The Appellate Division, Third Department, has confirmed the decision of the New York State Tax Appeals Tribunal that an elevator installation company was liable for sales and use tax on the elevator products that it purchased for sale and installation, along with services and maintenance sales related to the elevators. Zuckerman v. Tax Appeals Trib., No. 526059, 2019 NY Slip Op. 05602 (3d Dep’t, July 11, 2019). The court agreed with the Tribunal that the petitioner company had failed to demonstrate that all of the elevator products purchased and installed qualified for the statutory exemption applicable to medical equipment and prosthetic devices. 

Facts. The petitioners included Titan Elevator & Lifts LLC (“Titan”) and its principals, Shari Zuckerman and Michael Zuckerman. Titan is a New York limited liability company engaged in the business of installing and servicing small elevators and dumbwaiters for use in homes and small business locations. It was not registered as a sales tax vendor in New York and had not paid sales tax on any of its purchases or collected tax from any of its customers. The Department audited Titan for the period December 1, 2003 through November 30, 2009, and repeatedly requested records for that entire period, but received complete records only for 2007. Despite recognizing that 2007 might not be a representative year, the Department treated that year as the “test period” to perform the audit because it was the only year for which Titan had purchase and sales invoice records. 

The Department examined Titan’s 2007 sales invoices and expense purchases and extrapolated from those records to calculate tax due for the entire audit period on Titan’s purchases of materials used in the installation of elevators and on service and maintenance of elevators. The auditor also reviewed letters, purportedly from Titan’s customers, stating that the customers had purchased and installed the elevators “for medical purposes in order to create accessibility in the home.” The Department disregarded these letters as unreliable. The Department assessed tax on sales of service and maintenance of elevators and dumbwaiters, and tax on purchases of elevators and dumbwaiters from manufacturers, and imposed penalties. 

Tax Law and decisions below. Sales of tangible personal property, and certain sales of tangible personal property installation and maintenance services, are generally subject to sales and use tax unless a statutory exemption applies. Tax Law §§ 1105(a), (c)(3), 1110(a), 1115. Titan argued that its purchases and sales were exempt from sales and use tax, either as “medical equipment” and “supplies” used “to correct or alleviate physical incapacity,” or as “[p]rosthetic aids.” Tax Law § 1115(a)(3), (4). Department regulations state that in order to qualify for the medical equipment exemption, the equipment in question “must be primarily and customarily used for medical purposes and not be generally useful in the absence of illness, injury or physical incapacity.” 20 NYCRR 528.4(e)(2). Similar requirements also apply to the exemption for prosthetic devices. 20 NYCRR 528.5(b)(1).

Titan and its principals challenged the assessment, both on the grounds that an estimation method should not have been used and that it was entitled to an exemption. After a hearing was held, the Administrative Law Judge (ALJ) concluded that the Department had properly assessed sales and use tax on the purchases of materials to install elevators and on Titan’s sales of installation and maintenance services related to such elevators, because Titan had failed to meet its burden to  demonstrate an exemption. The Tribunal affirmed the ALJ determination in all respects, finding that Titan had failed to demonstrate that the elevators were “primarily and customarily used for medical purposes and [are] not” merely “generally useful in the absence of illness, injury, or physical incapacity,” as required by 20 NYCRR 528.4(e)(2), and held that the law does not permit the exemption simply because the elevator was designed for use by a person with a disability, but requires evidence that the elevator is “primarily and customarily” used for such purposes. It also found that the use of the estimation method was proper because the Department had repeatedly requested complete books and records for the entire period, but never received complete records. 

Appellate Division decision. The court confirmed the Tribunal’s decision in all respects. Dealing first with Titan’s objection to the indirect audit methodology used by the Department, the court found that, because Titan had failed to produce the requested documents — including a general ledger, merchandise purchase invoices, sales invoices, exemption documents supporting nontaxable sales, and a cash receipts journal — it was “wholly appropriate for the Department to utilize an indirect audit methodology.” 

The court then rejected Titan’s claim that it was entitled to the medical equipment or prosthetic device exemption. The burden was on Titan to prove its entitlement to an exemption, and the court found Titan had failed to meet that burden. It found Titan’s reliance on a Department publication regarding the use of elevators to be “misguided,” since the publication exempted elevators used as a prosthetic device by an individual with a disability that were installed in a residence, and the record showed that not all the elevators were installed in residences, nor were they designed as prosthetic devices for any particular person, and the Department’s investigation showed that one of the elevators installed for disabled individuals at a country club was also used by individuals without disabilities. The court found that letters from customers introduced by Titan to support its position were of “minimal value,” since they were undated, contained the exact same language, did not explain the individual’s disability, and, in one case, contained changes that the writer of the letter denied making. 

The court also upheld the imposition of penalties, concluding that Titan relied solely on a claim of having acted in good faith, quoting Shuai Yin v. State Dep’t of Taxation & Fin., 151 A.D.3d 1497, 1501 (3d Dep’t, 2017), for the proposition that “[n]either ignorance of the law nor the good faith advancement of a reasonable legal theory constitutes reasonable cause in the absence of the taxpayer’s efforts to ascertain the proper tax liability.”


In the sales tax area, strict compliance with the statutes and regulations is generally required. Here, Titan was unable to establish that its elevators were not only designed for persons with disabilities, but also were compliant with the statutory and regulatory requirements that the elevators be used “primarily and customarily” by persons with disabilities to qualify as medical equipment or prosthetic aids. While that can be a difficult burden — at the ALJ hearing, one of Titan’s principals testified that Titan was not the “elevator police,” tracking the use of every elevator it installed — the statute does require the vendor to demonstrate the “primary and customary use,” and any supporting documents sought by a vendor from its customers must be accurate and convincing to the Department and to the ultimate trier of facts, who will look behind the written statements.