94 N.Y.2d 564, 729 N.E.2d 698, 708 N.Y.S.2d 41, 2000 N.Y. Slip Op. 03644

Court of Appeals of New York.

The PEOPLE of the State of New York, Respondent,

v.

William S. NAPPO, William K. Nappo and John Rocco, Appellants, et al.,

Defendants.

April 13, 2000.

Defendants who were indicted on charges arising from their alleged involvement in scheme to import motor fuel without filing reports or paying taxes required by Tax Law moved to dismiss counts of indictment charging them with enterprise corruption, conspiracy in the fourth degree, and grand larceny in the first degree. The County Court, Suffolk County, John V. Vaughn, J., granted motion. The People appealed, and the Supreme Court, Appellate Division, 261 A.D.2d 558, 690 N.Y.S.2d 649, affirmed as modified, reinstating larceny and conspiracy charges. After permission to appeal was granted, the Court of Appeals, Smith, J., held that State was not "owner," within meaning of Penal Law, of taxes which were required to be paid on importation and distribution of motor fuel, so that failure to pay taxes could not support larceny charges.

Reversed.

**42 *565 **699 Mark L. Freyberg, New York City, Ronald P. Fischetti and Covington & Burling (Gerard E. Lynch of counsel), for William S. Nappo and another, appellants.

Legal Aid Society, Riverhead (George Grun and Robert C. Mitchell of counsel), for John Rocco, appellant.

James M. Catterson, Jr., District Attorney of Suffolk County, Riverhead (Glenn Green of counsel), for respondent.

*566 OPINION OF THE COURT

SMITH, J.

The issue here is whether defendants' failure to pay taxes on motor fuel imported from New Jersey to New York constitutes larceny from New York State on the theory that New York was the owner of the unpaid taxes. We conclude that it does not.

In March 1997, defendants William S. Nappo, William K. Nappo and John Rocco were indicted, along with five additional individuals, and charged, in the first three counts, with enterprise corruption (Penal Law § 460.20), conspiracy in the fourth degree (conspiring to commit grand larceny in the first degree) (Penal Law § 105.10[1] ) and grand larceny in the first degree (Penal Law § 155.42), as well as a host of Tax Law offenses, including violation of Tax Law § 1812. The full 12-count indictment alleged defendants' involvement in a scheme to import motor fuel from New Jersey to New York without filing reports or paying "motor fuel taxes" as required by the New York Tax Law.

County Court dismissed counts one, two and three of the indictment, with leave to resubmit the charges to another Grand Jury. On the People's appeal, the Appellate Division reinstated both the larceny and conspiracy charges, stating, "The Grand Jury evidence is sufficient to establish a prima facie case that [defendants] withheld property from its rightful owner, i.e., the State of New York, as defined by ***43 **700 the Penal Law" (261 A.D.2d 558, 559, 690 N.Y.S.2d 649). A Judge of this Court granted defendants leave to appeal. We now reverse and dismiss the larceny and conspiracy charges.

The People contend that defendants were required to pay taxes on the importation and distribution of motor fuel in New York State and that their failure to do so constituted a larceny of property owned by the State of New York. Defendants counter that, as a matter of law, the State is not the "owner" of the uncollected taxes.

The State of New York is not an owner, as defined by the Penal Law, of taxes required to be paid for the importation and distribution of motor fuel. The taxes due were not the property of the State prior to their remittance. Accordingly, defendants did not steal money that belonged to New York State, but rather failed to make payments of taxes which were their personal obligations under the Tax Law (see, People v. Zinke, 76 N.Y.2d 8, 12, 556 N.Y.S.2d 11, 555 N.E.2d 263).

Our conclusion is supported both by the Penal Law and by our precedents. Penal Law § 155.05(1) defines larceny as stealing *567 property by taking, obtaining or withholding it from an owner thereof. An "owner" is defined as "any person who has a right to possession [of property] superior to that of the taker, obtainer or withholder" (Penal Law § 155.00[5] ).

In People v. Jennings, 69 N.Y.2d 103, 126-128, 512 N.Y.S.2d 652, 504 N.E.2d 1079, we reversed a conviction for larceny when an insured retained insurance proceeds rather than distributing them to clients who had been victims of a warehouse robbery. We held that the clients were not the owners of the proceeds, and thus the defendant could not be convicted of larceny for failure to remit the proceeds to them. In People v. Yannett, 49 N.Y.2d 296, 425 N.Y.S.2d 300, 401 N.E.2d 410, this Court held that nursing home residents who had paid a higher private rate before a determination that they were eligible for a lower Medicare rate were not owners of the difference between the rates. Thus, the defendant nursing home operator was not liable for a larceny for failing to refund the difference (see also, People v. Wilson, 93 N.Y.2d 222, 689 N.Y.S.2d 419, 711 N.E.2d 633 [because a mall security guard had no ownership interest in stolen boots, the defendant could not be convicted of stealing boots from him] ). Here, as in Jennings, Yannett and Wilson, defendants were not in possession, by trust or otherwise, of monies owned by the State.

The People's reliance on Tax Law § 1817(k), which overruled the result in People v. Valenza, 60 N.Y.2d 363, 367, 469 N.Y.S.2d 642, 457 N.E.2d 748, is misplaced. In Valenza, we held that "[a] vendor who collects sales taxes from customers, but fails to remit the sales taxes due the State under circumstances indicating an intent to permanently deprive the State of the taxes, may not be subjected to criminal prosecution for larceny by embezzlement."

While Tax Law § 1817(k) now specifically authorizes prosecution under the Penal Law for failure to remit to the State sales taxes that have previously been collected from consumers, it does not follow that defendants may be prosecuted here for larceny or conspiracy. The People's position that failure to pay taxes due is equivalent to the failure to remit collected sales taxes is untenable. A seller who collects sales taxes holds money in trust for the State (Tax Law § 1817[k] ). Thus, the State may be deemed the "owner" of "collected" but unremitted sales taxes. Here, by contrast, defendants were obligated to pay motor fuel taxes upon the importation or distribution of motor fuel (see, Tax Law §§ 284, 284-a, 1102; Herzog Bros. Trucking v. State Tax Commn., 72 N.Y.2d 720, 723, 536 N.Y.S.2d 416, 533 N.E.2d 255), but their tax liability did not depend upon the collection of taxes from consumers. Moreover, defendants did not hold any funds in trust for the State.

***44 *568 **701 Accordingly, the order of the Appellate Division, insofar as appealed from, should be reversed and counts two (conspiracy in the fourth degree) and three (grand larceny in the first degree) of the indictment dismissed.

Chief Judge KAYE and Judges BELLACOSA, LEVINE, CIPARICK, WESLEY and ROSENBLATT concur.

Order, insofar as appealed from, reversed, etc.

-----

Brief of Respondent (State of New York)

1999 WL 33659933 (N.Y.)

For opinion see 729 N.E.2d 698

Briefs and Other Related Documents

Court of Appeals of New York.

THE PEOPLE OF THE STATE OF NEW YORK, Respondent,

v.

William S. NAPPO, William K. Nappo, & John Rocco, aka: John Ruocco, Defendants-

Appellants, et. al.

December 29, 1999.

Court Case No. 590A-97

Respondent's Brief

James M. Catterson, Jr., District Attorney, Suffolk County, Arthur M. Cromarty Courts Building, 200 Center Drive, Riverhead, NY 11901, (516) 852- 2500.

Glenn Green, Assistant District Attorney, Of Counsel.

*i TABLE OF CONTENTS

Table of Cases ... i

Statutes ... ii

Introduction ... 1

Statement of Facts ... 3

Questions Presented ... 18

`

POINT I:

THE DEFENDANT'S CONCEALMENT OF TAX LIABILITY AND WRONGFUL WITHHOLDING OF TAXES DUE THE STATE OF NEW YORK ESTABLISHED GRAND LARCENY IN THE FIRST DEGREE, AND THUS SUPPORTED THE CHARGE OF CONSPIRACY ... 19

A. Factual Background ... 21

B. Applicable Statutory Provisions ... 22

C. Larceny Encompasses More Than Theft of Money ... 23

D. The Tax Revenue Constitutes Property ... 24

E. The State is Not a Mere Creditor, and the Defendants Mere Debtors, Insofar as Its Collection of State Taxes ... 34

F. The Legislative Response to this Court's Valenza Decision Confirms that Criminal Liability for Larceny Should Lie Against Defendants ... 39

SUMMARY CONCLUSION ... 43

CONCLUSION ... 45

TABLE OF CASES

FEDERAL CASES

DeFacto Joint Ventures, 963 F. Supp. 197 (E.D.N.Y. 1996) ... 21

Hammerschmidt v. United States, 265 U.S. 182, 188 (1924) ... 38

Kalb v. United States, 505 F.2d 506 (2d Cir. 1974), cert. denied, 421 U.S. 979, 95 S. Ct. 1981 (1974) ... 34

Levine v. Commissioner of Correctional Services, 44 F.3d 121 (2d Cir. 1995) ... 21

Massarella v. Illinois, 449 U.S. 1077, 101 S. Ct. 855 (1981) ... 22

NYSA-ILA Medical & Clinical Services Fund v. Catucci, 60 F. Supp.2d 194 (S.D.N.Y. 1999) ... 25

Teich v. U.S., 503 U.S. 919, 112 S. Ct. 1292 (1992) ... 21

U.S. v. Friedberg, 766 F. Supp. 87 (E.D.N.Y. 1991), aff'd, 948 F.2d 1277 (2d Cir. 1991) ... 21

U.S. v. Klingler, 61 F.3d 1234 (6th Cir. 1995) ... 30, 31

U.S. v. Lasky, 967 F. Supp. 749 (E.D.N.Y. 1997) ... 31

STATE CASES

Ameritck Const. Corp. v. Gas, Wash & Go, Inc., 247 A.D.2d 418 (2d Dep't 1998) ... 32

Anderson v. State, 221 Wis. 78, 265 N.W. 210 (Sup. Ct. Wis. 1936) ... 35

Cash v. State, 628 So.2d 1100 (Sup. Ct. Fla. 1993) ... 34

In re Katz' Will, 78 Misc.2d 790 (Surrogate's Ct. Schoharie Co. 1974) ... 30

New York State Bankers Assn. v. Albright, 38 N.Y.2d 430, 438 (1975) ... 39

Parisi (Application of), 8 Misc.2d 260 (Sup. Ct. Cayuga Co. 1957) ... 34

People ex rel. Short v. Warden of City Prison, 145 A.D. 861 (1st Dep't 1911), aff'd, 206 N.Y. 632 (1912) ... 22

People v. Abeel, 182 N.Y. 415, 420-22 (1905) ... 24

People v. Bel Air Equip. Corp., 39 N.Y.2d 48 (1976) ... 38

People v. Buza, 166 A.D.2d 774 (3d Dep't 1990) ... 38

People v. Capaldo, 151 Misc.2d 14 (Sup. Ct. N.Y. Co. 1991) ... 22

People v. Churchill, 47 N.Y.2d 151, 157 (1979) ... 36

People v. Ditta, 52 N.Y.2d 657, 660 (1981) ... 24

People v. Foster, 73 N.Y.2d 596, 604-05 (1989) ... 36, 37

People v. Fuller, 57 N.Y.2d 152 (1982) ... 43

People v. Garland, 69 N.Y.2d 144 (1987) ... 22, 25, 31, 32

People v. Izo, 96 Misc.2d 634 (Crim. Ct. Bronx Co. 1978) ... 22

People v. Jennings, 69 N.Y.2d 103, 127 (1986) ... 36, 43

People v. Kase, 76 A.D.2d 532 (1st Dep't 1980), aff'd, 53 N.Y.2d 989 (1980) ... 38, 39

