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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 members Chris Doyle, Peter Calleri, and Zoe Peppas. The weekly reports are intended to go out every Tuesday after the New York State Division of Tax Appeals (DTA) publishes 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 October 3, 2019 (reporting on DTA cases issued September 26)

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Only two determinations and one ALJ order as of this writing. The determinations were posted last week, but we like to give the litigants time to receive and read their determinations before we post our summaries, ergo our intentional delay. And for fun, this week we provide pop music quotes that are barely relevant to the cases.


Matter of Moody’s Corporation & Subsidiaries; Judge Galliher, Division’s Rep.: Jennifer Baldwin; Petitioner’s Reps.: Marc Simmonetti and Evan Hamme;  Article 9-A (pre-reform). This is the most recent installment in the continuing saga of Petitioner’s desire to see certain documents that the Department does not want to disclose. A brief summary is appropriate.

Petitioner alleges that it was induced to sign a closing agreement under which it paid a significant amount of additional tax by certain false statements made by Department employees that the Department was not allowing any credit rating taxpayers to source receipts based on destination. In connection with its case seeking a refund of the additional tax paid, Petitioner filed a Freedom of Information Law (FoIL) request seeking documents that support its claims. The Department claimed certain documents were exempt from FoIL disclosure. The courts supported some, but not all, of the claimed exemptions, on the basis that the exempt documents were “inter-agency or intra-agency materials which are not final agency policy or determinations.”

So Petitioner subpoenaed the documents through the ALJ. And the Division moved for its withdrawal, which the Judge granted on the basis that disclosure would violate the “public interest privilege.” We wrote about that determination here.

I guess the “public interest privilege” must be a real thing because the Tribunal agreed with the ALJ that it could apply to the documents at issue. However, the Tribunal remanded the matter back to the ALJ and instructed him to review the documents and apply a balancing test to determine whether the documents were privileged. We wrote about that decision here.

After reviewing the documents, and applying the balancing test, Judge Galliher reaffirmed his earlier decision that the documents were privileged and should not be disclosed. But he has seen the documents, and I expect that he’ll remember what’s in them when, eventually, Petitioner has a hearing on the merits. So maybe this isn’t a hugely bad result for Petitioner. 

Barely relevant music quote: “Tell me lies. Tell me sweet little lies. Oh, no, no you can’t disguise. Tell me Lies.” “Little Lies,” by Fleetwood Mac. The government lies to you sometime. Wow. Huge epiphany.  


Matter of M & Y Developers, Inc.; Judge Russo, Division’s Rep.: Howard Beyer; Petitioner’s Rep.: Herschel Friedman; Articles 28 and 29.  Petitioner did foundation work for building projects. In connection with that work it: hired subcontractors to excavate; set up forms; purchased concrete; supervised the concrete’s pouring, and did some limited finishing work. It paid New York Sales Tax on its concrete purchases, but felt it should not have since, in its opinion, the concrete supplier was installing the concrete as a capital improvement. So it filed refund claims that the Division denied.

Whereas the purchase of tangible personal property and its installation is generally subject to sales tax, the purchase of capital improvements to real property is excluded from the tax. The distinction between what is taxable tangible personal property and what is an excluded capital improvement can be pretty nuanced. ALJ Russo held that the concrete and concrete pouring Petitioner purchased was tangible personal property and installation of tangible personal property, respectively, and therefore, fully subject to tax. Accordingly, the Judge sustained the Division’s denial of Petitioner’s refund claim.

Barely relevant music quote“Tears come streaming down your face…when you lose something you cannot replace.” This is from Coldplay’s “Fix You,” and, obviously, refers to Petitioner’s sadness at having its refund claim denied. But the other hook is this: Petitioner here is M & Y Developers and “Fix You” is off of Coldplay’s “X & Y” album. OK, maybe I’m stretching a little here.

Matter of Watchtower Bible and Tract Society of New York, Inc.; Judge Law, Division’s Rep.: Brian Evans; Petitioner’s Reps.: Beth Konken and John Miller; Article 13-A.  This is a rare case regarding application of the petroleum business tax.

Petitioner is a not-for-profit charitable entity that was, during the periods at issue, building  a new world headquarters in Warwick, NY. In connection with that construction project, Petitioner bought a bunch of diesel fuel “dyed” for off-road use. The primary tank into which the fuel was delivered was a 4,500 gallon tank on the back of a truck. Petitioner would then transfer the fuel to a 600-gallon fuel and lube truck that would, in turn, dispense the fuel into Petitioner’s off-road construction equipment. All of the tanks into which Petitioner’s fuel purchases were delivered had a hose and a nozzle capable of fueling other pieces of equipment, although the nozzles were too big to be used to fuel most on-road vehicles. Petitioner’s on-road vehicles were fueled separately, and it seems likely that none of the dyed diesel fuel was used for anything other than off-road use due to the safety and control procedures Petitioner had in place.

Petitioner paid petroleum business tax when it purchased the fuel. Petitioner filed three refund claims for the tax paid, all of which the Division denied.

The law imposing the petroleum business tax has an exemption for diesel sold to a tax exempt charity for the charity’s exclusive off-road use. This exemption, however, has an exception: “[T]his exemption shall in no event apply to a sale of non-highway diesel motor fuel which involves a delivery at a filling station or into a repository which is equipped with a hose or other apparatus by which such non-highway Diesel motor fuel can be dispensed into the fuel tank of a motor vehicle and all deliveries hereunder shall be made to the premises occupied by the qualifying organization and used by such organization in furtherance of the exempt purposes of such organization.”  In addition to the terrible grammar the Legislature used here, this exception suffers from being so broad as to almost always apply. The only time it would not apply is to purchases where the vendor actually delivered the diesel on the charitable organizations premises and into the tank of the equipment it was intended to fuel. The Judge recognizes this, but does not seem to care. I guess I am OK with that.

The Legislature should have the words it uses respected, even if the result is ridiculous. But just so the DTA and Department are on notice, any charity I am involved with is going to take delivery of its off-road diesel in a big-ass tank that has nothing other than a hatch. And when deliveries are not being made, the charity will attach a pump to the hatch that will allow the charity to dispense the fuel into its off-road equipment. The exemption will apply because the language used by the Legislature considers how the repository is equipped during “a delivery.” So as long as the repository doesn’t have dispensing equipment when deliveries are taking place, the exemption should apply. This is a ridiculous distinction, but as long as we are going to live and die by the words used by the Legislature, judges and auditors should be OK with my approach.

Barely relevant music quote: I thought about using a line from “All Along The Watchtower,” but that would be too obvious, and none of the lyrics resonated with me. Then I recalled a Sting song with a country/western/gospel fusion vibe called “Fill Her Up,” and from that, the opening verse: “Mobil station, where I stand--This old gas pump in my hand--My boss don't like me, got a face like a weasel--Oil on my hands and the smell of diesel.

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