Basch v. New York State Tax Com'n

• Decision Date: 25 November 1987
• Citation: 134 A.D.2d 786,521 N.Y.S.2d 840
• Parties: In the Matter of Sheldon D. BASCH, Petitioner, v. NEW YORK STATE TAX COMMISSION, Respondent.
• Court: New York Supreme Court — Appellate Division

Page 840

521 N.Y.S.2d 840

134 A.D.2d 786

In the Matter of Sheldon D. BASCH, Petitioner, v. NEW YORK STATE TAX COMMISSION, Respondent.

Supreme Court, Appellate Division Third Department.

Nov. 25, 1987.

Leavy Rosensweig & Hyman (Leonard H. Rubin, of counsel), New York City, for petitioner.

Robert Abrams, Atty. Gen. (William E. Storrs, of counsel), Albany, for respondent.

Before MAHONEY, P.J., and MAIN, MIKOLL, YESAWICH and HARVEY, JJ.

HARVEY, Justice.

Proceeding pursuant to CPLR article 78 (transferred to this court by order of the Supreme Court, entered in Albany County) to review a determination of respondent which partially sustained a personal income tax assessment imposed under Tax Law article 22.

In 1961, petitioner incorporated Basch Advertising, Inc. (hereinafter Basch), a commercial advertising firm. Petitioner and his wife held all the stock in Basch until late 1964 when Maxwell Proujansky brought the company a very large account and, as a result, became a 50% shareholder. Petitioner was president of Basch and Proujansky was its vice-president. As an artist, petitioner's primary interest was in the creative side of the business, whereas Proujansky's role was to focus on the financial aspects of the business. Indeed, in August 1976, petitioner and Proujansky entered into a written resolution whereby it was agreed that petitioner was to have "primary responsibility" for copy and art production and Proujansky was to have "primary responsibility" for financial affairs. The relationship between petitioner and Proujansky eventually eroded and, on November 9, 1978, petitioner sold his stock to Proujansky. Major clients were later lost and the business closed in mid-1979.

In July 1981, the Department of Taxation and Finance notified petitioner that Basch had failed to pay its State withholding taxes for portions of 1976 and 1977 and all of 1978. Proujansky died in 1982 and, in January 1983, the Audit Division assessed a penalty in the amount of $23,326.55 against petitioner, pursuant to Tax Law § 685(g), for the personal income taxes which had been withheld from the paychecks of Basch employees but had not been sent to the Department.

A petition for redetermination of the deficiency was filed and a formal hearing ensued. Respondent modified the penalty by finding that petitioner was not responsible for the unpaid taxes which occurred after he sold his interest in the business in November 1978, but otherwise affirmed the Audit Division's assessment. This proceeding, transferred to this court, followed.

A person responsible for the collection and payment of employee withholding taxes who willfully fails to perform those duties is subject to personal liability for the unpaid taxes (Tax Law § 685[g] ). Whether a particular individual is such a responsible "person", as that term is defined in Tax Law § 685(n), is a factual determination for respondent which must be upheld if supported by substantial evidence (Matter of Ragonesi v. New York State Tax Commn., 88 A.D.2d 707, 451 N.Y.S.2d 301). The factual nature of the determination precludes an exhaustive list of factors to be considered; however, some of the often-stated relevant factors include "whether the taxpayer owned stock, signed the tax returns, exercised authority over employees and assets of the corporation, derived substantial income from the corporation, or served as an officer or employee thereof" (Matter of Capoccia v. New York State Tax Commn., 105 A.D.2d 528, 529, 481 N.Y.S.2d 476). Here, petitioner was president and half-owner of Basch. He received an annual salary of $40,000 from the company and had extensive power over the company's employees. Although he exercised it sparingly, petitioner had authority to sign on the company's checking accounts. In one instance, he executed a State tax form on behalf of Basch. Consequently, respondent's determination that petitioner was a "person" charged with collecting employee withholding taxes is supported by substantial evidence and must be upheld.

Relying primarily on his lack of active involvement in the financial...