TiNY Report for January 16, 2020 (covering DTA cases issued January 9)

This week we have a handful of sales tax cases, much to Joe’s delight. Since some of them are less-than-exciting timies, we decided to let him off easy and spread the cases around this week, so you’ll get a bit from each of us. Unlike Joe (did we tell you that he likes sales tax . . . a lot?), we expect you’ll be able to contain your enthusiasm.

Also, from the DTA’s website:

“This year, Roberta Moseley Nero [President of the Tax Appeals Tribunal] received the Lawrence L. Lasser award in recognition of outstanding service to the National Conference of State Tax Judges at its annual meeting of state tax judges and tax tribunal members. This meeting is sponsored by the Lincoln Institute of Land Policy, a nonprofit organization that seeks to improve quality of life through the effective use, taxation, and stewardship of land. The award is named for Lawrence L. (Larry) Lasser, the first Presiding Judge of the Tax Court of New Jersey and one of the founders of the National Conference of State Tax Judges.”

Congratulations President Mosely Nero!

DETERMINATIONS

Matter of Evergreen Gardens, LLC, Judge: Maloney; Division’s Rep: Howard Beyer; Taxpayer’s Rep: Herschel Friedman, CPA; Articles 28 and 29 (by Joe Endres).

Cases like this are always fun! The case presents a pure question of law. All the facts were agreed to and the matter proceeded without a hearing. The sole issue to be determined was whether guard services that are required by law and provided at a construction site that qualifies as a capital improvement are taxable. Simple right? Well, unfortunately for Petitioner, the ALJ thought so. She found the “definitive holding” of a 1996 Appellate Division case required a ruling against Petitioner.

So why did Petitioner bring this case if the binding authority on the matter was so clear? Well, according to Petitioner, the attorneys in the Appellate Division case “could’ve done a better job.” When in doubt, blame the attorney! Petitioner did provide additional authority that had not been issued when the Appellate Division case had been decided. Petitioner cited Matter of L & L Painting Co., Inc. (shameless plug - apparently those attorneys did a better job); the Division’s technical services bureau memorandum titled Sales Tax Treatment of Certain Temporary Facilities, (TSB-M-14(15)S); a technical services bureau advisory opinion, (TSB-A-12(18)S); the Division’s Taxpayer Guidance Division tax bulletin (TB-ST-400) that explains how sales and use taxes apply to interior decorating and design services; and documentation relating to the fact that Petitioner had been granted a refund for taxes paid on interior design services related to the construction project because these otherwise taxable services ceased being taxable when performed in a capital improvement project.

Unfortunately none of the authority cited by Petitioner dealt directly with the taxability of guard services. In light of the precedential Appellate Division authority, the ALJ concluded: “After review of these cited authorities, I find that none of them support petitioner’s novel arguments."

Finally, though guard services remain taxable in capital improvement projects, it is important to remember that many services are not. Petitioner cited authority confirming the nontaxability of interior design services and temporary facilities (e.g., scaffolding), but many other services are similarly nontaxable, including trash/debris removal (see 20 NYCRR 541.7) and temporary site utility and plumbing services (see 20 NYCRR 541.8).

This case is a good reminder that construction contractors deal with some of the most confusing and fact-specific rules in all of sales tax.

Matter of Samouha; Judge: Gardiner; Division’s Rep: Mary Humphrey; Taxpayer’s Rep: Isaac Sternheim, CPA; Articles 28 and 29 (by Emma Savino).

The Division issued Petitioner a Notice of Determination dated July 22, 2013. Petitioner filed his request for conciliation conference on April 18, 2019 (over 5 years too late). BCMS issued an order dismissing the request as untimely (no surprise there).  Petitioner then filed a timely petition. The Judge found that the Division proved both its standard procedures and that they were followed when it mailed the Notice to Petitioner’s last known address on July 22, 2013. Petitioner failed to respond to the Division’s motion, so all the facts were deemed admitted. And because the petition only alleged that Petitioner did not receive the Notice, rather than that it had not been properly mailed, the Judge sustained the dismissal of Petitioner’s request for conciliation conference as untimely.

Matter of 34^th Street GNG LLC; Judge: Russo; Division’s Rep: Lori Antolick; Taxpayer’s Rep: pro se; Articles 28 and 29 (by Emma Savino).

Petitioner filed an application to register for a sales tax certificate of authority, which indicated that it was a member-managed LLC with one member, Tareq Ahmed, owning 100% of the LLC. Mr. Ahmed was also listed as the responsible person of Petitioner on the application. The Division responded to the application by issuing a notice of proposed refusal because Mr. Ahmed had unpaid sales tax debts and enclosed a consolidated statement of liabilities showing a balance owed of over $825,381.24. Petitioner timely filed a petition challenging the Division’s proposed refusal of the application for a certificate of authority.

