TiNY Report for January 31, 2019 (covering DTA cases issued January 24)

This week we had one Tribunal Decision and three ALJ Determinations.

ALJ DETERMINATIONS

Matter of Netkin; Judge: Friedman; Division’s Rep: Mary Hurteau; Taxpayer’s Rep: pro se; Article 22.  Petitioners filed a DTA petition for redetermination of a deficiency or for refund of NYS personal income tax, which included a copy of IRS Form 4089-B, Notice of Deficiency-Waiver indicating a deficiency of federal income tax and penalties.  Because the petition did not include a statutorily-required New York State/City Notice of Deficiency or Conciliation Order, the Judge determined DTA did not have jurisdiction over the case.  The Judge, on his own motion, dismissed the petition.

Matter of Times Square Restaurant Group, LTD.; Judge: Law; Division’s Rep: Adam Roberts; Taxpayer’s Rep: Alvan Bobrow; Articles 28 and 29.  Case dismissed on timeliness grounds.  The Judge found that the Division proved its standard mailing practices and that those practices were followed when the Notice of Determination was mailed to both Petitioner and its representative at their last known addresses on August 5, 2016. Petitioner’s BCMS request was not mailed until November 7, 2016, or 94 days later.

Matter of Risio; Judge: Galliher; Division’s Rep: Christopher O’Brien; Taxpayer’s Rep: Irwin Gitlin; Article 22.  Memorare Realty Holding Corp. (“Memorare”) was a subchapter S corporation, of which Petitioners Ralph and Louise Risio were each 50% shareholders.  In 2001, Memorare applied to be in the Empire Zones Program.  The Empire Zones Program Certificate of Eligibility was issued to Memorare on August 19, 2002, and specified that its eligibility for empire zone benefits “shall be in effect as of 12/26/01. . . .”  Memorare filed its NY S Corp Franchise return for 2011 and 2012 claiming QEZE Real Property Tax Credits (“QEZE RPTC”), and Petitioners filed their NYS income tax return for 2011 and 2012 claiming flow-through QEZE RPTC at the 100% level available to QEZE’s that had been certified for ten years or less. 

There was no dispute that Memorare was certified and became eligible to claim the QEZE RPTC and that Petitioners were entitled to receive QEZE RPTC.  The question here was the amount of RPTC to which Memorare and thus Petitioners were entitled for the two tax years at issue.  The RPTC is the product of three factors: (1) The real property taxes paid, (2) The employment increase factor; and (3) The benefit period factor.  In this case, the benefit period factor was at issue, and the resolution of that issue depended on the taxable year in which Memorare’s 15 year business tax benefit period began – 2001 or 2002.  Petitioners argued the benefit period should have been deemed to have begun in 2002, while the Division argued it should be counted from 2001, which is the effective date on Memorare’s Certificate of Eligibility. 

The Judge parsed the statute and determined that, under Tax Law section 14, the benefit period’s beginning was measured with reference to its “test year,” which is defined by statute as “the last taxable year of the business enterprise ending on or before the test date.”  By statute, test date is the later of July 1, 2000 or the date prior to July 1, 2005 on which the business was certified.  Here, Memorare’s effective date of certification was specified as December 26, 2001, which appeared on its certificate of eligibility and was also the date consistently listed on Memorare’s and Petitioners’ tax returns as the date of first certification.  The Judge determined December 26, 2001 was Memorare’s test date, thus its business tax benefit period for purposes of the RPTC commenced with the 2001 tax year.  So, 2011 was the eleventh (as opposed to the tenth) benefit year and 2012 was the twelfth (as opposed to the eleventh) benefit year.  The Judge concluded that based on that benefit period, Memorare’s benefit period factor for the 2011 and 2012 tax years was properly reduced by the Division.  The Judge sustained the Notice of Deficiency and Notice of Disallowance.

TRIBUNAL DECISION

Matter of Souzzi and Spencer; Division’s Rep: Ellen Roach; Taxpayer’s Rep: pro se; Article 22.  Petitioners claimed a tax credit for qualified solar energy system equipment expenditures on their 2012 NYS return for their ground source heat pump (“GSHP”).  The Division denied their credit entirely because geothermal systems don’t qualify for the credit since they use energy stored within the earth’s core as opposed to systems that generate heat directly.  Petitioners argued they relied on statements from the Division that GSHP systems qualified for the solar energy system equipment tax credit. 

First, the Tribunal assumed Petitioners were attempting to argue that the Division was estopped from denying the tax credit at issue, so the Tribunal went through the three-part test to determine whether estoppel was proper.  The Tribunal looked at whether Petitioners were entitled to rely on verbal statements of Division personnel that GSHP systems qualified for the solar energy system equipment tax credit.  Petitioner had spoken to a Division tax representative, who told him they qualified.  However, Petitioner did not get confirmation in writing and didn’t ask for a written advisory opinion.  The Tribunal determined Petitioners did not have a right to rely on those verbal assurances because they were not in writing, so there was no way to verify the information provided to the Division’s representatives (i.e. how the GSHP system was described) or what the representatives said.  Having found that it wasn’t reasonable for Petitioners to rely on the Division’s verbal assurances, the Tribunal found it wasn’t necessary to address the remaining elements of the test. 

Second, the Tribunal determined Petitioners failed to meet their burden to prove entitlement to the solar energy system equipment tax credit.  The Tribunal noted that a strict and narrow construction of the statute providing the credit reasonably excludes geothermal systems.  As the Tribunal previously decided in Matter of Grimm, the difference is that solar energy systems use solar energy directly, and geothermal energy systems use ground source heat, a rational distinction for purposes of the solar energy credit.  Additionally, a failed 2015 amendment to the Tax Law supported the conclusion that the statute providing the credit did not include GSHP systems.  The proposed amendment would have expressly added a credit for geothermal energy systems, and that it did not become a law was indication that the Legislature believed the law as it was did not include a credit for GSHP system equipment.

The Tribunal concluded that Petitioners’ GSHP system did not qualify as a system eligible for the solar energy system equipment tax credit, and affirmed the ALJ’s Determination that denied Petitioners’ the credit.

AND IN OTHER NEWS…

This is the last entry by Nara Tjitradjaja, who has borne half of TiNY’s editorial duties since its inception.  She has been to the other editor as Sancho Panza was to Don Quixote: a consistent, able and admirable foil to his capricious tilts at windmills both imagined and real.  I thank her for her help in getting TiNY off of the ground.

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