STATE OF NEW YORK
TAX APPEALS TRIBUNAL
______________________________________________
In the Matter of the Petition
of
PAUL SARACINO D/B/A PRESTIGE STONE CO.(1)
DECISION
DTA NO. 822131
for Revision of a Determination or for Refund of Sales
and Use Taxes under Articles 28 and 29 of the Tax Law
for the Periods March 1, 2000 through May 31, 2005.
______________________________________________
Petitioner, Paul Saracino d/b/a Prestige Stone Co., filed an exception to the determination of the Administrative Law Judge dated August 13, 2009. Petitioner appeared pro se. The Division of Taxation appeared by Daniel Smirlock, Esq. (Lori P. Antolick, Esq., of counsel).
Petitioner did not file a brief in support of his exception. The Division of Taxation filed a letter brief in opposition. No reply brief was filed. Petitioner's request for oral argument was denied.
After reviewing the entire record in this matter, the Tax Appeals Tribunal renders the following decision. Commissioner Tully took no part in the consideration of this matter.
ISSUE
Whether the audit method employed by the Division of Taxation was reasonable or whether petitioner has shown error in either the audit method or result.
FINDINGS OF FACT
We find the facts as determined by the Administrative Law Judge. These facts are set forth below.
On May 18, 2006, following an audit, the Division of Taxation (Division) issued to petitioner, Paul Saracino d/b/a Prestige Stone Co., a Notice of Determination, which asserted $46,201.00 in additional sales and use tax due, plus penalty and interest, for the period March 1, 2000 through May 31, 2005.
Petitioner was in the business of fabricating and installing granite countertops. His place of business was located in the northeastern New Jersey borough of North Arlington.
Petitioner purchased granite slabs from suppliers to be used in his installations. Delivery of all such purchases was made in New Jersey.
The process by which petitioner sold and installed granite countertops during the period at issue was as follows: A customer signed a contract for the purchase and installation of a granite countertop and made a 25 percent payment at that time. Also, at that time, an appointment was made for petitioner's employee to visit the customer's premises in order to make a template of the area where the countertop was to be installed and to take any other necessary measurements for installation. An additional 25 percent payment was required at the time of such templating. After the templating and the fabrication of the countertop, an installation date was scheduled. The final 50 percent of the purchase price was due at installation.
All of petitioner's sales and installations of granite countertops during the period at issue were capital improvements.
Most of petitioner's sales during the period at issue were in New Jersey. Petitioner also regularly made sales in New York and Connecticut during that period.
Petitioner was not registered as a vendor for New York State sales tax purposes during the audit period and did not file any New York State sales and use tax returns during that period.(2)
During the period at issue, petitioner primarily purchased print advertising to be run in New Jersey. Petitioner did purchase some print advertising to be run in New York.
On March 8, 2004, the Division sent a letter to petitioner scheduling an appointment to commence a sales and use tax field audit of his business for the period March 1, 1998 through February 28, 2004. The Division subsequently sent several similar audit appointment letters dated May 4, 2004, July 12, 2005 and December 21, 2005, which gradually expanded the audit period to November 30, 2005. Each of the Division's letters requested that all of the corporation's books and records pertaining to petitioner's sales and use tax liability for the audit period be available for review. Among the records specifically requested were the general ledger, cash receipts journal, federal income tax returns, purchase invoices and sales invoices.
In response to the Division's requests, petitioner produced his general ledger for the period January 1, 2000 through May 31, 2005. Petitioner also provided workpapers created by his accountant. During the audit, petitioner did not produce any source documentation of his purchases, such as invoices, or any source documentation of his sales, such as contracts with customers.
