IN RE: VARSITY TRANSIT (2004)

Determination of respondent New York City Tax Appeals Tribunal, dated January 16, 2003, which, in this proceeding brought pursuant to CPLR 506(b)(4), upheld a Notice of Determination of corporate tax issued to petitioner, unanimously confirmed, and the petition denied, without costs.

Petitioner, an operator of school buses within the City of New York, was subject to both a utility tax and a corporate tax imposed by the City but was entitled to exclude from corporate tax treatment any income subject to the utility tax, which is a tax on gross receipts.   Only petitioner's school bus income was subject to the utility tax, and only its non-school transportation income, such as service fees and income generated from investments, was subject to the corporate tax.

In preparing its corporate tax return, however, petitioner employed a percentage reduction formula set forth in New York City Administrative Code § 11-603(4)(a), which, as applied by petitioner, had the effect of excluding from taxable income a significant portion of petitioner's investment and service income, even though such income was not subject to the utility tax and would otherwise have been subject to the corporate tax.   The Department of Finance concluded that it had the power under Code § 11-603(4)(c) to disallow the percentage reduction, so as to assure that all income was subject to one of the two taxes.

We conclude, as did the Tax Tribunal, that § 11-603(4) must be read as an integrated whole, and that subsection (4)(a) of the provision was not properly utilized by petitioner to exclude income otherwise subject to the corporate tax.   Petitioner's claim that a strict reading of subsection (4)(a) dictates the applicability of the percentage reduction, even if the effect is to allow it to escape all tax liability on a substantial portion of its non-school bus transportation income, is untenable.   When viewed in context with subsection (4)(c), it is evident that the purpose of subsection (4)(a) was not to create a windfall by shielding certain income from taxation altogether, but simply to promote fairness by preventing double taxation.