New York Law Review

Tag: State Tax Exemption

  • Varsity Transit, Inc. v. City of New York, 38 N.Y.2d 632 (1976): City’s Authority to Tax Bus Companies Not Subject to State Utility Tax

    Varsity Transit, Inc. v. City of New York, 38 N.Y.2d 632 (1976)

    A city has the authority to impose a utility tax on bus companies with a seating capacity of more than seven persons, as these companies are expressly excluded from the state utility tax.

    Summary

    Varsity Transit, Inc. challenged New York City’s imposition of a utility tax, arguing that it was exempt due to limitations imposed by state law and the city’s administrative code. The New York Court of Appeals affirmed the lower court’s decision, holding that the city’s tax was valid because Varsity Transit was not subject to the state utility tax and the city’s “school bus operators clause” did not exclude Varsity Transit from the tax’s scope. The court reasoned that state law limitations on city taxation only apply to utilities subject to state tax, and Varsity Transit’s bus operations fell outside the state tax’s purview.

    Facts

    Varsity Transit, Inc. operated buses within New York City. The buses had a seating capacity of more than seven persons. New York City imposed a utility tax on Varsity Transit. Varsity Transit contested the tax, claiming exemptions under state law and the city’s administrative code.

    Procedural History

    The case originated in a lower court in New York. The Appellate Division affirmed the lower court’s decision in favor of the City of New York. Varsity Transit appealed to the New York Court of Appeals. The New York Court of Appeals affirmed the Appellate Division’s judgment.

    Issue(s)

    Whether New York City had the authority to impose a utility tax on Varsity Transit, given the state law limitations on city taxation of utilities and the city’s own administrative code.

    Holding

    Yes, because Varsity Transit was not subject to the state utility tax, and the city’s “school bus operators clause” did not exclude Varsity Transit from the tax’s scope.

    Court’s Reasoning

    The court reasoned that Section 20-b of the General City Law places limitations on a city’s power to tax utilities only when those utilities are subject to state tax under section 186-a of the Tax Law. Because Varsity Transit operates buses with a seating capacity of more than seven persons, it is expressly excluded from the state utility tax under Tax Law § 186-a, subd. 2, par. (a). The court cited Tax Law, § 1221, subd. (a), par. (3) and 58 N. Y. Jur., Taxation, § 674 to reinforce this point. Therefore, the City was free to levy a city utility tax pursuant to the authority granted by subdivision (a) of section 1201 of the Tax Law. The court also determined that the prohibition on taxation of “transactions” with certain exempt organizations (Tax Law, § 1230) is inapplicable to the tax on the privilege of doing business, which the city is empowered to impose. Regarding the “school bus operators clause” (City of New York Administrative Code, § QQ 46-2.0, subd. a), the court acknowledged its poor draftsmanship but reasonably interpreted it in light of its history (e.g., Local Laws, 1939, No. 104 of the City of New York), concluding that it does not exclude Varsity Transit from the measure of the tax, citing Children’s Bus Serv. v. City of New York, 190 Misc. 161, 166. The court stated, “However, no such limitation obtains where the utility is not within the purview of section 186-a”. The court concluded that Varsity Transit was indeed outside the purview of section 186-a, and therefore the city was within its rights to tax the company.