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State and Local Tax Blog

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Taxes in New York (TiNY) is a blog by the Hodgson Russ LLP State and Local Tax Practice Group members Chris Doyle, Peter Calleri, and Zoe Peppas. The weekly reports are intended to go out every Tuesday after the New York State Division of Tax Appeals (DTA) publishes new ALJ Determinations and Tribunal Decisions. In addition to the weekly reports, TiNY may provide analysis of and commentary on other developments in the world of New York tax law.

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TiNY Report for April 19, 2018 (covering DTA cases from April 12)

By on

After last week’s deluge of cases, we’re reporting only one ALJ Determination this week.  Good news for me: it’s not a timeliness or license suspension case!

ALJ DETERMINATIONS

Matter of Cellco Partnership d/b/a Verizon Wireless; Judge: Law; Division’s Rep: Lori Antolick; Taxpayer’s Rep: Brian Browdy; Articles 28 and 29.  Here is a case that begs the question: “Can you read me now?”

Petitioner argued it was entitled to a refund for $19.1 million of sales tax it paid when it purchased equipment and software for its Orangeburg data facility.  Petitioner posited that the equipment and software were non-taxable under Law § 1115 (a) (12-a) which provides an exemption for:

“Tangible personal property for use or consumption directly and predominantly in
the receiving, initiating, amplifying, processing, transmitting, retransmitting,
switching or monitoring of switching of telecommunications services for sale or
internet access services for sale or any combination thereof. Such tangible personal
property exempt under this subdivision shall include, but not be limited to, tangible
personal property used or consumed to upgrade systems to allow for the receiving,
initiating, amplifying, processing, transmitting, retransmitting, switching or
monitoring of switching of telecommunications services for sale or internet access
services for sale or any combination thereof.”

Judge Law sustained the Division’s denial of the sales tax refund.  Citing the maxim that statutes granting exemptions are to be narrowly construed, the Judge found that “the equipment used at the Orangeburg, New York, facility was not necessary nor used to receive, initiate, amplify, process, transmit, retransmit, switch or monitor switching of telecommunications services. Rather the equipment was used for petitioner’s VISION system whose function was to manage customer accounts, rate customer usage, and perform billing functions as well as control access to the network and provide customer service.”    The equipment and software at issue were found to be used to activate new and replacement phones, provide customer service, change service plans, etc.  The argument advanced by Petitioner was, in essence, that the equipment and software at issue created access at the time the phones were purchased or service was initiated or changed, and without the access permitted by the equipment and software, the phones could never communicate over Petitioner’s wireless network.  But Judge Law determined that once activated, the phones could make and receive calls even if the equipment and software at issue were not in operation.  So, the refund denial was sustained. 

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