# Appendix — 995 Fifth Avenue Associates, L.P. v. New York State Department of Taxation & Finance, James W. Wetzler, as Commissioner of Taxation and Finance and Edward V. Regan, as Comptroller of the State of New York 113 S. Ct. 395 (1992) (No. 92-363) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386011_1208%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1992 ## Text la UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT > No. 416—August Term, 1991 (Argued October 28, 1991 Decided April 13, 1992) (Amended Opinion Filed May 8, 1992) Docket No. 91-5038 a IN RE: 995 FIFTH AVENUE ASSOCIATES, L.P., Debtor. 995 FIFTH AVENUE ASSOCIATES, L.P., Plaintiff-Appellee, —-V.—- NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE; JAMES W. WETZLER, as Commissioner of Taxation and Finance; EDWARD VY. REGAN, as Comptroller of the State of New York, Defendants-Appellants. Before: OAKES, Chief Judge, FEINBERG and ALTIMARI, Circuit Judges. Fae 2a The New York State Department of Taxation and Finance, James W. Wetzler, as New York Commissioner of Taxation and Finance, and Edward V. Regan, as Comptroller of the State of New York, appeal from an order of the United States District Court for the Southern District of New York (Leonard B. Sand, Judge) affirming the opinion and order of the Bankruptcy Court (Tina L. Brozman, Bankruptcy Court Judge). The Bankruptcy Court granted 995 Fifth Avenue Associates, L.P.’s motion for summary judgment and ordered the New York State Department of Taxation and Finance to refund New York Gains Tax, N.Y. Tax Law § 144] (McKinney 1987) paid by 995 Fifth Avenue Associates, L.P. Affirmed in part and reversed in part. s DAVID S. COOK, Senior Attorney, Attorney General’s Office, State of New York, New York, NY (Robert Abrams, Attorney General, Frederic L. Lieberman, Marcie S. Mintz, Assistant Attorneys General, of counsel), for Defendants-Appellants. JOSHUA J. ANGEL, New York, NY (Leonard H. Gerson, Ira R. Abel, Angel & Frankel, P.C., of counsel), for Plaintiff-Appellee. a OAKES, Chief Judge: This appeal requires us to decide whether the Eleventh Amendment bars a debtor’s suit to recover taxes paid to the State of New York, and whether 11 U.S.C. § 1146(c) 3a (1988) exempts the debtor from payment of the New York gains tax on the transfer of property, N.Y. Tax Law § 1441 (McKinney 1987). The United States Bankruptcy Court for the Southern District of New York, Tina L. Brozman, Bankruptcy Court Judge, found that the New York State Department of Taxation and Finance, James W. Wetzler, as New York Commissioner of Taxation and Finance, and Edward V. Regan, as Comptroller of the State of New York (collectively “State of New York,” “New York,” or “appellant”) waived the State of New York’s immunity from suit by filing a proof of claim in the bankruptcy pro- ceeding, found that the debtor was exempt from the gains tax, and accordingly ordered New York to refund the gains tax paid by the debtor, 995 Fifth Avenue Associates, L.P. (“Fifth Avenue”). New York appealed to the United States District Court for the Southern District of New York. Leonard B. Sand, District Judge, affirmed the opin- ion and order of the bankruptcy court and the State of New York now appeals. For the reasons set forth below, we affirm in part and reverse in part. BACKGROUND The relevant facts are not in dispute. The debtor, Fifth Avenue, operated the Stanhope Hotel. It filed a bankruptcy petition under Chapter 11 of the Bankruptcy Code in February of 1988 and thereafter continued to operate the hotel as debtor in possession. Pursuant to a plan of reorganization, the bankruptcy court authorized the sale of Fifth Avenue’s interest in the hotel at a price of $76 million. The court’s order specifically declared that, because the sale was part of a plan of reorganization, § 1146(c) rendered the sale exempt from all transfer taxes. 4a On January 12, 1989, the day before the scheduled clos- ing, in accordance with N. Y. Tax Law § 1447 (McKinney 1987), New York issued a Tentative Assessment and Return imposing a gains tax of $2,608,603.80 on the sale of the property. New York subsequently denied the debtor’s request for an exemption from the tax under 11 U.S.C. § 1146(c). Because New York law prohibits recor- dation of the deed without payment of tax due under a Tentative Assessment and Return, Fifth Avenue could not close the sale as scheduled without paying the gains tax. Faced with this dilemma, the debtor paid the tax under protest, enabling it to record the deed and close the sale. In March 1989, the debtor brought an adversary pro- ceeding in bankruptcy court agains: the State of New York, seeking, inter alia, a declaration that § 1146(c) exempted the debtor from the gains tax, and an order directing that the payment made to New York be refunded. Some months later, after the bankruptcy court heard oral argument in the proceeding, the State of New York filed an administrative expense claim for gains tax liability of $2,137,496.76, an amount in addition to the approximately $2.6 million already imposed by the state and paid by the debtor. The bankruptcy court found that the debtor’s sale was exempt from the gains tax under § 1146(c). In response to the State of New York’s Eleventh Amendment immunity argument, the bankruptcy court held that pursuant to 11 U.S.C. § 106(a) (1988), New York had waived its Eleventh Amendment immunity by filing the adminis- trative expense Claim for additional gains tax. The district court affirmed the decision and order of the bankruptcy court. Sa DISCUSSION I. Eleventh Amendment Immunity Appellant argues that the Eleventh Amendment barred both the bankruptcy court and the district court from con- sidering whether the debtor was exempt from payment of the New York gains tax. The Eleventh Amendment, where applicable, deprives a federal court of jurisdiction. See Edelman v. Jordan, 415 U.S. 651, 678 (1974). Thus, prior to addressing the merits of this case we must first deter- mine whether Eleventh Amendment immunity bars our jurisdiction. We hold that it does not. The Eleventh Amendment provides: The Judicial power of the United States shall not be construed to extend to any suit in law or equity, com- menced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State. The reach of the amendment was judicially expanded beyond its text in Hans v. Louisiana, 134 U.S. 1 (1890), to bar citizens from suing their own states in federal court. The Supreme Court has also consistently held that federal suits by private citizens that seek damages to be paid out of the state treasury are barred by the Eleventh Amendment. See, e.g., Quern v. Jordan, 440 U.S. 332, 337 (1979). Despite this general bar to suits against states created by the Eleventh Amendment, there are two well-estab- lished ways to provide judicial power over such cases: abrogation of immunity by Congress and waiver of immu- nity by a state. Pennhurst State School & Hosp. v. Halderman, 465 U.S. 89, 99 (1984). A purported Con- 6a gfessional abrogation of Eleventh Amendment immunity is not effective, however, unless it meets a two-part test set forth by the Court. First, Congress must make its intent to abrogate Eleventh Amendment immunity “unmistakably clear.” Pennsylvania v. Union Gas Co., 491 U.S. 1, 7 (1989) (quoting Atascadero State Hosp. v. Scan- lon, 473 U.S. 234, 242 (1985)). Second, the constitutional provision under which Congress legislates its purported abrogation must grant Congress the power to override the Eleventh Amendment. Union Gas, 491 U.S. at 13-23. Abrogation of Eleventh Amendment immunity typically occurs when Congress enacts a new federal statutory cause of action. See, e.g. Fitzpatrick v. Bitzer, 427 U.S. 445, 456 (1976) (Eleventh Amendment immunity abro- gated for suit to recover damages from the State for gen- der-based employment discrimination under Title VII); Union Gas Co., 491 U.S. at 23 (Eleventh Amendment immunity abrogated for suit to recover costs from the State for environmental clean-up under CERCLA). Waiver of Eleventh Amendment immunity, in contrast to abrogation, is not hinged to a specific federal statutory cause of action. Instead, it is triggered by some affirma- tive activity of a state, such as a state’s enactment of leg- islation by which it consents to be sued in federal court, see, e.g., Port Auth. Trans-Hudson Corp. v. Feeney, 495 U.S. 299, 307-09 (1990), and, as here, a state’s partici- pation in litigation in federal court. In Clark v. Barnard, 108 U.S. 436, 447-48 (1883), for example, the State of Rhode Island was deemed to have waived its Eleventh Amendment immunity by intervening in a case as a claimant of a fund. And the Court in Gardner v. New Jer- sey, 329 U.S. 565, 574 (1947), held that where the State of New Jersey filed a claim against a fund in bankruptcy court, in a case where no judgment was sought against the 7a State, the State waived its immunity. Thus, as the district court noted, it is long-established that a state’s partici- pation in a bankruptcy proceeding can trigger a waiver of immunity. The State of New York does not take issue with this general principle. Rather, it argues that the provision of the Bankruptcy Code under which the bankruptcy court deemed the State to have waived its Eleventh Amendment immunity—11 U.S.C. § 106(a)—represents an abrogation provision, not a waiver scheme. As an abrogation provi- sion, New York contends, § 106(a) is unconstitutional because Congress lacks the authority to abrogate sovereign immunity when enacting legislation under the Bankruptcy Clause, U.S. Const. art. I, § 8, cl. 4. We dis- agree with New York’s characterization of § 106(a). Section 106(a) provides: A governmental unit is deemed to have waived sovereign immunity with respect to any claim against such governmental unit that is property of the estate and that arose out of the same transaction or occur- rence out of which such governmental unit’s claim arose. The plain meaning of these words obviously reflects Congress’s intent to provide a waiver of immunity where “a governmental unit” files a claim in the bankruptcy court. The scope of the waiver, of course, remains limited; upon filing a claim the governmental unit subjects itself only to claims that arose from the same transaction or occurrence that formed the basis of the governmental unit’s claim. Our conclusion derives further support from two recent cases where the Supreme Court, albeit in dicta, stated that § 106(a) provides for a limited waiver of immunity. See Hoffman v. Connecticut Income Maint. 8a Dept., 492 U.S. 96, 101-02 (1989); U.S. v. Nordic Village, Inc., No. 90-1629, slip op. at 4-6 (U.S. Feb. 25, 1992). In addition, Congress did not use the language of abro- gation in §106(a). Compare, for example, the language used by Congress in Union Gas, where the Court held that Congress abrogated Eleventh Amendment immunity in making states liable for cleanup costs under CERCLA. Union Gas, 491 U.S. at 13. In the provisions there at issue, Congress stated that any “person,” “owner[,] and operator” shall be liable. 42 U.S.C. § 9607(a) (1988). Congress went on to include states in the definition of a “person,” 42 U.S.C. § 9601(21), and except in very lim- ited situations Congress provided that states fall within the meaning of the term “owner or operator.” See 42 U.S.C. § 9601(20)(D). Thus, CERCLA contains the lan- guage of abrogation by clearly stating that states can be liable for cleanup costs. Section 106(a) contains no sim- ilar statement regarding the liability of states for a spe- cific class of damages. Not only is the wording of § 106(a) different from lan- guage aimed at a general override of immunity, but this provision provides for suits against states by a route that differs markedly from the typical abrogation context. Typ- ically, abrogation occurs when Congress has enacted a cause of action generally and seeks to render states, in particular, liable for damages “along with everyone else.” Union Gas, 491 U.S. at 8. Section 106(a), however, ren- ders a state liable to suit only when the state participates in a bankruptcy proceeding by filing a claim. Thus, § 106(a) creates a waiver scheme; it is not an abrogation provision. Indeed, the section largely partakes of the waiver by participation doctrine that received the Supreme Court’s imprimatur in Gardner, 329 U.S. at 574. ——————— 9a ‘ Because we find that § 106(a) specifies when a state has waived its Eleventh Amendment immunity, we need not address appellant’s contention that Congress lacks the authority to abrogate sovereign immunity when enacting legislation under the Bankruptcy Clause, U.S. Const. art. I, § 8, cl. 4. Next, we consider the validity of the purported waiver of Eleventh Amendment immunity under § 106(a). We note at the outset that, like the First Circuit, we see no constitutional barrier to a waiver of Eleventh Amendment immunity as provided in § 106(a). In WJM, Inc. v. Mas- sachusetts Dept. of Public Welfare, 840 F.2d 996, 1002- 005 (1st Cir. 1988), the court held that Congress possesses the authority to condition a state’s participation in a bankruptcy proceeding on its waiver of Eleventh Amend- ment immunity. The court in WJM relied in part on Atas- cadero, where the Court considered whether states can be sued for damages under a Congressionally-created cause of action. In Atascadero, the Court determined that the Congressional legislation in question fell “far short of manifesting a clear intent to condition participation in the programs funded under the Act on a State’s consent to waive its constitutional immunity.” Atascadero, 473 U.S. at 247. After citing this language, the WJM court rea- soned: The logical inference from this and other language in Atascadero, however, is that Congress may effec- tively condition a state’s participation in a federal program on a state’s consent to federal jurisdiction, so long as Congress manifests a clear intent to this effect. WJM, 840 F.2d at 1003. We agree with the First Circuit's analysis. 10a Our conclusion regarding Congressional authority, however, does not end the inquiry, because we will only give effect to Congressional legislation that purports to condition state participation in litigation on a state’s waiver of Eleventh Amendment immunity when Congress “manifest[s] a clear intent” to do so. Atascadero, 473 U.S. at 247. This requirement is analogous to the test the Court applies to determine the validity of a state’s waiver of Eleventh Amendment immunity by state legislation. In that context, “[t]he Court will give effect to a State’s waiver of Eleventh Amendment immunity ‘only where stated by the most express language or by such over- whelming implication from the text as [will] leave no room for any other reasonable construction.’ ” Feeney, 495 U.S. at 299 (quoting Atascadero, 473 U.S. at 239-40 and Edelman, 415 U.S. at 673). We discern no substantive difference between the test for a Congressional waiver scheme, as set forth in Atascadero, and the test for a waiver by state legislation, as applied in Feeney. Thus, we must again turn to the language of § 106(a) to determine whether it plainly requires a waiver of Eleventh Amend- ment immunity and “leave[s}] no room for any other rea- sonable construction.” Atascadero, 473 U.S. at 240. Appellant argues that no such waiver of Eleventh Amendment immunity is implicated by § 106(a) because, by its terms, it fails to mention the Eleventh Amendment. Explicit mention of the Eleventh Amendment, however, has never been a requirement for waiver of immunity. For example, in Feeney, the Court found that by statute the states of New York and New Jersey had waived their Eleventh Amendment immunity, but nowhere did the Statutory provisions mention the Eleventh Amendment. Feeney, 495 U.S. at 303, 306-09. See also Dellmuth v. Muth, 491 U.S. 223, 233 (1989) (Scalia, J., concurring) lla (statutory text may override Eleventh Amendment immu- nity without explicit reference to either state sovereign immunity or the Eleventh Amendment). Similarly, the text’s failure specifically to mention states is irrelevant: § 106(a) uses the term “governmental unit,” which the Bankruptcy Code defines in 11 U.S.C. § 101(26) (1988) as including a “State.” To hold otherwise would ignore the fact that Congress routinely expresses its intent with statutes drafted with definitional cross-references.’ Accordingly, we find that § 106(a) plainly expresses Congress’s intent to provide for a limited waiver of Eleventh Amendment immunity and “leave[s] no room for any other reasonable construction.” Atascadero, 473 U.S. at 240. Applying § 106(a) to the facts of this case, we find that the State of New York, by filing an administrative expense claim for $2,137,496.76, waived its Eleventh Amendment immunity with respect to the $2,608,603.80 million in gains tax paid by the debtor. As we have stated, § 106(a) provides for waiver of Eleventh Amendment immunity from any claim against the state “that arose out of the same transaction or occurrence out of which such governmental unit’s claim arose.” Here, the State’s admin- istrative expense claim arose from additional gains tax levied on the sale of the Stanhope Hotel. Fifth Avenue’s claim against the State for a refund also arose from gains tax imposed on the sale of the Stanhope Hotel. Thus, appellee’s claim for a tax refund arose from the same transaction or occurrence—the sale of the Stanhope Hotel—as the State’s claim for additional taxes. Accord- 1 The State of New York also argues that § 106(a) is insufficiently clear because it does not mention the filing of a proof of claim. We do not believe this fact renders Congress's intent unclear, because the only rea- sonable construction of § 106(a) is that waiver will arise only if a claim is actually filed. OOO OE 12a ingly, the Eleventh Amendment does not bar us from reaching the merits of this case. II. Whether the Gains Tax is a “Stamp Tax or Similar Tax” We now consider whether the New York gains tax, N.Y. Tax Law § 1441 (McKinney 1987), is a “stamp tax or sim- ilar tax” within the meaning of 11 U.S.C. § 1146(c). Because the New York gains tax is not a “stamp tax or similar tax,’’ we hold that 995 Fifth Avenue is not entitled to an exemption from the gains tax. A. We begin our discussion with an analysis of the type of taxes from which Congress intended to exempt qualifying debtors when it enacted 11 U.S.C. § 1146(c). Starting with the text, section 1146(c) provides: The issuance, transfer, or exchange of a security, or the making or delivery of an instrument of transfer under a plan confirmed under section 1129 of this title, may not be taxed under any law imposing a Stamp tax or similar tax. The Bankruptcy Code supplies no definitions for the terms “stamp tax” or “similar tax.” Thus, we must look to the legislative history for assistance in determining what Congress meant by the phrase “stamp tax or similar tax.” This history, however, provides limited guidance. Section 1146(c), enacted as part of Title 11 and the gen- eral revision of the federal bankruptcy laws in 1978, was derived from § 267 of the Bankruptcy Act of 1898, as amended by the Chandler Act of 1938, ch. 575, § 267, 52 Stat. 840, 902-03 (1938) (repealed in 1979). In essence, ee 13a the new provision broadened the scope of the exemption to include taxes “similar” to Stamp taxes: whereas § 267 exempted the debtor from “any Stamp taxes now or here- after imposed,” § 1146(c) provides exemption from “any law imposing a stamp tax or similar tax” (emphasis added).? The legislative history surrounding the enactment of § 1146(c) does not illuminate what Congress meant when it added the words “or similar tax.” Similarly, there is no relevant legislative history to shed light on Congressional intent behind the enactment of the earlier exemption provision, § 267, which was part of the Chandler Act of 1938. Section 267 greatly changed the wording of its precursor Provision, § 77B(f) of the Bankruptcy Act, as amended by the Act of June 7, 1934, ch. 424, § 77B(f), 48 Stat. 911, 919 (1934) (amended ih 1938). Section 267 used general language to expand an exemption that had shielded qualified debtors from fed- eral stamp taxes only into one that shielded such debtors from state stamp taxes as well. See 1] Harold Remington, A Treatise on the Bankruptcy Law of the United States § 4654 (Kenneth A. Hayes, ed., rev. 1961). Section 77B(f), the Original source of the Stamp tax exemption, was added to the Bankruptcy Act by the Act of June 7, 1934, and represented Congress’s first effort to provide for the reorganization of corporations in bankruptcy. 1 Harold Remington & James A. Henderson, 2 The report of the House Judiciary Committee stated that “[sJection 1146(c) of title 11 broadens the exemption to any stamp or similar tax.” H.R. Rep. No. 595, 95th Cong., 1st Sess. 281 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6238. We disagree with the district court to the extent it concluded that this statement reflects Congress's intent that the words “stamp or similar tax” be read broadly to accord greater tax relief for debtors. Instead, we regerd this statement as a simple declaration that the new provision, § 1146(c), enlarges the former exemption under § 267 to include taxes similar to stamp taxes. 14a A Treatise on the Bankruptcy Law of the United States § 10 (Sth ed. 1950). By its terms, § 77B(f) provided debtors with exemptions from only specific federal stamp taxes on the issuance and transfer of stock and bonds and on conveyances of realty. One of the purposes of § 77B(f) was to exempt the debtor from the payment of federal Stamp tax on new securities issued pursuant to a plan of reorganization that required the debtor to modify the terms of outstanding securities for which stamp tax had already been paid.3 See S. Rep. No. 482, 73rd Cong., 2d Sess. 4 (1934). In sum, although the legislative history shows that the scope of the § 1146(c) tax exemption has expanded since its original enactment in 1934, it fails to indicate whether the New York gains tax qualifies as a “stamp tax or similar tax.” Absent more explicit guidance from either the text or the legislative history, we must interpret the words used by Congress in accordance with “their ordinary, contem- porary, common meaning.” Perrin v. United States, 444 U.S. 37, 42 (1979). Dictionaries represent one source of such common meaning. See, e.g., United States v. Adames, 901 F.2d 11, 12 (2d Cir. 1990). Black’s Law Dic- tionary 1259 (Sth ed. 1979) defines “stamp tax” as the “cost of stamps which are required to be affixed to legal documents such as deeds, certificates, and the like.” The definition also contains a cross-reference to “[d]ocu- mentary stamp,” which Black’s defines as “[s]tamp required by federal (prior to 1968) and state law to be affixed to deeds and other documents of transfer before they may be recorded, the cost of which is generally gov- erned by the consideration recited in the document.” This 3 These stamp taxes were repealed by the Excise Tax Reduction Act of 1965, Pub. L. No. 89-44, § 401(b), 79 Stat. 148 (1965), effective January 1, 1968. CO 1Sa definition indicates that there are at least two attributes to a stamp tax, as that term is commonly understood: the tax must be paid prior to recordation and the amount due is generally governed by the consideration provided in the instrument. The common meaning of the term “stamp tax” can also be ascertained by examining the attributes of typical Stamp taxes. We therefore agree with the district court insofar as it identified several of the essential attributes of a stamp tax, in reliance on Lee v. Bickell, 292 U.S. 415, 417 (1934) and Texaco, Inc. v. United States, 624 F.2d 20, 21-22 (Sth Cir. 1980). According to the district court, all stamp taxes (1) are imposed only at the time of transfer or sale of the item at issue; (2) impose an amount due that is ‘determined by the consideration recited in the instrument of transfer; and (3) must be paid as a prerequisite to recording. Based on the characteristics of several taxes that would undoubtedly be considered a “stamp tax or similar tax” within the meaning of § 1146(c), we believe there are sev- eral additional essential elements of all such taxes. One such element is that the tax rate, imposed by a stamp or Similar tax, is a relatively small percentage of the con- sideration for the underlying transfer. We first consider the stamp taxes discussed in the federal cases relied upon by the district court. The Florida documentary stamp tax at issue in Lee v. Bickell, 292 U.S. 415 (1934), imposed a tax on the sale and transfer of securities of 10 cents on cach $100.00 of par or face value. See Lee at 418 n.*. Effectively, this Florida tax imposed a tax rate of 1/10 of one percent of par or face value. In Texaco, Inc. v. United States, 624 F.2d 20, 21 (Sth Cir. 1980), the documentary stamp tax that the taxpayers sought to avoid, section 436] of the Internal Revenue Code of 1954, ch.736, § 4361, 16a 68A Stat. 3, 520 (1954) (repealed in 1968) imposed a tax on the sale or transfer of realty of approximately 55 cents per $500 of consideration or value of the property inter- est. The resultant tax rate was slightly more than 1/10 of one percent of the consideration or value. Like the low rates imposed by these two stamp taxes, several modern state documentary transfer taxes, which we regard as simiiar to stamp taxes, also impose low tax rates. Vermont has a property transfer tax, Vt. Stat. Ann. tit. 32, § 9602 (1981), imposed on the transfer of real property by deed, at a rate of 5/10 of one percent of the value of the property. The tax is imposed when the deed is delivered to the town clerk for recording, Vt. Stat. Ann. tit. 32, § 9605 (1981), and compliance with the provisions of the property transfer tax is a prerequisite to recording. Vt. Stat. Ann. tit. 32, § 9608 (Supp. 1991). Connecticut terms its property transfer tax the Real Estate Conveyance Tax. Conn. Gen. Stat. Ann. § 12-494 (West Supp. 1991). The tax rate ranges from 55/100 of one percent up to 1 percent of the consideration depending on whether the property is residential and whether its value exceeds $800,000. Jd. The transferor is liable for the tax, Conn. Gen. Stat. Ann. § 12-495 (West 1983), and deeds subject to the tax can not be recorded unless the tax is paid. Conn. Gen. Stat. Ann. § 12-497 (West Supp. 1991). New York has a similar tax, the Real Estate Transfer Tax, N.Y. Tax Law § 1402 & 1402-a (McKinney Supp. 1992). It imposes a tax on deeds of $2 for every $500 of consideration or 4 Note that this tax provision, § 4361, contains a cross-reference to sec- tion 4382 of the Internal Revenue Code of 1954. Section 4382, an exemption provision, refers to the Bankruptcy Act, largely tracks the lan- guage of § 267, and exempts debtors from this stamp tax on transactions undertaken pursuant to a plan of reorganization. Thus, the stamp tax imposed by § 4361 certainly was a stamp tax from which Congress intended qualified debtors to be exempt. -_= | 17a value, yielding a tax rate of 4/10 of one percem. N.Y. Tax Law § 1402 (McKinney Supp. 1992). Like the other doc- umentary transfer taxes, the transfer tax must be paid prior to recordation. N.Y. Tax Law § 1410(b) (McKinney Supp. 1992). The grantor is liable for payment of the tax, but if he fails to pay it the grantee becomes liable. MN. ¥. Tax Law § 1404(a) (McKinney Supp. 1992). The New York scheme also imposes an additional tax on the con- veyance of residential property when the consideration is $1 million or more at one percent of the consideration: the grantee is generally liable for this additional tax. N.Y. Tax Law § 1402-a (McKinney Supp. 1992). The foregoing examples of stamp and documentary transfer taxes show that an essential characteristic of these taxes is that they are calculated using a low tax rate—typically about one percent or less—multiplied by either the par value of the security, the consideration in the deed, or the value of the property that is the subject of the transaction.® Finally, we add one more essential characteristic of stamp taxes to those identified by the district court. As Stated in Jn re Jacoby-Bender, Inc., 40 B.R. 10, 15 (Bankr. E.D.N.Y. 1984), where the bankruptcy court held that the New York gains tax is not a Stamp or similar tax within the meaning of 11 U.S.C. 1146(c), stamp taxes are imposed irrespective of whether the transfer resulted in a gain or loss to the transferor. All of the stamp taxes and real estate transfer taxes discussed above never even touch on whether the underlying transaction resulted in a gain or loss to the transferor. S We note that this analysis is consistent with our decision in /n re Jacoby-Bender, Inc., 758 F.2d 840 (2d Cir. 1985), in which we found that 11 U.S.C. § 1146(c) (1982) exempted the debtor from payment of the New York City Real Property Transfer Tax, New York, N.Y. Admin. Code § I146-2.0 (1984); at that time the New York City tax imposed a maximum tax rate of two percent. 