author: Kaye, J.

text:
    In the Matter of Joel D. Hanig, Appellant, v State of New York Department of Motor Vehicles, Respondent.
    Argued January 7, 1992;
    decided February 18, 1992

      POINTS OF COUNSEL

      Lynn M. Smookler for appellant. I.
    An applicant’s response to the question on the New York State Department of Motor Vehicles driver’s license application pertaining to the applicant’s existing medical condition does not constitute a "medical history” exempt from disclosure under the Freedom of Information Law. (Matter of Capital Newspapers v Whalen, 69 NY2d 246; Matter of Capital Newspapers v Burns, 67 NY2d 562; Matter of Farbman & Sons v New York City Health & Hosps. Corp., 62 NY2d 775; Matter of Fink v Lefkowitz, 47 NY2d 567; Matter of Konigsberg v Coughlin, 68 NY2d 245.) II. The Department of Motor Vehicles failed, as a matter of law, to prove that the Freedom of Information Law specifically exempts from public inspection that portion of the driver’s license application pertaining to the applicant’s existing medical condition. (Matter of Short v Board of Managers, 57 NY2d 399; Matter of Washington Post Co. v New York State Ins. Dept., 61 NY2d 557; Matter of Farbman & Sons v New York City Health & Hosps. Corp., 62 NY2d 75; Matter of Konigsberg v Coughlin, 68 NY2d 245; Matter of Fink v Lefkowitz, 47 NY2d 567; Matter of Allen Group v New York State Dept. of Motor Vehicles, 147 AD2d 856.) III. The right of the public to have access to the medical information contained on a New York State driver’s license application outweighs any possible invasion of privacy which might arise from the disclosure of such information. (American Broadcasting Cos. v Siebert, 110 Misc 2d 744; Matter of John P. v Whalen, 54 NY2d 89; Matter of Dobranski v Houper, 154 AD2d 736; Matter of Kwitny v McGuire, 102 Misc 2d 124, 77 AD2d 839, 53 NY2d 968; People v Stock, 88 Misc 2d 1058; Matter of Derouchie v Kelly, 1 AD2d 921.)

      Robert Abrams, Attorney-General (Wayne L. Benjamin, O. Peter Sherwood and Peter H. Schiff of counsel), for respondent.
    Respondent properly redacted information concerning a driver’s license applicant’s medical condition from his license application under the medical history exemption in FOIL.
      (Matter of Kheel v Ravitch, 93 AD2d 422, 62 NY2d 1; Matter of Kwitny v McGuire, 102 Misc 2d 124, 77 AD2d 839, 53 NY2d 968; Matter of Scott, Sardano & Pomeranz v Records Access Officer, 65 NY2d 294; Matter of Federation of N. Y. State Rifle & Pistol Clubs v New York City Police Dept., 73 NY2d 92.)
   OPINION OF THE COURT

Kaye, J.

This appeal calls upon us to determine whether responses to a question regarding current treatment for disabilities, on an application for a New York driver’s license, are subject to disclosure under the Freedom of Information Law (Public Officers Law art 6 [FOIL]). We agree with Supreme Court and the Appellate Division that such information is exempt from disclosure as "medical * * * histories” (see, Public Officers Law § 89 [2] [b] [i]).

In June 1989, Pamela Jo Nielson was struck by an automobile while crossing a street in the Village of Fishkill. She retained petitioner’s law firm to represent her in an action against the driver, Frank Jordan, to recover damages for her injuries.

In September 1989, respondent Department of Motor Vehicles (the Department) received petitioner’s request — made through a private investigator — for a copy of Jordan’s license application. While the document was made available to petitioner, Jordan’s responses to the following question were covered over: "Do you have, or are you currently receiving treatment for, any disabilities? * * * If 'Yes’ check all that apply.” The ensuing list specified convulsive disorder, epilepsy, fainting or dizzy spells, heart ailment, mental disability, hearing impairment, lost use of leg, arm, foot, hand or eye, and other. An affirmative answer to any of the first five conditions required the applicant to secure a physician’s statement on a form provided by the Department.

In place of Jordan’s responses to the question, the following legend appeared on the document the Department made available to petitioner: "pursuant to section 89 of the freedom OF INFORMATION LAW. THE INFORMATION UNDER THIS MASK IS DEEMED TO BE CONFIDENTIAL.”

Petitioner then requested an unmasked, or unredacted, copy of the application, claiming that the material was not exempt under Public Officers Law §89 (2) (b), but his request was denied. The Department wrote that "[m]edical questions on license applications can only be unmasked by submitting a notarized letter from the driver requesting [that such] questions be unmasked.”

Petitioner next appealed to the Department’s Administrative Appeals Board, which affirmed the Department’s determination, noting the Department’s consistent policy to mask medical information on license applications except when the applicant consented to disclosure. The appeals officer concluded that disclosure of the requested information would constitute an unwarranted invasion of personal privacy and therefore petitioner’s request was properly denied.

The present CPLR article 78 proceeding followed, petitioner again asserting that the information requested was not exempt under FOIL. Supreme Court dismissed the petition, concluding that the redacted portion concerned Jordan’s medical history and was thus explicitly exempt from disclosure under Public Officers Law §89 (2) (b) (i). In affirming, the Appellate Division applied essentially a rule of reason: information constitutes medical history "if it is the type of information that one would reasonably expect to be included as a relevant and material part of a proper medical history.” (168 AD2d 884.) We granted leave to appeal and now affirm the Appellate Division order.

FOIL imposes a broad duty of disclosure on government agencies (see, Public Officers Law § 84; Matter of Fink v Lefkowitz, 47 NY2d 567). All agency records are presumptively available for public inspection and copying, unless they fall within 1 of 10 categories of exemptions, which permit agencies to withhold certain records (Public Officers Law § 87 [2]; Matter of Farbman & Sons v New York City Health & Hosps. Corp., 62 NY2d 75, 79-80). Those exemptions are to be narrowly construed, with the burden resting on the agency to demonstrate that the requested material indeed qualifies for exemption (Public Officers Law §89 [4] [b]). Even where records fall within an exemption, an agency in its discretion may disclose them in whole or in part (Matter of Capital Newspapers v Burns, 67 NY2d 562, 567).

Explicitly exempt from mandatory disclosure are records that "if disclosed would constitute an unwarranted invasion of personal privacy” (Public Officers Law § 87 [2] [b]). An unwarranted invasion of personal privacy expressly includes, but is not limited to, "disclosure of employment, medical or credit histories or personal references of applicants for employment” (Public Officers Law § 89 [2] [b] [i]).

The present controversy — solely one of statutory interpretation — requires us to define "medical * * * histories” as used in the FOIL exemption. While conceding that the license application itself is an agency "record” subject to disclosure under FOIL, respondents assert that the redacted information falls squarely within the exemption, and thus that a portion of the record may be withheld. Petitioner, by contrast, argues that the medical history exemption applies only to such information provided on an employment application, and alternatively that the term medical history encompasses only information disclosed to a physician or other health care provider in the course of treatment for an illness.

For the reasons that follow, we conclude that the redacted information was properly withheld.

While FOIL exemptions are to be narrowly read, they must of course "be given their natural and obvious meaning where such interpretation is consistent with the legislative intent and with the general purpose and manifest policy underlying FOIL” (Matter of Federation of N. Y. State Rifle & Pistol Clubs v New York City Police Dept., 73 NY2d 92, 96). Application of this guiding principle mandates affirmance.

Looking first at the language of the statute, we note that Public Officers Law §89 (2) (b) (i) is cast in the disjunctive: employment, medical and credit histories or personal references of applicants for employment each enjoy exemption from disclosure. Clearly, under the first three categories— employment, medical and credit histories — it is immaterial whether such information was included in applications for employment as that qualifying language applies only to the words that immediately precede it, "personal references.” Indeed, we noted in Matter of Capital Newspapers v Burns (67 NY2d, at 570, supra) that the identical provision did not exempt the disputed material — police department records containing factual tabulations of sick time taken by a certain officer — because it was "neither an employment history * * * nor a medical history.” As the statute is phrased, therefore, a medical history — whether or not contained in an employment application — is exempt from mandatory disclosure.

The conclusion we reach from the structure of the statute is buttressed by the sense of the statute. Petitioner’s reading would require us to limit "employment, medical or credit histories” to employment applications. It is at the least unlikely that applications for employment would seek credit histories. The far more natural and obvious reading of the statute is respondent’s.

Stepping back from the words of the statute, our conclusion gains further force when legislative intent is considered. The Legislature has made explicit that its overriding purpose behind this exemption is to protect against unwarranted invasion of personal privacy. "[E]mployment, medical or credit histories” are but one example of information that could, if disclosed, plainly intrude on personal privacy; public disclosure of ongoing treatment for such medical conditions as convulsive disorders and mental disabilities threatens personal privacy, whether or not contained in employment applications.

Thus, the structure, sense and purpose of the FOIL exemption lead us to conclude that "medical * * * histories” are not confined to employment applications. The unwarranted invasion of privacy derives from the private nature of information contained in a medical history, not the fortuity of its inclusion in an employment application. Significantly, the analogous provision of the Freedom of Information Act, on which FOIL was modeled, contains no reference to employment applications (see, 5 USC § 552 [b] [6]).

Petitioner’s next argument is equally meritless — that the responses on the license application do not qualify as a medical history because they were not given to a health care provider. Again, we agree with the Appellate Division that the relevant inquiry is as to the nature of the information, not who compiled it, or where it appears, or whether it is a precise technical evaluation. Indeed, petitioner’s insistence that the exemption be restricted to information furnished to health care providers in the course of treatment is more appropriately directed to the very next provision — Public Officers Law § 89 (2) (b) (ii), which speaks of medical "records” of a client or patient in a medical facility. The contrast is telling between that exemption and the one at issue, which more broadly exempts medical "histories.”

