Sales Tax Cases from the TiNY Blog for the Week of March 25, 2021

Here are the sales tax cases from the TiNY blog for the week of March 25, 2021.

Matter of Stamatelos; Supervising ALJ Friedman; Division’s Rep.: Adam Roberts; Petitioner’s Rep.: pro se; Articles 28 and 29 (by Joe Endres)

There’s nothing particularly noteworthy about this “timy.” From the $1,329.48 of tax at issue, to the boring recitation of the Division’s mailing procedures, to Petitioner’s failure to respond to the notice of intent to dismiss the petition, this case is the DTA equivalent of the high school voodoo economics lecture in Ferris Bueller’s Day Off:  The Division provided evidence of its standard mailing procedures and that those procedures were followed in this case. As a result, the ALJ decided to do what with this petition? Anyone . . . . . . . . ? Anyone . . . . . . .? Dismiss it.

Matter of Yungasi, Inc.; Judge Behuniak; Division’s Rep.: Mary Humphrey; Petitioner’s Rep. Afame Onwuka; Articles 28 and 29 (by Joe Endres)

The most noteworthy aspect of this case is the speed with which it moved through the administrative appeals system. Petitioner filed an application to register for a sales tax certificate of authority on January 14, 2021. The Division issued a notice of proposed refusal to issue the certificate on January 25, 2021 indicating that Petitioner had unpaid New York State withholding tax debts consisting of both assessments subject to collection and unfiled tax returns. At the hearing, Petitioner, represented by its COO and president, conceded that it owed the liability, but, somewhat vaguely claimed that Wells Fargo Bank should be liable for the debts due to its failure to honor a contract with Petitioner. The ALJ found that “[a]lthough petitioner may have separate legal rights to seek redress against a third party if said party inappropriately limited petitioner’s access to its funds to pay tax debts, such circumstances do not absolve petitioner from the consequences of failing to timely pay its liabilities to the Division.” In other words, the ALJ’s reasoning can be summed up by another one of my favorite movie quotes: “Hey, my name’s Paul and this is between y’all.” Extra credit for the first of our twelve (or so) readers to email me with the correct movie – no using Google or any other electronic search engine!

Matter of Flair Beverages Corp.; Judge Connolly; Division’s Rep.: Stephanie Scalzo; Petitioner’s Rep. Isaac Sternheim; Articles 28 and 29 (by Joe Endres)

This case presents a pretty interesting saga that pits an “old-school” way of doing business against the Division’s modern, technology-based methods for finding audit targets and conducting audits. Here, Petitioner operated a “cash and carry” alcoholic beverage wholesale business. Considering that I’m not that “old-school” myself, I was grateful when the Judge explained that this meant Petitioner “does not make deliveries, does not accept credit cards or checks, and maintains no accounts receivable.”

TiNY Sidebar: Mr. Doyle is so “old-school” that not only did he immediately know what “cash and carry” meant, he also regaled the TiNY editorial staff with recollections from the 70s when older cars didn’t have seat belts, and you could “cash and carry” a six-pack from a drive-through window on your way home from work!! This Gen X’er is amazed any Boomer survived into adulthood!

Ok, back to the case. Well, this “old-school” way of doing business ran into some issues with the Division’s “new-school” reliance on information technology. The Tax Law requires alcoholic beverage wholesalers to file annual electronic informational returns detailing their nontaxable sales through the Tax Department’s website. The Judge noted that “the Division uses the sales information reported on the information returns to determine the purchases of the sales tax vendors to whom the wholesaler sold the product in order to help it determine the accuracy of the taxable sales reported by the vendors.” In other words, the Division uses this information to find vendors who are purchasing more product than they claim to be selling.

I’m not going to detail the long saga of the history of these informational returns and myriad problems Petitioner experienced when trying to implement some type of tracking mechanism, though I found it to be an interesting read. Suffice to note that Petitioner went a long time without filing its informational returns and that the Division used this as the basis for revoking its sales tax certificate of authority.

Petitioner’s main argument against revocation centered on the fact that it did not “willfully” evade the requirement. Petitioner argued that it spent tens of thousands of dollars attempting to put systems in place to allow compliance, and it noted the especially high compliance burden placed on the business due to its high volume of sales. The Judge, however, relied on Court of Appeals case law to interpret “willful” to mean “knowingly, deliberately and voluntarily” and “something more than accidental” inaction. The Judge concluded that given the large volume of business conducted by Petitioner, and the more than 10 years during which Petitioner knew of the requirement but did nothing, Petitioner’s actions were willful and thus the revocation of its certificate of authority was a proper remedy.

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