Matter of Joseph Hellerstein v. New York State Tax Commission, 25 N.Y.2d 518 (1969)
Interest on tax refunds is not authorized unless the tax statute or other statute applicable to refunds explicitly provides for the payment of interest, especially when the tax is collected under a valid statute.
Summary
The case concerns whether a taxpayer is entitled to interest on a tax refund when the statute authorizing the refund is silent on the matter. Hellerstein sought a refund of mortgage taxes improperly collected by the State. After obtaining the refund, Hellerstein sought interest from the time of the initial tax payment. The New York Court of Appeals held that interest is not authorized unless explicitly stated in the relevant statute, particularly when the tax was collected under a valid statute. The court distinguished between taxes collected under wholly void statutes and those erroneously collected under valid statutes, denying interest in the latter case absent explicit statutory authorization.
Facts
Joseph Hellerstein paid mortgage taxes to New York State. Hellerstein contended that the tax was erroneously imposed on a supplemental mortgage that should have been exempt under the Tax Law. Hellerstein initiated proceedings, eventually securing a refund of the mortgage taxes. The statute under which the refund was granted, however, was silent regarding the payment of interest on the refunded amount. Hellerstein subsequently sought interest on the refund from the State Tax Commission, which was denied, leading to the present action.
Procedural History
Hellerstein initiated a CPLR Article 78 proceeding in the nature of mandamus after the State Tax Commission refused to direct payment of interest on the tax refund. Special Term denied the request for interest. The Appellate Division affirmed, citing a procedural issue requiring amendment of the prior remittitur from the Court of Appeals. The Court of Appeals granted leave to appeal to consider the substantive issue of interest on tax refunds.
Issue(s)
Whether a taxpayer, entitled to a refund of taxes improperly paid and collected by the State under compulsion, is also entitled to interest on the refund from the time of payment of the taxes when the statute authorizing refunds is silent concerning interest.
Holding
No, because with respect to tax refunds under valid statutes, interest is not authorized unless the tax statute or other statute applicable to refunds explicitly makes provision for the payment of interest.
Court’s Reasoning
The Court of Appeals reviewed existing case law, noting a lack of uniformity regarding interest on tax refunds. It distinguished Matter of O’Berry, 179 N.Y. 285, which allowed interest on refunds of taxes collected under a wholly void and unconstitutional statute. The court reasoned that a void statute is as if it never existed, representing a greater intrusion on taxpayer rights. The court observed a lack of a uniform statutory pattern. Some statutes expressly prohibit interest on refunds, while others mandate it. The court emphasized that absent explicit statutory authorization, interest is not permitted on tax refunds under valid statutes. The Court reasoned that erroneous collections under valid statutes may arise from various circumstances, not always attributable to the tax collector. "With respect to such tax refunds, interest is not authorized unless the tax statute or other statute applicable to refunds explicitly makes provision for the payment of interest, and perhaps with such limitations, conditions, and qualifications as may be appropriate to correct whatever injustice has resulted from the imposition and collection of the tax under a valid statute." The court also considered CPLR provisions on interest but determined the legislature intended tax statutes to govern interest on refunds, not general practice statutes, citing the number of tax statutes that expressly address the issue. The court affirmed the Appellate Division’s order denying interest.