Tax Law Archives - Page 3 of 8 - New York Appellate Digest

AMUSEMENT TAX AND CABARET TAX PROVISIONS ARE NOT UNCONSTITUTIONALLY APPLIED TO AN ADULT ENTERTAINMENT CLUB; TAX EXEMPTIONS FOR CERTAIN TYPES OF DRAMATIC OR MUSICAL ART PERFORMANCES ARE PROPERLY NOT AVAILABLE TO THE CLUB.

The First Department, in a full-fledged opinion by Justice Tom, determined the provisions of the Tax Law which allow the imposition of an amusement tax and a cabaret tax were not unconstitutional either facially or as applied to the plaintiffs. The plaintiffs operate a men’s entertainment club featuring topless dancers (Hustler Club). The Tax Law includes exemptions for certain types of entertainment, i.e., dramatic or musical art performances. Plaintiffs argued the exemptions should apply to the adult entertainment at the club, as well. In rejecting the constitutional arguments, the court wrote:

Here, the Tax Laws are laws “of general application” … . The Amusement Tax applies to sales at “[a]ny place where any facilities for entertainment, amusement, or sports are provided” (Tax Law § 1101[d][10]), and the Cabaret Tax applies to sales at “[a]ny roof garden, cabaret or other similar place which furnishes a public performance for profit” (Tax Law § 1101[d][12]). The Tax Laws “ha[ve] not selected a narrow group to bear fully the burden of the tax” … , since the taxes imposed on plaintiffs are equally applicable to many other types of entertainment and recreational activities, including sporting events, car races, amusement parks, arcades, zoos, animal performances, and magic acts … . Nor are the performances of the sort presented at the Hustler Club “singled out for special treatment”… based on their erotic, sexual, or adult nature. The performances merely happen to fall under the very broad categories of “entertainment” or “amusement,” for purposes of the Amusement Tax, and “public performance for profit,” for purposes of the Cabaret Tax. CMSG Rest. Group, LLC v State of New York, 2016 NY Slip Op 07280, 1st Dept 11-3-16

TAX LAW (AMUSEMENT TAX AND CABARET TAX PROVISIONS ARE NOT UNCONSTITUTIONALLY APPLIED TO AN ADULT ENTERTAINMENT CLUB; TAX EXEMPTIONS FOR CERTAIN TYPES OF DRAMATIC OR MUSICAL ART PERFORMANCES ARE PROPERLY NOT AVAILABLE TO THE CLUB)/AMUSEMENT TAX (AMUSEMENT TAX AND CABARET TAX PROVISIONS ARE NOT UNCONSTITUTIONALLY APPLIED TO AN ADULT ENTERTAINMENT CLUB; TAX EXEMPTIONS FOR CERTAIN TYPES OF DRAMATIC OR MUSICAL ART PERFORMANCES ARE PROPERLY NOT AVAILABLE TO THE CLUB)/CABARET TAX (AMUSEMENT TAX AND CABARET TAX PROVISIONS ARE NOT UNCONSTITUTIONALLY APPLIED TO AN ADULT ENTERTAINMENT CLUB; TAX EXEMPTIONS FOR CERTAIN TYPES OF DRAMATIC OR MUSICAL ART PERFORMANCES ARE PROPERLY NOT AVAILABLE TO THE CLUB)/ADULT ENTERTAINMENT (AMUSEMENT TAX AND CABARET TAX PROVISIONS ARE NOT UNCONSTITUTIONALLY APPLIED TO AN ADULT ENTERTAINMENT CLUB; TAX EXEMPTIONS FOR CERTAIN TYPES OF DRAMATIC OR MUSICAL ART PERFORMANCES ARE PROPERLY NOT AVAILABLE TO THE CLUB)

November 3, 2016/by CurlyHost

DOCUMENTS WHICH REFLECT INFORMATION IN TAX RETURNS ARE EXEMPT FROM DISCLOSURE UNDER THE TAX LAW.

FREEDOM OF INFORMATION LAW (FOIL), TAX LAW.

