SIN, Inc. v. Department of Finance — 71 N.Y.2d 616

Majority

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In the Matter of SIN, Inc., Respondent, v Department of Finance of the City of New York, Appellant.

Argued March 22,1988;

decided May 3, 1988

p. 617

POINTS OF COUNSEL

Peter L. Zimroth, Corporation Counsel (James F. Eller, Glenn Newman and Stanley Buchsbaum of counsel), for appellant.

I. Where the tax administrator relies on specific provisions of a lease which indicate that certain expenditures are made as rent, parol evidence may not be introduced to alter the intent shown by that lease. (Fogelson v Rackfay Constr. Co., 300 NY 334 ; Randall-Smith, Inc. v 43rd St. Estates Corp., 17 NY2d 99 ; Lebowitz v Mingus, 100 AD2d 816 , 63 NY2d 675 ; Oxford Commercial Corp. v Landau, 12 NY2d 362 ; Commissioner of Internal Revenue v Dwight’s Estate, 205 F2d 298 , 346 US 871 ; County Trust Co. v Mara, 242 App Div 206 , 266 NY 540 ; Dulander, Inc. v City of New York, 97 AD2d 985 ; Matter of Prudential-Bache Sec. v Department of Fin., 99 AD2d 930 ; Leroy Adventures v Michael, 106 AD2d 922 ; Matter of Joseph Davis, Inc. v Tully, 76 AD2d 946 , 51 NY2d 704 .) II. Tenant expenditures for capital improvements are taxable as rent because they possess the attributes of rent and do not fall within the exclusionary language of the Tax Law. (Matter of Flah’s of Syracuse v Tully, 89 AD2d 729 ; River View Assocs. v Sheraton Corp., 33 AD2d 187 ; Matter of Petrakakis v Crown Hotels, 3 AD2d 635 ; Russell Co. v United States, 261 US 514 ; Matter of Mobil Oil Corp. v Finance Adm’r of City of N. Y. 58 NY2d 95 ; Wakefield v Fargo, 90 NY 213 ; Popkin v Security Mut. Ins. Co., 48 AD2d 46 ; Matter of Fineway Supermarkets v State Liq. Auth., 48 NY2d 464 ; Ostrer v Schenck, 41 NY2d 782 ; Matter of Howard v Wyman, 28 NY2d 434 .)

Stephen R. Sugrue and Stephen S. Ziegler for respondent.

I. The relevant statute must be construed strongly against the department. (American Locker Co. v City of New York, 308 NY

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264 ; Gould v Gould, 245 US 151 ; Matter of American Sav. Bank v Michael, 101 AD2d 40 , 64 NY2d 397 ; Matter of Good Humor Corp. v McGoldrick, 289 NY 452 .) II. An unambiguous statute must be applied according to its plain meaning. (Matter of Young v Gerosa, 11 AD2d 67 ; Matter of Penney Co. v Lewisohn, 40 AD2d 67 , 33 NY2d 528 .) III. The department’s own prior interpretations of the subject statute, by letter ruling or otherwise, are irrelevant for purposes of interpreting the statute. (Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451 ; McGoldrick v Family Fin. Corp., 287 NY 535 ; Matter of Willcox v Stern, 18 NY2d 195 ; Matter of Panzer v Berman, 53 Misc 2d 122 ; Matter of Blue Spruce Farms v New York State Tax Commn., 99 AD2d 867 , 64 NY2d 682 .) IV. There is no judicial or administrative precedent supporting the department’s position. (Matter of Linsley v Gallman, 38 AD2d 367 , 33 NY2d 863 ; Matter of Mobil Oil Corp. v Finance Adm’r of City of N. Y., 58 NY2d 95 ; Matter of Ally & Gargano v Biderman, 126 AD2d 354 .) V. The court below correctly held that the department cannot assert the parol evidence rule. (Coleman v First Natl. Bank, 53 NY 388 ; Folinsbee v Sawyer, 157 NY 196 ; Metz v Lane Chair Rental, 16 Misc 2d 735 , 11 AD2d 741 ; Bush Homes v Franklin Natl. Bank, 24 AD2d 1012 ; Vinciguerra v State of New York, 38 AD2d 607 ; Matter of Debenhams, Inc. v Commissioner of Fin., N. Y. City, 117 AD2d 344 ; Commissioner of Internal Revenue v Dwight’s Estate, 205 F2d 298 , 346 US 871 .) VI. The department’s own audit summary establishes that there were no expenditures for improvements during the year that they were "required”. VII. In no event should respondent be required to pay more than the present value of the $1 million of improvements to be received by the landlord upon the expiration of the lease in 1997. (Blatt Co. v United States, 305 US 267 ; Helvering v Bruun, 309 US 461 ; Gowern’s Estate v Commissioner of Internal Revenue, 119 F2d 83 .)