People v. Levine, 167 A.D.2d 484 (2d Dep't 1990) ... 21

People v. Lyon, 82 A.D.2d 516, 519 (2d Dep't 1981) ... 28

People v. Massarella, 80 Ill. App.3d 552, 400 N.E.2d 436 (Ill. App. 1 1979) ... 21

People v. Medjdoubi, 173 Misc.2d 259 (Sup. Ct. N.Y. Co. 1997) ... 28

People v. Miller, 70 N.Y.2d 903 (1987) ... 38

People v. Newspaper and Mail Deliverers' Union of New York and Vicinity, 250 A.D.2d 207, 209 (1st Dep't 1998) ... 25

People v. Norman, 85 N.Y.2d 609, 618-19 (1995) ... 35

*ii People v. Olivo, 52 N.Y.2d 309 (1981) ... 23

People v. Podolsky, 130 Misc.2d 987 (Sup. Ct. N.Y. Co. 1985) ... 22

People v. Sansanese, 17 N.Y.2d 302, 306 (1966) ... 24

People v. Schrag, 147 Misc.2d 517 (Co. Ct. Rockland Co. 1990) ... 38

People v. Scott, 26 N.Y.2d 286, 289 (1970) ... 25

People v. Silverman, 106 Misc.2d 468 (Sup. Ct. N.Y. Co. 1980) ... 31

People v. Sinclair, 208 A.D.2d 573 (2d Dep't), app. denied, 84 N.Y.2d 1016 (1994) ... 38

People v. Spatarella, 34 N.Y.2d 157, 162 (1974) ... 25, 32

People v. Valenza, 60 N.Y.2d 363 (1983) ... 17,39,40

People v. Walsh, 123 Misc.2d 1042, 1048 (Sup. Ct. N.Y. Co. 1984) ... 38

People v. Walsh, 67 N.Y.2d 747 ... 39, 40

People v. Wilson, 93 N.Y.2d 222, 225-26 (1999) ... 34

People v. Wood, 8 N.Y.2d 48, 51 (1960) ... 24

People v. Yannett, 49 N.Y.2d 296 (1980) ... 29, 36

People v. Zinke, 76 N.Y.2d 8 (1990) ... 37

Phelps v. People, 72 N.Y. 334 (1878) ... 22

Plimpton v. Bigelow, 13 Abb. N. Cas. 173, 66 How. Pr. 131, 4 N.Y.Civ.Proc.R. 189, 93 N.Y. 592, 1883 WL 12710 (1883) ... 25

Spandau v. U.S., 73 N.Y.2d 832 (1988) ... 32

Utica v. Gold Medal Packing Corp., 55 Misc.2d 881 (Sup. Ct. Oneida Co. 1967) ... 34

Watertown Carriage Co. v. Hall, 176 N.Y. 313, 316 (1903) ... 34

FEDERAL STATUTES

11 U.S.C.A. §523(a) ... 34

18 U.S.C. § 641 ... 31

STATE STATUTES

P.L. §155.00 ... 22,31,32,43

P.L. §155.05 ... 22,43

Tax Law §284 ... 26

Tax Law §287 ... 26

Tax Law §1133 ... 29

*1 INTRODUCTION

This is an appeal by defendants from an Order of the Appellate Division, Second Department, rendered May 17, 1999, which modified the January 9, 1998, order of the County Court, Suffolk County, which dismissed counts charging enterprise corruption, larceny, and conspiracy. The Appellate Division reinstated the larceny and conspiracy charges, while affirming the dismissal of the enterprise corruption counts.

The criminal action against defendants was commenced in the County Court, Suffolk County, on or about March 14, 1997, with the filing of an indictment charging defendants with violations of P.L. §460.20, ENTERPRISE CORRUPTION, a class 'B' felony (as to all defendants); P.L. §105.10, CONSPIRACY IN THE FOURTH DEGREE, a class 'E' felony (as to all defendants); P.L. §155.42, GRAND LARCENY IN THE FIRST DEGREE, a class 'B' felony (as to defendants Nappo, Nappo, Kumar, Kumar, Rocco, and Erlich); TAX LAW §1812 (attempt to evade or defeat motor fuel taxes), a class 'E' felony (as to defendants *2 Nappo, Nappo, Kumar, Kumar, Rocco, and Erlich); P.L. §175.10, FALSIFTYNG BUSINESS RECORDS IN THE FIRST DEGREE, a class 'E' felony (as to defendants Nappo, Nappo, and Erlich); P.L. §175.10, FALSIFYING BUSINESS RECORDS IN THE FIRST DEGREE, a class 'E' felony (as to defendants Nappo, Nappo, and Erlich); TAX LAW §1817 (failure to collect sales tax), a class 'E' felony (as to defendants Nappo and Nappo); TAX LAW §1812 (failure to file a return or report, or pay motor fuel taxes), a class 'A' misdemeanor (as to defendants Nappo and Nappo); TAX LAW §1812-b (importing motor fuel while not registered as a distributor of motor fuel), a class 'E' felony (as to defendants Nappo, Nappo, Kajar, and Kerr); TAX LAW §1812-d (offloading motor fuel while not licensed as an importing transporter), a class 'E' felony (as to defendants Nappo, Nappo, Kumar, and Kumar); TAX LAW §1817 (failure to pay sales tax), a class 'A' misdemeanor (as to defendants Nappo and Nappo); and TAX LAW §1812-f (making a fraudulent return), a class 'E' felony (as to defendants Kumar and Kumar).

An appeal was taken from the decision and order of Judge John V. Vaughn, dated January 9, 1998 and entered on or about February 5, 1998, which dismissed Counts 1, 2, & 3 of the indictment, charging the defendants with Enterprise Corruption, Conspiracy and Grand Larceny.

*3 STATEMENT OF FACTS

Factual Overview of the Allegations Against Defendants

Inspector Carlton Richards of the New York State Office of Tax Enforcement, Petroleum, Alcohol and Tobacco Unit, became involved in 1994 in the investigation of gasoline bootlegging (2/4/97, 3-4). [FN1] The bootlegging involves the transportation of gasoline from a low tax state (New Jersey) into a high tax state (New York) without paying the higher state's taxes (Id., 4-5). Surveillance was conducted at the Port of Newark Star Terminal in New Jersey on September 27, 1994, of trucks suspected of bootlegging (Id., 5).

FN1. Numbers in parentheses indicate the date of the Grand Jury testimony, followed by specific pages references. Because of the secrecy requirements concerning the Grand Jury minutes, they were provided to the Appellate Division under separate cover, and, as such are part of the record on appeal.

At approximately 8:55 p.m. Inspector Richards saw a gasoline tank truck with MPT written on it, which had a New York registry, enter the terminal (2/4/97, 5-6). The vehicle left the terminal at about 9:15 p.m. and headed back to New York, with Inspector Richards following in surveillance (Id.). The inspector radioed Trooper Michael McCloud, who pulled over the truck (Id., 7).

Trooper McCloud, who was then assigned to the motor carrier safety program, and who had been positioned at Exit 41 of the Long Island Expressway, followed the vehicle for a while before pulling it over at a safer location in the area of Route 110 (Id, 10). The Trooper asked the driver for identification, and was shown a driver's license with the name Richard S. DiVincezo on it (Id., 11). Trooper McCloud also asked for a bill of lading or shipping papers, which the driver produced (Id, 11-12). Both the driver's license and the bill of lading were then photographed (Id). According to the bill of lading, the gasoline, purchased by Eagle Petroleum, *4 was supposed to be shipped to Petron Oil in Lyon, Pennsylvania (Id., 18). The gasoline was picked up by MPT-Metropolitan Petroleum Transport (Id.).

The Trooper also asked to see a tax manifest, which is a form that lists all stops made after the cargo is picked up from the terminal (2/4/97, 13). The manifest, which also was photographed, was entirely blank (Id., 14). The driver told Trooper McCloud that he was delivering the gasoline to a Mastic Beach service station (Id., 15).

Trooper McCloud also asked to see the driver's daily inspection report, which must be filled out by the driver once a day and which notes that the driver has checked the vehicle (Id., 15). DiVincezo could not produce an inspection report and, therefore, was given a ticket (Id., 16). The driver also failed to produce a medical certificate, which he said had been in his wallet which was stolen a week earlier--though he had, of course, produced his driver's license from a wallet (Id.). Trooper McCloud gave the driver a ticket for that, as well as for a defective mud flap (Id.).

After the trooper left, Inspector Richards continued his surveillance of the truck, which continued eastbound on the Long Island Expressway to exit 69, where the truck pulled over and stopped (Id.).

On May 9, 1995, Trooper McCloud was doing motor carrier safety checks when, at about 5:45 p.m., he saw an MPT truck headed east on the Long Island Expressway (2/4/97, 19). The Trooper followed the vehicle off the expressway at exit 68, and pulled the truck over (Id.). The truck was driven by Robert W. McElroy (Id., 20), who could produce neither a bill of lading nor a tax manifest (Id). He said that he was delivering the gasoline to National Gas Station in Center Moriches, and that he had picked up the gasoline from Brooklyn (Id., 20). Subsequent investigation determined that the MPT shipment had been delivered from Phibro *5 Energy/Riverside Energy, and had been picked up from the Newark, New Jersey terminal by McElroy (2/4/97, 21-22).

Investigator Walter Holloway of the New York State Police was engaged in surveillance at Port of Newark, New Jersey on May 11, 1995, when he spotted an MPT tanker at about 6:45 p.m. in the area of the Stratus and Star Terminal (2/4/97, 35-36). After the vehicle left the terminal, Investigator Holloway followed it to the Hempstead Turnpike, in Nassau County, where it was stopped by Trooper Jose Rosado (Id, 37, 39).

The driver produced a license with the name Richard DiVincenzo on it, as well as a bill of lading (2/4/97, 40). The High Use Tax [HUT] Permit produced indicated that the owner of the vehicle was Metropolitan Petroleum Transport, at 25 Skillman Avenue, Brooklyn, New York, which was also the registrant of the vehicle (Id., 41-42). When asked to produce a manifest, the driver showed Trooper Rosado a blank piece of paper and indicated that he was going to complete it later (Id., 42). The driver stated that he was going from New Jersey to Oakdale (Id, 42-43).

After the truck left Rosado, contact was temporarily lost, but was resumed in the area of Sunrise Highway, Oakdale, in Suffolk County (Id., 37).

Investigator Thomas Herrick was engaged in bootlegging surveillance at the Port of Newark terminal on May 11, 1995 (2/4/97, 29). Shortly after 8:04 p.m., a tanker truck with MPT on it left the terminal and was followed by the Investigator (Id, 29-30). Surveillance continued up until Trooper McCloud, who had been advised that the tractor-trailer was headed eastbound on the Long Island Expressway (2/4/97, 23,30), pulled the truck over on Route 25A, *6 Brookville, after it had taken a surreptitious course (Id, 23, 31). The truck was again driven by McElroy (Id., 24). Subsequent investigation showed that the gasoline was picked up at the Stratus terminal in New Jersey by MPT, with a destination of Phibro Riverside Energy, New Jersey (Id., 25). Again, there was no completed tax manifest. McElroy said that this was because he was not sure if he was going to make the delivery--which was to be to somewhere in North Babylon (Id., 26).

