TiNY Report for March 5, 2024

I tried to think of something clever to write about this being the first TiNY Report ever covering cases posted on “Leap Day,” but I was unable to come up with anything. I have consulted the internet and the next year during which Leap Day falls on a Thursday is 2052. I’m pretty sure I won’t be writing for TiNY at that point. But I come from long-lived stock, so there’s a chance I’ll still be reading it during my nursing home breakfast of stewed prunes and Jack Daniels. What? If I make it to 2052, you’re going to tell me I can’t have whiskey for breakfast? Good luck with that.

Determinations

Super PC Systems, Inc. (ALJ Behuniak, February 22, 2024); Div’s Rep. Adam Roberts, Esq.; Pet’s Rep. Richard Gabor; Articles 28 and 29/Rational basis (Chris Doyle).

There have been some pro-taxpayer ALJ orders of late involving Requests for Bills of Particulars. For those unfamiliar, a Request for a Bill of Particulars is a legal device used to get a litigant to disclose with clarity and specificity an allegation made in their pleading. Recent orders suggest (to me, anyway) that the ALJs may be getting frustrated by the Division’s Answers which are sometimes vague and often do not clearly state the Division’s legal or factual position on the most crucial issues in the case. Then the Division compounds the problem by being reluctant to provide a Bill of Particulars. Some might suggest that the Department’s slow reaction to Advisory Opinion requests and statutory changes requiring regulatory amendments reflect a similar FOMO: the Division is unwilling to clearly articulate a position because it fears that position will be used against it in the future (I’d totally do that, particularly on apportionment issues), or because commentators may express disagreement (I’d do that too!).

This case is not about Bills of Particulars but brings to the fore a different symptom of the Division’s FOMO-itis: The Division pivoted to a different legal argument after the hearing was held.

Petitioner sold point of sale (POS) equipment. Petitioner bought the equipment for resale using a resale exemption, and then provided it to the retailers under two different taxable programs. Under the straight-sale program, title and possession of the POSs was transferred to the retailer for the full market price. Under the conditional sale program, Petitioner gave possession of the POSs to customers for a penny-per-month for four years after which Petitioner transferred title of the POSs to its conditional-sales customers.

If you’re like me, the conditional sales program probably doesn’t seem like a very sound business plan. But it makes sense once you learn that under the conditional-sales approach, Petitioner was entitled to receive a portion of the credit card processing fee the retailers paid to their credit card processors. Prior to and at the hearing the Division argued that the purchases weren’t exclusively for resale because the conditional sales weren’t “sales” in substance and therefore Petitioner’s purchases of the POSs were taxable based on the price paid by Petitioner.

In its post-hearing brief, the Division, for the first time, conceded that the conditional sales were “sales” (and thus Petitioner’s purchases were exempt purchases for resale) but that the taxable consideration should include the credit card processing payments Petitioner received from the card processors and therefore the assessment should be upheld.

Judge Behuniak agreed with Petitioner that the Division’s last-minute change in course resulted in the Division’s inability to provide a clear connection between the amount of the assessment it sought to have upheld (based on Petitioner’s purchase price for the POSs) and the proper calculation of the additional tax due based on the theory that the conditional sales were taxable and the consideration for those taxable sale included Petitioner’s receipt of a slice of the credit card processing fees. 

The Judge further suggested that the Division’s eleventh-hour argument switch might also have violated sound due process principles.

Matter of Stavracos (Supervising ALJ Gardiner, February 22, 2024); Div’s Rep. Brendan Roche, Esq.; Pet’s Rep. pro se; Articles 28 and 29/DTA’s jurisdiction (Zoe Peppas).

Petitioners filed a petition that did not include a statutory notice or conciliation order. The Division of Tax Appeals submitted a written request for a copy of the statutory notices being protested. Petitioners ignored the request (ignoring a judge: never a good strategy). Then the Division issued a notice of intent to dismiss the petition on the basis that the petition was not in proper form. Petitioners did not submit a response to this notice (at least Petitioners were consistent). Judge Gardiner dismissed the petition with prejudice.

In accordance with the DTA’s procedural rules, all proceedings in the DTA commence with the filing of a petition that includes a legible copy of either the statutory notice or the order of the conciliation conferee. Where a taxpayer fails to correct the petition within the time prescribed, the judge will issue a notice of intent to dismiss the petition.  If the deficiency is not cured, the judge will dismiss the petition. And that’s what happened here.

