| Matter of Karlsberg v Tax Appeals Trib. of the State of N.Y. |
| 2011 NY Slip Op 04788 [85 AD3d 1347] |
| June 9, 2011 |
| Appellate Division, Third Department |
| In the Matter of Kathleen Karlsberg, Petitioner, v Tax AppealsTribunal of the State of New York et al., Respondents. |
—[*1] Eric T. Schneiderman, Attorney General, Albany (Kathleen M. Arnold of counsel), forCommissioner of Taxation and Finance, respondent.
Lahtinen, J. Proceeding pursuant to CPLR article 78 (initiated in this Court pursuant to TaxLaw § 2016) to review a determination of respondent Tax Appeals Tribunal which deniedpetitioner's request for a refund of personal income tax imposed under Tax Law article 22.
Federal tax law permits an itemized deduction for gambling losses up to the full amount ofgambling income (see Internal Revenue Code [26 USC] § 68 [c] [3]; § 165[d]). Respondent Tax Appeals Tribunal determined that the amount of New York's itemizeddeduction for gambling losses is reduced pursuant to Tax Law § 615 (f) for taxpayers withhigher income levels. Petitioner, who had significant gambling winnings as well as equallysignificant gambling losses in 2003 and 2004, contends that the Tribunal erred in itsinterpretation and application of Tax Law § 615 (f), and that New York should adhere tothe federal rule.
In 2003, petitioner, a single filer, had adjusted gross income of $253,220, which included$155,550 in gambling winnings. Her itemized deductions that year were $163,157, the largestpart of which came from $155,550 in claimed gambling losses. Since her adjusted gross incomeexceeded $150,000, her total itemized deductions were reduced by 25%. The next year, [*2]petitioner's adjusted gross income was $866,903, her gamblingwinnings were $817,825, and her itemized deductions of $819,642 included $817,825 ingambling losses. Her itemized deductions were reduced by 50% in 2004 since her adjusted grossincome was over $525,000. This resulted in a tax liability in 2004 that exceeded the entireamount of her nongambling income.
She subsequently filed amended returns for both years claiming refunds based on herassertion that the amount of her gambling losses were not subject to the percentage reductionapplied to her itemized deductions. The Division of Taxation disagreed with her positionregarding gambling losses and disallowed her claimed refunds. She was unsuccessful in aconciliation hearing as well as a hearing before an Administrative Law Judge. Upon review, theTribunal sustained the determination of the Administrative Law Judge. This proceeding ensued.
We are unpersuaded by petitioner's argument that the doctrine of federal conformity isapplicable to New York's treatment of the itemized deduction for gambling losses. "Pursuant tothe doctrine of federal conformity, courts [should] adopt, whenever reasonable and practical, the[f]ederal construction of substantially similar tax provisions, particularly where the state statute ismodeled on [the] federal law" (Matter ofAstoria Fin. Corp. v Tax Appeals Trib. of State of N.Y., 63 AD3d 1316, 1319 [2009][internal quotation marks and citations omitted]; accord Matter of Marx v Bragalini, 6NY2d 322, 333 [1959]; Matter ofDelese v Tax Appeals Trib. of State of N.Y., 3 AD3d 612, 613 [2004], appealdismissed 2 NY3d 793 [2004]). While Tax Law § 615 (a) adopts, in part, federal lawregarding itemized deductions, it also explicitly sets forth a specific exception "as provided forunder subsections (f) and (g) of this section." Tax Law § 615 (f) reduces the amountallowed for all itemized deductions based on the adjusted gross income of the taxpayer.Unlike the federal law which excepts certain items from its reduction of itemized deductions,including gambling losses (see Internal Revenue Code [26 USC] § 68 [c] [3]),New York does not except any itemized deductions from its reduction provisions (seeTax Law § 615 [f], [g]). On this narrow issue, New York tax law is not substantiallysimilar to federal tax law, and there is no requirement that we "strain" to construe the statutes assubstantially similar (Matter of CoData Corp. v Commissioner of Taxation & Fin., 163AD2d 755, 756 [1990]).
Petitioner next asserts that the Tribunal's determination was erroneous, arbitrary andcapricious. We cannot agree. "Tax deductions and exemptions depend upon clear statutoryprovisions and the burden is on the taxpayer to establish a right to them" (Matter ofScholastic Bus Serv. v State Tax Commn., 116 AD2d 915, 916-917 [1986]; see Matter of Charter Dev. Co., L.L.C. vCity of Buffalo, 6 NY3d 578, 582 [2006]; Matter of Grace v New York State TaxCommn., 37 NY2d 193, 196 [1975]). Here, a straightforward interpretation of the statutesupports the position of the Tribunal and not petitioner. The absence of an exception forwagering losses in the Tax Law evinces not that there is an unintended gap that should be filledby federal law, but instead that there is no gap as the Legislature did not intend any exceptions tothe reduction. The fact that a publication from the Department of Taxation and Finance indicatedthat lottery winners "may be able to deduct the amount spent on lottery tickets and any othergambling losses up to the amount of your gambling winnings" does not compel the conclusionurged by petitioner. The publication speaks in a nonmandatory term (i.e., "may") and, whileincomplete in that it does not address the reduction for higher income earners, it is correct as totaxpayers whose gross adjusted income falls below the levels set in Tax Law § 615 (f).More importantly, the clear statutory language controls over the less than comprehensivewording of the Department's publication.
Lastly, petitioner contends that the Tribunal's determination violated her equal [*3]protection rights.[FN*]"[T]he equal protection clause does not prevent State Legislatures from drawing lines that treatone class of individuals or entities differently from others unless the difference in treatment ispalpably arbitrary or amounts to an invidious discrimination" (Trump v Chu, 65 NY2d20, 25 [1985], appeal dismissed 474 US 915 [1985] [internal quotation marks omitted];see Brady v State of New York, 80 NY2d 596, 604-605 [1992], cert denied 509US 905 [1993]; Matter of Long Is. Light. Co. v State Tax Commn., 45 NY2d 529, 535[1978]). No such showing has been made here. Taxpayers in the same category of adjusted grossincome are equally subject to the same reduction for all their itemized deductions in New York.As for petitioner's position compared to lower category earners, her higher tax burden is theacceptable result of a generally progressive or graduated tax system (see generally Brady vState of New York, 80 NY2d at 605).
Mercure, J.P., Rose, Kavanagh and McCarthy, JJ., concur. Adjudged that the proceeding ispartially converted to an action for declaratory judgment, without costs, it is declared that TaxLaw § 615 (f) has not been shown to be unconstitutional as applied to petitioner,determination confirmed and remainder of petition dismissed.
Footnote *: Inasmuch as a "challenge to theconstitutionality of legislation may not be brought under CPLR article 78, . . . thematter should be converted to a combined article 78 proceeding and action for declaratoryjudgment" (Matter of DaimlerChryslerCo., LLC v Billet, 51 AD3d 1284, 1286 n 1 [2008]).