A group of telecommunication companies can’t decrease the local assessments of their New York fiber optic property to zero because the property is taxable, a state court found, adding that the case was brought to the wrong forum.
A state district court Wednesday dismissed the action by C enturyLink Communications LLC, Level 3
Communications LLC and several other affiliated companies. The court rejected their argument that fiber optic cables and the conduits encasing them didn’t count as local public utility mass real property under state law and therefore wasn’t taxable real property. The fiber optic property in question has already been determined to be taxable in other court actions, the court said.
The court also rejected arguments from the companies that the cap on assessments for its properties be brought to zero. A judicial challenge to the New York cap is limited to the manner in which the state tax commissioner determines its calculation and not whether the cap is unlawful, the court said.
The court granted motions to dismiss the case by a portion of the more than 300 local taxing bodies being sued and the commissioner of the state Department of Taxation and Finance.
The case involves an examination of the cap on how much local governments can assess public utility mass real property on private land, a cap determined by the department commissioners. While the commissioner determines the cap, localities conduct the valuations.
In September 2019, CenturyLink and its affiliates sued the localities and Michael Schmidt, the department commissioner, over the 2019 valuations of various properties throughout the state. The companies said Schmidt’s determination establishing a valuation cap of more than zero for local public utility mass real property was unlawful and the assessments by localities were also unlawful. The companies asked the court to annul the commissioner’s final determination, set the valuation cap to zero and asked for tax refunds.
The amount at issue wasn’t immediately available.
But the court found that judicial challenges to the assessment ceiling are limited to how the commissioner determines the ceiling calculation and not whether the ceiling is unlawful. The companies didn’t challenge the manner in which the commissioner calculated the assessments ceilings of the properties, the court said.
“The petitioners are, in reality, challenging the legality or lawfulness of the assessments made by the local assessing units — i.e., the taxability of their properties — as opposed to the commissioner’s final assessment ceilings, or maximum valuations, of their properties,” the court said.
The statute involved explicitly limits the scope of judicial challenges and requires that such proceedings be brought in the judicial districts in which the assessments were determined within 30 days after the local final assessment rolls are filed.
The court also dismissed the companies’ arguments that their fiber optic cables transmit news or entertainment radio, television or cable television signals to the public and therefore weren’t taxable real property. The companies also claimed cables and material that connect to customer equipment constitute exempt “station connections” under state law and that their services delivering video, including television, are also tax-exempt.
But the court found the state Court of Appeals, the state’s highest court, and its state appellate divisions had already addressed those issues in several other proceedings, including in M atter of T-Mobile Northeast
L LC v. DeBelli , in which the Court of Appeals found T-Mobile’s fiber optic cables are taxable as lines under the statute, even though they do not conduct electricity. The matters were also addressed in M atter of L evel 3 Communications LLC v. Erie County and in M atter of Level 3 Communications LLC v.C hautauqua County , the court said.
The court also rejected the companies’ argument that fiber optic cables and coaxial cables were treated differently under real property tax law, which violate the equal protection clause under the state constitution. The court found fiber optic cables and conduits have both been determined to constitute taxable real property, citing Matter of Level 3 Communications in August.
The court also found the companies made “conclusory and generalized allegations” that localities weren’t assessing similar properties owned by cable television companies.
And even though the commissioner doesn’t determine assessment ceilings for similar property owned by cable television companies in local jurisdictions as he does for fiber optic property, that doesn’t give rise to a violation of the equal protection rules, the court found. The commissioner doesn’t actually assess the property, the court found, and there was no proof localities weren’t assessing cable television companies as well.
James P. Blenk of L ippes Mathias Wexler Friedman LLP, who represented the County of Erie as an intervenor and respondent in the case, told Law360 the decision was excellent and thorough, saying it correctly held that an administrative proceeding wasn’t the proper venue to raise a purely legal argument. He also said CenturyLink’s legal argument was inconsistent with recent decisions by the Court of Appeals and appellate division. He said they expected an appeal, but felt confident an appeals court would affirm the decision.
“The issue raised in these cases implicated tens of millions of dollars of assessed value in New York,” Blenk said. “After eight years of uncertainty, we think that the CenturyLink decision will reassure municipalities that depend on the revenue generated from this property and should finally resolve the question across New York state.”
And Michael B. Risman of H odgson Russ LLP, told Law360 that Level 3, which was recently bought by
CenturyLink, sued 335 public entities in the case but the companies had rehashed the same arguments that they lost in the Court of Appeals and other forums.
“They’re raising these statutory interpretation arguments and constitutional arguments in an improper forum,” Risman said, “If they want to challenge their assessments they should challenge them in counties where their property is located. This is a ceiling proceeding not a tax assessment proceeding.”
Attorneys for CenturyLink and its affiliated companies didn’t immediately respond to requests for comment on Monday.
CenturyLink Communications LLC, Broadwing Communications LLC, G lobal Crossing North America
I nc., Global Crossing Telecommunications Inc., Level 3 Communications LLC, Level 3 Communications LLC as successor-in-interest to the assets of Genuity Solutions Inc., Level 3 Telecom Of New York, LP and Telcove Operations LLC were represented by John G. Nicolich of I ngram Yuzek Gainen Carroll & B ertolotti LLP.
Erie County was represented by James Peter Blenk and Jennifer C. Persico of Lippes Mathias Wexler Friedman LLP.
The city of Binghamton, Chautauqua County, city of Dunkirk, city of Lackawanna, town of Dunkirk, town of Hanover, town of Pomfret, town of Portland, town of Ripley, town of Westfield, village of Brocton, village of Westfield and the Frontier Central School District were represented by Michael B. Risman of Hodgson Russ LLP.
The case is Matter of CenturyLink Communications LLC et al. v. Michael R. Schmidt et al, case number 906348-19, in the New York Supreme Court, Albany County.
Posted by Law 360 Tax Authority