Metro Enters. Corp. v New York State Dept. of Taxation & Fin.

Metro Enters. Corp. v New York State Dept. of Taxation & Fin.

Opinion

 [*1377]  [**653] Lynch, J. Appeals (1) from an order of the Supreme Court (Weinstein, J.), entered August [**654]  29, 2017 in Albany County, which granted defendants' motion to dismiss the complaint, and (2) from an order of said court, entered May 11, 2018 in Albany County, which, among other things, upon reargument, adhered to its prior decision.

Plaintiff John Scarfi owns and operates plaintiff Metro [*1378]  Enterprises Corp. Metro engages in two lines of business. First, it owns point of banking machines used to sell "scrip"—or in-house currency—at four adult entertainment clubs in New York. A patron can use the scrip to purchase dances or to tip exotic dancers at the clubs, and the dancers redeem the scrip for cash. Second, Metro provides referral services for exotic dancers who wish to work in one of the clubs. Metro's income from the point of banking machines derives from transaction fees applied to the sale [***2]  of scrip. Metro earns income from referral services by taking a percentage of the cash value of the scrip that a dancer redeems.

Following a tax audit, defendant Department of Taxation and Finance issued determinations assessing plaintiffs for sales and use taxes exceeding $3,863,000, plus penalties and interest. Plaintiffs commenced this action pursuant to CPLR 3001 against the Department and defendant Commissioner of Taxation and Finance seeking a declaration that Metro is not a vendor, that neither Metro nor Scarfi is a person required to collect tax pursuant to the Tax Law and that defendants could not hold plaintiffs liable for sales tax obligations incurred by the clubs. Defendants moved to dismiss, arguing that the complaint failed to state a cause of action and that plaintiffs failed to exhaust available administrative remedies. Supreme Court determined that, although plaintiffs were not required to exhaust available administrative remedies, the complaint failed to state a cause of action, and it granted defendants' motion on that basis. Plaintiffs then filed two motions—one seeking reargument and one seeking renewal and vacatur of the prior [****2]  order. In one order, Supreme Court granted [***3]  reargument, but adhered to its prior decision, and it denied the other motion. Plaintiffs now appeal from both orders.

] On a motion to dismiss pursuant to CPLR 3211 (a) (7), "we must afford the pleadings a liberal construction, take the allegations of the complaint as true and provide the plaintiff the benefit of every possible inference" (Matter of Dashnaw v Town of Peru, 111 AD3d 1222, 1225, 976 NYS2d 288 [2013] [internal quotation marks, brackets and citation omitted]). Generally, "a motion to dismiss a declaratory judgment action prior to the service of an answer presents for consideration only the issue of whether a cause of action for declaratory relief is set forth, not the question of whether the plaintiff is entitled to a favorable declaration" (North Oyster Bay Baymen's Assn. v Town of Oyster Bay, 130 AD3d 885, 890, 16 NYS3d 555 [2015] [internal quotation marks, brackets and citations omitted]; see Matter of Dashnaw v Town of Peru, 111 AD3d at 1225). Further, on a motion to dismiss pursuant to [*1379]  CPLR 3211 (a) (7), courts may reach "the merits of a properly pleaded cause of action for a declaratory judgment . . . where no questions of fact are presented by the controversy" (Matter of Tilcon N.Y., Inc. v Town of Poughkeepsie, 87 AD3d 1148, 1150, 930 NYS2d 34 [2011] [internal quotation marks, brackets and citation omitted]; see Matter of Dashnaw v Town of Peru, 111 AD3d at 1225).

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