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Volume 5 - Opinions of Counsel SBEA No. 29

Opinions of Counsel index

Correction of errors (correctible errors - definition) (refunds); Special franchise assessment (tax credit) (failure to receive) - Real Property Tax Law, §§ 550, 556, 556-a, 626:

The deduction allowed against taxes on special franchises by section 626 of the Real Property Tax Law is not applicable to school district taxes levied on such special franchise property.

The fact that a special franchise owner did not receive a proper credit pursuant to such section against its taxes in prior years is not a “clerical error,” “unlawful entry,” or “error in essential fact” as such terms are used in the so-called “Correction of Errors” provisions of the Real Property Tax Law (Article 5, Title 3), and therefore no refund of excess taxes paid in previous years is authorized by the Real Property Tax Law.

We have received two inquiries concerning special franchise assessments. The first is whether the deduction allowed against taxes on special franchises by section 626 of the Real Property Tax Law is applicable to taxes levied by a school district on special franchise property. The second question is whether a special franchise owner is entitled to a tax refund for previous years when said owner did not receive a deduction against his special franchise tax in those years as authorized by section 626.

The assessment of special franchise property is not done locally. Rather, subdivision 1 of section 600 of the Real Property Tax Law requires the State Board of Equalization and Assessment to determine annually “the assessment of each special franchise subject to assessment in each assessing unit.” Subdivision 1 of section 616 requires the State Board to file a certificate of the amount of the final assessment of a special franchise “with the assessors of the assessing unit in which such special franchise is subject to assessment.” for entry on the assessment roll for taxation locally. Such assessments then become a part of said roll with the same force and effect as if they had originally been made by the local assessors.

However, pursuant to subdivision 1 of section 626 of the Real Property Tax Law, when a tax levied on a special franchise is due in any assessing unit, if the special franchise owner has paid such assessing unit for its exclusive use during the past year under any agreement or statute requiring the same, a sum based upon a percentage of gross earnings or other income, a license fee, or other amount, which payment was in the nature of a tax, he may deduct all amounts so paid for the exclusive use of such assessing unit, from the tax based on the assessment made by the State Board for purposes of the assessing unit.

Thus it is readily apparent from the language of this statute that this deduction is available only from special franchise taxes levied by an “assessing unit.” Subdivision 1 of section 102 of the Real Property Tax Law defines an “assessing unit” as “a city, town, village or a county having a county department of assessment with the power to assess real property.” A school district is not an “assessing unit” within the meaning of the Real Property Tax Law and therefore the deduction permitted against special franchise taxes by section 626 is not available to special franchise taxes levied by a school district.

This conclusion is further buttressed by the language of subdivision 2 of section 626 which reads, in pertinent part, as follows:

Upon the receipt of such certificate, the collecting officer shall credit on the tax roll to the special franchise owner the amount stated in such certificate, on any tax levied against the special franchise of such special franchise owner for city, town or village purposes only. . . . (emphasis added)

This emphasized language clearly shows that this deduction is not available for school district levies. It is to be noted that the State Comptroller has reached a similar conclusion in regard to special district levies (16 Op.State Compt. 141).

The second inquiry is more complex. It is stated that a special franchise owner did not receive proper credit in previous years for the amounts in the nature of a tax or franchise fee which he has paid the town as against his special franchise taxes in that town. Apparently in at least some of those years, the franchise fee far exceeded the special franchise tax, and therefore had proper credit been given, no special franchise tax would have been paid since in such circumstances “the special franchise tax is deemed to have been paid in full” (Village of Saranac Lake v. Paul Smith’s Electric Light and Power Co., 182 App. Div. 620, 170 N.Y.S. 541; see also, 18 0p.State Compt. 371). The special franchise owner is now seeking a refund for those taxes erroneously paid in the past and the question is whether he is entitled to such refund.

Subdivision 2 of section 626 reads in part, that “[n]o credit shall be given on account of such payment or certificate in any other year, nor for a greater sum than the amount of the tax on the special franchise for city, town or village purposes for the current year.” The sentence quoted declares that no such credit is available for payments in any other year and that no credit may be granted for a greater sum than the amount of the special franchise taxes “for the current year.” The word credit apparently refers back to the previous sentence in subdivision 2 which requires the collecting officer to “credit on the tax roll” the amount stated in the certificate delivered by the chief fiscal officer or treasurer of the assessing unit. Thus, pursuant to the cited language, credit on the tax roll may not be granted for payments made in previous years, nor for sums greater than the special franchise tax for the current year. It is evident, therefore, that this subdivision has limited application and has no relevance to this inquiry. Rather, the refund question is resolved in another section of the Real Property Tax Law.

