Last year, a New York State Administrative Law Judge upheld the denial of a sales tax refund of over $100 million, finding that the vendor had not complied with the statutory requirement that the amount in issue must first be refunded to customers. Matter of New Cingular Wireless PCS LLC, DTA No. 825318 (N.Y. S. Div. of Tax App., July 17, 2014). Now, the same ALJ has denied the company’s motion to reopen the record, holding that the evidence it sought to offer was created after the determination was issued and therefore was not “newly discovered” evidence that could justify reopening the record. Matter of New Cingular Wireless PCS LLC, DTA No. 825318 (N.Y.S. Div. of Tax App., Dec. 4, 2014).

Background. To resolve litigation claiming that New Cingular Wireless, now known as AT&T Mobility (“ATTM”), improperly collected and remitted sales tax on charges for Internet access, ATTM entered into a class action settlement agreeing to reimburse its customers, including New York customers, for the overcollected tax by filing a refund claim for their benefit. The agreement involved the creation of an escrow account to receive sales tax refunded by the states, with those funds to be distributed to the customers by an escrow agent under court supervision. In states like New York that require a vendor to refund the overcollected tax to its customers prior to receiving a refund from the state, ATTM agreed to fund a pre-refund escrow account. However, ATTM did not make any payments to the pre-refund escrow account with respect to the overcollected New York sales tax.

The ALJ determined that since ATTM had not repaid the tax to its customers, it could not obtain a refund because it failed to satisfy Tax Law § 1139(a), which provides that “[n]o refund or credit shall be made to any person of tax which he collected from a customer until he shall first establish to the satisfaction of the tax commission, under such regulations as it may prescribe, that he has repaid such tax to the customer.” Although recognizing that the New Jersey Tax Court had reached the opposite result, in New Cingular Wireless PCS, LLC v. Director, Division of Taxation, 28 N.J. Tax 1 (2014), the ALJ distinguished the language of the New York statute from the one in New Jersey, concluding that the New Jersey statute, which stated that the vendor cannot receive an “actual” refund until it has repaid its customers, contained a “timing difference” that allows a refund claim to be filed before customers are paid, which did not exist in the New York statute. In his July decision, the ALJ also noted several times that ATTM had not in fact funded any escrow account with any monies related to the New York amounts.

Motion to reopen. In August 2014, ATTM filed a motion to reopen the record or for reargument, claiming that it had not funded the New York escrow account because the Department had informed it that the refund claim would nonetheless be denied on other grounds. After the ALJ’s decision was issued, ATTM decided to fund the New York escrow account, and sought to reopen the record to introduce evidence that it had now done so by entering into an agreement with a bank and depositing over $106 million in August 2014.

The ALJ denied the motion. He noted that the Tribunal’s Rules of Practice and Procedure provide that a record may be reopened only to allow the introduction of newly discovered evidence, which “would probably have produced a different result and which could not have been discovered with the exercise of reasonable diligence in time to be offered into the record.” Tribunal Rules of Practice and Procedure, Section 3000.16. Here, the evidence was not “newly discovered,” but instead was not in existence at the time of the determination, and thus did not fall within the rule. He relied in part on the decision in Matter of Frenette, DTA No. 816715 (N.Y.S. Tax App. Trib., Feb. 1, 2001), which stated that the Tribunal regulation on reopening the record is based on CPLR 5015, which sets forth the standards for reopening a judgment and which in turn was derived from Federal Rule of Civil Procedure 60(b)(2). In Frenette, the Tribunal, citing Appellate Division decisions under CPLR 5015, found that a judgment may be reopened only to allow admission of “evidence which was in existence and hidden at the time of the judgment.” (emphasis in decision, citations and internal quotation marks omitted). The ALJ also found that payment into the escrow account “presents a different factual landscape and a new issue” not previously before the Division of Tax Appeals, and allowing the record to be reopened would be contrary to the goal of finality.

Additional Insights

It is usually difficult to convince an ALJ to consider additional evidence after the record has been closed and a decision has been entered. The Frenette Tribunal decision relied upon by the ALJ does indeed reach the conclusion that “newly discovered evidence” refers to evidence that was in existence at the time of the original judgment, and that magazine articles printed after the hearing could not be received in evidence. However, here the taxpayer claims that it did not make the escrow payment because it was advised by the Department that making the escrow payment would not have changed the Department’s position, while the ALJ seemed to consider the absence of the escrow payment to be a significant fact. It is not clear from the decision whether ATTM was raising an actual claim of estoppel by arguing that it had originally relied on the Department’s advice that funding the escrow account would be “‘futile,’” and then only later learned from the ALJ’s decision that funding the account could have been relevant, and that the evidence should be admitted despite the general rule that “newly discovered evidence” does not include evidence that was not formerly in existence.

At press time, we understand that an exception is expected to be filed, and if so the Tribunal will have the opportunity to review both the July decision denying the refund and the December decision refusing the admission of new evidence.