Investigator Herrick resumed surveillance on the vehicle after it left Trooper McCloud (2/4/97, 31). The truck, en route to a gas station called Lazoglu, in Babylon, periodically stopped at various locations, including in the middle of the roadway during multiple changes of the traffic light, and went in circles, before arriving the station at about 11:24 p.m. (Id., 31-32). After the driver of the truck hooked his lines to the underground tanks at the station and started pumping gas into them, Investigator Herrick approached (2/4/97, 32).

The driver identified himself as McElroy and said that he was pumping 6,900 and 1,500 gallons of gasoline into the underground unmetered tanks (Id.).

Investigator Robert Velardi of the New York State Petroleum, Alcohol and Tobacco Bureau was engaged in surveillance on June 26, 1995 in the vicinity of the Star and Stratus terminals in Newark, New Jersey (2/4/97, 43-44). There came a point in which the investigator followed an MPT tractor trailer with New York registration TX2 738 from the New Jersey terminal to the Quality Gas Corp. station in Huntington Station, Suffolk County, New York (Id., 44). After approaching the driver while he was delivering fuel into the underground tanks, he produced a driver's license with the name Richard DiVincezo and a registration in the name of Metropolitan Petroleum Transportation (Id., 45-46).

*7 The driver told the Investigator that he had obtained the gasoline from Nassau County, and produced a manifest to that effect--which, of course, was inconsistent with the investigator's own observations (Id., 46).

Gilbert Frank, the Chief Operating Officer from Stratus Petroleum Corporation, owner and operator of petroleum distribution terminals, testified that they have an automation system that creates a bill of lading for every truck that comes into the terminal and picks up product (2/5/97, 3-4). Examining various bills of lading marked as Grand Jury Exhibits, Mr. Frank indicated that all reflected intra-state shipment in New Jersey (Id., 7). It is the driver who inputs the product destination that goes onto the bill of lading--which itself is printed out by Stratus (Id, 7-8, 11). The purchaser of the fuel was Riverside Energy, via Phibro Energy (Id., 8). In the shipment scheme, MPT serves as a delivery company and is not affiliated with Stratus (Id, 10).

Joseph Chismark, the Executive Vice-President of Riverside Energy Incorporated of Dunmore, Pennsylvania, testified that his company would buy gasoline from companies such as Texaco and Phibro and resell it to other customers (2/10/97, 4, 13). In June and July, 1995, Riverside bought gas from Phibro on behalf of Eagle Oil, a/k/a Tri State Terminal, from the Stratus Terminal, Newark (Id., 4). The business relationship between Riverside and Eagle Oil began in January 1995 (Id, 5). In arranging the oil transfers, Mr. Chismark spoke with William Nappo, Sr., and occasionally to William Nappo, Jr. (Id).

Purchases of fuel by Eagle Oil from Riverside were done on a prepayment basis--that is, Eagle would transfer money into Riverside's account or overnight a check to them *8 (2/10/97, 9). When Phibro billed Riverside for the fuel transferred, that was done by EFT or draft on their account 12 days after the pickup, and New Jersey taxes were included in the price billed (Id., 10). This was done FOB--freight on board--meaning it included all taxes (Id., 11). Eagle would, of course, pay the New Jersey taxes (Id., 11). The tax money received by Riverside after the sale to Eagle Oil would then be sent to Phibro Energy (Id., 12).

In June of 1995, Riverside purchased over 2 million gallons of fuel from Phibro on behalf of Eagle Oil (2/10/97, 12).

Investigator John Keary of the New York State Police was involved in the execution of a search warrant at 25 Skillman Avenue, Brooklyn, New York, MPT's location, on September 20, 1995 (2/11/97, 3-4). Computer disks were recovered as a result, covering June 1995, pickups at terminals at Inwood, New York and Stratus, New Jersey (Id., 4-6). A delivery analysis was also found and no deliveries to New Jersey were indicated (Id., 7). Positive identification of several New York addresses was made (Id., 8). For the entire month of June 1995, no deliveries were made to a New Jersey location (Id., 9-10). In all, 1,565,550 gallons were picked up in New Jersey versus 569,729 in New York (Id, 10).

Alan Maier, a tax auditor with the New York State Department of Taxation and Finance examined the business records of Eagle Oil concerning wire transfers from Riverside in June 1995 to Eagle Oil (2/13/97, 4). These transfers totaled $2,397,004 (Id, 5). Deposits of $1,629,664 went into the Eagle Oil account at Natwest Bank in June 1995 (Id, 6). The records also indicated that in May 1995 $348,000 was credited to MPT for diesel accounts (Id., 8). For June 1995, $699,024 was credited to the MPT account (Id., 8).

*9 Mr. Maier indicated that he was familiar with New York State Tax Registration requirements, whereby those operating in New York must file a document letting the State know that the company is doing business in the State (Id, 8). According to the records Maier reviewed, MPT was not registered as a Diesel Motor Fuel Distributor for the period 1-1-94 to 1231-96, nor were they registered as an importer/exporter/transporter for that period, nor were they registered as a Motor Fuel Distributor (Id., 9-10). As to MPT's New York State Petroleum Tax Returns for June and July, 1995, only a minimum tax of $25 was paid--which is the minimum fee to be in business in the State (Id, 11). No excise taxes or taxes on motor fuel were paid (Id., 11). Also, MPT failed to file a sales tax return for the quarter ending August 31, 1995, which, if it were transporting oil products in New York, it had to do (Id., 12).

Another document examined by Mr. Maier indicated that Eagle Oil was not registered as a Diesel Motor Fuel Distributor, as they were required to be, for the period 1-1-94 to 7-30-95 (2/13/97, 13). Records further indicated that neither Eagle Gasoline nor Tri-State Terminals, Inc., nor Oil Company, Inc. were registered as diesel motor fuel distributors (Id, 13-15). Records also indicated that Oil Company, Inc., doing business as Eagle Oil, did not file sales tax returns for August 31, 1994, November 30, 1994, February 28, 1995, May 31, 1995, and August 31, 1995 (Id., 16). The records also indicated that Tri-State Terminals, Inc., did not file sales tax records for those same periods (Id, 16).

State records also reflected that Arena Transportation of New Rochelle, New York, was not registered as a distributor of diesel motor fuel nor of motor fuel during the period January 1, 1994, and January 1, 1995 (2/27/97, 9). Records also showed that Emporium Oil Terminal, Inc., of Wappinger Falls, New York, was not registered as a distributor of diesel motor fuel nor of motor fuel during the period January 1, 1994, and July 31, 1995 (2/27/97, 9).

*10 Examination of MPT deliveries into New York in June 1995 reflected that MPT picked up 1,607,350 gallons in New Jersey and 577,600 gallons in New York (2/13/97, 17). By Maier's calculations, New York was entitled to collect $473,398 in taxes (Id, 17).

In order to distribute motor fuel in New York, a subject must be licensed as a distributor, which Eagle Oil was not in June of 1995 (2/13/97, 18). Additionally, no taxes were paid by Eagle Oil pertaining to the collection of sales tax by the company in June 1995 (Id, 19). Maier found that over $1 million was deposited by Tri-State Terminal, d/b/a Eagle Oil for June 1995 (2/20/97, 4-5).

When asked about a sale of over 16,000 gallons of fuel on July 5, 1995, Maier indicated that the New York tax on seventeen thousand gallons would be $5,111.90 (2/27/97, 8).

After waiving immunity, Frank Savino testified to having begun MPT Trucking in about 1993 (2/14/97, 7). Financial difficulties faced the company such that new partners were taken in--Mike Kumar, Bill Kumar, and John Kumar (Id., 8). The Kumars put $175,000 into the business (Id.). There came a point at which Savino met William Nappo from Eagle Oil, Oil Company, Inc., and Territory or Tri-State (Id, 8-9). Nappo worked with his son, Bill, Jr. (Id).

MPT trucked many differed types of oil and fuel for Eagle before trucking gasoline (2/14/97, 9). They would truck product from New Jersey under Eagle Oil and deliver it to Brooklyn, Queens, Staten Island, Suffolk and Nassau Counties (Id., 9). They also pulled gasoline from the Inwood, New York Terminal to Brooklyn and Nassau County (Id.). No New York State tax was paid on any of the product shipped from New Jersey by MPT, nor, to the best of Savino's knowledge, by Eagle Oil (Id., 10). There were six to eight other companies doing the same thing as MPT (Id).

*11 In June 1995, Eagle Oil was buying its gasoline through Riverside Oil, which was buyinlg from Philbro [sic, Phibro] Oil (2/14/97, 10). Philbro had the product delivered to Stratus Terminal in New Jersey, where MPT picked it up for transport to New York (Id., 11). As part of the scheme, "burn corporations" or "daisy chain corporations" were involved--such as Commonwealth of Missouri, R.A.C. Trading or Lakewood Oil (Id., 11, 12). Commonwealth of Missouri was run by John Saffer and John Rocco, while Lakewood Oil was run by Russell Ehrlich and R.A.C. Trading by John Rocco (Id, 12). Eagle Oil would bill those companies for the gasoline picked up in New Jersey--though it never delivered anything to them (Id., 12-13).

When MPT delivered gasoline in New York, they purchased it from Eagle Oil, paying it 3 1/2 cents over market (Id., 13). No New York State tax was paid, however (Id., 14). MPT also had to pay a 1 1/2 cents [a gallon] to Commonwealth, R.A.C. and Lakewood for paperwork to cover their trail (Id.). These burn companies would "pay" MPT for trucking the gasoline, and MPT would funnel the money back to them--so that there was no actual transfer of money (Id., 19).

Part of the scheme involved purchasing gasoline in New York so that "legitimate" bills of lading would exist which could be produced by drivers carrying gasoline from New Jersey if they were stopped (2/14/97, 15).

The Kumars not only were involved in the transport of untaxed gasoline, they also owned gas stations in Brooklyn, the Bronx, and Nassau (2/14/97, 16). These were largely Indian and Pakistani establishments (Id). Money received from the sales would be dropped at the Inwood terminal or at Natwest Bank in Valley Stream (Id., 17).

Lonnie Fishman handled certain accounts in Suffolk County (2/14/97, 17). MPT purchased the gasoline from Eagle Oil who sold it to Fishman, who in turn sold it to the gas *12 stations he dealt with (Id., 18). MPT charged Fishman trucking costs plus two cents (Id). Another person named Adel had the same setup as Fishman (Id., 20).

The Kumars and a friend of Savino's named Ismeth Baker would bring the cash MPT owed Eagle Oil to Nappo and to the Eagle Terminal (2/14/97, 20).

Among the six to eight other companies playing the role that MPT did that Savino was aware of were V.F.W., E & G, RINA Transport, and Blue Star (2/14/97, 21) There was also V.E.F. who had a driver named Albert who socialized with one of Savino's drivers; Bill Nappo told Savino that Albert was working for him (Id., 21). The participants in the conspiracy at RINA were Joe Rina, his son, and Richard Ferrara (2/14/97, 21).

At one point Savino went to Florida with William Nappo, Richard Ferrara, and John Rocco on a pleasure trip paid for by Nappo (2/14/97, 22). Some discussion about moving products was had, however (Id.)

MPT also picked up diesel fuel at the Inwood Terminal (2/14/97, 22). The Kumars and Lonnie Fishman were involved in the delivery of kerosene (which is not taxed) and diesel fuel (which is taxed federally and locally) (Id., 23). Eagle Oil would receive 15 cents above price for the kerosene, while the burn companies got 6 cents a gallon (Id., 23-24). The kerosene was sold as diesel fuel (Id., 24-25).

