You are here: / Tax Law

IF PETIONER HAD PURCHASED CONCRETE AS A PART OF A SERVICE FOR THE INSTALLATION OF CAPITAL IMPROVEMENTS, THE PURCHASE WOULD HAVE BEEN EXEMPT FROM SALES TAX; BUT PETITIONER PURCHASED THE CONTRACT IN “RAW” FORM AND PETITIONER’S EMPLOYEES AND SUBCONTRACTORS USED IT TO BUILD CAPITAL IMPROVEMENTS; THE PURCHASE OF THE CONCRETE WAS THEREFORE SUBJECT TO SALES TAX (THIRD DEPT).

The Third Department determined the petitioner was not entitled to an exemption from sales tax on concrete purchased from suppliers. The work to install the capital improvements made from the concrete was done by petitioner’s employees and subcontractors. Because the concrete suppliers merely supplied the concrete in raw form, the sales tax exemption for the installation of capital improvements did not apply:

The purchase would be exempt from sales tax … if it was not for the concrete itself and was instead for the service of “installing property which, when installed, will constitute an addition or capital improvement to real property, property or land” … . * * *

… [T]he hearing testimony of petitioner’s own president left little doubt that it was petitioner’s employees or its subcontractors, and not its concrete suppliers, who were installing capital improvements. Petitioner’s president testified, in particular, that petitioner’s employees or subcontractors performed all preparatory work for the installation, doing necessary excavation work, building the formwork and flatwork to shape the poured concrete and installing rebar and other supports for it. The concrete suppliers would prepare the amount and type of concrete required, arrive at the site, and pour or pump the concrete into the areas that had been prepared. Petitioner then did “anything that need[ed] to be done” to ensure that the poured concrete would form the structure contemplated by the project specifications, such as smoothing the concrete and installing keys, details or lines in the concrete before it set, and petitioner bore responsibility for correcting any problems with the final product. Matter of M&Y Devs. Inc. v Tax Appeals Trib. of the State of N.Y., 2022 NY Slip Op 04600, Third Dept 7-14-22

Practice Point: Concrete purchased as part of a service which not only supplies the concrete but builds capital improvements with the concrete is exempt from sales tax. But here petitioner purchased the concrete which was then used by petitioner’s employees and subcontractors to build the capital improvements. The “capital improvement’ sales-tax exemption did not apply.

 

/by
,

PETITIONER HELD HIMSELF OUT AS THE FINANCIAL DECISION-MAKER OF THE BUSINESS AND THE TAX TRIBUNAL PROPERLY FOUND PETITIONER WAS PERSONALLY LIABLE FOR UNPAID EMPLOYEE WITHHOLDING TAXES; THE TWO DISSENTERS ARGUED THAT PETITIONER WAS NOT THE FINANCIAL DECISION-MAKER AND WAS PUT IN CHARGE ONLY TO ALLOW THE BUSINESS TO BE CERTIFIED AS A MINORITY BUSINESS-ENTERPRISE; THE IRS IN A PARALLEL PROCEEDING HAD ABSOLVED PETITIONER OF LIABILITY (THIRD DEPT).

The Third Department, over a two-justice dissent, determent the Tax Tribunal properly found that petitioner was a “responsible person” such that he can be held personally liable for unpaid employee withholding taxes. According to the dissent, petitioner held himself out as the business’s (NECC’s) financial decision-maker as part of an agreement with the 51% shareholder, Anthony Nastasi (the actual financial decision-maker) in order that the business would be certified as a minority business-enterprise and be eligible for certain state contracts as a result. In a parallel proceeding brought against petitioner by the IRS, petitioner was absolved of liability:

Notwithstanding evidence that could support a contrary determination, it is undisputed that petitioner was president, the majority shareholder, had check signing authority, was involved in daily field operations and derived a substantial part of his income from NECC. Additionally, petitioner intentionally held himself out to third parties, as well as to the Division of Taxation itself, as the contact person and responsible person for New York taxes by signing state tax returns and checks accompanying the returns, executing a sales tax certificate of authority listing himself as the corporation’s responsible person, filling out the Division’s “Responsible Person Questionnaire,” and maintaining communication with the Department. Accordingly, respondent’s determination that petitioner is a responsible person has a rational basis, is supported by substantial evidence and must be upheld … . Matter of Black v New York State Tax Appeals Trib., 2022 NY Slip Op 04200, Third Dept 6-30-22

Practice Point: Even though there was evidence petitioner was put in charge of the business solely to allow it to be certified as a minority business enterprise, the Third Department upheld the Tax Tribunal’s determination that petitioner was a “responsible person” liable for unpaid employee withholding taxes. The two dissenters argued petitioner was not a “responsible person” and should be absolved of liability, which was the result in the parallel IRS proceeding. The result in this case was dictated by the standard for appellate review of an administrative determination. As long as there is evidence in the record which supports the Tax Tribunal’s ruling, the ruling will be deemed rational and upheld.

