TiNY Report for September 12, 2019 (reporting on DTA cases issued August 27 and September 5)

This week we have seven Orders and two Tribunal Decisions that were posted after we went to press last week.  I doubt that any of these will be talked as much about Matter of Obus which we wrote about two weeks ago here and our fellow blogger at Noonan’s Notes wrote about here.

DECISIONS

Matter of Reuben; Division’s Reps.: Judge DiFiore and David Gannon; Petitioner’s Rep.: Norman Berkowitz; Articles 28 and 29.

Petitioner, Gregg Reuben, was the founder of Alliance Parking Services, LLC (Alliance), and he individually owned 99% the company, while Gregg M. Reuben, Inc. owned the other 1% (I’ll give you one guess as to the sole shareholder of this S-corporation).  Alliance was then the sole member of 12 LLCs that operated parking lots and garages.  Because of Alliance’s growth, Petitioner hired Mr. Bovell as CFO and comptroller.  Mr. Bovell was in charge of paying vendors, managing payroll, and filing the sales tax returns, in addition to paying the tax due.  Mr. Bovell was also authorized to use Petitioner’s electronic signature.  At some point, Petitioner started to get calls that payments weren’t being made, and Mr. Bovell’s reasons as to why this was happening seemed fishy, so Petitioner fired him.  Petitioner then did some research into the financial state of the company, and, according to Petitioner, Mr. Bovell didn’t file or pay certain sales tax that was due. 

Ultimately, the Division issued 44 notices of determination for sales and use tax due for the 12 LLCs to Petitioner as an officer or responsible person.  Petitioner also filed a civil complaint against Mr. Bovell alleging that he diverted money from Alliance to himself, but the complaint had not been answered by the date of the hearing.

The ALJ found that Petitioner was per se liable for the sales and use tax due because he was a member of Alliance, which was the sole member of the 12 LLCS which had been issued assessments.  We wrote about that decision here.

On exception, Petitioner argued that because he was not a member of the 12 LLCs, he cannot be held strictly liable for the tax due.  And even if he was under a duty to act, he cannot be held responsible as he was thwarted by Mr. Bovell in carrying out his obligations.

The Tribunal agreed with the ALJ that Petitioner was per se liable for the sales and use tax due.  The Tribunal found that each of the 12 LLCs were vendors under the tax law, and thus were required to collect tax under Tax Law § 1131(1).  Since Tax Law § 1131(1) imposes per se liability for the collection of taxes on members of partnerships, Alliance, as the sole member of each LLC, was liable for the tax due, and since Alliance was also an LLC, its members were also jointly and severally liable for the tax due.

The Tribunal also noted that, while not necessary for purposes of liability here, Petitioner was also a person responsible under the duty to act standard under Tax Law § 1131(1) because he was the organizer of all 12 entities, managed each entity, and played a significant and active role in the businesses.  The Tribunal found that Mr. Bovell did not thwart Petitioner’s ability to know, or learn, of the nonfiling of returns and the nonpayment of sales and use taxes.  Just because Petitioner delegated all the financial responsibilities to Mr. Bovell did not release Petitioner from liability.  While Petitioner testified that Mr. Bovell allegedly diverted funds from Alliance, there was no evidence that Mr. Bovell prevented Petitioner from accessing any of the records of the business.  Rather, Petitioner simply failed to look into the financial status of the companies during Mr. Bovell’s tenure.

Finally, the Tribunal affirmed the imposition of penalties because Petitioner hired Mr. Bovell, chose to not oversee his actions and gave him near total control over the financial matters, while, Petitioner focused on other aspects of the business.  Nor did the fact that Petitioner’s accountant failed to uncover any wrong doing provide reasonable cause for the abatement of penalties as reliance on the advice of a tax professional does not provide reasonable cause.  So the Tribunal sustained all 44 notices and affirmed the ALJ’s determination.

Matter of Reuben; Division’s Reps.: Judge DiFiore and Osborne Jack; Petitioner’s Rep.: Norman Berkowitz; Articles 28 and 29.

No, it isn’t a typo – this is the same Petitioner as above. The facts are the same too, except the business at issue is WH Parking Mgmt, LLC, of which Alliance is again the sole member.

