
    In the Matter of Suffolk County Federal Savings & Loan Association, Appellant, against George M. Bragalini et al., Constituting the State Tax Commission, Respondents.
    Argued February 23, 1959;
    decided April 17, 1959.
    
      Joseph F. O’Neill, Arthur L. Milligan and George J. Aspland for appellant.
    I. An agreement relating to a mortgage which does not increase the indebtedness is not subject to taxation. II. Where the original mortgage is extended and there is no increased or new indebtedness and the original indebtedness remains undischarged and the mortgage lien is continued, there is no new tax. (Matter of Fifth Ave. & 46th St. Corp. v. Bragalini, 4 A D 2d 387; Matter of Park & 46th St. Corp. v. State Tax Comm., 295 N. Y. 173; People ex rel. Jewelers Bldg. Corp. v. State Tax Comm., 214 App. Div. 99, 241 N. Y. 524; Matter of Lloyds First Mtge. Corp. v. Lynch, 260 N. Y. 642; 
      People ex rel. Banner Land Co. v. State Tax Comm., 244 N. Y. 159; People ex rel. United States Tit. Guar. Co. v. State Tax Comm., 230 N. Y. 102.) III. The mortgage tax is based upon the amount of the principal indebtedness, not upon whether there is a new debtor. The rationale of the decision of the court below seems to be that, when you have a new debtor, there is a new indebtedness and a new tax. Therein the court below erred. (Matter of Park & 46th St. Corp. v. State Tax Comm., 295 N. Y. 173; Matter of Lloyds First Mtge. Corp. v. Lynch, 260 N. Y. 642; People ex rel. Banner Land Co. v. State Tax Comm., 244 N. Y. 159.) IV. Although the court below said that the case at bar comes within the language of Matter of Erie R. R. Co. v. State Tax Comm. (260 App. Div. 268, affd. 284 N. Y. 673), that case does not seem applicable. (People v. Boston & Maine R. R., 202 App. Div. 54, 234 N. Y. 629; Matter of New York, N. H. & H. R. R. Co. [State Tax Comm.], 266 App. Div. 470.) V. The Liebl extension agreement is a supplemental instrument recorded for the purpose of perfecting the primary mortgage, or pursuant to some provision or covenant therein and, as a consequence, is exempt from taxation under section 255 of the State Tax Law. VI. The imposition of a mortgage tax on the Liebl extension agreement constitutes double taxation. (Matter of Cooley, 186 N. Y. 220; Matter of City Tit. Ins. Co. v. Orgel, 205 Misc. 1076, 2 A D 2d 250.)
    
      Willard P. Scott and P. J. Riordan for Savings Banks Association of the State of New York, amicus curia, in support of appellant’s position.
    I. The court below erroneously held that for purposes of sections 253 and 255 of the Tax Law a new debt is created where there is a substitution of obligors. (Matter of City Tit. Ins. Co. v. Orgel, 2 A D 2d 250; People ex rel. Banner Land Co. v. State Tax Comm., 244 N. Y. 159; Matter of Lloyds First Mtge. Corp. v. Lynch, 233 App. Div. 782, 260 N. Y. 642; People ex rel. Metropolitan Playhouses v. Graves, 251 App. Div. 655, 275 N. Y. 621; People ex rel. Williamsburgh Sav. Bank v. State Tax Comm., 245 N. Y. 414; Matter of Erie R. R. Co. v. State Tax Comm., 260 App. Div. 268, 284 N. Y. 673; Matter of Park & 46th St. Corp. v. State Tax Comm., 269 App. Div. 7.) II. The decision below upsets a long-established business and administrative practice of such consequence that any change at this late date should be made only by legislation. (Grimmer 
      v. Tenement House Dept. of City of N. Y., 205 N. Y. 549; Crowley v. Lewis, 239 N. Y. 264; Town of Amherst v. County of Erie, 236 App. Div. 58, 260 N. Y. 361; Miller v. Discount Factors, 1 N Y 2d 275; RKO-Keith-Orpheum Theatres v. City of New York, 308 N. Y. 493.)
    
      Daniel McNamara for Savings Association League of New York, amicus curice, in support of appellant’s position.
    I. The extension agreement recorded by petitioner-appellant is not subject to the additional mortgage tax for the reason that it did not create a new indebtedness. II. The fact that the builder was released from liability by the terms of the extension agreement is no more significant than if the lending institution, after the building operation is completed, gives the builder a separate general release and acquittance. III. There is no tax upon an agreement that modifies, extends or consolidates a mortgage unless there is a newly created debt, a new or increased lending of money and, when there is an increase, the mortgage tax is levied only upon the increase. The tax is upon the mortgage and not upon the personal liability created by a bond. (People ex rel. Banner Land Co. v. State Tax Comm., 244 N. Y. 159; Matter of Fifth Ave. 46th St. Corp. v. Bragalini, 4 A D 2d 387; Matter of Park & 46th St. Corp. v. State Tax Comm., 295 N. Y. 173; Murray v. Marshall, 94 N. Y. 611; People ex rel. Metropolitan Playhouses v. Graves, 251 App. Div. 655, 275 N. Y. 621; National Sav. Bank v. Fermac Corp., 241 App. Div. 204, 266 N. Y. 443.)
    
