A New York appellate court held that the Department of Taxation and Finance could not retroactively apply a 2010 amendment to the Tax Law to a transaction entered into by a Florida couple nearly four years earlier. The nonresident taxpayers sold their stock in an S-corporation to a third party in 2007 for $20 million, plus certain additional contingent payments, to be paid in two installments. The taxpayers took promissory notes for the installment obligations. The taxpayers and the buyer also agreed to jointly make an election under IRC § 338(h)(10) to treat the sale as a sale of the S-corporation’s assets followed by a complete liquidation. The taxpayers reported the capital gains from the transaction on their 2007 and 2008 federal income tax returns; however, they did not pay New York State taxes on the gains. In 2009, the New York State Division of Tax Appeals decided Matter of Mintz, Nos. 821807 & 821806, 2009 WL 1657395, wherein it confirmed that gains from transactions of the type entered into by the taxpayers were not subject to New York State taxes. In 2010, the New York State Department of Taxation and Finance proposed legislation to overturn the Mintz decision and provide that such transactions would result in taxable New York State income. The legislation was enacted in 2010. Subsequently, the Department issued the taxpayers a notice of deficiency in respect of their 2007 and 2008 state income tax returns. The New York Supreme Court, Appellate Division, First Department, held that the Department’s attempt to apply the 2010 law change to the 2007 transaction violated the taxpayers’ due process rights. Balancing the equities, the Appellate Division found that the taxpayers had no actual forewarning of the 2010 change in law at the time they entered into the transaction, and they structured the transaction in reasonable reliance on the Tax Law as it existed in 2007. The court also found the three-and-a-half year retroactive period was excessive and that raising money for the state budget was not so compelling as to justify retroactivity under the circumstances. Caprio v. N.Y. State Dep’t of Taxation & Fin., No. 651176/11, 2014 WL 1356664 (N.Y. App. Div. Apr. 8, 2014).