APPELLATE COURT UPHOLDS DENIAL OF SOLAR ENERGY SYSTEM EQUIPMENT TAX CREDIT
The Appellate Division, Third Department, has upheld a decision of the Tax Appeals Tribunal, finding that the Tax Department properly denied a solar energy system equipment tax credit for geothermal heating systems. Suozzi v. Tax Appeals Trib., No. 528466, 2020 NY Slip Op. 00193 (3d Dep’t, Jan. 9, 2020). The court found that the Department’s interpretation of the term “solar radiation” as not including a geothermal system that harvests heat from the ground was not unreasonable. It also noted that 2015 legislation that would have expressly permitted the credit for geothermal systems, but that was vetoed by the Governor, strongly supports the Department’s position that the existing law did not include those heating systems.
TAX DEPARTMENT’S REFUSAL TO ISSUE SALES TAX CERTIFICATE OF AUTHORITY UPHELD
A notice of proposed refusal to issue a sales tax certificate of authority to an LLC because of substantial amounts of sales taxes owed by its sole member and president was sustained by an ALJ. Matter of 34th Street GNG LLC, DTA No. 829239 (N.Y.S. Div. of Tax App., Jan. 9, 2020). The ALJ was not swayed by the taxpayer’s argument that without a certificate of authority he would be unable to generate sufficient income to pay off the outstanding sales tax liabilities. The ALJ also rejected his argument that the Department has demanded too high an installment payment arrangement, noting that she did not have the authority to mandate any particular payment arrangement. Therefore, the ALJ concluded that the Department acted within its authority under Tax Law § 1134(a)(4)(B) in refusing to issue a certificate of authority.
SECURITY SERVICES PROVIDED AT CAPITAL IMPROVEMENT SITE ARE SUBJECT TO SALES TAX
An ALJ has sustained the denial of a refund for sales tax paid on protective services, finding that the services were taxable despite being provided in connection with the construction of a New York City building that was treated as a capital improvement. Matter of Evergreen Gardens, LLC, DTA No. 828403 (N.Y.S. Div. of Tax App., Jan. 9, 2020). Although the parties agreed that the building qualified as a capital improvement, and that the project was of a large enough size that the law mandated the use of protective services, the ALJ found that the Appellate Division had held more than 20 years ago that protective services purchased in connection with capital improvements were nonetheless independently taxable under Tax Law § 1105(c)(8), which imposes sales tax on detective and protective services. Robert Bruce McLane Assocs., Inc. v. Urbach, 232 A.D.2d 826 (3d Dep’t, 1996). The ALJ rejected what she described as the taxpayer’s “novel arguments” that recent developments since the McLane decision, involving such areas as guidance from the Department concerning contractor services and interior design services in connection with capital improvements, changed the result mandated by the Appellate Division in McLane.
ADDITIONAL SALES TAX DUE ON SALES OF GASOLINE
An ALJ has sustained the Department’s assessment of sales tax imposed on the full price of motor fuel sold by a chain of gas stations, agreeing that tax was due on the full retail price of the gasoline, despite the fact that customers paid a discounted price in accordance with an agreement between the gas stations and the Price Chopper grocery chain. Matter of GRJH, Inc., DTA No. 827617 (N.Y.S. Div. of Tax App., Dec. 19, 2019). The ALJ found that the Price Chopper Fuel Advantage Program, which involved a loyalty card issued to Price Chopper customers that the customers used to obtain a discounted price for gasoline at the pump, was analogous to a manufacturer’s coupon, since the gas stations received reimbursement via a credit, and that sales tax is due on the full price of property purchased with manufacturers’ coupons pursuant to Tax Law § 1101(b)(3). The ALJ also refused to allow the gas stations to offset the full purchase price by the costs they incurred to participate in the Price Chopper program, finding that the regulation, 20 NYCRR 526.5(e), expressly disallows the deduction of expenses incurred by a retailer in making a sale.
CREDIT AGAIN DENIED FOR PERSONAL INCOME TAXES PAID TO ANOTHER STATE ON CAPITAL GAINS
An ALJ has denied the request of a married couple, who were domiciliaries of Connecticut but statutory residents of New York, for a credit against their New York State personal income tax liability for taxes paid to Connecticut on capital gains from the sale of securities, finding that a credit for taxes paid to other states is not required because the intangible assets giving rise to the income in question were not employed in a business carried on in another state. Matter of David Russekoff & Amanda Nutile, DTA Nos. 827740 & 827741 (N.Y.S. Div. of Tax App., Dec. 19, 2019). The ALJ relied on the decisions in Chamberlain v. N.Y.S. Dep’t of Taxation & Fin., 166 A.D. 3d 1112 (3d Dep’t, 2018), lv. denied and appeal dismissed, 32 N.Y.3d 1216, cert. denied, 140 S. Ct. 133 (2019) and Edelman v. N.Y.S. Dep’t of Taxation & Fin., 162 A.D.3d 574 (1st Dep’t, 2018), lv. denied and appeal dismissed, 32 N.Y.3d 1216, cert. denied, 140 S. Ct 134 (2019), which had rejected similar challenges and found that the U.S. Supreme Court’s 2015 decision in Wynne does not affect the constitutionality of New York’s statutory residency scheme. Although the petitioners were paying tax to two states on the same income, the ALJ relied on Tamagni v. Tax Appeals Trib., 91 N.Y.2d 530 (1998), to determine that the taxation of intangible income earned by New York statutory residents did not result in constitutionally impermissible double taxation.
ALJ UPHOLDS IMPOSITION OF MANDATORY NEW YORK S CORPORATION ELECTION
An ALJ has upheld application of the mandatory New York S corporation election for an eligible S corporation with investment income of more than 50% of its federal gross income for the year. Matter of Albert R. LePage, et al., DTA No. 828035, et al. (N.Y.S. Div. of Tax App., Dec. 19, 2019). The dispute principally involved one of statutory interpretation, specifically whether the statute’s reference to the S corporation’s “federal gross income” for the investment income ratio test refers to the actual federal S corporation income amounts (as the Department maintained) or instead to the income amounts reflected in the S corporation’s pro forma Article 9-A return, computed as if the S corporation were a federal C corporation (as the taxpayer asserted). The ALJ concluded that the Department’s interpretation was the most supportable and he upheld the mandatory New York S corporation election. As a result, the resident and nonresident individual shareholders of the S corporation were individually taxable on their respective distributive shares of the S corporation’s I.R.C. § 338(h)(10) gain.