While the Appellate Division definition of a medical history might appear somewhat circular — "information that one would reasonably expect to be included as a relevant and material part of a proper medical history” — it does capture the essence of the exemption in that it encompasses the very sort of detail about personal medical condition that would ordinarily and reasonably be regarded as intimate, private information (see also, Brown v Federal Bur. of Investigation, 658 F2d 71, 75 [interpreting a similar provision under the Federal Freedom of Information Act]). The information at issue here — for example, that the license applicant is undergoing treatment for convulsive disorders, epilepsy, fainting or dizzy spells, heart ailments or mental disabilities — easily falls within that exemption.

Finally, there is no occasion for us to engage in the balancing of interests suggested by petitioner. Once it is determined that the requested material falls within a FOIL exemption, no further policy analysis is required. It is enough that the Legislature has determined to classify the release of such information as an unwarranted invasion of personal privacy (see, Matter of Federation of N. Y. State Rifle & Pistol Clubs v New York City Police Dept., 73 NY2d, at 97, supra).

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Chief Judge Wachtler and Judges Simons, Alexander, Titone, Hancock, Jr., and Bellacosa concur.

Order affirmed, with costs.

       Petitioner also requested any physician’s statements accompanying the application. The Department advised petitioner that such records were not maintained on file in the central office, and petitioner has not challenged this aspect of the Department’s response.


source: Caselaw Access Project

author: Hancock, Jr., J.

license: Public Domain

text:
    The People of the State of New York, Respondent, v Carlos Andujas, Appellant.
    Argued January 8, 1992;
    decided February 18, 1992

      POINTS OF COUNSEL

      De Nice Powell and Philip L. Weinstein for appellant.
    The trial court’s agency charge, which conveyed that the defense must be rejected if appellant had any interest in the transaction, and refusal to clarify its charge by instructing the jury that they could find that appellant acted "solely” on behalf of the buyer even if appellant purchased drugs for his own use, while simultaneously purchasing drugs on behalf of the buyer, improperly precluded the jury from considering the agency defense and denied appellant his due process right to a fair trial. (People v Lam Lek Chong, 45 NY2d 64, 439 US 935; People v Roche, 45 NY2d 78; People v Pasquarello, 306 NY 759; People v Argibay, 45 NY2d 45, cert denied sub nom. Hahn-DiGuiseppe v New York, 439 US 930; People v Scott, 134 AD2d 379; People v Hughes, 118 AD2d 955; People v Brown, 60 AD2d 917; People v Jenkins, 77 AD2d 912; People v Baskerville, 60 NY2d 374; People v Rodriguez, 56 AD2d 545.)

      Charles J. Hynes, District Attorney (Keith Dolan, Jay M. Cohen and Peter A. Weinstein of counsel), for respondent.
    The trial court correctly charged the jury on the defense of agency. The court properly rejected defendant’s request, directed only to the counts of the indictment involving his first sale of cocaine, to amplify the agency charge. (People v Argibay, 45 NY2d 45, cert denied sub nom. Hahn-DiGuiseppe v New York, 439 US 930; People v Lee, 79 AD2d 641; People v Rodriguez, 56 AD2d 545; People v Jenkins, 77 AD2d 912; People v Sierra, 45 NY2d 56; People v Lam Lek Chong, 45 NY2d 64, 439 US 935; People v Ortiz, 76 NY2d 446; People v Roche, 45 NY2d 78; People v Crimmins, 36 NY2d 230.)
   OPINION OF THE COURT

Hancock, Jr., J.

When a defendant charged with selling drugs to an undercover officer has purchased a portion of the drugs for his own use and the balance as agent for the officer, he may — notwithstanding his personal interest in a portion of the drugs as a purchaser — nevertheless be entitled to an agency defense as to the balance. Here, according to defendant’s testimony, one of the drug sales for which he was convicted was a purchase for himself and for the undercover officer as an agent. The primary question presented in his appeal concerns the court’s instruction to the jury that to be entitled to an agency defense, a defendant must have acted solely as an agent for the purchaser, and in no other capacity. For reasons to be explained, we conclude that the court’s charge on agency was in error. There should, accordingly, be a reversal with regard to the sale and possession with intent to sell charges arising from each transaction.

I

Acting on a tip that drugs were being sold at the Lutheran Medical Center, the New York City police, on February 13, 1987, began an investigation of possible drug trafficking at the hospital. On February 20th, an unnamed undercover police officer, assigned to the investigation, met defendant. Defendant told the officer that he did not deal in drugs, but that he was able to obtain drugs from another person on a regular basis. Thereafter, two drug transactions between defendant and the undercover officer took place.

The evidence is conflicting as to the first transaction. According to the People, the officer asked defendant if he could obtain one-half gram of cocaine and defendant responded affirmatively, telling him to check back later that day. When defendant subsequently produced the cocaine, the undercover officer paid him with prerecorded "buy money”. At that time, defendant indicated that he could provide larger quantities of cocaine in the future.

According to defendant, however, he and the officer shared the initial half gram of cocaine. The officer, defendant testified, had told him earlier that day that he could not afford a full half gram, the minimum amount defendant’s supplier was willing to sell. The officer asked defendant to "go in” with him, with each contributing half the price. Defendant agreed. When defendant produced the cocaine, he and the undercover officer divided it and each snorted some.

On March 6th, defendant procured a second half gram of cocaine all of which was delivered to the undercover officer. One month later, defendant was arrested and subsequently indicted for criminal sale of a controlled substance in the third degree (Penal Law § 220.39), criminal possession with intent to sell in the third degree (Penal Law § 220.16 [1]) and criminal possession of a controlled substance in the seventh degree (Penal Law § 220.03) with respect to each of the two drug transactions.

Defendant interposed an agency defense to the drug sale charges, asserting that he was merely acting as the undercover officer’s agent in the transactions and not as a seller of the cocaine. In its instructions to the jury on the agency defense, the court charged, inter alia:

"[0]ne who acts solely in the capacity of an agent of the buyer cannot be convicted pursuant to Penal Law sections 220.39 and 220.16 of the crime[s] of criminal sale of a controlled substance in the third degree, or criminal possession of a controlled substance in the third degree” (emphasis added);
and,
"If the proof establishes that the defendant was acting solely as an agent of the undercover police officer, and in no other capacity, then he acted as an agent of the buyer.
"If the proof establishes that the defendant acted on his own behalf in the capacity of a seller, or if he acted as an agent of the seller, or if he acted both on his own behalf and as an agent of the seller, then he is not an agent of the buyer” (emphasis added).

The court instructed further that to decide whether the People had proved beyond a reasonable doubt that the defendant was not acting solely as an agent of the buyer, the jury must consider all the circumstances:

"to determine whether the defendant was merely accommodating the buyer as a friendly matter, or whether he was, in fact, himself, interested in the sale” (emphasis added).

Defendant took an exception to the charge as unfairly suggesting that the agency defense is not available when, as was assertedly the case, defendant purchased part of the drugs for his own use and part for another person. His counsel requested that the court make clear to the jury "that when one acts for oneself and for another person * * * in making a purchase * * * [it] does not mean that * * * the agency defense cannot prevail”. He pointed out that the court’s charge was confusing in that the jurors "might think that because [his client] had an interest in obtaining drugs for his own use, that somehow he could therefore not be an agent”. The trial court denied defendant’s request for a clarifying charge.

The jury returned guilty verdicts on all three counts for each transaction. The Appellate Division unanimously affirmed (see, People v Andujas, 168 AD2d 625). It held that the court had properly instructed the jury "that it could not accept [defendant’s] agency defense unless he acted 'solely’ as the agent of the buyer” (id., at 625), noting that the court had given the standard charge approved by the Committee on Criminal Jury Instructions (see, 3 CJI[NY] PL art 220, at 1750). The Appellate Division rejected the contention that the instruction indicated "that the defendant could not be an agent of the undercover officer if he received some benefit from the transaction” (id., at 625). We do not agree. With respect to the first transaction, we conclude that the agency defense instruction was erroneous.

II

It is now settled law in New York that " '[o]ne who acts solely as the agent of the buyer cannot be convicted of the crime of selling narcotics’ ” (People v Lam Lek Chong, 45 NY2d 64, 73, quoting People v Branch, 13 AD2d 714; see, People v McLeod, 45 NY2d 95; People v Roche, 45 NY2d 78; People v Argibay, 45 NY2d 45). In essence, the agency defense is an interpretation of the statutory definition of the term "sell” (Penal Law § 220.00 [1]; see, People v Lam Lek Chong, supra, at 73). Under the statute, to "sell” means "to sell, exchange, give or dispose of to another, or to offer or agree to do the same” (Penal Law § 220.00 [1]). Although a literal reading of the statutory definition suggests that any transfer of drugs constitutes a sale, we have held that the Penal Law provisions proscribing drug sales are aimed at drug sellers, not those who purchase drugs or possess them illegally (see, People v Lam Lek Chong, supra, at 74; People v Argibay, supra, at 53-54). The agency defense recognizes that if a person is acting only in the interest of the buyer in obtaining drugs, he cannot at the same time be acting as or in the interest of the seller. In such case, he may be guilty of the crime of possessing but not of selling the drugs (see, People v Lam Lek Chong, supra, at 74; People v Argibay, supra, at 53-54). The defense simply reflects the logical proposition that if a defendant is acting solely in a capacity which is inherently inconsistent with being a seller — i.e., acting as an agent for the buyer — he cannot be a seller. This same reasoning applies no less when a defendant instead of acting only to buy drugs for someone else acts only to buy them for himself, or when he acts both as a buyer in his own right and as agent to buy for another. Proof that a defendant is acting solely in one or the other or both of these capacities may, if believed, be proof that he is not a seller.