18a In sum, we believe that all stamp or similar taxes as stated in 11 U.S.C. § 1146(c) share the following common elements: (1) they are imposed only at the time cf trans- fer or sale of the item at issue; (2) the amount due is determined by the consideration for, par value of, or value of the item being transferred; (3) the tax rate is a rela- tively small percentage of the consideration, par value or value of the property; (4) the tax is imposed irrespective of whether the transferor enjoyed a gain or suffered a loss on the underlying sale or transfer; and (5) in the case of state documentary transfer taxes, the tax must be paid as a prerequisite to recording. We next turn to the New York gains tax to determine whether it shares those attributes common to all stamp or similar taxes. B. Section 1441, contained in Article 31-B of New York Tax Law provides: A tax is hereby imposed on gains derived from the transfer of real property within the state. The tax shall be at the rate of ten percent of the gain. N.Y. Tax Law § 1441 (McKinney 1987). Gain is defined for the purposes of Article 31-B as: the difference between the consideration for the transfer of real property and the original purchase price of such property, where the consideration exceeds the original purchase price. N.Y. Tax Law § 1440.3 (McKinney 1987). Under the ver- sion of the statute in force at the time of the sale of the Stanhope Hotel, the transferor was required to pay the tax 19a on the date of transfer.6 N.Y. Tax Law § 1442 (McKinney 1987). Transactions that are exempt from the tax include those for which the consideration is less than one million dollars and those in which the real property that is the Subject of the transfer is the residence of the transferor. N.Y. Tax Law § 1443 (McKinney 1987 & Supp. 1992). Under N.Y. Tax Law § 1447.1(f)(1) (McKinney 1987), recording is prohibited unless the ministerial requirements of the act have been complied with and any tax due has been paid. See also N.Y. Real Property Law § 333.1-f (McKinney 1987) (prohibiting recording officer from recording unless the provisions of § 1447.1(f) are satis- fied). Our analysis of the essential characteristics of stamp or similar taxes indicates that although the New York gains tax bears some resemblance to a Stamp tax, it is not a Stamp or similar tax within the meaning of 11 U.S.C § 1146(a). As Fifth Avenue correctly points out, like a Stamp tax, the gains tax is imposed at the time of transfer and payment, if due, must be made prior to recordation. But there the resemblance ends. First, and most important, New York gains tax liability is always contingent on the profitability of the underlying transaction. If the transaction yields no gain, there is no tax due. The fact that “gain,” as calculated under the gains tax, does not take into account certain development costs in no way alters this core attribute of the gains tax. Stamp taxes and documentary transfer taxes, by contrast, are always imposed irrespective of the existence of gain or profit; the tax liability arises solely from the act of trans- ferring property or securities. 6 The specifics regarding payment of and liability for the tax have since been somewhat modified. See N.Y. Tax Law $§ 1440.9, 1442(a) & 1447.3(a) (McKinney 1987 & Supp. 1992). 20a Second, under the gains tax, the consideration for the sale (or some proxy thereof as set forth in N.Y. Tax Law ys 1440 (McKinney 1987 & Supp. 1992)) is not determi- native of the amount due under the gains tax. Instead, the consideration is used only as a means to measure the gain accruing to the transferor as a result of the transfer. It is the gain, albeit as defined by the provisions of the gains tax, that provides the key figure for determination of the amount owed under the tax. The amount due under a stamp or similar tax hinges on the consideration for the transferred item. Third, the tax rate provided in the New York gains tax, at 10 percent of the gain, greatly exceeds the tax rate used in any stamp tax or documentary transfer tax. Stamp and documentary transfer taxes impose a low tax rate, typi- cally about one percent or less of the consideration for the underlying transfer. These three important differences between the New York gains tax and stamp and docu- mentary transfer taxes lead us to conclude that the New York gains tax is not a “stamp tax or similar tax” within the meaning of 11 U.S.C § 1146(c). Finally, we note that Fifth Avenue provides several rationales in support of its contention that the gains tax cannot be characterized as an income tax. For example, Fifth Avenue reasons that the gains tax is not a form of income tax because it does not allow a taxpayer to offset losses against gains in calculating net income generated by transactions completed over a specific period of time. This contention, however, misses the point: the relevant issue is not whether the gains tax can be pigeonholed as an income tax, but whether it represents a stamp or sim- ilar tax within the meaning of § 1146(c). For the reasons set forth above, we believe it does not and thus Fifth Avenue is not entitled to an exemption from the New York 2la gains tax. Thus, we reverse the order of the insofar as it directed Ne by Fifth Avenue. district court w York to refund gains tax paid Affirmed in part and reversed in part. 22a UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT — No. 416—August Term, 1991 (Argued October 28, 1991 Decided April 13, 1992) Docket No. 91-5038 > IN RE: 995 FIFTH AVENUE ASSOCIATES, L.P., Debtor. 995 FIFTH AVENUE ASSOCIATES, L.P., Plaintiff-Appellee, —VvV.—- NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE; JAMES W. WETZLER, as Commissioner of Taxation and Finance; EDWARD V. REGAN, as Comptroller of the State of New York, Defendants-Appellants. Before: OAKES, Chief Judge, FEINBERG and ALTIMARI, Circuit Judges. + EEE— 23a The New York State Department of Taxation and Finance, James W. Wetzler, as New York Commissioner of Taxation and Finance, and Edward V. Regan, as Comptroller of the State of New York, appeal from an order of the United States District Court for the Southern District of New York (Leonard B. Sand, Judge) affirming the opinion and order of the Bankruptcy Court (Tina L. Brozman, Bankruptcy Court Judge). The Bankruptcy Court granted 995 Fifth Avenue Associates, L.P.’s motion for summary judgment and ordered the New York State Department of Taxation and Finance to refund New York Gains Tax, N.Y. Tax Law § 144] (McKinney 1987) paid by 995 Fifth Avenue Associates, L.P. Affirmed in part and reversed in part. — - — DAVID S. COOK, Senior Attorney, Attorney General’s Office, State of New York, New York, NY (Robert Abrams, Attorney General, Frederic L. Lieberman, Marcie S. Mintz, Assistant Attorneys General, of counsel), for Defendants-Appellants. JOSHUA J. ANGEL, New York, NY (Leonard H. Gerson, Ira R. Abel, Angel & Frankel, P.C., of counsel), for Plaintiff-Appellee. > OAKES, Chief Judge: ~ This appeal requires us to decide whether the Eleventh Amendment bars a debtor’s suit to recover taxes paid to the State of New York, and whether 11 U.S.C. § 1146(c) 24a (1988) exempts the debtor from payment of the New York gains tax on the transfer of property, N.Y. Tax Law § 1441 (McKinney 1987). The United States Bankruptcy Court for the Southern District of New York, Tina L. Brozman, Bankruptcy Court Judge, found that the New York State Department of Taxation and Finance, James W. Wetzler, as New York Commissioner of Taxation and Finance, and Edward V. Regan, as Comptroller of the State of New York (collectively “State of New York,” “New York,” or “appellant”) waived the State of New York’s immunity from suit by filing a proot of claim in the bankruptcy pro- ceeding, found that the debtor was exempt from the gains tax, and accordingly ordered New York to refund the gains tax paid by the debtor, 995 Fifth Avenue Associates, L.P. (“Fifth Avenue”). New York appealed to the United States District Court for the Southern District of New York. Leonard B. Sand, District Judge, affirmed the opin- ion and order of the bankruptcy court and the State of New York now appeals. For the reasons set forth below, we affirm in part and reverse in part. BACKGROUND The relevant facts are not in dispute. The debtor, Fifth Avenue, operated the Stanhope Hotel. It filed a bank- ruptcy petition under Chapter 11 of the Bankruptcy Code in February of 1988 and thereafter continued to operate the hotel as debtor in possession. Pursuant to a plan of reorganization, the bankruptcy court authorized the sale of Fifth Avenue’s interest in the hotel at a price of $76 million. The court’s order specifically declared that, because the sale was part of a plan of reorganization, § 1146(c) rendered the sale exempt from all transfer taxes. 25a On January 12, 1989, the day before the scheduled clos- ing, in accordance with N. Y. Tax Law § 1447 (McKinney 1987), New York issued a Tentative Assessment and Return imposing a gains tax of $2,608,603.80 on the sale of the property. New York subsequently denied the debtor’s request for an exemption from the tax under 11 U.S.C. § 1146(c). Because New York law prohibits recor- dation of the deed without payment of tax due under a Tentative Assessment and Return, Fifth Avenue could not Close the sale as scheduled without paying the gains tax. Faced with this dilemma, the debtor paid the tax under protest, enabling it to record the deed and close the sale. In March 1989, the debtor brought an adversary pro- ceeding in bankruptcy court against the State of New York, seeking, inter alia, a declaration that § 1146(c) exempted the debtor from the gains tax, and an order directing that the payment made to New York be refunded. Some months later, after the bankruptcy court heard oral argument in the proceeding, the State of New York filed an administrative expense claim for gains tax liability of $2,137,496.76, an amount in addition to the approximately $2.6 million already imposed by the state and paid by the debtor. The bankruptcy court found that the debtor’s sale was exempt from the gains tax under § 1146(c). In response to the State of New York’s Eleventh Amendment immunity argument, the bankruptcy court held that pursuant to 11 U.S.C. § 106(a) (1988), New York had waived its Eleventh Amendment immunity by filing the adminis- trative expense claim for additional gains tax. The district court affirmed the decision and order of the bankruptcy court. 26a DISCUSSION I. Eleventh Amendment Immunity Appellant argues that the Eleventh Amendment barred both the bankruptcy court and the district court from con- sidering whether the debtor was exempt from payment of the New York gains tax. The Eleventh Amendment, where applicable, deprives a federal court of jurisdiction. See Edelman v. Jordan, 415 U.S. 651, 678 (1974). Thus, prior to addressing the merits of this case we must first deter- mine whether Eleventh Amendment immunity bars our jurisdiction. We hold that it does not. The Eleventh Amendment provides: The Judicial power of the United States shall not be construed to extend to any suit in law or equity, com- menced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State. The reach of the amendment was judicially expanded beyond its text in Hans v. Louisiana, 134 U.S. 1 (1890), to bar citizens from suing their own states in federal court. The Supreme Court has also consistently held that federal suits by private citizens that seek damages to be paid out of the state treasury are barred by the Eleventh Amendment. See, e.g., Quern v. Jordan, 440 U.S. 332, 337 (1979). Despite this general bar to suits against states created by the Eleventh Amendment, there are two well-estab- lished ways to provide judicial power over such cases: abrogation of immunity by Congress and waiver of immu- nity by a state. Pennhurst State School & Hosp. v. Hal- derman, 465 U.S. 89, 99 (1984). A purported Con- 27a gressional abrogation of Eleventh Amendment immunity is not effective, however, unless it meets a two-part test set forth by the Court. First, Congress must make its intent to abrogate Eleventh Amendment immunity “unmistakably clear.” Pennsylvania v. Union Gas Co., 491 U.S. 1, 7 (1989) (quoting Atascadero State Hosp. v. Scan- lon, 473 U.S. 234, 242 (1985)). Second, the constitutional provision under which Congress legislates its purported abrogation must grant Congress the power to Override the Eleventh Amendment. Union Gas, 491 U.S. at 13-23. Abrogation of Eleventh Amendment immunity typically occurs when Congress enacts a new federal Statutory cause of action. See, e.g. Fitzpatrick y. Bitzer, 427 U.S. 445, 456 (1976) (Eleventh Amendment immunity abro- gated for suit to recover damages from the State for gen- der-based employment discrimination under Title VII); Union Gas Co., 491 U.S. at 23 (Eleventh Amendment immunity abrogated for suit to recover costs from the State for environmental clean-up under CERCLA). Waiver of Eleventh Amendment immunity, in contrast to abrogation, is not hinged to a specific federal statutory Cause of action. Instead, it is triggered by some affirma- tive activity of a state, such as a state’s enactment of leg- islation by which it consents to be sued in federal court, see, €.g., Port Auth. Trans-Hudson Corp. v. Feeney, 495 U.S. 299, 307-09 (1990), and, as here, a state’s Partici- pation in litigation in federal court. In Clark v. Barnard, 108 U.S. 436, 447-48 (1883), for example, the State of Rhode Island was deemed to have waived its Eleventh Amendment immunity by intervening in a case as a claimant of a fund. And the Court in Gardner v. New Jer- sey, 329 U.S. 565, 574 (1947), held that where the State of New Jersey filed a claim against a fund in bankruptcy court, in a case where no judgment was sought against the 28a State, the State waived its immunity. Thus, as the district court noted, it is long-established that a state’s partici- pation in a bankruptcy proceeding can trigger a waiver of immunity. The State of New York does not take issue with this general principle. Rather, it argues that the provision of the Bankruptcy Code under which the bankruptcy court deemed the State to have waived its Eleventh Amendment immunity—11 U.S.C. § 106(a)—represents an abrogation provision, not a waiver scheme. As an abrogation previ- sion, New York contends, § 106(a) is unconstitutional because Congress lacks the authority to abrogate sovereign immunity when enacting legislation under the Bankruptcy Clause, U.S. Const. art. I, § 8, cl. 4. We dis- agree with New York’s characterization of § 106(a). Section 106(a) provides: A governmental unit is deemed to have waived sovereign immunity with respect to any claim against such governmental unit that is property of the estate and that arose out of the same transaction or occur- rence out of which such governmental unit’s claim arose. The plain meaning of these words obviously reflects Congress’s intent to provide a waiver of immunity where “a governmental unit” files a claim in the bankruptcy court. The scope of the waiver, of course, remains limited; upon filing a claim the governmental unit subjects itself only to claims that arose from the same transaction or occurrence that formed the basis of the governmental unit’s Claim. Our conclusion derives further support from two recent cases where the Supreme Court, albeit in dicta, stated that § 106(a) provides for a limited waiver of immunity. See Hoffman v. Connecticut Income Maint. 