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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 September 14, 2017 (covering DTA cases issued on September 7)

By on

Only one ALJ determination today. 

Determination

Matter of Kokotas; Judge Law; Division’s Rep: Robert Maslyn; Taxpayer’s Rep: Norman Berkowitz; Articles 28 &29.  Remember Matter of Marin from a couple of weeks ago? That’s the one in which the Judge found against Marin on every substantive issue, but then Marin wiggled off of the hook because the Notice was not mailed to his last known address. Kokotas addresses the responsibility of the owner of the same underlying business, and he wasn’t so lucky. 

The Petitioner argued the Notices of Determination weren’t issued within the three years, and the Division argued the petition wasn’t filed on time. Petitioner denied receipt of the Notices and argued that the Division’s failure to provide him with copies of the Notices under FOIL was proof the Notices were manufactured for purposes of the hearing (he claimed the Notices didn’t exist until two weeks prior to the hearing). As to the second point, the Judge found that the FOIL request did not specifically request Notices of Determination, and the DTA lacks jurisdiction to provide a remedy for a claim the Division failed to comply with FOIL. As to the issue of the mailing of the Notice, the Judge found that the Division sufficiently proved its standard mailing procedures, but not that they were followed. Thus, the Judge determined the limitations period to file a petition was tolled and deemed the petition to have been timely filed. One interesting wrinkle here is that the Judge found there was no statute of limitations barring the assessment even though the Division was unable to prove the Notices at issue had been mailed within the three-year statute of limitations. We wonder whether this same result would have been obtained if the Petitioner explicitly alleged that the Notices were never mailed.

As for the substantive tax issues, the Judge found: (1) the business did not keep adequate sales records, (2) it was proper for the Division to use an external index to estimate sales tax due, and (3) Petitioner was a responsible officer of the business. The Division used the National Restaurant Association’s RIOR. The Judge found that while a different index may have yielded different results, it hadn’t been proven that the classification chosen by the auditor was clearly erroneous. The Judge held that the business produced little evidence at the audit level so he shouldn’t complain about any inexactness of the audit now. The Judge determined Petitioner to be a responsible officer of the restaurant in question because Petitioner was the sole owner and president of the restaurant. The Judge also found Petitioner was not a credible witness after hearing his testimony. And the Judge sustained the Notices of Determination.

And in other news…

The Department posted TSB-A-17(21)S to its website earlier this week. It involves the sales tax treatment of certain streaming products (i.e. webinars and live-stream products) and related services. The Opinion holds that the provision of webinar and live stream products is not subject to sales tax, and that the marrying of certain taxable services to a webinar or live-stream product at no extra charge could be done without triggering sales tax provided that the taxable services were merely incidental to the provision of the non-taxable products. The Department also found that certain of the “optional” products/services provided by the requester for an additional charge constituted the taxable provision of software used in New York. The Department found that the requester should collect and remit tax on the separate charges for the optional products/services, and that if the optional products/services were bundled with an otherwise non-taxable webinar or livestream product for a single charge, that the requester should collect and remit sales tax on the entire charge.

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