Prior to June 1995, Eagle Oil was using Petron, a Philadelphia company with an office in New Jersey, and shipped product from the Texaco Linden, New Jersey terminal into New York--the same as the latter did with Riverside and Phibro (2/14/97, 25-26). MPT delivered the Petron gasoline from early in 1994 until June 1995; none of the gasoline shipped from New Jersey to New York had New York taxes (about 30 cents a gallon) paid on it (Id, 26). Over 10 million untaxed gallons were delivered during that time (Id.).

*13 Among the drivers used by MPT were Richard DeVincenzo and Robert McElroy (2/14/97, 28). The drivers were paid by the load--anywhere from $70 to $125 depending on destination (Id.). MPT provided the drivers with New York bills of lading for the New Jersey product and instructed them to destroy the New Jersey bills of lading (Id., 29). Blank tax manifests were also used--the original blanks coming from Bill Nappo's people (Id., 29-30). Occasionally MPT would have its drivers get a New York manifest, which would be in triplicate; the copies would go to other drivers who had actually gotten New Jersey manifests (Id, 30).

A bookkeeper named Augustine Verichio [sic, Verrichio] worked for MPT; Verichio was fully aware of what went on with the burn companies and such (2/14/97, 30-31).

Investigator Edward Mlodynia of the New York State Police began investigating the bootlegging of gasoline in 1994 (2/19/97, 3-4). Their investigation disclosed that Augustine Varrichio [sic, Verrichio] was working at MPT (Id., 5- 6). They also uncovered numerous records connecting Mike and Bill Kumar with MPT's dealing--including account records and telephone listings (Id., 6). Ramesh Kumar was seen going to Eagle and to various gas stations in a vehicle registered to him (Id, 6-7).

The investigation also uncovered MPT records with accounts under Lonnie Fishman's name, as well as phone numbers for Lonnie--one of which came back to Twilight Fuel Company in Medford, Route 112 (2/19/97, 8). The investigation showed a connection between an Adel Bayant and MPT; telephone records listed Adel at a number coming back to an USA Gas Station in Ronkonoma (Id., 8-9). Surveillance one day at the station disclosed an E & G truck delivering gasoline to the station; Bayant came out and identified himself to the investigators as the owner of the station and he Stated that the gasoline was purchased from *14 Eagle's Inwood terminal (Id., 9).

Eagle and MPT records disclosed a person named Ismet who was making money drops related to MPT's gasoline purchases through Eagle (2/19/97, 9). Surveillance revealed Ismet Baker going to both Eagle and MPT (Id, 10). Their investigation also disclosed that Albert Burshteit was connected to E & G Transportation Corporation, which also was delivering bootleg gasoline (Id.).

Richard Ferrara, president of the Emporium Gas terminal in Wappinger Falls, New York, was found to be using Rina Transportation to pick up products purchased though Bill Nappo at Eagle via pickups at Stratus Petroleum in Newark, New Jersey (2/19/97, 11). On one occasion a Rina truck was impounded and Joseph Fortuna, also known as Joseph Rina, the owner, gave a statement to the investigators (Id., 11-12).

Records from both Eagle Oil and MPT also reflected that John Rocco, president of Embassy Oil Brokers of New Jersey, was doing business with both companies (Id., 12). Letterhead from Embassy was found in Eagle's records; underneath that letterhead were Commonwealth Oil of Missouri and R.P.C. Trading Corporation (Id.). A check from John Rocco to MPT for $50,000, described as a loan, was also found (Id.).

An individual named Ruslan Erlikh was found to have had a business relationship with MPT; his name and home address being found in the records (2/19/97, 13).

Records at both MPT and Eagle linked John Saffia to Commonwealth of Missouri of St. Louis, Missouri (2/19/97, 14). Checks from Saffia to MPT were found under the Commonwealth account, and Eagle had paper with both Saffia's name and date of birth, as well as Rocco's (Id, 14).

As part of the investigation, a bill of lading dated July 5, 1995, from Stratus *15 Petroleum of Newark, New Jersey, was obtained, which listed Arena Transportation as the carrier (2/27/97, 4-5). An invoice from Eagle Oil to Emporium Oil Terminal was obtained from Eagle by search warrant (2/27/97, 5). A comparison of the bill of lading with the invoice showed that Emporium Oil was being billed for the same bills of lading (2/27/97, 5-6).

Duplicated bills of lading obtained by search warrant from Eagle Oil showed that it was selling the same fuel to both Lakewood Oil Company and to Emporium Oil Terminal (2/27/97, 6). This was shown by the invoice numbers, amount of fuel and price all being the same for sales both occurring on July 5, 1995 (Id, 7). In all, 16,000 gallons of fuel was sold that day.

The execution of a search warrant at MPT in Brooklyn yielded an accounts receivable ledger from Eagle showing oil purchased from Eagle being sold to R.A.C. between April 29, 1995 and May 31, 1995 (3/7/97, 4-5). Examination of those records with invoices from Riverside revealed that Riverside's purchase of gasoline on behalf of Eagle Oil was the same (Id., 5). The numbers, dates and gallonage was identical--the only difference being that there was a 3 1/2 cent markup on Eagle's ledgers (Id., 5-6). Invoices were found at MPT relating to the exact same pickup (Id., 6). According to the records obtained, the same motor fuel that was purchased through Eagle and sold to R.A.C. was picked up the MPT (Id).

Other records seized by search warrant executed at MPT in September 1995 showed, via an accounts receivable, that from June 1, 1995, to June 30, 1995, Eagle Oil purchased fuel which was sold to Lakewood Oil Company (3/7/97, 7). Records obtained from Riverside showed the same invoice numbers (Id.). Thus, Riverside Energy charged Eagle Oil for fuel MPT picked up in New Jersey where the terminal billed Lakewood Oil Company (Id.). The invoice numbers on the accounts receivable had hand-printed numbers corresponding to bills of *16 lading for pickups by MPT from the Stratus Petroleum Terminal in New Jersey (Id., 7-8).

The Indictment

Defendants-respondents were charged in the indictment with:

The Defendants' Motions to Dismiss [FN2]

FN2. The sufficiency of the charge of Enterprise Corruption is not before this Court and, therefore, is not a subject of discussion.

The defendants moved for dismissal of the Grand Larceny counts on the basis that there were insufficient allegations before the Grand Jury to establish "that the defendants 'took, obtained or withheld' the 'property of another' or conspired or agreed to do so" [Defendants' *17 Memorandum of Law, p.36]. The particularly challenged that there was sufficient proof that the State of New York was the owner of property stolen from it--i.e., the "taxes due."

The People's Opposition to Defendants' Motions to Dismiss

It was respondent's position that the defendants had an obligation to collect and to pay sales and excise taxes to the State of New York. The concealment of the tax liability and concomitant failure to remit the taxes to the State of New York, which were incurred by operation of law at the point of entry of the motor fuel, constituted larceny.

The Trial Court's Decision

The trial court rejected respondent's claim that because defendants had an obligation to collect and to pay sales and excise taxes to the State of New York the failure to remit the tax revenues they were obligated to collect constituted larceny. The court noted that in response to this Court's 1983 which held that defendants who collect sales taxes but fail to remit the money to the State may not be subjected to criminal prosecution for larceny because the Tax Law exclusively controlled punishment for tax offenses (People v. Valenza, 60 NY2d 363), the Legislature overruled this decision by a 1984 amendment to the tax law [Tax Law §1817(k)]. That section states that penalties provided for in the tax law shall not preclude criminal prosecution under the penal law " 'whenever such person has been required to collect and has collected any such sales tax' " (Emphasis supplied in court's decision). Simply, then, because the tax money was never collected, larceny did not lie according to the trial court.

*18 QUESTIONS PRESENTED

1. Are taxes due the State of New York a property right possessed by the State, such that it possessed an ownership interest in the motor fuel taxes incurred upon importation of fuel from New Jersey?

2. Where elaborate scheme to evade motor fuel taxes due upon the importation of motor fuel into the State of New York, involving the wrongful concealment of tax liability and concomitant withholding of the taxes due, is the State thereby deprived of property--i.e., tax revenue--thus constituting larceny?

We urge that these questions be answered in the affirmative.

*19 POINT I

THE DEFENDANTS' CONCEALMENT OF TAX LIABILITY AND WRONGFUL WITHHOLDING OF THE TAXES DUE THE STATE OF NEW YORK ESTABLISHED LARCENY IN THE FIRST DEGREE, AND THUS SUPPORTED THE CHARGE OF CONSPIRACY.

The issue before this Court is whether the State, by virtue of the tax obligation which arises upon the importation of motor fuel, becomes an "owner" of "property" such that the defendants' concealment of their tax liability and withholding of taxes constituted larceny. We urge that it did. Because, by operation of law, the defendants incurred a duty to pay taxes on the motor fuel they brought into the State of New York, their bootlegging scheme not only evinced criminal intent but wrongfully withheld their tax liability from the State and constituted larceny. Unlike the collection and remission of a sales tax from third parties, the tax liability (and duty with respect thereto) was direct and existed irrespective of the ultimate sale of the fuel transported into the State. The defendants, therefore, acted to deprive the State of the taxes to which it had a cognizable property right by permanently and wrongfully withholding the taxes due the State, and thereby committed larceny.

Appellants attempt to paint their tax evasion scheme as a mere failure by a debtor to pay its debt (a notion undermined by the undisturbed criminal tax law charges pending against defendants) and assert that the State, particularly in the absence of a fiduciary relationship with defendants, never acquired an ownership interest in any withheld property. They seek, therefore, to distinguish the case at bar from those involving the willful failure to remit sales tax collected on the behalf of the State--which they cite as being the paradigm for a valid larceny charge involving taxes.

*20 Defendants' reasoning is faulty both as to its premise and the nature of the defendants' promise--i.e., their obligation to pay motor fuel taxes. Their premise is wrong because the critical point represented in the sales tax remission cases is that the defendants had a legal duty to pay money to the State, such that they were criminally liable for failing to do so where there is a criminal intent to deprive the State of its revenue. The State had a legal interest in the taxes directly due from, and concealed by, appellants. That no taxes had been collected, or set aside, by defendants does not negate the State's ownership interest in the taxes owed by the defendants. These taxes, moreover, are property having an ascertainable value to the State of New York. Thus, the defendants' promise--to remit taxes due upon importation of motor fuel--was not that of a mere debtor.

From the standpoint of the State of New York, defendants' concealment and withholding of the tax revenue due in the case at bar had the same effect as the failure to remit retail sales taxes which have been collected. In each circumstance the State does not receive what it is due. Each larceny theory is based upon an absolute duty under the law. Whether the money was to come from the fuel transporter/distributor, or a retail third party purchaser, the legal obligation is the same, as is the State's interest in the tax revenue. Only the source of the taxes due the State is different. To argue that the State's property interest in one form of tax revenue is different from another finds no support in the law. Reliance on the claimed absence of "particular funds belonging to a debtor" [Appellants-Nappos' Brief, p. 13] or on the existence of "identifiable quantities of money" [Appellants-Nappos' Brief, p.15] thus misses the point entirely. The State unquestionably has a superior right to possession of the taxes it is due.