29a Dept., 492 U.S. 96, 101-02 (1989); U.S. v. Nordic Village, Inc., No. 90-1629, slip op. at 4-6 (U.S. Feb. 25, 1992). In addition, Congress did not use the language of abro- gation in § 106(a). Compare, for example, the language used by Congress in Union Gas, where the Court held that Congress abrogated Eleventh Amendment immunity in making states liable for cleanup costs under CERCLA. Union Gas, 491 U.S. at 13. In the provisions there at issue, Congress stated that any “person,” “owner[,] and operator” shall be liable. 42 U.S.C. § 9607(a) (1988). Congress went on to include states in the definition of a “person,” 42 U.S.C. § 9601(21), and except in very lim- ited situations Congress provided -that states fall within the meaning of the term “owner or operator.” See 42 V.oc. § 9601(20)(D). Thus, CERCLA contains the lan- guage of abrogation by clearly stating that states can be liable for cleanup costs. Section 106(a) contains no sim- ilar statement regarding the liability of states for a spe- — cific class of damages. Not only is the wording of § 106(a) different from lan- guage aimed at a general override of immunity, but this Provision provides for suits against states by a route that differs markedly from the typical abrogation context. Typ- ically, abrogation occurs when Congress has enacted a Cause of action generally and seeks to render States, in Particular, liable for damages “along with everyone else.” Union Gas, 491 U.S. at 8. Section 106(a), however, ren- ders a state liable to suit only when the state Participates in a bankruptcy proceeding by filing a claim. Thus, § 106(a) creates a waiver scheme; it is not an abrogation provision. Indeed, the section largely partakes of the waiver by Participation doctrine that received the Supreme Court’s imprimatur in Gardner, 329 U.S. at 574. ' : 30a Because we find that § 106(a) specifies when a state has waived its Eleventh Amendment immunity, we need not address appellant’s contention that Congress lacks the authority to abrogate sovereign immunity when enacting legislation under the Bankruptcy Clause, U.S. Const. art. I, § 8, cl. 4. Next, we consider the validity of the purported waiver of Eleventh Amendment immunity under § 106(a). We note at the outset that, like the First Circuit, we see no constitutional barrier to a waiver of Eleventh Amendment immunity as provided in § 106(a). In WJM, Inc. v. Mas- sachusetts Dept. of Public Welfare, 840 F.2d 996, 1002- 005 (1st Cir. 1988), the court held that Congress possesses the authority to condition a state’s participation in a bankruptcy proceeding on its waiver of Eleventh Amend- ment immunity. The court in WJM relied in part on Atas- cadero, where the Court considered whether states can be sued for damages under a Congressionally-created cause of action. In Atascadero, the Court determined that the Congressional legislation in question fell “far short of manifesting a clear intent to condition participation in the programs funded under the Act on a State’s consent to waive its constitutional immunity.” Atascadero, 473 U.S. at 247. After citing this language, the WJM court rea- soned: The logical inference from this and other language in Atascadero, however, is that Congress may effec- tively condition a state’s participation in a federal program on a state’s consent to federal jurisdiction, so long as Congress manifests a clear intent to this effect. WJM, 840 F.2d at 1003. We agree with the First Circuit’s analysis. 3la Our conclusion regarding Congressional authority, however, does not end the inquiry, because we will only give effect to Congressional legislation that purports to condition state Participation in litigation on a state’s waiver of Eleventh Amendment immunity when Congress “manifest[s] a clear intent” to do so. Atascadero, 473 U.S. at 247. This requirement is analogous to the test the Court applies to determine the validity of a state’s waiver of Eleventh Amendment immunity by state legislation. In that context, “{t]he Court will give effect to a State’s waiver of Eleventh Amendment immunity ‘only where Stated by the most express language or by such over- whelming implication from the text as [will] leave no room for any other reasonable construction.’ ” Feeney, 495 U.S. at 299 (quoting Atascadero, 473 U.S. at 239-40 and Edelman, 415 U.S. at 673). We discern no substantive difference between the test for a Congressional waiver scheme, as set forth in Atascadero, and the test for a waiver by state legislation, as applied in Feeney. Thus, we must again turn to the language of § 106(a) to determine whether it plainly requires a waiver of Eleventh Amend- ment immunity and “leave[s] no room for any other rea- sonable construction.” Atascadero, 473 U.S. at 240. Appellant argues that no such waiver of Eleventh Amendment immunity is implicated by § 106(a) because, by its terms, it fails to mention the Eleventh Amendment. Explicit mention of the Eleventh Amendment, however, has never been a requirement for waiver of immunity. For example, in Feeney, the Court found that by statute the States of New York and New Jersey had waived their Eleventh Amendment immunity, but nowhere did the Statutory provisions mention the Eleventh Amendment. Feeney, 495 U.S. at 303, 306-09. See also Dellmuth v. Muth, 491 U.S. 223, 233 (1989) (Scalia, J., concurring) 32a (statutory text may override Eleventh Amendment immu- nity without explicit reference to either state sovereign immunity or the Eleventh Amendment). Similarly, the text’s failure specifically to mention states is irrelevant: § 106(a) uses the term “governmental unit,” which the Bankruptcy Code defines in 11 U.S.C. § 101(26) (1988) as including a “State.” To hold otherwise would ignore the fact that Congress routinely expresses its intent with Statutes drafted with definitional cross-references.! Accordingly, we find that § 106(a) plainly expresses Congress’s intent to provide for a limited waiver of Eleventh Amendment immunity and “leave[s] no room for any other reasonable construction.” Atascadero, 473 U.S. at 240. Applying § 106(a) to the facts of this case, we find that the State of New York, by filing an administrative expense claim for $2,137,496.76, waived its Eleventh Amendment immunity with respect to the $2,608,603.80 million in gains tax paid by the debtor. As we have stated, § 106(a) provides for waiver of Eleventh Amendment immunity from any claim against the state “that arose out of the same transaction or occurrence out of which such governmental unit’s claim arose.” Here, the State’s admin- istrative expense claim arose from additional gains tax levied on the sale of the Stanhope Hotel. Fifth Avenue’s claim against the State for a refund also arose from gains tax imposed on the sale of the Stanhope Hotel. Thus, appellee’s claim for a tax refund arose from the same transaction or occurrence—the sale of the Stanhope Hotel—as the State’s claim fnr additional taxes. Accord- 1 The State of New York also argues that § 106(a) is insufficiently clear because it does not mention the filing of a proof of claim. We do not believe this fact renders Congress's intent unclear, because the only rea- sonable construction of § 106(a) is that waiver will arise only if a claim is actually filed. 33a ingly, the Eleventh Amendment does not bar us from reaching the merits of this case. II. Whether the Gains Tax is a “Stamp Tax or Similar Tax” We now consider whether the New York gains tax, N.Y. Tax Law § 1441 (McKinney 1987), is a “stamp tax or sim- ilar tax” within the meaning of 11 U.S.C. § 1146(c). Because the New York gains tax is not a “stamp tax or similar tax,” we hold that 995 Fifth Avenue is not entitled to an exemption from the gains tax. A. We begin our discussion with an analysis of the type of taxes from which Congress intended to exempt qualifying debtors when it enacted 11 U.S.C. § 1146(c). Starting with the text, section 1146(c) provides: The issuance, transfer, or exchange of a security, or the making or delivery of an instrument of transfer under a plan confirmed under section 1129 of this title, may not be taxed under any law imposing a Stamp tax or similar tax. The Bankruptcy Code Supplies no definitions for the terms “stamp tax” or “similar tax.” Thus, we must look to the legislative history for assistance in determining what Congress meant by the phrase “stamp tax or similar tax.” This history, however, provides limited guidance. Section 1146(c), enacted as part of Title 11 and the gen- eral revision of the federal bankruptcy laws in 1978, was derived from § 267 of the Bankruptcy Act of 1898, as amended by the Chandler Act of 1938, ch. 575, § 267, 52 34a Stat. 840, 902-03 (1938) (repealed in 1979). In essence, the new provision broadened the scope of the exemption to include taxes “similar” to stamp taxes: whereas § 267 exempted the debtor from “any stamp taxes now or here- after imposed,” § 1146(c) provides exemption from “any law imposing a stamp tax or similar tax” (emphasis added).* The legislative history surrounding the enactment of § 1146(c) does not illuminate what Congress meant when it added the words “or similar tax.” Similarly, there is no relevant legislative history to shed light on Congressional intent behind the enactment of the earlier exemption provision, § 267, which was part of the Chandler Act of 1938. Section 267 greatly changed the wording of its precursor provision, § 77B(f) of the Bankruptcy Act, as amended by the Act of June 7, 1934, ch. 424, § 77B(f), 48 Stat. 911, 919 (1934) (amended in 1938). Section 267 used general language to expand an exemption that had shielded qualified debtors from fed- eral stamp taxes only into one that shielded such debtors from state stamp taxes as well. See 11 Harold Remington, A Treatise on the Bankruptcy Law of the United States § 4654 (Kenneth A. Hayes, ed., rev. 1961). Section 77B(f), the original source of the stamp tax exemption, was added to the Bankruptcy Act by the Act of June 7, 1934, and represented Congress’s first effort to provide for the reorganization of corporations in 2 The report of the House Judiciary Committee stated that “[s]ection 1146(c) of title 11 broadens the exemption to any stamp or similar tax.” H.R. Rep. No. 595, 95th Cong., Ist Sess. 281 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6238. We disagree with the district court to the extent it concluded that this statement reflects Congress's intent that the words “stamp or similar tax" be read broadly to accord greater tax relief for debtors. Instead, we regard this statement as a simple declaration that the new provision, § 1146(c), enlarges the former exemption under § 267 to include taxes similar to stamp taxes. - 35a bankruptcy. 1 Harold Remington & James A. Henderson, A Treatise on the Bankruptcy Law of the United States § 10 (Sth ed. 1950). By its terms, § 77B(f) provided debtors with exemptions from only specific federal stamp taxes On the issuance and transfer of stock and bonds and on conveyances of realty. One of the purposes of § 77B(f) was to exempt the debtor from the payment of federal stamp tax On new securities issued pursuant to a plan of reorganization that required the debtor to modify the terms of outstanding securities for which stamp tax had already been paid.3 See S. Rep. No. 482, 73rd Cong., 2d Sess. 4 (1934). In sum, although the legislative history shows that the scope of the § 1146(c) tax exemption has expanded since its original enactment in 1934, it fails to indicate whether the New York gains tax qualifies as a “stamp tax or similar tax.” Absent more explicit guidance from either the text or the legislative history, we must interpret the words used - by Congress in accordance with “their ordinary, contem- porary, Common meaning.” Perrin v. United States, 444 U.S. 37, 42 (1979). Dictionaries represent one source of such common meaning. See, e.g., United States v. Adames, 901 F.2d 11, 12 (2d Cir. 1990). Black’s Law Dic- tionary 1259 (Sth ed. 1979) defines “stamp tax” as the “cost of stamps which are required to be affixed to legal documents such as deeds, certificates, and the like.” The definition also contains a cross-reference to “[d]Jocu- mentary stamp,” which Black’s defines as “[s]tamp required by federal (prior to 1968) and state law to be affixed to deeds and other documents of transfer before they may be recorded, the cost of which is generally gov- 3 These stamp taxes were repealed by the Excise Tax Reduction Act of 1965, Pub. L. No. 89-44, § 401(b), 79 Stat. 148 (1965), effective January 1, 1968. 36a erned by the consideration recited in the document.” This definition indicates that there are at least two attributes to a stamp tax, as that term is commonly understood: the tax must be paid prior to recordation and the amount due is generally governed by the consideration provided in the instrument. The common meaning of the term “stamp tax” can also be ascertained by examining the attributes of typical Stamp taxes. We therefore agree with the district court insofar as it identified several of the essential attributes of a stamp tax, in reliance on Lee v. Bickell, 292 U.S. 415, 417 (1934) and Texaco, Inc. v. United States, 624 F.2d 20, 21-22 (Sth Cir. 1980). According to the district court, all stamp taxes (1) are imposed only at the time of transfer or sale of the item at issue; (2) impose an amount due that is determined by the consideration recited in the instrument of transfer; and (3) must be paid as a prerequisite to recording. Based on the characteristics of several taxes that would undoubtedly be considered a “stamp tax or similar tax” within the meaning of § 1146(c), we believe there are sev- eral additional essential elements of all such taxes. One such element is that the tax rate, imposed by a stamp or similar tax, is one percent or even less of the considera- tion for the underlying transfer. We first consider the stamp taxes discussed in the federal cases relied upon by the district court. The Florida documentary stamp tax at issue in Lee v. Bickel, 292 U.S. 415 (1934), imposed a tax on the sale and transfer of securities of 10 cents on each $100.00 of par or face value. See Lee at 418 n. *. Effec- tively, this Florida tax imposed a tax rate of 1/10 of one percent of par or face value. In Texaco, Inc. v. United States, 624 F.2d 20, 21 (Sth Cir. 1980), the documentary Stamp tax that the taxpayers sought to avoid, section 4361 37a of the Internal Revenue Code of 1954, ch.736, § 4361, 68A Stat. 3, 520 (1954) (repealed in 1968) imposed a tax on the sale or transfer of realty of approximately 55 cents per $500 of consideration or value of the property inter- est. The resultant tax rate was slightly more than 1/10 of one percent of the consideration or value.