax (see, Local Law No. 3 of 1986, codified as New York City
Admin Code 11-602[8][b][3], replacing R46-2.0[8][b][3]; see generally,
Report of Finance Comm, reprinted in 1986 New York City Legis Ann, at 4
["This bill would conform the city's general and financial corporation
taxes with their state counterparts to the extent of disallowing Article
13-A tax deductions"]).
In 1990, the State Legislature restructured
the article 13-A petroleum tax in an effort to increase revenues.
Previously a gross-receipts tax, the petroleum tax was converted to an
excise
tax computed on a cents-per-gallon basis (L 1990, ch 190, 216, codified
as Tax Law 301-a). As part of this legislative restructuring of
the petroleum tax, and in order to soften the
anticipated fiscal blow to petroleum companies, the Legislature repealed,
effective June 1, 1990, the provision of article 9-A that had prohibited
the deduction of article 13-A petroleum taxes in calculating article 9-A
franchise tax liability (L 1990, ch 190, 212, 385[q][2] [repealing relevant
portion of Tax Law 208(9)(b)(4)]). The net result of this amendment
is that
taxpayers are now permitted to deduct article 13-A petroleum taxes
when calculating net income for purposes of the article 9-A franchise tax.
The corresponding provision of the City's
General Corporation Tax, which prohibits taxpayers from deducting article
13-A taxes when calculating net income (New York City Admin Code 11-602[8][b][3]),
has not been similarly amended. According to that section, therefore,
taxpayers are not permitted to deduct article 13-A taxes when calculating
City tax liability.
Plaintiffs, petroleum companies that are subject
to the State franchise and petroleum taxes and the City's General Corporation
Tax, instituted this declaratory judgment action
seeking a declaration that section 11-602(8)(b)(3) of the Administrative
Code of the City of New York is unconstitutional insofar as it prohibits
deduction of the petroleum tax. After
both parties moved for summary judgment on the issue of the provision's
constitutionality, Supreme Court granted summary judgment to plaintiffs
and declared section 11-602(8)(b)(3), to the extent that it purports to
prohibit deduction of article 13-A taxes, unconstitutional as of June 1,
1990. The Appellate Division affirmed, concluding that section 11-602(8)(b)(3)
"lack[s] either a constitutional or a statutory basis upon which to
ground its own disallowance, despite its original validity" (Castle Oil
Corp. v City of New York, 216 AD2d 60, 62). This
Court granted leave to appeal and, for the reasons that follow, we
affirm.
II.
Under our form of State government, the exclusive power of taxation
is lodged in the State Legislature (NY Const, art XVI, 1). A corollary
to this basic rule is that municipalities such
as the City of New York have no inherent taxing power, but only that
which is delegated by the State (accord, NY Const, art IX, 2[c][8]).
Moreover, the delegation of State taxing power to a municipality must be
made in express terms by enabling legislation (see, NY Const, art XVI,
1; see also, County Securities, Inc. v Seacord, 278 NY 34, 37).
Any tax imposed by the municipality "must be within the expressed limitations
[of the enabling legislation] and, unless authorized, a tax so levied is
constitutionally invalid" (Matter of U.S. Steel Corp. v
Gerosa, 7 NY2d 454, 459 [citations omitted]; see, e.g., Matter of Carey
Transp. v Perrotta, 34 AD2d 147, affd 29 NY2d 814; Brooklyn Union Gas Co.
v McGoldrick, 270 AD 186, affd 298 NY 536).
Against this analytical backdrop, this case
turns on a straightforward question of statutory interpretation: Does the
Enabling Act require that New York City's General Corporation Tax maintain
continued conformity with the Model Local Law or article 9-A of the State
Tax Law? The City argues that since Local Law No. 3 of 1986 (codified
as New York City Admin Code 11-602[8][b][3]) was authorized when enacted,
it remains enforceable notwithstanding the subsequent repeal of its predicate
State law provision. Plaintiffs counter that section
11-602(8)(b)(3) is unconstitutional insofar as it no longer conforms
to any provision of the Model Local Law or article 9-A as amended in 1990.
We agree with plaintiffs and the courts below
that the Enabling Act requires continuing conformity with either the Model
Local Law or a provision of article 9-A. This conclusion follows
from the plain language of the Enabling Act, which states that the City's
General Corporation Tax shall "substantially" follow the Model Local Law,
but "may be amended for the purpose of conforming it with similar provisions
of article[] 9-A [of the State Tax Law] . . . as presently in effect or
as they may be amended" (L 1967, ch 699, 1). Manifest in this statutory
framework is the legislative intention that the City tax will always conform
either to the Model Local Law or to the State Tax Law. Indeed, the
whole purpose of the 1967 amendment to the Enabling Act was to facilitate
the City in "conforming" its local corporation tax to subsequently adopted
provisions of article 9-A (see, Mem of Budget Div, Bill Jacket, L 1967,
ch 699 [amendment "will permit continuing conformity of the City tax provisions
with . . . State tax statutes, without separate State enabling legislation
each time there is a change in State law"] [emphasis added]).
For section 11-602(8)(b)(3) to fall within
the parameters of the Enabling Act, therefore, it must derive its authority
from a provision of the Model Local Law or article 9-A of the State Tax
Law. The Model Local Law, however, contains no provision prohibiting
the deduction of article 13-A taxes, so section 11-602(8)(b)(3) must find
its authorization, if at all, in a
provision of article 9-A. Such a provision existed in article
9-A from 1983 to 1990 when then Tax Law 208(9)(b)(4) prohibited the deduction
of article 13-A taxes. However, once the State repealed that provision,
the necessary State law predicate for the City's prohibition of the deduction
was eliminated (accord, Matter of Carey Transp. v Perrotta, 34 AD2d 147,
149, affd 29 NY2d 814, supra [where local tax was required to conform with
State tax, local tax was void to the extent it purported to disallow exclusion
recognized by State Tax Law]). The subsequent enforcement of section
11-602(b)(8)(3) transgresses the fixed parameters and exceeds the authorization
of the Enabling Act, and therefore violates article XVI, 1 of the State
Constitution.
Accordingly, the order of the Appellate Division
should be affirmed, with costs.
* * * * * * * * * * * * * * * * *
Order affirmed, with costs. Opinion by Judge Ciparick. Judges Simons, Bellacosa, Smith and Levine concur. Chief Judge Kaye and Judge Titone took no part.
Decided December 20, 1996