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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 September 27, 2018 (covering DTA cases issued September 20)

By on

This week, only one ALJ Determination and one Tribunal Decision.  And no timeliness cases!

DETERMINATION

Matter of Big Star Nunez Corporation; Judge: Gardiner; Division’s Rep: Osborne Jack; Taxpayer’s Rep: Eddy Estrella; Articles 28 and 29.  The Judge found the Division adequately requested Petitioner’s books and records, as supported by two letters sent by the Division to Petitioner.  Petitioner admitted its records were inadequate to show all sales made and tax paid during the audit period.  As a result, the Division was permitted to use an indirect audit methodology to calculate the sales tax due.  Petitioner failed to submit any evidence to challenge the Division’s audit methodology, so the Judge determined Petitioner failed to meet its burden to show the audit method was not reasonably calculated to reflect the amount of tax assessed was erroneous.  The Judge also sustained penalties.   

DECISION

Matter of SuperMedia LLC; Division’s Rep: Robert Maslyn; Taxpayer’s Rep: Craig Fields and Nicole Johnson; Articles 28 and 29.  Petitioner was a purchaser of phone directories, printed outside of NYS.  The directories were distributed throughout the US, including NY.  Petitioner arranged delivery of the directories into NY and contracted with the USPS, Product Development Corporation (“PDC”), and Directory Distributing Associates, Inc. (“DDA”) to deliver the directories.  The Division asserted PDC and DDA were not common carriers, so it assessed over $3 million in additional tax on Petitioner for its purchase of the directories distributed in NY by PDC and DDA.  Petitioner went to BCMS.  The conciliation order sustained the Notice of Determination.  Petitioner timely filed its DTA petition. 

NY provides an exemption from use tax for promotional materials mailed or shipped by means of common carrier, USPS, or like delivery service.  Petitioner had not paid use tax to NY based on that exemption.   Under M. Fortunoff of Westbury Corp. v. Peerless Ins. Co., a common carrier provides services without a negotiated contract and typically involves unique transactions rather than an ongoing course of business.  In comparison, a contract carrier usually provides shipping services pursuant to bilateral contracts that are individually negotiated with more sophisticated shippers at arm’s length.  The Tribunal also reviewed the description of a “contract carrier of property by motor vehicle” under the Transportation Law.  After reviewing the definitions of common carrier and contract carrier, the Tribunal agreed with the ALJ’s determination that PDC and DDA were acting as contract carriers rather than common carriers.  Petitioner entered into negotiated contracts with PDC and DDA, PDC’s and DDA’s business models were specialized delivery services of advertising materials and directories, PDC and DDA had longstanding business relationships with Petitioner, and both followed special requirements Petitioner had regarding delivery of the directories.  Those facts showed PDC and DDA acted as contract carriers.  As a result, the Tribunal held Petitioner was not entitled to the exemption for promotional materials sent by common carrier.  Additionally, Petitioner argued the Division was collaterally estopped from asserting PDC and DDA were not common carriers because both companies had been deemed to be common carriers in a prior DTA proceeding, Matter of Verizon Yellow Pages Co.  However, the Tax Law precludes collateral estoppel for an issue decided in an ALJ Determination.  And the Tribunal came to the opposite conclusion on the same issue with one of the parties in a later case, which was affirmed by the Appellate Division.  So, the Tribunal also ruled against Petitioner on that point.

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