‘ Like the low rates imposed by these two stamp taxes, several modern state documentary transfer taxes, which we regard as similar to stamp taxes, also impose low tax rates. Vermont has a property transfer tax, Vt. Stat. Ann. tit. 32, § 9602 (1981), imposed on the transfer of real property by deed, at a rate of 5/10 of one percent of the value of the property. The tax is imposed when the deed is delivered to the town clerk for recording, Vt. Stat. Ann. tit. 32, § 9605 (1981), and compliance with the provisions of the property transfer tax is a prerequisite to recording. Vt. Stat. Ann. tit. 32, § 9608 (Supp. 1991). Connecticut terms its property transfer tax the Real Estate Conveyance Tax. Conn. Gen. Stat. Ann. § 12-494 (West Supp. 1991). The tax rate ranges from 55/100 of one percent up to 1 percent of the consideration depending on whether the property is residential and whether its value exceeds $800,000. /d. The transferor is liable for the tax, Conn. Gen. Stat. Ann. § 12-495 (West 1983), and deeds subject to the tax can not be recorded unless the tax is paid. Conn. Gen. Stat. Ann. § 12-497 (West Supp. 1991). New York has a similar tax, the Real Estate Transfer Tax, N.Y. Tax Law § 1402 & 1402-a (McKinney Supp. 1992). It imposes 4 Note that this tax provision, § 4361, contains a cross-reference to sec- tion 4382 of the Internal Revenue Code of 1954. Section 4382, an exemption provision, refers to the Bankruptcy Act, largely tracks the lan- guage of § 267, and exempts debtors from this Stamp tax on transactions undertaken pursuant to a plan of reorganization. Thus, the stamp tax imposed by § 4361 certainly was a stamp tax from which Congress intended qualified debtors to be exempt. 38a a tax on deeds of $2 for every $500 of consideration or value, yielding a tax rate of 4/10 of one percent. N.Y. Tax Law § 1402 (McKinney Supp. 1992). Like the other doc- umentary transfer taxes, the transfer tax must be paid prior to recordation. N.Y. Tax Law § 1410(b) (McKinney Supp. 1992). The grantor is liable for payment of the tax, but if he fails to pay it the grantee becomes liable. N-Y. Tax Law § 1404(a) (McKinney Supp. 1992). The New York scheme also imposes an additional tax on the con- veyance of residential property when the consideration is $1 million or more at one percent of the consideration; the grantee is generally liable for this additional tax. N.Y. Tax Law § 1402-a (McKinney Supp. 1992). The foregoing examples of stamp and documentary transfer taxes show that an essential characteristic of these taxes is that they are calculated using a iow tax rate of about one percent or less, multiplied by either the par value of the security, the consideration in the deed, or the value of the property that is the subject of the transaction. Finally, we add one more essential characteristic of Stamp taxes to those identified by the district court. As stated in /n re Jacoby-Bender, Inc., 40 B.R. 10; 15 (Bankr. E.D.N.Y. 1984), where the bankruptcy court held that the New York gains tax is not a stamp or similar tax within the meaning of 11 U.S.C. 1146(c), stamp taxes are imposed irrespective of whether the transfer resulted in a gain or loss to the transferor. All of the stamp taxes and real estate transfer taxes discussed above never even touch on whether the underlying transaction resulted in a gain or loss to the transferor. In sum, we believe that all stamp or similar taxes as stated in 11 U.S.C. § 1146(c) share the following common elements: (1) they are imposed only at the time of trans- fer or sale of the item at issue; (2) the amount due is 39a determined by the consideration for, par value of, or value of the item being transferred; (3) the tax rate is relatively low—about one percent or less of the consideration, par value or value of the property; (4) the tax is imposed irre- spective of whether the transferor enjoyed a gain or suf- fered a loss on the underlying sale or transfer: and (5) in the case of state documentary transfer taxes, the tax must be paid as a prerequisite to recording. We next turn to the New York gains tax to determine whether it shares those attributes common to all Stamp or similar taxes. B. Section 1441, contained in Article 31-B of New York Tax Law provides: A tax is hereby imposed on gains derived from the transfer of real property within the state. The tax Shall be at the rate of ten percent of the gain. N.Y. Tax Law § 144] (McKinney 1987). Gain is defined for the purposes of Article 31-B as: the difference between the consideration for the transfer of real property and the original purchase price of such property, where the consideration exceeds the original purchase price. N.Y. Tax Law § 1440.3 (McKinney 1987). Under the ver- sion of the statute in force at the time of the sale of the Stanhope Hotel, the transferor was required to pay the tax On the date of transfer.5 N.Y. Tax Law § 1442 (McKinney 1987). Transactions that are exempt from the tax include those for which the consideration is less than one million 5 The specifics regarding payment of and liability for the tax have since been somewhat modified. See N.Y. Tax Law §§ 1440.9, 1442(a) & 1447.3(a) (McKinney 1987 & Supp. 1992). 40a dollars and those in which the real property that is the subject of the transfer is the residence of the transferor. N.Y. Tax Law § 1443 (McKinney 1987 & Supp. 1992). Under N.Y. Tax Law § 1447.1(f)(1) (McKinney 1987), recording is prohibited unless the ministerial requirements of the act have been complied with and any tax due has been paid. See also N.Y. Real Property Law § 333.1-f (McKinney 1987) (prohibiting recording officer from recording unless the provisions of § 1447.1(f) are satis- fied). Our analysis of the essential characteristics of stamp or similar taxes indicates that although the New York gains tax bears some resemblance to a stamp tax, it is not a stamp or similar tax within the meaning of 11 U.S.C § 1146(a). As Fifth Avenue correctly points out, like a Stamp tax, the gains tax is imposed at the time of transfer and payment, if due, must be made prior to recordation. But there the resemblance ends. First, and most important, New York gains tax liability is always contingent on the profitability of the underlying transaction. If the transaction yields no gain, there is no tax due. The fact that “gain,” as calculated under the gains tax, does not take into account certain development costs in no way alters this core attribute of the gains tax. Stamp taxes and documentary transfer taxes, by contrast, are always imposed irrespective of the existence of gain or profit; the tax liability arises solely from the act of trans- ferring property or securities. Second, under the gains tax, the consideration for the sale (or some proxy thereof as set forth in N.Y. Tax Law- § 1440 (McKinney 1987 & Supp. 1992)) is not determi- native of the amount due under the gains tax. Instead, the consideration is used only as a means to measure the gain accruing to the transferor as a result of the t:ansfer. It is the gain, albeit as defined by the provisions of the gains tax, that provides the key figure for determination of the amount owed under the tax. The amount due under a Stamp or similar tax hinges on the consideration for the transferred item. 4la Third, the tax rate provided in the New York gains tax, at 10 percent of the gain, greatly exceeds the tax rate used in any stamp tax or documentary transfer tax. Stamp and documentary transfer taxes impose a tax rate of about one percent or less of the consideration for the underlying transfer. These three important differences between the New York gains tax and stamp and documentary transfer taxes lead us to conclude that the New York gains tax is not a “stamp tax or similar tax” within the meaning of 11 U.S.C § 1146(c). Finally, we note that Fifth Avenue provides several rationales in support of its contention that the gains tax cannot be characterized as an income tax. For example, Fifth Avenue reasons that the gains tax is not a form of income tax because it does not allow a taxpayer to offset — losses against gains in calculating net income generated by transactions completed over a specific period of time. This contention, however, misses the point: the relevant issue is not whether the gains tax can be pigeonholed as an income tax, but whether it represents a stamp or sim- ilar tax within the meaning of § 1146(c). For the reasons set forth above, we believe it does not and thus Fifth Avenue is not entitled to an exemption from the New York gains tax. Thus, we reverse the order of the district court insofar as it directed New York to refund gains tax paid by Fifth Avenue. Affirmed in part and reversed in part. 42a UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT Docket No: 91-5038 FILED APRIL 13, 1992 > At a Stated term of the United States Court of Appeals for the Second Circuit, held at the United States Courthouse in the City of New York, on the 13th day of April, one thousand nine hundred and ninety-two. 7 IN RE: 995 FIFTH AVENUE ASSOCIATES, L.P., Debtor. 995 FIFTH AVENUE ASSOCIATES, L.P., Plaintiff-Appellee, —--V.— NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE; JAMES W. WETZLER, as Commissioner of Tax- ation and Finance; EDWARD V. REGAN, as Comptroller of the Siate of New York, Defendants-Appellants. Appeal from the United States District Court for the South- ern District of New York. 43a This cause came on to be heard on the transcript of record from the United States District Court for the Southern District of New York and was argued by counsel. ON CONSIDERATION WHEREOF, it is now hereby ordered, adjudged and decreed that the order of said district court be and it hereby is affirmed in part, reversed in part in accordance with the opinion of this court. ELAINE B. GOLDSMITH, Clerk By: /s/ EDWARD J, GUARDARO Edward J. Guardaro Staff Attorney 44a UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK 90 Civ. 5744 (LBS) May 16, 1991 7 IN RE: 995 FIFTH AVENUE ASSOCIATES, L.P., Debtor. 995 FIFTH AVENUE ASSOCIATES, L.P., Plaintiffs-Appellees, —against— NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE, JAMES W. WETZLER as Commissioner of Tax- ation and Finance, and EDWARD V. REGAN as Comptroller of the State of New York, Defendants-Appellants. Angel & Frankel, P.C., New York City (Joshua J. Angel, Leonard H. Gerson, Ira R. Abel, of counsel), for plaintiffs- appellees. Robert Abrams, Attorney General of the State of New York, New York City (Frederic L. Lieberman, David S. Cook, of counsel), for defendants-appeliants. 45a OPINION SAND, District Judge. This case comes to this Court on appeal from an order of the United States Bankruptcy Court for the Southern District of New York, Hon. Tina L. Brozman. The New York State Depart- ment of Taxation and Finance, James W. Wetzler, New York Commissioner of Taxation and Finance and Edward W. Regan, Comptroller of the State of New York (collectively “Appel- lants”) appeal from a decision and order granting the motion for summary judgment made by 995 Fifth Avenue Associates, L.P.’s (“Appellees”). Two issues are presented. First, as a juris- dictional matter, Appellants suggest that the Bankruptcy Court acted Outside its powers since the relief granted was barred by the Eleventh Amendment and the doctrine of sovereign immu- nity. Second, AppelJants claim that the Bankruptcy Court deci- sion and order should be reversed as a matter of law for exempting Appellees, under provisions of the Bankruptcy Code, from the payment of certain New York State taxes. The Bankruptcy Court held that the sale by Appellees of its interest in the Stanhope Hotel (“Stanhope”) pursuant to a Chap- ter 11 plan is exempt, under section 1146(c) of Title 11 of the United States Code, 11 U.S.C. § 1146(c) (1988) (“Bankruptcy Code”), from a ten percent tax imposed on gains derived from the transfer of real property by Article 31-B § 1441 et seq. of the New York tax law (“Gains Tax”). The Bankruptcy Court directed Appellants to refund to Appellees the Gains Tax col- lected in the amount of $2,608,603.80 together with interest. The Bankruptcy Court further held that Appellants had waived their sovereign immunity and Eleventh Amendment rights with respect to all aspects of the Gains Tax through the filing of a proof of claim by the Commissioner of Taxation and Finance of the State of New York, which asserted a tax liability. For the reasons stated below, the decision and order of the Bankruptcy Court are affirmed. 46a I. FACTS There is little disagreement on the facts in this case. The Appellees were in the business of operating a hotel and related restaurant and catering facilities known as the Stanhope. The Appellees filed a Chapter 11 petition on February 4, 1988 and continued operating the business as debtors-in-possession. Over the course of the bankruptcy case, the Appellees filed an Original and three subsequent amended plans of reorganization (collectively, “the Plan”), all of which contemplated the sale of the Appellees’ interest in the Stanhope. On July 20, 1989, the Bankruptcy Court approved the Plan. Shortly thereafter the Stanhope was sold and there was a distribution of funds to the creditors.' Prior to approving the Plan, the Bankruptcy Court issued an order dated November 29, 1988 (“Sale Order”), authorizing the Appellees to sell or assign its interest in the Stanhope for the amount of $76,000,000. The Sale Order declared that the Sale was being made under a plan of reorganization and, pursuant to section 1146(c) of the Bankruptcy Code, would be exempt from any federal, state, or local transfer taxes. The closing of the sale was scheduled for January 13, 1989. On January 12, 1989, pur- suant to the pre-transfer audit procedures provided by the New York Tax Law, Appellants issued a Tentative Assessment and Return (“first assessment”) imposing a Gains Tax of $2,608,603.80 on the proposed sale and transfer. The Appellees immediately objected to, and were denied by Appellants a reprieve from, the proposed Gains Tax based on section 1146(c) of the Bankruptcy Code. Because state law prohibits recordation of title and transfer in local land records without payment of any tax due, the Appellees paid the Gain Tax under protest to allow the closing to go forward and the deed to be recorded. See N.Y. Tax Law § 1447(f) (McKinney 1987).? | There are still some creditors who have yet to be paid under the Plan and any money deposited in Appellee's account as a result of this action will be distributed according to the Plan. See transcript of oral argument, dated February 21, 1991 (“tr”) at p. 3. 2 In conformance with the Plan where a claim is objected to, as in the case of Appellant's claim, the monies at issue are placed in an escrow account maintained by the Appellees. See tr. at 3. 47a Since Appeliees paid the exact amount of Gains Tax charged in the first assessment, Appellants did not file a proof of claim as to that amount. However, Appellants did file two other proofs of claim in the Bankruptcy Court. Appellants first filed a proof of claim on January 29, 1989 for approximately $3 mil- lion to recover sales and withholding taxes. None of these taxes are Challenged in this action and are not relevant to the Gains Tax question. The second proof of claim, filed on October 23, 1989, which is the only claim at issue in this action, was des- ignated the “Third Amended Administrative Expense Claim” (“Claim 300”).