In Matter of Aquifer Drilling & Testing, Inc. and Rexrode, Jr., DTA Nos. 823592 & 823593 (N.Y.S. Div. of Tax App., Jan. 27, 2011), a New York State Administrative Law Judge vacated in full the petitioners’ demand for a bill of particulars, after finding that the only party that must provide particulars is the party that must prove those matters at trial, and here, as in nearly every tax case, the petitioners bear the burden of proof.

The petitioners in Aquifer Drilling were assessed over $4 million in sales tax. The petitioners provide information regarding real property to engineers, and the engineers then use the information to perform engineering services for the real property owners. In their petition, the petitioners described their services as nontaxable information services and argue that their services do not involve taxable servicing of real property, since neither the petitioners nor the engineers own the property, and allege that even if they are found to be servicing real property, their services would be nontaxable sales for resale because the engineers sell petitioners’ services to the real property owners. In its answer, the Department alleged that petitioners service real property and, therefore, are

bills of particulars are intended to clarify issues and not to obtain evidence or information about a party ’s legal interpretations of the case

subject to sales tax. In response to the Department’s answer, the petitioners served a demand for a bill of particulars, asking the Department to specify “the factual and legal basis” for its allegation that the petitioners’ business “‘made sales of tangible personal property and/ or enumerated services that were subject to tax….’” (Citation omitted.) The Department filed a motion to vacate the demand as overly broad.

In vacating the demand in full, the ALJ did not address the Department’s claim that the demand was overly broad. Instead, the ALJ began by noting that bills of particulars are permitted in Division of Tax Appeals proceedings to prevent surprise at hearings and to limit the scope of proof. Therefore, bills of particulars are intended to clarify issues and not to obtain evidence or information about a party’s legal interpretations of the case. The ALJ then observed that generally a party only needs to particularize the matters that it must prove and, since in DTA proceedings there is a presumption that a notice of determination is correct, when challenging a determination, the petitioner bears the burden of proof. Further, the ALJ noted that, even if the Department were required to respond to the demand, the Department had already specified the basis of the assessment and the detail and clarity of the petitioners’ petitions established that they fully comprehend the Department’s position. Therefore, the ALJ found that there was no question that petitioners had sufficient information to prepare a defense to the assessed deficiencies and would not be surprised or disadvantaged at a hearing without the requested particulars.

Additional Insights. Bills of particulars can serve as useful tools in obtaining necessary facts that strengthen a party’s case. However, since the petitioner usually bears the burden of proof in tax appeals proceedings, a petitioner is generally not in a position to compel the Department to respond, unless the Department has raised affirmative defenses as to which it bears the burden of proof. In Aquifer Drilling, the ALJ found that a bill of particulars was not necessary where the Department has laid out its basis for its assessment in its answer.

Parties should also be aware of the short 20 or 30 day deadlines associated with demands for bills of particulars. Although the ALJ did not analyze the issue, the petitioners argued that the Department should be precluded from presenting evidence on the matters raised in the bill of particulars demand because the petitioners argued that the Department did not respond to the demand within the applicable time limits. Despite the petitioners’ proof that they had mailed their demand within the required time period, the Department claimed not to have received it. Because the ALJ found that the Department was not required to serve the bill of particulars, he simply rejected the petitioners’ argument that the Department’s motion to vacate the demand was untimely.