STATE OF NEW YORK
DIVISION OF TAX APPEALS
________________________________________________
In the Matter of the Petition
of
CROW &
SUTTON ASSOCIATES, INC.,
AND PINE
VALLEY LANDSCAPE CORP.
ORDER
DTA NOS. 822871,
for Revision of a Determination or for Refund of Sales
and
822872, 822873,
Use Taxes under Articles 28 and 29 of the Tax Law for
the
AND 822874
Period June 1, 2004 through August 31, 2004.
________________________________________________
In the Matter of the Petition
of
FOXCROFT NURSERIES, INC.
for Revision of a Determination or for Refund of Sales and
Use Taxes under Articles 28 and 29 of the Tax Law for the
Period June 1, 2004 through August 31, 2004 and March
1, 2005 through November 30, 2005.
________________________________________________
In the Matter of the Petition
of
D. JAMES SUTTON
for Revision of a Determination or for Refund of Sales and
Use Taxes under Articles 28 and 29 of the Tax Law for the
Period June 1, 2004 through November 30, 2004.
________________________________________________
Petitioners Crow and Sutton Associates, Inc., and Pine Valley Landscape Corp. filed a petition for revision of a determination or for refund of sales and use taxes under Articles 28 and 29 of the Tax Law for the period June 1, 2004 through August 31, 2004. Petitioner Foxcroft Nurseries, Inc., filed a petition 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 June 1, 2004 through August 31, 2004 and March 1, 2005 through November 30, 2005. Petitioner D. James Sutton filed a petition for revision of a determination or for refund of sales and use taxes under Articles 28 and 29 of the Tax Law for the period June 1, 2004 through November 30, 2004.
Petitioners brought a motion, dated June 21, 2010, to name Lori Chapones as a responsible person in this matter as it pertains to the liability for sales and use taxes assessed herein, pursuant to 20 NYCRR 3000.5 and Tax Law § 1131. On June 29, 2010, the Division of Taxation, appearing by Daniel Smirlock, Esq. (Lori P. Antolick, Esq., of counsel), filed a letter brief in opposition to petitioner's motion. Based upon the motion papers and all proceedings associated with this matter, Catherine M. Bennett, Administrative Law Judge, renders the following order.
Whether petitioners' motion to name Lori Chapones as a responsible person should be granted.
FINDINGS OF FACT
1. This matter concerns the asserted sales and use tax liability of Crow and Sutton Associates, Inc., Pine Valley Landscape Corp., Foxcroft Nurseries, Inc. (the corporate petitioners) and D. James Sutton (petitioner)(1) for the periods described above. The particular issues are as follows:
a. Whether the corporate petitioners are subject to sales and use taxes.
b. Whether the corporate petitioners have made sales for resale.
c. Whether items purchased and sold for use in performing landscaping services for compensation are entitled to an exemption from sales tax.
d. Whether petitioner is a responsible officer of the corporate petitioners.
e. Whether the audit methodology used by the Division of Taxation (Division) was reasonable given the lack of books and records provided by petitioners.
f. Whether petitioner is subject to penalties pursuant to Tax Law § 1145.
g. Whether petitioners have established that their failure to properly report and pay the correct amount of sales and use taxes was due to reasonable cause.
2. An administrative hearing before the Division of Tax Appeals was initially scheduled to be heard March 1 through March 5, 2010. Before the hearing took place, on February 11, 2010, petitioner filed an order to show cause before the New York State Supreme Court, Rensselaer County, requesting a temporary restraining order to halt the scheduled administrative hearing before the Division of Tax Appeals and to grant a permanent injunction naming Lori Chapones as a responsible person under the Tax Law, on the basis that the Division was proceeding against petitioner unlawfully by failing to name Lori Chapones as a responsible officer. In the order to show cause, petitioner set forth the duties of Ms. Chapones with respect to the corporate petitioners.
3. The administrative hearing scheduled for March 1 through 5, 2010 was adjourned and was rescheduled for May 5 and 6, 2010.
