| Matter of Sacks v Tax Appeals Trib. of the State of N.Y. |
| 2012 NY Slip Op 07160 [99 AD3d 1120] |
| October 25, 2012 |
| Appellate Division, Third Department |
| In the Matter of Michael Sacks et al., Petitioners, v TaxAppeals Tribunal of the State of New York et al., Respondents. |
—[*1] Eric T. Schneiderman, Attorney General, Albany (Kate H. Nepveu of counsel), forCommissioner of Taxation and Finance, respondent.
Kavanagh, J. 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 a real estate transfer tax imposed under Tax Law article 31.
In November 2004, petitioner Michael Sacks entered into a contract of sale to purchase Unit34B in a building located in New York City for $900,000. At the same time, his wife, petitionerFrances Sacks, entered into a contract to purchase the adjacent unit, Unit 34C, for $625,000.Prior to the units being conveyed, they had been joined by a passageway and listed for sale as asingle apartment with three bedrooms and 2½ baths at an original listing price of$1,575,000. After an audit of these transactions was performed by the Department of Taxationand Finance, it was determined that the transfers were subject to the "Mansion Tax," whichimposes a 1% tax surcharge on the sale of any residential real property in which the purchaseprice exceeds $1 million (see Tax Law § 1402-a). As a result, petitioners wereassessed an additional $15,250 in taxes, plus $7,121.25 in interest and penalty. After aconciliation conference, the referee cancelled the penalty, but sustained the additional tax andinterest. Petitioners challenged this determination with the Division of Tax Appeals and, after ahearing, an Administrative Law Judge sustained the decision that the Mansion Tax applied to this[*2]transaction. Petitioners appealed this determination torespondent Tax Appeals Tribunal, which affirmed it, and this CPLR article 78 proceedingensued.
It is well settled that this Court is "constrained to defer to the interpretation of a tax statute by[the Tribunal] to the extent that matters within its expertise are involved and that the ultimateissue is whether [the Tribunal's] determination has a rational basis rather then whetherpetitioner[s have] advanced a compelling alternative interpretation" (Matter of CBS Corp. v Tax Appeals Trib.of State of N.Y., 56 AD3d 908, 909 [2008], lv denied 12 NY3d 703 [2009][internal quotation marks and citations omitted]; see Matter of 677 New Loudon Corp. v State of N.Y. Tax AppealsTrib., 85 AD3d 1341, 1342 [2011], affd — NY3d —, 2012 NY SlipOp 07046 [2012]). As relevant here, the Mansion Tax provides that "[i]n addition to the taximposed by [Tax Law § 1402] of this article, a tax is hereby imposed on each conveyanceof residential real property or interest therein when the consideration for the entire conveyance is[$1 million] or more. For purposes of this section, residential real property shall include anypremises that is or may be used in whole or in part as a personal residence, and shall include aone, two, or three-family house, an individual condominium unit, or a cooperative apartmentunit" (Tax Law § 1402-a [a]).
Petitioners argue that the two units were purchased separately pursuant to individualcontracts of sale involving two different buyers and, as such, neither transaction qualified forimposition of the Mansion Tax. While the units were purchased pursuant to separate contracts ofsale, the determination as to the application of the Mansion Tax is not dependent upon the formof the underlying transactions, but on the economic reality that characterizes the entireconveyance (see Matter of Burger King v State Tax Commn., 51 NY2d 614, 623 [1980];Matter of Muraskin v Tax Appeals Trib., 213 AD2d 91, 94 [1995], lv denied 87NY2d 806 [1996]). Here, at the time of the sale, the two units had already been consolidated bythe previous owner pursuant to an approval given by the New York City Department of Buildingsallowing the units to be combined into a single apartment (apartment 34B-C). As reconfigured,the units are fully accessible to each other, have a single kitchen and function as a single-familyresidence. Moreover, while each petitioner purchased an individual unit, the two transactionsoccurred simultaneously, and payment for both units was made from funds drawn on petitioners'joint bank account. Viewing these transactions as an integrated whole, we find that a rationalbasis exists for the Tribunal's determination that the entire conveyance was properly subject tothe imposition of the Mansion Tax.
Finally, contrary to petitioners' assertions, this tax was not imposed because they weremarried or due to Frances Sacks' gender but, instead, because petitioners had purchased thisresidential property as a single-family residence for in excess of $1 million. Moreover, theimposition of this tax did not affect Frances Sacks' "acquisition, use, enjoyment and[/or]disposition" of property in violation of General Obligations Law § 3-301 (1) or adverselyaffect her ability to enter into a contract (see General Obligations Law § 3-305).
Rose, J.P., Spain, Stein and McCarthy, JJ., concur. Adjudged that the determination isconfirmed, without costs, and petition dismissed.