TiNY Report for May 8, 2024

The Rangers and the Knicks are in the second round of their respective playoffs. That doesn’t seem to happen very often. The internet says the last year this occurred was 2013. But we’ve had a total eclipse of the sun this year, so maybe both teams being in round two simultaneously is another sign of the forthcoming apocalypse.

In a similar vein, the firm has an office in Toronto, and I visit that city frequently and very much enjoy my time there. I was thus somewhat verklempt when the Bruins knocked the Maple Leafs out of the playoffs last week. I did watch some of that series, and it was a good one, going the distance. There’s not a lot on television that is more compelling to me than a game seven in the Stanley Cup playoffs.

We’re reporting on a decision, two ALJ determinations and a bonus New York City ALJ determination this week.

Decision

Matter of Nasca (April 25, 2024); Div’s Rep. Stefan Armstrong, Esq.; Pet’s Rep. pro se; Article 22/529 Plan (Chris Doyle). 

The Tribunal affirmed the ALJ’s denial of the petition. Petitioners claimed a $10,000 New York subtraction modification for a 529 college savings plan contribution in 2015. The Tribunal agreed with the Division’s position that the subtraction modification is allowed only for contributions to educational accounts owned by the taxpayer, and the name on the account to which the $10,000 was contributed was Petitioners’ son, and not either of Petitioners’. The denial of the modification was affirmed even though the Division allowed the modification in 2013 under the exact same factual circumstances, and after the years at issue Petitioners amended the account documents to confirm that Petitioners, and not their son, owned the account. But the Tribunal determined that the Education Law definition of “account owner” (i.e., the person who opened the account) controlled, and since the son was listed as the owner, Petitioners had not satisfied their burden of proving entitlement to the modification.

When I wrote-up the ALJ determination, I noted that the ALJ had found Petitioners’ son was a minor at the time the account was opened. So, I questioned whether the son was legally permitted to “own” an account under non-tax laws. It doesn’t look like Petitioners raised that issue with the Tribunal. Maybe if they had subscribed to TiNY, they would have been on notice that this issue was worthy of consideration.   

New York City ALJ Determination

Matter of USA Stay, LLC (Chief ALJ Rodriguez-Diaz, April 2, 2024); Dept’s Reps. Amy Bassett, Esq., Martin Nussbaum, Esq., Christopher Long, Esq.; Pet’s Reps. Roger Blane, Esq., Stephen Solomon, Esq., and Kenneth I. Moore, Esq. NYC Hotel Tax (Pete Calleri).

If it barks like a dog, wags its tail like a dog, and plays fetch like a dog, then it must be a hotel.

The Chief Administrative Law Judge at the New York City Tax Appeals Tribunal held that Petitioner, USA Stay, LLC, was liable for more than $200,000 in hotel taxes. Petitioner argued that its residential apartments, which were rented by Petitioner and then subleased to third parties for varying periods of less than 180 consecutive days at a time, did not constitute a hotel. As such, Petitioner claimed they were not subject to Hotel Tax and that Petitioner was entitled to a refund of Hotel Tax it paid from 2014 through 2017.

Petitioner offered the rentals in question through various websites (like “ISTAYNY.com”). They came fully furnished and equipped with kitchen cookware, utensils, dishes, linens, and towels. To rent the units, Petitioner and third parties entered into agreements under which the third parties were required to provide the first month’s payment, a security deposit, and a one-time cleaning fee. Petitioner would also bill the third parties for utilities used.

Petitioner argued that since the sublets of the rentals did not include customary hotel-type services, like room service, cleaning service, maid service, concierge service, linens, and toilet paper replacement, etc., the sublets constituted a “rental of real estate possessing all the qualities of a sublandlord-subtenant relationship.” The Department of Finance, on the other hand, argued that, based on the clear and unambiguous definition of a hotel, the focus should be on the “transiency of occupancy” and not on whether Petitioner provides hotel-type services.