      Arthur W. Renander for Jamaica Savings Bank, amicus curice, in support of appellant’s position.
    I. The language of this extension agreement between the purchaser, Liebl, and petitioner does not discharge or increase the principal indebtedness which is the prerequisite under section 255 for an additional mortgage tax. It secures no new or further indebtedness or obligation. (Matter of Park & 46th St. Corp. v. State Tax Comm., 295 N. Y. 173; People ex rel. New York Tit. & Mtge. Co. v. State Tax Comm., 220 App. Div. 396.) II. The levying of a second mortgage tax would be inconsistent with the language of section 253 which establishes the basis for computing the mortgage tax as the amount of the principal indebtedness, not a change in the obligor. (Matter of Park & 46th St. Corp. v. State Tax Comm., 295 N. Y. 173; Matter of New York State 
      
      Gas & Elec. Corp. v. Gilchrist, 209 App. Div. 771.) III. The agreement whereby Liebl assumed the mortgage constitutes a supplemental mortgage within the language of section 255 and is therefore not taxable. (Metropolitan Trust Co. of City of N. Y. v. State Bd. of Tax Comrs., 172 App. Div. 653; Matter of Erie R. R. Co. v. State Tax Comm., 260 App. Div. 268, 284 N. Y. 673.) IV. The court has concerned itself with the formalities and not the substance of this transaction, V, The court’s interpretation will produce hardships never intended by the Legislature. (People ex rel. New York Tit. d Mtge. Co. v. State Tax Comm., 220 App, Div. 396,)
    
      Louis J. Lefkowitz, Attorney-General (Julius L. Sackman and Paxton Blair of counsel), for respondents.
    I. The extension agreement between Liebl and appellant created a new indebtedness or obligation which is subject to payment of the mortgage recording tax. (People ex rel. Home Mtge. Inv. Co. v. State Bd. of Tax Comrs., 182 App. Div. 699; People v. Boston d Maine R. R., 202 App. Div. 54, 234 N. Y. 629; People ex rel. Jewelers Bldg. Corp. v. State Tax Comm., 214 App. Div. 99, 241 N. Y. 524; People ex rel. Banner Land Co. v. State Tax Comm., 244 N. Y. 159; Matter of Erie R. R. Co. v. State Tax Comm., 260 App. Div. 268, 284 N. Y. 673; Matter of New York, N. H. & H. R. Co. [State Tax Comm.], 266 App. Div. 470; Matter of Park d 46th St. Corp. v. State Tax Comm., 295 N. Y. 173; People ex rel. Williamsburgh Sav. Bank v. State Tax Comm., 245 N. Y. 414; People ex rel. New York Tit. & Mtge. Co. v. State Tax Comm., 220 App, Div. 396, 245 N. Y. 603; People ex rel. Westbrook-Buffalo v. State Tax Comm., 257 App. Div. 705, 283 N. Y. 552; Matter of Sverdlow v. Bates, 283 App. Div. 487; Matter of Fifth Ave. & 46th St. Corp. v. Bragalini, 4 A D 2d 387,) II, The extension agreement does not fall into any of the excepted categories set forth in section 255, which would establish it as a supplemental mortgage. (Hygienic Ice & Refrig. Co. v. Franey, 142 App. Div. 143; People ex rel. Astor Trust Co. v. State Tax Comm., 174 App. Div. 320; People ex rel. United States Tit. Guar. Co. v. State Tax Comm., 230 N. Y. 102; People ex rel. New York State Gas & Elec. Corp. v. Gilchrist, 209 App. Div. 771, 240 N. Y. 552; People ex rel. Jewelers Bldg. Corp. v. State Tax Comm., 214 App. Div. 99, 241 N. Y. 524; People ex rel. Banner Land Co. v. 
      State Tax Comm., 244 N. Y. 159; People ex rel. Williamsburgh Sav. Bank v. State Tax Comm., 245 N. Y. 414; People ex rel. New York Tit. & Mtge. Co. v. State Tax Comm., 220 App. Div. 396, 245 N. Y. 603; People ex rel. Metropolitan Playhouses v. Graves, 251 App. Div. 655, 275 N. Y. 621; People ex rel. Westbrook-Buffalo v. State Tax Comm., 257 App. Div. 705, 283 N. Y. 552; Matter of Sverdlow v. Bates, 283 App. Div. 487; Matter of Fifth Ave. & 46th St. Corp. v. Bragalini, 4 A D 2d 387.) III. The tax herein does not constitute double taxation, nor does it imperil existing mortgage investments.
   Desmond, J.

