Waite v. Tax Appeals Tribunal of State of N.Y.

• Decision Date: 21 March 1996
• Citation: 225 A.D.2d 962,639 N.Y.S.2d 584
• Parties: In the Matter of Michael WAITE, as Officer of Harrison Radio Corporation, Petitioner, v. TAX APPEALS TRIBUNAL OF the STATE OF NEW YORK et al., Respondents.
• Court: New York Supreme Court — Appellate Division

Page 584

639 N.Y.S.2d 584

225 A.D.2d 962

In the Matter of Michael WAITE, as Officer of Harrison Radio Corporation, Petitioner, v. TAX APPEALS TRIBUNAL OF the STATE OF NEW YORK et al., Respondents.

Supreme Court, Appellate Division Third Department.

March 21, 1996.

John L. Juliano, East Northport, for petitioner.

Dennis C. Vacco, Attorney-General (Andrew D. Bing, of counsel), Albany, for the Commissioner of Taxation and Finance of the State of New York, respondent.

Before CARDONA, P.J., and MIKOLL, WHITE, CASEY and SPAIN, JJ.

MIKOLL, Justice.

Proceeding pursuant to CPLR article 78 (initiated in this court pursuant to Tax Law § 2016) to review a determination of respondent Tax Appeals Tribunal which sustained sales and use tax assessments imposed under Tax Law articles 28 and 29.

Petitioner seeks a review of the decision of respondent Tax Appeals Tribunal imposing sales taxes found to be owed by Harrison Radio Corporation (hereinafter Harrison) on petitioner as an officer of the corporation. After conducting an audit of the corporation's sales, using a two-day test period of Harrison's retail stores, the audit period was extrapolated to calculate the taxes due for the three-year audit period. The auditor disallowed nontaxable retail sales in the sum of $2,363,454.80 and found underreported sales in the sum of $990,996. Based on these calculations, petitioner was issued a determination and demand for payment of sales taxes in the sum of $221,069.80 plus $57,082.36 in interest for the period of March 1, 1976 to August 31, 1979. Because of a dispute as to whether the test period was representative, a second audit utilizing two different days was conducted for the period ending May 31, 1980.

The second audit resulted in a reduction of disallowed nontaxable sales percentage. The original disallowed percentage arrived at in the first audit was reduced from 39.14% to 21.3%. The auditor then averaged this revised disallowed percentage with the disallowed percentage from the second test to reach an average disallowed percentage of 16.23% Eventually, the disallowance for nontaxable retail sales was reduced to 9.35%.

Petitioner was issued a notice of assessment review for the period March 1, 1976 through August 31, 1979 and the period from September 1, 1979 through May 31, 1980 in the sum of $37,513.57 and $10,577.59, respectively, plus an assessment of interest minus the estimated taxes paid by Harrison.

Petitioner challenged the use of a two-day test period for the entire three-year term, claiming that it was unwarranted. We disagree. The records submitted to respondent were insufficient to deduce the amount of taxes due in that Harrison's records for the first six months of the period under review were missing. In addition, there was an absence of any invoices for sales of less than $10 which, when considered with the fact that many of the nontaxable sales were less that $10, is significant. All of these circumstances justified the use of a test period (see, Tax Law § 1138[a][1]; Matter of Estate of Manno v. State of New York Tax Commn., 147 A.D.2d 805, 806, 537 N.Y.S.2d 683, lv. denied 74 N.Y.2d 610, 546 N.Y.S.2d 554, 545 N.E.2d 868, appeal dismissed 75 N.Y.2d 864, 552 N.Y.S.2d 929, 552 N.E.2d 177, cert. denied 498 U.S. 813, 111 S.Ct. 50, 112 L.Ed.2d 26). We hold that the methodology used in this case was appropriate.

The petitioner challenges the denial of an exemption for a retail sale of radio equipment to Ecuatoriana Airlines in the amount of $452. The question is significant in that the disallowance of this sale as nontaxable greatly distorted the disallowance percentage arrived at by the auditor, to petitioner's detriment. Petitioner urges that this sale was exempted from tax pursuant to the Import-Export Clause (U.S. Const., art I, § 10), which prohibits states from imposing duties on import and exports.

The taxpayer bears the burden of proving that sales are not taxable and a failure to prove that actual delivery took place outside of New York provides a rational basis for the imposition of sales tax (see, Matter of Hazan Inc. v. Tax Appeals Tribunal of State of N.Y., 152 A.D.2d 765, 766-767 543 N.Y.S.2d 545, affd. 75 N.Y.2d 989, 557 N.Y.S.2d 306, 556 N.E.2d 1113; see also ...