OPINION OF THE COURT

Petitioner, a corporation engaged in the operation of a Spanish language television network, leased commercial office space in Manhattan in September 1981. The lSYz-year lease was the product of extensive negotiations on petitioner’s rights and obligations in renovating the premises. The lease incorporates petitioner’s agreement to spend approximately

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$1,000,000 to improve the premises in a provision which reads as follows: "This Lease is made with the understanding and agreement that Tenant will spend approximately $1,000,000 to improve, furnish, equip and/or alter the premises being let hereunder in accordance with plans and specifications to be approved by Landlord, as required under the within lease. It is a substantial consideration of the Landlord in renting the space to Tenant at the rental referred to herein that Tenant expend such minimum sum, and failure to so improve the premises shall be deemed a substantial default on the part of Tenant.”

Pursuant to this provision, petitioner expended $1,446,166 in major capital improvements during the tax years June 1, 1980 through May 31, 1983. In January 1984, respondent, Department of Finance of the City of New York, assessed a deficiency against petitioner of $98,503, including back taxes and interest, for failure to pay commercial rent tax on the sums thus expended. At a subsequent hearing to reconsider the determination, petitioner argued that any payments made by a tenant pursuant to a lease for capital improvements to the premises it occupies do not constitute "rent” within the meaning of the commercial rent tax law (Administrative Code of City of New York § 11-701 [6]). Under that local statute, rent is defined as: "The consideration paid or required to be paid by a tenant for the use or occupancy of premises, valued in money, whether received in money or otherwise, including all credits and property or services of any kind and including any payment required to be made by a tenant on behalf of his or her landlord for real estate taxes, water rents or charges, sewer rents or any other expenses (including insurance) normally payable by a landlord who owns the realty other than expenses for the improvement, repair or maintenance of the tenant's premises” (emphasis added) (Administrative Code § 11-701 [6], formerly § L46-1.0 [6]).

Respondent, relying on a prior department interpretation of "improvement” expenses, contended that the statutory exclusion refers only to "voluntary expenditures” for "minor, nonstructural improvements” which are not intended to "save the landlord the expense of doing the work itself’ (Department of Finance, opn letter, June 7, 1984, 4 NY Tax Rep [CCH] ]j 400-155). The Hearing Officer, adopting respondent’s interpretation of "improvement” expenses, upheld the deficiency assessment. Finding that petitioner’s commitment to make improvements was "part of the bargained-for consideration” in the

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lease and that the improvements entailed reconstruction and major rehabilitation of the building for the primary benefit of the landlord, the Hearing Officer concluded that petitioner’s expenditures did not fall within the statutory exclusion. A final determination adopting the Hearing Officer’s findings and conclusions was issued by respondent’s Commissioner. Thereafter, petitioner commenced this article 78 proceeding.

Upon transfer of the proceeding to the Appellate Division, that court annulled respondent’s determination, partially on the ground that the "clear language of the statute” ( 126 AD2d, at 344 ) contravenes respondent’s narrow reading of the statutory exclusion. We agree. As the Appellate Division aptly explained, where the language used in a taxing statute is neither special nor technical, but consists of common words of clear import, there is little reason to defer to a contrary interpretation given by the administrative agency. In such cases, the clear meaning of a statutory provision cannot be altered by invocation of special administrative competence or expertise (see, Matter of Alamo Assocs. v Commissioner of Fin. of City of N. Y., 71 NY2d 340 , 346; Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451 , 459; American Locker Co. v City of New York, 308 NY 264 , 269; McKinney’s Cons Laws of NY, Book 1, Statutes § 232).