4. The New York State Supreme Court decision and order issued by Judge Christian F. Hummel, Acting Supreme Court Justice, dismissed petitioner's order to show cause as procedurally defective, since there was no civil action pending in Supreme Court. Thus, petitioner could not be granted injunctive relief. Even if the Court had deemed the order to show cause as an Article 78 proceeding (which it was not so inclined to do) the proceeding would be dismissed for petitioner's failure to exhaust administrative remedies and failure to state a cause of action upon which relief could be granted. The Court also stated:
Were Mr. Sutton to correctly file an Article 78 when he has exhausted all his remedies administratively, and if the Tax Appeals Tribunal refused to recognize Ms. Chapone [sic] as a "responsible" person liable for the taxes, and if he were to appropriately preserve this issue for court review, the Court's review would be limited to whether the determination had a rational basis in the record, was not arbitrary or capricious or outside the scope of the Tribunal's decision.
5. This matter was then the subject of a hearing in the Division of Tax Appeals before Administrative Law Judge Catherine M. Bennett. The hearing took place on May 5 and 6, 2010 and is currently continued to August 25 and 26, 2010. Thus, no final disposition of the core issues has taken place up to this point.
6. Petitioners subpoenaed Lori Chapones to appear as a witness in this matter at the hearing in May 2010. Ms. Chapones appeared and provided testimony. During the periods in issue, Ms. Chapones was the comptroller of the three corporate petitioners, having acquired a bachelor's degree in accounting and a master's degree in business administration. She oversaw all aspects of the office operations and all accounting functions, in addition to sundry other administrative duties.
SUMMARY OF THE PARTIES' POSITIONS
7. Since the onset of this matter petitioners have asserted that Ms. Chapones is in fact, and should be named as such, a responsible officer of the corporate petitioners under Tax Law § 1131.
8. The Division asserts that the Division of Tax Appeals does not have the authority to name Ms. Chapones as a responsible officer. This authority is with the Division of Taxation, and it has chosen not to name her as such.
CONCLUSIONS OF LAW
A. The Division of Tax Appeals is an adjudicatory body of limited jurisdiction (Matter of Scharff, Tax Appeals Tribunal, October 4, 1990, revd on other grounds sub nom New York State Dept. of Taxation & Fin. v. Tax Appeals Tribunal, 151 Misc 2d 326, 573 NYS2d 140 [1991]). Its powers are limited to those conferred by its authorizing statute. Tax Law § 2008 provides as follows:
All proceedings in the division of tax appeals shall be commenced by the filing of a petition with the division of tax appeals protesting any written notice of the division of taxation which has advised the petitioner of a tax deficiency, a determination of tax due, a denial of a refund . . . or any other notice which gives a person the right to a hearing in the division of tax appeals under this chapter or other law.
As set forth above, the jurisdiction of the Division of Tax Appeals is premised on the filing of a petition protesting a notice which gives a person a right to a hearing; as a consequence, the scope of the jurisdiction is confined by the notice and the petition of that notice (see e.g. Matter of Dreisinger, July 20, 1989). The parties to a proceeding cannot confer jurisdiction on the Division of Tax Appeals to decide matters outside the scope of its authority (see Strina v. Troiano, 119 AD2d 566, 500 NYS2d 736 [1986] [subject matter jurisdiction cannot be conferred by consent or stipulation of the parties and a defect in the subject matter jurisdiction cannot be waived]).
B. In addition to the corporate notices, the notices asserting the officer liability of Mr. Sutton can be addressed by the Division of Tax Appeals jurisdictionally. If notices have been issued to Ms. Chapones, the Division of Tax Appeals has not been made aware of them, nor have any petitions been filed contesting any notices issued to Ms. Chapones. The Division of Taxation is the only body that may issue such notices.
C. As previously stated, Mr. Sutton's protest includes an allegation that Ms. Chapones should be assessed as a responsible officer. However, under the authorizing statute granting the Division of Tax Appeals the authority to hear and decide this case, for Ms. Chapones' liability to be addressed, there would first have to be a written notice of a tax deficiency against her by the Division of Taxation, and a petition filed protesting the same. The scope of any officer liability asserted against her could only come before me in that manner. Since such liability has not been asserted by the Division of Taxation, there is no matter before me that addresses her status as a responsible officer. The Division of Tax Appeals simply lacks jurisdiction to grant petitioner's motion.
D. The motion of petitioner D. James Sutton to include Lori Chapones as a responsible officer is denied.
DATED: Troy, New York
August 12, 2010
1. "Petitioners" will refer to the corporate petitioners and the individual petitioner collectively.