ALBANY, N.Y. (CN) - New York cannot charge sales tax on "rolling stock," trucks and railcars acquired as part of subsidized business expansions, an appeals court ruled. In related opinions, the Third Judicial Department of the New York Supreme Court's Appellate Division overturned decisions from the New York Tax Appeals Tribunal. That tribunal had found that companies receiving aid from county industrial development agencies owe sales taxes on equipment put to use outside the geographic boundaries of the agencies. But the five-justice panel found that the equipment - even if it was mobile - furthers New York's economic development goals and, as such, qualified for a tax exemption. "Respondent Tax Appeals Tribunal determined that equipment used outside the agency's jurisdiction may not be exempted from sales tax because agencies are permitted to extend financial assistance only with respect to 'projects,' and such equipment does not come within the definition of 'project' that is set forth in General Municipal Law Section 854 (4)," Justice Thomas Mercure wrote of the appeal brought by Rochester roofing contractor Elmer W. Davis Inc. "Inasmuch as we conclude that the Tribunal's construction of the term 'project' is contrary to the purpose and language of the statute, we now annul," Mercure added. The other appeal came from American Rock Salt Co., a producer of de-icing salt mined about 40 miles south of Rochester in Livingston County. In each appeal, the appeals court decided unanimously to send the cases back to the state tax commissioner for further consideration consistent with its holding. Davis had bought trucks and other equipment as the roofing business expanded. American Rock Salt had leased 600 railcars to transport salt to customers across the country as production ramped up. It had acquired an underground mine in Groveland started by Akzo Nobel Salt Inc. and completed it in the late 1990s. In both cases, an industrial development agency assisted each company's expansion. The County of Monroe Industrial Development Agency worked with Davis, and the Livingston County Industrial Development Agency worked with American Rock Salt. IDAs are public-benefit corporations established under state law that help local economies by encouraging the construction and equipping of industrial, manufacturing, warehousing, commercial, research and recreational facilities. One way the IDAs do that is by passing along to private developers the sales-tax exemption they enjoy as governmental units. But in both the Davis and American Rock Salt cases, the Tax Appeals Tribunal said the companies failed to show that the equipment claimed as exempt from sales taxes was "an integral part of the project" being assisted by the IDA. The tribunal also ruled the companies failed to abide by a 1973 amendment to the Industrial Development Agency Act - known as the "anti-pirating" provision - that required prior consent of all municipalities through which their trucks and railcars would pass to qualify for the exemption. Following audits, the state Division of Taxation said Davis owed about $20,000 in sales tax, and that American Rock Salt owed about $451,000. After unsuccessful administrative appeals, the companies filed Article 78 petitions against the state tax commissioner. The Appellate Division then found that the trucks and railcars play an important economic development role. "In our view, regardless of whether the statutory test requires that the vehicles be directly related or integral, or - as the statute provides - 'necessary,' 'desirable' or 'incidental,' the vehicles meet the statutory requirement inasmuch as the project would not be viable without them; petitioner could not continue to operate as a roofing contractor if it did not transport its roofing supplies and employees to job sites," Mercure wrote in a footnote to the Davis opinion. That was echoed in the American Rock Salt opinion written by Justice John Lahtinen. "For the mining project to go forward and have viability, an integral part thereof was moving the salt from where it was mined to markets," Lahtinen wrote. "Simply put, the railcars were integral to the project and the tribunal's determination to the contrary was arbitrary and erroneous." Lahtinen and Mercure deliberated both cases with Justices Bernard Malone, Leslie Stein and Elizabeth Garry. On the anti-pirating provision, the justices noted the 1969 legislation establishing IDAs had not addressed geographical limits, so the 1973 amendment served both to encourage multi-municipal projects and to discourage one municipality from luring an expansion away from another by offering IDA incentives. American Rock Salt's railcars "do not intrude on, or otherwise adversely affect the interests of municipalities outside of Livingston County through which the railcars happen to roll," Lahtinen wrote of the need for prior consent. "The tribunal's interpretation and application of this provision of the general municipal law to petitioner erodes the statute's overriding goal of fostering economic development while not advancing in any discernible way the concerns that gave rise to the consent requirement," he added. In the Davis opinion, Mercure was more pointed. "Such a result - requiring established private developers to restrict their future customer base to only those business opportunities that are within an agency's geographic location, or risk foregoing otherwise available financial assistance - is inconsistent with the statute's purpose of promoting economic welfare and economically sound commerce and projects, and preventing unemployment and economic deterioration," the ruling states. "While it is certainly true that an exemption statute is to be construed strictly against those arguing for nontaxability, a tax exemption statute's interpretation should not be so narrow and literal as to defeat its settled purpose," Mercure continued, quoting precedent. A. Vincent Buzard of Harris Beach in Pittsford represented both companies in their appeals. Kathleen Arnold of the Attorney General's Office represented the commissioner of taxation and finance.
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