
    In the Matter of Ames Volkswagen, Ltd., et al., Appellants, v State Tax Commission, Respondent.
    Submitted May 29, 1979;
    decided June 12, 1979
    
      POINTS OF COUNSEL
    
      J. Paul Troue for appellants.
    I. The legal incidence of the sales tax imposed pursuant to article 28 of the New York Tax Law falls upon the purchaser, and not on the vendor. (United States v Mississippi Tax Comm., 421 US 599; Agricultural Bank v Tax Comm., 392 US 339; Diamond Nat. v State Equalization Bd., 425 US 268; National Geographical v California Equalization Bd., 430 US 551; McGoldrick v Berwind-White Co., 309 US 33; Matter of Grant Co. v Joseph, 2 NY2d 196, 355 US 869; Matter of American Cyanamid & Chem. Corp. v Joseph, 308 NY 259; Matter of Fifth Ave. Bldg. Co. v Joseph, 297 NY 278; Matter of Sears, Roebuck & Co. v McGoldrick, 279 NY 184; Matter of Kesbec, Inc. v McGoldrick, 278 NY 293.) II. No obligation exists or occurs with respect to the tax imposed by article 28 of the New York Tax Law, without the prior occurrence of a taxable event. (Thomas v United States, 192 US 363; Harvester Co. v Department of Treasury, 322 US 340; Steward Mach. Co. v Davis, 301 US 548; Atlantic & Pacific Tea Co. v Grosjean, 301 US 412.) III. Section 1137-A of the New York Tax Law is unconstitutional in imposing upon a vendor, upon whom the legal incidence of the tax imposed by article 28 of the Tax Law does not fall, the obligation of paying an estimated tax prior to the occurrence of the taxable event of a retail sale. (American Locker Co. v City of New York, 308 NY 264; American Oil Co. v Neill, 380 US 451; Wein v State of New York, 39 NY2d 136; Matter of RAC Corp. v Gallman, 39 AD2d 57; Matter of Nehi Bottling Co. v Gallman, 39 AD2d 256, 34 NY2d 808; Defiance Milk Prods. Co. v 
      
      Du Mond, 309 NY 537; Salamar Bldrs. Corp. v Tuttle, 29 NY2d 221; Central Sav. Bank in City of N. Y. v City of New York, 279 NY 266; Flushing Nat. Bank v Municipal Assistance Corp. for City of N. Y., 40 NY2d 731.) IV. Under the facts of this case the petitioners-appellants, as vendors, are not taxpayers within the scope of article 28 of the New York Tax Law, or section 1137-A thereof. (Matter of Fifth Ave. Bldg. Co. v Joseph, 297 NY 278; City of New York v Feiring, 313 US 283; Matter of Brown Print. Co., 285 NY 47; Matter of American Cyanamid & Chem. Corp. v Joseph, 308 NY 259; Matter of Grant Co. v Joseph, 2 NY2d 196; Matter of RAC Corp. v Gallman, 39 AD2d 57; Matter of Nehi Bottling Co. v Gallman, 39 AD2d 256, 34 NY2d 808.) V. Petitioners hold the sales tax collected in trust for the State and their liability cannot exceed the corpus of the trust plus any amount the vendor should have, but failed to, collect. (Matter of Van Hosen Drapery Consultants [In re United States of Amer.— Maas], 22 AD2d 465; Dudley v United States, 285 F Supp 979, 428 F2d 1196.) VI. The payment of the estimated income tax is distinguishable from the payment of the estimated sales tax. (Erwin v Cranquist, 253 F2d 26; Beacham v Commissioner of Internal Revenue, 255 F2d 103.) VII. The payment of the estimated sales tax is oppressive.
    
      Robert Abrams, Attorney-General (Michael F. Colligan and William J. Kogan of counsel), for respondent.
    Chapter 89 of the Laws of 1976, which accelerates sales tax payments by large sale vendors making payments due on March 20 for the period between March 20 through March 31, is constitutional and valid and is not a confiscation of petitioners’ property. (Shapiro v City of New York, 32 NY2d 96, 414 US 804, 1087; Salomon v State Tax Comm., 278 US 484; Bass, Ltd. v Tax Comm., 232 NY 42, 266 US 271; Travis v Yale & Towne Mfg. Co., 252 US 60; Allen v Regents, 304 US 439; Willmett Park Dist. v Campbell, 338 US 411; Beacham v Commissioner of Internal Revenue, 255 F2d 103; Erwin v Cranquist, 253 F2d 26; Matter of Lacidem Realty Corp. v Graves, 288 NY 354.)
   OPINION OF THE COURT

Gabkielli, J.