In the present case the court gave the standard charge dealing with the typical agency defense situation (3 CJI[NY] PL art 220, at 1750) — i.e., where the defendant is acting in one of two mutually exclusive roles, either as agent for the buyer or for the seller. The standard charge was appropriate for the second transaction on March 6th, where defendant was purchasing only for the undercover officer, but not for the earlier delivery on February 26th. It did not cover the third possibility presented by defendant’s testimony — that he was acting solely in his own right as purchaser of part of the drugs and that, if that were so, the jury could still find that he was acting as the undercover officer’s agent for the balance.

We do not accept the People’s argument, based on a piecemeal analysis of the charge, that the charge was adequate because it did not expressly instruct the jury to reject the defense if defendant purchased part of the drugs for himself. It is settled that in considering the adequacy of a jury charge, an appellate court should read it as a whole against the background of the evidence produced at the trial (see, People v Crumble, 286 NY 24, 26). When so read, we agree with defendant that the charge effectively ruled out the agency defense when a defendant acts in a dual capacity as purchaser for himself and agent for another purchaser.

Accordingly, the order should be modified by reversing the convictions and ordering a new trial with respect to counts 1, 2, 4, and 5 of the indictment and, as so modified, affirmed.

Chief Judge Wachtler and Judges Simons, Kaye, Alexander, Titone and Bellacosa concur.

Order modified in accordance with the opinion herein and, as so modified, affirmed.

       Defendant concedes that the court’s erroneous instruction could not have affected the convictions for criminal possession (the third and sixth counts) and does not request that these convictions be reversed. Although the error did not apply to the March 6th transaction, the transactions of February 26th and March 6th are factually interrelated. We therefore reject the People’s contention that there should not be a retrial on the fourth and fifth counts (see, People v Kitching, 78 NY2d 532, 539).


author: Kaye, J. Simons, J.

text:
    In the Matter of Judith A. Levitt, as City Personnel Director, et al., Respondents, v Board of Collective Bargaining of the City of New York, Office of Collective Bargaining, Appellant.
    Argued January 14, 1992;
    decided February 20, 1992

      POINTS OF COUNSEL

      Steven C. DeCosta for appellant. I.
    The Board properly found that the compulsory completion and execution of the debt questionnaire and repayment agreement, pursuant to Personnel Policy and Procedure Bulletin 401-86, involved mandatorily bargainable terms and conditions of employment. (Matter of Board of Educ. v New York State Pub. Employment Relations Bd., 75 NY2d 660; Nassau Ch., Civ. Serv. Employees Assn. v Helsby, 43 NY2d 755; Matter of Incorporated Vil. of Lynbrook v New York State Pub. Employment Relations Bd., 48 NY2d 398; Binghamton Civ. Serv. Forum v City of Binghamton, 44 NY2d 23.) II. Public policy considerations support the determination of appellant Board. (Matter of Board of Educ. v New York State Pub. Employment Relations Bd., 147 AD2d 70, 75 NY2d 660; Matter of Cohoes City School Dist. v Cohoes Teachers Assn., 40 NY2d 774; Matter of Susquehanna Val. Cent. School Dist. [Susquehanna Val. Teachers’ Assn.], 37 NY2d 614; Board of Educ. v Associated Teachers, 30 NY2d 122.)

      Victor A. Kovner, Corporation Counsel (Linda Young, Pamela Seider Dolgow and Patrick L. Taylor), for respondents.
    Supreme Court properly held that the City may require candidates for initial appointment or promotion to a City position, as a qualification, to list debts owed to the City and to make a genuine commitment to repay them. Since the Board of Collective Bargaining decision to the contrary was manifestly arbitrary, the order appealed from should be affirmed. (Matter of Metzger v Nassau County Civ. Serv. Commn., 54 AD2d 565; Matter of Barnett v Fields, 196 Misc 339, 276 App Div 903, 301 NY 543; Board of Educ. v Areman, 41 NY2d 527; Matter of Cohoes City School Dist. v Cohoes Teachers Assn., 40 NY2d 774; Matter of Vegas v Schechter, 13 Misc 2d 265; Matter of Berenhaus v Ward, 70 NY2d 436; Matter of West Irondequoit Teachers Assn. v Helsby, 35 NY2d 46; Matter of Zazycki v City of Albany, 94 AD2d 925; De Paulo v City of Albany, 49 NY2d 994; Sirkin v Fourteenth St. Store, 124 App Div 384.)
   OPINION OF THE COURT

Kaye, J.

This appeal centers on the determination of the Board of Collective Bargaining of the City of New York (the Board) that New York City committed an improper public employer practice in unilaterally ordering that, as a condition of appointment or promotion, candidates disclose and pay debts owed the City. We conclude that, in overturning the Board’s determination, Supreme Court and the Appellate Division failed to accord proper deference to the decision of that neutral administrative body, and therefore modify the order before us.

I

In February 1986, New York City Mayor Edward I. Koch sent a memorandum to City employees urging them voluntarily to disclose and pay any debts they owed the City. He wrote that the City was already vigorously pursuing its private sector debtors and would shortly implement measures to collect debts from City employees, in order to better enable the City to deliver needed services to all New Yorkers; no person would be hired without disclosure of indebtedness and agreement to pay it. The Koch memorandum began and ended on the same note: "every dollar we cannot collect is a dollar we cannot use to pay for cleaner streets, better schools, more police and fire protection — and better employee benefits.”

Two months later, the policy was instituted, without prior negotiation with municipal employee unions, in a Personnel Policy and Procedure Bulletin promulgated by the City Personnel Director. That document, captioned "Debt Collection From City Employees of Debts Owed to the City through Payroll Deduction,” began with the words, "[i]n order to collect debts owed to the City.” As explained therein, all applicants for employment or promotion would be required to complete a two-part form. The first part was a questionnaire seeking 10 years of home addresses as well as information regarding motor vehicle registrations; unpaid parking violations or other fines, penalties or judgments in favor of the City; public assistance overpayments; and whether State and City income tax returns had been filed for the previous five years. Second, the form contained the following repayment agreement:

"As a qualification for appointment and continued employment with the City, I agree to repay any amounts which I owe to the City or any agency or department thereof, either by lump sum payment or, if I am able to demonstrate hardship, by deductions from my paycheck not to exceed 10% of the net income indicated on my paycheck. I further agree to cooperate with officials of the City or any agency or department thereof in determining the amounts which I may owe to the City. Failure to repay any amounts which I owe the City or any agency or department thereof may be grounds for disciplinary action.”

Any applicant who refused to complete the form and sign the repayment agreement was to be denied employment or promotion.

Three municipal employee unions filed separate improper practice petitions with the Board challenging the policy. The unions argued that the repayment agreement, which provided for payroll deductions and the possibility of discipline, affected wages or terms and conditions of employment and thus could not be implemented without prior good-faith bargaining. The unions further claimed that the questionnaire portion of the form was so personally invasive that it also affected a term or condition of employment.

While conceding that "the purpose of the new procedure [was] to both ensure that the City recovers the monies owed to it and that the recovery is accomplished in an expeditious manner,” the City in its response to the petitions added the affirmative defense that, as an employment qualification relating to character and reputation, the policy was a managerial prerogative not subject to mandatory bargaining. The City further claimed that, in any event, the policy did not affect wages because an employee could choose to pay the debt in a lump sum, and the information sought was largely a matter of public record and not an unwarranted invasion of privacy.

In its decision on the consolidated petitions, the Board recognized that character and reputation could be an appropriate qualification for employment or promotion. In this instance, however, the Board concluded from the combined substance and history of this policy that it was neither intended nor used as such by the City but was purely an economic measure. First viewing the substance of the policy, the Board observed that no matter how much was owed or how long the debt was delinquent, no candidate was disqualified from City employment or promotion on character grounds so long as the debt was paid; conversely, every applicant who refused to pay, however recent or nominal the debt, was automatically disqualified. Turning to the history of the policy, the Board took into account that neither the Koch memorandum nor the policy itself mentioned character or reputation, and the City conceded that its purpose was to raise money expeditiously.

Having rejected the City’s contention that this policy was a test of character and reputation, the Board proceeded to consider whether the policy affected any mandatory subjects of bargaining, concluding that the payroll deductions and threat of disciplinary action contained in the repayment agreement were both bargainable. As for the questionnaire, the Board recognized only a "minimal” expectation of privacy in the information requested, and allowed the City to ask the questions of new hires. With respect to candidates for promotion, however, the Board deemed these same questions an "intrusion into employee privacy affecting a term or condition of employment.” The Board consequently prohibited the City from making the inquiries of promotion candidates and enjoined use of the repayment agreement.

The City sought review in a CPLR article 78 proceeding, and Supreme Court, finding the Board’s decision unreasonable, arbitrary and legally impermissible, annulled it in its entirety. The Appellate Division affirmed, and we granted the Board leave to appeal. We now modify the Appellate Division order to reinstate the Board’s determination with respect to the repayment agreement and otherwise affirm.

II

Recognizing the benefits of decentralized administration of public sector labor relations (see, McHugh, New York's Experiment in Public Employee Relations: The Public Employees’ Fair Employment Act, 32 Albany L Rev 58, 82 [1967]), the Public Employees’ Fair Employment Act (the Taylor Law) permits local government bodies — including New York City— to enact substantive and procedural provisions governing labor relations, so long as they are "substantially equivalent” to the Taylor Law (Civil Service Law § 212 [1], [2]).

