
    In the Matter of United States Steel Corporation, Appellant, against Lawrence E. Gerosa, as Comptroller of the City of New York, Respondent.
    Argued January 14, 1960;
    decided March 31, 1960.
    
      
      A. Chauncey Newlin, Francis L. Casey, William L. Hearne and Arthur E. Hauser for appellant.
    I. The definition of “ financial business ” in the State Enabling Act precludes the city from so classifying a holding company such as petitioner. (Genet v. City of Brooklyn, 99 N. Y. 296; Gautier v. Ditmar, 204 N. Y. 20; County Securities v. Seacord, 278 N. Y. 34; Matter of Long Is. R. R. Co. v. Hylan, 240 N. Y. 199; Montello Salt Co. v. Utah, 221 U. S. 452; Jackson v. Citizens Cas. Co., 277 N. Y. 385; Matter of Sheppard, 189 App. Div. 370; People ex rel. Woolworth v. State Tax Comm., 200 App. Div. 287; People v. Fisher, 145 Misc. 406; Matter of Bush Term. Co., 93 F. 2d 659; City of Chicago v. Moore, 351 Ill. 510; White v. Moore, 46 Ariz. 48; Salomon v. Jersey City, 12 N. J. 379; Breitinger v. Philadelphia, 363 Pa. 512; Matter of Good Humor Corp. v. McGoldrick, 289 N. Y. 452; Matter of Grumman Aircraft Eng. Corp. v. Board of Assessors, 2 N Y 2d 500.) II. The history of the statute confirms that the State Legislature did not intend to permit taxation of holding companies as “ financial business ”, (Holmes Elec. Protective Co. v. City of New York, 304 N. Y. 202; Fox v. Standard Oil Co., 294 U. S. 87; Carey v. Donohue, 240 U. S. 430.) III. The Comptroller does not have the power to classify petitioner as a “ financial business ”. (Addison v. Holly Hill, 322 U. S. 607; Dun & Bradstreet v. City of New York, 276 N. Y. 198; Matter of Emigrant Ind. Sav. Bank v. McGoldrick, 268 App. Div. 277; Dollar Co. v. Canadian Car & Foundry Co., 220 N. Y. 270; Tauza v. Susquehanna Coal Co., 220 N. Y. 259; Acorn Employment Serv. v. Moss, 292 N. Y. 147.) IV. The assessment made cannot be sustained on the theory that, if illegal, it is less than the amount which legally might have been assessed. (People ex rel. Manila Elec. R. R. & Light. Co. v. Knapp, 229 N. Y. 502; People ex rel. Goodwin Sand & Gravel Co. v. Law, 207 App. Div. 567, 238 N. Y. 624; People ex rel. Butterick Co. v. Gilchrist, 213 App. Div. 533, 241 N. Y. 591; People ex rel. United Hotels Co. 
      v. State Tax Comm., 208 App. Div. 754, 239 N. Y. 516; Matter of Colgate-Palmolive-Peet Co. v. Joseph, 308 N. Y. 333; People ex rel. Hopkins v. Board of Supervisors, 52 N. Y. 556; People ex rel. Ducas v. State Tax Comm., 260 N. Y. 525; People ex rel. Eitingon Schild Co. v. Lynch, 260 N. Y. 526; People ex rel. Schluter & Co. v. Lynch, 264 N. Y. 680.) V. The Comptroller is required to allocate dividends and interest received from controlled subsidiaries for purposes of both financial business tax and general business tax, and his regulations are invalid which require allocation to New York City of a minimum of 12%% for purposes of financial business tax. VI. Penalties and penalty interest were improperly and illegally assessed. (Matter of McCall Corp. v. Gerosa, 2 A D 2d 358; Matter of Twentieth Century-Fox Film Corp. v. Gerosa, 8 A D 2d 714.)
    