 

/by

PETITIONER LIVED IN NEW JERSEY AND COMMUTED TO NEW YORK CITY FOR WORK; ALTHOUGH PETITIONERS OWNED A VACATION HOME IN NORTHFIELD, NEW YORK, AND SPENT THREE WEEKS A YEAR THERE, THE NORTHFIELD HOME DID NOT MEET THE DEFINITION OF A PERMANENT PLACE OF ABODE FOR PURPOSES OF THE TAX LAW; THEREFORE THE TAX TRIBUNAL SHOULD NOT HAVE CONCLUDED PETITIONERS OWED NEW YORK STATE INCOME TAX (THIRD DEPT). ​

The Third Department, reversing the Tax Appeals Tribunal, determined petitioners’ vacation home in Northfield, New York, was not a “permanent place of abode” such that petitioner’s were obligated to pay New York State income tax. Petitioners lived in New Jersey and petitioner Nelson Obus commuted to New York City for work. Apparently the commuting was the basis for finding petitioners spent more than 183 days in New York in the relevant tax years. But petitioner did not commute to work from the vacation house and spent no more than three weeks a year there:

… [T]here are objective facts that tend to support the determination of the Tribunal, including that petitioners had “free and continuous access” to the Northville home … . That said, petitioners fall outside of the purview of the target class of taxpayers who were intended to qualify as statutory residents … . It is not disputed that, at most, petitioners utilized the Northville home for three weeks during each tax year for either skiing or to visit the racetrack in the City of Saratoga Springs, Saratoga County.,,, The Northville home was not used for access to Obus’ job in New York City and was not suitable for such purposes, given that it is over a four-hour drive each way … . In fact, a year-round tenant occupies an attached apartment, who Obus informs of his presence prior to his arrival. Moreover, petitioners do not keep personal effects in the Northville home, instead bringing with them what they will need for their visits. Based on these undisputed facts, petitioners have not utilized the dwelling in a manner which demonstrates that they had a residential interest in the property … . Thus, even though the Northville home could have been used in a manner such that it could constitute a permanent place of abode within the meaning of Tax Law § 605, because petitioners did not use it in this manner, it does not constitute a permanent place of abode … , and a contrary finding by the Tribunal is inconsistent with the legislative intent underlying the statute … . Matter of Obus v New York State Tax Appeals Trib., 2022 NY Slip Op 04206, Third Dept 6-30-22

Practice Point: Here the petitioners apparently spent more than 183 days a year in New York, presumably because one of the petitioners commuted from their New Jersey home to work in New York City. But petitioners did not spend more than three weeks per year in their vacation home in Northfield, New York. Therefore, the Northfield vacation home should have been found to be petitioners’ “permanent place of abode” for the purpose of requiring petitioners to pay New York State income tax.

 

/by
, , ,

CLASS CERTIFICATION SHOULD NOT HAVE BEEN DENIED ON THE GROUND THE CLASS WAS TOO SMALL; PLAINTIFF-TENANTS ALLEGED THE LANDLORD DEREGULATED APARTMENTS WHILE RECEIVING J-51 TAX BENEFITS (FIRST DEPT).

