Citibank, N. A. v. City of New York, 32 N.Y.2d 426 (1973)

A state legislature’s amendment to a tax law, resulting in meaningful increases in tax rates, constitutes “affirmative action” permitting the imposition of the tax on national banks under federal law; furthermore, a commercial rent tax is considered a tax on tangible personal property, which is exempt from the “affirmative action” requirement.

Summary

Citibank and Chase, national banking associations, challenged the imposition of New York City’s commercial rent tax for the period of June 1, 1970, through May 31, 1972, arguing that they were immune under federal law. The banks contended that the city had not taken the “affirmative action” required by United States Public Law No. 91-156 to subject them to the tax. The Court of Appeals held that the state legislature’s amendment to the tax law, which significantly increased the rates, constituted the required “affirmative action.” Furthermore, the court determined the commercial rent tax to be a tax on tangible personal property, exempting it from the “affirmative action” requirement altogether. Thus, the tax was properly levied.

Facts

Citibank and Chase, national banks with principal places of business in New York City, were subjected to the city’s commercial rent tax. This tax had been in place since 1963. In 1969, Congress enacted United States Public Law No. 91-156, which affected the ability of states to tax national banks. New York State amended its commercial rent tax law in 1970 (L 1970, ch 166), significantly increasing tax rates. The banks challenged the tax, asserting that the 1970 amendment did not constitute the “affirmative action” required by federal law to subject them to the tax during the period in question.

Procedural History

Citibank and Chase separately initiated Article 78 proceedings challenging the tax assessments. The cases were consolidated. The Appellate Division confirmed the New York City Finance Administration’s determinations against the banks and dismissed their petitions. The banks then appealed to the New York Court of Appeals.

Issue(s)

1. Whether the amendment to the New York City commercial rent tax law in 1970, which increased the tax rates, constituted “affirmative action” by the state legislature as required by United States Public Law No. 91-156, thereby permitting the imposition of the tax on national banks.
2. Whether the New York City commercial rent tax is a tax on tangible personal property, thus exempting it from the “affirmative action” requirement under United States Public Law No. 91-156.

Holding

1. Yes, because the amendment, which brought about meaningful increases in the rates of the revenue measure, is permeated with “action.”
2. Yes, because New York courts have consistently regarded a leasehold interest as tangible personal property for tax purposes.

Court’s Reasoning

The court reasoned that the 1970 amendment to the commercial rent tax law constituted “affirmative action” because it significantly increased tax rates. The court rejected the banks’ argument that the federal statute required an explicit decision to subject national banks to the tax, finding no such requirement in the statute itself. Citing Lyon v Manhattan Ry. Co., the court stated that an amendment is a re-enactment of the statute amended, thus the amendment necessarily involved “affirmative” conduct. The court further reasoned that the concern of Congress was the possiblity of inequitable taxation, and the saving provision in the federal statute was designed to avoid upsetting delicately balanced State statutes enacted to equalize taxation.

Independently, the court held that the commercial rent tax qualifies as a tax on tangible personal property, as established in Ampco Printing-Advertisers’ Offset Corp. v City of New York. Judge Fuld in Ampco described the tax as one “imposed on a tenant of taxable premises according to his base rent for the tax year” and noted that “ ‘It is significant to note that nowhere in the Tax Law has the Legislature characterized a leasehold as taxable real property…A leasehold has consistently been regarded as tangible”. Because United States Public Law No. 91-156 expressly exempts taxes on tangible personal property from the “affirmative action” requirement, the city was permitted to impose the commercial rent tax on the banks without further legislative action. The court also noted that the Senate Committee on Banking and Currency stated the taxes listed in the new section were not considered to be taxes on intangible personal property and they could be imposed on national banks by the States.