      Charles H. Tenney, Corporation Counsel (Solomon Portnow and Stanley Buchsbaum of counsel), for respondent.
    I. Appellant is subject to the General Business and Financial Tax Law. (Matter of Steinbeck v. Gerosa, 4 N Y 2d 302; Edwards v. Chile Copper Co., 270 U. S. 452; Phillips v. International Salt Co., 9 F. 2d 389, 274 U. S. 718; First Bank Corp. v. Minnesota, 301 U. S. 234; Magruder v. Realty Corp., 316 U. S. 69; United States v. Atlantic Coast Line Co., 99 F. 2d 6, 306 U. S. 645; Reynolds v. Hill, 184 F. 2d 294; People ex rel. Tobacco & Allied Stocks v. Graves, 250 App. Div. 149, 277 N. Y. 723; Matter of Simms Petroleum Co. v. Graves, 247 App. Div. 851.) II. Appellant may be taxed as a financial business. (McFeely v. Commissioner, 296 U. S. 102; Helvering v. Reynolds Co., 306 U. S. 110; Wilmette Park Dist. v. Campbell, 338 U. S. 411; Matter of Foscarinis [Corsi], 284 App. Div. 476; Matter of Dobess Realty Corp. v. Magid, 186 Misc. 225; Matter of Stupack, 274 N. Y. 198; Matter of Lazarus [Corsi], 268 App. Div. 547, 294 N. Y. 613; Matter of Realty Associates Securities Corp. v. Portfolio, 274 App. Div. 926; People ex rel. Pratt v. Goldfogle, 242 N. Y. 277; Shields v. Utah Idaho R. R. Co., 305 U. S. 177; Hampton & Co. v. United States, 276 U. S. 394; Matter of Village of Saratoga Springs v. Saratoga Gas, Elec. Light & Power Co., 191 N. Y. 123.) III. In the event appellant is not taxable as a financial business, it necessarily follows that it must be taxed as a general business. (People ex rel. Farrington v. Mensching, 187 N. Y. 8; Matter of Markland v. Scully, 203 N. Y. 158; People 
      
      ex rel. Smith v. Schiellein, 95 N. Y. 124; Matter of Nash v. Lynch, 226 App. Div. 421, 253 N. Y. 564; Buffalo Gravel Corp. v. Moore, 201 App. Div. 242, 234 N. Y. 542; People ex rel. Term. & Town Taxi Corp. v. Walsh, 202 App. Div. 651; Reitz v. Mealey, 314 U. S. 33; Frost v. Corporation Comm., 278 U. S. 515; Truax v. Corrigan, 257 U. S. 312; Matter of Young v. Bragalini, 3 N Y 2d 602.) IV. Neither the due process clause nor the commerce clause of the Federal Constitution requires that a tax on the gross income or the gross receipts of appellant be allocated. Since allocation is unnecessary the tax can be imposed upon all of the income or receipts and, therefore, an allocation formula cannot be attacked on the ground that it fixes a minimum percentage to which the tax applies. (Matter of Gulf Oil Corp. v. Joseph, 307 N. Y. 342; Hawley v. Malden, 232 U. S. 1; New York ex rel. Cohn v. Graves, 300 U. S. 308; Welch v. Henry, 305 U. S. 134; Beidler v. South Carolina Tax Comm., 282 U. S. 1; Klein v. Board of Supervisors, 282 U. S. 19; Wheeling Steel Corp. v. Fox, 298 U. S. 193; First Bank Corp. v. Minnesota, 301 U. S. 234; Smith v. Ajax Pipe Line Co., 87 F. 2d 567, 300 U. S. 677; Southeast Power & Light Co. v. McCarroll, 200 Ark. 565; Matter of New Yorker Mag. v. Gerosa, 3 N Y 2d 362, 356 U. S. 339.) V. The Comptroller had the right to impose penalties for the failure to pay the full amount of the tax due. (Matter of Underpinning & Foundation Co. v. Gerosa, 3 A D 2d 415, 3 N Y 2d 707; Matter of New York World-Tel. Corp. v. McGoldrick, 272 App. Div. 806, 298 N. Y. 11; Matter of Twentieth Century-Fox Film Corp. v. Gerosa, 8 A D 2d 714.)
   Dye, J.

On this appeal from an order unanimously confirming a partial final determination by which respondent imposed upon United States Steel Corporation an assessment for a business tax deficiency for the years 1948, 1949 and 1950, in the principal amount of $176,767.28 plus penalties and interest totaling $144,388.62, the narrow question for decision is whether the prevailing ‘ ‘ financial business ” rate was the proper rate to use.

United States Steel is a New Jersey Corporation licensed to do business in New York and having its principal office at 71 Broadway, Ngav York City. During the tax years involved, it concededly functioned as a holding company, doing no other business than that of holding the stock of subsidiary operating ciompanies whos'e operative efforts it co-ordinated and supervised and at times financed in whole or in part. In turn, all dividends and interest on securities of the subsidiary companies were'paid to Steel at its New York office, and all such moneys, including securities, were deposited and held in New York banks. From time to time, as required by statute or by-laws, United States Steel made consolidated reports to stockholders and public agencies, and filed tax returns. Under protest, it filed a timely business and financial tax return for each of the controverted years, reporting its tax on approximately 2% of ‘ ‘ gross income ’ ’.