Consistent with the Taylor Law, the New York City Collective Bargaining Law (Administrative Code of City of New York § 12-301 et seq.) imposes a duty on public employers and certified employee organizations to bargain in good faith on wages, hours and working conditions (Administrative Code § 12-307 [a]). An employer commits an improper practice if it alters, without prior good-faith negotiation, a term or condition of employment (see, Administrative Code § 12-306 [a] [4]; Matter of State of New York [Department of Transp.] v Public Employment Relations Bd., 174 AD2d 905; Matter of State of New York, Governor's Off. of Employee Relations v Public Employment Relations Bd., 116 AD2d 827). Specifically excluded from the scope of collective bargaining, however, are certain fundamental managerial decisions — management prerogatives — such as the methods by which an operation will be performed (see, Administrative Code § 12-307 [b]). Although these decisions are excluded from bargaining, their practical impact on employees may be bargainable (Administrative Code § 12-307 [b]; Matter of West Irondequoit Teachers Assn. v Helsby, 35 NY2d 46, 51-52). In the exercise of managerial prerogatives, moreover, the employer must act in good faith (see, Matter of Lezette v Board of Educ., 35 NY2d 272, 278).

Although terms and conditions of employment (subject to bargaining) and management prerogatives (exempt from bargaining) may be neatly separated in principle, the practical task of assigning a particular matter to one category or the other is often far more difficult. Indeed, in many instances a matter may partake of both categories, requiring a balancing of the interests involved (see, 140 Misc 2d 727, 732). No litmus test has yet been devised that automatically identifies a term or condition of employment, or a management prerogative, or establishes whether a particular subject should be placed into the first category or the second (see, Matter of Association of Cent. Off. Adm’rs [Board of Educ.], 4 PERB |f 4509, at 4599).

Just such a difficulty arises in the present case. The City urges that promulgation of character standards is the exclusive, nondelegable statutory duty of the City Personnel Director, outside the scope of collective bargaining, and that the Board must defer to her designation; the only limitation on this authority is reasonableness. The Board, by contrast, claims that a dispute as to whether a particular matter falls within terms and conditions of employment and is thus a mandatory subject of negotiation, must be resolved in the first instance by the labor relations agency with jurisdiction over the employees involved, not by the City Personnel Director. For the reasons that follow, we agree with the Board.

The Board is a neutral adjudicative agency with powers at the local level akin to those of the Public Employment Relations Board at the State level. It is authorized by the Collective Bargaining Law to prevent and remedy improper practices as they are defined in the statute (Administrative Code § 12-309 [a] [4]). The Board consists of two members appointed by the Mayor, two designated by a committee of unions, and three elected by unanimous vote of the other four (NY City Charter § 1171). By constituency, therefore, the Board is the impartial body before which both public employers and public employee organizations may be advocates.

This regulatory scheme envisions that in the first instance the threshold issue whether a particular subject matter is bargainable should be decided by the impartial body with expertise in the area (see, Matter of Rensselaer City School Dist. v Newman, 87 AD2d 718; Matter of Saratoga Springs City School Dist. [New York State Pub. Employment Relations Bd.], 68 AD2d 202, 208, Iv denied 47 NY2d 711), rather than by the public employer, who could by declaring conditions of employment to be "qualifications” unilaterally put such matters beyond the statutory duty to bargain. Once the Board decides that the employer is exercising in good faith a managerial prerogative that does not affect terms and conditions of employment, then the Board’s inquiry ends and the employer is entitled to broad deference in implementing its action (Administrative Code § 12-307 [b]; see, 1971-1972 Report of Joint Legis Comm on Taylor Law, 1972 NY Legis Doc No. 25, at 34; Note, The Taylor Law, the OCB and the Public Employee, 35 Brooklyn L Rev 214, 227 [1969]). Here the Board determined that the City was not in fact exercising in good faith the managerial prerogative of setting employment qualifications, but was in reality engaged in revenue-raising. That determination should not be upset unless "arbitrary and capricious or an abuse of discretion” (CPLR 7803 [3]; see also, Matter of Incorporated Vil. of Lynbrook v New York State Pub. Employment Relations Bd., 48 NY2d 398, 404; Matter of West Irondequoit Teachers Assn. v Helsby, 35 NY2d, at 50-51, supra).

The Board began its analysis by acknowledging that character and reputation, measured by some objective standard, can indeed constitute an employment qualification, which includes an appropriately framed policy regarding the disclosure and repayment of City indebtedness. The Board then set forth the grounds for its conclusion that this particular policy — in essence, “your checkbook is your character”— sought not to raise morality but simply to raise money. Those reasons explicating and supporting the Board’s conclusion were drawn from record evidence of the operation of this particular policy, considered in combination with its origins, including the City’s acknowledged economic purpose in taking this action. On this record, we cannot say that the Board’s determination was arbitrary, capricious or legally impermissible.

Nor is the City’s contention, that an employee’s current refusal to pay a debt alone establishes a lack of necessary integrity for public service, a proper basis for overturning the Board’s conclusion about this policy. First, the City’s theory— however logical or prudent it may be — overlooks the Board’s determination that any relationship between this policy and employee integrity was pretextual, an afterthought traceable to the unions’ legal challenge. The City’s theory, moreover, carves out a per se exception to bargaining that we have not previously endorsed. As we made clear in Matter of Board of Educ. v New York State Pub. Employment Relations Bd. (75 NY2d 660, 667-668), the obligation to bargain is a strong and sweeping policy of the State, not lightly overridden. We find no basis in the law for now holding that a policy mandating the disclosure and repayment of public debt must in every instance be considered a matter of employee integrity so as to foreclose negotiation.

Ill

Having determined that the policy at issue was not a managerial prerogative excluded from collective bargaining, the Board next considered whether the policy affected terms and conditions of employment, and concluded that it did. That conclusion, similarly, is entitled to deference by the courts. As we have written in a related context, " '[s]o long as PERB’s interpretation is legally permissible and so long as there is no breach of constitutional rights and protections, the courts have no power to substitute another interpretation’ ” (Matter of Board of Educ. v New York State Pub. Employment Relations Bd., 75 NY2d 660, 666, supra, quoting Matter of West Irondequoit Teachers Assn. v Helsby, 35 NY2d 46, 50, supra).

As did the Board, we separately consider the repayment agreement and the questionnaire.

The Repayment Agreement

The repayment agreement provides that if an employee demonstrates hardship, payroll deductions may be made, up to 10% of net pay. The Board held that payroll deductions affect wages and were therefore a matter within the scope of collective bargaining.

We cannot say this was an impermissible conclusion. Indeed, this Court recognized only last month, as a constitutional matter, that a 10% payroll deduction can have a substantial impact on an employee already confronted with expenses for the necessities of life (Association of Surrogates & Supreme Ct. Reporters v State of New York, 79 NY2d 39, 46-47; see also, National Educ. Association — Kansas City v Unified School Dist. No. 500, Wyandotte County, 227 Kan 541, 608 P2d 415, 418 [payroll deductions are a mandatory subject of bargaining]). Although the City policy provides for lump-sum payment as an alternative to payroll deductions, the Board found that this option was, depending on an individual’s finances, largely illusory; indeed, the policy is captioned "Debt Collection From City Employees of Debts Owed to the City through Payroll Deduction” (emphasis added). Again, the Board’s finding was rational and should not have been set aside.

That "payroll deductions” is not expressly listed in the Collective Bargaining Law as a subject within the scope of bargaining is irrelevant, contrary to the dissent’s suggestion (dissenting opn, at 136, n 4). The statutory delineation of the topics of bargaining is intentionally broad, to be explicated by the Board on a case-by-case basis, because "it is impossible to provide [in a statute] a detailed listing of all issues which are negotiable.” (1971-1972 Report of Joint Legis Comm on Taylor Law, 1972 NY Legis Doc No. 25, at 33.)

Moreover, that the City purportedly "could” have insisted on lump-sum payment (dissenting opn, at 136) does not transform this bargainable term and condition of employment into one that is not. We are not concerned with what the City could have done, but must examine what it did. The Board concluded that the presence of a payroll deduction term in the repayment agreement should have been bargained. That finding has a rational basis and we are constrained to uphold it.

The Questionnaire

We reach a different conclusion, however, as to the Board’s holding that the questionnaire so intruded on the personal privacy of promotion candidates that it constituted a unilateral change in the terms and conditions of their employment.

In a recent case challenging a public employer’s disclosure requirement, we upheld as rational PERB’s finding, after a weighing of the competing interests, that a questionnaire was so intrusive that bargaining was required (Matter of Board of Educ. v New York State Pub. Employment Relations Bd., 75 NY2d, at 670-671, supra). There, however, the intrusiveness was manifest: the questionnaire ran 18 pages — six of which sought financial data — and it covered 13 categories of information, including health and political party affiliations (see, id., at 664-665; Matter of Board of Educ. [United Fedn. of Teachers, Local 2], 19 PERB [f 3015).

Here, by contrast, and as the Board acknowledged, virtually all of the information sought — if not already in the City’s possession — is a matter of public record. The Board itself characterized the expectation of privacy in such information as "minimal,” and concluded that such questions were permissible of new hires. No rational balancing of the competing interests — the City’s substantial interest in collecting outstanding debt against an employee’s right to privacy — could result in a conclusion that this questionnaire alters a term or condition of employment.

Accordingly, the order of the Appellate Division should be modified, without costs, to reinstate the Board’s determination with respect to the repayment agreement, and otherwise affirmed.

