TiNY Report for November 4, 2022 (Reporting on DTA Cases Issued September 22 and September 29)

TiNY is back with commentary and analysis on another group of DTA cases.

Greetings, constant reader. I am still here! Unfortunately, the DTA does not have any output this week on which I might comment. But, as I indicated last week, just because TiNY wasn’t posted for 18 (or so) months doesn’t mean that TiNY wasn’t written. So on weeks such as this, when the output from the DTA is light or nonexistent, I’ll dig out some of the TiNY reports that were circulated internally at Hodgson Russ and post them here. This week I’ll post what I wrote for the cases issued by the DTA on September 22 and 29.  

Tribunal Decisions:  

Matter of Hulteen, TAT (September 29, 2022), Div’s Rep. Lori Antolick, Esq.; Pet’s Rep. Mark L. Stone, CPA; Articles 28 and 29. The Tribunal agreed with the ALJ that the Division had shown the Notice was mailed to Petitioner and Petitioner’s representative’s last know addresses on March 20, 2020. Petitioner’s BCMS request received by BCMS via facsimile on June 29, 2020, was, therefore, late.

Interesting quote: “In opposition to the Division’s motion, petitioner submitted the affirmation of her representative, a certified public accountant, and two exhibits attached to that affirmation. We note first that pursuant to CPLR § 2106, only attorneys, physicians, osteopaths, dentists and individuals physically located outside the United States are authorized to submit affirmations.”

That individuals located outside of the US can submit affirmations may prove to be useful in your practice. That osteopaths and dentists can submit affirmations but CPAs cannot may prove to be useful at your next cocktail party. Like in the original Ghostbusters when CPA Louis Tully (played by Rick Moranis) can’t stop talking about tax stuff at his apartment party: "Hey, this is real smoked salmon from Nova Scotia, Canada, $24.95 a pound. It only cost me $14.12 after tax, though." And, awkwardly "I'm givin' this whole thing as a promotional expense, that's why I invited clients instead of friends. You havin' a good time, Mark?"

Matter of Global Companies LLC, TAT (September 22, 2022), Div’s Rep. Brian Evans, Esq.; Pet’s Rep. Kenneth C. Gobetz, Esq.; Articles 12-A and 13-A. In this refund-claim case, the Tribunal agreed with the ALJ that Petitioner failed to prove that one of its customers (CITGO) had paid petroleum business and prepaid sales taxes on ethanol fuel Petitioner imported into New York and then swapped for other customer-provided fuel. Petitioner had provided an affidavit from its customer showing that the customer’s tax returns properly accounted for the purchase from Petitioner of untaxed gallons of swapped fuel. But the customer’s actual payment of the tax on the swapped gallons was never clearly proven. So the Tribunal agreed that Petitioner had not demonstrated its “clearcut entitlement” to a refund. Petitioner’s argument, that the Division’s failure to show the customer claimed a tax paid credit for the swapped gallons should be construed as evidence that the customer paid the tax as required, fell on deaf ears.

The Tribunal’s parting shot: “We note that petitioner’s predicament here is largely of its own making. Petitioner should have paid the taxes due on the ethanol exchange gallons upon their importation into New York, as required by Tax Law § 285-a (2) and certified such payment or assumption of taxes through a certification pursuant to Tax Law § 285-a (3) upon their transfer to CITGO. However, it did not do so.”

ALJ Determinations:

Matter of Ratcliff, ALJ Russo (September 22, 2022); Div’s Rep.  Jennifer L. Hink-Brennan, Esq.; Pet’s Rep. pro se; Article 22. Typical timey. Petitioners were found to have not filed their BCMS request in time.

Matter of Wiatr, Jr., ALJ Behuniak (September 22, 2022); Div’s Rep. Melanie Spaulding; Pet’s Rep. pro se; Articles 28 and 29: Petitioner failed to prove that the cabinetry he acquired was purchased with installation by the vendor or the vendor’s subcontractor. Accordingly, it was determined that the purchase of the cabinetry was a sales-taxable purchase of tangible personal property and not an exempt purchase of a capital improvement to real property. 

Petitioner also complained of the Division’s noncompliance with NY’s Freedom of Information Law (FoIL). Judge Behuniak found that the Division of Tax Appeals did not have the jurisdiction to address FoIL issues.

Lastly, the Judge determined that the Division’s disclosure of the taxpayer’s social security number in its pleadings was permitted and did not require redaction. The Judge noted that such information is necessary to properly identify the taxpayer at issue and the determinations and decisions published by the DTA never include that information. The Judge also commented that the DTA did not have the jurisdiction to determine whether a violation of Tax Law § 1146(a)’s secrecy provisions occurred.

Matters of Yesware, Inc., Bellows and Andrus, ALJ DiFiore (September 29, 2022); Div’s Rep. Brandon Batch, Esq.;  Pets’ Reps. Martin I. Eisenstein, Esq., David Swetnam-Burland, Esq., and Jamie E.T. Szal, Esq.; Articles 28 and 29. This case involves sales tax on software as a service. Here, ALJ DiFiore found that Yesware was selling an exempt information service and not licensing taxable software. Yesware’s service was storage of client data and provision of access to it through Yesware’s website and browser extensions. “Yesware tracks, processes, and analyzes data it receives from recipients of its clients’ emails and generates individualized reports to assist clients with their email prospecting and customer engagement efforts.” 

Yesware’s services look a lot like customer relation management services provide on an SaaS platform. Critically, the license agreement was for the license to use the service, and not a license of software. Judge DiFiore applied the “primary function” test to determine that Yesware’s bundled product was more service than software. What Yesware’s clients really wanted were the reports Yesware generated.

SaaS issues are receiving a lot of audit scrutiny. It’s good to know that the ALJ’s are applying the primary function test without giving the Division’s perspective undue deference.

Mater of Lee, ALJ DiFiore (September 29, 2022); Div’s Rep. Eric Gee, Esq.; Pet’s Rep. Isaac Sternheim, CPA; Articles 28 and 29. This is a typical timey with a typical result: summary determination for the Division.

ALJ Orders:

Matter of Soundview Petroleum, Inc., ALJ Maloney (September 29, 2022); Div’s Rep. Mary R. Humphrey, Esq.; Pet’s Rep. Lana Coren CPA; Articles 28 and 29.  Judge Maloney denied the Division’s motion for summary judgement on timeliness grounds. The Division did not explain why the representative’s copy of the January 26, 2021, Notice was sent to “54-40 Little Neck Pkwy, Suite 2, Little Neck, New York,” and not “54-40 Little Neck Pkwy, Suite #4, Little Neck, New York,” which was the address shown on a letter to the Division from the representative dated January 11, 2021. Absent evidence of actual delivery to the representative, the ALJ ordered that a hearing on the merits be held in due course.

Matter of Polonetsky, ALJ Gardiner (September 29, 2022); Div’s Rep. Michelle M. Helm, Esq.; Pet’s Rep. unidentified; Article 41. ALJ Gardiner granted the Division’s motion to dismiss upon determining that the Division had satisfied Petitioner’s application for costs. This underlying situation looks a lot like some of the Desk Audits we’ve seen where the desk auditors randomly disallow refunds claimed by nonresidents and assert additional tax. The approach to the audit must have been really bad in this case; it appears that the Division’s lawyers didn’t attempt to argue the Division’s position was substantially justified.

The amount of costs awarded was $988.64.   

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