Hopper v. Commissioner of Taxation and Finance

• Citation: 637 N.Y.S.2d 494,224 A.D.2d 733
• Parties: In the Matter of Donald A. HOPPER, Petitioner, v. COMMISSIONER OF TAXATION AND FINANCE et al., Respondents.
• Decision Date: 01 February 1996
• Court: New York Supreme Court Appellate Division

Page 494

637 N.Y.S.2d 494

224 A.D.2d 733

In the Matter of Donald A. HOPPER, Petitioner, v. COMMISSIONER OF TAXATION AND FINANCE et al., Respondents.

Supreme Court, Appellate Division,

Third Department.

Feb. 1, 1996.

Donald A. Hopper, New York City, petitioner in person.

Dennis C. Vacco, Attorney-General (Denise A. Hartman, of counsel), Albany, for respondents.

Before CARDONA, P.J., and MIKOLL, CREW, YESAWICH and PETERS, JJ.

MIKOLL, 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 Tax Appeals Tribunal which sustained a personal income tax assessment imposed under Tax Law article 22.

Petitioner, an attorney, was admitted to practice law in New York in 1951. He served as an Assistant District Attorney until entering private practice in 1958. In 1970 he was retained by Edward Halloran to handle various litigation matters relating to Halloran's business and did so until 1975, when Halloran no longer required his services. In 1978 Halloran again retained petitioner to handle various litigation matters. Halloran owned, through Shelton Towers Associates, the Halloran House, a major New York City hotel. In 1983 Halloran formed a limited partnership, Royale Towers Associates (hereinafter Royale), to acquire full ownership of the Hotel Taft in New York City for a purchase price of $20 million. At Halloran's request, petitioner was named a general partner in Royale, acquiring a 2% interest, while Halloran, as limited partner, acquired a 98% interest in Royale. Petitioner contributed no capital to Royale and performed no legal work for it. Petitioner's compensation came directly from Shelton Tower Associates and Transit Mix Concrete Corporation, another company owned by Halloran, for legal services petitioner performed for those companies.

In 1984, Royale sold the Hotel Taft. Petitioner was not involved in the negotiations but attended the closing because his signature was needed on the deed and other documents. Many creditors also attended the closing, including representatives from the State Tax Commission. Royale was represented by petitioner, Halloran and others. The tax due on the sale is the subject of this proceeding.

In March 1988 a notice of deficiency was issued to petitioner assessing a penalty of $423,461.23 against him as a person required to collect, account for and pay over withholding taxes on behalf of Royale for the period from January 1, 1983 through December 31, 1984. Petitioner filed for a redetermination of the penalty assessment on June 8, 1989. Receipt of the challenge was acknowledged on June 23, 1989, although no answer was filed by the Division of Taxation until February 21, 1991. Petitioner moved to vacate the assessment on the ground that the Division failed to comply with 20 NYCRR 3000.4, which requires that the Division "shall" serve an answer within 60 days from the acknowledgement of receipt. An Administrative Law Judge (hereinafter the ALJ) denied petitioner's motion to vacate, ruling that the time periods specified in the regulation were directory, not mandatory, and that there was no showing of prejudice to petitioner.

After a hearing, the ALJ issued a determination on October 22, 1992 holding petitioner liable for the penalties asserted based on two provisions of the Partnership Law. On appeal, respondent Tax Appeals Tribunal ruled that the ALJ erred in finding petitioner liable under the two provisions cited, and directed that a new determination be made addressing the issue of liability under Tax Law § 685(g). Upon remand, the ALJ sustained the notice of deficiency and denied petitioner's application for a redetermination. The ALJ concluded that petitioner was a "person" for the purposes of Tax Law § 685(g) and rejected petitioner's argument that his failure to collect and remit the taxes was not "willful" within the meaning of the statute. The Tribunal affirmed the decision of the ALJ on August 18, 1994 and sustained the notice of deficiency against petitioner.

On December 16, 1994, petitioner attempted to commence this CPLR article 78 proceeding challenging the Tribunal's decision by filing the notice of petition and petition in Supreme Court. Petitioner also served on the same date respondent Commissioner of Taxation of Finance and the Attorney-General's Office, naming only the New York State Tax Commission as respondent.

On January 12, 1995 the Commissioner moved to dismiss the petition (1) for lack of subject matter jurisdiction, and (2) for petitioner's failure to designate and serve the Tribunal as a respondent within the time limits set by Tax Law § 2016. Supreme Court granted petitioner's cross-motion for removal of the proceeding to this court and permitted petitioner to serve the Tribunal nunc pro tunc, which petitioner did on February 22, 1995. Thereafter, the Commissioner moved to dismiss the proceeding for failure to commence it within the four-month Statute of Limitations prescribed in Tax Law § 2016 and for lack of subject matter jurisdiction. This court denied the motion without prejudice to the issues being raised upon argument of the proceeding. Respondent then answered, raising, inter alia, the defenses of the Statute of Limitations and subject matter jurisdiction.

The determination of the Tribunal sustaining the personal income tax assessment against petitioner pursuant to Tax Law article 22 should be confirmed and the petition dismissed.

The Commissioner's contention that Supreme Court had no jurisdiction to transfer the instant proceeding to this court because the proceeding was improperly commenced in Supreme Court rather than this court, contrary to the provisions of Tax Law § 2016, is rejected. While original jurisdiction lies in this court, Supreme Court nonetheless has jurisdiction to transfer the improperly commenced proceeding to this court (see, CPLR 325[a]; Matter of Spodek v. New York State Commr. of Taxation & Fin., 85 N.Y.2d 760, 764-766, 628 N.Y.S.2d 256, 651 N.E.2d 1275). Since this proceeding was timely commenced in Supreme Court within the prescribed four-month limitations period, its transfer to this court after the four-month period had expired was not improper nor untimely (see, Matter of Arnold v. New York State Dept. of Educ., 128 A.D.2d 985, 987, 513 N.Y.S.2d 526).

Petitioner's claim that the ALJ abused her discretion in declining to vacate the Division's answer for late filing and grant petitioner the relief demanded is without merit. The Commissioner's contention that petitioner failed to preserve the late filing issue for review because it was not raised before the Tribunal fails. Petitioner raised this issue at the initial hearing before the ALJ and preserved it for review even though he failed to raise it in his notices of exceptions to the ALJ's determination (see, Matter of ADP Automotive Claims Servs. v. Tax Appeals Tribunal, 188 A.D.2d 245, 249, 594 N.Y.S.2d 96, lv. denied 82 N.Y.2d 655, 602 N.Y.S.2d 804, 622 N.E.2d 305).

However, petitioner's argument, although preserved for review, fails on the merits. Petitioner mistakenly relies on the use of the word "shall" in 20 NYCRR 3000.4(a)(1) to support his argument that the 60-day time requirement for the service of the Division's answer is mandatory rather than directory. The use of mandatory language is not conclusive (see, Matter of Janus Petroleum v. New York State Tax Appeals Tribunal, 180 A.D.2d 53, 54, 583 N.Y.S.2d 983). Where, as here, there is no indication that the designation of time is intended as a limitation on the power of the agency, the provision is properly...