Parkmed Associates v. New York State Tax Commission

Levine, J. (dissenting).

We respectfully dissent. The majority’s disaffection with the obvious profit motive underlying the organization of the two Parkmed partnerships is readily understandable. Nevertheless, based upon the Tax Commission’s findings, the clear wording of the applicable regulation and established precedent, the taxpayers herein are entitled to the professional exemption from the unincorporated business tax (Tax Law, § 703, subd [c]). Undeniably, the partnerships were engaged in the practice of medicine. The Tax Commission expressly found that “petitioners owned and operated an abortion clinic” during the taxable years in question. The majority similarly recognizes the medical nature of petitioners’ activities during the taxable years: “Parkmed owned and operated a diagnostic and treatment clinic for the termination of pregnancies”. The test for the professional exemption has always focused on the service rendered by the taxpayer (see Matter of Koner v Procaccino, 39 NY2d 258, 262; Matter of Voorhees v Bates, 308 NY 184, 189-190; People ex rel. Tower v State Tax Comm., 282 NY 407, 412). As this court held in Matter of Kahn & Jacobs v State Tax Comm. (39 AD2d 278, 280, affd 33 NY2d 549): “The determination is based upon what a partnership does, not the specific requirements *345incident to the profession”. The entities subject to the unincorporated business tax are the two partnerships, not the partners. Therefore, it is irrelevant that various members of the partnerships were not licensed physicians or that they did not actively engage in the partnerships’ operations. Since the taxpayer-partnerships here were engaged in the practice of medicine, the Tax Commission clearly violated its own regulation in imposing the additional requirement that 80% of the partnerships’ income come from services actually rendered by the partners. Under the regulations, this additional requirement only applies to professions other than law, medicine, dentistry or architecture:

“[T]he practice of the professions of law, medicine, dentistry or architecture is not deemed to constitute an unincorporated business. In addition, the practice of any other profession is not deemed to constitute an unincorporated business if, in such practice,

“(1) capital is not a material income producing factor and

“(2) more than 80 percent of the gross income * * * is derived from * * * personal services * * * rendered * * * by members of a partnership * * * engaged in the practice of the profession involved” (20 NYCRR 203.11[a]; emphasis added).

Furthermore, the alternative ground for disqualification from the exemption invoked by the majority, namely, apparent violations of various statutory provisions regulating the practice of medicine, is equally unavailing under the case law. As we further held in Matter of Kahn & Jacobs v State Tax Comm. (39 AD2d 278, 280, supra), “to deny that exemption solely for lack of total compliance with the licensing statute would be using the revenue statute to enforce police powers and for protection of the public”. (See, also, Matter of Mongitore v Murphy, 44 AD2d 746, 747.) Nor is there support in either the statute, regulations or the case law for disqualification from the professional exemption because the entity admittedly engaged in the practice of medicine does so in an objectionably commercialized manner. That, again, is a matter which is the responsibility of the State’s licensing and *346regulatory authorities exercising the State’s police power and not of the State’s taxing authorities. For the foregoing reasons, we vote to annul the Tax Commission’s determination.

Yesawich, Jr., and Weiss, JJ., concur with Main, J. P.; Mikoll and Levine, JJ., dissent and vote to annul in an opinion by Levine, J.

Determination confirmed, and petition dismissed, with costs.