TiNY Report for August 31, 2017 (covering DTA cases issued the week of August 21)

The Division of Tax Appeals started the inexorable march to the end of summer and the long Labor Day weekend by issuing one decision, two determinations and an ALJ order. And since I brought up Labor Day, let me offer my thanks to the staff at the Hodgson Russ LLP SALT group, who always try their hardest to make it easier for me and the rest of our SALT lawyers to serve our clients. Particular thanks go to my assistant Linette, who has been my gatekeeper for more than twenty years. 

TAX APPEALS TRIBUNAL DECISION

Matter of Feliciano; Division’s Rep: Linda Jordan; Taxpayer’s Rep: Pro Se; Article 22.  The Tribunal upheld the ALJ’s determination that the ALJ properly dismissed the Petitioner’s protest of two Notices of Deficiency as untimely filed. For the first Notice, the Tribunal agreed with the ALJ that the Division sufficiently proved its standard mailing procedures and that they were followed to mail the Notice to the Petitioner’s last known address. For the second Notice, the Tribunal agreed with the ALJ that the Division proved actual receipt of the Notice by the Petitioner. The Petitioner was found to have filed her DTA petition after the Notices’ 90-day limits expired.

ALJ ORDER

Matter of Penn; Judge Gardiner; Division’s Rep: Christopher O’Brien; Taxpayer’s Rep: Pro Se; Article 22. In following-up on a Notice of Intent to Dismiss, the Judge determined that the Division sufficiently proved its standard mailing procedures and that they were followed in mailing the Notice to the Petitioner’s last known address. The Petitioner was found to have filed his DTA petition after the 90-day limit expired (the Notice included fraud penalties, so a shorter 30-day deadline may have applied). However, there was an unexplained BCMS request in the record that seemed like it may have been filed before the expiration of either the 30- or 90-day time limits, so the Notice of Intent to Dismiss was withdrawn and the Division was directed to file its Answer.

ALJ DETERMINATIONS

Matter of Wiesen; Judge Gardiner; Division’s Rep: Christopher O’Brien; Taxpayer’s Rep: Pro Se; Article 22. OK. This is not your typical timeliness case. It’s worse. 

Facts found: BCMS issued an Order sustaining the Notice dated October 2, 2015. The Petitioner challenged said Order by filing a DTA petition on January 26, 2016, more than 90 days after the Order. The Petitioner concedes the Petition is late, but says the petition’s tardiness should be excused because his CPA was out of the country. Following a Notice of Intent to Dismiss, the Judge dismisses the case on July 14, 2016, but in doing so, makes no findings of fact about the mailing of the BCMS order—after all, the Petitioner conceded his petition was late. It’s over, right? Nope, the Petitioner filed a timely exception and the Tribunal reversed and remanded on the grounds that the original determination failed to address whether the Division had proven proper mailing of the BCMS Order sufficient to trigger the accelerated determination (i.e. dismissal) process. On remand, the Judge found that the Division proved both its standard mailing practices, that they were followed and that the BCMS Order was mailed to the taxpayer’s last known address on October 2, 2015. I’d like to never need write about this case again. But I expect this pro se Petitioner has one more exception to play.

Matter of Catalyst Repository Systems; Judge Friedman (for the hearing) and Judge Law (for the determination); Division’s Reps: Clifford Peterson and Ellen Roach; Taxpayer’s Reps: Stephen Solomon and Kenneth Moore; Article 9-A.  And our final offering for today is a juicy article 9-A interpretation case involving the differentiation between: (1) receipts from the provision of services (which were, for the years at issue, sourced to where the services were performed); and (2) other business receipts (which were, for the years at issue, sourced to where the receipts were earned). This is a worthy read, though it travels the same path as Matter of Expedia (ALJ Feb. 5, 2015) and Matter of Checkfree Services (ALJ  Jan. 5, 2017).  

Petitioner CRS was involved in providing document management and litigation support to its clients.  It performed this activity through the use of the internet, co-location technology platforms in Colorado, and other Colorado-centric assets and employees. It had clients world-wide, including in New York. The clients utilized the Internet to access the Colorado system in order to process, search, sort, filter, organize and retrieve the client’s own data. Although the vast majority of CRS’s employees were in Colorado, there was an employee in New York who did solicitation. As it had in Expedia and Checkfree, the Division argued that CRS earned “other business receipts” from its activities since the human involvement in its money-making activities was de minimis. “Other business receipts” are sourced to the location of the purchaser. The Division posited that its long-standing policy is to treat receipts from automated activities as generating other business receipts, and that policy should be given deference unless it was unreasonable. According to the Division, only those activities involving a significant human element should be treated as services, the receipts from which would be sourced based on the location of performance. Thus, argued the Division, CRS receipts should be treated as other business receipts sourced to the location of the client.

Judge Law disagreed. First he ruled that the standard of review for cases involving statutory interpretation is de novo and that an ALJ was in no way compelled to give the Division’s interpretation any deference whatsoever. Then the Judge held that the statutory language did not limit the term “services” to only those services performed by humans, and that CRS’s activities were “services” under the ordinary meaning of that word. The Judge ultimately determined that since the services were performed in Colorado, the receipts for those services should be sourced there.

Editorially, one might ask the question: Why isn’t the Division taking these cases to the Tribunal to get a decision that would provide clarity and be binding on the Division and taxpayers?

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