* This claim is based in part on what the Appel- lants concluded is an additional Gains Tax liability of $2,137,496.76 over and above the $2,608,603.80 already imposed. Claim 300 was filed after the Bankruptcy Court heard oral argument on the summary judgment motion but before it issued an opinion. II. DISCUSSION A. Eleventh Amendment and Sovereign Immunity Appellants allege as a threshold matter that the Eleventh Amendment and the doctrine of sovereign immunity bar the Bankruptcy Court, and this Court, from considering any portion of this case. Since these immunity defenses are jurisdictional in nature, the Court must first consider their validity. The Eleventh Amendment provides: “The Judicial power of the United States shall not be construed to extend to any suit in law Or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.” At its core, this Amendment stands for j __ the fundamental principle that “sovereign immunity limits the grant of judicial authority in Article III” of the Constitution. Pennhurst State School & Hospital v. Halderman, 465 U.S. 89, 98 (1984). Although not explicitly stated by the language in the 3 An Administrative Expense Claim is a type of proof of claim which allows a creditor to move ahead of unsecured creditors to a first or second priority. 48a Amendment, it is a long standing rule that sovereign immunity also bars a citizen from bringing a suit against his or her own State in federal court. See Hans v. Louisiana, 134 U.S. 1 (1890). There are, however, well established exceptions to the reach of the Eleventh Amendment and the doctrine of sovereign immunity. For example, the Supreme Court has held that if a State waives its immunity and consents to suit in a federal court, the Eleventh Amendment does not bar such an action. See Clark v. Barnard, 108 U.S. 436, 447 (1883).* A State may effectuate a waiver of its constitutional immunity by enacting a State statute or constitutional provision, “or by otherwise waiving its immunity to suit in the context of a particular fed- eral program.” Atascadero State Hospital v. Scanlon, 473 U.S. 234, 238 n. 1 (1985). Waiver by participation occurs when a State engages in a federally sponsored activity in which Congress has made waiver of immunity a pre-condition of state participation. /d. at 237. Still, any consent by the state to waive its Eleventh Amendment rights by participating in a federal program requires an unequivocal and clear indication of such an intention. See Edelman v. Jordon, 415 U.S. 651, 673 (1974). The waiver of a State’s immunity rights by participation in a bankruptcy proceeding has long been recognized, not only under the Bankruptcy Code, but also under the former Bankruptcy Act. See Clark v. Barnard, 108 U.S. 436, 447-48 4 Another exception is waiver by abrogation. Congress may override Eleventh Amendment immunity by enacting a statute pursuant to its plenary powers granted by the Constitution. For example, Congress has the authority to abrogate a State's immunity pursuant to Section 5 of the Fourteenth Amend- ment. See Fitzpatrick v. Bitzer, 427 U.S. 445 (1976). Legislative power to abro- gate is also available pursuant to Article I under the Commerce Clause. See Pennsylvania v. Union Gas Co.,__ U.S. ____, 109 S. Ct. 2273, 2277 (1989). It is unclear whether Congress has the power under the Bankruptcy Clause of Article I to abrogate a State's immunity. In Hoffman v. Connecticut Dep't of Income Maintenance, __ U.S. __, 109 S. Ct. 2818, 2824 (1989), the Supreme Court declined to address the question since the case was resolved on other grounds. /d. at 2824. See also Union Gas Co., 109 S. Ct. at 2277 (if statutory language does not contain clear expression of intent, constitutional questions of Congress's authority to abrogate immunity need not be considered). ae 49a (1883). As the Supreme Court has held, “[w]hen the State becomes the actor and files a claim against the fund, it waives any immunity which it otherwise might have had respecting the adjudication of the claim.” Gardner v. New Jersey, 329 U.S. 565, 574 (1946). In essence, if a State desires to participate in obtaining remaining assets from a bankrupt estate it is subject, as are all the interested parties, to the requirements imposed by the Bankruptcy Court such as bar dates for filing claims and sale orders. ‘ This exception to the Eleventh Amendment and the doctrine of sovereign immunity was codified in section 106(a) of the Bankruptcy Code. Section 106 provides, in pertinent part: Waiver of sovereign immunity (a) A governmental unit is deemed to have waived sovereign immunity with respect to any claim against such governmental unit that is property of the estate and that arose out of the same transaction or occupance out of which such governmental unit's claim arose. 11 U.S.C. § 106(a) (1988).5 In clear, concise language, Con- gress conditioned a state’s participation in a specific federal program on the state’s consent to federal jurisdiction. If a state chooses to enter the federal government's exclusive bankruptcy preserve—to assert a Claim against a debtor's estate—it must file a proof of claim, as required of all parties.* See Atascadero State Hospital v. Scanlon, 473 U.S. 234 (1985). Section 106(a) puts_the state on notice that the quid pro quo for filing a proof of claim is a partial waiver of its sovereign immunity. This forced partial waiver requires only that a state come into the proceeding on equal terms with others.’ 5 A governmental unit is defined to include the “United States; state; {or] [clommonwealth” or any “department, agency or instrumentality” thereof.” 11 U.S.C. § 101(26) (1988). No party questions that Appellants fall within this definition. 6 The language in Section 106(a) refers to a “claim” which is effected in the context of a bankruptcy proceeding by the filing of a “proof of claim.” 7 This case is not unique in that the filing of a proof of claim may effect the waiver of an otherwise secure constitutional right. Most recently in Grand- 50a Once immunity has been waived, the state has subjected itself to any liability it has to the estate relating to the claim and transaction at issue. Section 106(a) “conditions the state’s receiv(ing] a distribution from the estate upon waiver of immu- nity against any compulsory counterclaims asserted against it without limit in a bankruptcy proceeding.” /n re Willington Convalescent Home, Inc., 850 F.2d 50, 54 (2d Cir.1988). See also H. R. Rep. No. 595, 95th Cong., Ist Sess. 317 (1977). As the Second Circuit concluded, “[A]ccordingly, § 106(a) pro- vides for affirmative recovery, including money judgments.” Id. See also In re Prudential Lines, Inc. vy. United States Mar- itime Administration, 79 B.R. 167, 180 (Bankr. S.D.N.Y. 1987); In re Inslaw, Inc., 76 B.R. 224, 234 (Bankr. D.D.C. 1987). Here, there is no disagreement that pursuant to section 106(a) Appellants have waived their immunity defenses as to certain claims involving approximately $3 million of sales and withholding taxes by filing a proof of claim on January 29, 1989. The dispute is over the scope of the immunity waived by Appellants upon the later filing of Claim 300, which charges in part that Appellees’ estate owes approximately $2.1 million in additional gains taxes relating to the original Stanhope trans- action over and above the approximately $2.6 million already paid. This Court concludes, based on the language in section 106(a), which states in pertinent part that “any claim against such governmental unit. . . that arose out of the same trans- action or occurrence out of which such government unit’s claim arose,” that Appellants have waived their immunity defense as to counterclaims involving all gains tax liability related to the Stanhope transaction. All gains tax liability includes both the original 2.6 million Gains Tax and the $2.1 million of addi- tional tax liability outlined in Claim 300 since they are both part of the same claim, arising from the same transaction. The Appellants advance a three-tiered argument in support of their appeal on this issue. First, they argue that there was no financiera, S.A. v. Nordberg, __. U.S. ___, 109 S. Ct. 2782 (1989), the Supreme Court held that filing a proof of claim with a bankruptcy court alters a party's Seventh Amendment right to a jury trial. See also Katchen v. Landy, 382 U.S. 323 (1966). Sla intentional waiver of the State's immunity rights and that fil- ing a proof of claim is not per se a waiver. Appellants suggest that since they “vigorously asserted” the immunity defense while filing the proof of claim, i.e. Claim 300, and that such filing was a “routine administrative act performed by a mid- level official,” that waiver could not have been intended and is inequitable. Appellant’s memorandum of law at 35. In essence Appellants suggest that a filing of a proof of claim by an offi- cial is not “the same as a declaration of waiver by an attomey in court” because, in the latter case, “the court may remind the attorney of his client’s previous assertions of the defense and inquire [about]. . . the actual intent of the client.” /d.* The statutory language does not support Appellants’ con- tention. Under section 106(a), a court is not required to eval- uate a governmental unit’s intention in asserting a claim against the debtor’s estate. Any requirement as to intent is satisfied where the State acts in a way which-conforms to the terms of the statute. A court is asked simply to determine whether a claim has been made which arises from the same trans- action. See Jn re Lile, 96 Bankr. 81, 84 (Bankr. S.D. Tex.1989). The reasoning in Hoffman, 109 S. Ct. at 2822, and Gardner, 329 U.S. at 574, likewise, suggest that by filing a proof of claim, a state has offered concrete evidence of its intent to waive any immunity defenses. Second, Appellants suggest that even if the Court concludes, as it has, that the filing of a proof of claim waives immunity, 8 In further resisting the conclusion that the State waived any immunity defenses, Appellants suggest that an intentional waiver of sovereign immunity in this instance would have been meaningless since the Gains Tax “had already been paid.” Appellants memorandum of law at 8. Yet, this assertion fails to account for the provisional nature of the tax paid. The amount of the Gains Tax was determined by a Tentative Assessment and Return, issued by the Tax Department. /d. at 5. Under New York law, the State has three years from the date of transfer to make an additional Gains Tax assessment on a sale. New York Tax Law § 1444.3(a) (Law. Co-op. 1990). Further, Appellants argument does not account for the significant additional revenue the State stood to gain by filing a proof of claim. Claim 300 asserts additional tax liabilities of $2.1 million of Gains Tax based on the same transaction—the sale of the Stan- hope. 52a the statutory language in section 106(a) subjects the State to a very limited waiver of immunity, allowing counterclaims only as to the specific proof of claim filed, which in this case is the approximately $2.1 million of taxes at issue in Claim 300. The problem with this interpretation is that it ignores the language in the statute referring to “any claim. . . that arose out of the same transaction.” The additional $2.1 million of tax liability arises out of the same Stanhope transaction and is based on a provision of the Gains Tax Law which allows the Appellants to re-evaluate whether the first assessment imposed in the pre-sale audit is sufficient. In order to assert a right against the debtor’s estate for additional taxes, involving the same transaction, Appellants must file a proof of claim to effectuate their request for funds under the control of the Bankruptcy Court. As dis- cussed above, this, in essence, requires waiving any immunity defenses as to the claim at issue. A final argument advanced by Appellants is that a waiver of immunity cannot be applied retroactively to affect the Gains Tax paid prior to the sale of the Stanhope. While the Second Circuit has not directly addressed this question, the issue is not one of first impression. In WJM, Inc. v. Massachusetts Depart- ment of Public Welfare, 840 F.2d 996, 1002-04 (1st Cir.1988), the First Circuit held that a waiver by a state entity was bind- ing, although the filing of a proof of claim occurred some months after the adversary proceedings were concluded, but before the opinion was issued. Factually, WJM is on all fours with this action, if not a more difficult case. As the First Cir- cuit recognized, federal medicaid reimbursement law required the State of Massachusetts to file a proof of claim to recover any potential overpayment it made. In concluding, nonetheless, that the State had waived any immunity defenses, the court wrote, “we think the waiver should be viewed as having retroactively validated the bankruptcy court’s earlier, as well as its subsequent, actions” on the claims. /d at 1004. This Court concludes that the reasoning in WJM is sound and should be followed in this instance. Since the Appellants derived certain benefits from the Bankruptcy Court by poten- tially retrieving assets that might otherwise have been lost, it 53a would be inequitabie to permit the debtors’ claims as to the transaction at issue to be frustrated by allowing the State to establish immunity as to a portion of the claim merely by wait- ing a certain period to file a proof of claim. If this Court were to accept Appellants’ arguments, the State would gain all the advantages of the Bankruptcy Court without being subject to its jurisdiction. For this reason, the Court concludes that the sig- nificant fact for immunity purposes is that the State filed a proof of claim—not the date that such a filing occurred. As such, Appellants voluntarily waived any immunity defenses on claims involving the Gains Tax liability. B. Transfer or Income Tax? Turning to the merits we note as a preliminary matter that this Court has jurisdiction over this matter pursuant to 28 U.S.C. § 158(a) (1988), since this is an appeal from a final judgment of the Bankruptcy Court rendered in an adversary proceeding. The controversy in this case is whether the Gains Tax paid by Appellees to Appellants, under the New York Tax Law’, in order to transfer their interest in the Stanhope pur- suant to a Bankruptcy Court Plan, is correctly characterized as an income tax or a transfer tax. The Bankruptcy Code exempts debtors, such as Appellees, pursuant to a plan of reorganiza- tion, from all transfer, stamp and similar taxes upon the sale of real property. No such exemption applies for income taxes. Based on the statutory language in the Bankruptcy Code, fed- eral case law, and state and federal tax opinion letters, this Court concludes that the Gains Tax imposed on the income received from the sale of the Stanhope was similar to a trans- fer or stamp tax. Appellees were therefore entitled to an exemption under the Bankruptcy Code from the New York Gains Tax. Section 1146(c) of the Bankruptcy Code states, in pertinent part: 9 The New York Tax Law states, “A tax is hereby imposed on gains derived fom the transfer of real property within the state. The tax shall be at the rate of ten percent of the gain.” 54a The issuance, transfer, or exchange, of a security, or the making or delivery of an instrument of transfer under a plan confirmed under section 1129 of this title, may not be taxed under any law imposing a stamp or similar tax. 11 U.S.C. § 1146(c) (1988). Congress’s apparent purpose in enacting section 1146 was to facilitate reorganizations through the granting of tax relief. According to the legislative history, congressional intent was to give greater relief to debtors than that which was available under section 267 of the Bankruptcy Act. The Report of the House Judiciary Committee stated, “Section 1146(c) of title 11 broadens the exemption to any stamp or similar tax on a security or transfer instrument dealt with under the consolidated chapter 11. No opposition has been voiced with respect to this section.” H.R. Rep. No. 595, 95th Cong., Ist Sess. 281 (1977), reprinted in 1978 U.S. Code Cong. - & Ad. News 5787, 5963, 6238. The controversy in this action concerns that portion of sec- tion 1146(c) which limits exemptions under the Bankruptcy Code to a “stamp or similar tax.” At issue is the definition and parameter of a “stamp or similar tax.”'