The First Department, reversing Supreme Court, determined plaintiffs, tenants of a 49-unit apartment building, should have been certified as a class. The complaint alleged the landlord deregulated apartments while receiving J-51 tax benefits:

Supreme Court erred in denying class certification on the ground that plaintiffs failed to show that “the class is so numerous that joinder of all members . . . is impracticable” (CPLR 901[a][1]). Borden v 400 E. 55th St. Assoc., L.P. (24 NY3d 382, 383 [2014]) and subsequent cases, such as Maddicks v Big City Props., LLC (34 NY3d 116 [2019]), make it clear that qualified plaintiffs may “utilize the class action mechanism to recover compensatory rent overcharges against landlords who decontrolled apartments in contravention of Rent Stabilization Law of 1969 (RSL) (Administrative Code of City of NY) § 26-516 (a) while accepting tax benefits under New York City’s J-51 tax abatement program.” The legislature contemplated classes involving as few as 18 members … . Here, as in Borden, plaintiffs allege defendant deregulated apartments while receiving J-51 tax benefits. Construing the class certification statute liberally … given that the asserted class consists of former and current tenants who lived in the 16 units improperly treated as deregulated after November 15, 2013, while defendant was receiving J-51 tax benefits, it is reasonable to infer that some units in this 49-unit apartment building would have had more than one tenant and several tenants would have moved away, making joinder of all members impracticable … . The identity of class members, i.e., which units were treated as deregulated and who leased them during the relevant time period, is within defendant’s knowledge. Hoffman v Fort 709 Assoc., L.P., 2022 NY Slip Op 02510, First Dept 4-19-22

​Practice Point: Here class certification should not have been denied on the ground the class was too small. The plaintiffs are tenants alleging the landlord improperly deregulated apartments while receiving tax benefits. Classes as small as 18 members were contemplated by the legislature.

 

/by
, , ,

PLAINTIFF COUNTY, ACTING ON BEHALF OF THE NURSING HOME WHERE DECEDENT WAS CARED FOR, WAS ENTITLED TO DISCLOSURE OF DECEDENT’S TAX RETURNS; THE RETURNS ARE RELEVANT TO WHETHER DECEDENT’S SON BREACHED THE “RESPONSIBLE PARTY AGREEMENT” WHICH REQUIRED HIM TO USE THE DECEDENT’S INCOME TO PAY THE NURSING HOME (THIRD DEPT).

The Third Department, reversing (modifying) Supreme Court, plaintiff county (on behalf of the nursing home where decedent was cared for) was entitled to disclosure of decedent’s tax returns in this action against decedent’s son. The action alleged the son breached the “responsible party agreement” in which the son agreed to pay the decedent’s nursing home costs from the decedent’s income and resources:

Unlike a typical action where the assets of a defendant are irrelevant unless and until a judgment is obtained, here … the existence and value of decedent’s assets are critical to the issue of whether Jeffrey Garry [decedent’s son] breached the agreement by failing to use such assets to pay for decedent’s care … . …

Although “tax returns are generally not discoverable unless the party seeking them shows that they are relevant to issues in the case, indispensable to the claim and unavailable from other sources” … , we are satisfied that plaintiff made the requisite showing here, particularly given defendants’ reluctance to produce responsive documents or interrogatory responses that may have otherwise provided information contained in decedent’s tax returns … . County of Warren v Swan, 2022 NY Slip Op 02169, Third Dept 3-31-22

Practice Point: Although tax returns are generally not discoverable until a judgment is obtained, here the decedent’s returns were deemed relevant to whether decedent’s son breached the “responsible party agreement” with the nursing home which cared for decedent. The agreement required decedent’s son to pay the nursing home from decedent’s income and resources.

 

/by

THE COMPLAINT ADEQUATELY ALLEGED DEFENDANT VIOLATED THE CIGARETTE MARKETING STANDARDS ACT (CMSA) BY OFFERING REBATES WHICH EFFECTIVELY LOWERED THE PRICE OF CIGARETTES (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the complaint stated a cause of action for the violation of the Cigarette Marketing Standards Act (CMSA) by offering rebates which effectively lowered the price of cigarettes:

… [T]he CMSA and its regulations make clear that rebates which directly or indirectly serve to reduce prices below legal minimums constitute violations of the prohibition on offers to sell or sales of cigarettes at less than minimum prices (see Tax Law § 484[a][1]). The Supreme Court therefore erred in directing dismissal of the complaint on the basis that the alleged conduct involved the provision of rebates. Contrary to [defendant’s] contention, the complaint sufficiently pleaded that these rebates resulted in prices below the legal minimum (see 20 NYCRR 84.1[b][2]).

