New York Law Review

Automotive Electric of New York, Inc. v. State Tax Commission, 48 N.Y.2d 345 (1979): Upholding Accelerated Sales Tax Payments

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Automotive Electric of New York, Inc. v. State Tax Commission, 48 N.Y.2d 345 (1979)

The Legislature may validly require vendors to accelerate sales tax payments by estimating sales and taxes for the remainder of a month, even though the taxes have not yet been collected, as long as the measure is not utterly unreasonable or arbitrary.

Summary

Automotive Electric of New York challenged the constitutionality of Section 1137-A of the Tax Law, which required vendors to pay their estimated sales tax liability for the entire month of March by March 20. The plaintiffs, large automobile dealers, argued this was an unconstitutional imposition of taxes on sales before they were consummated. The Court of Appeals upheld the statute, finding that the Legislature has broad authority in designing tax measures and that advance taxation is permissible, provided it is not arbitrary or confiscatory. Adjustments are made in April, negating any final injustice.

Facts

  • The New York State Legislature enacted Chapter 894 of the Laws of 1975, later codified as Section 1137-A of the Tax Law, requiring vendors to pay their estimated sales tax liability for the entire month of March by March 20.
  • This law was enacted to balance the state budget at the close of the fiscal year on March 31.
  • Automotive Electric of New York, Inc., and other automobile dealers, challenged the law, arguing that it unconstitutionally imposed a tax on sales before they occurred.

Procedural History

  • The petitioners initiated an Article 78 proceeding in the Supreme Court, Albany County, seeking a declaration that Section 1137-A of the Tax Law was unconstitutional.
  • The Supreme Court converted the proceeding into an action for a declaratory judgment and ruled in favor of the State, declaring the statute valid and constitutional.
  • The Appellate Division affirmed the Supreme Court’s decision.
  • The petitioners appealed to the Court of Appeals as of right.

Issue(s)

Whether Section 1137-A of the Tax Law, requiring vendors to pay estimated sales tax liability for the entire month of March by March 20, is an unconstitutional exercise of the State’s taxing power.

Holding

No, because the Legislature has nearly unconstrained authority in designing tax measures unless they are utterly unreasonable or arbitrary, and advance taxation has been consistently sustained in other areas.

Court’s Reasoning

  • The Court stated that taxing measures violate due process only if they are so arbitrary as to constitute a forbidden power, such as confiscation of property, citing Magnano Co. v. Hamilton, 292 U.S. 40, 44 and Shapiro v. City of New York, 32 N.Y.2d 96, 102.
  • The court noted that advance taxation has been sustained in other areas, such as corporate franchise taxes (People ex rel. Bass, Ratcliff & Gretton v. State Tax Comm., 232 N.Y. 42) and estimated income tax payments (U.S. Code, tit. 26, § 6153; Tax Law, § 656).
  • The court rejected the argument that vendors are merely collecting trustees and cannot be held liable for taxes before sales are made, referencing Matter of Atlas Tel. Co., 273 N.Y. 51, 57, which established that vendors have an obligation to pay the tax regardless of whether they actually collect it from purchasers. The court stated: “There is no doubt that the sales tax law imposes upon the vendor the obligation of a taxpayer in addition to that of a collecting trustee.”
  • The court distinguished this case from other cases by pointing out the trustee relationship between the vendor and the state, but ultimately held the vendor to be a taxpayer, citing Matter of Grant Co. v. Joseph, 2 N.Y.2d 196, 203.
  • The court emphasized the practical necessity of such measures for balancing the state budget and ensuring fiscal stability.

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