Here, the statutory language is unambiguous and nontechnical. Whatever else "rent” may include as defined in the local law, it clearly excludes, without express or implied qualification, "expenses for the improvement, repair or maintenance of the tenant’s premises” (emphasis added). Contrary to respondent’s contention, this plain language admits no distinction between minor and major improvements, between those primarily made for the benefit of the landlord and those for the tenant, or between those bargained for as consideration under the lease and those initiated at will by the tenant. The term "improvement” commonly refers to a valuable addition or amelioration of real estate, "amounting to more than mere repairs or replacement * * * and intended to enhance its value, beauty or utility”, including "any permanent structure or other development” or "expenditure to extend the useful life of an asset[, which is] capitalized as part of the asset’s costs” (Black’s Law Dictionary 682 [5th ed] [emphasis added]). This term, without condition or modification in the statute, should be given its ordinary meaning and significance, not the quite different meaning — indeed, the virtually opposite meaning-urged by respondent on the basis of a prior administrative

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ruling (see, McGoldrick v Family Fin. Corp., 287 NY 535 , 539; Matter of Penney Co. v Lewisohn, 40 AD2d 67 , 69, affd 33 NY2d 528 ). Accordingly, the statutory exclusion for "improvement” expenses was properly read by the Appellate Division to include all the expenditures made by petitioner during the tax years in question, whether or not a part of its bargain with the landlord, for the alterations and renovations of the leased premises. Consequently, the determination for tax deficiency was properly nullified.

Our decision in Matter of Mobil Oil Corp. v Finance Adm’r of City of N. Y. ( 58 NY2d 95 ) does not support a contrary result. In that case, we held that "maintenance” expenses under the same statutory provision did not extend to sums paid by the tenant for cleaning and janitorial services. We explained that the term "maintenance” did not include work necessary to keep the premises clean, but "only work done to prevent and cure depreciation — i.e., such things as painting, replacing window sashes, etc.” (id., at 100). Only "in the broadest sense” of the term might "maintenance” be thought to embrace mere cleaning (id., at 99). Hence, we upheld the Finance Director’s more conventional, albeit narrower, interpretation (see, Black’s Law Dictionary 859 [5th ed]).

Here, by contrast, the renovation undertaken by petitioner clearly falls within the general sense of the term "improvement”. The interpretation urged by respondent — which would exclude the capital alterations and additions made by petitioner — is not merely a narrow reading of the term; it is a peculiarly cramped one. It denudes the term "improvement” of that which is an integral part of its ordinary meaning — i.e., the substantial enhancement of property value or utility. The statutory provision in question contains no words of limitation or modification justifying such a construction, and there is nothing in the statute to suggest that the term "improvement” should not be given its full significance (see, Price v Price, 69 NY2d 8 , 15-16; People v Shakun, 251 NY 107 , 114; McKinney’s Statutes §§ 114, 232). Moreover, to accept respondent’s contention — that "improvement” is limited to minor nonstructural work which does not significantly enhance the value of the property — would render that term superfluous and redundant in the statute; "improvement” would then add nothing to the words "repair” and "maintenance”. Such a construction, which would deprive the term of its own separate meaning, should be avoided for that reason as well (see,

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Feinstein v Bergner, 48 NY2d 234 , 239; New York State Bridge Auth. v Moore, 299 NY 410 , 416; McKinney’s Statutes § 231).

Finally, inasmuch as we ground our decision on the plain meaning of the statutory language, we have no need to address the propriety of the Hearing Officer’s refusal to consider parol evidence of the meaning and purpose of the "mandatory improvement” provision in the lease.

Accordingly, the judgment of the Appellate Division should be affirmed, with costs.

Chief Judge Wachtler and Judges Simons, Kaye, Alexander, Titone, Hancock, Jr., and Bellacos a concur in Per Curiam opinion.

Judgment affirmed, with costs.

