| Matter of CBS Corp. v Tax Appeals Trib. of State of N.Y. |
| 2008 NY Slip Op 08568 [56 AD3d 908] |
| November 13, 2008 |
| Appellate Division, Third Department |
| In the Matter of CBS Corporation, Formerly Known as Viacom,Inc., Petitioner, v Tax Appeals Tribunal of the State of New York et al.,Respondents. |
—[*1] Andrew M. Cuomo, Attorney General, Albany (Julie S. Mereson of counsel), forCommissioner of Taxation and Finance, respondent.
Mercure, J.P. Proceeding pursuant to CPLR article 78 (initiated in this Court pursuant to TaxLaw § 2016) to review a determination of respondent Tax Appeals Tribunal whichsustained an assessment of real estate transfer tax imposed under Tax Law article 31.
In May 2000, CBS Corporation and Viacom, Inc. merged, creating petitioner and effecting atransfer of a controlling interest in CBS for purposes of the real estate transfer tax. Petitioner'stax returns indicated that the value of CBS's real estate in New York was worth over $200million at the time of the merger. The returns claimed exemptions aggregating 70.44%,consisting of a 15.56% exemption based upon the fact that certain CBS shareholders had alsoheld Viacom shares before the merger, and a 54.88% exemption based upon the fact that theholders of CBS voting common stock received nonvoting common stock in petitioner as a resultof the merger. The parties' dispute centers on whether the latter claim properly falls within anallowable exemption for conveyances that "effectuate a mere change of identity or form ofownership or organization where there is no change in beneficial ownership" (Tax Law §1405 [b] [6]).[*2]
After conducting an audit, the Department of Taxationand Finance informed petitioner that it disallowed the 54.88% claimed exemption because theCBS voting stock was exchanged for nonvoting stock. The Department determined thatpetitioner owed a real estate transfer tax balance of $493,965.08, plus interest of $117,908.11 anda penalty of $172,887.75. Petitioner then filed a timely petition for review, which was denied byan Administrative Law Judge. Respondent Tax Appeals Tribunal (hereinafter respondent), with asingle Commissioner dissenting, affirmed and this proceeding ensued.
We confirm. Petitioner argues that respondent's interpretation of the "change-in-form"exemption is erroneous, asserting that the exemption applies when a transferor retains an ongoingeconomic interest in the transferred real property, without regard to voting power, dominion andcontrol. Tax Law § 1402 (a) imposes the real estate transfer tax "on each conveyance ofreal property or interest therein when the consideration exceeds [$500]." As noted above, thechange-in-form exemption applies "where there is no change in beneficial ownership"(Tax Law§ 1405 [b] [6]). Respondent determined that the term "beneficial ownership" in the TaxLaw § 1405 (b) (6) exemption must be read in conjunction with the definitions of"conveyance" and "controlling interest" in Tax Law § 1401. Specifically, the"[c]onveyance[s]" subject to the real estate transfer tax are defined as "transfers of any interest inreal property by any method, including . . . transfer or acquisition of acontrolling interest in any entity with an interest in real property" (Tax Law § 1401[e] [emphasis added]). In the case of a corporation, "controlling interest" is defined as "either[50%] or more of the total combined voting power of all classes of stock of suchcorporation, or [50%] or more of the capital, profits or beneficial interest in such votingstock of such corporation" (Tax Law § 1401 [b] [i] [emphasis added]).
