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Sprint Communications Co., L.P. v. City of New York Department of Finance

Supreme Court of New York, First Department

June 27, 2017

Sprint Communications Company, L.P., Plaintiff-Appellant,
v.
The City of New York Department of Finance, et al., Defendants-Respondents.

         Plaintiff appeals from an order of the Supreme Court, New York County (Lynn R. Kotler, J.), entered April 27, 2016, which denied its motion for summary judgment declaring that it is subject to the supervision of the New York State Department of Public Service and is therefore liable for the City utility tax and not the City unincorporated business income tax, and granted defendants' motion for summary judgment declaring that plaintiff is not a utility within the meaning of the City utility tax code and is therefore liable for both the utility tax and the unincorporated business income tax.

          Morrison & Foerster LLP, New York (Hollis L. Hyans and Michael J. Hilkin of counsel), for appellant.

          Zachary W. Carter, Corporation Counsel, New York (Kevin R. Harkins, Vincent D'Orazio, Andrew G. Lipkin and Andrea M. Chan of counsel), for respondents.

          John W. Sweeny, Jr., J.P. Angela M. Mazzarelli Karla Moskowitz Sallie Manzanet-Daniels Barbara R. Kapnick, JJ.

          SWEENY, J.

         In this appeal we are called upon to interpret the words of the New York City Administrative Code provisions relating to the taxation of communications companies. For the reasons that follow, we conclude that plaintiff is not a utility within the meaning of the Administrative Code and is therefore not exempt from the unincorporated business income tax.

         The Administrative Code of City of New York (Admin Code) provisions under consideration are title 11, ch 11 (the Utility Tax) and Admin Code title 11, ch 5 (the Unincorporated Business Income Tax). Admin Code § 11-1102(a) provides that every utility and every vendor of utility services shall pay an excise tax based upon a percentage of its gross income. Section 11-1101(6) defines a "utility" as "[e]very person subject to the supervision of the department of public service." The Code further defines a "[v]endor of utility services" as "[e]very person not subject to the supervision of the department of public service, and not otherwise a utility as defined in [§ 11-1101(6)], who furnishes or sells... telecommunication services" (§ 11-1101[7]).

         The Unincorporated Business Income Tax (UBT), in contrast to the Utility Tax, is based upon "taxable income" (Admin Code § 11-505). A "utility" subject to the Utility Tax is exempt from the UBT (§ 11-502[a]). Conversely, a "vendor of utility services" is liable under both the Utility Tax and the UBT (see id.).

         The Public Service Commission (PSC) is the part of the Department of Public Service (see Public Service Law § 4) that has jurisdiction over "telephone corporations" (see §§ 5{1][d]; 2[17]). This includes "every telephone line which lies wholly within the state and that part within the state of New York of every telephone line which lies partly within and partly without the state and to the persons or corporations owning, leasing or operating any such telephone" (Public Service Law § 5[1][d]).

         Beginning in 1998, plaintiff's predecessor, a provider of local and long distance telephone and data services, began filing UBT returns as a vendor of utility services. At some point, plaintiff concluded that it was operating "subject to the supervision" of the PSC, and that, as a result, it was a "utility" as defined in Admin Code § 11-1101(6)and was therefore exempt from the UBT. It sought a refund of UBT taxes paid for tax years 2008-2010. Defendant Department of Finance (DOF) refunded amounts for tax years 2008 and 2009, but subsequently issued Notices of Deficiency to recover those sums, plus interest. DOF denied plaintiff's request for a refund of UBT taxes paid for tax year 2010. Its position on the Notices of Deficiency and denial of plaintiff's refund request for tax year 2010 was that plaintiff was not a "utility" as defined by statute and hence was subject to the UBT.

         Plaintiff then brought this action pursuant to CPLR 3001 seeking a declaration that it should be classified as a utility subject only to the Utility Tax. Plaintiff contends that since it paid the UBT as well as the Utility Tax for the tax years 2008-2010, it is entitled to a refund of taxes paid pursuant to the UBT for those years.

         Defendants opposed the motion and cross-moved for summary judgment, arguing that plaintiff is not "supervised" by the PSC within the meaning of the Admin Code's Utility Tax provisions. Defendants contended that plaintiff is only subject to "light regulation" by the PSC, a designation reserved for companies subject to market-driven competition and is therefore subject to both the Utility Tax and the UBT.

         The motion court denied plaintiff's motion and granted defendants' cross motion, declaring that plaintiff is not "subject to the supervision" of the PSC and is not a "utility" within the meaning of the code and, as a result, is subject to both the Utility Tax and the UBT.

         The key issue in this case is whether plaintiff, an unincorporated business, is a vendor of utility services subject to both the Utility Tax and UBT, or a utility subject to the Utility Tax but exempt from the UBT. The resolution of this issue rests ...


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