Simons, J.

(dissenting in part). I would hold, as did Supreme Court and a unanimous Appellate Division, that the City may require applicants, as a precondition for employment or promotion, to either pay their unchallenged debts to it in full or, if the applicants cannot afford to pay in full, to authorize payment from their wages over a period of time following employment or promotion. The dispositive question is whether such a requirement is a legitimate qualification for employment because it measures character and, therefore, is not subject to mandatory bargaining, or is a term and condition of employment and is subject to bargaining. In my view, the requirement is an appropriate and objective measure of character and the respondent Board’s contrary determination in this case is unreasonable. I, therefore, dissent from the Court’s decision insofar as it reinstates the Board’s determination that the repayment agreement is subject to mandatory bargaining.

In 1986 the City of New York realized that delinquent debtors and scofflaws owed it substantial sums of money. The problem was aggravated by the fact that the City’s own employees owed large amounts for such things as traffic fines, real property taxes and overpaid social services benefits. In an effort to recover these delinquencies, the City adopted a policy requiring all applicants for employment or promotion to complete a questionnaire supplying information which would facilitate it in discovering whether the applicant owed it money. Along with general information of present and past residences, vehicle registration and such, the applicant also was required to list all debts owed the City and to indicate whether liability was contested. The applicant was not eligible for employment or promotion until he or she agreed to pay the uncontested debts in full. If economic hardship was established, the applicant could agree to pay the debt over time through a wage deduction. Three unions representing municipal employees challenged the policy claiming that it affected a term and condition of employment and was subject to mandatory bargaining. Respondent Board agreed and ordered the City to cease and desist using the questionnaire (except as to new employees) and the repayment agreement.

Analysis starts by recognizing that the Board determines in the first instance whether a particular subject matter is bargainable. Its determination is entitled to deference from the courts and should be vacated only if it is arbitrary, capricious and unreasonable as a matter of law (see, Matter of Incorporated Vil. of Lynbrook v New York State Pub. Employment Relations Bd., 48 NY2d 398, 404; Matter of West Irondequoit Teachers Assn. v Helsby, 35 NY2d 46, 50-51; Nassau Ch., Civ. Serv. Employees Assn. v Helsby, 54 AD2d 925, affd 43 NY2d 755). For the reasons that follow, I conclude that the Board’s determination was unreasonable as a matter of law. Accordingly, I would affirm the order of the Appellate Division.

To start with points of agreement, the majority holds, and I agree, that the questionnaire was a proper exercise of the City’s powers, for both prospective employees and those seeking promotion. Although the majority and the Board would invalidate the repayment agreement at issue in this case, they agree that the City has a substantial and paramount public interest in the prompt and efficient collection of debts owed to it. They also agree that the City has the power to set policies to determine employee qualifications; that character and reputation, when measured by some objective standard, may be a legitimate qualification of employment; and that an "appropriately framed policy” regarding disclosure and repayment of indebtedness may be a proper measure of one’s character and reputation (see, majority opn, at 128; Administrative Code of City of New York § 12-307 [b] ["(i)t is the right of the city, or any other public employer, acting through its agencies, to determine * * * the standards of selection for employment”]).

Our disagreement centers on whether the repayment agreement in this case was intended as a character qualification or was, as the Board found, merely adopted as a pretext to raise revenues. The unions contended that the policy was a subterfuge — an expedient way to collect debts from employees protected by civil service without the delay and expense of legal proceedings to enforce the debts. The City conceded that one of the purposes of the policy was to raise money expeditiously, but contended that the policy, which induced applicants to acknowledge and pay their just debts, was also an appropriate measure of character because it reflected maturity, a sense of responsibility and loyalty to their employer. When related to public employment, the policy gauged an applicant’s understanding that those who have an opportunity to work for the public and enforce the law have a duty to obey the law. Moreover, the City noted that the requirement of proving character is not new; established procedures governing municipal employment routinely require candidates to prove good character.

The Board did not find these arguments persuasive. It noted that the public statements by the Mayor at the time the policy was instituted referred to revenue raising and it found additional evidence that this was the overriding purpose of the policy in the fact that it did not take into consideration the size, nature or duration of the applicant’s debt in determining the good character of the individual.

I fail to see how those considerations support the Board’s finding that the policy was intended merely to raise revenue. The City’s policy was to disqualify from hiring and promotion not just applicants who refused to pay debts of a certain type, but rather any who refused to pay debts owed to it, no matter how much was due or how long the debt had been delinquent. It was not the amount of revenue that could be collected by the City that was decisive, it was the refusal to pay money justly owed to the City that reflected adversely upon the applicant’s character. The use of the repayment agreement to evaluate character is implicit in it and is valid irrespective of whether the Koch memorandum or the policy itself mentioned the word "character.” Indeed, had the policy been designed solely as a revenue-raising measure, the City undoubtedly would have attempted to impose a repayment obligation on all employees, not merely applicants for employment and promotion. Accordingly, I conclude that the City’s policy serves as a legitimate measure of character and reputation well within the City’s managerial power to "determine the standards of selection for employment” (Administrative Code § 12-307 [b]). Considering the basis for the Board’s decision, I find its determination to the contrary irrational.

However, this does not end the inquiry. As noted by the majority, "[although these [managerial] decisions are excluded from bargaining, their practical impact on employees may be bargainable” (majority opn, at 127; Matter of West Irondequoit Teachers Assn. v Helsby, 35 NY2d 46, 51-52, supra). Here, the Board concluded that the City’s policy affected mandatory subjects of bargaining because the payroll deductions and threat of disciplinary action contained in the repayment agreement were "terms and conditions” of employment. While this determination is entitled to deference so long as it is not affected by an error of law, arbitrary and capricious or an abuse of discretion, the Board had no reasonable basis for finding that the City’s policy affected a mandatory subject of bargaining under the facts of this case.

The repayment agreement provides that applicants who have not paid their public debts may either pay by "lump sum” or, if they can demonstrate hardship, by deductions from their paycheck "not to exceed 10%” of their net income. The Board concluded that these payroll deductions affect wages and were therefore a matter within the scope of collective bargaining. Contrary to the Board’s conclusion, however, the mere fact that an applicant could authorize a payroll deduction does not convert an otherwise valid condition of employment into a mandatory subject of collective bargaining. The applicants are lawfully obligated to pay these debts and the agreement provides two avenues for doing so — payment in a lump sum or extended periodic payments through payroll deductions. To be sure the deductions affect wages, just as voluntary deductions to repay an employee credit union loan do, but the deductions do not thereby automatically become a matter subject to mandatory bargaining. The City could, if it wished, insist that payment be made in full and that the applicant borrow the funds at interest from a bank or third party to do so. In that way, it would avoid the Board’s conclusion that the payroll deductions provision was a "term and condition” of employment but the applicant would be severely disadvantaged. The majority concedes that the City could frame a policy requiring repayment of indebtedness to it by lump sum, and that such a policy could constitute a legitimate test of character. If that is so, then it is difficult to see why it is not a legitimate test of character to allow the employee to pay off the debt over time. To accept the finding of the Board, that the agreement to repay City debts is a "term and condition of employment” because of the optional provision allowing payments by wage deductions, deprives the employee of an ameliorative feature of the policy and requires the City to negotiate with union representatives over whether and how an applicant seeking employment or promotion with the City will pay a legally owed debt.

This case is vastly different from Association of Surrogates & Supreme Ct. Reporters v State of New York (79 NY2d 39) relied on by the majority. Association of Surrogates did not involve a labor law dispute over "terms or conditions” of employment. Rather, it was an action seeking a declaratory judgment that a section of the State Finance Law was unconstitutional. In dispute was a statute enacted by the State Legislature to eliminate a budgetary shortfall which attempted to lag or defer judicial employees’ pay against their wishes. The State was, in effect, compelling its employees to loan it money for State purposes. Here, the employees may authorize the City to periodically withhold a portion of their pay, not to eliminate the City’s budgetary shortfall, but to satisfy a legal obligation to the City. The City has merely recognized a procedure which permits employees to use a wage deduction to satisfy their personal needs (cf., Nassau Ch., Civ. Serv. Employees Assn. v Helsby, 54 AD2d 925, affd 43 NY2d 755, supra). Inasmuch as there is no rational basis for the distinction between lump-sum payment and an employee election to use extended periodic payments, I would reverse the Board’s finding regarding payroll deductions.

Nor does the agreement violate the Collective Bargaining Law because nonpayment is, under its terms, a potential basis for discipline. The repayment agreement provides that failure to repay any amounts claimed to be owed to the City "may be grounds for disciplinary action.” Although the Board conceded that this "right to take disciplinary action is a management prerogative [of the City] under NYCCBL § 1173-4.3b”, it nevertheless concluded that the City’s policy was a term or condition of employment which must be bargained because it "imposes the non-payment of City debt as an on-going predicate for disciplinary action” (Board of Collective Bargaining Decision No. B-7-87, at 22-23, citing Binghamton Civ. Serv. Forum v City of Binghamton, 44 NY2d 23).

In the City of Binghamton case, we held (supra, at 28) that "disputes relating to whether the necessary predicate exists for taking disciplinary action against a public employee and the proper penalty to be imposed if that predicate exists are terms and conditions of employment under the Taylor Law”— i.e., that certain disciplinary matters, such as disciplinary procedures and penalties, are terms and conditions of employment (see, e.g., Matter of Auburn Police Local 195 v Helsby, 62 AD2d 12, affd 46 NY2d 1034). But we have never held that a simple statement that breach of a qualification for employment may in principle be disciplined constitutes a "term and condition of employment.” Indeed, such a holding would be contrary to the clear language of New York City’s Collective Bargaining Law relegating such determinations to the employer (see, Administrative Code § 12-307 [b]).

