88 N.Y.2d 503 (1996)
When a public authority acquires property previously subject to taxation, the obligation to make payments in lieu of taxes (PILOTs) begins when the property is officially removed from the tax rolls, and the authority is entitled to seek refunds for overpayments of PILOTs based on challenges to the property’s assessed valuation.
Summary
This case addresses the effective date for Long Island Power Authority’s (LIPA) obligation to make payments in lieu of taxes (PILOTs) after acquiring Long Island Lighting Company’s (LILCO) Shoreham Nuclear Power Plant. The court also determined whether PILOTs should continue indefinitely and whether LIPA could seek refunds on past PILOTs based on court challenges to the plant’s assessed valuation. The Court of Appeals held that the PILOT obligation begins when the property is removed from the tax rolls and that LIPA can seek refunds for overpayments. PILOTs continue in perpetuity but can be reduced based on a proper assessment of the plant in its nonoperative state.
Facts
In February 1989, LIPA and LILCO entered into a settlement agreement for LIPA to acquire the Shoreham plant. The actual transfer of title occurred on February 29, 1992. Prior to the transfer, LILCO had challenged the assessed valuation of the Shoreham plant through tax certiorari proceedings. Before the transfer, LILCO paid half of the approximately $82 million in taxes due for the 1991-1992 tax year. Disputes arose regarding the effective date of LIPA’s PILOT obligations and the amount of PILOTs owed.
Procedural History
LIPA initiated an action seeking a declaration regarding its PILOT obligations. The defendant taxing jurisdictions counterclaimed. Supreme Court declared that LIPA’s PILOT responsibility began upon the transfer of the Shoreham plant, that LIPA was entitled to refunds for excess PILOTs, and that the plant was nonoperative prior to transfer. The Appellate Division affirmed. The Court of Appeals granted leave to appeal.
Issue(s)
1. Whether LIPA’s PILOT obligation superseded LILCO’s real property tax liability immediately upon the February 29, 1992, date of transfer?
2. Whether LIPA’s obligation to pay PILOTs on the Shoreham plant terminates entirely after the first year following LIPA’s acquisition?
3. Whether LIPA is precluded from seeking refunds on past PILOTs for the taxable years following the Shoreham acquisition?
Holding
1. No, because under the Suffolk County Tax Act, the tax status date determines tax liability for the entire ensuing taxable year; therefore, LILCO was responsible for the taxes through November 30, 1992.
2. No, because the statute directs gradual reduction of the size of PILOTs until they reach a floor level of taxes and assessments equivalent to tax levies on a nonoperative facility, which then continue in perpetuity.
3. No, because the plain language of Public Authorities Law § 1020-q(3) does not prohibit an action by LIPA to recover PILOT overpayments based on inflated assessed valuations after the LIPA Act’s enactment; the law was intended to relieve taxing jurisdictions from liability for past taxes, not prospective PILOTs.
Court’s Reasoning
The Court reasoned that the tax status date determines tax liability for the entire year, citing People ex rel. Luther v McDermott, 265 NY 47, 51. Because Shoreham was not removed from the tax rolls until July 1, 1992, LILCO was responsible for taxes until the end of the 1991-1992 taxable year. The Court found no legislative intent to override this general rule. The Court rejected LILCO’s argument that PILOTs should terminate after one year, holding that the statute only limits the decreases in PILOTs, not the continuation of payments. The Court emphasized the purpose of the LIPA Act: to provide a substitute stream of revenue for municipalities. Regarding refunds, the Court found that Public Authorities Law § 1020-q(3) only bars refunds for past taxes challenged by LILCO, not for prospective PILOTs. The Court stated, “[t]hat section also bars recovery of any refund from any such taxing jurisdiction of taxes previously paid, which refund may have become due as a result of a ‘judicial determination that the Shoreham plant assessment was excessive, unequal or unlawful for any of the years from [1976] to the effective date of this title’.” The Court interpreted legislative history to mean that the Legislature did not intend to permit local taxing jurisdictions to inflate PILOTs without judicial review. The court noted “with respect to the real property on which the Shoreham Nuclear Plant is located, in lieu payments are required in amounts which phase-down their inordinate and inequitable size“.