People v. Valenza, 60 N.Y.2d 363 (1983)

A vendor who collects sales taxes but fails to remit them to the state is not subject to criminal prosecution for larceny by embezzlement unless specifically provided for by statute; civil penalties are generally the exclusive remedy.

Summary

The New York Court of Appeals held that a restaurant and its owner could not be criminally prosecuted for grand larceny for withholding sales taxes collected from customers. While vendors act as trustees for the state in collecting sales taxes, the Tax Law provides a comprehensive scheme of civil and criminal penalties. The legislature’s choice to impose only civil penalties for the failure to remit sales taxes, except in specific circumstances, indicated a legislative intent to exclude such conduct from general larceny statutes. This decision emphasizes the principle that when the legislature provides a specific and integrated statutory scheme, it can preempt the application of more general criminal laws.

Facts

Proof of the Pudding, Inc., a restaurant, and its owner, Frank Valenza, were indicted for grand larceny and failure to file sales tax returns. The larceny charges stemmed from the alleged withholding of sales tax revenues collected between 1976 and 1979. The charges for failure to file returns concerned the period from June 1978 through July 1979. The indictment alleged the defendants withheld sales taxes collected in connection with the redemption of gift certificates.

Procedural History

The Supreme Court denied the defendants’ motion to dismiss the larceny counts. After a trial, both defendants were convicted of grand larceny in the second degree. A mistrial was declared on the remaining larceny counts. Proof of the Pudding was convicted of failure to file sales tax returns, while Valenza was acquitted on those counts. The Appellate Division affirmed the convictions. The New York Court of Appeals reversed the grand larceny convictions and dismissed those counts of the indictment.

Issue(s)

1. Whether a vendor who collects sales taxes but fails to remit them to the state under circumstances indicating an intent to permanently deprive the state of those taxes can be prosecuted for larceny by embezzlement.
2. Whether the evidence was sufficient to convict Proof of the Pudding, Inc. for failure to file sales tax returns with the intent to evade payment of taxes.

Holding

1. No, because the Legislature intended that the civil penalties in the Tax Law be the exclusive means of prosecuting the failure to remit sales taxes, except under specific circumstances outlined in the statute.
2. Yes, because viewing the record in the light most favorable to the prosecution, a rational trier of fact could have found beyond a reasonable doubt that the defendant failed to file a sales tax return within the meaning of the law and did so with intent to evade payment of the taxes.

Court’s Reasoning

The Court of Appeals reasoned that while a vendor collecting sales tax acts as a trustee for the state, the Tax Law provides a comprehensive scheme of penalties for violations. The court emphasized that the legislature specifically outlined violations that would result in criminal penalties in Tax Law § 1145(b) but conspicuously omitted the general failure to remit sales taxes collected, only including it in the limited instance of failing to comply with a notice to deposit collected taxes in a separate account. The court drew a comparison to Article 22 of the Tax Law concerning income taxes, where the legislature explicitly made the failure to pay over withholding taxes a misdemeanor. The absence of similar language in Article 28 indicated a deliberate choice not to criminalize the failure to remit sales taxes under most circumstances.

The court distinguished cases where a prosecutor could choose between general and specific statutes within the Penal Law. Here, the State sought to prosecute under the Penal Law for conduct regulated by a comprehensive and specific Tax Law. The court stated, “The Legislature’s structuring of section 1145 to provide substantial civil penalties for failing to pay over sales tax and to exclude this conduct from the criminal penalties section must be deemed to manifest an intent to exclude such conduct from criminal prosecution under either the Tax Law or the Penal Law.”

Regarding Proof of the Pudding’s conviction for failure to file sales tax returns, the Court found sufficient evidence to support the conviction. The State presented evidence that no returns were filed until after the restaurant was under investigation and that only nominal payments were made nearly two years after the returns were filed. This was sufficient for a rational trier of fact to conclude that the failure to file was intentional and aimed at evading tax payments.