The deficiency assessment was made on an allocation to New York City of 12%% of the gross income received, and at the “financial business” rate of two fifths of 1%. The parties stipulated below that, had respondent elected to treat United States Steel as a “general business ”, and to apply the then prevailing “ general business ” rate of one fifth of 1% to “ gross receipts ”, without allocation, the principal tax would have amounted to $808,379.91. But, apart from its contention that it is entitled to be treated as a “ general business,’’ United States Steel has never conceded that the tax could have been imposed upon the basis of the entire gross receipts, without regard to apportionment.

Section 24-a of th% New York State General City Law (art. 2-B, General Business an! Financial Tax Authorization) authorizes the local legislators oi any city with a population of over one million or more to adopt or amend local laws “imposing in any such city a tax upon persons carrying on or exercising for gain or profit within such city, any trade, business, profession, vocation or commercial activity * * * or making sales within such city” at a rate “not to exceed one-fifth of o.ne per centum * * * and upon persons carrying on * * * any ‘ financial business ’ ” at a rate “ not to exceed two-fifths of one per centum ”.

A ‘ ‘ financial business ’ ’ is defined as including certain named categories of activities, to wit: “ 2. ‘ Financial Business. The services and transactions of private banks, private bankers, dealers and brokers in money, credits, commercial paper, bonds, notes, securities -and stocks, monetary metals, factors, and commission merchants ” (General City Law, § 24-a .[§§ 1, 2] ).

Local Law No. 44 of 1948 of New York City, enacted pursuant to the State enabling statute, contains identical language except for the addition of the words 1 ‘ holding companies ” (Administrative Code, § B46-1.0 [ch. 46, tit. B]). It is this difference in language that respondent points to as authority for classifying the taxpayer as a “ financial business ’ ’ and that the taxpayer points to in support of its challenge to the classification.

It is clear that holding companies are not included in the definition of “financial business ” contained in section 24-a, and that this omission indicates a legislative intent to preclude the City of New York from taxing the gross income of a holding company at the “ financial business ” rate.

In New York, the State Legislature has the exclusive power to tax, including the power to determine the class of persons to he taxed (N. Y. Const., art. Ill, § 1; Genet v. City of Brooklyn, 99 N. Y. 296; Gautier v. Ditmar, 204 N. Y. 20), which it may delegate to its municipal subdivisions, including the City of New York. But any taxes imposed by the latter must be within the expressed limitations (County Securities v. Seacord, 278 N. Y. 34) and, unless authorized, a tax so levied is constitutionally invalid (Matter of Long Is. R. R. Co. v. Hylan, 240 N. Y. 199). It is equally well settled that the Legislature may classify property for tax purposes in any manner it deems proper (People ex rel. Hudson Riv. Day Line v. Franck, 257 N. Y. 69). Its power in that regard is not without limitation, for the classification must have some reasonable basis (People ex rel. Farrington v. Mensching, 187 N. Y. 8). In this instance the State Legislature expressly stated that the classification ‘ ‘ shall mean or include” a list of named special classes of business (General City Law, art. 2-B, § 24-a [§§ 1, 2]), thereby evidencing an intention to restrict the application of the tax to the categories listed (Jackson v. Citizens Cas. Co. of N. Y., 277 N. Y. 385) and to exclude any business activity not so included. So viewed, the classification “ financial business ” in the State Enabling Act indicates an intention to preclude the city from classifying this taxpayer as a “ financial business ”.

If there is any doubt that the Legislature so intended to exclude holding companies as “ financial business ”, and we think there is none, the history of the Enabling Act points to the same result. The original enabling statute was enacted in 1934, and annually re-enacted. In 1941 it included a model local law, patterned on the then existing New York City law imposing the General Business and Financial Tax. In 1942 the New York City law included for the first time the term ‘ ‘ holding companies ” in its definition, but the Comptroller has since 1934 issued regulations treating holding companies as financial businesses. From this background information, the Comptroller reasons that the re-enactments of the enabling statute from 1934 through 1941 constituted a confirmation of the administrative construction. While it is true that repeated re-enactment points to legislative favoring of reasonable administrative interpretation (McFeely v. Commissioner, 296 U. S. 102 [1935]; Helvering v. Reynolds Co., 306 U. S. 110 [1939]; Wilmette Park Dist. v. Campbell, 338 U. S. 411 [1949]; Matter of Stupack, 274 N. Y. 198 [1937]), we ought not to attribute such an attitude to the Legislature’s silence in this area. First, the administrative construction was unreasonable under the circumstances. Second, from 1942 forward, the Legislature failed to add “holding companies ” to its definition, despite the city’s attempts to induce such an amendment (Assembly Int. No. 3519 and Senate Int. No. 3124, New York Legislative Record and Index, 180th Session, beginning January 9, 1957; Assembly Int. No. 3725 and Senate Int. No. 3186, New York Legislative Record and Index, 181st Session, beginning January 8, 1958). Third, the Legislature did include ‘1 holding companies ’ ’ in the definition of financial business contained in the enabling statute authorizing cities with a population of fewer than one million to impose a general business and financial tax similar to the New York City tax (L. 1948, ch. 651, amdg. L. 1947, ch. 278).