We note that "we are constrained to defer to the interpretation of a tax statute by [respondent]to the extent that matters within its expertise are involved" and that "[t]he ultimate issue iswhether [respondent's] determination has a rational basis," rather than whether petitioner hasadvanced a compelling alternative interpretation (Matter of Muraskin v Tax AppealsTrib., 213 AD2d 91, 94 [1995], lv denied 87 NY2d 806 [1996]; see Matter of XO N.Y., Inc. vCommissioner of Taxation & Fin., 51 AD3d 1154, 1154 [2008]; Matter of MarriottFamily Rests. v Tax Appeals Trib. of State of N.Y., 174 AD2d 805, 807 [1991], lvdenied 78 NY2d 863 [1991]; Matter of Bredero Vast Goed, N.V. v Tax Commn. of Stateof N.Y., 146 AD2d 155, 159 [1989], appeal dismissed 74 NY2d 791 [1989]).Further, "petitioner bears the burden of establishing entitlement to the exemption[;] [s]tatutescreating tax exemptions 'must be construed against the taxpayer' [; and] [t]he taxpayer must show'that its interpretation of the statute is . . . the only reasonable construction' "(Matter of Federal Deposit Ins. Corp. v Commissioner of Taxation & Fin., 83 NY2d 44,49 [1993] [citation omitted]; see Matter of XO N.Y., Inc. v Commissioner of Taxation &Fin., 51 AD3d at 1154-1155; Matter of Bredero Vast Goed, N.V. v Tax Commn. of Stateof N.Y., 146 AD2d at 159; Matter of Auerbach v State Tax Commn., 142 AD2d 390,393 [1988]; see also Tax Law § 1404 [b]).
In our view, petitioner failed to meet its burden of showing that its interpretation of theexemption is the only reasonable one. In the absence of a statutory definition of the phrase"beneficial ownership" (Tax Law § 1405 [b] [6]) or meaningful guidance in the applicableregulations regarding these circumstances (see 20 NYCRR 575.10, 575.11 [a] [4], [5],[8], [11]), respondent properly looked to other portions of Tax Law article 31 for guidance(see McKinney's Cons Laws of NY, Book 1, Statutes § 97 ["all parts of (alegislative) act are to be read and construed together to determine the legislative intent"]). In sodoing, respondent reasonably concluded that the transfer of a controlling interest in CBS fornonvoting stock in petitioner [*3]represented a change insubstance, not in form, because the loss in voting power represented a transfer of control overcorporate assets, rather than a mere formalism. That is, when CBS's shareholders exchanged theirvoting stock for nonvoting stock in petitioner, they lost the right to command and control overthe operation and disposition of the transferred real property. As respondent notes, the term"beneficial ownership" has been interpreted to include command and control over property andhas not been strictly limited to simply financial or economic interests, as petitioner wouldinterpret the term (see Matter ofSpectapark Assoc. v City of Albany Dept. of Assessment & Taxation, 12 AD3d 800,801-802 [2004], lv denied 4 NY3d 705 [2005]; see also Anderson v Commissioner ofInternal Revenue, 164 F2d 870, 873 [1947], cert denied 334 US 819 [1948];Yelencsics v Commissioner of Internal Revenue, 74 TC 1513, 1527 [1980]; seegenerally Matter of Schrier v Tax Appeals Trib. of State of N.Y., 194 AD2d 273, 275-276[1993], lv dismissed 83 NY2d 944 [1994]). Accordingly, inasmuch as respondent'sdetermination has a rational basis and petitioner failed to prove entitlement to the exemption, thedetermination must be confirmed.
Finally, we reject petitioner's contention that no basis existed for assessing a penalty in thiscase because its failure to pay the real estate transfer tax "was due to reasonable cause and notdue to willful neglect" (Tax Law § 1416 [b]). While petitioner maintains that its failure totimely pay the full amount of tax due was based on a reasonable interpretation of thechange-in-form exemption, "willfulness does not require an intent to deprive the government ofits money but only something more than accidental nonpayment" (Matter of Auerbach v StateTax Commn., 142 AD2d at 395). Advancement of a reasonable legal theory in good faith orreliance upon professional advice, in the absence of inquiry to ascertain the position of theDepartment of Taxation and Finance, does not constitute reasonable cause or provide us with abasis to disturb respondent's imposition of a penalty (see id.; Matter of LT & B RealtyCorp. v New York State Tax Commn., 141 AD2d 185, 187-188 [1988]; see also Matterof McGaughey v Urbach, 268 AD2d 802, 803 [2000]; Matter of 470 Newport Assoc. vTax Appeals Trib. of State of N.Y., 211 AD2d 322, 327 [1995], appeal dismissed 86NY2d 837 [1995], lv denied 87 NY2d 804 [1995]).
Peters, Spain, Malone Jr. and Stein, JJ., concur. Adjudged that the determination isconfirmed, without costs, and petition dismissed.