Matter of Tuohy (ALJ Behuniak, February 22, 2024); Div’s Rep. Christopher O’Brien, Esq.; Pet’s Rep. pro se; Article 22/Dependent care credit (Peter Calleri).

Petitioners filed four petitions. The first petition protested the Division’s May 2016 account adjustment notice disallowing Petitioners’ dependent care expense credit claimed for 2015 and reducing Petitioners’ 2015 refund from $4,405.00 to $3,396.72. The second petition protested the Division’s notice disallowing Petitioners’ 2016 refund claim of $683.09. The third petition protested the Division’s notice of deficiency asserting additional income tax of $1,829.00 plus interest for the 2017 tax year. The fourth petition protested another notice of deficiency asserting additional income tax of $581.00 plus interest for the 2018 tax year.

Regarding the disallowed dependent care expense credit, the Judge concluded that Petitioners had not provided sufficient documentation to substantiate the expenses claimed in 2015. In so finding, the Judge noted that the taxpayer carries “the burden of showing ‘a clearcut entitlement’ to the statutory benefit.” (Citations omitted). Here, Petitioners failed to establish or provide evidence that they paid a care provider for dependent care expenses or even the amount of such expenses.

Turning next to the issues from the 2016, 2017, and 2018 tax years, the Judge found that Petitioners had also failed to meet their burden of establishing that certain income and expense information, which the Division received from the IRS for the years in question, was incorrect. Pursuant to IRC section 6103(d), the Division received tax information for Petitioners and adjusted their state returns accordingly. Under Tax Law § 658(a) and 20 NYCRR 158.1(a), Petitioners were required to maintain adequate records of their items of income, credits, expenses, and deductions. Petitioners, however, did not provide evidence supporting the amount of their income during the years or substantiate that the information provided by the IRS was incorrect. Accordingly, the Judge denied their petitions and sustained each of the Division’s notices.

Matter of Midland Farms (Supervising ALJ Gardiner, February 22, 2024); Div’s Rep. Aliza Chase , Esq.; Pet’s Rep. pro se; Articles 12-A and 21/DTA’s jurisdiction (Peter Calleri).

Judge Gardiner dismissed the petition for lack of jurisdiction over the subject matter.

Petitioner filed a petition for revisions of determinations or for refunds of Motor Fuel Tax under Article 12-A and of Highway Use Tax under Article 21. Petitioner, however, failed to attach a statutory notice or conciliation order to the petition as required by Tax Law § 2008(1) and 20 NYCRR 3000.3(b)(8). When a request for a copy of the statutory notice was later made to Petitioner, it failed yet again to provide it. Although Petitioner provided a consolidated statement of tax liabilities, Judge Gardiner explained that this does not qualify as a statutory notice and “does not confer jurisdiction to consider the substantive merits of a taxpayer’s protest.”

Accordingly, the Judge found that the Division lacked jurisdiction over the subject matter of the petition and dismissed it with prejudice.

ALJ Order

Matter of Ahmed (Supervising ALJ Gardiner, February 22, 2024); Div’s Rep. Eric Gee, Esq.; Pet’s Rep. pro se; Articles 28 and 29/Motion to vacate default (Zoe Peppas).

Petitioner filed for a revision of a determination or for refund of sales and use taxes. Judge Chu-Fong sent a letter to Petitioner stating he was assigned to the matter and scheduled a prehearing conference call. Petitioner did not appear. A notice of hearing was mailed to Petitioner scheduling the formal hearing. Petitioner did not respond. A second prehearing conference call was scheduled. Petitioner did not appear. A formal hearing was scheduled before Judge Chu-Fong. Petitioner did not appear, and he did not submit a request for adjournment, so a default determination was issued.

Petitioner then requested the default determination be vacated pursuant to 20 NYCRR 3000.15(b)(3), arguing he experienced unexpected health issues. The health issues referenced is severe back pain which Petitioner alleged affects his mobility, rendering him physically incapable of traveling to the hearing location. Yet, Petitioner did not elaborate on the issue nor provide proof.

A default determination may be rendered upon a party who does not appear at a scheduled hearing. The Rules of Practice and Procedure of the Tribunal allow for a default determination to be vacated upon proof of an excuse and a meritorious case. Petitioner did not appear at the original hearing, did not request an adjournment, did not show an acceptable excuse, and did not show proof of a meritorious case. Petitioner’s unsworn statement about his medical condition was not enough to show an acceptable excuse, and he failed to make a prima facie showing of a meritorious case. So, Petitioner’s application to vacate the default was denied.

Comment