New York Law Review

Tag: Commercial Rent Tax

  • Matter of Gulf Oil Corp. v. Finance Administrator, 444 N.Y.S.2d 96 (1981): Taxability of Cleaning Service Fees as Rent

    Matter of Gulf Oil Corp. v. Finance Administrator, 444 N.Y.S.2d 96 (1981)

    Payments for services, such as cleaning, provided by a landlord are considered taxable rent under New York City’s commercial rent or occupancy tax law, even if the tenant has the option to provide those services themselves and receive a rent abatement.

    Summary

    Gulf Oil Corp. challenged a tax assessment under New York City’s commercial rent tax, arguing that the portion of their rent attributable to cleaning and janitorial services should be exempt. The leases allowed Gulf to provide its own cleaning services and receive a corresponding rent abatement. The court held that the amounts paid for cleaning services were indeed taxable rent. The court reasoned that the lump sum payment constituted rent, regardless of its components and that the abatement formula did not represent the true economic cost of cleaning, but rather a bargained-for element of the rent. Furthermore, the court stated that even if cleaning were considered “maintenance,” it is only excluded from rent when paid to third parties, not the landlord.

    Facts

    Gulf Oil Corp. leased premises in New York City under leases that included cleaning services provided by the landlord. Two types of leases allowed Gulf to opt out of the landlord’s cleaning services and receive a rent abatement based on a formula in the lease. Gulf argued that the portion of the rent attributable to cleaning services should not be subject to commercial rent tax.

    Procedural History

    Gulf Oil Corp. initiated an Article 78 proceeding challenging the tax assessment. The Appellate Division ruled against Gulf Oil Corp. The New York Court of Appeals then reviewed the Appellate Division’s judgment.

    Issue(s)

    Whether amounts paid to a landlord for cleaning and janitorial services, where the tenant has an option to provide such services themselves and receive a rent abatement, constitute taxable rent under the New York City commercial rent or occupancy tax law.

    Holding

    Yes, because the payments are part of the overall consideration paid for the use and occupancy of the premises and fall within the definition of “rent” under the New York City Administrative Code. Further, any maintenance exceptions only apply to payments to third parties.

    Court’s Reasoning

    The court reasoned that the monthly rent was billed and paid in a lump sum without a specific breakdown for cleaning services. The court emphasized that the agreed-upon sum was rent for the leasehold, and failure to pay it could result in eviction. Although the lease gave the tenant the option to provide its own cleaning services and receive an abatement, the court found that the formula for abatement did not represent the actual economic cost of the services, but rather a bargained-for element of the rent. The abatement amount varied depending on the lease and the tenant’s negotiating position. The court stated, “Manifestly, they are bargained for elements of the rent because the abatement allowed varies from lease to lease and for different tenants in the building depending upon the negotiating position of the tenant vis-a-vis the landlord.”

    The court also addressed Gulf’s argument that cleaning services should be excluded from taxable rent because they constitute “maintenance” expenses, which are excluded under the local law. The court stated that tax exclusions are not presumed, and the burden is on the taxpayer to demonstrate that the item falls within the exclusion. While maintenance could broadly include cleaning, the court held that the maintenance exclusion in the local law only applies to work done to prevent and cure depreciation, such as painting and replacing window sashes, not routine cleaning. The court further noted that even if cleaning were considered maintenance, the exclusion applies only when payments are made to third parties, not to the landlord, citing Administrative Code, § L46-1.0, subd 6.

  • Citibank, N. A. v. City of New York, 32 N.Y.2d 426 (1973): “Affirmative Action” and Taxation of National Banks

    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.

  • Citibank, N. A. v. City of New York Finance Administration, 43 N.Y.2d 425 (1977): State Taxation of National Banks

    43 N.Y.2d 425 (1977)

    A state’s amendment of its tax laws, even if not explicitly referring to national banks, constitutes “affirmative action” allowing the state to tax national banks under federal law; commercial rent tax is considered a tax on tangible personal property, permitting taxation of national banks without further legislative action.

    Summary

    Citibank and Chase Manhattan Bank challenged the City of New York’s commercial rent tax for the period of 1970-1972, arguing that as national banks, they were immune under federal law (Public Law 91-156). This law allowed states to tax national banks equally with state banks but included a “saving provision” requiring “affirmative action” by the state legislature to impose such taxes. The banks argued that the 1970 amendment to the city’s rent tax, which increased rates but did not expressly mention national banks, did not constitute affirmative action. The court held that the amendment was affirmative action and that the commercial rent tax was a tax on tangible personal property, thus not requiring affirmative action under the federal statute.

    Facts

    Citibank and Chase Manhattan Bank, national banking associations with principal places of business in New York City, were assessed commercial rent tax by the city for the period of June 1, 1970, through May 31, 1972. The banks challenged the tax, asserting immunity under federal law, specifically Public Law No. 91-156, which governed state taxation of national banks. The city’s commercial rent tax had been in effect since 1963. In 1970, the New York State Legislature amended the law to increase the rates of the tax. The banks argued this amendment did not constitute the “affirmative action” required by the federal law to subject them to the tax.

    Procedural History

    The banks initiated separate CPLR article 78 proceedings challenging the Finance Administration’s determination. The Appellate Division confirmed the Finance Administration’s determinations and dismissed the banks’ petitions. The banks appealed to the Court of Appeals of the State of New York.

