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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 30, 2020 (covering DTA cases issued January 23 and 24)

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After a week of silence, we have a pair of determinations, an ALJ order and a decision. In our opinion, the ALJ order deserves lead-story placement. The other rulings are workaday.


Matters of Lexington Insurance Co. and American International Specialty Lines Insurance Co.; Judge: Connolly; Division’s Rep.: David Markey; Petitioners’ Reps.: Maria Eberle and Lindsay LaCava; Article 33 (by Chris Doyle).

This has been a great week if you believe in the proposition that there should be ways to compel the Division to disclose most of what it does behind closed doors. First, this week’s edition of State Tax Notes carries an article by Cara Griffith (President and CEO of Tax Analysts) entitled “What is New York Trying to Hide?” It picks apart the New York Tax Department’s extraordinary disclosure-avoidance efforts highlighted in Matter of Moody’s Corporation. Our reports on Moody’s can be found here, here, and here.

And today we get to read along as Judge Connolly dismantles a motion by the Division to have Petitioners’ subpoena withdrawn!

Petitioners, in this consolidated case, seek refunds of the Article 33 (Franchise Tax on Insurance Corporations) Tax paid for 2008 – 2012. Petitioners sought, through subpoena, the production of various documents, including those related to two advisory opinions issued to Petitioners and a 2012 TSB-M that announced a policy on how the Department would treat unauthorized non-life insurance companies under Tax Law Article 33. The Division brought a motion seeking withdrawal of the subpoena on the basis of taxpayer secrecy and privilege protections.

I did not do an accounting, but I think Petitioners are going to get most of the documents they seek. The Judge agreed with the Division that certain documents were covered by attorney-client privilege. But the rest of the documents are going to be disclosed if the Judge’s order stands. The arguments against production proffered by the Division and the Judge’s responses are provided below:

  1. The Division argued that all but one of the documents withheld was protected from disclosure by the public interest privilege. The Judge found that the Division’s claim of privilege must include a showing of the specific public interest that would be injured by disclosure of the documents. While the Division’s brief argued that disclosure would hinder the Division’s deliberative process, the facts provided by the Division (through affirmations) did not include “any ‘competent evidence’ asserting that disclosure of the subpoenaed documents would chill the Division’s deliberative process . . . .”    Ouch.
  2. It was also argued by the Division that disclosure of many of the documents ought to be barred by the attorney work-product privilege. The Judge properly noted that said privilege protects against disclosure only those documents prepared primarily or exclusively for current or future litigation. And once again, the Judge found inadequate (with one exception) the Division’s proof that the documents for which protection was sought were prepared “for litigation."
  3. The Division’s argument that certain documents were protected by attorney-client privilege did, however, find some traction with the Judge. Petitioners sought documents relating to pending and draft legislation. The Judge said that if those documents were between the Division and the Division’s lawyers performing legal duties, they were protected. However, the Judge also determined that “Review of the subpoenaed documents the Division claims are protected by attorney-client privilege reveals that a number do not qualify because they are not communications involving the Division’s attorneys or conveying their advice . . . .” 
  4. And lastly, the Division argued that taxpayer secrecy barred disclosure of many documents. But the Judge observed: “It is axiomatic that Tax Law secrecy does not preclude a taxpayer, or persons duly authorized by the taxpayer, from receiving documents containing the taxpayer’s own tax information.” As it turns out, many of the documents the Division sought to protect on the basis of taxpayer secrecy contained information about Petitioners and no other taxpayers. So the Judge found them to be un-protected.

Ultimately, Judge Connolly’s Order modified the subpoena to exclude from its scope a relatively small subset of the documents sought by Petitioners.

At the outset the Judge stated that the party seeking protection from disclosure had the burden of proving its entitlement. In most instances, Judge Connolly ruled that the Division failed to satisfy the evidentiary requirements of the privilege sought. However, toward the end of his Order, the Judge reminded the parties that nothing in it “prejudices the Division’s right to challenge the admissibility of any of the documents found to be subject to disclosure herein if those documents are offered for introduction into evidence at hearing.” So this leaves the door open for the Division to make its privilege arguments again, and perhaps with more, and better, factual support.


Matter of Chew; Judge: Connolly; Division’s Rep.: Stephanie Lane; Petitioner’s Rep.: pro se; Article 22 (by Chris Doyle).

