A New York State Administrative Law Judge has held that an action brought by a restaurant to challenge a Notice and Demand for sales tax could not be sustained, and that the individual who signed on behalf of the company as president could be held personally responsible. Matter of Ji Chao Zheng & Pacific World Buffet, Inc., DTA No. 824597 (N.Y.S. Div. of Tax App., June 5, 2014).
Pacific World Buffet opened a restaurant in Elmhurst, N.Y., in March 2009. It filed a monthly return for the month of December 2009, as required, with a check for approximately $29,000. The return was not signed and the check was returned unpaid by the bank on which it was drawn. A final quarterly sales tax return was filed for the period December 1, 2009, through February 28, 2010, and sometime thereafter the restaurant ceased operations.
On June 17, 2010, the Department issued a Notice and Demand for the $29,000 for which the check had been returned unpaid, plus penalty and interest, and in November 2010 it issued a Notice of Determination to Ji Chao Zheng as a responsible person. Mr. Zheng had signed, as president, the company’s application to register for a sales tax certificate of authority; four of the company’s monthly sales and use tax returns; three of its quarterly returns; its 2008 corporation franchise tax return and MTA surcharge returns; and, as president, its quarterly combined withholding, wage reporting, and unemployment insurance returns for the first and second quarters of 2009.
Petition and Hearing. Pacific World Buffet filed a petition, signed by Mr. Zheng, as president, challenging the Notice and Demand. Mr. Zheng filed a separate petition challenging the Notice of Determination, asserting that the actual owner and responsible person for Pacific World Buffet is Tin Ming Cheng, and that Mr. Zheng, a cook, and his son were hired by Mr. Cheng on the condition that Mr. Zheng sign the documents as president.
At the hearing, the company conceded that the self-reported amount was correct and that the company was liable. Mr. Zheng, although present at the hearing, did not testify. The sole witness for petitioners was Wei Xin Liu, the second chef at the restaurant, who testified through an interpreter in support of Mr. Zheng’s position. Petitioners also submitted the affidavit of Mr. Cheng, in which he stated that he is the owner and responsible person for Pacific World Buffet, and that he promised to pay all taxes due. No articles of incorporation, bylaws, corporate minute book, or books and records of the corporation were introduced into evidence.
The decision. With regard to the company, the ALJ held that the statute clearly provides no right to a hearing in response to a Notice and Demand for taxes reported but not paid. Tax Law § 173-a. Therefore, the Division of Tax Appeals lacked jurisdiction to consider the merits of the company’s challenge.
With regard to Mr. Zheng, the ALJ found that he had signed numerous documents as president or responsible person of the corporation, had introduced no evidence that his authority as president was restricted, and had failed to take the stand to testify, resulting in “the strongest negative inference” about his responsibilities. The ALJ found Mr. Liu’s testimony to be “vague and very confusing.” She gave no weight to Mr. Cheng’s affidavit, which provided no details about his alleged ownership of the corporation or his responsibilities, or any no documentation supporting his claim, and noted that it was no defense to Mr. Zheng’s liability that another individual might also be a responsible person, since the Department is not required to pursue another responsible person before proceeding against Mr. Zheng. Therefore, Mr. Zheng’s liability for taxes and penalties was upheld.
From the description of the documentary evidence introduced into the record, it appears the ALJ may have had little choice in upholding the assessment against Mr. Zheng, since the documents all appear to have listed him as a responsible person. Moreover, no contradictory documents were introduced, and even if the affidavit and oral testimony had been accepted, they would not establish that Mr. Zheng lacked authority. However, insofar as the only witness testified through an interpreter, which may have contributed to the confusing nature of his testimony, and the likelihood that Mr. Zheng himself may not have been fluent in English or have understood the legal effect of his agreeing to sign the documents in return for being employed – assuming his version of the facts was true – perhaps a solution outside the formal evidentiary requirements of the Division of Tax Appeals might have been a better avenue. For example, the Office of the Taxpayer Rights Advocate might be very valuable to assist the parties in clarifying the nature of their potential liabilities to the State and, perhaps, in arriving at a solution.