Accordingly, I agree with the Appellate Division that the repayment agreement implemented an appropriate measure of applicant’s character qualifications and, as such, was not subject to mandatory bargaining. I would, therefore, affirm its order.

Chief Judge Wachtler and Judges Titone and Hancock, Jr., concur with Judge Kaye; Judge Simons dissents in part and votes to affirm in a separate opinion in which Judge Bellacosa concurs; Judge Alexander taking no part.

Order modified, without costs, in accordance with the opinion herein and, as so modified, affirmed.

      . The Board alternatively held that as to new hires, the questionnaire was a preemployment action not covered by the Collective Bargaining Law. This aspect of the Board’s determination is not challenged.

      . In this litigation, the parties accept the Board’s definition of an employment qualification, even one relating to character and reputation, as a "level of achievement or a special status deemed necessary for optimum on-the-job performance.” We therefore have no occasion to examine this standard.

      . Contrary to the dissent, the issue is not whether the policy, in retrospect, "serves as a legitimate measure of character and reputation” (dissenting opn, at 134-135, emphasis added). We need only examine whether there is a rational basis supporting the Board’s conclusion that at the time the City adopted the policy, it was not exercising in good faith a managerial prerogative to set character qualifications but was instead engaged in revenue-raising. We conclude that there was an adequate basis for that finding.

      . The dissent elaborately distinguishes Surrogates (dissenting opn, at 136), which of course was decided in a different context. The significance of Surrogates here is simply the Court’s recognition of the potential impact of a 10% salary deduction on employees.

      . We further note that as to employees represented by the Uniformed Firefighters Association, one of the petitioners before the Board, the City’s duty to bargain extended to "all matters” (Administrative Code § 12-307 [a] [4]), not just wages, hours and working conditions.

      . Having concluded that the payroll deduction aspect of repayment agreement violated the Collective Bargaining Law, we do not decide whether the agreement additionally violated the Collective Bargaining Law on the ground that the form established nonpayment as a basis for discipline. Whether the City is correct that the Collective Bargaining Law grants it a managerial prerogative to discipline (Administrative Code § 12-307 [b]), or the Board is correct in its assertion that the subject is mandatorily bargainable under an isolated clause in Binghamton Civ. Serv. Forum v City of Binghamton (44 NY2d 23, 28), is not necessary to the resolution of the dispute before us and therefore must be left for future resolution.

      . For example, the City’s brief states that approximately 25,690 City employees, including 1,300 employees of the Department of Transportation, owed a total of $5.7 million in outstanding parking fines. Looking only to those, and excluding other forms of debts, roughly 10% of City employees owed the City money for this type alone.

      . I would note that — unlike common subjective assessments of character based on appearance, reputation and other intangibles — the City’s policy was both objective and uniformly applied: Those who acknowledged their debts to the City and arranged to pay them were eligible for employment or promotion; those who refused were not.

      . The majority contends that the dissenters have substituted their discretion for that of the Board by determining in "retrospect” that the policy serves as a legitimate measure of character and reputation (majority opn, at 129, n 3). On the contrary, we find the Board’s determination irrational because the Board has ignored the indicia of character qualifications in the City’s policy and instead relied on evidence of subjective intent to support its determination. The inference to be drawn from the majority’s acceptance of the Board’s finding, based on this evidence, is that if the City had stated that the policy was a test of character, the outcome would be different. It is difficult to see why the City’s purpose should be determined by self-serving public statements when the character aspects of the City’s policy are manifest.

      . It is notable that although section 12-307 of the Collective Bargaining Law provides that wages are within the scope of collective bargaining, it does not specifically state that payroll deductions are also, except in the limited circumstance in which the deduction covers union dues for nonmembers of the pertinent union.

      . The majority found it unnecessary to reach this issue.


author: Bellacosa, J. Hancock, Jr., J.

text:
    In the Matter of Unimax Corporation, Appellant, v Tax Appeals Tribunal of the State of New York et al., Respondents.
    Argued January 14, 1992;
    decided February 18, 1992

      POINTS OF COUNSEL

      Arthur L. Liman, Richard Bronstein, Leslie Gordon Fagen, David Bookbinder and Kenneth J. Buiko for appellant. I.
    Unimax’s deductions should be allowed under Tax Law § 208 (9) (b) (6). II. The Department’s audit guidelines are invalid under article IV, section 8 of the New York Constitution. (Matter of Roman Catholic Diocese of Albany v New York State Dept. of Health, 66 NY2d 948; Matter of Seitelman v Lavine, 36 NY2d 165; Matter of Sturman v Ingraham, 52 AD2d 882; Long Is. Coll. Hosp. v Whalen, 68 AD2d 274; Matter of St. James Nursing Home v Axelrod, 135 AD2d 26; Matter of De Zimm v New York State Bd. of Parole, 135 AD2d 66.)

      Robert Abrams, Attorney-General (Denise A. Hartman, O. Peter Sherwood and Peter H. Schiff of counsel), for Commissioner of Taxation and Finance, respondent. I.
    The Tax Appeals Tribunal’s determination that loans and advances between a parent and its subsidiary may not be netted to an amount less than zero for purposes of calculating interest indirectly attributable to subsidiary capital is fully consistent with the statute and regulations. (Matter of Ansonia Residents Assn. v New York State Div. of Hous. & Community Renewal, 75 NY2d 206; Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451; Matter of Burger King v State Tax Commn., 51 NY2d 614; Matter of Mobil Intl. Fin. Corp. v New York State Tax Commn., 117 AD2d 103; Matter of Bamberger Polymers v Chu, 111 AD2d 589, 66 NY2d 603; Matter of Woolworth Co. v New York State Tax Commn., 126 AD2d 876, 71 NY2d 907.) II. The Department’s practice and policy is an interpretive guideline which is not constitutionally required to be filed as rule or regulation. (Matter of Metropolitan Life Ins. Co. v Office of

      State Comptroller, 120 AD2d 140, 70 NY2d 607; Leichter v Barber, 120 AD2d 776; Matter of Roman Catholic Diocese of Albany v New York State Dept. of Health, 66 NY2d 948; Matter of Guptill Holding Corp. v Williams, 140 AD2d 12, 73 NY2d 820; Matter of De Zimm v New York State Bd. of Parole, 135 AD2d 66; Matter of St. James Nursing Home v Axelrod, 135 AD2d 26; Long Is. Coll. Hosp. v Whalen, 68 AD2d 274; Matter of Sturman v Ingraham, 52 AD2d 882.)
   OPINION OF THE COURT

Bellacosa, J.

This CPLR article 78 proceeding challenges a franchise tax deficiency assessment. Petitioner taxpayer, The Unimax Corporation (Unimax), contends that an audit guideline of the New York State Department of Taxation and Finance (Department) implementing Tax Law § 208 (9) (b) (6) is arbitrary and capricious. Unimax also argues that the guideline is a rule or regulation which was not formally promulgated in accordance with the requirements of the NY Constitution, article IV, § 8.

The tax statute is designed "to prevent a parent corporation from obtaining a double tax benefit by taking a deduction for interest payments on loans incurred for directly or indirectly financing investments in subsidiaries while at the same time the parent’s income derived from such investments is tax free” (Matter of Woolworth Co. v State Tax Commn., 126 AD2d 876, 877, affd on mem at App Div 71 NY2d 907). The implementing audit guideline allows a parent corporation to offset loans to a subsidiary by loans to the parent from that subsidiary, on a subsidiary-by-subsidiary basis, to an amount not less than zero. This is allowed as part of the calculation of the amount of third-party interest expense indirectly attributable to subsidiary capital. The guideline explicitly prohibits a parent corporation from aggregating all its loans to subsidiaries and offsetting them with aggregate loans from the subsidiaries to the parent — the "netting” approach urged by Uni-max.

We conclude that the limited subsidiary-by-subsidiary offset analysis in the guideline is not inconsistent with the statute, does not frustrate its purpose, and represents a rational implementation of the discretion explicitly reposed in the Department by Tax Law § 208 (9) (b) (6). We therefore affirm the judgment of the Appellate Division dismissing the petition and confirming the determination of the Tax Appeals Tribunal, which sustained the Department’s franchise tax deficiency.

The State franchise tax scheme, and the methodology and audit guideline utilized by the Department to calculate the amount of corporate interest expense indirectly attributable to subsidiary capital, are thoroughly described in the opinion by Justice Mercure at the Appellate Division (165 AD2d 476, 477-478).

During its taxable years 1975 through 1979, Unimax borrowed sums of money — ranging between $13 and $22 million —from unrelated third parties. The arm’s length transactions generated sizeable interest expenses for Unimax. In the same period, Unimax also functioned as a loan "clearinghouse” for its manufacturing subsidiaries which, with one exception, it wholly owned. Attempting to equalize the subsidiaries’ capital, Unimax would "frequently” borrow interest-free money from its cash-rich subsidiaries and then make interest-free loans to its cash-needy subsidiaries. For four of the five taxable years in issue, Unimax was a "net borrower” in relation to its subsidiaries; that is, it borrowed more in the aggregate from them than it loaned back to all of them. For those five years, Unimax deducted the full amount of its third-party interest expenses from its "entire net income” for State franchise tax purposes. It apparently concluded that none of those interest expenses were either directly or indirectly attributable to its investments in its subsidiaries, and therefore did not have to be added back to "entire net income” under Tax Law § 208 (9) (b) (6).

