Black v. New York State Tax Appeals Tribunal

• Decision Date: 30 June 2022
• Docket Number: 532477
• Citation: 206 A.D.3d 1482,172 N.Y.S.3d 151
• Parties: In the Matter of Christopher BLACK, Petitioner, v. NEW YORK STATE TAX APPEALS TRIBUNAL et al., Respondents.
• Court: New York Supreme Court — Appellate Division

206 A.D.3d 1482

172 N.Y.S.3d 151

In the Matter of Christopher BLACK, Petitioner,

v.NEW YORK STATE TAX APPEALS TRIBUNAL et al., Respondents.

532477

Supreme Court, Appellate Division, Third Department, New York.

Calendar Date: April 26, 2022

Decided and Entered: June 30, 2022

Greenberg Traurig, LLP, Albany (Henry M. Greenberg of counsel), for petitioner.

Letitia James, Attorney General, Albany (Owen Demuth of counsel), for Commissioner of Taxation and Finance, respondent.

Before: Egan Jr., J.P., Lynch, Aarons, Reynolds Fitzgerald and Ceresia, JJ.

MEMORANDUM AND JUDGMENT

Reynolds Fitzgerald, J.

Proceeding pursuant to CPLR article 78 (initiated in this Court pursuant to Tax Law § 2016 ) to review a determination of respondent Tax Appeals Tribunal sustaining two notices of deficiency of employee withholding taxes against petitioner.

Petitioner began his career in 1986 as a journeyman carpenter for Nastasi & Associates. In 1994, petitioner formed New England Construction Company (hereinafter NECC), a drywall, acoustical ceilings and millwork construction company. Petitioner's purpose, in part, in forming NECC was to have the corporation certified as a minority business enterprise to gain access to state contracts with minority access goals. Thereafter, petitioner and the owners of Nastasi & Associates arranged for petitioner to take over Nastasi & Associates’ minority subcontracts. At all relevant times, petitioner was president and a 51% shareholder of NECC, with the remaining shares belonging to family members and owners of Nastasi & Associates. According to petitioner, in 2005, Anthony Nastasi (hereinafter Nastasi) took over the financial affairs and management of NECC. Additionally, NECC and Nastasi & Associates entered into an agreement providing that, upon Nastasi's written demand, petitioner would immediately resign as president of NECC. Commencing in 2012, NECC began to encounter tax liabilities, including issues regarding employee withholding taxes. In 2015, Nastasi ultimately terminated petitioner pursuant to the terms of the 2005 agreement, purchased petitioner's shares of NECC and became its sole owner.

In December 2015, respondent Department of Taxation and Finance issued petitioner, for the periods ending December 2014, March 2015 and June 2015, three notices of deficiency for outstanding withholding taxes owed by NECC and sought to hold petitioner personally liable for the outstanding taxes owed. Petitioner thereafter filed a petition with the Department seeking to challenge the notices of deficiency and to absolve himself of liability on the grounds that, under Tax Law § 685(g), he was not a "responsible person" of NECC.¹ Following a hearing, an Administrative Law Judge, among other things, sustained the notice for the period ending December 2014 and partially sustained the notice for the period ending March 2015.² Upon administrative appeal, respondent Tax Appeals Tribunal found that, based upon various factors, petitioner was a responsible person on behalf of NECC (see Tax Law § 685[g], [n] ) and determined that he was personally liable. Additionally, the Tribunal found that petitioner's failure to pay the withholding taxes was willful. Lastly, the Tribunal held that it was not obligated to defer to the IRS's parallel determination as the Department may conduct its own examination and reach its own factual conclusions. Petitioner then commenced this CPLR article 78 proceeding challenging the Tribunal's determination.

As an initial matter, we disagree with petitioner's contention that the Tribunal's determination was irrational in light of the IRS's determination absolving petitioner of liability as a responsible person for purposes of NECC's federal withholding tax liabilities. Although there is no dispute that 26 USC §§ 6671(b) and 6672(a) are parallel statutes with Tax Law § 685(g) and (n), and that both the state and federal statutes require a showing that the taxpayer has actual authority in order to be a person responsible for collecting and remitting the corporation's withholding taxes, the Tribunal's determination was not based upon an erroneous legal standard contrary to that found under federal law, but upon the Tribunal's numerous factual findings based on the extensive record before it.