In the light of this historic background, the State Legislature clearly never intended to give the city authority to include holding companies in the definition of “financial business”. Thus the Comptroller assessed the deficiency tax without authority.

Respondent contends that, even if his classification was improper, his determination should nonetheless stand because the amount of tax imposed is less than what would have been imposed had United States Steel been classified as a general business. This premise, viz., that the general business tax would have been greater, is disputed by Steel. In any event we may not here decide the amount of the general business tax, if any, which respondent might have imposed.

The order appealed from should be reversed and the determination of the Comptroller annulled, with costs in this court and in the Appellate Division, and the matter remitted to the Comptroller for further proceedings not inconsistent with this opinion.

Desmond, Ch. J.

(dissenting). The question is not whether the Comptroller erred in calling appellant a 1 ‘ financial business ” for taxing purposes. The sole question for decision is whether appellant owes, to New York City, “ General Business and Financial Taxes ” in at least the amount assessed against it by the Comptroller (Lewis v. Reynolds, 284 U. S. 281, 283). The character and extent of appellant’s New York City activities are fully described in the record before us. That record makes it completely clear that the taxes as assessed are valid and owed.

The “ General Business and Financial Tax” authorized by the State (General City Law, § 24-a) and imposed by the city (Administrative Code of City of New York, ch. 46) is one tax, not two. The only difference between the taxation of “financial ’ ’ businesses and the taxation of other covered activities is that the city may levy against the former a tax up to two-fifths of 1% of gross income while the tax against the latter may not exceed one fifth of 1% of gross receipts. In other words, there are two separate maxima as to two kinds of businesses, not two kinds of tax. If the Comptroller, describing appellant as a financial business, had sent it tax bills computed at the rate of two fifths of 1% on its whole receipts, he would have acted illegally since the State law did not permit inclusion of holding companies like appellant in the list of “ financial businesses ”. But the Comptroller was, by State enabling law and city local law, empowered to tax any locally conducted business, whether “financial” or other kind, up to one fifth of 1% on its gross takings. The taxes here contested by appellant were figured at a rate much lower than that — two fifths of 1% of 12%%, that is, one twentieth of 1% on appellant’s gross receipts. Since that was well below the authorized tax on “ general businesses ” and since appellant, if not a “financial business ”, is certainly a taxable New York City business of some kind (Matter of Steinbeck v. Gerosa, 4 N Y 2d 302, 308, 309), the tax levied was valid and there is nothing to litigate (see Matter of Nash v. Lynch, 226 App. Div. 421, 423, affd. 253 N. Y. 564; Matter of National Gash Register Co. v. Joseph, 299 N. Y. 200, 203). There is in this record an express stipulation that, if the Comptroller had elected to treat this as a general business, the tax could on the undisputed facts have been four times as high as the actual levy here being litigated.

Appellant’s transactions were all carried on in New York City so there is no problem of allocation as between intrastate and interstate commerce. The Comptroller’s power to use, as to local New York City businesses, allocation formulae producing less than the maximum allowable tax has been upheld by this court (Olive Coat Co. v. City of New York, 283 N. Y. 733; Berkshire Fine Spinning Associates v. City of New York, 5 N Y 2d 347, 358, 359, appeal dismissed 361 U. S. 3; see Matter of New Yorker Mag. v. Gerosa, 3 N Y 2d 362, 369, appeal dismissed 356 U. S. 339).

We have often reminded ourselves that it is our duty “to ascertain and declare the whole law upon the undisputed facts ” spread before us (Oneida Bank v. Ontario Bank, 21 N. Y. 490, 504; Rentways v. O’Neill Milk & Cream Co., 308 N. Y. 342, 349; People v. Duell, 1 N Y 2d 132, 134; Cahill v. Regan, 5 N Y 2d 292, 298). We should perform that duty here.

The order should be affirmed, with costs.

Judges Fuld, Froessel, Van Voorhis and Foster concur with Judge Dye; Chief Judge Desmond dissents in an opinion in which Judge Burke concurs.

Order reversed, etc.  