
    In the Matter of Frank E. Xavier, Petitioner, against Alger B. Chapman et al., Constituting the State Tax Commission, Respondents.
    Third Department,
    November 13, 1946.
    
      
      Charles J. Tobin (Charles J. Tobin, Jr., of counsel), attorney for petitioner.
    
      Nathaniel L. Goldstein, Attorney-General (Wendell P. Brown, Solicitor-General, and John C. Crary, Jr., Assistant Attorney-General of counsel), for respondents.
   Postee, J.

This is a proceeding under article 78 of the Civil Practice Act to review a final determination of the State Tax Commission affirming additional assessments against petitioner for the years 1935, 1936'and 1937, of an emergency tax on his personal income as imposed by section 351-f of the Tax Law.

On March 14, 1932, petitioner sold his entire newspaper publishing business for $1,250,000, of which $250,000 was received in' cash, and the remainder in notes maturing in each of the years 1933 to 1937.

The issues involved are: (1) whether the gain upon the sale of petitioner’s entire business was subject to the emergency tax imposed by section 351-f of the Tax Law, as a gain derived from the sale of real or personal property connected with any trade or business carried on by petitioner for profit; (2) and, if so, whether payments on an installment basis received in years during which the emergency tax was in effect are exempt because the sale took place before the emergency tax was first imposed.

Petitioner’s contention is that the transaction taxed was a capital transaction, not included within the levy of the 1% emergency tax. This court has held that the sale of á stock exchange membership,* after the owner had retired from the business of trading on the Exchange, was taxable because the transaction was connected with the business in which the taxpayer was individually engaged (People ex rel. Cone v. Graves, 254 App. Div. 918). Petitioner argues that there is a distinction between the sale of one of the capital assets of a business and the sale of the entire business on the ground that the former is merely an asset of the taxpayer’s business and that the whole business is his personal asset.

We are unable to find such a distinction in the statute. As originally enacted by section 351-d of the Tax Law (L. 1933, ch. 228) an emergency tax was generally imposed on net incomes, with the following exclusion: “ (a) there shall not be included in gross income as defined by section three hundred fifty-nine of this article gains and profits derived from any sale or exchange of real or personal property of the taxpayer not dealt in by him as a business and the transaction not being • connected with a business or trade in which he is engaged individually or as a partner ”.

As re-enacted by section 351-e of the Tax Law (L. 1934, ch. 899) the exclusion was amended to read as follows: (a) that there shall be excluded from gross income gains and profits derived from any sale or exchange of real or personal property not connected with any trade or business carried on for gain or profit ”.

The same language was used in the continuance of the tax for 1935, 1936 and 1937 by section 351-f of the Tax Law (L. 1935, chs. 34, 422; L. 1936, ch. 127 ;.L. 1937, ch. 184).

These statutes make no such distinction as petitioner claims, and, in our opinion, clearly provide for an emergency tax against gains from the sale of all or any part of property connected with the taxpayer’s business.

Petitioner also asserts that the taxing statutes were retroactively, and, therefore improperly applied, because the original sale antedated the enactment of the first emergency tax statute. This, we think, is not a proper construction. The tax imposed was not a tax on the sale but rather a tax on the income as the same was received by petitioner from year to year, and as he elected to report it (Burnet v. Sanford & Brooks Co., 282 U. S. 359).

The determination of the State Tax Commission should be confirmed, with costs.

Brewster, J.

(dissenting). The statute (Tax Law, § 351-e) directs an exclusion from the tax base of a gain derived by the taxpayer from any sale of property not connected with a trade or business carried on by him for profit. Here the gainful sale itself was not so connected but its subject matter, the property sold, priorly had been, in the sense of its having been its capital assets, personally owned by petitioner.

Does the stated nonconnection refer only to the sale, or both it and its subject, or only to the latter? Literally, it may be read in all three ways. The language of the statute (L. 1933, ch. 228) which preceded the present one, was more clear. . There both the character of the property sold as related to the taxpayer’s business (not dealt in by him as a business), and the nature of the sale (not connected with the business in which he was engaged) — both these features were stated in definition of the source of the profit within the exclusion. The history and context of the emergency tax enactments make it evident that, in fixing its base, capital gains and losses were intended to be excluded. I see nothing to indicate that any radical change was intended in the 1934 re-enactment (Tax Law, § 351-e; L. 1934, ch. 899). I think the new phraseology was merely intended to encompass and combine the features marked by the earlier enactment. The.sale itself as well as its subject matter must qualify as being unconnected with the taxpayer’s trade or business. To me this clearly defines the sale as one outside of the routine of the taxpayer’s business and of property not usually and customarily sold in its conduct or in relation thereto as a business.

Petitioner’s outright sale of his entire newspaper plant and business was a transaction personal to him. It was a sale of capital assets which he personally owned. The sale itself was not connected with any routine of his business. Instead it ended it. He was not engaged in any business of selling newspaper plants. Bather it had been only to operate the one he disposed of. The property he sold was not “ connected ” with any trade or business which remained to be carried on. To say that a sale of property sold is connected with a business carried on by the vendor implies a continuance of business by him. Such a reference denotes either that the incident of sale is a normal activity or object of the business, or else that the thing sold is some item, part or portion of property used in or acquired for the conduct of the business. When the entirety of a business in which one is engaged forms the subject matter of a sale the property transferred cannot, logically, be related to the conduct of a trade or business which the seller no longer owns.

The determination should be reversed and the emergency tax assessments therein found cancelled.

Hill, P. J., Heffernan and Lawrence, J'J., concur with Poster, J.; Brewster, J., dissents in a memorandum.

Determination confirmed, with $25 costs to the respondent.  