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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 July 11, 2019 (reporting on DTA cases published June 27)

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The DTA (like the rest of us) had the July 4th holiday off.  But there were two Tribunal decisions published after we went to press before the holiday that we’ve been sitting on.

TRIBUNAL DECISIONS

Matter of Kayumi; Division’s Rep.: Robert A. Maslyn; Petitioner’s Rep.: Mumtaz Alvi; Articles 28 and 29. 

We wrote about this one back in December when the ALJ issued his determination, available here.  Long story short, the Tribunal agreed with the ALJ, but for the sake of completeness, we’ll still explain the decision.

Petitioner purchased a Popeye’s Chicken franchise.  The Division received a bulk sale notification for the proposed sale for $160,000. The notification also included the agreement, which stated that it was conditioned on the seller’s payment of the outstanding sales tax liability (guess what, the seller never paid; but I’m getting ahead of myself).  As part of the purchase consideration, Petitioner had its bank cut a check payable to “New York State sales tax,” and gave it to a shareholder of the seller, as was provided for in the agreement.  The check was intended to pay a portion of the seller’s outstanding sales tax liability.  But the shareholder deposited it in another account (apparently he was indicted for this, but that didn’t help Petitioner).

The Division first issued a notice of claim to Petitioner advising him that it received information that he was a purchaser in a bulk sale, and there was a possible claim for sales and use taxes. It instructed Petitioner to put the entire purchase amount in escrow, which he didn’t do.  The Division eventually sent Petitioner two notices of determination on March 29, 2011: one, for sales tax on the tangible personal property transferred as part of the business purchase, plus interest and penalty (the “First Notice”), and another in the amount of $160,000, for the taxes due from the seller (the “Second Notice”).          

Petitioner submitted a Petition on November 6, 2013, which included a conciliation order dismissing the request dated August 23, 2013. The conciliation order stated that the notices of determination were issued March 29, 2011, and the BCMS request was not received until August 8, 2013 – almost 2 years outside the 90 day window.  The petition filed also contained a request that timeliness be waived in the interest of justice because he had poor professional advice.

The Tribunal agreed with the ALJ and found that the Division failed to establish proper mailing of the First Notice.  The CMR was found to be insufficient because it didn’t verify the number of pieces of mail delivered to the USPS for mailing. Rather, the stamped instructions to the USPS employee to circle or hand write the number of pieces of mail weren’t completed.  Because the only other evidence establishing the date of receipt was the BCMS request filed on August 8, 2013, the Tribunal found that the 90-day period commenced on August 7, 2013, and thus it was improperly dismissed.  The Tribunal found that Petitioner’s testimony that he had received some mail from the Division, but didn’t know what it was, was insufficient to establish actual receipt.

With regard to the Second Notice, the Tribunal agreed with the ALJ that the Division proved proper mailing even though there were certain flaws with the CMR.  Again, the number of items being mailed wasn’t circled or handwritten.  However, there was only one item of mail on this CMR, and it had a postmark and the initials of the USPS employee receiving the mail.  The Tribunal found that this was sufficient to infer that the mail had been delivered to the USPS for mailing.  Because Petitioner did not rebut the presumption of receipt, his BCMS request was thus not timely filed, so the Tribunal did not reach the substantive merits of the derivative sales tax liability.

Petitioner argued that the assessment on the bulk transfer of tangible personal property should be cancelled because title to the assets was never transferred to Petitioner.  The Tribunal noted that transfer of title is not required; the law treats the transfer of title or possession as a “sale,” and because Petitioner took possession of the property, there was a sale.  Agreeing with the ALJ that the bulk sale notification filed by Petitioner established the value of the tangible personal property and formed a basis for the Division’s determination, the Tribunal sustained the assessment.  The Tribunal also didn’t abate the penalties because Petitioner filed a bulk sale notice, was made aware that a certain amount of tax was due, and used the tangible personal property for two years – all of which cut against Petitioner’s argument that the liability was the result of reasonable cause and not willful neglect.

  

Matter of Jefferson Hotel Associates LLC; Division’s Rep: Lori Antolick; Petitioner’s Rep: Robert Halpin; Articles 28 and 29.

Petitioner was granted sales tax exempt status by a local IDA for its construction of a new hotel.  Petitioner estimated the sales tax expense to build the hotel to be $223,200.  The resolutions of the IDA approving this indicated that Petitioner was considered an agent of the IDA and was authorized to make “all purchases” of “every kind” for the hotel.  The IDA issued a letter that appointed Petitioner as its agent, provided an expiration of the appointment, and stated that the costs can’t exceed those listed on the related forms ST-60.  The term of the appointment was extended several times and each time Petitioner got a new letter, which gave a new expiration date but was otherwise identical, and a revised form ST-60.  The forms ST-60, however, were not identical, but provided essentially the same information.  The forms provided the estimated value of goods and services to be exempted from sales tax, and provided the following limit “Approximate Savings of $223,200 (All Agents, All In).”

Unfortunately for Petitioner, after the hotel was completed, the IDA sent Petitioner a demand letter for the excess of the sales tax exemptions Petitioner claimed over the estimated sales tax savings stated in the forms ST-60.  The Legislature enacted General Municipal Law § 875 (3)(b) in March 2013, and the new law provided that an IDA must recover from the agent the sales tax exemption benefit that is in excess of the exemption authorized, and that if it fails to do so, it may be assessed by the Division.  Because Petitioner never paid the difference to the IDA, the IDA sent a notice to the Division, who ultimately sent Petitioner a notice and demand letter for the difference.  Petitioner paid the amount plus interest and then filed an application for credit or refund, which was denied.

We wrote about the ALJ determination in this case here.  And the Tribunal affirmed this determination.

The Tribunal agreed with the ALJ that Petitioner had, in fact, received sales tax exemption benefits in excess of the amount authorized.  It noted that each of the appointment letters stated that the costs cannot exceed those on the forms ST-60, and each of the form ST-60s indicated that this “estimated” amount was $223,200.  Petitioner pointed to the resolution of the IDA which authorized “all purchases,” but the Tribunal agreed with the ALJ that if this were controlling, then it would render the letters and forms ST-60 meaningless.  The Tribunal also did not find merit in the Petitioner’s complaint of errors and inconsistencies in the appointment letters and forms ST-60. Rather, it found these errors to be inconsequential.

Petitioner also argued that GML § 875 (3)(b) did not apply to it because the law took effect after its agreement with the IDA.  GML § 875 applies to “any amendment or revision involving additional funds or benefits made on or after [March 28, 2013] to any project . . . prior to that date.”  And at least one of the letters extending Petitioner’s agency was created after the statute’s effective date. The ALJ found that this trigged the application of GML § 875 (3)(b), and the Tribunal agreed.  Petitioner attempted to argue that the extension did not provide additional benefits, but the Tribunal found that the additional time provided for in the extensions was, in fact, a benefit.  Petitioner also argued that there was no amendment or revision because the IDA was obligated to grant extensions, but, again, the Tribunal did not agree and pointed to the language in the contracts which granted the IDA the power to extend, with the exercise of that power “not to be unreasonably withheld.”

In the end, Petitioner was still on the hook for the excess benefits, and its petition was denied.

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