Trump Village Section 3, Inc. v. City of New York

=================================================================
This opinion is uncorrected and subject to revision before
publication in the New York Reports.
-----------------------------------------------------------------
No. 221
Trump Village Section 3, Inc.,
Respondent,
v.
City of New York, et al.,
Appellants.
Frances J. Henn, for appellants.
Daniel A. Ross, for respondent.
ABDUS-SALAAM, J.:
We are presented with the following question: Does a
taxable transfer pursuant to Tax Law § 1201 (b) and section 11-
201 (a) of the Administrative Code of the City of New York occur
when a residential housing cooperative corporation terminates its
participation in the Mitchell-Lama program and amends its
- 1 -
- 2 - No. 221
certificate of incorporation as part of its voluntary dissolution
and reconstitution as a cooperative corporation governed by the
Business Corporation Law? We agree with the Appellate Division
that no taxable event occurs.
I.
Plaintiff, Trump Village Section 3, Inc. (Trump
Village) was incorporated in August 1961 as a Mitchell-Lama
cooperative housing corporation pursuant to the Limited-Profit
Housing Companies Law (Private Housing Finance Law art II
[PHFL]). Trump Village owns a residential co-op complex
consisting of three 23-story buildings, with 1,674 residential
apartments, located in Coney Island, Brooklyn. Plaintiff
remained in the Mitchell-Lama program beyond the requisite 20
years (PHFL § 35 [2]). In 2007, by vote of its shareholders, and
with the permission of the State of New York, Trump Village
terminated its participation in the Mitchell–Lama program, and,
pursuant to PHFL § 35 (3), "reconstituted" itself as a
corporation under the Business Corporation Law by amending its
certificate of incorporation.
In August 2010, the New York City Department of Finance
(the Department) issued a Notice of Determination to Trump
Village of a tax deficiency in the sum of $21,149,592.50, which
included interest and a penalty. The Department took the
position that because Trump Village was now a private cooperative
corporation that had amended its certificate of incorporation and
terminated its participation in the Mitchell–Lama program by
- 3 - No. 221
reconstitution, it had engaged in a transaction that qualified
"as a conveyance of the underlying real property." According to
the Department, Trump Village was thus required to pay a real
property transfer tax (hereinafter RPTT) pursuant to Tax Law §
1201 (b) and section 11–2102 (a) of the Administrative Code of
the City of New York.
Plaintiff commenced this action seeking, among other
things, a declaratory judgment that the RPTT is inapplicable
because the tax applies only to transfers and conveyances of real
property or economic interests in real property, from one entity
to another, and not to plaintiff's exit from the Mitchell-Lama
program as a result of a "reconstitution." The Supreme Court
agreed with defendants and issued a declaratory judgment that the
conversion from a Mitchell-Lama cooperative housing corporation
to a cooperative housing corporation under the Business
Corporation Law constitutes a conveyance which is subject to the
RPTT. The Appellate Division reversed, granted that branch of
plaintiff's motion which was for summary judgment declaring that
the RPTT tax was improperly imposed and remitted to Supreme Court
(109 AD3d 899, 906 [2013]). The Appellate Division granted leave
and certified the question as to whether its order was properly
made. We now affirm and answer the certified question in the
affirmative.
II.
Section 11–2102 (a) of the Administrative Code of the
City of New York provides that an RPTT is imposed "on each deed
- 4 - No. 221
at the time of delivery by a grantor to a grantee . . ." A deed
is defined in section 11-2101 (2) as ”[a]ny document or writing
(other than a will), regardless of where made, executed or
delivered, whereby any real property or interest therein is
created, vested, granted, bargained, sold, transferred, assigned
or otherwise conveyed, including any such document or writing
whereby any leasehold interest in real property is granted,
assigned or surrendered."
In support of their position that the privatization of
Trump Village is a taxable event, defendants argue that an
amendment to a certificate of incorporation is a "deed."
Defendants also assert that Trump Village is a new corporation
and that there was actually a conveyance of real property to a
different corporation, with Trump Village being both the grantor
and grantee. However, defendants' construction of the RPTT
cannot be reconciled with the plain language of the statute.
Furthermore, even if there were any ambiguities regarding the
application of the RPTT to this situation, "doubts concerning [a
taxing statute's] scope and application are to be resolved in
favor of the taxpayer"(Debevoise & Plimpton v NYS Dept. of
Taxation and Fin., 80 NY2d 657, 661 [1993]). Thus, we reject
defendants' strained interpretation of section 11-2102(a) of the
Administrative Code of the City of New York.
We first address defendants' argument that Trump
Village became an entirely new corporation. While defendants
assert that a new corporation must have been formed because Trump
- 5 - No. 221
Village had to "dissolve" under the PHFL before "reconstituting"
as a corporation no longer governed by the restrictions of the
PHFL, the corporation in the amended certificate of
incorporation, Trump Village Section 3, Inc., is the same
corporation that was named in the original certificate of
incorporation. The Business Corporation Law distinguishes
between amending a certificate of incorporation (§ 801 et seq.)
and formation of a corporation (§ 401 et seq.). Section 801 (14)
provides that a certificate of incorporation may be amended "to
strike out, change or add any provision . . . relating to the
business of the corporation, its affairs, its right or powers
. . . ."
