Only thing I can figure is that he was holding out for an airport fare. Give that it was raining pretty hard, this was kind of annoying.
As stated by OP, shorter journeys within Manhattan tend to be more profitable. The main reason is that once in an outer borough, it takes longer to find a fare to get the cab back in Manhattan. So they either burn time and gas looking for the right fare, or they burn time and gas driving back to Manhattan empty.
> Does NYC deny this 1.5x for further journeys?
There are myriad rules and fare schedules for journeys outside NYC, airports, etc. The 5 boroughs are within NYC, and this is what OP is addressing.
The problem was the cab drivers at SFO are looking to get a $40 fare back to the city, not a local $10 drop off. I've had a driver refuse to take me once (I now know better). In NYC taking a fare to the outer boroughs is usually a one way trip, you're going to have to dead head it back to Manhattan which is time lost.
http://www.nyc.gov/html/tlc/html/passenger/taxicab_rate.shtm...
You have to pay $2.50 just to get in the cab in the first place, no matter how far you go. Thus, it is much better for the driver to do multiple short trips. It also means that longer trips are actually affordable for riders.
For example it is very common in England for "distance and a half" fares to be invoked when journeys are outside of a particular region. This is in place so that if a cab driver takes you to "Stixwich" they're not out of pocket on the drive back since there are likely no return fairs from that point. Does NYC deny this 1.5x for further journeys?