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Empire State Building Co. v. New York State Department of Taxation & Finance
Citations: 219 A.D.2d 459; 631 N.Y.S.2d 306; 1995 N.Y. App. Div. LEXIS 9191
Court: Appellate Division of the Supreme Court of the State of New York; September 7, 1995; New York; State Appellate Court
A judgment from the Supreme Court of New York County, entered on January 14, 1994, affirmed that the plaintiff's rent receipts for unmetered electricity provided to tenants are subject to the utility tax under Tax Law § 186-a. The appeal concerning a prior order on the same date, which allowed the plaintiff to reargue earlier decisions, was dismissed as it was subsumed in the appeal from the judgment. The plaintiff, the landlord of the Empire State Building, sought a declaration that receipts for electricity charges are not subject to the utility tax and that it should not incur penalties for underreporting taxes. The electricity is either directly supplied to tenants or provided unmetered, with charges based on occupied floor space; specifically, the charge is $2.75 per square foot, separately listed on rent bills as "Electricity income (on rent inclusion)." An audit led to a notice of liability for unpaid utility taxes amounting to $919,993 for the years 1987 to 1989. The plaintiff initiated legal action to contest the application of the utility tax. Despite outstanding discovery requests, the plaintiff moved for summary judgment, while defendants sought dismissal or compliance with discovery. The court denied both motions on June 9, 1992, citing the need for information exclusively held by the plaintiff regarding its electricity provision methods and costs. Subsequently, the court granted summary judgment to the defendants on November 25, 1992, stating that receipts from electricity charges are distinct from rent and are indeed subject to the utility tax, reinforcing this with references to relevant case law. The Supreme Court denied the plaintiff's argument against the assessment of a utility tax on its net profit from the Electricity Rent Inclusion Factor, stating that the plaintiff failed to contest the tax assessment effectively. Disputes regarding calculations can be addressed through administrative appeal under CPLR article 78. The court affirmed that receipts from unmetered electrical use are taxable and that the relevant statute, imposing a 3% utility tax on gross operating income from electricity sales, is constitutional. The plaintiff admitted to supplying electricity to unmetered tenants, which falls within the statute's definition of gross operating income. The court also confirmed that the calculation of the tax assessment and any deductions are the responsibility of the Department of Taxation. Judicial review is appropriate only after administrative remedies are exhausted, especially given the plaintiff's noncompliance with discovery requests, which limited the review record. The court noted that previous challenges to the statute's compliance with the Equal Protection Clause had been dismissed.