Turning to the merits, "[i]n cases where, as here, the issues argued before the Tribunal involved the specific application of broad statutory terms in a proceeding in which the agency administering the statute must determine it initially, this Court accords deference to the Tribunal's interpretation of the statute[ ] at issue and will not disturb the Tribunal's determination if it has a rational basis and is supported by substantial evidence" ( Matter of Gans v. New York State Tax Appeals Trib., 194 A.D.3d 1209, 1210, 149 N.Y.S.3d 299 [2021] [internal quotation marks, brackets and citations omitted]; see Matter of Parikh v. Schmidt, 200 A.D.3d 1237, 1239, 157 N.Y.S.3d 603 [2021] ; Matter of Toronto Dominion Holdings [U.S.A.], Inc. v. Tax Appeals Trib. of the State of N.Y., 162 A.D.3d 1255, 1257, 77 N.Y.S.3d 800 [2018], lv denied 32 N.Y.3d 907, 2018 WL 4997608 [2018] ).³ In view of the foregoing, the Tribunal neither incorrectly interpreted Tax Law § 685(g), nor applied an improper test in determining who is a responsible person. We confirm.

As relevant here, "[a]ny person required to collect, truthfully account for, and pay over the tax imposed by [Tax Law article 22] who willfully fails to collect such tax or truthfully account for and pay over such tax or willfully attempts in any manner to evade or defeat the tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the sum of ... the total amount of the tax evaded, or not collected, or not accounted for and paid over" ( Tax Law § 685[g] ). "For purposes of subsection[ ] (g), ... the term person includes an individual, corporation, partnership or limited liability company or an officer or employee of any corporation ... who as such officer, employee, manager or member is under a duty to perform the act in respect of which the violation occurs" ( Tax Law § 685[n] ).

In determining whether petitioner was a responsible person for the time periods in question, the test is a factual one to be determined after consideration of a myriad of factors, including "whether the petitioner signed the tax return, derived a substantial part of his [or her] income from the corporation, or had the right to hire and fire employees. While no one factor is controlling, all must be considered" ( Matter of Malkin v. Tully, 65 A.D.2d 228, 231, 412 N.Y.S.2d 186 [1978] [citations omitted]; see Matter of Menik v. Roth, 280 A.D.2d 702, 702–703, 720 N.Y.S.2d 265 [2001] ; Matter of Risoli v. Commissioner of Taxation & Fin., 237 A.D.2d 675, 676, 654 N.Y.S.2d 218 [1997] ; Matter of Basch v. New York State Tax Commn., 134 A.D.2d 786, 787, 521 N.Y.S.2d 840 [1987] ). Notwithstanding evidence that could support a contrary determination, it is undisputed that petitioner was president, the majority shareholder, had check signing authority, was involved in daily field operations and derived a substantial part of his income from NECC. Additionally, petitioner intentionally held himself out to third parties, as well as to the Division of Taxation itself, as the contact person and responsible person for New York taxes by signing state tax returns and checks accompanying the returns, executing a sales tax certificate of authority listing himself as the corporation's responsible person, filling out the Division's "Responsible Person Questionnaire," and maintaining communication with the Department. Accordingly, respondent's determination that petitioner is a responsible person has a rational basis, is supported by substantial evidence and must be upheld (see Matter of Menik v. Roth, 280 A.D.2d at 703, 720 N.Y.S.2d 265 ; Matter of Risoli v. Commissioner of Taxation & Fin., 237 A.D.2d at 677, 654 N.Y.S.2d 218 ; Matter of Basch v. New York State Tax Commn., 134 A.D.2d at 788, 521 N.Y.S.2d 840 ). Although petitioner provided evidence that Nastasi exerted control over NECC's financial responsibilities, we may not disturb the Tribunal's determination despite the existence of evidence in the record to support a contrary conclusion (see Matter of Fuchsberg & Fuchsberg v. Commissioner of Taxation & Fin., 13 A.D.3d 831, 834, 786 N.Y.S.2d 257 [2004] ; Matter of Menik v. Roth, 280 A.D.2d at 703, 720 N.Y.S.2d 265 ).

Petitioner also contends that the Tribunal erred in finding a willful failure on his part because he was powerless to direct payment of the taxes, as Nastasi was in complete financial control of NECC and directed what bills should be paid. "Willfulness ... may be found when the act, default or conduct is consciously and voluntarily done with knowledge that as a result, trust funds belonging to the [g]overnment will not be paid over but will be used for other purposes. Something more than accidental nonpayment is all that is required" ( Matter of Hopper v. Commissioner of Taxation & Fin., 224 A.D.2d 733, 738, 637 N.Y.S.2d 494 [1996] [internal quotation marks, brackets and citations omitted], lv denied 88 N.Y.2d 808, 647 N.Y.S.2d 713, 670 N.E.2d 1345 [1996] ). Although petitioner might not have initially known that the taxes were not paid due to Nastasi writing and directing the checks that petitioner should sign, it is undisputed that petitioner became aware of the tax liabilities from employees of the corporation and the Department, yet failed to take affirmative steps to ensure payment. Despite Nastasi's repeated representations that he would obtain credit to pay off the tax liability, petitioner himself did not seek to obtain financing to pay the taxes, nor did he attempt to correct Nastasi's mismanagement in failing to collect and remit the taxes (see Kalb v. United States, 505 F.2d 506, 511 [2d Cir.1974], cert denied 421 U.S. 979, 95...