*21 A. Factual Background

The evidence adduced before the grand jury showed that the defendants conspired to and engaged in the transportation and importation of motor fuel from New Jersey to various locations in New York, while failing to report this or remit taxes to the New York State Department of Taxation and Finance. Their criminal conduct, unfortunately, is far from unprecedented. See, e.g., People v. Levine, 167 A.D.2d 484 (2d Dep't 1990), Iv. app. denied, 77 N.Y.2d 879 (1991), dism. hab. corpus aff'd, Levine v. Commissioner of Correctional Services, 44 F.3d 121 (2d Cir. 1995) (NO. 75, 93-2803), and aff'd, 112 F.3d 504 (1996), cert. denied sub nom., Levine v. Goord, 520 U.S. 1106, 117 S. Ct. 1112 (1997) ("The indictment alleged that Levine and his co-defendants stole $35.9 million in tax revenues from New York between 1984 and 1986 by selling gasoline without paying excise and sales taxes."); U.S. v. Friedberg, 766 F. Supp. 87 (E.D.N.Y. 1991), aff'd, 948 F.2d 1277 (2d Cir. 1991) [N.O.R.] (TABLE, NO. 91-1418, 91-1423), cert. denied sub nom., Teich v. U.S., 503 U.S. 919, 112 S. Ct. 1292 (1992) (defendants charged in federal indictment with federal tax evasion from gasoline bootlegging; double jeopardy claim, based on 1986 plea to state court indictment charging evasion of New York State excise tax, rejected); U.S. v. Various de Facto Joint Ventures, 963 F. Supp. 197 (E.D.N.Y. 1996) (civil action to recover taxes; case outlines "daisy chain conspiracy" akin to that in case at bar). As outlined in detail in the statement of facts, the defendants deliberately avoided the statutorily mandated taxes due on the motor fuel that was imported and distributed within New York State. Against this factual background, the Grand Jury found legally sufficient to establish that the defendants took, obtained or withheld the property of an owner, and, thus, sustains counts two and three of the indictment. See, e.g., People v. Massarella, 80 111. App.3d 552, 400 N.E.2d 436 (Ill. App. 1 1979), cert. denied sub nom., *22Massarella v. Illinois, 449 U.S. 1077, 101 S. Ct. 855 (1981) (conviction for theft of motor fuel tax monies in which "defendants obtained several million gallons of tax-free motor fuel").

B. Applicable Statutory Provisions

Article 155 of the New York State Penal Law defines larceny as the "intent to deprive another of property or to appropriate the same to himself or a third person, [where the defendant] wrongfully takes, obtains, or withholds such property from an owner thereof." P.L. §155.05(1). An "owner" is any person who has a right to possession of property, which is superior to that of the taker obtainer or withholder. P.L. §155.00(5). The definition of owner includes the State. P.L. §10.00(7). "Property" is broadly defined to include, inter alia, any money, thing in action, evidence of a debt or contract, or any article, substance or thing of value. P.L. §155.00(1). "Property" has been interpreted to include rights held pursuant to a contract or lease. People v. Garland, 69 N.Y.2d 144 (1987); People ex rel. Short v. Warden of City Prison, 145 A.D. 861 (1st Dep't 1911), aff'd, 206 N.Y. 632 (1912) ("property" "intended to embrace every species of valuable right and interest ..."; deprivation of the right to labor was deprivation of property); People v. Capaldo, 151 Misc.2d 14 (Sup. Ct. N.Y. Co. 1991); People v. Izo, 96 Misc.2d 634 (Crim. Ct. Bronx Co. 1978); People v. Podolsky, 130 Misc.2d 987 (Sup. Ct. N.Y. Co. 1985); compare Phelps v. People, 72 N.Y. 334 (1878) (Court noted "when property is received by the servant or custodian from another, who occupies the relation of agent for the owner, or who stands in the position of the owner in respect to the possession; then, though the owner never had the actual possession, yet the possession of such other person is his possession." Id. at 361.

*23 C. Larceny Encompasses More Than Theft of Money

While property encompasses "evidence of a debt" as well as anything of value, the defendants essentially contest that the debt itself--the taxes owed by defendants--is itself property. The historical antecedents of the penal law larceny provisions demonstrate that any attempt to restrict larceny to the theft of money, particularly discrete sums of currency, is error. In People v. Olivo, 52 N.Y.2d 309 (1981), this Court traced the development of the crime of larceny, from its early roots as a defense against a "breach of the peace ..." to the broader principles of "protecting individual property rights" (citations omitted). Id. Thus, "as the reach of larceny expanded, the intent element of the crime became of increasing importance ..." [id.] such that "[d]uring this evolutionary process, the purpose served by the crime of larceny obviously shifted from protecting society's peace to general protection of property rights" (citations omitted). Id., at 316-17. "Indeed, this court has recognized, in construing the New York Penal Law, that the 'ancient common-law concepts of larceny' no longer strictly apply" (citation omitted). [FN3] Id at 317.

FN3. In a modem context, though concerning concealment of tangible goods during the course of "shoplifting," it is noteworthy that this Court has recognized that larceny may be established simply where the "shopper may treat merchandise in a manner inconsistent with the owner's continued rights--and in a manner not in accord with that of prospective purchaser-- without actually walking out of the store... So long as its bears upon the principal issue--whether the shopper exercised control wholly inconsistent with the owner's continued rights--any attending circumstance is relevant and may be taken into account." People v. Olivo, 52 N.Y.2d at 319. The overarching consideration, as in the case at bar, is whether defendant's conduct evinces a necessary criminal intent.

This Court in People v. Ditta again echoed that the scope of the larceny provisions need not be given narrow interpretation:

Initially, it should be emphasized that the common-law policy of strictly construing a penal code no longer obtains in this State. The Legislature expressly abolished that rule, and ordained instead that the provisions of the Penal Law be interpreted "according to the fair import of their terms to promote justice and effect the objects *24 of the law" (Penal Law, §5.00). Although this rule obviously does not justify the imposition of criminal sanctions for conduct that falls beyond the scope of the Penal Law (e.g., People v. Sansanese, 17 N.Y.2d 302, 306 [1966]; People v. Wood, 8 N.Y.2d 48, 51 [1960]), it does authorize a court to dispense with hypertechnical or strained interpretations of the statute (see, e.g., People v. Abeel, 182 N.Y. 415, 420- 422 [1905]). Thus, conduct that falls within the plain, natural meaning of the language of a Penal Law provision may be punished as criminal. People v. Ditta, 52 N.Y.2d 657, 660 (1981).

The defendants' conduct in essentially converting their tax obligations to the State into hefty misbegotten profits--done with unquestionable criminal intent--fits well within the scope of activities proscribed by the larceny provisions. The primacy of intent over the underlying acts is again illustrated in this Court's decision in People v. Antilla, 77 N.Y.2d 853 (1991). In Antilla, this Court rejected a claim that, as joint owner of money market account, the defendant could not be convicted of larceny: "larcenous creation of the joint account, not defendant's withdrawals from it, provided the basis for his conviction" (citation omitted). Id at 855.

The questions posed by appellants as to State's ownership interest in the taxes due this are thus resolvable by this Court without an expansion of the existing scope of the larceny provisions.

D. The Tax Revenue Constitutes Property In Which the State Possessed An Ownership Interest.

Determination of whether the defendants' concealment of, and accompanying failure to remit, taxes to New York State constituted larceny requires an examination of two issues: (1) does the unremitted tax revenue constitute "property" under the larceny statute, and thereby have a measurable "value" under the larceny statute; and (2) does the State possess an "ownership interest" in the taxes it is due? We urge that the taxes due the State qualify as property and such property has an ascertainable value. The error which defendants make is in *25 positing that larceny of taxes requires the conversion of discrete monies-as opposed to the wrongful withholding of "evidence of a debt or contract, or any article, substance or thing of value..." At its essence, defendants wrongfully withheld taxes from the State's coffers, which they were under a legal duty to pay, and in which concomitantly the State possessed an ownership interest.

Property, under the larceny provisions, may be either tangible or intangible. Intangible property may consist of contractual rights--as in the provision of a service or in the right to occupy and possess real property, for example. See People v. Garland, 69 N.Y.2d 144 (1987), People v. Spatarella, 34 N.Y.2d 157, 162 (1974); People v. Scott, 26 N.Y.2d 286, 289 (1970); see, e.g., People v. Newspaper and Mail Deliverers' Union of New York and Vicinity, 250 A.D.2d 207, 209 (1st Dep't 1998), Iv. app. denied, 93 N.Y.2d 877, denied on reconsid., 93 N.Y.2d 1023 (1999) (noting grand larceny conviction for "improperly promoting favored members and thereby stealing the seniority rights of others"); compare NYSA-ILA Medical & Clinical Services Fund v. Catucci, 60 F. Supp.2d 194 (S.D.N.Y. 1999) (unpaid contributions to ERISA fund constitute "plan assets"). For over one hundred years this Court has recognized that "credits, choses in action and other intangible interests are made by statute susceptible of seizure attachment." Plimpton v. Bigelow, 13 Abb. N. Cas. 173, 66 How. Pr. 131, 4 N.Y.Civ.Proc.R. 189, 93 N.Y. 592, 1883 WL 12710 (1883). Even such intangible property is ultimately reducible into some generally quantifiable value. The tax revenue due the State of New York must, of course, be deemed intangible, lacking as it does any discrete, readily identifiable or observable form.

In cases involving larceny of retail sales taxes, though particular "money" *26 technically is collected on behalf of the State, [FN4] the benefit to the defendants in pocketing such money--versus wrongly retaining their own--is ultimately a distinction without a difference. See pp.32 et seq., infra. In both situations the value of each dollar of tax revenue due the State, and the benefit to the defendant in stealing it, is the same. Conversely, the value of the lost tax revenue to the State, calculable as being the sum of the taxes due the State, further reinforces the existence of a property interest. What this demonstrates is that the taxes due are far more than a mere abstraction. They represent a vested interest possessed by the State, which arose, by operation of law, upon the transport of the untaxed fuel into the State.

FN4. Where a credit card is used by the retail purchaser, of course, the vendor is credited with a cash value though given no actual money/currency at the time of purchase.

The concealed tax liability due New York State constitutes property of an owner that was stolen. The defendants imported and distributed motor fuel to numerous locations within Suffolk County and New York State. A distributor is mandated by statute to pay taxes on each gallon of fuel imported, manufactured or sold by it in the State. Tax Law §287. The direct legal obligation is imposed whether the activity engaged in is legitimate or not. The defendants were mandated by statute to pay the tax to the State from the moment that the motor fuel was first imported, manufactured or sold within the State. Further, the Tax Law provides a detailed scheme regarding the time and manner of payment. See Tax Law, §§284, 287, 289(a)-(f). New York State has a statutory right to the more than one million dollars in taxes, which was superior to that of the defendants. Indeed, it has a legally enforceable interest in that money.

A distributor, such as the defendants, is statutorily required to pay the motor fuel tax upon importation, manufacture or sale within New York State. Tax Law §284. Taxes are required to be paid and returns are required to be filed on a monthly basis. Tax Law §287(1). Thus, the New York State Legislature has removed any requirement that a sale be consummated *27 before the legal duty to pay arises. The statutory mandate creates an immediate obligation on behalf of the distributor. The distributor may pass along the cost of the fuel tax to subsequent purchasers. But, the act of imposing this cost on others in no way affects the statutory obligation of the distributor, who is solely responsible for and required to surrender to the State the tax.