The Supreme Court also erred in determining that the good faith “meeting competition” exception to the CMSA applied as a matter of law. The exception permits an agent or wholesale dealer to sell cigarettes “at a price made in good faith to meet the price of a competitor who is rendering the same type of services and is selling the same article at cost to him [or her]” … . …

… [T]he complaint sufficiently pleads that [defendant] did not offer the rebates in good faith to meet the prices of a competitor selling cigarettes at its cost … . The complaint alleges that [defndant] lowered its prices to beat, not meet, legal competition. Moreover, it alleges that [defendant’s] sales manager was aware that such rebates violated the CMSA … . Amsterdam Tobacco Co., Inc. v Harold Levinson Assoc., LLC, 2022 NY Slip Op 00390, Second Dept 1-26-22

 

/by
, , , ,

PURSUANT TO THE DOCTRINE OF TAX ESTOPPEL, TAX FORMS SIGNED BY DECEDENT INDICATING PROPERTY WAS TRANSFERRED WITHOUT CONSIDERATION PRECLUDED THE CONSTRUCTIVE TRUST CAUSE OF ACTION BASED UPON AN ALLEGED PROMISE TO PAY PETITIONERS PROCEEDS FROM THE SALE (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court, determined the constructive trust cause of action should have been dismissed under the doctrine of tax estoppel. The claim that decedent, Joseph Scott, Jr. promised to pay petitioners the proceeds from the sale of property was belied by the tax forms signed by Scott which indicated the property was transferred without consideration:

The tax forms utterly refute petitioners’ factual allegations that, in consideration for his interest in the Amagansett property, Joseph Scott, Jr. paid respondents more than $410,000 in his lifetime as an advance on the sale of his Woodbine property … . Since petitioners are precluded from arguing that there was an oral agreement that Joseph Scott, Jr. would pay respondents’ decedents consideration for the Amagansett property, they cannot allege that a constructive trust should be imposed on the property … . The application of the tax estoppel doctrine prevents, as a matter of law, petitioners from establishing an essential element of a claim for a constructive trust: a promise by respondents’ decedents to Joseph Scott, Jr. regarding the Amagansett property. Matter of Chimsanthia, 2021 NY Slip Op 06796, First Dept 12-7-21

 

/by
, ,

THE OPENING OF A CARTON OF CIGARETTES AS PART OF A SEARCH OF THE CARGO IN PETITIONER’S TRUCK WAS NOT SUPPORTED BY PROBABLE CAUSE; THE TAX TRIBUNAL’S ASSESSMENT OF A $1,259,250 PENALTY FOR POSSESSION OF CIGARETTES WITHOUT TAX STAMPS ANNULLED (THIRD DEPT).

The Third Department, reversing the Tax Appeals Tribunal, determined the search of petitioner’s truck which led to the discovery of cigarettes with no tax stamp was not supported by probable cause. Therefore the determination that petitioner owed a $1,259, 250 penalty was annulled:

Petitioner is a member of the Seneca Nation of Indians, a Native American tribe recognized by the US Bureau of Indian Affairs. ERW Wholesale is petitioner’s tobacco wholesale business, licensed by the Seneca Nation of Indians operating on the Cattaraugus Reservation. In December 2012, ERW sold 150 cases (9,000 cartons) of Native American brand cigarettes to Oien’Kwa Trading, a Native American-owned business located on the St. Regis Mohawk Reservation. Oien’Kwa Trading immediately sold the cigarettes to Saihwahenteh, a Native American-owned business located on the Ganienkeh territory. Oien’Kwa Trading hired ERW to deliver the cigarettes directly to Saihwahenteh. Sean Snyder, an ERW employee, was employed as the truck driver. * * *

… [T]he validity of a search is subject to a two-prong test — arrest and probable cause — neither of which is satisfied here. As to the first prong, the record reveals that Snyder, the driver and sole occupant of the truck that was searched, was never arrested. With respect to probable cause, the record demonstrates a complete lack thereof. When Snyder was stopped, he was completely cooperative with the trooper and forthrightly explained that he was transporting cigarettes from a Native American reservation to a Native American territory, and he immediately gave the trooper an envelope containing the pertinent documents, namely the registration, invoices and bill of lading. Although the trooper testified that Snyder appeared nervous when he was initially pulled over, this conduct in and of itself is insufficient to justify a search … . Once back at the vehicle inspection checkpoint, Snyder readily exited his vehicle and turned his keys over to the trooper; he was never asked if the cigarettes were stamped. When the trooper employed the bolt cutters and the investigator entered the cargo area, the investigator found that the cargo was exactly as Snyder had told them — cases of cigarettes. The investigator’s search of the cargo area, including opening a case and then a carton, in order to inspect a single pack of cigarettes for a tax stamp was not precipitated by a complaint, tip, investigation or statements from Snyder, any of which might have provided probable cause. On the contrary, the investigator testified that the search proceeded only after he conferred with the trooper who believed that the cigarettes were Native American brand and, as such, were not stamped. The transportation of cigarettes from a Native American reservation to a Native American territory does not, in and of itself, give rise to a reasonable inference of criminality … . Matter of White v State of N.Y. Tax Appeals Trib., 2021 NY Slip Op 04394, Third Dept 7-15-21