Under former subdivisions (3) and (5) of section 556 of the Real Property Tax Law, a county legislative body was authorized in certain specified circumstances to make refunds of town, county, and school district taxes which had been levied and collected on the basis of an “erroneous” or an “illegal” assessment. The terms “erroneous” and “illegal” as used in section 556 were somewhat vague and led to loose and at times confused construction both by the courts and administrative bodies.

However, in 1974 the so-called “Correction of Errors” law was enacted (L.1974, c.177) which eliminated the terms “illegal” and “erroneous,” and substituted the terms “clerical error” and “unlawful entry,” carefully listing the instances in which such terms were applicable. Chapter 124 of the Laws of 1975 added the concept of “error in essential fact” as another correctible error. Pursuant to these two amendments to Title 3 of Article 5 of the Real Property Tax Law, refunds for clerical errors and certain unlawful entries are available under new section 556, and for errors in essential fact under new section 556-a, regardless of whether such tax payments were voluntary or involuntary, or paid under protest (as required by judicial interpretation of earlier statutes). The question presented is whether the error by the town supervisor and collecting officer in failing to grant this special franchise owner proper credit against his special franchise tax pursuant to section 626, is an error for which taxes may be refunded pursuant to section 556 or 556-a.

Section 556-a permits refunds for so-called “errors in essential fact,” providing that proper documentation supporting the alleged error is presented. An “error in essential fact” (defined in §550(3)) includes the incorrect entry of the value of improvements to real property that were either destroyed, removed or never existed on the parcel, or which were omitted from the total value of the parcel. Clearly, the error by the town supervisor and collecting officer in this case is not an “error in essential fact.”

Section 556 permits refunds for “clerical errors,” or for an “unlawful entry” as defined by paragraphs (b) and (c) of subdivision 6 of section 550. (It is to be noted in passing that no refund is available under section 556 for an “unlawful entry” under paragraph (a) of subdivision 6 of section 550; however, said paragraph would be inapplicable to this question in any event since it concerns the entry of assessed value for property which is totally exempt.) Those errors correctible as “unlawful entries” for which taxes may be refunded are also inapplicable to this factual situation since such errors include only an entry on the assessment roll or tax roll, or both, of the value of real property which is entirely outside the boundaries of the assessing unit (§550(6)(b)), and an entry made by a person or body without the authority to make such entry (§550(6)(c)).

“Clerical errors” are defined in subdivision 2 of section 550. Errors defined in paragraphs (a), (b), and (c) of said subdivision are clearly inapplicable to this question. Paragraph (a) concerns an incorrect entry of assessed valuation on an assessment roll or tax roll caused by a mistake in transcription; paragraphs (b) and (c) involve a mathematical error or incorrect entry involving a partial exemption (such as the aged exemption). The one other “clerical error” for which taxes may be refunded is defined in paragraph (d) of subdivision 2 as “an entry which is a mathematical error present in the computation or extension of the tax.” While the precise meaning of paragraph (d) is not entirely clear, we do not believe it would encompass the error made by the town supervisor and the collecting officer in this case. Their error was not a mathematical one per se; the mathematical error intended to be covered by paragraph (d) would appear to be one such as in the following example. Assume an assessed value of $5,000 is multiplied by a tax rate of $100 per $1,000 assessed valuation and a tax bill of $5,000 is thereby computed rather than one of $500; this is a “mathematical error in the computation or extension of the tax” as intended in paragraph (d) of subdivision 2. The error on the part of the town supervisor and the collecting officer to give proper credit to the special franchise owner pursuant to section 626 was simply a failure to act on their part, rather than a mathematical error “in the computation or extension of the tax.” While this result may seem harsh since the erroneous payment of these taxes was in large part due to failure of local officials to act properly, it should be noted that the taxpayer was also at fault in not bringing this right to a credit to the attention of local officials, and there is no present provision in the Real Property Tax Law which would permit a refund of these taxes. (However, we do not purport to deny the possibility of an action to recover outside of the Real Property Tax Law.)

September 25, 1975

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