2 N.Y.3d 249 (2004)

A state’s Department of Taxation and Finance may deny sales tax refund claims to third-party assignees who did not initially pay the sales taxes because such denial is authorized by the sales tax statutory and regulatory scheme, and does not violate assignment provisions.

Summary

General Electric Capital Corporation (GECC) sought sales tax refunds for uncollectible debts it acquired from retail vendors. GECC purchased accounts receivable, including sales taxes, that the vendors had already remitted to the state. When customers failed to pay, GECC claimed refunds for the sales taxes associated with those bad debts. The New York State Department of Taxation and Finance denied the claims, citing a regulation prohibiting third-party assignees from receiving such refunds. The New York Court of Appeals upheld the denial, finding the regulation consistent with state tax law and not preempted by general assignment laws. The court reasoned that the state has a trustee relationship with vendors, not third-party finance companies, for sales tax collection, and limiting refunds to vendors promotes orderly tax administration.

Facts

1. GECC provided financing for private label credit cards issued by retail vendors.
2. Retail vendors assigned their customer credit agreements to GECC, who purchased the accounts at face value, including sales taxes already paid by the vendors.
3. GECC unsuccessfully tried to collect debts from customers and wrote off uncollectible accounts as “bad debts.”
4. GECC sought refunds for the sales taxes paid by the vendors related to these uncollectible accounts.

Procedural History

1. The Division of Taxation denied GECC’s refund claims.
2. An Administrative Law Judge denied GECC’s protest.
3. The Tax Appeals Tribunal upheld the Division’s decision.
4. The Appellate Division confirmed the Tribunal’s determination.
5. The New York Court of Appeals granted GECC’s application for leave to appeal.

Issue(s)

1. Whether the State Department of Taxation and Finance exceeded its authority when it denied sales tax refund claims to a financial services company that did not pay the underlying sales taxes?
2. Whether the regulation prohibiting third-party assignees from obtaining sales tax refunds is inconsistent with the assignment provisions of the General Obligations Law?

Holding

1. No, because the denial was authorized by the sales tax statutory and regulatory scheme.
2. No, because the relevant Tax Law statute and regulation governs GECC’s eligibility to apply for a sales tax refund, even if the claims were lawfully assigned.

Court’s Reasoning

Tax Law § 1132(e) permits, but does not require, the Division to grant refunds on uncollectible debts. The Commissioner of Taxation and Finance has the authority to issue regulations on this matter. 20 NYCRR 534.7(b)(3) rationally distinguishes between who can seek refunds. Retail vendors collect taxes as trustees for the state, subject to special requirements, making them personally liable for the taxes. Offering refunds on uncollectible debts offsets the significant responsibilities imposed on the vendors. Third-party finance companies do not have the burden of collecting taxes as trustees of the state. The regulation corresponds with Tax Law § 1139, which addresses the procedure for filing a refund claim, and allows a party who remitted sales taxes to seek a refund. The court stated, “the regulatory restriction at issue corresponds with a provision in the general sales tax refund statute, Tax Law § 1139, which addresses the procedure for filing a refund claim.” General Obligations Law § 13-105 clarifies under what circumstances a transferred claim can be enforced; it does not apply where the rights are regulated by special provisions of law. Tax Law § 1132(e) regulates the rights of parties to apply for sales tax refunds. The court determined that there was no windfall for the state, stating that, “the Division lawfully collected the sales taxes when the retail sales occurred—before petitioner bought the accounts from the retail vendors—and nothing has occurred that changed the status of the underlying transactions from taxable to nontaxable.”

The dissenting judge argued that sales tax is meant to burden purchasers, not vendors or their assignees, and that 20 NYCRR 534.7(b)(3) contradicts the sales tax statute. The dissent also stated that the regulation is inconsistent with General Obligations Law § 13-101. The court stated that, “It is well established that repeals by implication are not favored”. The court also noted that, in the dissent’s view, it is only when the statutes “are in such conflict that both cannot be given effect” that a repeal by implication may be found. (quoting Matter of Board of Educ. v Allen, 6 NY2d 127, 142 [1959]).