The Third Department of the New York Supreme Court, Appellate Division recently issued a somewhat surprising ruling that should expand taxpayers’ access to protest rights within the state’s Division of Tax Appeals (“DTA”).
In the case, Matter of Dumpling Cove, LLC, the Petitioner was audited and subsequently signed a Statement of Proposed Audit Change in January 2018, agreeing that it owed over $500,000 in sales tax, interest, and penalties. Shortly thereafter, the Petitioner made a partial $100,00 payment, and the Department responded with a letter confirming receipt of the $100,000 check and, importantly, referring Petitioner to the Department’s website “to view your balance due.”
No further payments were made, so the Department proceeded to collect. End of story, right?
Not so fast. After the Department docketed a tax warrant in July 2018, the Petitioner filed an appeal to DTA, arguing that its partial payments were improperly credited to the interest, rather than to the underlying principle of tax owed. The ALJ dismissed, finding that the Division of Tax Appeals was without jurisdiction to address the Petitioner’s claim because the Petitioner had already agreed to the Statement of Proposed Audit Change and had no active appeal rights. When the Petitioner appealed to the Tax Appeals Tribunal, it got the same result. So it filed an Article 78 proceeding challenging the Tribunal’s decision, which brings us to the Third Department.
As noted by the court, there are rules regarding what triggers the right to an appeal. Specifically, a proceeding is commenced “with the filing of a petition in response to a statutory notice.” 20 NYCRR 3000.1(f). A statutory notice is defined as “any written notice of the Commissioner of Taxation and Finance which advises a person of a tax deficiency [or a] determination of tax due.” 20 NYCRR 3000.1(k). In its filing, the Petitioner asserted that the act of viewing its online account triggered the Division’s jurisdiction and conferred the right to a hearing. The majority agreed.
In arriving at its conclusion, the court relied on a liberal reading of the relevant statutes and regulations and on principles of due process and public policy encouraging procedural clarity, uniformity, speed, and fairness. First, it highlighted the broad language of Tax Law § 2008(1), emphasizing that a taxpayer may file a petition challenging “any written notice.” Then, it turned to the policies underpinning New York’s regulations: “the regulations ‘shall be liberally construed to secure the just, speedy and inexpensive determination of every controversy.’” 20 NYCRR 3000.0(c); see also NYCRR 3000.0(a). The majority relied on these principles to reject the Department’s proposed remedy that the Petitioner pay in full and then apply for a refund because doing so would not be sufficiently fair, fast, or cheap. Accordingly, the majority reasoned that by specifically directing the taxpayer to view its balance due on the Department’s website, the Department used its website as a notice for purposes of Tax Law § 2008.
But the decision was not unanimous. The dissent argued that DTA lacked jurisdiction, citing multiple reasons. First, the Petitioner was not contesting a written notice within the definition of 20 NYCRR 3000.1(k), but was instead contesting the outstanding amount of its past-due, fixed and final tax liability and allocation of partial payments. These issues, it emphasized, fall under the “collection of taxes,” over which the Division does not have jurisdiction under 20 NYCRR 3000.1(d). The dissent also argued that the majority’s approach was imprecise, noting first that the record was silent as to what exactly the Petitioner viewed on its online account, and second that if voluntarily viewing one’s online triggers and appeal, then the 90-day period to file would self-renew at the discretion of the taxpayer. It likened the situation to viewing a Consolidated Statement of Tax Liabilities, which reports a taxpayer’s past-due tax liabilities and which has been repeatedly classified as not qualifying as a statutory notice. Finally, the dissent stressed that the taxpayer was not deprived of due process as it had other avenues by which it could seek relief (although the dissent didn’t cite any).
The dissent raises some reasonable points, but the majority’s inclination to ensure that taxpayers have as expansive appeal rights as possible is admirable. More than that, it’s also justifiable based on the broad language of Tax Law § 2008. Plus, from a practical perspective, we have found that it can be very difficult to deal with this partial-payment issue during the collections process (the department almost always applies the funds in the least helpful way possible), and taxpayers are typically without any formal way of protesting the application of payments absent full payment of the tax due. So now at least taxpayers will have some other outlet to address the issue. Kudos to the court for taking this approach.