The Department took a contrary view and, after an audit, assessed deficiencies. The Statements of Audit Adjustment accompanying the deficiency notices stated that interest expenses deemed to be indirectly attributable to subsidiary capital pursuant to Tax Law § 208 (9) (b) (6) had been added back to Unimax’s "entire net income” for the five years. Unimax petitioned for redetermination, emphasizing its "net borrower” status and the fact that the loans to its subsidiaries were interest free. Consequently, it urged, its third-party loan proceeds demonstrably did not flow through to its subsidiaries, and its third-party interest expenses were therefore not attributable to subsidiary capital and should not have been added back to "entire net income”.

At the redetermination hearing, Unimax argued that the Department’s audit guideline was arbitrary because it did not allow Unimax to aggregate its transactions by offsetting loans it received from its subsidiaries against loans it made to its subsidiaries. The Administrative Law Judge agreed with Uni-max’s theory, noting that nothing in the Tax Law requires the subsidiary-by-subsidiary approach mandated by the Department guideline. The Administrative Law Judge concluded that "[fjunds borrowed by a parent corporation from one or more of its subsidiaries clearly reduce the need of the parent to borrow from outside sources. Failure to recognize this by limiting net advances from a subsidiary to a parent to 'zero’ is nothing but an arbitrary measure designed to reap the highest amount of tax possible.” The Department appealed that portion of the Administrative Law Judge’s decision. The three-Judge Tax Appeals Tribunal reversed the Administrative Law Judge and upheld the Department’s notices of deficiency, concluding that the Department’s "method of determining the interest expense indirectly attributable to subsidiary capital is a proper exercise of the discretionary authority vested in it by the Legislature in section 208 (9) (b) (6)” and "promote[s] [the] underlying purpose” of the statute.

The next move was Unimax’s article 78 proceeding in the Appellate Division, Third Department, pursuant to Tax Law § 1090. Its petition claimed that "in computing its 'entire net income’, [it] was entitled to deduct the entire amount of interest paid on funds borrowed from unrelated third parties” (emphasis added). However, the prayer for relief and Uni-max’s submissions and argument to this Court unmistakably clarify that Unimax’s challenge to the deficiency determination is more circumspect. The precise relief Unimax seeks is a judgment declaring that the Department audit guideline, which expressly prohibits aggregate offsets, is arbitrary and capricious. In consequence, it asks that the Department be directed to net the advances to Unimax from its subsidiaries against the advances Unimax made to other subsidiaries, in calculating the indirect attribution percentage.

The Appellate Division confirmed the determination of the Tax Appeals Tribunal, with two Justices dissenting. The majority concluded that Unimax’s aggregate, netting-of-loans theory was contrary to Tax Law § 208 (9) (b) (6) and its accompanying regulations, and rejected Unimax’s argument that the Department’s audit guideline was not promulgated in accordance with the requirements of the NY Constitution, article IV, § 8 governing rules and regulations. An appeal as of right to this Court followed.

At the outset, we recognize that the parameters of judicial review of the Department’s audit guideline are narrow. No one questions the authority of the Department to issue appropriate implementing guidelines. The language of Tax Law § 208 (9) (b) (6) offers a flexible regime: "Entire net income shall be determined without the exclusion, deduction or credit of: * * * in the discretion of the tax commission, any amount of interest * * * and any other amount directly or indirectly attributable as a carrying charge or otherwise to subsidiary capital or to income, gains or losses from subsidiary capital.” Thus, unless the statute requires an aggregate offset of loans from a parent corporation to its subsidiaries with loans from the subsidiaries to the parent when calculating the interest expense indirectly attributable to subsidiary capital, the choice of the allowable method of calculation is reposed in the Department. The Legislature did not require aggregation and explicitly granted the Department the authority to determine the method of calculation. The Department’s methodology is thus entitled to deference, provided it is not irrational or unreasonable, and does not contravene or impede the specific legislative intent of the governing statute (see, Matter of Ansonia Residents Assn. v New York State Div. of Hous. & Community Renewal, 75 NY2d 206, 213, quoting Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451, 459; Matter of Colt Indus. v New York City Dept. of Fin., 66 NY2d 466, 470-471; Matter of Great Lakes-Dunbar-Rochester v State Tax Commn., 65 NY2d 339, 343).

Deference is warranted even if a "fairer” methodology, i.e., one that reduces the amount of interest expense disallowed, exists and could have been adopted. As we have recognized:

"[I]t seldom suffices, and is often immaterial, in the resolution of tax controversies to demonstrate that in application a particular statute or regulation works even a flagrant unevenness. (Cf. Matter of Grace v New York State Tax Comm., 37 NY2d 193.) That a 'fairer’ taxing formula might have been adopted is of no moment. Indeed, in the application of tax statutes, unlike many other statutes, it cannot be assumed that when the Legislature designed the particular statute it had either a specific or even a general desire to achieve a fair or balanced formula. The objective may well have been the production or allocation of optimum revenue, and the particulars of the statute may have been responsive to that objective rather than to any other.” (Matter of Long Is. Light. Co. v State Tax Commn., 45 NY2d 529, 535-536.)

Thus, the assertion of the Administrative Law Judge heavily relied upon by the dissenters that the audit guideline at issue here is " 'designed to reap the highest amount of tax possible’ ” (dissenting opn, at 148) and "serves only to maximize tax liability” (dissenting opn, at 150) does not affect our analysis.

The Department’s audit guideline, which expressly limits offsets to a subsidiary-by-subsidiary basis, plainly does not contravene the language of Tax Law § 208 (9) (b) (6). That section, as noted, requires that interest expenses from third-party loans which are either directly or indirectly attributable to subsidiary capital must be added back to the corporation’s "entire net income” figure. The thrust of the statute is to recapture taxable income and bar inappropriate deductions. "Subsidiary capital” is defined, in Tax Law § 208 (4) (a) and the accompanying regulations (20 NYCRR 3-6.3 [a]), as the corporate taxpayer’s investment in shares of its subsidiaries’ stock and the amount of indebtedness owed to the taxpayer from its subsidiaries. On its face, the statute does not require even the limited offset allowed by the guideline, and surely does not authorize, much less require, aggregate netting of parent-to-subsidiaries-to-parent loans. Thus, rather than "arbitrarily inflating the total of the taxpayer’s investments in its subsidiaries” (dissenting opn, at 150 [emphasis added]), the limited offset allowed by the guideline reduces the "investment in subsidiaries” figure below that required by statute. In sum, the statutory language fails to support Unimax’s claim that the only correct application of Tax Law § 208 (9) (b) (6) requires recognition of an aggregate net offset approach.

The Department’s subsidiary-by-subsidiary approach, moreover, does not contravene the legislative objective of § 208 (9) (b) (6): "to prevent a parent corporation from obtaining a double tax benefit by taking a deduction for interest payments on loans incurred for directly or indirectly financing investments in subsidiaries while at the same time the parent’s income derived from such investments is tax free”. (Matter of Woolworth Co. v State Tax Commn., 126 AD2d 876, 877, affd on mem at App Div 71 NY2d 907, supra [emphasis added].) Unimax has not carried its burden of demonstrating how the audit guideline, which allows only a limited offset on a subsidiary-by-subsidiary basis, somehow frustrates or violates the statutory prohibition on a corporate taxpayer retaining a double tax benefit. On the contrary, the aggregate netting rule which Unimax asks us to adopt would permit corporate taxpayers, by a variety of accounting artifices, to reduce their indirect attribution percentages and retain higher levels of interest expense deduction, in violation of the statute and its over-all purpose. Even assuming, as the dissenters contend, that Unimax’s aggregate netting approach "completely fulfills” the legislative purposes (dissenting opn, at 150), the Legislature vested the Department with the discretion to choose between alternative means of calculating the indirect attribution percentage. That choice, as we have previously noted, may not be usurped by the courts in the name of fairness.

The facts that Unimax was a net borrower in relation to its subsidiaries taken in the aggregate, and that Unimax’s loans to its subsidiaries were interest-free, fail to "indisputably” establish, as Unimax claims, that third-party loans to Unimax in the current or prior taxable years did not flow to its subsidiaries and that indirect attribution of third-party interest pursuant to the Department guideline was therefore irrational or arbitrary. While Unimax may not have received a full, double tax windfall in the form of tax-free interest on its loans to subsidiaries, the purpose of the statute is to prevent windfalls resulting from any "income derived from such investments [in subsidiaries]”, whether received as interest on loans or, for example, dividend income (Matter of Woolworth Co. v State Tax Commn., 126 AD2d 876, 877, affd on mem at App Div 71 NY2d 907, supra). Moreover, the absence of a direct route from Unimax’s third-party loan proceeds to its subsidiaries does not affect the determination whether those proceeds were used to indirectly finance investments in any one of the subsidiaries and to generate tax-free income to the parent.

No doubt due to the fact that many loan proceeds and transactions cannot be directly or easily traced to subsidiary capital, the Legislature authorized the Department to estimate the amount of indirectly attributable interest expense to be deducted or disallowed. That measurement is necessarily imprecise. The formula adopted by the Department measures the amount of interest expense deemed indirectly attributable to subsidiary capital by looking to the manner in which the corporation allocated its assets; namely, its investments in subsidiaries compared to its total assets. Unimax does not question the validity of this sensible and authorized quotient or argue that it is irrational. Rather, its challenge focuses, as do the dissenters in their hypothetical (dissenting opn, at 150), on a single element of the formula: the calculation of the corporation’s loans and advances. However, this narrow focus ignores the interplay between the loan element and various other elements of the formula, including investments in subsidiary stock, paid-in capital and, most importantly, the calculation of total assets, as well as the interplay with other discretionary audit guidelines. Consideration of that interplay is critical to assessing the rationality of the limited offset allowed by the challenged guideline. We conclude that we have been presented with no basis for concluding that the guideline is arbitrary, capricious, irrational or without foundation in a realistic taxing and business context.

