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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.  

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TiNY Report for January 18, 2018 (covering DTA cases issued January 11)

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We have a cornucopia of stuff to lay on you this week: Three ALJ Determinations, two Tribunal decisions, two ALJ Orders and some other news. Bon appétit!


Matter of Fele; Judge: Gardiner; Division’s Rep: Hannelore Smith; Taxpayer’s Rep: pro se; Tax Law § 171-v Driver License Suspension. Judge Gardiner initially found that the Division followed all the required procedures for issuing the Notice of Proposed Driver License Suspension.  After recognizing that the allegation that “[P]etitioner is unemployed and looking for work” is not one of the six specifically-enumerated defenses against license suspension, Judge Gardiner granted the Division’s motion for summary determination. 

Matter of Front Street Restaurant Corp.; Judge: Gardiner; Division’s Rep: Nicholas Behuniak; Taxpayer’s Rep: Martin Shell; Articles 28 and 29.  Petitioner was an amalgamation of a restaurant and a pizzeria that had been owned and operated separately prior to the amalgamation.  Even though the post-unified entity operated both businesses, the two businesses were supposed to account for and contribute to corporate tax liabilities in accordance with their separate business activities.  One conjectures that there was a falling out, after which Petitioner claimed a refund of the sales tax it had previously paid on the pizzeria side of the business.  Judge Gardiner found that, since Petitioner chose to operate the two businesses under a single corporate umbrella, and inasmuch as the tax paid over by the unified entity had been collected by the unified entity from its customers, it would be inappropriate to permit refunds.

Matter of Singh; Judge: Galliher; Division’s Rep: Barry Weinstein; Taxpayer’s Rep: pro se; Tax Law § 171-v Driver License Suspension/Articles 28 And 29.  This is a convoluted timeliness case involving both an underlying tax notice and a driver license suspension.  The Judge found that the Division properly demonstrated that a Notice of Determination for the underlying taxes was properly mailed to the taxpayer’s last known address on October 14, 2008.  Neither the BCMS request nor the ALJ Petition was filed within 90 days, so the Judge determined that the DTA did not have jurisdiction to hear the substantive tax case.  The BCMS Order upholding the Notice of Proposed Driver License Suspension was found by Judge Galliher to have been properly mailed to the Petitioner’s last known address on August 15, 2014.  Since the Petition was not filed within 90 days of the BCMS Order, the Judge likewise found that the DTA had no jurisdiction to adjudicate the propriety of that Notice.


Matter of Grimm; Division’s Rep: Ellen Roach; Taxpayer’s Rep: pro se; Article 22.  The Tribunal affirmed the ALJ’s decision that Petitioner’s payments for the installation of a geothermal heat pump system did not qualify for solar energy system credits. This very well may be the correct result, but we can’t get behind it.  Both the Tribunal and the ALJ applied the “only reasonable construction” (“ORC”) standard in making their determinations.  We believe that standard should be used only by courts construing final agency determinations regarding tax credits, deductions and exemptions.  The use of the ORC standard by a court in reviewing an agency determination presupposes that the agency analyzed the statute using its specialized knowledge and experience to determine and then apply the most reasonable construction of the statute.  In short, when a reviewing court gives deference to Department of Taxation and Finance interpretation, it implicitly assumes that the DTA (which is a division within the Department of Taxation and Finance) determined and applied the best construction of the statute.  Petitioner’s case may well have failed even if the ALJ and the Tribunal applied the most reasonable construction of the statute.  But since they did not do so, we’ll never know.

Matter of Shamim; Division’s Rep: David Gannon; Taxpayer’s Reps: Arthur Morrison and Irina Herman; Article 22.  Petitioner’s case was summarily dismissed by the ALJ on timeliness grounds.  The Tribunal affirmed the dismissal notwithstanding attempts by Petitioner to introduce arguments and evidence for the first time at the Tribunal that: Petitioner never received the Notice in question, and Petitioner was represented under a Power of Attorney during the audit but the Division never sent the POA a copy of the Notice at issue.  The Tribunal found that the Division proved its standard mailing practices and that it used them to mail the Notice to Petitioner at his last known address.  It found further that it could not consider the new arguments and evidence Petitioner attempted to raise for the first time on exception.


