Happy New Year, constant readers. We had a special edition a few weeks ago, and then we were distracted by other developments. But now we are back to our regular menu consisting of (mostly) timies . . . Oliver Twist’s diet was more fulfilling. So we have several weeks’ worth of cases, including fourteen determinations and a few orders. And this week I am trying something new. I am going to offer our summaries by prioritizing the more interesting cases. Fortunately, one of the orders is pretty interesting (in the “They argued what!?” sense), so it gets the first slot.
But first, a little “inside baseball”: Normally the ALJ’s issue their determinations and orders on Thursdays. We have been told that this practice allows taxpayers some extra time to file exceptions. Exceptions are due within 30 days of the determinations. The day an exception is due for a determination issued on a Thursday is the fifth Saturday following the issuance of the determination. But when a filing due date falls on a Saturday or Sunday, the law extends the time to file to the next business day (normally the next Monday). So issuing determinations on Thursdays gives petitioners and the Division a couple of extra days to file their exceptions. The December 16, 23 and 30 determinations and orders were issued on Wednesdays, so the parties will need to be extra-careful about adhering to the 30-day deadlines falling in January.
ORDERS
Matter of Bey; Judge Law; Division’s Rep.: Adam Roberts; Petitioner’s Rep.: pro se; Articles 28 and 29 (by Chris Doyle)
This is the second order issued in this case. My tongue-in-cheek write-up of the first order may be found here. In essence, Petitioner thinks he is not required to pay sales or use tax on a truck and trailer he purchased and/or registered in New York. Petitioner’s primary basis for the claimed exemption is that he is a tax-exempt “Moorish-American.” I have read all of Articles 28 and 29 and have not found anything supporting Petitioner’s claimed exemption. But maybe if he were the ambassador to the US (or the UN) from Moor-America and the truck/trailer was consulate property he’d have a case under some treaty.
Petitioner advanced other equally-meritorious claims regarding the jurisdiction of the Audit Division, the jurisdiction of the DTA, etc. These jurisdictional claims were addressed in Judge Law’s terse Order denying Petitioner’s motion on all points.
I think the Judge may be frustrated by this case. In footnote 1, he pretty much begs the Division to introduce the Notices into the record so he can rule on their validity, and he questions the wisdom of the Division’s directive to the DMV to register the truck and trailer without the tax having first been paid. And then there is this: “To the extent that petitioner is alleging that the matter should be dismissed because the Division of Tax Appeals lacks jurisdiction on his ‘counter-claim’ wherein he seeks damages for alleged violations of the fair debt collection practices act, petitioner’s reasoning is circular and nonsensical.”
I totally empathize with the Judge. It’s illogical for a petitioner to file a petition for a DTA hearing and then challenge the jurisdiction of the DTA to adjudicate the matter.
Matter of Pradhan; Judge Russo; Division’s Rep.: Christopher O’Brien; Petitioners’ Rep.: Jhonatan Mondragon; Article 22 (by Chris Doyle)
Petitioners and the Division agreed to submit the case in accordance with a submission schedule established by the Judge. Petitioners missed their first submission deadline, which fell on April 15, 2020, pretty much when the whole COVID thing hit the fan. Then they missed their deadline for filing their reply brief on August 6. On September 21, Petitioners filed a motion seeking “an order ‘granting an indefinite extension of time’ for the submission of briefs, affidavits and other proofs in this matter . . . due to the COVID-19 crises and contend(ing) that the deadline for the filing of papers, including briefs, affidavits and other documents ha(d) been tolled by the Governor’s Executive Order 202 and subsequent extensions.”
Judge Russo, finding that the Executive Orders do not apply to the DTA and that Petitioners’ request for an extension of time to file their documents and briefs was untimely, denied the motion.
DETERMINATIONS
Matter of Dynamic Logic, Inc.; Judge Russo; Division’s Rep.: Anita K. Luckina; Petitioner’s Reps.: Amy F. Nogid and Leah Robinson; Articles 28 and 29 (by Joseph Endres)
Petitioner provided marketing analysis services that the Division viewed to be taxable information services. Specifically, Petitioner helped its customers measure their advertising effectiveness by (1) surveying consumers or internet users who had seen a particular advertisement and those who had not seen the ad, (2) comparing and analyzing the results, and (3) informing its clients as to how well the ad performed and what the clients could do to improve ad performance. At first blush, there seems to be significant similarity to the MarketShare Partners, LLC case we reviewed a few weeks ago. In that case, the taxpayer was a marketing analytics firm that enabled large companies to measure, predict, and improve the impact of their marketing spend. The ALJ concluded that the main service was a nontaxable marketing consulting service rather than a taxable information service. So we’d expect a similar result in this case, right? Not so fast . . .
