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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 June 14, 2018 (covering DTA cases from June 7)

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Two Tribunal Decisions and one ALJ Determination this week.  Two of the offerings did not primarily involve timeliness.  But all of the taxpayers lost.


Matter of TransCanada Facility USA, Inc.; Judge: Connolly; Division’s Rep:  Jennifer Baldwin; Petitioner’s Reps: Craig Fields and Irwin Slomka;  Article 9-A.  I admit it.  I find state corporate taxation more interesting than most other state tax topics.  Sure, the sales taxation of mini marshmallows versus regular marshmallows might be a funny oddity.  But the intricacies of corporate franchise taxes engage me to deep-thought-think in a way the other taxes do not.  Further, Hodgson Russ and I have been ‘round the block a few times with the Department on the issue of the circumstances under which the generation of electricity constitutes “manufacturing” in New York, so I found this case of particular interest.

Petitioner, a corporation, owned an electricity generation facility in New York.  For the audit years, Article 9-A required that a corporation’s tax be computed under four basis and the taxpayer was required to pay the highest of the four computations.  For each of the audit years, the highest base for Petitioner was the capital base.  The capital base taxes corporations at a very low rate on the value of their assets apportioned to New York State—it’s like a tax on apportioned net worth.  The law permitted “qualified New York manufacturers”  (“QNYMs”) to cap their capital base tax at $350,000.  Petitioner capped its capital base tax on its returns taking the position that it was a QNYM.  The Division audited, and took the position that Petitioner was not a QNYM under the statute and was therefore not entitled to the benefit of the cap.

Petitioner advanced arguments that legislative history and the canons of statutory construction require that Petitioner be treated as a QNYM.  The Division countered that, under the “only reasonable construction standard,” the Judge was required to follow whatever reasonable interpretation of the statute the Division articulated.  Judge Connolly disagreed with them both.  Judge Connolly first ruled that the QNYM definition related to the computation of the tax and that the only reasonable construction standard applied only to exemption and exclusion provisions (ed. The only reasonable construction standard should never be applied by the DTA—but I’ll save that rant for another day).

As for Petitioner’s arguments, the Judge found that the statute was clear on its face and it was not necessary to resort to the canons of statutory construction, legislative history, or any other source to divine the rule.  According to the Judge, the plain language of the statute requires that, to be a QNYM, a taxpayer must: (1) receive most of its receipts from the sale of goods it produces from manufacturing, and (2) have investment tax credit (“ITC”)-qualifying property and either (a) have at least $1 million worth of ITC property in New York, or (b) have all of its property in New York.  Since property used to produce electricity is excluded from the definition of ITC property, Judge Connolly found that Petitioner was not a QNYM and the $350,000 capital base “cap” did not apply.  And the Judge sustained the imposition of penalties.  Ouch.


Matter of Nevins; Division’s Rep:  Mary Hurteau; Taxpayer’s Rep: Arthur Nevins (pro se);  Article 22.  Petitioners were New Jersey residents who received an IRS change that increased their income.  They did not report that change to New York within the required 90 days because Petitioners understood the IRS change increased only their New Jersey income, and there should not be New York tax consequences.  The Division issued a Notice of Additional Tax Due on November 5, 2014, asserting additional New York tax. On January 7, 2016, the Division issued a Notice and Demand for the tax.  On April 27, 2016 (more than 90 days after the Notice and Demand was issued, and almost a year and a half after the Notice of Additional tax Due was issued), Petitioners filed their petition challenging the additional tax. 

The ALJ determined that the Division of Tax Appeals lacked the jurisdiction to hear the case, and the Tribunal affirmed.  Timeliness issues aside, the Tribunal noted that the DTA’s jurisdiction is limited by statute and that the statute does not permit DTA to preside over matters involving properly-issued Notices of Additional Tax Due and Notices of Demand.  In a nutshell:  “Regardless of the merits of each party’s claimed interpretation of Tax Law § 659 and its implementing regulation, neither a notice of additional tax due, nor a notice and demand may be construed to confer jurisdiction on the Division of Tax Appeals to review such notice in any manner. Tax Law § 173-a (2) provides that a notice and demand and a notice of additional tax due ‘shall be construed as specifically denying and modifying the right to a hearing with respect to any such notice and demand or notice of additional tax due for purposes of [Tax Law § 2006(4)].’

The Tribunal also denied it had the jurisdiction to address the facial constitutionality of Tax Law § 173-a (2).  And it found that Tax Law § 173-a (2) was not unconstitutional as applied to Petitioners’ case since Petitioners have the ability to pay the tax and file for a refund.  Harsh.

Matter of Sacko; Division’s Rep:  Jennifer Hink-Brennan; Taxpayer’s Rep: Mufu Sadiku;  Article 22.  The Tribunal affirmed the ALJ’s determination that the Division proved both its standard mailing practices and that they were followed when the Division issued, on July 13, 2016, a Notice of Deficiency to Petitioner’s last known address.  Petitioner filed his BCMS request eight days too late on October 19, 2016, and it was therefore untimely and properly dismissed by the BCMS.  Yawn.


I am calling my shot:  The Supreme Court will affirm, in a six-to-three majority decision, the lower court’s decision in South Dakota v. Wayfair.  The decision’s foundation will be stare decisis.  And somewhere in the majority opinion, it will say something like “In tax matters it is particularly important for businesses to be able to confidently rely on the decisions of this Court when charting the course of their commercial endeavors. . .”   And the Court will, with great deference and respect, drop in a sentence that asks Congress to get off its butt and address the nexus issue.  The six Justices in the majority will be CJ Roberts, J. Thomas, J. Alito, J. Sotomayor, J. Kagan and J. Breyer.  Justices Ginsberg, Gorsuch and Kennedy will dissent in an opinion that reminds the majority that the Court should not hesitate to reverse decisions it finds have not withstood the test of time, changing morals or advances in how commerce is conducted.   Justice Thomas will concur in an opinion that says something like: “The dormant commerce clause is in the same category as Santa Claus, Doctor No and the Tooth Fairy; it would be nice if they existed, but they don’t. I concur with the majority on the grounds of stare decisis. ” 

Then again, I’m just some guy with delusions of relevance and a blog.  So don’t go betting the farm on the above.

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