We hold that the Legislature validly and constitutionally imposed upon vendors, who have already collected sales taxes upon their sales made between March 1 and March 20, the statutory obligation to accelerate their sales tax payments which become due on March 20 by estimating their sales and resultant taxes thereon for the balance of that month, in order to pay their full monthly tax liability prior to the close of the State’s fiscal year on March 31.

Upon the heels of the financial crisis confronting the State, and in order to establish a more sound fiscal operating policy to coincide with the close of each fiscal year, the 1975 Extraordinary Session of the Legislature enacted chapter 894 of the Laws of 1975 (superseded by L 1976, ch 89), all of which became section 1137-A of the Tax Law, effective March 1, 1976. The announced purpose therefor was to serve as a revenue raising measure to truly balance the State budget at the close of the fiscal year each March 31. The statute requires vendors to pay on March 20 their estimated sales tax liability for the entire month of March, although the vendors have, of course, not yet collected any taxes on sales they expect to make between March 20 and March 31. Adjustments reflecting actual sales taxes collected during this period are to be made in the vendor’s April monthly return, with the required additional payments or refunds, whichever may be appropriate.

Petitioners, large automobile dealers, who are affected by the statute, brought an article 78 proceeding seeking a declaration that section 1137-A of the Tax Law is unconstitutional. The proceeding was properly converted into an action for a declaratory judgment by Supreme Court, Albany County (Hughes, J.), all necessary parties having appeared and answered (CPLR 103, subd [c]). An article 78 proceeding, as such, does not lie to challenge the constitutionality of a legislative enactment (New York Public Interest Research Group v Steingut, 40 NY2d 250; Matter of Kovarsky v Housing & Dev. Admin. of City of N. Y., 31 NY2d 184). Having converted the action, as it is empowered to so do, Supreme Court entered a judgment declaring that the challenged statute was valid and constitutional. The Appellate Division, with one Justice dissenting, affirmed, and the petitioners appeal to this court as of right (CPLR 5601, subd [a]).

Measures enacted in the exercise of the taxing power for the purpose of raising revenues violate the due process clause " 'only if the act be so arbitrary as to compel the conclusion that it does not involve an exertion of the taxing power, but constitutes, in substance and effect, the direct exertion of a different and forbidden power, as, for example, the confiscation of property.’ (Magnano Co. v. Hamilton, 292 U. S. 40, 44)” (Shapiro v City of New York, 32 NY2d 96, 102, app dsmd 414 US 804; see, also, United States v Smith, 484 F2d 8, cert den 415 US 978). The Legislature has nearly unconstrained authority in the design of taxing measures unless they are utterly unreasonable or arbitrary (Matter of Long Is. Light. Co. v State Tax Comm., 45 NY2d 529; Gautier v Ditmar, 204 NY 20).

Measured against this standard, it is clear that taxes on sales or uses are constitutional and within the power of governments to levy. Petitioners, recognizing this, do not challenge the State’s authority to tax sales, their only argument being that the State has no power to impose a tax on sales before they are actually consummated.

We are quick to point out, however, that advance taxation has been consistently sustained in other areas, both by our court and the United States Supreme Court. In People ex rel. Bass, Ratcliff & Gretton v State Tax Comm. (232 NY 42, affd sub nom. Bass, Ratcliff & Gretton v Tax Comm., 266 US 271) we sustained a statute requiring prepayment of an annual corporate franchise tax levied on the privilege of doing business in this State, and in Salomon v State Tax Comm. (278 US 484) the requirement that taxpayers post security for a deferred payment of future taxes was likewise upheld. In Phillips v Commissioner (283 US 589) the requirement that stockholders remit unpaid Federal taxes on the income and profits of their corporation before any hearing is held to determine their actual liability was also found not to violate the due process clause (accord Commonwealth Dev. Assn. of Pa. v United States, 365 F Supp 792, affd 503 F2d 1398).