 

/by
,

MORTGAGES ISSUED BY NYS FEDERAL CREDIT UNIONS ARE NOT EXEMPT FROM NYS MORTGAGE RECORDING TAX (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that mortgages issued by NYS federal credit unions are not exempt from the NYS mortgage recording tax:

This precise question was decided in Hudson Val. Fed. Credit Union v New York State Dept. of Taxation & Fin. (20 NY3d 1, 13), where the Court of Appeals held that, based on principles of statutory interpretation and the legislative history of the Federal Credit Union Act, mortgages issued by New York State federal credit unions are not exempt from the imposition of the New York State mortgage recording tax. This Court is bound by the Court of Appeals’ decision in Hudson Val. Fed. Credit Union, despite conflicting federal intermediate court decisions which post-date it (see People v Jackson, 46 AD3d 1110). O’Donnell & Sons, Inc. v New York State Dept. of Taxation & Fin., 2021 NY Slip Op 02535, Second Dept 4-28-21

 

/by
, , ,

THE 2009 ROBERTS CASE APPLIES RETROACTIVELY TO RENT OVERCHARGES STEMMING FROM THE RENTAL OF DEREGULATED APARTMENTS BY LANDLORDS RECEIVING J-51 TAX BENEFITS; THE OVERCHARGES HERE MUST BE RE-CALCULATED IN ACCORDANCE WITH A RECENT RULING BY THE COURT OF APPEALS; THE CLASS OF TENANTS IN THIS RENT OVERCHARGE ACTION SHOULD NOT HAVE BEEN EXPANDED BY SUPREME COURT (FIRST DEPT).

The First Department, modifying Supreme Court, in a full-fledged opinion by Justice Richter, determined: (1) Roberts v Thishman, 13 NY3d 270 applies retroactively to landlords who rent deregulated apartments while receiving J-51 tax benefits; (2) the class of tenants bringing the rent-overcharge action should not have been expanded by Supreme Court; and (3) Supreme Court must re-calculate the rent overcharges in accordance with the recent Court of Appeals ruling in Matter of Regina, 2020 NYSlipOp 02127:

In Gersten v 56 7th Ave. LLC (88 AD3d 189, 198 [1st Dept 2011]), this Court held that Roberts should be applied retroactively because the decision simply interpreted a statute that had been in effect for a number of years, and did not establish a new principle of law.  * * *

In Matter of Regina … , the Court of Appeals determined that “the overcharge calculation amendments [in the HSTPA (HousiNg Stability and Tenant Protection Act)] cannot be applied retroactively to overcharges that occurred prior to their enactment.” The Court also resolved a split in this Department as to what rent records can be reviewed to determine rents and overcharges in Roberts cases … . Regina concluded that “under pre-HSTPA law, the four-year lookback rule and standard method of calculating legal regulated rent govern in Roberts overcharge cases, absent fraud” … .Accordingly, we … remand the matter for the court to set forth a methodology consistent with the Rent Stabilization Law as interpreted by the Court of Appeals in Regina. …

… [T]he motion court improvidently exercised its discretion in expanding the class. The court’s order failed to analyze whether class action status was warranted based on the criteria set forth in CPLR 901 and CPLR 902. Conducting that analysis ourselves, we find that the redefined class represents such a fundamental change in the theory of plaintiffs’ case that expansion of the class would be improper. Dugan v London Terrace Gardens, L.P., 2020 NY Slip Op 04239, First Dept 7-23-20

 

/by

Categories

Sign Up for the Mailing List to Be Notified When the Site Is Updated.

Copyright © 2022 New York Appellate Digest, LLC
Site by CurlyHost | Privacy Policy