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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 21, 2018 (covering DTA cases from June 14)

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One Tribunal Decision, one ALJ determination, and two ALJ Orders this week. 


Matter of Hale, et al.; Division’s Rep: Tobias Lake; Taxpayer’s Rep: William Bradley Hunt and Clayton Hale; Article 22.  This case involved the retroactivity of the 2009 amendments to the empire zones program.  Petitioners were denied QEZE credits for the 2009 year due to decertification from the 2009 amendments.  The Tribunal recently decided in Matter of NRG Energy that the application of the 2009 amendments was a retroactive application of the statute, and noted that nothing in the present matter convinced the Tribunal to think otherwise.  The Tribunal again held that the 2009 amendments attached new legal consequences to actions of Petitioners that occurred prior to the enactment of the 2009 amendments.  Whether that retroactive application of the 2009 amendments was constitutionally permitted should be analyzed under the test in Replan Development.  If a retroactive application of a law change passes that test, it may be permissible.  In determining whether a retroactive application of a tax statute violates Due Process, courts look to three factors under the test:  (1) the extent of the forewarning of the law change and reasonableness of the taxpayer’s reliance of the prior law, (2) the length of the retroactive period, and (3) the public purpose for the retroactivity. 

(1) Forewarning of a change in the law and reasonable reliance on the old law.  In 2001-2002, Petitioners executed a 15-year lease, created the entity that was certified, and continued the law practice of another related entity.  Those actions allowed Petitioners to be certified for the empire zones program.  However, the 2009 amendments made those same actions grounds for revocation of that certification to participate in the empire zones program for 2009.  The Tribunal determined that there were no actions Petitioners could have taken in 2008 or 2009 to change the result of Petitioners’ decertification.  As a result, the Tribunal held this factor should not be afforded any weight in this case. 

(2) Length of retroactive period.  The Tribunal agreed with the ALJ that the length here was a short period of 97 days, between April 7, 2009 (when the amendments were enacted) and January 1, 2009 (the effective date).  The Tribunal held 97 days was not “so far into the past” that the amendments violated Petitioners’ due process rights.  Thus, this factor weighed in favor of the constitutionality of the retroactive application of the 2009 amendments.

(3)  Public purpose of the retroactive application.  The Tribunal found the public purpose under James Square was to minimize abuses to the empire zones program and thus increase the benefits to the public relative to the costs of the credits, and to increase tax receipts.  The Division argued the purpose of the amendments was to spur investment, create jobs, and prevent future bad behavior.  The Tribunal disagreed, finding that spurring investment and creating jobs were general purposes of the empire zones program, but that the 2009 amendments did neither of those things.  Instead, the purpose of the amendments was to evade abuses to the program and raise revenue.  A prospective application of the amendments would be sufficient to prevent future bad behavior.  As a result, the Tribunal held this factor weighed in favor of the amendments violating Petitioners’ due process rights. 

Given the balance of the three factors as applied to Petitioners, the Tribunal ultimately held that the “extremely short period of retroactivity outweighs the lack of public purposes under the circumstances” and that the retroactive application of the 2009 amendments did not violate Petitioners’ due process rights.


Matter of Whitney Restaurant management, Ltd., D/B/A Cibo, and Raymond Gilmore; Judge:  Russo; Division’s Rep: Howard Beyer; Taxpayer’s Rep: Michael Buxbaum; Articles 28 and 29.  The Judge determined the record established the Division’s clear and unequivocal written request for Petitioners’ books and records showing Petitioners’ sales during the audit period.  Petitioners failed to provide such books and records for the entire audit period, but produced gest checks, daily and monthly point of sale (“POS”) records, and bank statements for a 3-month period.  The auditor found several guest checks were missing from what was provided, and the records could not be reconciled with third-party credit card sales data the Division received.  The Judge determined the Division reasonably concluded Petitioners didn’t have available books and records sufficient to verify gross and taxable sales for the audit period.  As a result, the Judge determined the Division was entitled to resort to the use of indirect methods to determine Petitioners’ sales and use tax liability.  The Judge found it was reasonable for the Division to estimate Petitioners’ liability using the records the Division had and a cash-to-credit card ratio.  Because the Judge found the audit method reasonable, Petitioners bore the burden to prove that the audit results were unreasonably inaccurate or the amount of tax assessed was erroneous.  Petitioners failed to meet their burden, as Petitioners failed to produce any evidence to dispute the Division’s results or show the estimate was unreasonable.  The Judge sustained penalties.