This was a statutory residency case in which Petitioner, a New Jersey domiciliary, stipulated his presence in New York City on 180 days. Icarus should have listened when his daddy told him “don’t fly too close to the sun, son.” Nonresident taxpayers should listen to us when we advise them to have a substantial cushion between their actual New York day count and 183. It should not surprise anyone that Petitioner, just like Icarus, went down in flames. A few takeaways:

  1. Petitioner and his spouse used a contemporaneously-prepared spreadsheet/calendar to keep track of their whereabouts. The Judge found the spreadsheet unreliable for a few reasons. First, there were admitted inaccuracies that resulted in the preparation of a “revised spreadsheet” for the hearing. Next, the spreadsheet in a few instances was inconsistent with the third-party documentation (e.g. Petitioner’s E-ZPass statements). And, while location information (and whether the couple needed a dog-sitter) was provided, there was almost never any contextual information on the spreadsheets that would aid in Petitioner’s subsequent recall of the day and add credibility to the entries. I guess I agree with the Judge that an entry of “New Jersey, all day” is less persuasive than “New Jersey, all day. Dentist appointment at 0800; worked for employer in NJ office 9-6, except lunch ($5 foot-long at Subway); elegant dinner with loving spouse at Popeye’s; went home; spent the next hour in my Barcalounger munching on Tums trying to focus through my heartburn on the goopy Hallmark movie loving spouse was watching involving a woman who tragically failed in love and thought she would never love again; fell asleep in said Barcalounger; woke up a half-hour later only to find that the woman in the movie had, indeed, found love with an unexpected person in an unexpected place; fought off the shock of the surprise(?) plot twist long enough to waddle to bed to consider deep questions like the location of the boundaries of the universe and whether there is a God and if there is why she invented heartburn and why the heck is there a designated hitter in the American League and why the plots of all Hallmark movies seem the same and why I haven’t gotten around to writing that screenplay that has been stuck in my head since college, until Morpheus coaxed me into the warm embrace of dreamless sleep.” Sure, I guess that would be more convincing, but who is going to take the time to type all that dreck into a spreadsheet?
  2. Petitioner and his spouse testified, but their testimonies lacked specificity and were more about their general habit of life than about where they were on particular days.
  3. A contemporaneous diary is good, petitioner testimony is good, but what really seems to give the auditors and judges comfort are reliable third-party records. And best of all are the three sources of evidence working in tandem.

Matter of La Mastra; Judge: Russo; Division’s Rep.: Lori Antilock; Petitioner’s Rep.: pro se; Articles 28 and 29 (by Chris Doyle). 

This is a typical “timy” folks.

Petitioner filed his Conciliation Conference request on December 21, 2017. In its motion for summary determination the Judge found that the Division showed both its standard mailing practices and that they were followed to mail the Notice to Petitioner’s last known address on November 4, 2016. Thus, Judge Russo granted the Division’s uncontested motion for summary determination.


Matters of Hotel Depot, Inc, et. ux.; Division’s Rep: M. Greg Jones; Taxpayer’s Rep: Michael Buxbaum; Articles 28 and 29 (by Joe Endres).

In this decision, the Tribunal was asked whether the Division had a rational basis for taxing the sales to New York customers of a New Jersey hotel furniture supplier, and, if so, whether the Petitioners proved that the audit methodology used by the Division was not “reasonably calculated to reflect tax due.” Both are prerequisites to a valid “external indices” audit. We previously reviewed the ALJ determination here and our basic assessment of the case from that post still stands. The case basically boils down to one sentence in both the determination and the decision: “Petitioner did not present any witnesses or exhibits at hearing.”

Indeed, the Tribunal referenced the fact that Petitioners provided no evidence or witnesses to support their positions no less than nine times in the opinion section of the decision. This failure by the Petitioners is particularly damaging for two reasons. First, sales tax is a uniquely fact-specific tax. In other words, the taxability of a transaction can change on the slightest factual tweak (take a look at our Sales and Use Tax Practice Group webpage for some examples). If a taxpayer provides no evidence to support their position, it’s highly unlikely that taxpayer will be successful. Second, the burden of proof placed on petitioners in sales tax cases in the Division of Tax Appeals is particularly high. Petitioners must prove, “by clear and convincing evidence” that their position is correct.  Petitioners frequently lose sales tax cases when there is conflicting evidence (see Matter of Apple Inc.), let alone nonexistent evidence.

The likelihood of a petitioner’s success in a DTA sales tax case is directly proportionate to the amount of good evidence the petitioner provides: When the evidence is nil, the likelihood of success is nil.

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