The Division concluded that the records produced by petitioner, in response to its requests, were inadequate for the purpose of verifying his tax liability and, therefore, proceeded to estimate such liability. Inasmuch as petitioner's sales were all capital improvements, the Division audited petitioner's purchases of materials incorporated into such capital improvements. Specifically, the Division sought to ascertain petitioner's purchases of granite slabs that were ultimately installed at the job site. Accordingly, the Division totaled petitioner's materials costs and freight costs of receiving materials for the audit period as indicated by petitioner's general ledger. According to the general ledger, petitioner's materials costs totaled $2,368,588.43 and freight costs totaled $16,854.21. These totals include purchases for materials unrelated to the installation of granite slabs. During the audit, petitioner's accountant advised that such nongranite slab purchases were about 31 percent of petitioner's total materials purchases. The Division, therefore, subtracted 31 percent of the total materials and freights costs to reach total audited granite slab purchases of $1,645,955.42. Next, the Division sought to determine total costs of granite slab purchases installed in New York and, therefore, subject to New York use tax. To reach this result, the Division first calculated petitioner's costs for granite slabs installed in New Jersey. New Jersey purchases were extrapolated from petitioner's New Jersey sales and use tax payments as indicated in the general ledger. Specifically, the New Jersey sales and use tax payments were divided by the prevailing rate to reach purchases subject to tax (all of which were assumed to be granite slab purchases installed as part of a capital improvement). Calculated in this manner, the Division determined petitioner's cost of granite slabs installed in New Jersey to be $1,060,484.33. Also during the audit, the Division accepted petitioner's accountant's claim of $16,843.50 in purchases of granite slabs installed in Connecticut. The Division then subtracted audited granite slab purchases installed in New Jersey and Connecticut from total audited granite slab purchases. The amount remaining, $568,627.59, was deemed purchases of granite slabs installed as part of capital improvement work in New York, subject to New York use tax. The use tax liability as asserted in the subject Notice of Determination was computed accordingly.
At hearing, petitioner submitted into evidence a set of records called template logs and installation (or install) logs. Both of these logs were maintained on looseleaf paper kept together in three-ring binders. Both were schedules of visits to customers and consisted of a listing of dates, customer names, locations (city or town), and phone numbers. The template log is a schedule of visits to customers for the purpose of taking the necessary measurements for the countertop. The installation log is a schedule of countertop installations.
Some of the install log sheets for 2004 and 2005 contained an additional column listing a dollar amount. Whether such amount represents the total amount for the job or the balance due is unclear from the record.
Both the template and installation logs introduced into the record are incomplete. There are no template logs for the periods March 1, 2000 through December 31, 2001 and July 16, 2004 through May 31, 2005. There are no install logs for the period March 1, 2000 through September 9, 2001. The 2002 logs include only the period April 29 through September 6.
Neither the installation logs nor the template logs were made available to the Division prior to the issuance of the statutory notice.
During the course of the audit, petitioner's accountant provided the Division with copies of amended federal and New Jersey income tax returns for 2004. The amended federal return reported an increase in petitioner's adjusted gross income of $282,138.00 and an increase in total tax due of $104,517.00. In explanation, the amended federal return states that petitioner "incorrectly calculated ending inventory for the period ending December 31, 2004." Petitioner did not file these amended returns.
At hearing, petitioner testified that customer contracts for countertop installations were discarded after about 30 days.
Petitioner has had several serious health problems in recent years, including strokes.
In his determination, the Administrative Law Judge noted that petitioner did not file any sales and use tax returns in New York nor did he pay any use tax to New York during the audit period. The Administrative Law Judge also stated that petitioner failed to make available for review by the Division any records of individual sales to support his claimed New York sales. Thus, the Administrative Law Judge reasoned that the Division was entitled to use an estimated audit method based upon petitioner's own records to determine his use tax liability.
Therefore, since the audit method was held to be reasonable, the Administrative Law Judge maintained that the burden of proof was upon petitioner to demonstrate that the audit was unreasonably inaccurate or that the amount of tax assessed was erroneous. The Administrative Law Judge concluded that petitioner failed to sustain his burden of proof.
Moreover, the Administrative Law Judge sustained the penalties imposed pursuant to Tax Law § 1145(a)(1)(i) since petitioner failed to establish reasonable cause or an absence of willful neglect that would warrant an abatement of such penalties. The Administrative Law Judge noted that the Division's regulations provide that a taxpayer's serious illness may constitute reasonable cause for failure to timely comply with the Tax Law. However, the regulation envisions that the payment of tax must occur within a justifiable period of time after a taxpayer's illness. As noted in the facts, petitioner has suffered serious illnesses over the years. Yet, the Administrative Law Judge determined that, since the tax has never been paid, petitioner cannot rely on his medical condition alone to satisfy the reasonable cause standard set forth in the Division's regulations to demonstrate relief of the imposition of penalties herein. Petitioner did not take an exception with respect to this issue.