Matter of Snyder; Judge:  Maloney; Division’s Rep: Brian Evans; Taxpayer’s Rep: Jeffrey Reina; Article 40 award of fees and costs.   Remember that poor kid we wrote about in June who was driving the truck filled with unstamped cigarettes and was assessed a $1,259,250 penalty?  Here’s part of what we reported:  “[W]hat would you call a State that engages in what appears to be an illegal search and seizure of the contents of a Native American vehicle transporting Native American cigarettes from one Native American reservation to another and then imposes an entirely disproportionate $1,259,250 penalty on the 22-year old driver (!) for transporting $164,250 worth of un-stamped cigarettes?  That’s right, New York, in this instance you were a hard-hearted Humperdinck. Even if you had been in the right (and the Judge found that you were not) a penalty that is 10 times greater than the value of the cigarettes being transported?  Against a 22-year old (the “kid”)?  Are you pulling my leg?  And, like the Judge, I am not even going to get started on the constitutionality of the search of the truck and the seizure of the cigarettes other than to wonder what remedy an ALJ might apply under such a situation.”

Judge Maloney went one better here, awarding the kid attorneys’ fees of $24,015.00.  Good on you, Judge!  Here’s the passage from the Order that finds the Division’s position was not substantially justified:  “The documentation provided by petitioner and all other information available regarding the traffic stop, the commercial vehicle inspection and the seizure of the unstamped cigarettes clearly showed that ERW Wholesale was a contract carrier engaged in lawfully transporting unstamped cigarettes at the time they were seized on December 3, 2012, and that petitioner was the ERW Wholesale employee, acting within the scope of his employment, transporting the cases of unstamped cigarettes to the Ganienkeh territory. Inasmuch as Tax Law § 481 (2) (b) provides an exemption for common and contract carriers engaged in lawfully transporting unstamped packages of cigarettes as merchandise, and to any of such employee acting within the scope of his employment, the Division’s assessment of the $1,259,250.00 against petitioner was unreasonable. Moreover, the $1,259,250.00 penalty assessed against petitioner was grossly disproportionate to the value of the unstamped cigarettes, i.e., $164,250.00. As such, the Division’s position was not substantially justified, and petitioner, as the prevailing party, is entitled to reasonable administrative costs and litigation costs.”

Everyone seeking fees should review this order because it is instructive on how to prosecute a claim for fees and costs at the DTA.  In the Judge’s place, I might have increased the $75.00 statutory rate to recognize changes in the cost of living that have occurred.  Or maybe I would have gone even further in recognition of the market price for specialized legal services like New York tax representation.  But that is just one nitpick on what was, in total, a great Order for taxpayers. 

Matter of Woodner; Judge: Connolly; Division’s Rep: Charles Fishbaum; Taxpayer’s Rep: Michael Rosensaft; Article 22.   Judge Connolly granted most of the Division’s motion to vacate Petitioner’s request for a Bill of Particulars.  The Division pled, in its Second Amended Answer, that: (1) a particular partnership/partner exchange was a taxable sale and not a tax-free distribution of property; and (2) the transaction should not be respected under the substance over form doctrine, the step transaction doctrine, the business purpose doctrine, or the economic substance doctrine.  The Judge found that, inasmuch as Petitioner—and not the Division—bore the burden of proof on all of the issues, a Bill of Particulars was not an appropriate vehicle.  The Judge determined that the doctrinal allegations were specific enough to put Petitioner on notice as to the general thrust of the arguments being made.  But the Judge also found that the allegation that partnership/partner exchange was a taxable sale and not a tax-free distribution of property was too vague and required the Division to explain its allegations in a Bill of Particulars. 

I don’t know a lot about requests for Bills of Particulars.  I assume Judge Connolly is right on the law.  But it irks me that this Order seems to permit the Division to raise novel arguments in support of a notice well after the notice has been issued (in a second amended Answer, no less), and have those arguments cloaked with the same “presumption of correctness” that attaches to the original rationale for issuing the notice.  Doesn’t that seem wrong to you?  It also makes me wonder whether the Division had a rational basis for issuing the notice in the first place.  Hmmm.


The Governor’s Budget Proposal includes a provision that would allow the Division to appeal from an adverse Tribunal decision.  A. 9509/S. 7509, Part N.  Even though this provision would, in essence, permit the Department of Taxation and Finance to appeal a decision it made against itself, giving the Division the right to appeal is OK with us as long as the provision is expanded to include a requirement that the Division pay the Taxpayer’s legal fees at prevailing rates should the taxpayer substantially prevail in the appeal.  Making the Division pay after an unsuccessful appeal is fair, and will discourage the Division from pursuing less-worthy appeals.  Without this additional provision, the potential cost to the taxpayer to litigate a meritorious tax case would be so high that only the most well-funded, highly-principled or truly-desperate would pursue litigation.

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