The advance payment of taxes on income not yet earned is neither new, novel nor improper, and is a fact of life for millions of taxpayers in New York State and the United States. Both jurisdictions provide for installment payments of estimated income tax including, inter alia, the requirement that the taxpayer pay, in installments each year on June 15 and September 15, the taxes due on estimated income through the end of each month, including, of course, June and September (US Code, tit 26, § 6153; Tax Law, § 656). Such a method of paying and collecting the tax has been upheld — and for good, legal and logical reasons (see, e.g., Beacham v Commissioner of Internal Revenue, 255 F2d 103; Erwin v Cranquist, 253 F2d 26, cert den 356 US 960). In Erwin, the statute required the taxpayer to estimate his income for the whole of the taxable year and to pay the estimate in four equal payments, in advance. The taxpayer argued that the statute was unconstitutional, because it required that a tax return be filed when there had been no discernible or measurable income and, also required the taxpayer to "guess” what his income will be and pay a tax thereon. Precisely the same argument is made by the petitioners in this case, and, like the Federal courts, we reject it.

The only feature to distinguish the tax here under consideration from those involved in the above-cited cases is that sales taxes are generally said to be paid by the purchaser to the vendor, and the vendor is required to collect the tax due from the purchaser and hold it as trustee for the State (Tax Law, § 1132, subd [a]). Thus, petitioners argue, the vendor is not liable for anything until a sale is made and, it is claimed, a statute requiring advance payment is a deprivation of property without due process of law.

This very argument has been rejected by this court in a sales tax case involving the liability for and collection of New York City sales taxes. There, we noted that the obligation imposed upon the vendor is described as "in the nature of a tax. He must file a return of his receipts from sales. * * * The duty of payment to the city is laid upon the vendor, not the purchaser. His liability is not measured by the amount actually collected from the purchaser but by the receipts required to be included in such return. * * * He must pay the tax even if failure to collect is due to no fault of his own” (Matter of Atlas Tel. Co., 273 NY 51, 57). Our holding that there is no due process violation is in complete accord with the decisions of our sister States as well (see, e.g., Stevens Enterprises v State Comm. of Revenue & Taxation, 179 Kan 696; Piedmont Canteen Serv. v Johnson, 256 NC 155; Calvert v Canteen Co., 371 SW2d 556 [Tex]; Robert H. Hinckley, Inc. v State Tax Comm., 17 Utah 2d 70; White v State, 49 Wn 2d 716).

We cannot adopt appellants’ theory that as anticipatory vendors they may not be cast in liability since they are mere potential vendors, and nothing more. As to their status as vendors in a tax collection capacity, we take note of the trustee relationship with which appellants have no quarrel. On the question of their "status” we can state it no more clearly than did this court in (Matter of Grant Co. v Joseph (2 NY2d 196, 203, mot to amend remittitur granted 2 NY2d 992, cert den 355 US 869) where the court stated that "[t]here is no doubt that the sales tax law imposes upon the vendor the obligation of a taxpayer in addition to that of a collecting trustee. In plain and unequivocal language, it declares that the tax 'shall be paid by the purchaser to the vendor as trustee for and on account of the city and the vendor shall be liable for the collection thereof and for the tax’ (Administrative Code, § N41-2.0, subd. e). While the incidence of the tax is, in the first instance, placed on the consumer, this court has flatly held that 'vendors * * * are to be deemed taxpayers under this legislation’ (Matter of Fifth Ave. Bldg. Co. v. Joseph, 297 N. Y. 278, 283), that the obligation imposed on the vendor is in the nature of a tax’ ” (see, also, Matter of Atlas Tel. Co., supra; Matter of Merchants Refrig. Co. v Taylor, 275 NY 113, 118).

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

Jones, J.

(dissenting). I cannot agree with the majority. I would hold that vendors may not constitutionally be required to pay estimated sales taxes in advance.

