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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. 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.  

TiNY Report for January 10, 2019 (covering DTA cases issued January 3)

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Just two ALJ determinations this week.  But no timeliness issues.  So, “yay” for that, I guess.  But as you’ll see, the cases are less interesting than they could have been.

Publication note:  One of our readers suggested that we add links to the cases we summarize.  We thought that was an awfully good idea.  So now when you right-click on the case name, you’ll link to the copy of the case published on the DTA’s website.  Ain’t technology grand?

ALJ DETERMINATIONS

Matters of Hotel Depot, Inc. and Parikh; Judge: Connolly; Division’s Rep: M. Greg Jones; Taxpayer’s Rep: Michael Buxbaum; Articles 28 and 29.  This could have been an interesting case testing the limits of sales tax nexus.  But alas… .

Petitioner Hotel Depot (HD) was a New Jersey-based business selling hotel furnishings, sometimes with installation.  In 2011, HD filed with the Division an application for a Certificate of Authority (i.e. sales tax collector registration) listing Petitioner Parikh (P) as its president and “responsible person.”  The Division rewarded the application by sending HD an invitation to be audited for the six years preceding its application.   HD initially responded that it did not have nexus in New York.  Then the Division asked for HD’s documentation related to a 2006 sale and three 2009 sales allegedly made by HD to a New York hotel.  Some of the invoices provided by HD included charges for window treatments and installation (uh-oh) of same.  Installation would usually create nexus for the installer; so the Division concluded that HD had nexus in New York, and asked for all the records related to New York sales.  The records were received by the Division and were found to provide an adequate basis for performing the audit, and accordingly, the auditors did a detailed audit based on the records. Ultimately, the Division concluded that HD should have collected and remitted tax to New York for 1,675 of the invoices, and issued Notices of Determination to HD and P (as a responsible person) asserting $2.3 million of tax.  HD and P challenged the notices arguing that the audit methodology used was not rational and that P was not a responsible person.

I do not wish to downplay Judge Connolly’s persuasive Conclusions of Law.  But for me, the meat of the case is in just one sentence in the Findings of Fact:   “Petitioner did not present any witnesses or exhibits at hearing.”  

Taxpayers generally have the burden of proof at the DTA.  It is hard to satisfy that burden because the standard of proof requires clear and convincing evidence.  But it is impossible to satisfy the burden of proof when you don’t present any witnesses or exhibits.  

Unsurprisingly, the Judge determined that the Petitioners did not satisfy the burden of proof on either the methodology issue or the responsible person issue and sustained the notices.

Matter of Jackson; Judge: Russo; Division’s Rep: Charles Fishbaum; Taxpayer’s Rep: Larry Johnson; Article 22.  On her New York income tax return Petitioner, a wage-earner, reported $107,000 of wages, $82,000 of New York adjusted gross income (due mostly to a claimed rental loss), and $60,000 of New York itemized deductions including an astonishing $40,000 of “job expenses/miscellaneous deductions.”  The Division reached out to Petitioner to get additional information on the claimed rental loss and itemized deductions.  According to the Judge, “Petitioner did not provide [to the Division] sufficient documentation supporting the claimed job expenses and rental loss,” so the Division denied those deductions, reduced her claimed refund and asserted additional tax of $508.04.  Petitioner challenged the Notice by filing a timely petition with DTA.  The parties agreed to forego the hearing and submit the case based on documents and briefs, and in a variation on this week’s theme:

Petitioner failed to file any documents or brief in accordance with the submission schedule established for this matter.”

After providing a succinct summary of the rules applicable to the deductibility of ordinary and necessary business expenses and the passive loss rules, Judge Russo sustained the denial of refund/assertion of additional tax.  The Judge found that Petitioner failed to sustain her burden of proving entitlement to the deductions because she didn’t produce any proof whatsoever.

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