Plaintiff filed a "Certificate of Amendment under
Section 805 of the Business Corporation Law." The original
certificate of incorporation contained the preamble: "We, the
undersigned, for the purpose of forming a corporation pursuant to
Article XII of the Public Housing Law of the State of New York."
The Amendment modified this language to read: "We, the
undersigned, for the purpose of forming a corporation pursuant to
the Business Corporation Law . . . ." The change in the
prefatory language did not "form" a new corporation, but instead
deleted the reference to the PHFL, which no longer governed any
aspect of the corporation or its shareholders. The Amendment
also stated that the original "Certificate of Incorporation was
filed in the office of the Secretary of State on August 29, 1961"
- 6 - No. 221
and listed the date of each prior amendment. Thus, Trump Village
remains the same corporation, with changes, that it was in 1961.
The PHFL provides that a Mitchell-Lama corporation "may
be voluntarily dissolved" and "[t]hat upon dissolution, title to
the project may be conveyed in fee to the owner or owners of its
capital stock or to any corporation designated by it or them for
that purpose, or the company may be reconstituted pursuant to
appropriate laws relating to the formation and conduct of
corporations"(PHFL § 35 [3][emphasis added]). Accordingly, there
are two options for the process of privatization, and plaintiff
chose the second option - - reconstitution through amendment of
its certificate of incorporation.1 Defendants posit that the
legislature intended the word "reconstitute" to mean the same
thing as "reincorporate." However, as long ago as 1857, it was
recognized that reincorporation "cannot be deemed the formation
of a new corporation, but should be regarded as the continuation
of the existing one"(The Consolidated Kansas City Smelting and
Refining Co. v The Secretary of State, 13 App Div 50 [3d Dept
1857]; see also 15 Fletcher Cyc. Corp. § 7204 ["In a sense, [a
1
The record includes a July 20, 2005 letter to plaintiff's
counsel from the New York State Division of Housing and Community
Renewal. The letter, which apparently contains a typographical
error in the subject line (listing the property as Trump Village
Section 4, Inc. rather than Trump Village Section 3, Inc.),
states, among other things: "The Division has not taken the
position that the housing company could only privatize by
dissolving and conveying title to another corporation. The
Division agrees that, as a procedural matter, privatization can
take place by reconstituting the company through the amending of
its certificate of incorporation."
- 7 - No. 221
reincorporation] is merely an amendment of the charter; there is
no new corporation, and the company is the same as before the
reincorporation"]).
Regarding defendants' argument that the amendment so
radically altered the business of Trump Village that it must have
become a new corporation, we note that the RPTT does not tax
changes in the business or purpose of the corporation owning real
property, but taxes conveyances of property or an interest
therein. Similarly, while defendants argue that the Trump
Village shareholders have realized a tremendous increase in the
value of their apartments without paying an RPTT, the RPTT is not
imposed simply because the value of property has increased. And,
as pointed out by plaintiff, the RPTT is and will continue to be
collected on the full value of the shares of each apartment that
is sold.
Defendants also maintain that there was a deed in this
case, asserting that the Certificate of Amendment is a deed
because it is a writing that conveys real property rights or
interests. But the Certificate of Amendment does not do that.
There is absolutely no indication that the Amendment was meant to
be a document of conveyance. The Appellate Division correctly
held that there is "no support in either case law or the record
for the City defendants' interpretation of the law" (109 AD3d at
905).
Defendants further point to the "mere change in form of
ownership" exemption of section 11-2106 (8) of the Administrative
- 8 - No. 221
Code of the City of New York, reasoning that because the
exemption does not apply to a conveyance to a cooperative housing
corporation, but does apply to a transfer to a Mitchell-Lama
cooperative, the legislature must have intended to tax all
privatizations of Mitchell-Lama cooperatives. However, as the
Appellate Division recognized, the exemption only applies where
there has been a conveyance in the first place, and thus, because
there was no conveyance, the exemptions and the exceptions to
those exemptions are not relevant.
Finally, defendants' reliance on this Court's decision
in East Midtown Plaza Housing Co. v Cuomo (20 NY3d 161 [2012]) is
misplaced. At issue in East Midtown was whether a privatization
by means of an amendment to a certificate of incorporation was
subject to the disclosure requirements under the Martin Act. The
decision addressed the impact of privatization on shareholders
and focused on the rights of the shareholders, and the
substantial changes in the nature of their interests. It lends
no support for defendants' imposition of an RPTT where there has
been a Mitchell-Lama privatization.
Therefore, the order of the Appellate Division should
be affirmed, with costs, and the certified question answered in
the affirmative.
* * * * * * * * * * * * * * * * *
Order affirmed, with costs, and certified question answered in
the affirmative. Opinion by Judge Abdus-Salaam. Chief Judge
Lippman and Judges Read, Smith, Pigott and Rivera concur.
Decided December 17, 2014