    Issue(s)

    1. Whether the New York State Legislature’s amendment to the city’s commercial rent tax, which increased rates but did not explicitly mention national banks, constituted “affirmative action” as required by Public Law No. 91-156, thus allowing the city to tax national banks.
    2. Whether the New York City commercial rent tax is a tax on tangible personal property, which under federal law does not require “affirmative action” by the state legislature to be imposed on national banks.

    Holding

    1. Yes, because the amendment, even without explicitly mentioning national banks, constituted “affirmative action” since it was a conscious decision to increase tax rates, and amendments are considered re-enactments of the amended statute.
    2. Yes, because the New York City commercial rent tax has been consistently regarded as a tax on tangible personal property, and such taxes are expressly excepted from the “affirmative action” requirement under federal law.

    Court’s Reasoning

    The court reasoned that the 1970 amendment to the commercial rent tax law constituted “affirmative action” because it involved a conscious legislative decision to increase tax rates. The court noted that amendments are considered re-enactments of the statutes they amend. The court stated, “From the point of view of Congress, it was the possibility that inequitable or double taxation might be imposed immediately on national banks that was the crux of its concern.”

    Furthermore, the court held that the commercial rent tax was a tax on tangible personal property, specifically a leasehold interest. Quoting Ampco Printing-Advertisers’ Offset Corp. v City of New York, the court emphasized that a leasehold is deemed personalty and tangible. Because Public Law No. 91-156 explicitly exempts taxes on tangible personal property from the “affirmative action” requirement, the city was permitted to levy the tax on national banks without further legislative input. The court noted, “* * * [P]rior to January 1, [1973], no tax may be imposed on any class of banks by or under authority of any State legislation in effect prior to the enactment of this Act unless (1) the tax was imposed on that class of banks prior to the enactment of this Act, or (2) the imposition of the tax is authorized by affirmative action of the State legislature after the enactment of this Act.”

    The dissenting judge argued that the 1970 amendment was merely an increase in rates and did not demonstrate a conscious decision to subject national banks to the tax. The dissent also contested the majority’s characterization of the commercial rent tax as a tax on tangible personal property in the context of federal law.

  • Ampco Printing-Adv. Corp. v. City of New York, 14 N.Y.2d 16 (1964): Upholding Commercial Rent Tax Against Constitutional Challenges

    Ampco Printing-Adv. Corp. v. City of New York, 14 N.Y.2d 16 (1964)

    A commercial rent tax imposed on tenants is constitutional and not an unconstitutional tax on real estate, ad valorem tax on intangible property, or a violation of due process or equal protection.

    Summary

    This case addresses the constitutionality of New York City’s Commercial Rent or Occupancy Tax Law, which taxes tenants based on their rent. Plaintiffs, including businesses and a property owner, challenged the law, arguing it violated the New York State Constitution and the U.S. Constitution. The New York Court of Appeals upheld the tax, finding it was not a tax on real estate, nor an ad valorem tax on intangible personal property, and that it did not violate due process or equal protection. The court emphasized the tax was on the tenant’s use of property for commercial purposes, a valid exercise of the state’s taxing power.

    Facts

    The City of New York enacted Local Law No. 38 imposing a tax on persons occupying premises for commercial activities, measured by rent paid. Ampco Printing and other plaintiffs, including a parking business and a real property owner, challenged the law as unconstitutional. They argued it was essentially a real estate tax exceeding constitutional limits, an improper tax on intangible property, and discriminatory.

    Procedural History

    Plaintiffs filed actions seeking a declaratory judgment that the enabling act and local law were unconstitutional. The City of New York and the Attorney General intervened as defendants. All parties moved for summary judgment. Special Term rejected the plaintiffs’ contentions and upheld the law. The plaintiffs appealed directly to the New York Court of Appeals on constitutional grounds.

    Issue(s)

    1. Whether the commercial rent or occupancy tax is a tax on real estate in violation of Article VIII, Section 10 of the New York State Constitution?

    2. Whether the tax constitutes an ad valorem tax on intangible personal property in violation of Article XVI, Section 3 of the New York State Constitution?

    3. Whether the tax violates the due process or equal protection clauses of the State or Federal Constitution?

    Holding

    1. No, because the tax is imposed on tenants, not on real estate or owners of real estate; leaseholds are considered personal property.

    2. No, because the tax is not an ad valorem tax and even if it were, it would be on a leasehold, which is not intangible personal property.

    3. No, because the tax is a valid exercise of the taxing power and the classification between tenant occupants and owner occupants is not arbitrary.

    Court’s Reasoning

    The court reasoned that the tax was imposed on tenants based on their rent for using premises for commercial purposes, not directly on the real estate itself. The court cited precedent establishing that a leasehold is considered personal property (a “chattel real”), not real property. The court rejected the argument that the tax’s economic impact made it equivalent to a real estate tax, citing Bromley v. McCaughn, stating that “a tax imposed upon a particular use of property or the exercise of a single power over property incidental to ownership, is an excise.”

    Regarding the ad valorem argument, the court noted that the tax was not based on the value of the property but on the rent paid. Moreover, even if it were an ad valorem tax, it would be on a tangible leasehold, not an intangible asset. The court further explained that the intent of Article XVI, Section 3 was to protect nonresidents from taxes on money and securities held in New York, not to exempt leaseholds.

    Finally, the court held that the tax did not violate due process, as it was a valid exercise of the taxing power, or equal protection. The court emphasized the broad power of classification in taxation and found the distinction between tenants and owners, or between tenants paying different rent amounts, was not arbitrary. The court reasoned that a “state of facts reasonably can be conceived that would sustain it.” The court noted that the tax was imposed solely to raise revenue and was not motivated by any other purpose.