As in MarketShare, this Petitioner argued that its primary function was to provide marketing consulting services. But the Judge concluded that this assertion was contrary to the evidence presented. According to the Judge, the primary function of the transactions was to collect information regarding the effectiveness of the customers’ advertising by conducting surveys, analyze that information, and furnish that information and analysis to its clients via reports. In other words, the information predominated, not the consulting. The Judge relied on the fact that the information collected by Petitioner was integral to its function, and without the collected data, Petitioner would have nothing to analyze and report to its clients. The Judge cited testimony from Petitioner’s witness explaining that Petitioner’s customers “want to know how well their advertising campaigns are performing.” In other words, it seems that the Judge was focused on the backward-looking nature of the service. The Judge further concluded, “Petitioner gathers information on the advertisement’s performance using its data collection techniques, including its use of tracking and survey technology, analyzes the data collected, and then furnishes its analysis of the information to its clients.”
I can’t help wondering why there wasn’t additional discussion on the post-survey analysis and consultation. As detailed in the facts of the case, the main product offerings seem to include a post survey consultation, usually via phone call, with one of Petitioner’s analysts. These facts are not mentioned in the Conclusions of Law section of the decision. If these consultations focused exclusively on the how well the previous ad performed, then I think the ALJ probably got it right and the information was the primary function of the transaction. But if the post-survey consultation focused more on prospective marketing activity (i.e., “what did we learn and how should we structure our next campaign to make it more effective”), then I think there’s an argument to be made that the primary function is not the past marketing campaign data, but, rather, future marketing campaign design and consultation – a nontaxable service. It’s difficult to know exactly what was argued in Petitioner’s post-hearing briefs, but if there was a significant discussion of forward-looking marketing consultation, then the determination contains a significant analytical hole that I hope will be addressed by the Tribunal. If not, then, as I said, the ALJ probably got it right and the marketing campaign data was likely the primary function.
Even if the information was the primary function of the transactions, the sales might still be nontaxable if the information was “personal or individual in nature” and which was “not or may not be substantially incorporated in reports furnished to other persons.” Here, the ALJ found that the information did not qualify for this exclusion because, although the information was found to be individual and personal, Petitioner’s contracts clearly indicated that Petitioner “retains the rights to copy, distribute, resell, modify and otherwise use the data it collects from end users through the performance of its services for clients and may use the data in connection with its . . . database, so long as it does not disclose the data in a manner that identifies the client or its affiliates.” In other words, under the contracts the data may be substantially incorporated by Petitioner into reports furnished to others.
One final note: the ALJ adds a sentence in support of the conclusion that the information does not qualify for the “personal or individual” exclusion because Petitioner’s “clients may furnish the data and information collected through petitioner’s services in the client’s own reports to the public and its clients.” This seems to make the exclusion too narrow. What a customer does with the information once it has it, whether it chooses to disclose it in some manner, should not impact whether the information as between the vendor and customer qualifies as “personal or individual.” We should watch for such a limiting application of the exclusion going forward.
Secureworks, Inc.; Judge DiFiore; Division’s Rep.: Stephanie Scalzo; Petitioner’s Rep.: Charles Rice; Articles 28 and 29 (by Joseph Endres)
A fight might be brewing over the Division’s longtime conclusion that IT monitoring services can constitute taxable protective services. Here, Petitioner offered managed and monitored security services, giving customers information to prevent, detect, respond to, and predict cyberattacks. The question in the case was whether these services constituted either taxable protective and detective services or taxable information services.
Petitioner generally provided two broad services: (1) management (i.e., making changes to the hardware or software to help the customer keep its hardware or software operating properly), and (2) monitoring (i.e., reviewing the events that a device or software is producing and advising customers when they should investigate an event further). The ALJ looked to both the language of the Tax Law as well as the definition of “watch, guard or patrol agency” provided in the General Business Law to conclude that Petitioner’s managing, monitoring, and scanning services constituted protective services subject to tax. The ALJ did not cite to any case law to support this conclusion. Indeed, the only case discussed in detail regarding the “protective/detective” analysis was the Tax Appeals Tribunal case AlliedBarton Security Services Inc. cited by Petitioner. In AlliedBarton, the Tribunal concluded that checking visitors’ identification and issuing them passes to enter a building did not rise to the level of taxable protective and detective services. The ALJ distinguished this case by concluding that Petitioner’s services were more akin to alarm services, which are clearly taxable under the law and referenced as taxable in AlliedBarton. Though the Division has long treated IT monitoring services as taxable protective services (see TSB-A-15(47)S; TSB-A-10(14)S), there is a lack of binding interpretive authority and case law on the issue. So, we won’t be surprised to see this case on the Tribunal’s docket.