Petitioner, a savings and loan association which loans money on real property mortgages, brought this proceeding for the refund to it of a $100 mortgage recording tax imposed on the supposed authority of section 253 of the Tax Law. The first sentence of section 253 is as follows :“A tax of fifty cents for each one hundred dollars and each remaining major fraction thereof of principal debt or obligation which is, or under any contingency may be secured at the date of the execution thereof or at any time thereafter by a mortgage on real property situated within the state recorded on or after the first day of July, nineteen hundred and six, is hereby imposed on each such mortgage, and shall be collected and paid as provided in this article.” The State Tax Commission had already imposed and collected a mortgage recording tax on the mortgage here involved. The dispute is as to whether it was entitled to another such $100 tax on the recordation of an extension agreement relating to that same mortgage. All concerned agree that ordinarily the recording of an agreement extending an existing mortgage does not call for the imposition of a new mortgage recording tax. However, in this instance the Tax Commission and the Appellate Division have held that this extension agreement, because it released the original obligor and brought in as new obligors the purchasers of the property, created for recording tax purposes a new mortgage debt. Therefore, they ruled, the putting on record of this particular extension agreement amounted to the recording of a new mortgage and justified the collection of another $100 tax. We take a different view.

The facts are few and undisputed. A building contractor (Gene Williams) to finance the construction of a residence entered into a building loan agreement with petitioner and at the same time executed a one-year $20,000 bond and mortgage to petitioner without any provisions for amortization of principal. On the recording of this mortgage there was paid the full $100 tax levied by section 253 {supra). Petitioner advanced the $20,000 during the construction. After the house was completed, contractor Williams conveyed the property to purchasers named Liebl, the deed reciting that the transfer was subject to the mortgage held by petitioner. On the same date there was executed the agreement between petitioner and the Liebls which extended the time of payment of the original indebtedness (reduced by payment at the same time to $18,500) with provisions for monthly payments over a 20-year term and a stipulation that the original mortgage on which the recording tax had been paid was continued as a valid first lien on the premises. No new money was loaned or advanced. This extension agreement contained this paragraph which caused the present controversy :£ ‘ In consideration of the present Mortgagor’s assumption of the mortgage debt herein, Mortgagee hereby releases Gene Williams from any liability in connection with the aforesaid obligation.” That release of the original obligor plus the assumption of the mortgage debt by new obligors made this agreement, according to the State Tax Commission, a new mortgage for the recording of which a new tax was due. Petitioner paid the additional tax under protest, then brought this proceeding for a refund.

One statute is involved here: Section 253 of the Tax Law {supra) which imposes a 50 cents-per-$100 recording tax on each mortgage. Inapplicable is section 250 of the Tax Law which says that the recording of an agreement increasing a mortgage indebtedness shall be taxable as to the increase, or section 255 of the Tax Law which taxes the recording of a supplemental mortgage which “ creates or secures a new or further indebtedness ”. Our whole question is whether this extension agreement is to be considered a new mortgage because it substituted new obligors for the old obligor.

In answering our question we keep in mind that tax laws are, at least when ambiguous or doubtful, construed strictly against the taxing power and liberally in favor of the taxpayer (Metropolitan Convoy Corp. v. City of New York, 2 N Y 2d 384, 390) and construed, if possible, so as to avoid double taxation (Mat ter of Cooley, 186 N. Y. 220, 227). It would offend against those principles to say that the extension agreement we are here examining was a new “ mortgage ” subject to a new recording tax.

None of the precedents point to a different answer. People ex rel. Banner Land Co. v. State Tax Comm. (244 N. Y. 159, 162) tells us that this section 253 tax ‘ ‘ is upon the mortgage and not upon personal liability created by a bond ’ \ Matter of Erie R. R. Co. v. State Tax Comm. (260 App. Div. 268, affd. 284 N. Y. 673) dealt with an issue of new mortgage bonds sold to a new lender to finance the payment of old notes and the redemption of old mortgage bonds pledged as collateral for the old notes, in other words, a wholly new loan and loan agreement. Matter of Park & 46th St. Corp. v. State Tax Comm. (295 N. Y. 173, 177) makes it clear that the mortgage recording tax is measured by the principal amount of the mortgage debt and “ not by the maturity date of the mortgage debt, nor by the interest rate. ’

We hold, therefore, that this extension agreement was as matter of law not such a “mortgage” as to be subject to the recording tax of section 253 (supra).

The order should be reversed and the determination of the State Tax Commission annulled and the prayer of the petition for refund granted, with costs in this court and in the Appellate Division.

Chief Judge Conway and Judges Dye, Fuld, Fboessel, Van Voobhis and Bueke concur.

Order reversed, the determination of the State Tax Commission annulled and the matter remitted for further proceedings in accordance with the opinion herein, with costs in this court and in the Appellate Division.  