Petitioner had the same arguments as above: that he was not per se liable for the tax due because he was not a member of WH Parking and that penalties should not be imposed.  Guess what.  The Tribunal ruled the same as the above decision on both issues, so I won’t bother copying and pasting it again.

The one issue that was not part of the above decision was whether the Notices of Determination were timely issued to Petitioner.  There were four Notices of Determination mailed Petitioner.  Three of the Notices were dated October 3, 2014, and the fourth was dated December 2, 2014.

The Tribunal found that Division proved its standard mailing procedures with respect to the mailing of the three Notices dated October 3, 2014, but not that they were followed.  The CMR was flawed because it did not contain a legible postmark or the total number of pieces of mail received.  Nor were the notices mailed to Petitioners last known address.  Petitioner filed his tax return on October 2, 2014, prior to the issuance of the notices, and it used the address 555 West 59th Street, Apt. 32D, but the Notices were mailed to 555 West 59th Street, Apt. 31D.  Petitioner filed his BCMS along with a consolidated statement of liabilities dated October 6, 2015, and this was determined to be the date of actual notice, thereby triggering the 90-day period to bring a protest.  Thus, Petitioner’s BCMS request on December 14, 2015, was timely.

The Tribunal rejected Petitioner’s argument that because the notices were not mailed in accordance with Tax Law § 1147, that they should be void. Rather, the Tribunal noted where, as here, the Division proved at least the standard mailing procedures, even if not followed, the remedy is not to cancel the notice, but to view the BCMS request as timely filed.

As for the fourth Notice dated December 2, 2014, the Tribunal found that the Division had proved its standard mailing procedures, and that they were followed in mailing the Notice to Petitioner at his last known address, at 555 West 59th Street, Apt. 31D.  While this is the address used for the other three notices not proven to have been validly mail, after the filing of his return, according to the Division, Petitioner had accessed his On-Line Service (“OLS”) account and changed his address to this address on October 27, 2014.  Petitioner denied ever accessing his OLS account and changing his address, but the Tribunal found that the Division submitted sufficient evidence to establish the contrary.  Thus, the BCMS request filed December 9, 2015, was untimely, and the Tribunal could not address the substantive merits of Petitioner’s argument with respect to this Notice.

ORDERS

Matter of Starr Thirty, LLC; Judge: Law; Division’s Rep.: Michael Hall; Petitioner’s Rep.: Herschel Friedman; Articles 28 and 29.

Petitioner is a real estate developer that builds apartments.  It filed a claim for refund of sales tax paid on the installation of apartment numbers and letters, both interior and exterior, which it claimed were improvements to apartment buildings that it was constructing.  The Division audited the refund claim and requested the invoices corresponding to the claim.  Petitioner provided invoices for apartment numbers and letters, both interior and exterior, and their installation.  The Division denied the refund claims because it determined that the lettering and numbering did not substantially add value to the property.

Petitioner moved for summary determination claiming that the numbering and lettering was a capital improvement.  The Judge noted that tangible personal property is not subject to tax when it is sold by a contractor to someone where the property is adding to or improving real property by a capital improvement.  However, Petitioner didn’t meet its burden to show that this numbering and lettering was, in fact, a capital improvement as its representative only offered conclusory statements that the purchases were capital improvements.  So the Judge denied the motion and scheduled this case for a hearing.

Matter of SL Hart Holdings, LLC; Judge: Law; Division’s Rep.: Michael Hall; Petitioner’s Rep.: Herschel Friedman; Articles 28 and 29.

Petitioner is another real estate developer who filed a claim for refund of sales tax.  Here, the refund claim was for sales tax paid on the installation of a closed circuit television monitoring system and interior and exterior signs.  Again, this claim was denied by the Division. In its motion for summary determination, Petitioner claimed that the installation of both would add value and removal would diminish value, but didn’t give specifics.  But the Judge found that these statements were insufficient for Petitioner to meet its burden of showing that summary determination was warranted and denied the motion.

Matter of 82 Jefferson, LLC; Judge: Law; Division’s Rep.: Howard Beyer; Petitioner’s Rep.: Herschel Friedman; Articles 28 and 29.