® While the Second Cir- cuit has considered the statutory meaning of certain portions of section 1146(c) of the Bankruptcy Code, including the legal effect of a “transfer under a plan,” it has never reached the question of whether the Gains Tax is a “stamp or similar tax.” See City of New York v. Jacoby-Bender, Inc., 758 F.2d 840, 841-42 (2d Cir. 1985). The only relevant appellate guidance to this case is the Second Circuit Court’s rejection in Jacoby- Bender of a constricted view of section 1146(c) of the Bankruptcy Code. Focusing upon the practical workings of the exemption, the Court adopted a mode of analysis which sug- gests a broad reading of this portion of the Bankruptcy Code. Id. 10 There is no disagreement in the application of other aspects of sec- tion 1146(c). Certainly Appellees have “transferred” a parcel of real property, the Stanhope, and that the sale of the property was in connection with a con- firmed bankruptcy “plan.” 55a The only prior case which specifically addresses whether the Gains Tax constitutes a “stamp or similar tax” is the bankruptcy court decision in Jn re Jacoby-Bender, Inc., 40 Bankr. 10 (Bankr. E.D.N.Y. 1984), aff'd mem., No. 84-1564 (E.D.N.Y. Sept. 18, 1984), aff'd, 758 F.2d 840 (2d Cir.1985). There the Bankruptcy Court held that the Gains Tax was akin to an income tax and not exempt under section 1146(c) because it was levied upon only the gain realized by the debtor and not upon the instrument of transfer.'' In the instant case, the Bankruptcy Court held that the tax was a transfer tax, which is similar to a stamp tax, since it is imposed on a transaction by transaction basis without regard to whether taxpayers realized a gain or suffered a loss from all of its transactions during the relevant period. While there is little guidance available in determining whether the Gains Tax at issue is a “stamp or similar tax” within the meaning of the Bankruptcy Code, the Court is not without some guideposts. In other contexts, federal courts have identified the characteristics relevant to determining whether a particular levy by the state is a stamp tax. There are three common elements present in all stamp taxes. First, the tax is imposed only upon a transfer or sale of the item at issue. Sec- ond, the amount of tax due is determined by the consideration recited in the deed of the transfer. Finally, the taxes must have been paid as a prerequisite to recording. See Lee v. Bickell, 292 U.S. 415, 417 (1934) (stamp tax placed on original issue and transfer or sale of stocks and bonds); Texaco, Inc. v. United States, 624 F.2d 20, 21 (Sth Cir. 1980) (federal stamp tax on deeds by which realty is transferred). '* Applying these general criteria, the Second Circuit analysis of section 1146(c) outlined in Jacoby, and congressional intent 11 This portion of the Bankruptcy Court's decision was not addressed by the Second Circuit in Jacoby-Bender since New York State had stipulated to return the Gains Tax payment, thereby mooting appellate review. 768 F.2d at 840-43. 12 Stamp taxes may have characteristics such as actual stamps on the written instrument to show that a tax has been paid. The absence of an actual stamp, however, is not necessarily determinative that the tax paid is not a stamp tax or similar type tax. See Jacoby-Bender, Inc., 40 Bankr. at 10. S$6a to give greater tax relief to debtors, we conclude that the essen- tial stamp tax characteristics are present in the Gains Tax. First, the tax is imposed on a transaction by transaction basis, payable on transfer, without regard for other transfers made over a given time. Second, the consideration paid to the trans- feror and recited in the instrument, ij.e., the deed, plays an essential role in assessing the amount of Gains Tax due. In fact, the primary considerations are the acquisition cost and the sale cost.'* Finally, the Gains Tax must be paid at the time of trans- fer, as state law prohibits recording of the conveyance until this act is done. See N.Y. Tax Law § 1447(f) (McKinney 1987). Failure to record makes null and void the conveyance of real property to a subsequent purchaser who acquires the property in good faith and for valuable consideration. See N.Y. Real Property Law § 291 (McKinney 1989). It was for precisely this reason that Appellees paid the Gain Tax assessed, rather than awaiting an outcome of the matter in the Bankruptcy Court. There are other factors that indicate that the New York Tax Law is a transfer or stamp tax based on the transfer of real property rather than on the income generated thereby. First, the Original purchase price is not adjusted to reflect depreciation cost deductions allowed in the operation of commercial real estate. Without this adjustment for depreciation, the Gains Tax is not based on a true measure of accrued wealth, as would be the case for calculating gain for income tax purposes. Second, the Gains Tax is not assessed against all profitable transactions. Only those transfers in which the consideration exceeds $1,000,000 are subject to this tax. There is no Gains Tax imposed until this amount is exceeded, at which point the entire gain is taxed at ten percent, not merely that portion of the gain exceeding $1,000,000. Third, unlike income tax lia- bility, the transferee is secondarily liable for the amount owed if the transferor does not pay the Gains Tax. In toto, the result 13 Certain statutorily permitted adjustments (including certain capital improvements and fees paid to brokers, surveyors, engineers and attorneys) are added io the transferor’s original purchase price and then subtracted from the consideration received for the transfer. See generally N.Y. Tax Law § 1440(5) (McKinney 1987); 20 N.Y. Comp. Codes R. & Regs. § 590.14-17 (1988). 57a is the taxation of a certain class of transfers and not the taxa- tion of a certain class of income. This interpretation is also consistent with both federal and State revenue rulings. The State of New York has made certain revenue rulings with respect to the Gains Tax concluding that it is a transfer tax rather than an income tax. On September 21, 1983, the Tax Department found: The State gains tax is a transfer tax rather than a property or income tax since the triggering mechanism of the tax is the transfer of real property. Whereas the gains tax is a tax upon the transfer of real property, a property tax is a levy on the property itself. Income taxes are generally applied to net gain. Under the gains tax, the loss from one trans- fer of real property does not effect the applicability of the gains tax as to another transfer of real property in the same tax year. For these reasons, it is our opinion the State gains tax should be classified as a State transfer tax and should be treated as such for purposes of deductibil- ity. See Appendix A. A few months later, in another letter describ- ing the Gains Tax and reiterating their prior position, the State wrote, “the tax is classified by New York as atransfertax. . . because it is triggered by the transfer of the property, not by other incidents of ownership.” See Appendix B. In both of these rulings, the State was influenced by Internal Revenue Service (“IRS”) ruling 80-121 which held that a gains tax in Vermont, similar to the Gains Tax, was a transfer and not an income tax for federal tax purposes. The IRS took this posi- tion primarily because the Vermont State tax was not structured to account only for net gain. Under the Vermont tax, as under the Gains Tax, a taxpayer could make two transfers on the same day, one earning $1,000,000 and the other losing $1,000,000 so that at the end of the day there has been no net increase in wealth. Nonetheless, the taxpayer would be liable for the gains tax on the profitable transaction and could not offset losses. Furthermore, the Vermont gains tax did not allow for depre- ciation or other types of costs usually associated with arriving 58a at the economic net gain. In order for IRS to characterize a tax as an income tax under section 164(a)(3) of the Internal Rev- enue Code, a taxpayer must be allowed to reduce taxable gains by any losses experienced during the same tax year and to deduct depreciation costs. Appellants suggest that these tax opinions are merely advi- sory and are not binding on New York with respect to this debtor. The only estoppel effect these opinions have, accord- ing to Appellants, is with respect to the parties who made the requests for the advice. See 20 N.Y. Comp. Codes R. & Regs. § 901.4 (1988). Moreover, the Appellants argue that these rul- ings do not suggest that the Gains Tax is a stamp tax. Rather, Appellants urge that a stamp tax is an excise tax which is imposed on such events as the drawing of a will, deed or mort- gage recordings and taxes on such goods as Cigarettes and liquor. According to the Appellants the transfer of the Stanhope is not akin to the types of events and goods upon which a stamp is affixed. Appellants’ arguments are unavailing. First, while the state tax rulings are not binding on this court, they are persuasive evidence that the Gains Tax is not an income tax. Moreover, Appellants’ suggestion that the stamp tax should be narrowly understood as applying only to a few events is equally unper- suasive. This argument fails to account for the statutory lan- guage of section 1146(c) which does not limit the tax exclusion only to a stamp tax. Section 1146(c) exempts “a stamp or sim- ilar tax” (emphasis added). Since the Gains Tax has many of the characteristics of a stamp tax and few of the qualities of an income tax, this Court concludes that Appellees were entitled to an exemption under section 1146(c) of the Bankruptcy Code since the Gains Tax is a “stamp or similar tax.” The Opinion and Order of the Bankruptcy Court are affirmed. SO ORDERED. Dated: May 16, 1991 New York, New York 59a UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK 90 Civ. 5744 (LBS) as IN RE: 995 FIFTH AVENUE ASSOCIATES, L.P., Debtor. 995 FIFTH AVENUE ASSOCIATES, L.P., Plaintiffs-Appellees, —against— NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE, JAMES W. WETZLER as Commissioner of Tax- ation and Finance, and EDWARD V. REGAN as Comptroller of the State of New York, Defendants-Appellants. - ’ ORDER AMENDING OPINION SAND, J. The Opinion rendered in this matter dated May 16, 1991 is hereby amended to include Appendix A and Appendix B referred to on page 18 of the Opinion. SO ORDERED. Dated: May 17, 1991 New York, New York U.S.D.J. 60a APPENDIX A STATE OF NEW YORK Department of Taxation and Finance Albany, New York 12227 Law Bureau State Campus, Albany, New York 12227 September 21, 1983 Dear This letter is in reply to your inquiries of June 9 and June 27, 1983 concerning Article 31-B of the Tax Law, the New York Real Property Transfer Gains Tax. You had questions as to the treatment of the tax for State corporate franchise and personal income tax purposes, and as to how the “acquisition of con- troliing interest” provisions of the tax are to be applied. In order to determine the deductibility of the gains tax for corporate franchise and personal income tax purposes, the tax must first be classified. The New York State Real Property Transfer Gains Tax is a levy on gains derived from the transfer by any method of an interest in real property located in New York where the consideration is one million dollars or more. The State gains tax is a transfer tax rather than a property or income tax since the triggering mechanism of the tax is the transfer of real property. Whereas the gains tax is a tax upon the transfer of real property, a property tax is a levy on the property itself. Income taxes are generally applied to net gain. Under the gains tax, the loss from one transfer of real property does not effect the applicability of the gains tax to another transfer of real property in the same tax year. For these reasons, it is Our opinion that the State gains tax should be classified as a State transfer tax and should be treated as such for purposes of deductibility. It should be noted, however, that though the Department’s views are expressed herein, the Internal Revenue Service will ultimately determine the deductibility of the gains tax for Fed- 6la eral tax purposes, and that State tax policy is usually formu- lated in accordance with the Federal treatment of the tax. It is our opinion, in light of Revenue Ruling 80-121, that the Inter- nal Revenue Service will classify the gains tax as being a trans- fer tax. In that ruling, Vermont's land gains tax, as imposed by sections 10001 through 10010, Title 32, of the Vermont Statutes Annotated, was deemed to be a transfer tax. The Ver- mont land gains tax is conceptually similar to New York’s gains tax in that the Vermont statute levies a tax on gain from the sale or exchange of land. Under their statute, a sale or exchange of land is any transfer of title to land for a consid- eration, and taxable gain is the amount realized from a sale or exchange of land, less the transferor’s basis in the land. Section 164(a) of the Internal Revenue Code describes var- ious types of taxes that are allowed as a deduction for the tax- able year within which paid or accrued. Specifically allowed are: (1) State and local real property taxes; (2) State and local personal property taxes; (3) State and local income taxes; and (4) State and local