Judge Rodriguez-Diaz sided with the Finance Department and held that Petitioner’s arrangements constituted “transient rentals” on which Hotel Tax was to be paid. In so holding, the CALJ determined that the third-party renters in question were not permanent residents but were “transient guests.” Additionally, offers on the ISTAYNY website showed that Petitioner had held itself out to the public as an innkeeper making offers to transient guests (e.g., offering fully equipped kitchens, areas to rest between sightseeing, and space to share meals with fellow travelers). Based on a totality of the circumstances, the CALJ concluded that the third-party renters “had an innkeeper and guest relationship with the Petitioner since they lacked exclusive dominion and control of the Rentals and the Petitioner held itself out to the public as an innkeeper prepared to accommodate transient guests in its Rentals.”

Accordingly, Petitioner’s rentals constituted a hotel, the charges for which were subject to Hotel Tax.

Determinations

Matter of McKenna (ALJ Law, April 24, 2024); Div’s Rep. Daniel Schneider, Esq.; Pet’s Rep. pro se; Article 22 (Pete Calleri).

On July 15, 2020, Petitioner filed a 2016 resident return and claimed a refund. The Division denied Petitioner’s refund on the basis that it was untimely filed. Petitioner filed a petition in protest alleging that the Division erroneously failed to toll the statute of limitations for filing his claim for refund because of the COVID-19 pandemic.

Judge Law denied Petitioner’s petition. Petitioner’s claim for refund was filed on the same date as his return and, therefore, was timely pursuant to Tax Law § 687(a) as it fell within the three-year window to file a return. However, the amount of the refund is limited to the amount of taxes paid within the three years immediately preceding the filing of the refund claim. The amount that Petitioner sought as an overpayment was based on excess withholding (which is deemed to have been paid on April 15 of the year following the tax year for which it was paid) and the New York State earned income credit. Therefore, because Petitioner’s refund was limited to the tax paid within the three years preceding the date he filed his return, Petitioner’s refund was limited to $0.

Judge Law then considered Petitioner’s statute of limitations tolling argument. Petitioner relied on Executive Order 202.12, allowing the Division to extend certain filing dates in response to the COVID-19 pandemic. Under this Executive Order, the Division extended the April 15, 2020, due date to July 15, 2020. Importantly, the Executive Order specifically applied to returns originally due on April 15, 2020, and did not apply to refund requests for prior years. Therefore, because Petitioner’s return was due in the 2016 tax year, Judge Law held that Petitioner’s refund claim was properly denied.

Matter of Willey (ALJ Law, April 24, 2024); Div’s Rep. Daniel Schneider, Esq.; Pet’s Rep. pro se; Article 22 (Pete Calleri).

This matter was essentially the same as Matter of McKenna, above. On July 13, 2020, Petitioner filed a 2016 resident return and claimed a refund. The Division denied Petitioner’s refund on the basis that it was untimely filed. Petitioner filed a petition in protest alleging that the Division erroneously failed to toll the statute of limitations for filing his claim for refund because of the COVID-19 pandemic.

Judge Law denied Petitioner’s petition. Petitioner’s claim for refund was filed on the same date as his return and, therefore, was timely pursuant to Tax Law § 687(a) as it fell within the three-year window to file a return. However, statutorily, the amount of the refund is limited to the amount of taxes paid within the three years immediately preceding the filing of the refund claim. The amount that Petitioner sought as an overpayment was based on excess withholding (which is deemed to have been paid on April 15 of the year following the tax year for which it was paid) and the New York State earned income credit. Therefore, because Petitioner’s refund was limited to the tax paid within the three years preceding the date he filed his return, Petitioner’s refund was limited to $0. As to the amount of the refund based on the withheld tax the determination appears to be on solid ground. But as to the portion based on the refundable earned income credit we wonder when that is deemed paid. It seems possible that refundable credits don’t become overpayments of tax until they are claimed by the taxpayer on their return. If that is correct, then the refund claim with respect to the EIC could have been timely. But … we haven’t researched the issue, so this is just us issue-spotting.

Judge Law then considered Petitioner’s statute of limitations tolling argument. Petitioner relied on Executive Order 202.12, allowing the Division to extend certain filing dates in response to the COVID-19 pandemic. Under this Executive Order, the Division extended the April 15, 2020, due date to July 15, 2020. Importantly, the Executive Order specifically applied to returns originally due on April 15, 2020, and did not apply to refund requests for prior years. Therefore, because Petitioner’s return was due in the 2016 tax year, Judge Law held that Petitioner’s refund claim was properly denied.

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