TiNY Report for April 5, 2018 (covering DTA cases from March 29)

This week we have one short Tribunal Decision on a timeliness issue.  Which is good, because I’ll need the extra time to digest the Budget which passed in both houses of the Legislature late Friday night (as of this writing, it doesn’t appear it has been signed by the Governor yet).

TRIBUNAL DECISION
 
Matter of Meltzer; Division’s Rep: Mary Hurteau; Taxpayer’s Rep: pro se; Article 22.  The ALJ dismissed the petition for lack of jurisdiction.  The petition was filed several years after the mailing of the Notices of Deficiency at issue, and six months after the mailing of the Notice and Demand.  The Tribunal affirmed the ALJ’s determination that the Division of Tax Appeals had no jurisdiction to address the Notice and Demand.  With respect to the challenges to the Notices of Deficiency, the Tribunal agreed with the ALJ that the Division proved both its standard mailing practices and that they had been followed when mailing the three Notices of Deficiency to Petitioner’s last known address.  Since Petitioner had filed her Petition several years after the Notices had been mailed, the Tribunal agreed with the ALJ that the Petition was untimely.  The Tribunal ruled it was immaterial whether the Notices had actually been received by the Petitioner.

FAKE NEWS!

And because it is a light week and Sunday was April 1, I have dug out of the TiNY archives the following faux-report I sent around to my Hodgson Russ SALT colleagues back on April Fool’s Day, 2016:

The DTA issued a slew of determinations and decisions last week; really too many to cover today.  So here are the highlights, and I’ll follow up later with a full report:
 
First, two of the twelve (!) DETERMINATIONS:
 
The petitioner in Matter of Soup-to-Nuts Deli operated a sandwich shop at New York City’s Psychiatric Health Facility on Ward’s Island.  It paid rent to the charitable organization that owned the facility, and the rent included (as part of the fixed monthly charge) maintenance and cleaning.  On audit, the Division asserted that the entire rent was subject to sales tax since real property maintenance provided by charitable organizations is not exempt as the result of a 2008 law change.  As the maintenance charge was not separately stated, the entire rent was “cheese-boarded” by the auditors into one big taxable receipt.  Among other arguments, Petitioner disputed the imposition of the tax since the last audit for the business in 2005 ended in a “no-change,” the Department had not sent the business a notice of the 2008 law change, and in any case it was unfair to tax any portion of the rent since most of it was, well, for rental of real property.  In a fairly succinct determination (just three conclusions of law), the ALJ agreed with Petitioner, finding that the end result of the transaction was the rental of real property and that the maintenance and cleaning services were a relatively inconsequential part of what was being provided.  Accordingly, the $3.2 million assessment was canceled in its entirety.
 
Matter of 4-UR-Convenience Store involved a mostly cash business in Clarence that was found to lack adequate records.  During the audit (but not at the hearing) Petitioner produced “Z-out” tapes, daily tapes including every transaction for the entire audit period, monthly bank statements, full financials including a general ledger, and all purchase documents including order forms and vendor invoices.  But since the Convenience Store (oops, I mean “Petitioner”) did not produce the guest checks requested by the auditor, the Division resorted to an indirect audit methodology.  The method used applied a rent-factor from a KPMG study of restaurants in New York City to determine Petitioner’s gross sales.  At the hearing, Petitioner’s representative argued that the assessment lacked a rational basis. 

The ALJ sustained the assessed liability of $307,112.  The most relevant quote:  “Clearly, the Division thought the petitioner was a restaurant since it asked for guest checks.  It was the petitioner’s failure to provide those guest checks (through no fault of the Division) that led to the use of the indirect audit method at issue here. . .  It is not the Division’s burden to show that the indirect method it used was reasonable.  It is the petitioner’s burden to show it was not reasonable through clear and convincing evidence.  The petitioner has not shouldered this burden.  If the petitioner had put on a witness or produced documents at the hearing showing that it was not a restaurant in New York City, this ruling may have been different.  But one cannot simply assume that the petitioner was a convenience store merely because that is its name.”  I think you all can guess which “sales tax expert” represented Petitioner at the hearing and did not put on a single witness or introduce any documents.
 
And now two of the four Tribunal DECISIONS:
 
The Tribunal affirmed in part and reversed in part an ALJ determination in favor of the Division in Matter of Tompkins-Hardesty.  Petitioner was a passive 2% member in an LLC that owed sales tax.  In accordance with the policy reflected in TSB-M-11(17)S, the Division assessed Petitioner 2% of the LLC’s liability.  Because the ALJ found that (1) the liability was reported by the LLC to Petitioner in periodic financial statements, and (2) the Petitioner did nothing to see to it that the liability was paid, the ALJ also sustained penalties.  The Tribunal affirmed the decision as to the tax due but reversed on the penalties.  “The petitioner testified that she was aware there had been several legislative attempts to limit the liability of passive LLC members.  At the time that she failed to take action to compel the LLC to pay the sales taxes owed the petitioner understood it was possible that such a law change could pass, and if it did pass it was possible that it would have a retroactive effective date.  In Caprio v. Commissioner  [citation omitted], the Court of Appeals found that taxpayers have no reasonable expectation that the tax laws will not be changed retroactively.  A logical corollary is that the Division likewise has no reasonable expectation that the Tax Laws won’t be changed retroactively.  Given that both the Division and the petitioner had no reasonable expectation (i.e., at the time petitioner failed to compel the LLC to take action) that the Tax Law would not be changed retroactively to negate the petitioner’s liability as a passive LLC member,  it was not unreasonable for the petitioner to refrain from taking action [and therefore the imposition of penalties is inappropriate].”   The Decision is a little convoluted, but I certainly can see where the Tribunal is coming from.
 
And here’s something that I’ve never seen before:  An opinion attributed to one of the Commissioners with the other two concurring.  In Matter of Lickspittle Petitioner sought cancellation of the proposed suspension of his license as a result of some old tax liabilities.  Petitioner alleged that he did not receive the Notices assessing the tax, knew nothing about the assessments, and was a good law-abiding citizen.  But, as we have seen many times in the past, Petitioner failed to allege one of the six explicit statutory grounds for avoiding suspension.  After Commissioner Nesbitt addressed all of the formalities (i.e., issue, facts, determination of the ALJ, position of the parties on exception), the remaining opinion was TWO sentences written in all caps:  “PETITIONERS WHO DO NOT ALLEGE ONE OF THE SIX STATUTORY DEFENSES LOSE.  YOU LOSE.”   Commissioners Tully and Mosely Nero joined in an even briefer opinion:   “We concur in the result only.”

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