general sales taxes. Section 164(a) of the Code also allows, as a deduction, State and local taxes not specifically described that are paid or accrued within the tax- able year in carrying on a trade or business or an activity described in section 212 (relating to expenses for the produc- tion of income). In determining that the Vermont land gains tax is a transfer tax, Revenue Ruling 80-121 first distinguished other forms of taxes as not being applicable. The Ruling provides, in pertinent part, as follows: “The Vermont land gains tax is not imposed or triggered by the ownership of real property, but rather, by the exer- cise of one of the incidents of property ownership, the transfer of real property at a gain. The land gains tax is not measured by the value of the real property, but rather, by the gain derived from the transfer of that prop- erty . . . . Thus, the land gains tax is not a real property tax within the meaning of section 164(a)(1) of the Code.” With respect to the Vermont land gains tax qualifying as a State income tax within the meaning of section 164(a)(3) of the 62a Code, the Revenue Ruling distinguishes the land gains tax from Federal income taxes, stating that the State tax, unlike the Fed- eral income tax, iS not structured to fall on net gain. The tax- payer, as a result of the gains tax, cannot reduce taxable gain from sales or exchanges of land during the taxable year by any losses from other sales or exchanges of land during that year. Under Federal income tax law, taxpayers are allowed to reduce gains from sales or exchanges of land by losses from sales or exchanges of land. Noting that a taxpayer could be required to pay the land gains tax even though under Federal income tax laws that same taxpayer may have a net loss from sales or exchanges of land, the ruling concluded that the tax is not an income tax under section !164(a)(3) of the Code. In light of Revenue Ruling 80-121, it is the Department's opinion that the New York Siate Real Property Transfer Gains Tax is a transfer tax, and for purposes of Federal deductibility, the tax is deductible for purposes of computing adjusted gross income under section 164(a) of the Internal Revenue Code only to the exient that it is paid or accrued within the taxable year in Carrying On a trade or business, or in connection with an activ- ity described in section 212 of the Internal Revenue Code relat- ing to expenses for the production of income. For State income tax purposes, section 612 of the Tax Law provides that the New York adjusted gross income of a resident individual means his Federal adjusted gross income, with cer- tain modifications. Since the State gains tax will be deductible for purposes of computing Federal adjusted gross income, it will automatically be excluded from the computation of New York adjusted gross income, since there is no provision in the Tax Law adding back such amounts for purposes of such com- putation. A similar provision is found in Article 9-A of the Tax Law, the corporate franchise tax. Section 208 defines “entire net income” to mean total net income from all sources, which shall be presumably the same as the entire taxable income which the taxpayer is required to report to the United States Treasury Department. Since the State gains tax will be deducted from the taxable income the taxpayer is required to report to the United States Treasury Department, the tax will automatically be excluded from the computation of the state 63a franchise tax since there is no provision adding it back for pur- poses of computing entire net income. With regard to your inquiry as to how the acquisition of con- trolling interest provisions of the tax are to be applied, one must look to what is acquired, not to what is maintained. The tax is imposed on gains from the transfer of any interest in real property, which is defined to include “acquisition of a con- trolling interest” in any entity with an interest in real property. (Tax Law, § 1440.7) The term “controlling interest” is defined in section 1440.2 of the Tax law to mean: “(i) in the case of a corporation, either fifty percent or more of the total combined voting power of all classes of stock of such corporation, or fifty percent or more of the capital, profits or beneficial interest in such voting stock of such corporation, and (ii) in the case of a partnership, association, trust or other entity, fifty percent or more of the capital, profits or ben- eficial interest in such partnership, association, trust or other entity.” The key term in these provisions is “acquisition”. For pur- poses of the gairts tax, if no partner acquires a controlling inter- est in the partnership, there is no transfer subject to the tax. In the case of a corporation which has an interest in real property, the acquisition of a controlling interest in the corporation occurs when an individual, group of individuals acting in con- cert to avoid the tax, or another entity becomes the owner of 50% or more of the voting stock in such corporation. Because the statute looks to the acquisition of the controlling interest, it is the act of the transferee which triggers the tax. For your further information, I am enclosing a copy of Pub- lication 588 containing questions and answers on the gains tax or real property transfers. Very truly yours, JOHN P. DUGAN Deputy Commissioner and Counsel TWS/cjm Enclosure 64a APPENDIX B STATE OF NEW YORK Department of Taxation and Finance Albany, New York 12227 Law Bureau State Campus, Albany, New York 12227 November 14, 1983 Dear This letter is in response to your inquiry of September 23, 1983 regarding Article 31-B of the Tax Law, The New York Real Property Transfer Gains Tax. You asked whether the pay- ment of tax pursuant thereto would avail the taxpayer of a credit or deduction for partnership or individual income tax purposes. It is our opinion that, if anything, a deduction would be allowed. The treatment of taxes for such purposes largely depends upon the classification of the tax. Comparably classified taxes generally receive similar deduction treatment. The New York State Real Property Transfer Gains Tax is a levy on gains derived from the transfer by any method of an interest in real property located in New York where the consideration is one million dollars or more. The tax is classified by New York as a transfer tax rather than a property tax because it is triggered by the transfer of the property, not by other incidents of ownership, and not ievied on the land itself. It should be noted, however, that though the Department's views are expressed herein, the Internal Revenue Service will ultimately determine the deductibility of the gains tax for Fed- eral tax purposes, and that State tax policy is usually formu- lated in accordance with the Federal treatment of the tax. It is our opinion, in light of Revenue Ruling 80-121, that the Inter- nal Revenue Service will clarsify the gains tax as being a trans- fer tax. In that ruling, Vermont's land gains tax, as imposed by . 65a sections 10001 through 10010, Title 32, of the Vermont Statutes Annotated, was deemed to be a transfer tax. The Ver- mont land gains tax is conceptually similar to New York's gains tax in that the Vermont statute levies a tax on gain from the sale or exchange of land. Under their statute, a sale or exchange of land is any transfer of title to land for a consid- eration, and taxable gain is the amount realized from a sale or exchange of land, less the transferor’s basis in the land. Section 164(a) of the Internal Revenue Code describes var- ious types of taxes that are allowed as a deduction for the tax- able year within which paid or accrued. Specifically allowed are: (1) State and local real property taxes; (2) State and local personal property taxes; (3) State and local income taxes; and (4) State and local general sales taxes. Section 164(a) of the Code also allows, as a deduction, State and local taxes not specifically described that are paid or accrued within the tax- able year in carrying on a trade or business or an activity described in section 212 (relating to expenses for the produc- tion of income). In determining that the Vermont land gains tax is a transfer tax, Revenue Ruling 80-121 first distinguished other forms of taxes as not being applicable. The Ruling provides, in pertinent part, as follows: “The Vermont land gains tax is not imposed or triggered by the ownership of real property, but rather, by the exer- cise of one of the incidents of property ownership, the transfer of real property at a gain. The land gains tax is not measured by the value of the real property, but rather, by the gain derived from the transfer of that prop- erty . . . . Thus, the land gains tax is not a real property tax within the meaning of section 164(a)(1) of the Code.” With respect to the Vermont land gains tax qualifying as a State income tax within the meaning of section 164(a)(3) of the Code, the Revenue Ruling distinguishes that land gains tax from Federal income taxes, stating that the State tax, unlike the Federal income tax, is not structured to fall on net gain. The taxpayer, as a result of the gains tax, cannot reduce taxable gain from sales or exchanges of land during the taxable year by 66a any losses from other sales or exchanges of land during that year. Under Federal income tax law, taxpayers are allowed to reduce gains from sales or exchanges of land by losses from sales or exchanges of land. Noting that a taxpayer could be required to pay the land gains tax even though under Federal income tax laws that same taxpayer may have a net loss from sales or exchanges of land, the ruling concluded that the tax is not an income tax under section 164(a)(3) of the Code. In light of Revenue Ruling 80-121, it is the Department's opinion that the New York State Real Property Transfer Gains Tax is a transfer tax, and for purposes of Federal deductibility, the tax is deductible for purposes of computing adjusted gross income under section 164(a) of the Internal Revenue Code only to the extent that it is paid or accrued within the taxable year in Carrying on a trade or business, or in connection with an activ- ity described in section 212 of the Internal Revenue Code relat- ing to expenses for the production of income. For State income tax purposes, section 612 of the Tax Law provides that the New York adjusted gross income of a resident individual means his Federal adjusted gross income, with cer- tain modifications. Since the State gains tax will be deductible for purposes of computing Federal adjusted gross income, it will automatically be excluded from the computation of New York adjusted gross income, since there is no provision in the Tax Law adding back such amounts for purposes of such com- putation. A similar provision is found in Article 9-A of the Tax Law, the corporate franchise tax. Section 208 defines “entire net income” to mean total net income from all sources, which shall be presumably the same as the entire taxable income which the taxpayer is required to report to the United States Treasury Department. Since the State gains tax will be deducted from the taxable income the taxpayer is required to report to the United States Treasury Department, the tax will automatically be excluded from the computation of the state franchise tax since there is no provision adding it back for pur- poses of computing entire net income. 6/a For your further information, I am enclosing a copy of Pub lication 588 containing questions and answers on the gains tax or real property transfers. Very truly yours, JOHN P. DUGAN Deputy Commissioner and Counsel LMP:pbc Enclosure 68a UNITED STATES BANKR’JPTCY CtOURT SOUTHERN DISTRICT OF NEW Y‘ORK Case No. 88 B 10237 (TLB) Chapter 11 Adv. Pro. No. 89-5449A August 2, 1990 > IN RE: 995 FIFTH AVENUE ASSOCIATES, L.P., Debtor. 995 FIFTH AVENUE ASSOCIATES, L.P.., Plaintiff, —againsi— NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE, JAMES W. WETZLER AS COMMISSIONER OF TAXATION AND FINANCE, AND EDWARD V. REGAN AS COMPTROLLER OF THE STATE OF NEW YORK, Defendants. JUDGMENT AND ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT (A&F #303) Upon the amended complaint dated March 6, 1989 by 995 Fifth Avenue Associates, L.P. (“Plaintiff”); and upon the order of the Court dated November 29, 1988 authorizing, inter alia, the Plaintiff to sell its interest in a hotel and related restaurant and catering facilities together with the assignment of a lease for non-residential real property (the “Stanhope Hotel’); and 69a upon the amended proof of claim of New York State dated October 23, 1989; and upon Plaintiff’s motion (“Motion”) for summary judgment dated May 1, 1989, seeking a judgment by the Court that: (a) the sale (“Sale”) by the Plaintiff of its inter- est in the Stanhope Hotel pursuant to a Chapter 11 plan of reor- ganization under Title 11 of the United States Bankruptcy Code (“Bankruptcy Code”) was exempt under Section 1146(c) of the Bankruptcy Code from the imposition of the tax imposed on the gains derived from the transfer of real property within the State of New York pursuant to N.Y. Tax Law § 1441 (“Gains Tax”); and (b) the payment made under protest by the Plaintiff in the amount of $2,608,603.80 (“Gains Tax Payment”) in sat- isfaction of its alleged Gains Tax liability be refunded to the Plaintiff; and upon the papers filed by the Plaintiff in support of the Motion; and upon the papers filed by the Defendants in Opposition to the-Motion; and a hearing having been held before me on May 23, 1989; and the Plaintiff having appeared by Joshua J. Angel, Esq. and Leonard H. Gerson, Esq. of Angel & Frankel, P.C.; and the Defendants having appeared by David S. Cook, Esq., Assistant Attorney Geiieral of the State of New York; and upon the record of said hearing held before me; and upon the written decision of this Court, dated July 13, 1990; it is Now, upon motion of Angel & Frankel, P.C.. attorneys for the Plaintiff, ORDERED, ADJUDGED AND DECREED that: 1. The Sale was and is exempt from payment of the Gains Tax pursuant to Section 1146(c) of the Bankruptcy Code. 2. New York State has waived its sovereign immunity with respect to the Gains Tax for which it has filed a proof of claim in this case. 3. Defendants be, and they hereby are authorized and directed to refund to the Plaintiff, within eleven (11) days after the date of entry of this order, the Gains Tax Payment plus interest at the legal rate from the date on which the Gains Tax 70a Payment was made through and including the date on which the refund directed by this order is delivered to the Plaintiff. 4. Defendants’ cross-motion for summary judgment for fail- ure to state a Claim be, and the same hereby is denied. Dated: New York, New York August 1, 1990 /s/ TINA L, BROZMAN ae United Stat [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386011_1208%3A2. Public record. Not legal advice.