That the State acquired a property right in tax revenue at the point of importation is further illustrated by the following hypothetical. First, assume, hypothetically, that 100 gallons of gasoline, costing a "fuel wholesaler" one dollar a gallon to purchase and taxed by New York State at a rate of 20 cents gallon, is transported by the fuel wholesaler into New York for sale to a retailer. Theft of this fuel from the wholesaler unquestionably constitutes a larceny. If this shipment of gasoline is stolen, what then is the value of larceny--i.e., the loss to fuel wholesaler?

Because the duty to pay taxes on the gasoline existed immediately upon the importation of the untaxed fuel into the State [see supra], the value of the stolen shipment should be at least $120. [FN5] Merely giving the fuel wholesaler $100 in restitution would not make him whole; the wholesaler, to replace the stolen 100 gallon shipment, will be subjected to the imposition of an additional $20 in taxes on the replacement fuel. The State, of course, does not have to rely upon the wholesaler to collect tax revenue from a third party before it is entitled to taxes on the gasoline. The theft of the fuel in the hypothetical did not eradicate the wholesaler's tax obligation.

FN5. This would be the replacement cost to the wholesaler, which invariably will be less than the fair market value of the shipment-- calculable by cost to wholesaler + taxes imposed on fuel + markup by wholesaler = retailer's cost = fair market value. Using the replacement cost for valuation merely simplifies the analysis--but the analysis is not altered by the valuation methodology chosen.

The value of previously untaxed fuel transported into New York for sale to retailers should, therefore, include the taxes levied against it. Those taxes can be viewed as *28 constituting a separable value component and as such are property under the larceny statute. Cases analyzing whether the taxes imposed on property should be considered in assessing value are, admittedly, scarce. The most recent, a Supreme Court decision from New York County, held that sales tax should not be included in determining the value of property. People v. Medjdoubi, 173 Misc.2d 259 (Sup. Ct. N.Y. Co. 1997)

Rather than undermining the view that the tax due New York is property, however, Medjdoubi supports this position. The fuel in the case at bar and the clothing in Medjdoubi both were subject to future retail sale. The critical distinction is that in Medjdoubi the property stolen from the retailer had not yet incurred a tax upon it by virtue of its shipment into New York for retail sale. The gasoline was taxable upon transport, irrespective of whether or not it ever would be sold. Thus, even if the Medjdoubi court's holding ultimately prevails, the case at bar is readily distinguishable. An attempt to define the State's ownership interest by analogizing this case to the collection of retail sales taxes is, therefore, legally and factually erroneous.

The present case concerns the statutory scheme pursuant to Tax Law, Article 12A. Unlike the provisions of the sales tax law [compare Tax Law §1817(k)], the tax laws concerning motor fuel create an immediate legal obligation on the distributor. The statutory mandate is direct and obligatory. The distinct difference between the statutory scheme pertaining to sales taxes and motor fuel taxes is reflected in the fact that the legal obligation to remit sales taxes arises upon the occurrence of a sale. The vendor--who paid no sales tax on the merchandise to be sold--collects the sales taxes as a trustee for the State. People v. Lyon, 82 A.D.2d 516, 519 (2d Dep't 1981). The legal obligation to pay the tax--which is on the consumer--does not exist until the sale as that is the event that is the subject of the tax. The critical similarity between *29 both taxation schemes is that each afford the state a superior right of possession in the tax revenue. If that was not so, no criminal liability could ever exist from non-payment of taxes. Notably, a vendor is personally liable for the tax whether it is collected or not. See Tax Law §1133; [FN6] cf. Ames Volkswagen, Ltd v. State Tax Commission, 47 N.Y.2d 345 (1979) (Court rejected challenge to constitutionality of Tax Law §1137-A which required vendors to pay estimated sales tax liability even though they had not yet collected any taxes on sales expected to be made).

FN6. Analytically, if a vendor with a duty to remit a sales tax does not collect such tax from the purchaser, and conceals the tax liability which he nevertheless owes, his criminal exposure should be the same as that of defendants.

There is no need, therefore, to have discrete funds set up in a trust on the behalf of the State for the State to be deprived of its property. Any reliance on People v. Yannett, 49 N.Y.2d 296 (1980), by appellants for such a proposition is entirely misplaced, Factually, Yannett involved the withholding of funds by defendant from nursing home residents who were due a sum in reimbursement. This Court noted that "no funds belonging to the residents were ever entrusted to defendant." Yannett, 49 N.Y.2d at 303. As a matter of law, this Court found that "[i]t has long been true in this State that the 'misuse' of funds upon which a constructive trust could be imposed does not comprise the crime of larceny by embezzlement. This is so because the possible 'beneficiaries' of a potential constructive trust simply do not have the requisite preexisting interest, superior to that of the legal owner of those funds, which is necessary to support a larceny conviction of that legal owner." Id., at 303-04.

Yannett plainly involved two critical differences from the case at bar: (1) there was no evidence that the defendant had concealed the existence of any Medicare refunds from the residents, such that no payments were required to be made by Medicare to the nursing home until after the nursing home refunded the proper amount to the resident or set up a separate *30 account when mandated; and (2) "the Medicare funds were not the property of the residents, but rather the property of defendant The funds given defendant by Blue Cross on behalf of Medicare were not intended to serve as the source of the refunds due the residents of the home." The critical mistake in giving Yannett too much consideration is, therefore, that factually Yannett involves the alleged "theft" of particular monies in which, however, the "victim" had no legal interest. [FN7] The issue presented here on appeal involves the withholding from the State of its legal interest in tax revenue concealed from its reach. Compare P.L. §190.30 [Unlawfully Concealing a Will].

FN7. Reliance on People v. Jennings, 69 N.Y.2d 103 (1986) is similarly misplaced.

It is well settled law that 'no one shall be permitted to profit by his own fraud, or to take advantage of his own wrong, or to found any claim upon his own iniquity, or to acquire property by his own crime. These maxims are dictated by public policy, have their foundation in universal law administered in all civilized countries, and have nowhere been superseded by statutes' (citation omitted). In re Katz' Will, 78 Misc.2d 790 (Surrogate's Ct. Schoharie Co. 1974), citing Riggs et al. v. Palmer et al., 115 N.Y. 506, 511-12 (1889).

Thus, while no formal trust arrangement existed between the State and defendants, such is irrelevant where the liability of the defendants to the State was direct and the property withheld was not given to defendants on the behalf of the State.

Further illustrative of the fact that it is the nature of the defendants' obligation and not the form of the property stolen that is of paramount importance is U.S. v. Klingler, 61 F.3d 1234 (6th Cir. 1995). In Klinger, the defendant failed to remit $159,985.01 in estimated customs fees and duties due the government, "and instead used these funds, received from her clients, for personal expenses." Id. The defendant contended on appeal of her conviction for converting money of the United States that the district court erred in denying her motion to dismiss the *31 indictment. The Circuit court agreed with defendant and reversed her conviction "because the misappropriated funds never became 'money of the United States' or a 'thing of value of the United States,' as required by 18 U.S.C. § 641 and 649." Id., 61 F.3d at 1235. Critical to the court's holding was that under the federal provisions of law underlying the prosecution, "Klingler's clients remained liable for the duties..." Id., 61 F.3d at 1236. Thus, while "[c]learly, an intention that money be delivered to the [government] is insufficient to make it government property" [FN8] [61 F.3d at 1240], the government obtains an enforceable interest in a defendant's property when he is under a statutory obligation to make payment of taxes.

FN8. See also U.S. v. Lasky, 967 F. Supp. 749 (E.D.N.Y. 1997) (in context of federal prosecution under 18 U.S.C. §641).

The concept of theft of "value," as opposed to theft of actual property providing the value, is not without precedent, moreover. See People v. Silverman, 106 Misc.2d 468 (Sup. Ct. N.Y. Co. 1980). In Silverman, sale of goods at below market value by an employee of a company--unbeknownst to the employer--was held to have deprived the company of a portion of the value of the items sold. Id. Here, the defendants sold the fuel untaxed and deprived the State of its tax revenue, thus obtaining greater value to themselves which should have been otherwise directed to the State.

Even the deprivation of statutory rights--akin to the tax liability in question here--has, in fact, been recognized by this Court as a legitimate basis for larceny. See People v. Garland, 69 N.Y.2d 144 (1987). In Garland, defendant, an agent of the owner in fee of the apartment building in question, attempted, through extortion, to deprive the tenants of their statutory and/or contractual rights to occupy and possess their apartments. Tenants who have a legal right to occupy and possess an apartment, whether by lease or under statute, own "property" as defined by Penal Law §155.00(1). When a lease is entered into, a landlord transfers the sole and exclusive right to possession of the *32 premises to the tenant. Additionally, rent-controlled and rentstabilized tenants have a right to continued possession and may not be evicted or excluded from possession except as provided by statute, notwithstanding any contract to the contrary. Contrary to defendant's contention, an interest need not be transferable to constitute "property" under Penal Law § 155.00(1) (internal citations omitted).

Thus, the rights of tenants to possess and occupy their apartments constituted "property" as defined in Penal Law § 155.00(1). See also People v. Spatarella, 34 N.Y.2d 157, 162 (1974) ("the contractual right of a refuse removal company to service a restaurant was 'property' for purposes of the larceny by extortion statutes even though it was no more than an intangible 'advantageous business relationship which was based on an at-will arrangement'").

In reaching the holding in Garland, this Court specifically noted that "Penal Law § 155.00(1) defines "property" for purposes of the larceny statutes as: "any money, personal property, real property, computer data, computer program, thing in action, evidence of debt or contract, or any article, substance or thing of value including any gas, steam, water or electricity, which is provided for a charge or compensation" (emphasis added by Court). Id at 146-47; see, e.g., Spandau v. U.S., 73 N.Y.2d 832 (1988); Ameritek Const. Corp. v. Gas, Wash & Go, Inc., 247 A.D.2d 418 (2d Dep't 1998) (plaintiff purchased unpaid tax lien from City of Yonkers). The recognition that larceny extends to such broad rights is no less pertinent when placed in the context of the right of the State to its lifeblood-the tax revenue that enables it to function and serve its citizenry. [FN9]

FN9. Historically, of course, the inability of the post-revoluntionary war government of the United Stales to raise revenue led to the Constitutional Convention of 1787 and abandonment of the Articles of Confederation.

The evidence adduced before the Grand Jury established not only that the defendants failed to remit the taxes upon motor fuel imported into New York State, but also that the motor fuel was sold by the defendants and others within New York State and Suffolk County. *33 The defendants collected moneys resulting from the distribution of the fuel, and the retail sales prices included the taxes the New York State was due--but which it was not aware of and did not receive. Further, the defendants participated in an elaborate larcenous scheme to specifically avoid the payment of taxes, which included the use of "burn companies" to mask the fact that the motor fuel taxes were not being paid. Such actions demonstrate the larcenous intent of the defendants and their accomplices. The scheme operated to undercut competition and to produce greater profits to the defendants as a result of the nonpayment of taxes. The scam was intended to and did produce profit for the defendants by effectively stealing over two million dollars in taxes from the State of New York.

Appellants' attempt to limit larceny of taxes to the theft of discrete monies held in trust for the State must be rejected. Such a rigid construction in the face of this Court's recognition of intangible property rights is fundamentally unsound. Even this Court's recent decision addressing some fundamental issues involved in the theft of tangible property belies appellants' position. What may be derived from this Court's analysis is that possession and ownership of property are not synonymous. In People v. Wilson, [FN10] this Court delineated its view of what constitutes ownership of tangible property:

FN10. Conviction for stealing boots from a shopping mall security guard reversed because boots were taken from a nearby store unaffiliated with the mall that employed the guard, who did not "own" the stolen boots.

