People Ex Rel. International Salt Co. v. Graves , 267 N.Y. 149 ( 1935 )

I dissent from so much of the decision as reverses the order of the Appellate Division annulling the determination of the Tax Commission for the years 1918 and 1919. The Tax Law (§ 219-d) provides that if the amount of the net income of any corporation is changed or corrected by the United States Treasury Department, such corporation shall make a new return of such changed or corrected net income. "The tax commission shall thereupon reaudit and restate the account of such corporation for taxes based upon the entire net income as changed or corrected for such fiscal or calendar year but without change of the segregation of assets upon which the original assessment was based."

Here the corporation filed a new return as required by the statute and the Tax Commission has reaudited the return and restated the account of the corporation for taxes. It has refused upon such reaudit and restatement to correct alleged errors in the segregation of the assets upon which the original tax was based. The reason why it has refused such correction is that the Legislature has provided that it shall not change the segregation. The errors were in whole, or in large part, due to statements of the corporation in making its original return. These errors were reflected in the segregation of assets and resulted in the imposition originally of a larger tax than should have been imposed. An adequate remedy for the correction of errors in the original assessment was provided by other provisions of the Tax Law, and the time limited by the Legislature for the invocation of such remedy has expired. Under the authorities cited in the opinion of Judge CROUCH, the determination of the Tax Commission assessing the tax then became immune from attack because of errors made by the Commission, except in so far as the Legislature chose to provide other remedies for the correction of error.

There is, here, no dispute that the Tax Commission had jurisdiction to assess a tax in 1918 and 1919 against the relator. Errors, whether on constitutional points or otherwise, entering into its determination, which do not affect its jurisdiction, would, I agree, not affect the finality of the Commission's determination. I agree, too, that under a reasonable construction of section 219-d of the Tax Law, it is plain that the Legislature did not intend to provide an additional remedy for the correction of errors in the original determination or modify the finality of such determination, except in so far as it related to, and was necessitated by, change or correction of net income by the United States Treasury Department. In express and unambiguous terms the Legislature decreed that the tax reassessed upon the corrected income should be based upon the segregation, without change of the segregation of assets upon which the original assessment was based.

The original tax assessments for the years 1918 and 1919 were based upon a segregation of assets in accordance with statutory rules which deprived the corporations of their constitutional rights and which transcended the limits of the legislative power of the State. (People ex rel. Alpha Portland Cement Co. v.Knapp, 230 N.Y. 48.) Thus the original tax assessment was based upon a segregation of assets made in accordance with rules which the State had no power to make. The tax assessment was open to attack, not for error made by the Commission in the application of statutory rules in segregating the assets of the corporation, but because the assessment was based upon a segregation which the Legislature was without power to direct. The segregation was not merely erroneous but was invalid in its inception. The question is not here presented whether a tax assessment based upon a segregation invalid in its inception is subject to collateral attack or whether the Legislature may provide a single appropriate remedy for revision of errors and thus render the assessment immune from other attack. The question here presented is whether the Legislature may direct a new assessment to be based upon segregation which is not merely erroneous but has been made in accordance with the provisions of a statute which this court has declared void and of no effect.

It has been said that "a taxpayer who does not exhaust the remedy provided before an administrative board to secure the correct assessment of a tax, cannot thereafter be heard by a judicial tribunal to assert its invalidity." (Gorham Mfg. Co. v. State Tax Commission, 266 U.S. 265, 269, 270.) That was said in a case where a taxpayer sought the aid of a court of equity to set aside a tax assessment upon the ground that it included income which the State of New York could not tax, though the taxpayer had never applied for a revision of the tax and had "submitted no evidence to the Commission as to any of the matters on which it now relies." The other cases cited in the opinion of Judge CROUCH all dealt with proceedings brought to recover tax payments previously made and the courts there merely applied the well-established rule that a State may impose reasonable limitations upon proceedings to recover moneys paid under a void statute and wrongfully retained. (Cf. Burrill v. Locomobile Co.,258 U.S. 34.)

All these cases are merely illustrations of the rule that though a tax assessment under a void statute may cause injury to a taxpayer, the State may provide an exclusive remedy for the injury sustained and may limit the time during which that remedy may be invoked. Here the taxpayer is not complaining against the original assessment. The time has expired during which the taxpayer could avail himself of the statutory remedy against errors there through application for a revision of the original tax account. A contingency has, however, occurred which requires the Tax Commission to reaudit and restate the taxpayer's account and to make a reassessment of the tax. The taxpayer seeks review of that assessment by certiorari in the manner and within the time permitted by law. The reassessment must be based upon the segregation without change of assets upon which the original taxes were based. To the extent that the Legislature had power to provide for a new assessment based upon an old segregation, regardless of error contained therein, the statute must be enforced according to its terms. Its power to provide that the original segregation may not be revised now, merely for the correction of errors is not open to doubt; but that presupposes not only that the Legislature provided a reasonable remedy for revision of errors but also that the original segregation was authorized by a valid statute. Where there has been no segregation, obviously there can be no reassessment of tax based upon a non-existent segregation. Where there has been attempted segregation in accordance with rules heretofore declared void by this court, segregation is also void. The original command of the Legislature to base a tax upon a segregation which was inequitable and unreasonable was a mere empty gesture. Such segregation, though attempted, never had life or force. Assessment of a tax based upon such segregation was at its inception void and constituted a wrong to the taxpayer aggrieved thereby. The Legislature is without power to give any force or life to the original lifeless segregation, and no case has been cited which so holds. The most that the Legislature may do is to limit the aggrieved taxpayer to the remedy provided by the Legislature for the injury suffered.

Here, under the construction now placed upon the statute, the Legislature has attempted more. It has provided that there shall be a reassessment of the tax based upon segregation made in accordance with rules it had no right to promulgate. The reassessment based upon correction of income alone might result in a much larger tax than was originally assessed, a tax which we have said was inequitable and beyond the power of the State to impose. It has no more right to order a reassessment of an illegal tax than to order the original assessment. It has provided for a tax based upon a segregation of assets. In assessing or in reassessing the tax, the Commission must assess the tax upon a segregation of assets made in accordance with a valid statute. Any other tax would be illegal.

The order of the Appellate Division should be affirmed.

CRANE, Ch. J., O'BRIEN, HUBBS, LOUGHRAN and FINCH, JJ., concur with CROUCH, J.; LEHMAN, J., dissents in opinion from modification.

Ordered accordingly.