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Taxes in New York (TiNY) is a blog by the Hodgson Russ LLP State and Local Tax Practice Group. The weekly reports are intended to go out within 24 hours of the Division of Tax Appeals’ (DTA) publication of 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 February 27, 2020 (covering DTA cases issued February 20)

By on

One Determination this week, but it is worthy.


Matters of Nicolla and Rosen; Judge Connolly; Division’s Rep: Christopher O’Brien; Taxpayers’ Rep: Timothy Lynn; Article 22 (by Chris Doyle).

Petitioners claimed  Empire Zone real property tax credits (RPTCs) for their shares of the real property taxes their flow-through entity (the “FTE”) paid in 2012 on 30 Clinton Avenue, which was real estate the FTE owned in an Empire Zone for which it was certified as a Qualified Empire Zone Enterprise (QEZE). No problem, right?


As it turns out, 30 Clinton Avenue was sold by the FTE in August, 2012, and the purchase price paid was adjusted upward to compensate the seller for the amount of the real property taxes that had, in effect, been pre-paid by the seller on behalf of the purchaser. Such an adjustment for taxes previously paid is very common. The Division took the position that Petitioners should not have received RPTCs for the taxes for which the FTE had been reimbursed. The Division probably assumed that the Legislature intended that a taxpayer should only receive RPTCs for taxes if the economic burden fell on the taxpayer.

But Judge Connolly, citing clear statutory language, went in a different direction. Although Judge Connolly paid homage to the rule that taxpayers “bear the burden of showing ‘a clear cut entitlement’ to credits,” the Judge did not write anything like “a taxpayer’s disputed interpretation will be upheld only if it is the only reasonable construction of the statute.” Regular readers know that the DTA’s adoption and use of the “only reasonable construction” (ORC) standard makes my blood boil, and I commend the Judge for not going there. Under the ORC standard a taxpayer prevails only if its interpretation of the statute is shown to be the only reasonable interpretation, and the Division prevails if its interpretation is even just barely reasonable. Admittedly, the Judge ultimately determined that the Division’s interpretation was “unreasonable.” And you may disagree on the basis of semantics (feel free to get your own blog and call it “ANTi-TiNY”), but I think that a minimally-reasonable interpretation of a statute that has 15 more-reasonable interpretations is “unreasonable” per se and should not be condoned. What should always prevail at the DTA is the most reasonable construction. If the taxpayer’s interpretation is the most reasonable construction of the statute, the taxpayer should win, even if the Division posits a lesser—but still reasonable—construction. If faced with equally-reasonable interpretations of a credit statute, I’m OK with the DTA applying a black-jack tie-goes-to-the-Division corollary. Anyway, in this determination the Judge didn’t use the verboten ORC phrase, so I am chalking that up as a win for judicial rationality.

The issue boiled down to whether the entire amount (as opposed to the unreimbursed amount) of taxes the FTE paid were “eligible real property taxes” for which a credit was available under the statute. The Judge quoted the statutory definition, which includes as eligible real property taxes “taxes imposed on real property which is owned by the QEZE and located in an empire zone with respect to which the QEZE is certified . . .  provided such taxes are paid by the QEZE which is the owner of the real property . . . .”  The Judge agreed that under the clear language of the statute, Petitioners were entitled to RPTCs based on the real property taxes the FTE paid on property located in the Empire Zone regardless of whether some of those taxes had been reimbursed. The Division’s argument that the “federal conformity principle” should be applied to read-into the RPTC the tax apportionment provisions of Internal Revenue Code § 164 did not receive any traction from the Judge. Instead, the Judge found that IRC § 164 and the RPTC were enacted for different purposes, were not substantially similar, and had different contexts, and, therefore, he declined to apply the conformity principle. If the Judge needed additional support (and he did not), he could have looked to how the statute treated QEZE landlords. Under those circumstances, the landlords were entitled to treat the taxes they paid as eligible real property taxes even if they were reimbursed in full by their tenants. A QEZE tenant was entitled to treat the payment of taxes as an eligible real property tax only if the tenant paid the tax directly to the taxing authority.

The Judge’s pay-off pitch:  “In sum, the clear language of Tax Law § 15 (b) (1) and (e) supports petitioners’ view that the amount of the RPTC to which petitioners are otherwise entitled in 2012 may not be reduced merely because [the FTE] sold the real property that triggered the credit in 2012. Petitioners have shown that the Division’s attempt to interpret the provision to reach a contrary conclusion is unreasonable and thus must be rejected.

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