IN RE: 31/32 LEXINGTON ASSOCIATES (1999)

Proceeding pursuant to CPLR article 78 (initiated in this court pursuant to Tax Law § 2016) to review a determination of respondent Tax Appeals Tribunal which sustained a real property transfer gains tax assessment imposed under Tax Law former article 31-B.

In May 1988, petitioner transferred its interest in real property located in New York City to 205-215 Lex Associates (hereinafter the buyer) for $49,100,000.   The transaction was accomplished by the issuance of two purchase money mortgages.   The second purchase money mortgage, which was taken back by petitioner, was to be paid in installments over a five-year period.   Petitioner's net gain on the transfer was $3,910,000 and, pursuant to Tax Law former § 1441, petitioner's real property transfer gains tax liability was $391,000 or 10% of the net gain;  petitioner assertedly timely paid this tax in five annual installments.

Thereafter, the buyer, without having made a single payment to petitioner, filed for chapter 11 bankruptcy.   Pursuant to the approved bankruptcy plan, the property was reconveyed to the first-purchase-money-mortgage holder.   Under the plan, petitioner received only $200,000 for its second purchase money mortgage, which was discharged in favor of the first mortgage holder.   In due course, petitioner filed two claims seeking refunds of the real property transfer gains tax petitioner had paid.   It is petitioner's contention that because there was no actual gain on the transfer of the real property, no tax liability was incurred.   Petitioner's claims having been denied by respondent Division of Taxation and Finance, the Administrative Law Judge and respondent Tax Appeals Tribunal, petitioner appeals.

 We find unconvincing petitioner's underlying premise that for real property transfer gains tax liability to attach to a real estate transaction, a gain must have been actually realized.   It has been held repeatedly that an event which occurs subsequent to the transfer of real property does not impact upon the amount of tax owed, for the gain is calculated based upon the consideration paid or owing on the date of the transfer of the title (see, Matter of Brockman v. Tax Appeals Tribunal of State of N.Y., 238 A.D.2d 693, 694, 656 N.Y.S.2d 429;  see, e.g., Matter of South Suffolk Recreation Ventures v. Tax Appeals Tribunal of State of N.Y., 224 A.D.2d 874, 875, 638 N.Y.S.2d 515, lv. denied, 88 N.Y.2d 803, 645 N.Y.S.2d 446, 668 N.E.2d 417;  Matter of Wanat v. Tax Appeals Tribunal of State of N.Y., 224 A.D.2d 873, 874, 638 N.Y.S.2d 251, lv. denied 88 N.Y.2d 803, 645 N.Y.S.2d 446, 668 N.E.2d 417).   Consideration in this context includes the face value of a purchase money mortgage assumed or given for the sale and transfer of the property (see, Tax Law former § 1440[1][a];  see also, Matter of Fazkap Assocs. v. Commissioner of N.Y. State Dept. of Taxation & Fin., 232 A.D.2d 747, 748, 648 N.Y.S.2d 186).   In view of these settled principles, the decision to deny petitioner's refund requests was neither arbitrary nor capricious.

 The only other of petitioner's arguments meriting comment is its contention that the tax as applied violates the State or Federal Equal Protection Clauses.   Initially, we note that petitioner's reliance upon Stewart Dry Goods Co. v. Lewis, 294 U.S. 550, 55 S.Ct. 525, 79 L.Ed. 1054, is misplaced, for the tax at issue in the instant case is measured by the gain at the time of transfer and not, as in Stewart Dry Goods Co. v. Lewis, supra, on gross receipts, regardless of the net profit earned.   Thus, the fact that petitioner did not collect this gain because it, for its own reasons, elected to take back an unsecured second purchase money mortgage is of no moment.

 Moreover, a statute “must be upheld if the challenged ‘classification is rationally related to achievement of a legitimate state purpose’ ” (Matter of Union Carbide Chems. & Plastic Co. v. Tax Appeals Tribunal of State of N.Y., 213 A.D.2d 807, 809, 623 N.Y.S.2d 393, appeal dismissed 85 N.Y.2d 1031, 631 N.Y.S.2d 289, 655 N.E.2d 402, lv. denied 86 N.Y.2d 710, 634 N.Y.S.2d 444, 658 N.E.2d 222, quoting Western & S. Life Ins. Co. v. Board of Equalization of Cal., 451 U.S. 648, 657, 101 S.Ct. 2070, 68 L.Ed.2d 514).   The burden is upon the taxpayer to demonstrate that the statute distinguishes among taxpayers in a manner that was “ ‘palpably arbitrary’ or tantamount to ‘invidious discrimination’ ” (Matter of Capital Fin. Corp. v. Commissioner of Taxation & Fin., 218 A.D.2d 230, 233, 639 N.Y.S.2d 501, quoting Trump v. Chu, 65 N.Y.2d 20, 25, 489 N.Y.S.2d 455, 478 N.E.2d 971,appeal dismissed 474 U.S. 915, 106 S.Ct. 285, 88 L.Ed.2d 250).   Because the statutory scheme here imposes a tax in all cases based upon the gain at the time of transfer, it cannot be said that petitioner's equal protection rights have been violated (see, Matter of Brockman v. Tax Appeals Tribunal of State of N.Y., supra, at 695, 656 N.Y.S.2d 429).

ADJUDGED that the determination is confirmed, without costs, and petition dismissed.

YESAWICH Jr., J.

MIKOLL, J.P., CREW III, SPAIN and CARPINELLO, JJ., concur.