The Third Department determined Supreme Court properly withheld from disclosure both tax returns and documents which reflect information included in tax returns:

“The policy behind the [tax] secrecy provisions is twofold: to protect personal privacy interests in the information on a return, which may reveal information concerning a person’s activities, associations and beliefs, and to encourage voluntary compliance with the tax laws by preventing use of return information to harm the reporting taxpayer” … . As relevant here, the statute prohibits the disclosure of “any particulars” by any person who “is permitted to inspect” a return, receives “any information contained in any [return]” or who “in any manner may acquire knowledge of the contents of a [return]” (Tax Law § 211 [8] [a]). By its terms, therefore, the confidentially required by the statute necessarily extends to any document that reflects information included in a return. If we were to construe the statute to only protect the secrecy of the return, the purpose of the statute would not be served … , and we find, in particular, that Tax Law § 211 (8) (a) prohibits the Department from releasing an agreement made with another taxpayer (see Tax Law §§ 171 [18]; 210-A [11]). … Contrary to petitioner’s arguments, where, as here, a document is exempt from disclosure pursuant to state statute, it may not be subjected to redaction … . Matter of Moody’s Corp. & Subsidiaries v New York State Dept. of Taxation & Fin., 2016 NY Slip Op 05612, 3rd Dept 7-21-16

FREEDOM OF INFORMATION LAW (FOIL) (DOCUMENTS WHICH REFLECT INFORMATION IN TAX RETURNS ARE EXEMPT FROM DISCLOSURE UNDER THE TAX LAW)/TAX LAW (DOCUMENTS WHICH REFLECT INFORMATION IN TAX RETURNS ARE EXEMPT FROM DISCLOSURE UNDER THE TAX LAW)/TAX RETURNS (DOCUMENTS WHICH REFLECT INFORMATION IN TAX RETURNS ARE EXEMPT FROM DISCLOSURE UNDER THE TAX LAW)

July 20, 2016/by CurlyHost

Indian Law, Tax Law

TAX ON CIGARETTE SALES TO NON-INDIANS UPHELD.

The Fourth Department upheld the state's ability to impose a tax on the sale of cigarettes to non-Indians and non-members of the Seneca Nation:

It is well established that “the States have a valid interest in ensuring compliance with lawful taxes that might easily be evaded through purchases of tax-exempt cigarettes on reservations . . . States may impose on reservation retailers minimal burdens reasonably tailored to the collection of valid taxes from non-Indians” … . Although plaintiffs are obligated to pay the amount due as tax from non-Indians who have the tax liability, and from whom the amount is collected at the time of the sale, “this burden is not, strictly speaking, a tax at all” … . White v Schneiderman, 2016 NY Slip Op 04533, 4th Dept 6-18-16

TAX LAW (TAX ON CIGARETTE SALES TO NON-INDIANS UPHELD)/INDIAN LAW (TAX ON CIGARETTE SALES TO NON-INDIANS UPHELD)/CIGARETTES (TAX ON CIGARETTE SALES TO NON-INDIANS UPHELD)

June 18, 2016/by CurlyHost

Tax Law, Trusts and Estates

LIFE ESTATES IN A CONDOMINIUM AND COOPERATIVE APARTMENT DID NOT DIMINISH VALUE OF THE PROPERTIES FOR ESTATE TAX PURPOSES.

The Second Department determined the value of properties transferred upon decedent's death was the fair market value at the time of death. The fact that decedent willed life estates in the properties did not diminish the value of the properties for estate tax purposes:

“Because the estate tax is a tax on the privilege of transferring property upon one's death, the property to be valued for estate tax purposes is that which the decedent actually transfers at his death rather than the interest held by the decedent before death or that held by the legatee after death” … . An estate tax taxes “not the interest to which the legatees and devisees succeeded on death, but the interest which ceased by reason of the death” … . “The value of every item of property includible in a decedent's gross estate … is its fair market value at the time of the decedent's death” … . An estate tax is a tax on the privilege of passing on property, not a tax on the privilege of receiving property; “[t]he tax is on the act of the testator not on the receipt of the property by the legatees” … .

