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Volume 8 - Opinions of Counsel SBEA No. 105

Opinions of Counsel index

Refund of taxes (administrative) (interest) - General Municipal Law, § 3-a; Real Property Tax Law, § 556:

Interest on an administrative refund of taxes pursuant to section 556 of the Real Property Tax Law is limited to those instances where payment of the refund is deferred or delayed until the fiscal year next succeeding the date the application for correction is approved.

In contrast to the law applicable to judicially-ordered refunds of taxes in real property assessment review cases (Real Property Tax Law [RPTL], § 726(2)), there is specific statutory authority for interest on an administrative refund of taxes (RPTL, § 556) only where “an appropriation for a refund authorized pursuant to this section is included in the annual budget next adopted after approval of such refund” (§ 556(9)). We have been asked, however, whether some right to interest on administrative refunds is found in another statute, section 3-a of the General Municipal Law, or in the common law.

Section 3-a provides that with exceptions not relevant to this inquiry “the rate of interest to be paid by a municipal corporation upon any judgment or accrued claim . . . shall not exceed nine percentum per annum”. A review of the memoranda in the “bill jacket” of chapter 594 of the Laws of 1939, which added section 3-a, makes clear that section 3-a simply sets forth a maximum rate of interest payable on a claim against a municipal corporation, where another statute requires the payment of that interest but fails to specify the rate. A prime example of the latter is section 726 of the RPTL, referred to above.

Nor do we believe there is any general right (i.e., derived from the common law) to interest on administrative refunds. In Brodsky v. Murphy, 25 N.Y.2d 518, 255 N.E.2d 700, 307 N.Y.S.2d 435 (1969), the Court of Appeals concluded that as a general rule, absent a statutory requirement for interest on an administrative tax refund, a taxpayer is not entitled to interest.

The Court distinguished an earlier opinion (Matter of 0’Berry, 179 N.Y. 285, 72 N.E. 109 (1904)) which had authorized the payment of interest on a tax refund. It noted that the statute in the O’Berry case had been found to be void and unconstitutional while, in the case before it, the refund was attributable to taxes erroneously collected under an otherwise valid statute. Interest, the Court held, is payable in the first instance but not in the second. It reasoned that a tax collected under a void statute was a greater intrusion upon the rights of the taxpayer and that, in the case of a tax refunded under a valid statute, there might be culpable conduct on the part of the taxpayer as well as the tax collector contributing to the erroneous collection.

The Court noted that the law on this subject was not at all clear in New York State or in any other jurisdiction (although the Court’s conclusion appears consistent with what has been described as the general rule-see, McQuillin, Municipal Corporations (3d ed.) § 48.09 (1967 Rev.)).

Any suggestion that a statute such as section 3-a of the General Municipal Law establishes a right to interest on the accrued claim rather than a maximum on such a right otherwise granted by statute, is disposed of by the following language in the Brodsky decision: “The statutes it would seem, make one thing clear; namely, that the Legislature did not leave the question of interest to be covered by the general practice statutes. There are just too many tax statutes that cover the issue expressly, one way or the other” (307 N.Y.S.2d at 439).

Subdivision nine of section 556 (L1984, c.383) provides that interest will be payable from the date of approval of the application if the refund is not paid during the fiscal year in which the application for refund is approved. Otherwise, the general rule applies.

In conclusion, since section 556 provides a limited right to payment of interest on an administrative refund of taxes, no interest may be paid in any other circumstance. Section 3-a of the General Municipal Law does not create a right to interest on an accrued claim for an administrative refund of taxes; it merely establishes a statutory maximum in those cases where interest is otherwise required to be paid.

July 11, 1979
Revised March 9, 1987

NOTE: Revision made to incorporate amendments to both the General Municipal Law and the RPTL.