[L]arceny require[s] a taking of property "from an owner thereof". The Penal Law defines ownership broadly, to include not only the true owner of a chattel, but "any person who has a right to possession thereof superior to that of the taker". The statutory definition codifies the common-law rule, long recognized in this State, that ownership is not limited to the title owner of the property. Rather, it is enough that the person have a right to possession of the property superior to that of the thief. As we noted in Phelps, "[i]t is enough, if any one be named who has a special property in the thing stolen. A special property is a qualified or limited right, such as a bailee of it has". Thus, the *34 definition of ownership does not require that the owner have "an independent right of possession but only that he [has] a possessory right which, however limited or contingent, [is] superior to that of defendant" (internal citations omitted) (emphasis added). People v. Wilson, 93 N.Y.2d 222, 225-26 (1999).

In this case, we urge that New York State had a superior right of possession in the taxes due, which themselves represent a property right withheld by defendants from the State.

E. The State is Not a Mere Creditor, and the Defendants Mere Debtors, Insofar as Its Collection of State Taxes

The government, moreover, should not be considered a mere creditor for the purpose of collecting tax revenues. See Kalb v. United States, 505 F.2d 506 (2d Cir. 1974), cert. denied, 421 U.S. 979, 95 S. Ct. 1981 (1974); Cash v. State, 628 So.2d 1100 (Sup. Ct. Fla. 1993) (grand theft conviction for appropriating gasoline taxes collected by defendant/retailer affirmed). [FN11] Indeed, historically, of course, tax liability--as opposed to ordinary indebtedness-- has been expressly deemed as non-dischargeable in bankruptcy. See 11 U.S.C.A. §523(a); Utica v. Gold Medal Packing Corp., 55 Misc.2d 881 (Sup. Ct. Oneida Co. 1967) (tax claims non-dischargeable); Application of Parisi, 8 Misc.2d 260 (Sup. Ct. Cayuga Co. 1957) (taxes not discharged by bankruptcy). As this Court noted almost 100 years ago, "a discharge in bankruptcy shall release a bankrupt from all of his provable debts, except such as (1) are due as a tax levied by the United States, the State, county, district, or municipality in which he resides ..." (internal quotation marks omitted) (emphasis added). *35Watertown Carriage Co. v. Hall, 176 N.Y. 313, 316 (1903).

FN11. Cash concerned "end-use" theft of motor fuel sales taxes collected at the retail level. As stated in Cash: "His collecting the receipts did not provide him with an ownership interest in those receipts, and the failure to remit the collected amounts did not create a debtor-creditor relationship between Cash and the State. Rather, Cash's relationship with the State was that of an agent and principal. Subsection 212.62(2)(a), Florida Statutes (1987), allows for the collection of a fuel sales tax similar to section 336.025 and provides that the sales tax is on the 'ultimate retail consumer' and that retailers 'shall act as agent[s] for the State in the collection of such tax.' " Id, 628 So.2d at 1101. In New York, of course, the tax is paid by the importer/distributor, and passed along to the consumer in the form of a higher product cost.

While it has been noted that, "generally speaking, taxes are debts due the government" [Anderson v. State, 221 Wis. 78, 265 N.W. 210 (Sup. Ct. Wis. 1936) (defendant convicted of embezzlement for failure to pay over to state tax moneys collected on sale of gasoline)], this is not the equivalent of making the government an ordinary creditor. The refusal of a purchaser to pay for goods delivered may leave him in breach of contract, but the same willful refusal of a purchaser to pay his taxes may result in the imposition of a jail term. Merely because a crime occurs in the context of a "business relationship" such as the transportation of motor fuel, furthermore, is not the measure of whether criminal liability arises. The presence or absence of specific criminal intent must not be overlooked. Defendants can be both debtors and thieves [see Appellant Rocco's Brief, p. 12].

This Court's expressed "judicial reluctance" to criminalize certain conduct out of a fear that doing so may have a chilling effect on business has no application to the circumstances presently before this Court. The underlying rationale for such reluctance, "originally created as a matter of legislative decree rather than judicial prescription" at this Court has noted, was "principally derived in concerns about jailing individuals for mere nonpayment of debt and in the courts' sensitivity to the potential chilling effect that criminalizing such conduct might have on business" (emphasis added) (citations omitted). People v. Norman, 85 N.Y.2d 609, 618-19 (1995). There is, of course, no likelihood that the defendants' conduct in concealing millions of dollars in tax liability from the State of New York might be construed as an innocent mistake or mere business default. Indeed, the very nature of the scheme involved, its sine qua non, is to wrongfully deprive the State of the tax revenue due it--money withheld from the State of which (if the defendants were successful) the State would never become aware. Compare *36 Anderson v. State, 221 Wis at 78, 265 N.W. at 210 ("The mere fact of nonpayment renders the delinquent guilty of the misdemeanor and subjects him to suit as stated. Where the intent to defraud appears, we are of opinion that prosecution for embezzlement also lies" (emphasis added)).

This Court, consistent with the Appellate Division's holding, has long distinguished (quite correctly) between the mere failure to pay a debt and larceny by embezzlement. Specifically, this Court stated that "[a] distinction must be drawn between the refusal to pay a valid debt and the crime of larceny by embezzlement." People v. Yannett, 49 N.Y.2d 296, 301 (1980), quoted in People v. Jennings, 69 N.Y.2d 103, 127 (1986). As also noted, "[t]here is a very real danger that ordinary business transactions might be inhibited due to the risk of prosecuting one who is guilty of nothing more than a mere failure to pay his debts or an inability to perform contractual obligations." People v. Churchill, 47 N.Y.2d 151, 157 (1979). Nonetheless, any reliance on the notion that the government, in its tax collecting capacity, is a mere creditor is contradicted by the very fact that criminal tax law crimes lie against defendants. For defendants to take refuge in this Court's precedents seeking to protect legitimate business interests would require an unmerited expansion of those principles to now protect illegitimate criminal schemes.

Where this Court has held, therefore, that "[c]onduct which is wrongful in the civil context is not necessarily 'wrongful' within the meaning of the larceny statutes ..." this has been premised on a recognition that "[t]he courts and the Legislature have been reluctant to elevate civil wrongs to the level of criminal larceny, particularly when the conduct arises out of legitimate business activities where there are often close questions as to whether the defendant acted intentionally or was merely incompetent" (emphasis supplied) (citations omitted). *37People v. Foster, 73 N.Y.2d 596, 604-05 (1989). The failure to remit to the State the taxes owed, again, was not a mere civil wrong, as demonstrated by the criminal tax law charges facing defendants. Thus, while in People v. Foster this Court again recognized that "[t]he courts and the Legislature have been reluctant to elevate civil wrongs to the level of criminal larceny ..." this was qualified "to particularly when the conduct arises out of legitimate business activities where there are often close questions as to whether the defendant acted intentionally or was merely incompetent" (citations omitted). [FN12] The conduct at bar does not even remotely present a colorable claim of legitimacy.

FN12. In People v. Zinke, 76 N.Y.2d 8 (1990), this Court also stated that "[a] decision not to extend the larceny statute to partnership disputes-- commonly litigated in civil courts--is, moreover, consistent with the Legislature's reluctance to elevate civil wrongs to the level of criminal larceny (see, Third Interim Report, Temporary State Commission on Revision of the Penal Law and Criminal Code, 1964 Legis.Doc.No. 14, at 25 [Feb. 1, 1964] ). In particular, the Legislature was concerned both about the effects of criminalizing conduct arising out of legitimate business activities--where there can often be close questions as to intent--and the effects of offering defeated litigants in civil suits the opportunity to seek retaliation by criminal actions (People v. Foster, 73 N.Y.2d 596, 603-604, 543 N.Y.S.2d 1, 541 N.E.2d 1). Allowing larceny prosecutions against partners is, of course, contrary to those legislative concerns." This again reflects a valid concern over interfering with business relationships, a concern not present in complex criminal schemes to defraud the government of taxes to which it is unquestionably entitled. This Court has not, furthermore, created a per se prohibition against criminalizing larcenous conduct committed in course of a business relationship--as recognized by appellants. See, e.g., People v. Jennings, 69 N.Y.2d 103, 129 (1986) (dismissal of larceny counts by lower court, involving failure to deliver money with which defendants had been entrusted, was error) [Jennings cited by appellants].

Enforcing the penal law provisions for larceny against the defendants' conduct is consistent with the fundamental need to preserve and protect the interests of the government so that it may serve the citizens of this state. Such interests have been recognized in the enforcement of other penal law provisions. Akin to larceny's requirement of an "intent to deprive another of property or to appropriate the same to himself or a third person...", the charge of offering a false instrument for filing has as an element the "intent to defraud." Defendants have challenged whether or not proof of actual loss is an element of the "intent to defraud" under Penal Law Article 175--a challenge which has been rejected repeatedly. The long established New York rule is that "it is not necessary to show that the government suffered *38 a property or pecuniary loss from the fraud ..." People v. Schrag, 147 Misc.2d 517 (Co. Ct. Rockland Co. 1990), citing People v. Kase, 76 A.D.2d 532 (1st Dep't 1980), aff'd, 53 N.Y.2d 989 (1980), citing Hammerschmidt v. United States, 265 U.S. 182, 188 (1924); see People v. Buza, 166 A.D.2d 774 (3d Dep't 1990) (defendant's acts created unacceptable risk pistol permit would be issued to felon or other unacceptable candidate); People v. Walsh, 123 Misc.2d 1042, 1048 (Sup. Ct. N.Y. Co. 1984); see, e.g., People v. Sinclair, 208 A.D.2d 573 (2d Dep't), app. denied, 84 N.Y.2d 1016 (1994) (parolee claimed that "document which falsely stated that the new criminal charges against him had been dismissed by the grand jury," was not written instrument; only relevant issue for Court was whether jury could infer that defendant "knew or believed that [the document] was to become part of his New York State Division of Parole file"). The law merely requires a showing "that the government's legitimate official action and purpose were impeded"--not frustrated--by the false filing. Schrag, 147 Misc.2d at 519; People v. Walsh, 123 Misc.2d at 1048 (noting State's "responsibility of faithfully carrying out its own law").

The courts have repeatedly recognized that the concern animating the prohibition against offering false instruments for filing is the preservation of the integrity of our system of government. As stated in the seminal Bel Air decision, the statute serves to "guard against the possibility that officers of the State or its political subdivisions would act upon false or fraudulent 'instruments' that had been filed with their offices in the belief that such documents were accurate and true" (emphasis supplied). People v. Bel Air Equip. Corp., 39 N.Y.2d 48, 54 (1976); see also People v. Miller, 70 N.Y.2d 903 (1987).

In Kase, defendants had argued that "only instruments from which flow pecuniary or potential pecuniary loss to the State or political subdivisions thereof fall within the prohibition *39 of the statute." People v. Kase, 76 A.D.2d 532, 537 (1st Dep't 1980), aff'd, 53 N.Y.2d 989 (1981). This Court disagreed, adopting the holding of the Appellate Division which followed the federal rule that " '[i]lt is not necessary that the Government shall be subjected to property or pecuniary loss by the fraud, but only that its legitimate official action and purpose shall be defeated by misrepresentation, chicane or the overreaching of those charged with carrying out the governmental intention' " (citation omitted). Id. The court went on to note that "[t]here are few responsibilities of government more important than the obligation faithfully to carry out its own law. Whoever intentionally files a false statement with a public office or public servant for the purpose of frustrating the State's power to fulfill this responsibility, violates the statute." Id Those same interests are served by enforcing criminal liability for larceny of excise taxes.