Therefore, contrary to the petitioner's contention, the life estates in the condominium and cooperative apartment granted by the decedent to his longtime companion upon the decedent's death did not diminish the value of those properties for estate tax purposes and should not have been taken into account on the estate tax return. Matter of Cleary, 2016 NY Slip Op 04410, 2nd Dept 6-8-16

TRUSTS AND ESTATES (LIFE ESTATES IN A CONDOMINIUM AND COOPERATIVE APARTMENT DID NOT DIMINISH VALUE OF THE PROPERTIES FOR ESTATE TAX PURPOSES)/TAX LAW (ESTATE TAX, (LIFE ESTATES IN A CONDOMINIUM AND COOPERATIVE APARTMENT DID NOT DIMINISH VALUE OF THE PROPERTIES FOR ESTATE TAX PURPOSES)/ESTATE TAX (LIFE ESTATES IN A CONDOMINIUM AND COOPERATIVE APARTMENT DID NOT DIMINISH VALUE OF THE PROPERTIES FOR ESTATE TAX PURPOSES)

June 8, 2016/by CurlyHost

Municipal Law, Tax Law

PETITIONER’S EMPIRE ZONE CERTIFICATION PROPERLY REVOKED.

The Third Department determined decertification of petitioner's Empire Zone status was supported by sufficient evidence, including, but not limited to, petitioner's affirmative response to whether it was subject to a Tax Law provision which required it to demonstrate the business was formed for a valid business purpose:

As a participant in the Empire Zones Program, petitioner was required to complete and submit business annual reports (hereinafter BARs) that provided information about its activities, employment and investments (see 5 NYCRR 11.7). The BAR that petitioner completed for 2006 included a section inquiring whether its business was subject to a recently-enacted Tax Law provision that excluded certain firms from receiving tax benefits unless they could establish that they had been formed for a valid business purpose (see Tax Law § 14 [j] [4] [B]). Petitioner responded affirmatively and, as required by the form, attached a statement explaining that it had been formed by combining two previously-existing accounting firms for various valid business purposes. We find that petitioner's affirmative response on the 2006 BAR, taken together with facts set forth in the attached explanatory statement, provided a rational basis for the Commissioner's decertification decision.

Petitioner's mere affirmative response to the question whether the Tax Law provision was applicable to its business, without more, would not have sufficed to provide a rational basis for the determination that it was a shirt-changer. * * * However, the statement that petitioner attached to the 2006 BAR to demonstrate that it was formed for a valid business purpose contained factual information that was relevant to the Commissioner's 2009 analysis. In the statement, petitioner averred that it was formed in 2002 by combining two previously existing accounting firms, one of which — then known as Dermody, Burke & Brown, P.C. — had been engaged in the practice of public accountancy for 50 years. According to the statement, the 14 shareholders of this firm joined with the seven partners of a second accounting firm, Pasquale and Bowers, LLP, to become members of a new entity, which subsequently carried on the combined practices of the two previous firms. These factual assertions were sufficient to give rise to the reasonable inference that petitioner had caused individuals to transfer from existing employment with the previous two accounting firms to similar employment with petitioner, and that — as petitioner's members were the same individuals who had been the members and shareholders of its predecessors — its ownership was similar to that of the prior firms. Accordingly, there was an evidentiary basis for the determination that petitioner was a shirt-changer within the meaning of the 2009 legislation … . Matter of Dermody, Burke & Brown, CPAs, LLC v Department of Economic Dev., 2016 NY Slip Op 04286, 3rd Dept 6-2-16

MUNICIPAL LAW (PETITIONER'S EMPIRE ZONE CERTIFICATION PROPERLY REVOKED)/TAX LAW (PETITIONER'S EMPIRE ZONE CERTIFICATION PROPERLY REVOKED)/EMPIRE ZONES PROGRAM (PETITIONER'S EMPIRE ZONE CERTIFICATION PROPERLY REVOKED)

June 2, 2016/by CurlyHost

Municipal Law, Tax Law

PETITIONER’S EMPIRE ZONE CERTIFICATION SHOULD NOT HAVE BEEN REVOKED.