Though the Judge found Petitioner’s services to be taxable protective services, the Judge also addressed whether the services constituted taxable information services. Here, the Judge applied a primary function analysis to conclude that most of the services did not qualify as information services. A few of Petitioner’s charges: those for its Threat Intelligence Service, Attacker Database add-on and Enterprise Brand Surveillance, were deemed to be information services because they entailed access to – in most cases – public information regarding the current threat landscape.
Matter of The Morris A. Hazan Family Foundation; Judge DiFiore; Division’s Rep.: James Passineau; Petitioner’s Reps.: Robert Pluth and David Blickenstaff; Article 9-A (by Chris Doyle)
For many years Petitioner, a charity, didn’t know it was subject to New York’s unrelated business income tax (“UBIT”). In 2015, it discovered that it had a UBIT liability, and, in November 2015, it filed returns for the 2007-2014 tax years. In August 2018 (i.e., less than three years after it had filed the returns) it filed refund claims for the tax it paid for the years that would have been excluded from taxation had Petitioner filed through New York’s Voluntary Disclosure and Compliance Program (VDCP). Taxpayers that take advantage of the VDCP are normally required to file returns and pay taxes only for the three most-recently-ended tax years where there is a tax liability. Petitioner did not apply to participate in the VDCP. So the Judge determined that Petitioner was not entitled to the protection of the VDCP’s limited look-back rule, and sustained the Division’s denial of the refund claim.
Matter of Adams; Judge Behuniak; Division’s Rep.: Peter Ostwald; Petitioner’s Rep.: pro se; Article 22 (by Chris Doyle)
In this submitted case, the Judge ruled that the allegations in the Petition were deemed admitted due to the Division’s failure to serve the Answer on Petitioner by mailing it to the address provided in the petition within 75 days of the DTA’s acknowledgement of the petition. However, the victory in the procedural battle did not lead to Petitioner’s victory in the tax war.
The Judge found that Petitioner had not shown, with clear and convincing evidence, that he changed his domicile from NYC to Florida in 2012. Petitioner did not appear to testify on his own behalf. Petitioner filed as a New York resident in 2011 and 2013, the two years adjacent to the year for which he claimed the change of domicile. His “near and dear” items were not moved to Florida until after the year at issue. Petitioner spent 177 days in NYC in 2012, and due to business and other travel, it appears that he spent more time in NYC than at his claimed home in North Miami Beach, FL.
Petitioner’s case was a difficult one. But, he could have made it better by appearing at a hearing. As we have previously observed, it is almost impossible to win a domicile case if the petitioner doesn’t testify.
Matter of Othman; Supervising ALJ Friedman; Division’s Rep.: Mary Hurteau; Petitioner’s Rep.: pro se; Article 22 (by Chris Doyle)
The Judge found that the Bureau of Conciliation and Mediation Services proved both its standard procedures and that they were followed when it mailed the Conciliation Order sustaining the original Notice to Petitioner and her representative (who was not qualified to represent her at the DTA) at their last known addresses on August 2, 2019. Therefore the petition filed on January 14, 2020 was a couple of months late. The Judge dismissed the case following the issuance of a Notice of Intent to Dismiss by the Division of Tax Appeals.
Matter of Yahya and Muslih; Judge Connolly; Division’s Rep.: Mary Hurteau; Petitioners’ Rep.: pro se; Article 22 (by Chris Doyle)
The Judge found that the Division proved its standard procedures but not that they were followed when it mailed Notices to Petitioners and their representative (who was not qualified to represent them at the DTA) at their last known addresses on April 5 and 17, 2019. However, there was uncontroverted proof that the Notices were actually delivered on April 11 and 20, 2019, respectively. Therefore the BCMS requests filed by Petitioners on August 20, 2019 were late by more than a month. So the Judge granted the Division’s motion for summary determination on timeliness grounds.
Matter of Yim; Judge Behuniak; Division’s Rep.: Hannelore Smith; Petitioner’s Rep.: pro se; Tax Law § 171-v Driver’s License Suspension (by Chris Doyle)
This one is a little different.