Petitioner continues to argue that the audit method was unreasonable since the Division did not use his log books and the testimony presented at hearing as a basis upon which to determine tax due rather than using an estimated audit methodology. Petitioner also objects to the Administrative Law Judge's conclusion that his testimony and that of his employees were insufficient to establish the number of New York installations. Petitioner states that his log books were accurate and the testimony was honest and credible based upon his assertion that work performed in New York was minimal. Petitioner urges us to rely on the figures that were calculated by his accountant rather than the estimate determined by the Division.
In opposition, the Division states that petitioner makes the same arguments on exception that he made to the Administrative Law Judge. The Division argues that petitioner's position is not supported by the facts or in law. Thus, the Division respectfully requests that the determination be sustained.
We affirm the determination of the Administrative Law Judge.
Any sale of tangible personal property to a contractor for use in improving, repairing, maintaining, or otherwise adding to real property is a retail sale (see, Tax Law § 1101[b][4]). In this case, petitioner's purchases of granite slabs at its place of business in New Jersey were retail sales, which became subject to New York use tax pursuant to Tax Law § 1110(a) when the slabs were installed at locations in New York.
Tax Law § 1138(a)(1) provides, in relevant part, that if a sales tax return was not filed, "the amount of tax due shall be determined by the [Division of Taxation] from such information as may be available. If necessary, the tax may be estimated on the basis of external indices . . . ."
As discussed by the Administrative Law Judge, petitioner failed to sustain his burden of proof. Petitioner submitted into evidence documents that he characterized as template logs and installation logs to establish his New York installations. The Administrative Law Judge found that these records were incomplete, as there were a number of months that were not accounted for, as well as the fact that these documents were not provided to the Division on audit.
Moreover, during the course of the audit, petitioner's accountant provided copies of amended income tax returns to the Division. The amended Federal return increased petitioner's adjusted gross income amount by over $250,000.00. The explanation provided by the accountant as to the reason that amended returns were filed was based upon an incorrect calculation of ending inventory for the period ending December 31, 2004, which was within the audit period. The amended income tax returns alone, are insufficient to establish petitioner's New York installations.
Finally, the Administrative Law Judge did not find the testimony of the witnesses and petitioner to be compelling, based upon the content of their testimony and the records relied upon by petitioner herein. We have held that:
the credibility of witnesses is a determination within the domain of the trier of the facts, the person who has the opportunity to view the witnesses first hand and evaluate the relevance and truthfulness of their testimony (see, Matter of Berenhaus v. Ward, 70 NY2d 436 [1987]). While this Tribunal is not absolutely bound by an Administrative Law Judge's assessment of credibility and is free to differ with the Administrative Law Judge to make its own assessment, we find nothing in the record here to justify such action on our part (see, Matter of Stevens v. Axelrod, 162 AD2d 1025 [1990]) (Matter of Spallina, Tax Appeals Tribunal, February 27, 1992).
Accordingly, it is ORDERED, ADJUDGED and DECREED that:
1. The exception of Paul Saracino d/b/a Prestige Stone Co. is denied;
2. The determination of the Administrative Law Judge is affirmed;
3. The petition of Paul Saracino d/b/a Prestige Stone Co. is denied; and
4. The Notice of Determination dated May 18, 2006 is sustained.
DATED: Troy, New York
June 24, 2010
/s/ Charles H. Nesbitt
Charles H. Nesbitt
Commissioner
1. The Notice of Determination relevant to this matter was issued under the name "Prestige Stone Co." and the petition in this matter was filed under the name "Prestige Stone Co. Corp." During the period at issue, however, petitioner's business was actually a sole proprietorship operating under the name "Prestige Stone Co." This error in the statutory notice is deemed harmless (see Pepsico, Inc. v. Bouchard 102 AD2d 1000, 477 NYS2d 892 [3d Dept 1984]) and the caption in this matter has been changed to more clearly reflect the fact that petitioner's business was a sole proprietorship.
2. Effective December 2005, petitioner ceased operating as a sole proprietorship and began operating as Prestige Stone & NJ Monument, Inc., a New Jersey corporation. The corporation registered as a vendor for New York State sales and use tax purposes.