F. The Legislative Response to this Court's Valenza Decision Confirms that Criminal Liability for Larceny Should Lie Against Defendants

The legislature, in its response to this Court's decision in People v. Valenza, 60 N.Y.2d 363 (1983), [FN13] specifically modified the tax law provisions to criminalize the withholding of taxes due the State. See People v. Walsh, 67 N.Y.2d 747, fn. (1986). As noted by this Court in Walsh:

FN13. At the time this Court decided Valenza, it noted that: "The Legislature has not, however, seen fit to ascribe criminal sanctions generally for failure to pay over sales tax. Defendants point out and the State acknowledges that the Legislature has declined to enact proposed legislation that would enhance the criminal sanctions for conduct that now constitutes a misdemeanor to felony status, and would for the first time include and ascribe as a felony the failure to pay over sales tax (see. e.g., Assembly Intro No. 632-A [1979] ). We note that the Legislature, while providing for the imposition of a substantial civil penalty for a failure to pay over sales tax, has declined to include such conduct in the criminal penalties provision with its incorporation by reference of all other statutes that would be applicable (see New York State Bankers Assn. v. Albright, 38 N.Y.2d 430, 438, 381 N.Y.S.2d 17, 343 N.E.2d 735)." People v. Valenza, 60 N.Y.2d 363, fn. (1983).

Valenza holds that "[a] vendor who collects sales taxes from customers, but fails to remit the sales taxes due the State under circumstances indicating an intent to permanently deprive the State of the taxes, may not be subjected to criminal prosecution for larceny by embezzlement". in Valenza, we noted that "[t]he *40 Legislature's structuring of [Tax Law former] section 1145 to provide substantial civil penalties for failing to pay over sales tax and to exclude this conduct from the criminal penalties section [Tax Law former § 1145(b) ] must be deemed to manifest an intent to exclude such conduct from criminal prosecution under either the Tax Law or the Penal Law" (People v. Valenza, p. 372, 469 N.Y.S.2d 642, 457 N.E.2d 748). While excluding criminal penalties for failing to pay over sales tax, Tax Law former §1145(b) provided for criminal penalties for filing a false sales or use tax return. There being no legislative intent to exclude criminal sanctions for the latter activity, the general rule that a prosecution may be obtained under any penal statute proscribing certain conduct, notwithstanding that the penal statute overlaps with a more specific statute, applies in this situation (citations omitted).

Thus, "[i]n the aftermath of our decision in Valenza, the Legislature amended Tax Law former §1145 by adding the following subdivision: '(d) The penalties provided for in this section shall not preclude prosecution pursuant to the penal law with respect to the willful failure of any person to pay over to the State any sales tax * * * whenever such person has been required to collect and has collected any such sales tax' (L 1984, ch 575, § 1, since renumbered as Tax Law § 1817[k], L 1985, ch 65, § 39). While recognizing that this amendment is not dispositive of the issue now before us, we nevertheless view the legislative response to the Valenza decision as evidencing an over-all intent to permit the prosecutor the choice of proceeding under the Penal Law for criminal offenses also proscribed by the Tax Law." People v. Walsh, 67 N.Y.2d at 749, fn.

The legislative response to this Court's Valenza decision plainly reflects an intent to prosecute the criminal conduct in question here to the fullest extent of the law, as reflected in the title of the legislation--"AN ACT to amend the tax law, in relation to criminal penalties for the theft of sales tax monies; failure to file return or pay over tax." The legislative history strongly suggests that the very criminal conduct engaged in here--i.e., gasoline bootlegging--*41 influenced the rapid legislative response. As recited in the Attorney General's Legislative Program, Memorandum in Support of Bill 9097:

There is no definitive way of determining exactly how great the State's economic loss is from sales tax evasion. A variety of economic factors not connected with evasion influence the overall total collected by the State. It is possible, however, in at least one major industry, to study a trend in suspected sales tax evasion. In the gasoline industry sales tax is now collected by motor fuel distributors who were previously only responsible for excise taxes. It is thus possible by studying gasoline excise tax collection figures to determine the trend in gasoline sales tax. At present that trend projects a $50 million decline in sales/excise tax figures contained in the New York State Department of Taxation and Finance report entitled Comparison of Motor Fuel Gallonage and Receipts. Even this figure must be viewed as deflated as against suspected widespread evasion in fiscal 1983 and prior years. Respected sources within the gasoline industry have estimated the total loss in tax revenue in their industry at $200 million. Law enforcement agencies working on a joint project investigating the gasoline industry in the downstate area now believe there may be a concerted effort by elements of organized crime to take control of the distribution of gasoline, using as leverage their ability to supply low cost, albeit tax free, gasoline. [FN14] Those distributors that do not participate will not be able to survive.

FN14. This reference may be to criminal activities which resulted in charges against a defendant named Sheldon Levine. As noted in the Second Circuit denying Levine's appeal "On May 11, 1987, Sheldon Levine pled guilty in the Supreme Court of the State of New York, Suffolk County (Kenneth K. Rohl, Justice ) to all but one count in a massive 1,004 count indictment charging him with grand larceny, falsification of business records, criminal solicitation, conspiracy, and violations of New York state tax law. The indictment alleged that Levine and his codefendants stole $35.9 million in tax revenues from New York between 1984 and 1986 by selling gasoline without paying excise and sales taxes." Levine v. Commissioner of Correctional Services, 44 F.3d 121,122 (2d Cir. 1995).

Following the Valenza decision the law in New York is totally inadequate to deal with massive sales tax thefts. This bill would establish what is believed, to be the intent of the Legislature, i.e., that in situations involving thefts of sales taxes, not the mere nonpayment, prosecutors may resort to the larceny and other appropriate provisions of the Penal Law ... It will ensure that prosecutors have the tools to punish those who collect a tax from the consumer and intentionally convert it to their own gain... (emphasis added). Attorney General's Legislative Program 1983-84, Bill Jacket, L. 1984, ch. 575; see also Comment by Sen. James Lack, Bill Jacket, L. 1984, ch. 575 (acknowledging that "State and localities are being deprived of more than $100 million in sales tax revenues annually in the gasoline industry alone")

*42 While defendants will undoubtedly argue that this memorandum supports their view that larceny must be of tangible monies held in trust for the State, the thrust of the legislation in support of which the memo was being submitted was only addressed to that issue. See Valenza. What is most noteworthy is recognition that it was the intent of the Legislature to permit larceny prosecutions for theft of sales taxes and not for, of course, mere non-payment. See Memorandum from Allee, Counsel to Attorney General, Bill Jacket, L. 1984, ch. 575. [FN15] There is no view of the facts at bar that renders the defendants' conduct as "mere non-payment." They were, as alleged, involved in the very scheme noted in the memo: distribution of gasoline supplied at low cost because it was--to them--essentially tax free (or at least free of New York State taxes).

FN15. As Attorney General Counsel Dennis H. Alice noted: "enactment of this bill would indicate a legislative intent to make criminal those failures to pay over sales taxes which constitute larcenies, but not to criminalize such nonpayment which is not larcenous. Thus, a person who files a sales tax return but does not pay over sales taxes for reasons that do not constitute a larceny (i.e., truthful return, but momentary inability to actually pay over the collected sales taxes) would not be guilty of any crime."

The legislature, furthermore, in their post-Valenza law-making, enacted the tax law provisions under which the defendants are being prosecuted. Section 1812, pertaining to motor fuel taxes, was enacted as L. 1985, c. 65, § 39, under Tax Law Article 37, in view of the history behind the initial amendment to Section 1145 [the 1984 Amendment. Subd. (d). L.1984, c. 575, § 1, eff. Nov. 1, 1984, added subd. (d)], it cannot be said that the legislature was ignorant of the Penal Law charges which might be filed in situations such as in the case at bar.

Also distinguishing the case at bar from simple non-payment of debt is the defendants' concealment of the debt itself. While a party owed money that another party is contractually obligated to pay has recourse in civil court, the defendants' evasion scheme was intended to deprive the State of New York of knowledge of the very fact that it was entitled to *43 entrusted to it whereby the owner of the property is deceived as to its existence. Cf. People v. Jennings, 69 N.Y.2d at 127-28. At another level, the concealment of the tax liability permitted the defendants to obtain greater profits from the resale of the untaxed fuel. Cf. People v. Fuller, 57 N.Y.2d 152 (1982) (defendant convicted of grand larceny stemming from unlawful receipt of public assistance moneys by concealing fact she was gainfully employed).

It would be anomalous, furthermore, if defendants were to be in a more favorable position (in terms of criminal exposure) than those who collect and fail to remit sales taxes where the only distinction is whose pocket the tax revenue comes from--the defendant at the front end of the chain of consumption versus the retail purchaser at the back end (i.e., at the pump)--the users/consumers whose pump price included the taxes the defendants never paid nor intended to pay.

SUMMARY CONCLUSION

In view of the legislative history behind Article 155 of the New York State Penal Law, that larceny is the "intent to deprive another of property ..." such that they "wrongfully ... withhold[ ] such property from an owner thereof" [P.L. §155.05(1)], the only issue is whether a state has an ownership interest in the tax revenue due it. The definition of an "owner"--as "any person [which included the State] who has a right to possession of property, which is superior to that of the taker, obtainer, or withholder [P.L. §155.00(5)]-- is fulfilled by the State's right under the law to collect the tax revenue concealed from it by defendants. Consistent with being "property," and rather than being some mere abstraction, the tax revenue due had ascertainable value to the State such that, among other things, the State could enforce liens against the defendants to recover the money owed in taxes. P.L. §155.00(1).

*44 The statutory provisions concerning larceny are plainly encompass conduct where a defendant acts with the intent to deprive another of property and wrongfully withholds such property from an owner thereof. While no financial benefit need accrue to the defendant, when one party [such as the defendants] wrongfully obtains a benefit not due it (avoidance of taxes and increased profits), it equally follows that another party [the State of New York] must consequently suffer an injury [i.e., loss of tax revenue]. Tax liability is a zero sum game: what one side owes, to the other it is due. If theft of sales taxes collected from retail purchasers [see Valenza] constitutes larceny, then so too is the wrongful withholding of motor fuel importation taxes from the State. Such privation is fully consistent with the interference with property rights historically punishable as larceny. The defendants' pervasive scheme to deprive the State of millions in tax dollars, generating ill-gotten profits, thus fits within the statutory prohibitions against larceny in all respects.

*45 CONCLUSION

THE APPELLATE DIVISION'S DECISION REINSTATING THE GRAND LARCENY IN THE FIRST

DEGREE AND CONSPIRACY COUNTS OF THE INDICTMENT SHOULD BE AFFIRMED.

THE PEOPLE OF THE STATE OF NEW YORK, Respondent, v. William S. NAPPO, William K. Nappo, & John Rocco, aka: John Ruocco, Defendants-Appellants, et. al.

1999 WL 33659933

Briefs and Other Related Documents

• 2000 WL 34065190 (Appellate Brief) Brief for Appellant John Rocco (2000)

• 2000 WL 34065201 (Appellate Brief) Brief for Appellant John Rocco (2000)

• 1999 WL 33660158 (Appellate Brief) Brief for Appellants William S. Nappo and William K. Nappo (Oct. 26, 1999)

• 1999 WL 33660276 (Appellate Brief) Brief for Appellants William S. Nappo and William K. Nappo (Oct. 26, 1999)