To be sure, Unimax’s subsidiaries could have advanced funds directly to each other rather than through their common parent, Unimax, resulting in a lower disallowance of Unimax’s interest expense deduction. For whatever reason, Unimax chose to structure its intersubsidiaries’ lending network in the manner in which it did, resulting ultimately in a higher disallowance. However, the applicable taxing statutes unambiguously state that "indebtedness from subsidiaries” (emphasis added) is a factor in the disallowance calculation under Tax Law § 208 (9) (b) (6) (Tax Law § 208 [4] [a]). The courts lack any reasonable basis to conclude now that Unimax had no reasonable notice of the tax consequences of the business lending risks and accounting practice approach it chose.

Finally, we have considered Unimax’s constitutional challenge to the Department’s promulgation of the audit guideline and conclude that the argument is without merit for the reasons stated in the opinion by Justice Mercure at the Appellate Division (165 AD2d 476, supra).

Accordingly, the judgment of the Appellate Division should be affirmed, with costs.

Hancock, Jr., J.

(dissenting). The majority holds that the limited subsidiary-by-subsidiary offset method prescribed in the audit guideline is rational because it is not specifically prohibited by Tax Law § 208 (9) (b) (6) and is not inconsistent with the purpose of that section. This reasoning proves nothing. Indeed, the netting approach urged by Unimax also fully complies with the statutory language of section 208 (9) (b) (6) and furthers the purpose of that section. The majority never addresses the only question in the case: whether the additional and gratuitous disallowance of interest deductions— which results from use of the audit guideline’s subsidiary-by-subsidiary approach rather than the netting approach — has any rational relation to the statutory purpose of preventing parent corporations from obtaining a double tax benefit. The majority’s only argument is that because this additional unmandated disallowance is not prohibited, it must be within the Tax Department’s discretion. But even the Tax Department’s discretion cannot encompass the use of an audit guideline which bears no relation to any statutory purpose and arbitrarily disallows valid exclusions from corporate net income. Thus, we agree with the conclusion of the Administrative Law Judge below that the audit guideline "is nothing but an arbitrary measure designed to reap the highest amount of tax possible.”

I

A summary of the relevant statutes and Department guidelines is helpful in understanding this case. Under the State franchise tax on business corporations (Tax Law art 9-A), a franchise tax is imposed on a corporation’s entire net income, which is generally the same amount reported as Federal taxable income modified by additions and subtractions prescribed by State statute. A corporation may exclude from its net income the "income, gains and losses from subsidiary capital” (Tax Law § 208 [9] [a] [1]). Also, a corporation, as under Federal law, may deduct interest expenses incurred from third-party loans (see, Internal Revenue Code [26 USC] § 163 [a]). Absent a statute, under these two provisions, where a corporation has invested borrowed money in the capital of a subsidiary and derived income from its subsidiary, a double tax benefit would result from the parent’s deduction of the interest paid on the loan and the parent’s concurrent exclusion of the income from its subsidiary that was derived from the invested third-party loan (see, Matter of Woolworth Co. v State Tax Commn., 126 AD2d 876, 877, affd 71 NY2d 907). Tax Law § 208 (9) (b) (6) prevents this double benefit by prohibiting a parent corporation from excluding from its entire net income its third-party interest payments to the extent that the third-party loans were attributable, directly or indirectly, to a corporation’s investment in its subsidiaries.

When borrowed funds cannot be directly traced to specific investments in a subsidiary, the Department guidelines calculate the interest indirectly attributable to subsidiary capital by the following formula:

Investment in Subsidiaries Gross Interest indirectly
- X Interest = attributable to
Total Assets Expense subsidiary capital

This formula is based on the reasonable assumption that each corporate asset shares the cost of third-party loans in proportion to its value. Thus, the greater the amount of a corporation’s investment in its subsidiaries, the greater the amount of interest indirectly attributable to subsidiary capital, and the lesser amount of interest that may be deducted.

A corporation’s investment in its subsidiaries consists of the aggregate of three components: (1) investments in subsidiary stock, (2) paid-in capital, and (3) loans and advances (see, Tax Law § 208 [4]). The only issue in dispute is the Department’s method for calculating the third component, the loans and advances to subsidiaries. The challenged guideline for determining the loan component of subsidiary investment, which was first issued in June 1983, at least four years after the tax years in question, provides:

"In determining the amount of loans and advances, loans and advances to the parent by one of its subsidiaries may be offset against loans and advances to such subsidiary. At no time may loans and advances from a subsidiary reduce loans and advances from the parent to an amount lower than zero (0). Loans and advances to the parent may not be offset against capital stock or against loans and advances to any other subsidiary” (emphasis added).

In other words, the guideline forbids netting the amount of a parent’s loans to one subsidiary with the amounts loaned to the parent by any other subsidiary.

II

We agree with the Administrative Law Judge below that the guideline’s prohibition against netting loans and advances between the parent corporation and all its subsidiaries is irrational and serves only to maximize tax liability by arbitrarily inflating the total of the taxpayer’s investments in its subsidiaries and, thus, reducing the interest deduction that the taxpayer would otherwise enjoy. An example will serve to illustrate the effect of the guideline. If Unimax lends $20 to subsidiary A, and then borrows $15 back from the same subsidiary A, under the guideline it has loaned $5 to its subsidiaries. If Unimax lends $20 to A and borrows $15 from a different subsidiary B, under the guideline it is instead deemed to have loaned $20 to its subsidiaries despite the obvious economic reality that Unimax has loaned only $5. Instead of deductible interest attributable to $5 worth of third-party loans being disallowed, interest attributable to $20 worth is disallowed although the financial position of the corporation and its subsidiaries is the same in each example. The guideline is arbitrary because it requires such disparate results based on functionally equivalent financial transactions.

In both examples, the over-all economic effect of the transactions is that the parent corporation has loaned $5 to its subsidiaries. As previously discussed, the sole purpose of Tax Law § 208 (9) (b) (6) is to prevent a double tax benefit by disallowing the interest costs from outside loans that are attributable to a parent’s loans to its subsidiaries. In both cases, disallowing the interest deduction on the $5 the parent loaned to its subsidiaries completely fulfills the purpose of section 208 (9) (b) (6). Disallowing the interest on the additional $15 in the second example can have nothing to do with the already fulfilled statutory purpose and can serve only to gratuitously increase the parent’s tax liability.

The irrationality of the guideline’s subsidiary-by-subsidiary method may be further demonstrated. The Department and the majority concede that if a Unimax subsidiary loaned money directly to another subsidiary, rather than having the same loan pass through Unimax, the loan would have no effect on the section 208 (9) (b) (6) disallowance of deductible interest; whereas, as seen, the opposite would be true if the loan passes through the parent. Put another way, if subsidiary A loans $20 directly to subsidiary B, Unimax’s interest deductions are not affected. But if the same loan passes through Unimax, the guideline deems that Unimax loaned $20 to its subsidiaries and requires that the interest cost on outside loans attributable to that $20 cannot be deducted. Where subsidiary A passes the $20 loan to subsidiary B through the corporation acting as a clearinghouse, instead of sending it directly to subsidiary B, no rational reason exists why the corporation’s tax liability should increase. The application of a tax methodology which produces such unreasonable results is arbitrary (see, Matter of Wurlitzer Co. v State Tax Commn., 35 NY2d 100, 106). In contrast, under the netting approach, in both examples, Unimax’s interest deductions would not change because Unimax’s investment in its subsidiaries has not changed.

The majority’s only claim is that the guideline is rationally related to the purpose of section 208 (9) (b) (6) because it is not prohibited by the statute and does not frustrate the purpose of preventing a double tax benefit. Stated in the affirmative, the majority’s argument reduces to this: because the statute’s purpose is to disallow certain interest expense deductions, any audit guideline which at least achieves this purpose is rational even if it goes beyond it by disallowing interest deductions which are not required. In other words, because disallowing x amount is alright, disallowing more than x must be alright. However, nothing in the statute supports the majority’s argument because, by any construction, the only purpose of the statute can be to exclude a corporation’s deduction of the interest costs from outside loans to the extent that these loans are reloaned by the corporation to its subsidiaries and thus increase the corporation’s over-all subsidiary investment.

The majority misconstrues our argument as focusing on the obvious unfairness of the guideline (majority opn, at 144^145, 146). To be sure, the guideline is unfair, but that is not the point. Our point is merely that the majority offers no explanation of how the guideline’s mandated subsidiary-by-subsidiary method is in any way related to the purpose of section 208 (9) (b) (6). By contrast, the netting method completely fulfills the purpose of the statute by disallowing the interest deduction only on outside loans which can be attributed to a parent’s net loans to its subsidiaries. The guideline’s disallowance of interest deductions beyond this point serves no statutory purpose and, therefore, lacks any rational basis.

Accordingly, we dissent and would reverse the Appellate Division order and remit the matter to the Tax Appeals Tribunal.

Chief Judge Wachtler and Judges Simons and Kaye concur with Judge Bellacosa; Judge Hancock, Jr., dissents and votes to reverse in a separate opinion in which Judges Titone and Alexander concur.

Judgment affirmed, with costs.

       Contrary to the majority’s suggestion, neither the dissent nor Unimax is "ignorpng] the interplay between the loan element and various other elements of the formula” (majority opn, at 147). We simply recognize the conceded fact that the other subsidiary investment components are not in dispute and thus are not relevant to the analysis.