The Third Department, reversing the Empire Zone Designation Board, determined the decision to revoke petitioner's Empire Zones Program certification was arbitrary and capricious. The court noted that petitioner's affirmative response to a question mandated by the Tax Law concerning whether petitioner had ever been required to demonstrate the business was formed for a valid business purpose was not, standing alone, a basis for decertification:

In deciding whether a business should be decertified for failing the shirt-changer test, the Commissioner was directed to determine whether the entity had “caused individuals to transfer from existing employment with another business enterprise with similar ownership . . . to similar employment with the certified business enterprise or if the enterprise acquired, purchased, leased, or had transferred to it real property previously owned by an entity with similar ownership, regardless of form of incorporation or organization” (General Municipal Law § 959 [a] [v] [5]; see General Municipal Law § 959 [w]). Petitioner contends that it never engaged in such transfers of real property or employment, that the administrative record lacks any evidence to the contrary, and, thus, that there is no factual basis for the determination that this provision was violated. We agree, and therefore find that the Board's denial of petitioner's appeal from the revocation of its certificate was “arbitrary and capricious and without a rational basis” … . Matter of PG Erie Props., LLC v Department of Economic Dev., 2016 NY Slip Op 04284, 3rd Dept 6-2-16

MUNICIPAL LAW (PETITIONER'S EMPIRE ZONE CERTIFICATION SHOULD NOT HAVE BEEN REVOKED)/TAX LAW (MUNICIPAL LAW, PETITIONER'S EMPIRE ZONE CERTIFICATION SHOULD NOT HAVE BEEN REVOKED)/EMPIRE ZONES PROGRAM (PETITIONER'S EMPIRE ZONE CERTIFICATION SHOULD NOT HAVE BEEN REVOKED)

June 2, 2016/by CurlyHost

Constitutional Law, Education-School Law, Tax Law

EDUCATION LAW STATUTE REQUIRING A 60% MAJORITY TO AUTHORIZE A PROPERTY TAX INCREASE OVER THE STATUTORY CAP (TO FUND SCHOOL DISTRICTS) IS CONSTITUTIONAL.

The Third Department, in a full-fledged opinion by Justice Devine, over a partial dissent, determined the Education Law statute which requires a 60% majority vote to increase property taxes beyond the statutory cap (to fund local school districts) is constitutional. The Election Article of the New York Constitution, the due process clause, the right to equal protection under the law, and the fundamental right to vote were deemed not to have been violated by the statute. With regard to the equal protection argument, the court wrote:

Defendants suggest, and plaintiffs do not dispute, that Education Law § 2023-a ,,, [was] designed with the legitimate goal in mind of restraining onerous property tax increases that were believed to be depressing economic activity in the State … . Plaintiffs suggest that it is irrational to achieve this legitimate aim in a manner that impairs local control of schools and deters poorer school districts that would otherwise seek a property tax increase over the tax cap to keep pace with educational needs. It suffices to say that, while Education Law § 2023-a … incentivize[s] districts and their residents to avoid property tax increases over the tax cap, neither prevents such increases if sufficient community support exists for them (see Education Law § 2023-a [6]). The differences in the services offered by various school districts accordingly result from a permissible consequence of local control over schools, namely, the variable “willingness of the taxpayers of [different] districts to pay for and to provide enriched educational services and facilities beyond what the basic per pupil expenditure figures will permit” … . Inasmuch as there is nothing irrational in this, plaintiffs' equal protection claims fail … . New York State United Teachers v State of New York, 2016 NY Slip Op 03572, 3rd Dept 5-5-16

EDUCATION-SCHOOL LAW (EDUCATION LAW STATUTE REQUIRING A 60% MAJORITY TO AUTHORIZE A PROPERTY TAX INCREASE OVER THE STATUTORY CAP (TO FUND SCHOOL DISTRICTS) IS CONSTITUTIONAL)/TAX LAW (EDUCATION LAW STATUTE REQUIRING A 60% MAJORITY TO AUTHORIZE A PROPERTY TAX INCREASE OVER THE STATUTORY CAP (TO FUND SCHOOL DISTRICTS) IS CONSTITUTIONAL)/CONSITUTIONAL LAW (EDUCATION LAW STATUTE REQUIRING A 60% MAJORITY TO AUTHORIZE A PROPERTY TAX INCREASE OVER THE STATUTORY CAP (TO FUND SCHOOL DISTRICTS) IS CONSTITUTIONAL)

May 5, 2016/by CurlyHost

False Claims Act, Tax Law

Attorney General’s Complaint Against Sprint Stated a Cause of Action Under the False Claims Act Re: Sales Tax On Wireless Phone Calls