Matters of Nigri; Judge: Connolly; Division’s Rep: Kileen Davies; Taxpayer’s Rep: Isaac Sternheim; Notice of Proposed Driver License Suspension Referral under Tax Law § 171-v.  There were two Orders addressing the same issue in this matter, one for each spouse.  At issue was whether the proposed suspension Notices were properly issued to Petitioners.  The copies of the proposed suspension Notices the Division submitted into the record referred to the reverse side of the Notices, but did not include that side.  The Judge determined it remained a question whether the statements statutorily required to be on the Notices were actually on the Notices issued to Petitioners since portions of the notices were missing.  The Judge noted that these missing information on the notices was important in the due process context.  The Judge denied the Division’s motion for summary determination as there were still questions of fact.


OK, I called my shot last week on Wayfair and this week I pop-fly-fouled into the third baseman’s glove.  Color me abashed.  Judges and juries…you can never really tell, ya know?

What I got wrong:  One need look no further than the result to see where I went off the tracks.  I had the Supreme Court sustaining Quill on grounds of stare decisis.  I was wrong on that.  The Court’s majority repudiated Quill in a 5-4 decision.  What it did not do, and what has been misreported by some, is rule that South Dakota’s new economic nexus standard is valid under the Constitution.  Instead, the Court remanded the case back to the lower courts to test its constitutionality in the absence of a Quill physical presence standard.  I expect that the lower courts will uphold the constitutionality of South Dakota’s new law because the Court gave signals that the safeguards put in place by South Carolina (a $100,000 in-state receipt/200 in-state transaction threshold plus participation in the Streamlined Sales Tax Compact plus prospective-only applicability) seemed likely to result in minimal burdens to interstate commerce.  But it would not surprise me to see the case double back to the Supreme Court after the remand (there I go prognosticating again. You’d have thought I would have learned my lesson by now). 

I was also wrong on how J Thomas and J Alito were leaning.  I had them in the majority sustaining Quill, but they ended up in the majority overturning Quill.  In my defense, J Thomas voted with the majority in Quill to uphold the physical presence test espoused in National Bellas Hess on stare decisis grounds. So I had a basis for including him as a justice that would vote to affirm Quill on similar grounds. 

What I got right:  I correctly predicted that CJ Roberts, J Breyer, J Sotomayor, and J Kagan would have affirmed Quill on the grounds of stare decisis.  CJ Robert’s dissenting opinion in which the three listed justices joined, makes it clear that is exactly what they would have done. 

I also correctly predicted that J Kennedy, J Ginsburg, and  J Gorsuch would vote in favor of overturning Quill, and much of their opinion was based on how the internet had changed the playing field so much that physical presence was no longer the proper standard.  This is what I said they’d say:  “[T]he 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.”  And this is what they said:  “’Although we approach the reconsideration of our decisions with the utmost caution, stare decisis is not an inexorable command.’…[T]he  real  world  implementation  of  Commerce Clause doctrines now makes it manifest that the physical presence rule as defined by Quill must give way to the ‘far-reaching systemic and structural changes in the economy’ and ‘many other societal dimensions’ caused by the Cyber Age.”   

And I said the J Thomas would 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….”  And this is what he said in his actual concurring opinion:  “[A] quarter century of experience has convinced me that Bellas Hess and Quill ‘can no longer be rationally justified.’… The same is true for this Court’s entire negative Commerce Clause jurisprudence.”  It’s not word-for-word, but one need not stretch to the level of a Nostradamanian to see the relevant connections, right?

Anyway, even though I lost the war, I think I won some battles.  So I’ve got that going for me, which is nice.  (ed. Search “gunga galunga” to follow-up on the pop-culture reference in the last sentence). 

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