Cases cited

Fogelson v. Rackfay Construction Co. 300 NY 334 N.Y. 1950-03-02 p. 617
Randall-Smith, Inc. v. 43rd Street Estates Corp. 17 NY2d 99 N.Y. 1966-02-24 p. 617
Lebowitz v. Mingus 100 AD2d 816 N.Y. App. Div. 1984-04-24 p. 617
Oxford Commercial Corp. v. Landau 12 NY2d 362 N.Y. 1963-04-04 p. 617
County Trust Co. v. Mara 266 NY 540 N.Y. 1935-01-24 p. 617
Flah's of Syracuse, Inc. v. Tully 89 AD2d 729 N.Y. App. Div. 1982-07-22 p. 617
River View Associates v. Sheraton Corp. of America 33 AD2d 187 N.Y. App. Div. 1969-12-11 p. 617
Russell Motor Car Co. v. United States 261 US 514 SCOTUS 1923-04-09 p. 617
Mobil Oil Corp. v. Finance Administrator 58 NY2d 95 N.Y. 1983-02-15 p. 617, p. 618, p. 621
Wakefield v. Fargo 90 NY 213 N.Y. 1882-10-17 p. 617
Popkin v. Security Mutual Insurance 48 AD2d 46 N.Y. App. Div. 1975-05-13 p. 617
Fineway Supermarkets, Inc. v. State Liquor Authority 48 NY2d 464 N.Y. 1979-12-11 p. 617
Howard v. Wyman 28 NY2d 434 N.Y. 1971-06-10 p. 617
Gould v. Gould 245 US 151 SCOTUS 1917-11-19 p. 618
American Savings Bank v. Michael 101 AD2d 40 N.Y. App. Div. 1984-04-03 p. 618
American Savings Bank v. Michael 64 NY2d 397 N.Y. 1985-02-14 p. 618
Good Humor Corp. v. McGoldrick 289 NY 452 N.Y. 1943-01-14 p. 618
Young v. Gerosa 11 AD2d 67 N.Y. App. Div. 1960-06-21 p. 618
J. C. Penney Co. v. Lewisohn 40 AD2d 67 N.Y. App. Div. 1972-11-14 at 69 p. 618, p. 621
J. C. Penney Co. v. Lewisohn 33 NY2d 528 N.Y. 1973-07-02 p. 618, p. 621
Kurcsics v. Merchants Mutual Insurance 49 NY2d 451 N.Y. 1980-02-20 at 459 p. 618, p. 620
McGoldrick v. Family Finance Corp. 287 NY 535 N.Y. 1942-03-05 at 539 p. 618, p. 621
Willcox v. Stern 18 NY2d 195 N.Y. 1966-07-07 p. 618
Panzer v. Berman 53 Misc 2d 122 N.Y. Sup. Ct. 1967-01-24 p. 618
Blue Spruce Farms, Inc. v. New York State Tax Commission 99 AD2d 867 N.Y. App. Div. 1984-02-02 p. 618
Blue Spruce Farms, Inc. v. New York State Tax Commission 64 NY2d 682 N.Y. 1984-12-13 p. 618
Linsley v. Gallman 38 AD2d 367 N.Y. App. Div. 1972-03-13 p. 618
Linsley v. Gallman 33 NY2d 863 N.Y. 1973-12-27 p. 618
In re Ally & Gargano, Inc. v. Biderman 126 AD2d 354 N.Y. App. Div. 1987-03-31 p. 618
Coleman v. First National Bank of Elmira 53 NY 388 N.Y. 1873-09-23 p. 618
Folinsbee v. Sawyer 157 NY 196 N.Y. 1898-11-22 p. 618
Metz v. Lane Chair Rental Inc. 16 Misc 2d 735 N.Y. Sup. Ct. 1958-12-01 p. 618
Vinciguerra v. State 38 AD2d 607 N.Y. App. Div. 1971-12-01 p. 618
Debenhams, Inc. v. Commissioner of Finance 117 AD2d 344 N.Y. App. Div. 1986-05-27 p. 618
M. E. Blatt Co. v. United States 305 US 267 SCOTUS 1938-12-05 p. 618
Helvering v. Bruun 309 US 461 SCOTUS 1940-03-25 p. 618
D. S. Alamo Associates v. Commissioner of Finance 71 NY2d 340 N.Y. 1988-02-17 at 346 p. 620
American Locker Co. v. City of New York 308 NY 264 N.Y. 1955-03-03 at 269 p. 620
Price v. Price 69 NY2d 8 N.Y. 1986-12-19 at 15-16 p. 621
People v. Shaken 251 NY 107 N.Y. 1929-05-28 at 114 p. 621
Feinstein v. Bergner 48 NY2d 234 N.Y. 1979-10-23 at 239 p. 622
New York State Bridge Authority v. Moore 299 NY 410 N.Y. 1949-07-19 at 416 p. 622