The Court of Appeals, in a full-fledged opinion by Judge Lippman, over a partial dissent, determined the attorney general’s (AG’s) complaint sufficiently stated a cause of action against Sprint, based upon the False Claims Act (FCA), alleging the knowing submission of false sales tax statements re: interstate and international wireless phone calls. The court succinctly stated its holding as follows:

… (1) the New York Tax Law imposes sales tax on interstate voice service sold by a mobile provider along with other services for a fixed monthly charge; (2) the statute is unambiguous; (3) the statute is not preempted by federal law; (4) the Attorney General’s (AG) complaint sufficiently pleads a cause of action under the New York False Claims Act (FCA)(State Finance Law § 187 et seq.); and (5) the damages recoverable under the FCA are not barred by the Ex Post Facto Clause of the United States Constitution. People v Sprint Nextel Corp., 2015 NY Slip Op 07574, CtApp 10-20-15

October 20, 2015/by CurlyHost

Tax Law, Trusts and Estates

Instructions In Will Re: Payment of Estate Taxes Properly Followed

The Second Department determined the instruction in the will that estate taxes be paid out of the residuary estate was properly followed:

All estate tax payments must be equitably apportioned among recipients of estate assets “unless otherwise provided in the will or non-testamentary instrument” (EPTL 2-1.8[c]), and such a contrary direction must be clear and unambiguous … . Although there is a strong policy favoring apportionment …, that policy gives way where the clear and unambiguous wishes of the testator direct otherwise … . Analysis begins with the general rules of will construction which provide that a court is to determine and effectuate the intent of the testator and that in doing so, it must construe his or her words according to their ordinary and natural meaning … .

Here, the second paragraph of the decedent’s will directs that all estate taxes, “in respect to any property required to be included in my gross estate for estate tax or like purposes by any such government, whether the property passes under this Will or otherwise, without contribution by any recipient of any such property,” were to be paid out of the residuary estate. The words clearly and unambiguously reflect the decedent’s intent that his preresiduary and nontestamentary beneficiaries … are to take their property without liability for the payment of any estate taxes, regardless of whether the taxes are imposed on property and assets passing under the will or outside of the will … . Matter of Priedits, 2015 NY Slip Op 07508, 2nd Dept 10-14-15

October 14, 2015/by CurlyHost

Contract Law, Tax Law

Parent Corporation Not Entitled to Qualified Empire Zone Enterprise (QEZE) Property Tax Credits Because a Related But Separate Entity Did Not Make Payments Required by Its “Payment In Lieu of Taxes” (PILOT) Agreement

With regard to a building in the City of Rochester, the Third Department determined a parent corporation was not entitled to Qualified Empire Zone Enterprise (QEZE) tax credits because a related but separate limited partnership, Rochwil, did not make payments required by its “payment in lieu of taxes” (PILOT) agreement.

The primary issue presented in this proceeding is whether petitioner could claim a refund for unused QEZE real property tax credits that were reported by its subsidiary based on its partnership interest in Rochwil for PILOT payments that were not made. As the taxpayer seeking a tax credit, petitioner “bears the burden of establishing that such credit is unambiguously set forth in the statute” … . To meet this burden, petitioner must show that its “interpretation of the statute is not only plausible, but also that it is the only reasonable construction” … .

We cannot conclude that petitioner met its burden here. As a QEZE, Rochwil was entitled to a credit for eligible real property taxes (see Tax Law former § 15 [a]), and it is not disputed that petitioner was entitled to seek such credit against its corporate franchise taxes during the years at issue (see Tax Law former § 210 [27]). As relevant to this dispute, the term “eligible real property taxes” includes both “taxes imposed on real property which is owned by the QEZE . . . provided such taxes become a lien on the real property” and “[PILOT payments] made by the QEZE to . . . a public benefit corporation” (Tax Law former § 15 [e]). Contrary to petitioner’s claim, the plain and unambiguous language of the statute provides that real property taxes imposed are distinct from PILOT payments made, and where, as here, a QEZE does not own the property but is instead subject to a PILOT agreement with the property owner, the PILOT payments must be made in order to qualify for the credit provided by Tax Law former § 15 … . Matter of Wilmorite, Inc. v Tax Appeals Trib. of the State of N.Y., 2015 NY Slip Op 06386, 3rd Dept 7-30-15

July 30, 2015/by CurlyHost