At the hearing, the Division provided an affidavit of a Taxpayer Services Specialist I Trainee (really, a trainee was the most authoritative person they could find?) which stated that, cumulatively, the notices issued to Mr. Ahmed had a balance of $845,453.03, of which $815,755.01 were subject to a collection action. Mr. Ahmed did not contest that he is a 100% owner or that he had outstanding tax liabilities. Rather he alleged that if he did not received a certificate of authority, he would be unable to generate income to pay the outstanding tax debts and would instead be paying the minimum payments “for the rest of his life.”

Under Section 1134 of the Tax Law, the Commissioner may refuse to issue a certificate of authority where there is an outstanding tax liability from an officer or member of the requesting LLC who is required to collect tax on the company’s behalf. Since Petitioner’s president and sole owner had tax liabilities outstanding, the Judge determined that the Division properly denied its application.

ORDERS

Matter of LaMantia; Judge: DiFiore; Division’s Rep: Karry Culihan; Taxpayer’s Rep: Michael Schulman; Articles 28 and 29 and Tax Law § 171-v Driver License Suspension (by Chris Doyle).

The petition asked for a redetermination of a deficiency and for a review of a Notice of Proposed Driver License Suspension (“NPDLS”). The Division made a motion to dismiss or, in the alternative, for summary determination. Judge DiFiore blew that motion out of the water.

The 60-day NPDLS carried a date of October 23, 2014. However, Petitioner claimed to have not received constructive notice of the NPDLS until the DMV, on December 19, 2017, advised Petitioner that his license was going to be suspended as a result of unpaid taxes. The petition challenging the underlying tax liability and the NPDLS was filed by Petitioner on January 24, 2018. The Division moved for dismissal/summary determination on timeliness grounds, asserting that the sales tax liability was “fixed and final” and arguing that the petition challenging the NPDLS was three years too late.

The Judge first considered whether the DTA had jurisdiction to consider the sales tax issues raised by Petitioner. The Judge found that, since the Department failed to produce any evidence of the mailing of the sales tax notice, the DTA had jurisdiction to hear the matter and denied the Division’s motion in that regard.

Then the Judge considered whether Petitioner’s challenge of the NPDLS was timely. And again the Judge found that, in the absence of proof of when the NPDLS was mailed, the Division’s motion for dismissal/summary determination on this issue must likewise fail. In the absence of proof of mailing, the 60-day filing period did not start until Petitioner received the NPDLS on December 19, 2017. And since the petition was filed within 60 days of that date, the Division had failed to establish that the petition was not timely.

The Division also argued that the case should be dismissed because Petitioner failed to allege one of the six statutory defenses to an NPDLS. However, the Judge found that the existence of a past-due liability is “a foundational requirement for” an NPDLS, and absent certainty regarding the existence of a pre-existing tax liability, there was a material factual issue requiring a hearing.

It wasn’t all good news for Petitioner. Judge DiFiore denied the motion “without prejudice,” which is essentially an invitation to the Division to make a new motion with the appropriate evidentiary showing. So Petitioner may still get his license yanked. But not today.

Matter of Capeci et. al; Judge: Russo; Division’s Rep: Osborne Jack; Taxpayers’ Reps: Howard Davis and Amit Shertzer; Articles 28 and 29 (by Chris Doyle).

There have been a number of orders from the Judge on this case in the last month and, in this one, the Judge was forced to consider competing motions. Here’s the backstory: Petitioners filed their petitions. The Division filed its answers. Petitioners sent the Division a Request for Admissions. A request for admissions is supposed to be used to get an opposing party to admit facts that are not likely to be in dispute at the hearing. The opposing party is supposed to reply in twenty days, and if it does not, the facts requested to be admitted are deemed admitted. Well, you probably guessed it, the Division filed its response to the Request for Admissions a few days late. Based on the facts deemed admitted, Petitioners made a motion for summary determination in their favor. The Division countered with a motion declaring the Request for Admissions invalid or for an order allowing the Division to withdraw and/or amend its deemed admissions.

The Judge found that a majority of the requests for admission were for matters that “are clearly in substantial dispute,” could not reasonably be expected to be within the knowledge of the Division, or would require a response that would disclose non-party-taxpayer-secrecy-protected information. As a consequence, the Judge vacated the request for admissions in its entirety. Once the Judge arrived there, the rest of the orders fell like dominos: The Division’s request to withdraw or amend its responses was found by the Judge to have been rendered moot because the request was vacated. And, since Petitioner’s motion for summary determination was based primarily on the facts that were no longer “deemed admitted” by the Division, the Judge denied Petitioner’s motion.