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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.  

TiNY Report for October 12, 2017 (covering DTA cases issues on October 5, 2017)

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This week, two ALJ determinations and one Tribunal decision.

DETERMINATIONS 

Matter of Faldetta; Judge Maloney; Division’s Rep: David Gannon; Taxpayer’s Rep: appears on the cover as pro se; Articles 28 & 29.  This responsible person case started almost 10 years ago and was previously put on hold pending a criminal investigation of Petitioner.  The issue in the case was whether the Division used a rational audit methodology to calculate the sales tax due, but the real issue was the lack of effort by the Division before that audit methodology was even used.  It was clear the Division, through its ill-advised approach to notification, did not provide Petitioner with an adequate opportunity to produce the company’s books and records for the sales tax audit.  It  looks like the initial audit letters requesting the books and records never made it to the business or Petitioner, and at the same time the limitations periods on some of the tax quarters were about to expire.  When there was no response to the audit letters, the auditor concluded the books and records were inadequate and decided to use a rent factor method to estimate the sales during the audit period.  The Judge noted, “It is not petitioner’s denial of receipt of either of the audit appointment letters that leads to the conclusion that Division’s requests for 110 Boot and Leather’s books and records were weak and casual.  Rather, it was the auditor’s failure to identify the specific address to which the second audit appointment letter was sent, coupled with the absence of a printout of the Division’s e-MPIRE Taxpayer Summary for petitioner, containing his Taxpayer Summary section entitled ‘Address - Physical Mailing,’ dated prior to the issuance of the notice of determination to him.”  The auditor was clearly worried about the impending expiration of the statutes of limitation, and the Judge said this was no excuse for the Division’s casual efforts to request the books and records and then sudden issuing of an assessment.  As a result, the Judge determined it was improper for the Division to resort to the use of an indirect audit method and cancelled the Notice of Determination.  

Matter of Kroll Bond Rating Agency, Inc.; Judge Gardiner; Division’s Rep: M. Greg Jones; Taxpayer’s Rep: Peter L. Faber and Alysse McLoughlin; Articles 28 & 29.  Refund claim for sales tax was denied.  First, the Division argued one of the petitions protesting the refund denials were not filed timely.  However, the Division provided no proof it properly mailed the Notices of refund denial so the petition was deemed timely filed.  An advisory opinion was issued to Petitioner saying the Petitioner’s securities ratings services weren’t subject to NYS sales tax.  While Petitioner waited for that determination it paid sales tax on its services on behalf of its customers, but it did not collect any sales tax from its customers.  So, Petitioner filed a refund claim for the amount of sales tax it remitted.  However, you can only get a refund for sales tax if you’ve given your customers a refund for that tax.  The Judge determined Petitioner did not meet its burden to prove it was entitled to a refund because Petitioner couldn’t show the sales tax was not collected from its customers and thus not refunded back to them.  In looking at the amounts on the invoices versus the amount of sales tax remitted, the numbers didn’t match up, and the Judge determined the customers had paid sales tax to Petitioner.  Because Petitioner was only entitled to a refund if it had given refunds to its customers, but hadn’t, the Judge denied the refund claims.  Petitioner also argued unjust enrichment because Petitioner was compelled to over-pay the sales tax it would have paid had the Division not taken so much extra time to issue the advisory opinion.  But the Judge said DTA has no jurisdiction to decide on the issue of the timeliness of  advisory opinions.

TRIBUNAL DECISION 

Matter of Rhoden; Division’s Rep:  Osborne K. Jack; Taxpayer’s Rep: pro se; Articles 28 & 29.  Notice of the ALJ’s determination was properly mailed to Petitioner; thus, Petitioner’s exception to that determination was due within 30 days of the date the Notice was mailed.  Though the Tribunal received a faxed copy, no other exception was received.  The faxed copy was also sent after the 30-day limit expired.  The Tribunal concluded it lacked jurisdiction to consider the exception because it didn’t receive the exception either by person delivery or by mail, so it dismissed the exception. 

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