The Division canceled the Notice of Proposed Driver’s License Suspension while the hearing in the matter was pending. But Petitioner apparently sought to follow through on its challenge to the original Notice giving rise to the Proposed Suspension. Having found that the original Notice had been previously sustained in a prior ALJ determination, for which a timely exception had not been taken, the Judge found that Petitioner had exhausted, or failed to utilize, her administrative remedies and could not relitigate the validity of the Notice. So the Judge granted summary determination to the Division.
Matter of Warchol; Supervising ALJ Friedman; Division’s Rep.: Mary Hurteau; Petitioners’ Rep.: pro se; Article 22 (by Chris Doyle)
The Judge found that the Bureau of Conciliation and Mediation Services proved both its standard procedures and that they were followed when it mailed the Conciliation Order sustaining the original Notice to Petitioners and their representative (who was not qualified to represent them at the DTA) at their last known addresses on April 19, 2019. Therefore the petition filed on January 3, 2020 was late. The Judge dismissed the case following the issuance of a Notice of Intent to Dismiss by the Division of Tax Appeals.
Matter of Vargas; Judge Russo; Division’s Rep.: Mary Hurteau; Petitioner’s Rep.: pro se; Article 22 (by Chris Doyle)
The Judge found that the Division proved its standard procedures and that they were followed when it mailed Notices to Petitioner at her last known address on August 27, 2019. Therefore the BCMS requests filed by Petitioner on January 31, 2020 were late by a couple months, and the Judge granted the Division’s motion for summary determination on timeliness grounds.
Matter of Samman; Supervising ALJ Friedman; Division’s Rep.: Maria Matos; Petitioner’s Rep.: pro se; Article 22 (by Chris Doyle)
The Judge found that the Bureau of Conciliation and Mediation Services proved both its standard procedures and that they were followed when it mailed the Conciliation Order sustaining the original Notice to Petitioners and their representative (who was not qualified to represent them at the DTA) at their last known addresses on July 26, 2019. Therefore the petition filed on January 13, 2020 was late. The Judge dismissed the case following the issuance of a Notice of Intent to Dismiss by the Division of Tax Appeals.
Matter of Mansi; Supervising ALJ Friedman; Division’s Rep.: Colleen McMahon; Petitioners’ Rep.: pro se; Article 22 (by Chris Doyle)
The Judge found that the Bureau of Conciliation and Mediation Services proved both its standard procedures and that they were followed when it mailed the Conciliation Order sustaining the original Notice to Petitioners and their representative (who was not qualified to represent them at the DTA) at their last known addresses on May 31, 2019. Therefore the petition received by the DTA on December 3, 2019 (and mailed by Petitioners on November 26, 2019) was several months late. The Judge dismissed the case following the issuance of a Notice of Intent to Dismiss by the Division of Tax Appeals.
Matter of Lopez-Reyes; Supervising ALJ Friedman; Division’s Rep.: Jennifer Hink-Brennan; Petitioner’s Rep.: pro se; Article 22 (by Chris Doyle)
The Judge found that the Bureau of Conciliation and Mediation Services proved both its standard procedures and that they were followed when it mailed the Conciliation Order sustaining the original Notice to Petitioner and her representative (who was not qualified to represent her at the DTA) at their last known addresses on August 2, 2019. Therefore the petition filed on January 14, 2020 was late. The Judge dismissed the case following the issuance of a Notice of Intent to Dismiss by the Division of Tax Appeals.
Matter of Sabour and Elgherych; Judge Maloney; Division’s Rep.: Maria Matos; Petitioners’ Rep.: pro se; Article 22 (by Emma Savino)
The Judge found that the Bureau of Conciliation and Mediation Services proved both its standard procedures and that they were followed when it mailed the Conciliation Order sustaining the original Notice to Petitioners at their last known address on April 17, 2019. Therefore the BCMS request filed by Petitioners on August 5, 2019 was late by a few weeks, and the Judge granted the Division’s motion for summary determination on timeliness grounds.
Matter of Yakoup and Asaf; Supervising ALJ Friedman; Division’s Rep.: Christopher O’Brien; Petitioners’ Rep.: pro se; Article 22 (by Emma Savino)
The Judge found that the Bureau of Conciliation and Mediation Services proved both its standard procedures and that they were followed when it mailed the Conciliation Order sustaining the Notice to Petitioners and their representative (who was not qualified to represent them at the DTA) at their last known addresses on May 31, 2019. Therefore the petition filed on December 11, 2020 was late. The Judge dismissed the case following the issuance of a Notice of Intent to Dismiss by the Division of Tax Appeals.