Yet another refund claim for capital improvements to an apartment building. I’m going out on a limb here, but I’m guessing that Herschel Friedman was having a sale on capital improvement refund case representation.

Anyway, this time at issue was the installation of panic bars, panic bar levers, door closers, chains, and rodent proofing.  The Division denied the claim and found that this work would only constitute repair and maintenance, but not a capital improvement.  Here, Petitioner again only gave conclusory statements as to whether the improvements were capital improvements.  Petitioner seems to have argued that the building was a new construction, and thus these could not be charges for repair and maintenance, but it is not entirely clear.  Regardless, there were also questions of fact as to the amount of sales tax that could be refunded because Petitioner only provided one invoice, for the sale of panic bars, and it was not billed to Petitioner.  So this motion for summary determination was denied.

Matter of 73 Starr, LLC; Judge: Law; Division’s Rep.: Michael Hall; Petitioner’s Rep.: Herschel Friedman; Articles 28 and 29.

And another one! Here Petitioner filled a refund claim for sales tax paid for (1) the repair of a garage door; (2) the purchase and installation of a new garage door; (3) the installation of elevator and exit signs; (4) the removal of an awning; (5) an exterior address sign; and (6) signs identifying the apartment numbers. The Division allowed the refund claim for the tax paid on the purchase and installation of a new garage door and elevator and exit signs, but denied the rest.  Petitioner again moved for summary determination alleging that the installation of exterior and interior signs add value to the building and that the removal of an old awning updated the façade, and thus both were capital improvement. The Judge found these statements again to be conclusory and denied the motion for summary determination.

Matter of 236 Meserole, LLC; Judge: Law; Division’s Rep.: Howard Beyer; Petitioner’s Rep.: Herschel Friedman; Articles 28 and 29.

Bet you thought we were done with those capital improvement denials – think again!

Petitioner filed a refund claim for the sales tax paid on the installation of locks and mice-proofing. Along with the refund claim, Petitioner submitted two invoices, but neither were billed to Petitioner, and a cancelled check for what seems to be a different invoice.  The Division denied the refund claim because it determined the work did not qualify as a capital improvement, but, rather, was a repair. 

The Petitioner filed a motion for summary determination and included a certificate of occupancy which indicated that the building was not a new construction.  Thus, the Judge found that the record did not include any evidence that the building was a new construction, or that the invoice were for capital improvements. The Judge also noted that because the two invoices were not issued to Petitioner, this left a question of fact as to whether Petitioner would even be entitled to this refund, so the Judge denied the motion for summary determination.

Matter of 1633 Dekalb, LLC; Judge: Law; Division’s Rep.: Michael Hall; Petitioner’s Rep.: Herschel Friedman; Articles 28 and 29.

Ok, this is the last capital improvement case for this week – I promise.

Petitioner filed a claim for refund of sales tax paid on the installation of a closed circuit television monitoring system and interior and exterior signs. The Division denied the refund claim because the removal of the monitoring system would not cause damage to the building, and the signs do not add value.  In its motion for summary determination, Petitioner disagreed and claimed that the removal of the monitoring system would diminish the value of the building and the installation of both items increased the value of the building, but (again) didn’t give specifics. Like every other Order this week, the Judge found that these statements were insufficient for Petitioner to meet its burden of showing that summary determination was warranted and denied the motion.

Matter of Harvest Trans; Judge: Gardiner; Division’s Rep.: Brian Evans; Petitioner’s Rep.: Vincent Frammigen; Article 21.

The Division issued two notices of determination dated July 14, 2017.  Petitioner filed a petition for revision of determinations or for refund of highway use tax under article 21, which the Division received on October 27, 2017, but the petition did not have a USPS postmark. The Division filed a motion for summary determination alleging that the petition was not timely filed. However, the Division failed to offer sufficient proof to establish the mailing of the notices because one of the affidavits submitted was sworn to before the issuance of the notice, so it could not be used to provide a basis for the CMR dated July 14, 2017. Further, the CMR only referenced one notice, while there were two. And the affidavit of Mr. Ramundo only attested to one piece of certified mail being mailed to Petitioner, but did not explain which notice it included. Thus, the Judge denied the Division’s motion and allowed this matter to proceed.