Unilaterally raising an issue not addressed in the decision of the Administrative Law Judge or by either of the parties on appeal, the New York State Tax Appeals Tribunal remanded a case in order to develop the record as to whether the Division of Tax Appeals has jurisdiction to reach the substantive issue of whether a buyer of a business was liable for the seller's outstanding sales tax liability under bulk sales rules. Matter of Khayer Kayumi, DTA No. 825953 (N.Y.S. Tax App. Trib., July 14, 2017).

Facts. In early December 2010, Mr. Kayumi signed an agreement to purchase the business assets, inventory, accounts receivable and goodwill of a Popeye's Chicken & Biscuit restaurant in Brooklyn, New York. Under the terms of the sale, Mr. Kayumi agreed: (1) to make an initial down payment of $80,000, with the seller having the option of requesting that the check be made out to "New York State sales tax"; (2) to make another payment of $20,000, payable to a creditor of the seller, when the sale of the restaurant business closed; and (3) to pay the balance in 30 consecutive monthly payments of $2,000 to the seller. The agreement contained language acknowledging that the seller had a sales tax liability of at least $200,000, and the agreement was expressly conditioned upon the seller's payment of this obligation.

Mr. Kayumi delivered the $80,000 down payment check to Kevin Davis (a shareholder of the seller). Although the check was payable to "New York State sales tax," it was deposited into a business account under the name of "Platinum Properties." After learning in November 2013 that the check was not cashed appropriately, Mr. Kayumi filed a criminal complaint, which led to an indictment against Mr. Davis for unlawful deception and theft. Further, the subsequent $20,000 payment was made to a creditor of the seller other than the Department. Mr. Kayumi never made any of the monthly payments.

Meanwhile, on December 31, 2010, the Department received a Notification of Sale, Transfer or Assignment from Mr. Kayumi related to the sale of the restaurant, along with the agreement memorializing the sale. On January 3, 2011, the Department issued a notice of claim to Mr. Kayumi, advising him that he may be a purchaser of assets in a bulk sale and that there was a possible outstanding claim against the seller for sales and use taxes. Among other things, the notice advised Mr. Kayumi that he should place the entire amount for the purchase in an escrow fund for the purpose of satisfying any sales tax liabilities. On January 7, 2011, the Department sent a follow-up letter to Mr. Kayumi, asserting sales tax due on the transfer of tangible personal property included in the restaurant sale.

In March 2011, the Department issued one notice of determination to Mr. Kayumi assessing tax due in the amount of $160,000, representing the total purchase price of the restaurant, and another determination of almost $12,000, representing Mr. Kayumi's sales tax liability, interest, and penalties on the tangible personal property transferred in the restaurant sale.

In August 2013, Mr. Kayumi challenged the notices of determination by filing a request for conciliation conference with the Department's Bureau of Conciliation and Mediation Services ("BCMS"), but the BCMS issued a conciliation order later in the month dismissing the request as untimely. Thereafter, Mr. Kayumi filed a petition with the Division of Tax Appeals ("DTA"), which included a request that the BCMS timeliness of filing requirement be waived in the interests of justice, along with an assertion that he was a victim of poor professional advice and therefore should be allowed to either present his substantive case to the DTA or have his case referred back for a conference with the BCMS. In its answer, the Department affirmatively stated that the DTA lacked jurisdiction to review Mr. Kayumi's petition because Mr. Kayumi did not file a request for conciliation conference or a petition with the DTA within 90 days of the issuance of the notices of determination. The Tribunal found no further mention in the record of the apparently late-filed request for conciliation conference or of such late-filed request's potential effect on the DTA's jurisdiction in the matter.

ALJ Decision. The ALJ's decision did not address at all the issue of whether the DTA had jurisdiction to reach the substantive issues raised in Mr. Kayumi's petition. Instead, the ALJ ruled that Mr. Kayumi had failed to follow the requirement under Tax Law 1141(c) that a purchaser of business assets in a bulk sale must: (1) provide the Department with 10 days' notice prior to taking possession of, or making payment for, the business assets that are the subject of the bulk sale; and (2) thereafter withhold payment of any consideration to the seller pending receipt from the Department of its claim for outstanding sales and use tax liabilities due from the seller. The ALJ upheld the $160,000 assessment because Mr. Kayumi's failure to comply with Tax Law 1141(c) made him liable for the sales and use taxes owed by the seller of the restaurant business in an amount limited by the greater of the fair market value or the sales price of the business assets sold. Further, the ALJ found Mr. Kayumi liable for sales tax on the tangible assets transferred as part of the sale of the restaurant business.

Tribunal Decision. The Tribunal concluded that, based on the facts in the record, "it appears that [Mr. Kayumi] did not timely file a request for conciliation conference." The Tribunal stated that, in circumstances where it appears that a petitioner has failed to file a timely request for a conciliation conference with the BCMS, the DTA has jurisdiction to determine whether such request was, in fact, timely filed, but does not have the ability to overlook the issue of jurisdiction and consider the merits of the protest. As "there may be an explanation as to why" the issue of jurisdiction was not addressed in the ALJ's decision, the Tribunal concluded that it had "no alternative but to remand for an additional determination" on the issue of whether Mr. Kayumi timely filed a request for conciliation with the BCMS.

Additional Insights

Those who wish to challenge tax assessments in New York State must comply with the applicable deadlines to file an appropriate appeal. The jurisdiction of the DTA is statutorily defined, and both ALJs and the Tribunal have repeatedly confirmed that the DTA lacks jurisdiction "and is precluded from hearing the merits of [a] case if the petitioner fails to file within the statutory time limit, even by one day." Matter of Papaye Restaurant, Inc., DTA No. 826418 (N.Y.S. Div. of Tax App., June 25, 2015) (citing Matter of Charles Lukacks, DTA No. 821248 (N.Y.S. Tax App. Trib., Nov. 8, 2007); Matter of Sak Smoke Shop, Inc., DTA No. 010698 (N.Y.S. Tax App. Trib., Jan. 6, 1989)). This case highlights that the statutory limitations of the DTA's jurisdiction can be unilaterally raised by an ALJ or by the Tribunal at any time.