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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 May 8, 2020 (reporting on DTA cases issued May 1)

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How very exciting! After a month of sitting on our pens (ouch), the TiNY editorial team finally has something on which to write. The Tribunal issued three decisions on May 1, ergo my “May day” reference. And if you are a fan of the Buffalo Sabres, you’ll recognize the line from the famous call, by play-by-play announcer Rick Jeanneret, of Brad May’s overtime goal to sweep the Bruins in the 1993 playoffs. And by “famous,” I mean legitimately famous. Jeanneret was inducted into the Hockey Hall of Fame in 2011, and the May day call was the one played as he mounted the stage to give his acceptance speech. If you can spare 53 seconds from your busy schedule, you can watch/listen to the call here.

There were two timies in the trio, and I am going to give those only a cursory review. The third decision is a partial reversal of an ALJ determination in an Article 9-A case dealing with the old capital base tax.


Matter of Amona Deli; Division’s Rep.: Adam Roberts; Petitioner’s Rep.: Emad Mohamed; Articles 28 and 29 (by Chris Doyle). The Tribunal sustained the ALJ’s determination that the Division had proven both its standard mailing practices and that they were followed when the Division mailed to Petitioner a Conciliation Order on October 14, 2016. Thus, the Tribunal agreed that the petition, deemed filed on May 25, 2018, was late.  And the Petition was dismissed.

Matter of Mohamed; Division’s Rep.: Stephanie Scalzo; Petitioner’s Rep.: pro se; Articles 28 and 29 (by Chris Doyle). Second verse, same as the first. The Tribunal sustained the ALJ’s determination that the Division had proven both its standard mailing practices and that they were followed when the Division mailed to Petitioner a Conciliation Order on October 14, 2016. Thus, the Tribunal agreed that the petition, deemed filed on May 25, 2018, was late.  And the Petition was dismissed. Mr. Mohamed was alleged to be the responsible officer of Amona Deli (see above). So the similarities here are not surprising.

Matter of TransCanada Facility USA, Inc.; Division’s Rep.: Jennifer Baldwin; Petitioner’s Reps.: Craig Fields and Irwin Slomka; Article 9-A (pre-reform) (by Chris Doyle). This case involves whether Petitioner was a qualified New York manufacturer (QNYM) under New York’s Tax Law. 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 alternative 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 is a tax imposed at a very low rate on the value of the taxpayer’s 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.

What’s a QNYM? Under former Tax Law § 210.1(b)(2) A QNYM is (1) a manufacturer, (see below) which (2) has property in New York which is described in 210.12(b)(i)(A), and (3) either (i) the adjusted basis of such property for federal income tax purposes at the close of the taxable year is at least one million dollars, or (ii) all of its real and personal property is located in New York.

As for the first qualification, a “manufacturer” was defined under former Tax Law § 210.1(b)(2) as “a taxpayer which during the taxable year is principally engaged in the production of goods by manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture or commercial fishing.”

The Division’s first argument was that electricity producers were not manufacturers under the statute. In prosecuting this argument, the Division argued that the $350,000 cap on the capital base was like a credit or deduction and that its interpretation should be respected over that of Petitioner’s unless Petitioner’s interpretation was the only reasonable construction of the statute. I would have loved to have seen the Tribunal simply say that the “only reasonable construction standard” is a suitable standard for a court to use when considering the viability of an agency determination, but it is not a suitable standard for the judicial branch of an agency to use when considering positions of the operational branch of the agency. (ed.: A well-reasoned and -written article supporting the DTA’s abandonment of the only reasonable construction standard may be found here.) The Tribunal didn’t explicitly abandon the standard in this case, but it didn’t need to do so. Instead, the Tribunal (like the ALJ) found that the $350,000 cap was not a credit or deduction but was instead a component of a statute imposing a tax and therefore must be construed in a manner most strongly against the government and in favor of Petitioner.

Applying this standard of review, the Tribunal ruled that Petitioner was a manufacturer under the statute since more than 50% of its revenue was from the generation of electricity for sale, and in previous cases it had held that electricity is a “good”, and its generation is a production activity. The Tribunal (like the ALJ) found that the Legislature’s exclusion of electricity as a good under the investment tax credit had no effect on whether Petitioner was a manufacturer under the capital base tax.

As for the second and third requirements for a QNYM, the Division argued that the ALJ correctly ruled that Petitioner did not have $1 million or more of property in New York which is described in Tax Law § 210.12(b)(1)(A).  That particular subdivision the Tax Law is in the subsection allowing the investment tax credit, and as previously noted, by statutorily excluding electricity from the definition of “goods,” generators were effectively prohibited from claiming credits for generation assets.

In reversing the ALJ on this point, the Tribunal noted that, as this was a question of pure statutory analysis, there was no need to give any deference to the Division’s interpretation. The Tribunal parsed the ITC statute and determined that former Tax Law § 210.12(b)(i)’s exclusion of electricity as “goods” “under this subdivision” did not change the definition of qualifying property contained in Tax Law § 210.12(b)(i)(A) for other purposes. In this regard, the Tribunal found that the Legislature could have easily replaced the reference to “property described in 210.12(b)(i)(A)” with the phrase “property that is ITC-eligible” to obtain the result desired by the Division; or the Legislature could have simply said “generators of electricity are not ‘manufacturers’. The failure of the Legislature to clearly exclude electricity generators from being QNYMs for purposes of the capital base, when it had done so for the entire net income base, was also found to be an indication that the “goods” limitation should not be read into the QNYM requirements.

This was a close case. Kudos to the Tribunal for tackling the issue and not kicking the can down the road to the Appellate Division.

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