I recognize that we have classified vendors as taxpayers of the sales tax for some purposes (e.g., Matter of Atlas Tel. Co., 273 NY 51). The label, however appropriate and useful it is in some contexts, cannot determine the substantive aspects of the role played by the vendors in the collection of the taxes. The economic burden of the sales tax falls on the purchaser; the vendor is simply the collecting and remitting agent. My difficulty with the conclusion reached by the majority is that, however demanding may be the obligation of the vendor to see to the collection and remittal of taxes, the vendor cannot constitutionally be obliged to advance its own funds for prepayment with respect to taxes which are not yet due because the incidence of the tax — the sale to the purchaser — has not yet occurred and may never occur.

It is one thing, for convenience and advantage in the administration and collection of taxes, to require the economic taxpayer to make advance payments in installments on account of a tax, the due date for which has not yet arrived but the taxable incidence of which has already occurred. Thus, we are familiar with the constitutionally permissible withholding of taxes from current compensation and required filing of declarations of estimated taxes and payment of quarterly installments thereunder. But even when it is the ultimate taxpayer from whose compensation there is to be a withholding or who is obliged to make the quarterly payments from his own funds, such withholding and payments are attributable to income already earned or received. It is precisely on this economic analysis that challenges to withholding and prepayment have been rejected. (E.g., Erwin v Cranquist, 253 F2d 26, 27, cert den 356 US 960 — "We know of no reason why Congress may not require those who are in the process of earning or deriving income to file informational returns, or to pay currently installments of tax based on those returns.”) Indeed, the popular explanation and economic justification for the inauguration of such procedures accurately employed the slogan, "Pay as You Go”. The essence of that principle is that the taxpayer pays out his own money for income taxes as he earns or receives it.

With sales taxes, unlike income taxes, there is no accumulation factor with a graduated rate of tax. The incidence of the tax is a series of discrete taxable transactions; each sale separately is the taxable event. Indeed, the identity of the individuals — the economic taxpayers — who will become the purchasers liable for the sales taxes during the second half of the month cannot possibly be known on the 15th.

As I analyze the realities of the vendor’s position, I must conclude that the vendor-collector-"taxpayer” cannot constitutionally be compelled to advance its own funds with respect to sales taxes on taxable transactions which have not yet occurred. It makes no legal difference that the estimate is to be made by the vendor and may be based on its own experience as to taxable transactions reasonably to be anticipated, thus predicting a tax liability to a high degree of probability. Nor do the evident advantages to the public revenue of prepayment by large volume vendors justify departure from constitutional principle (cf. Flushing Nat. Bank v Municipal Assistance Corp. for City of N. Y., 40 NY2d 731).

Accordingly, I would reverse the order of the Appellate Division and declare section 1137-A of the Tax Law unconstitutional.

Chief Judge Cooke and Judges Wachtler and Meyer concur with Judge Gabrielli; Judge Jones dissents and votes to reverse in a separate opinion in which Judges Jasen and Fuchsberg concur.

Order affirmed. 
      
       These Federal and State enactments require the filing of advance declarations of estimated tax on annual income and a payment of a tax on income yet unearned. In each jurisdiction, the first payment is due April 15, covering the full months of January, February, and March; the second is due June 15, covering April, May and all of the month of June; the third is due September 15, covering July, August and all of the month of September; and the fourth is due January 15, covering the previous months of October, November and December.
     
      
      . The majority correctly points out that with respect to payments on declarations of estimated taxes, payment of the installments due on June 15 and September 15 are to cover income to be received through the end of each of those months. It does not appear that the constitutionality of this particular aspect of declaration of estimated tax program has ever been addressed. Even here, however, the payment can be said to be attributable to income received as of the 15th of the month. In economic analysis this may result in initial taxation at an interim rate higher than will finally prove to be applicable. On any analysis the June 15 and September 15 prepayments would not be confiscatory unless the effective rate of the tax were 100%, or the total amount of income received prior to the 15th were less than the amount of the tax installment then payable; only then would the taxpayer have to advance funds in excess of all income received to the date of the prepayment.
     
      
      . Not one of the cases cited in the majority opinion has addressed factual circumstances comparable to those we confront in this case, and none has upheld the advance exaction from a vendor-collecting agent out of its own funds of estimated sales taxes with respect to transactions which have not yet taken place.
     