Whitmer v. Nys. Taxation & Fin.
| Decision Date | 01 June 2009 |
| Docket Number | 7647/2008 |
| Parties | JUDITH R. WHITMER, Plaintiff, v. NEW YORK STATE DEPARTMENT OF TAXATION & FINANCE, Defendant. |
| Court | New York Supreme Court |
George Michael Zimmerman for defendant. Ralph C. Lorigo for plaintiff.
On November 5, 2007, the New York State Department of Taxation and Finance, the defendant herein, issued a jeopardy assessment of sales tax against the plaintiff, Judith R. Whitmer, pursuant to Tax Law § 1138 (b). (See exhibits A, B, C, attached to surreply affidavit of Ralph C. Lorigo, Esq., sworn to Apr. 7, 2009.) It is uncontested that the jeopardy assessment resulted from sales and use taxes owed by Variety Motors, Inc. and, together with interest and penalties, amounted to $788,994.97. The jeopardy assessment was made against the plaintiff personally because she was alleged to be an officer or other responsible person associated with Variety Motors, Inc. and, thus, was allegedly responsible for collection and payment of sales tax. (See Tax Law §§ 1131, 1133.) According to the defendant, Ms. Whitmer was liable for the payment of taxes due and owing for the tax period ending November 30, 2005 through and including the tax period ending August 31, 2007. (See Lorigo surreply affidavit, exhibit B.) Despite being informed of her right to a prompt hearing (see Lorigo surreply affidavit, exhibit A), plaintiff did not avail herself of her right to administrative review.
On November 7, 2007, the defendant filed tax warrants in the Erie County Clerk's Office in the amount of $788,994.97. In late February 2008* the plaintiff sold certain real property located in the Town of Clarence and, in order to clear title clouded by the aforementioned warrants, plaintiff was required to pay, and did pay, the defendant the sum of $73,483.30.
On July 2, 2008, plaintiff commenced this declaratory judgment action alleging that she was not an officer, director, employee shareholder or other responsible person of Variety Motors, Inc.; that she never had any involvement with the financial affairs, management or day-to-day operation of the corporation; that she never prepared, filed or signed any tax returns on behalf of the corporation; that she never received any remuneration from the corporation.
In her complaint, the plaintiff stated several causes of action including that Tax Law § 1138 was not applicable to her, that the assessment should be declared null and void, that the lien filed in the Erie County Clerk's Office should be declared null and void and that she was entitled to a refund of the sums paid by her to the defendant.
Defendant brought the instant motion to dismiss the plaintiff's complaint alleging that plaintiff failed to exhaust all appropriate administrative remedies and that, therefore, this court lacks subject matter jurisdiction. (Young Men's Christian Assn. v Rochester Pure Waters Dist., 37 NY2d 371 [1975].)
Plaintiff opposed the motion by asserting that she falls within three recognized exceptions to the long-standing rule that a party must exhaust all administrative remedies before seeking relief in the courts. Those exceptions are: (1) that the statute, as applied, is unconstitutional; (2) that the statute is wholly inapplicable to the plaintiff; and (3) that resort to an administrative remedy would, in this case, be futile. (Watergate II Apts. v Buffalo Sewer Auth., 46 NY2d 52 [1978].)
The first exception can be disposed of quickly. A careful review of the complaint does not support plaintiff's claim. The complaint does not raise issues of constitutionality so as to permit plaintiff to avail herself of this exception.
Alternatively, the plaintiff claims that Tax Law § 1138 is wholly inapplicable to her. (Matter of Hospital Tel. Sys. v New York State Tax Commn., 41 AD2d 576 [3d Dept 1973].) In Hospital Tel. Sys., the Court noted that the petitioner did not challenge the amount of the tax imposed but instead challenged solely the applicability of the statute. (Id.) Plaintiff makes a similar claim. A discussion of Tax Law § 1138 is required.
Section 1138 (a) provides a means for the Commissioner to determine the amount of sales tax owed if a return is not filed, or if a return is filed, such return is incorrect or insufficient. A notice of such determination is then mailed to the person or persons liable for the collection or payment of the tax and such notice becomes an assessment of the amount of tax specified in such notice 90 days from the date of mailing of the notice of determination. The taxpayer may request a hearing within such time before the Division of Tax Appeals which may then make a final assessment of the tax. (Tax Law § 1138 [a] [1].) Whether or not a return is filed, the Commissioner may make a determination of liability as to an officer, director or employee of a corporation or of a dissolved corporation. Again, such determination becomes "an assessment of the tax and liability for the tax with respect to such person" unless such person avails himself or herself of a hearing within 90 days after notice of such determination. (Tax Law § 1138 [a] [3] [B].) After such hearing, the Division of Tax Appeals must give notice of its determination, the determination may be reviewed by a tax appeals tribunal and ultimately the person so assessed may ask for judicial review pursuant to article 78 of the CPLR. Prior to seeking judicial review, however, the aggrieved party must first deposit with the Commissioner of Taxation and Finance "the amount of any tax sought to be reviewed, with penalties and interest thereon," or may file an undertaking "in a sum sufficient to cover the taxes, penalties and interest thereon stated in such determination plus the costs and charges which may accrue against him in the prosecution of the proceeding" (Tax Law § 1138[a] [4]). No such deposit or undertaking is required when the sole determination to be made is the liability of an officer, director or other such responsible person. (Id.)
The defendant argues that Tax Law § 1138 (a) (3) (B) applies to the plaintiff because she is a resident of Erie County, New York, and is subject to the jurisdiction of the defendant. (Bankers Trust Corp. v New York City Dept. of Fin., 1 NY3d 315 [2003].) As such, defendant contends that plaintiff is unable to invoke the "wholly inapplicable" exception to the administrative remedies doctrine.
A jeopardy assessment under Tax Law § 1138 (b) results in an immediate determination and assessment of the tax which becomes due and payable to the commission by the person against whom it is assessed "as soon as notice thereof is given to him personally or by registered or certified mail." (Id.)
Plaintiff contends that she is not a person liable for any sales taxes due and owing from Variety Motors, Inc. If that were her only contention and the defendant was attempting to determine and assess sales tax pursuant to Tax Law § 1138 (a), plaintiff would have been required to exhaust her administrative remedies by seeking a hearing as to that limited factual determination. Whether an individual is personally liable for sales and use taxes is a limited factual determination to be made initially, by resort to administrative review. (See e.g. Matter of Cohen v State Tax Commn., 128 AD2d 1022 [3d Dept 1987].) This court disagrees with plaintiff's contention that a jeopardy assessment under section 1138 (b) cannot be made against an officer or other responsible person. Provided that he or she is liable for the tax, such a person may be subject to a timely jeopardy assessment.
But plaintiff also asserts that a jeopardy assessment pursuant to section 1138 (b) may only be imposed by the Tax Commission "prior to the filing of [a] return and prior to the date when [a] return is required to be filed." As noted earlier in this decision, the jeopardy assessment was made on November 5, 2007 for sales taxes that were due and owing for the tax period ending November 30, 2005 through and including the tax period ending August 31, 2007. Sales tax returns are required to be filed quarterly within 20 days after the end of each quarterly period. (Tax Law § 1136 [b].) Neither side in this dispute has said whether or not any tax returns were ever filed by Variety Motors, Inc. or by anyone in a position of responsibility. However, the last day when a return would have been required to be filed would have been ...
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Whitmer v. N.Y. State Dep't of Taxation & Fin.
...law and thus defendant was without authority, or jurisdiction, to issue the Jeopardy Assessment (Whitmer v. New York State Dept. of Taxation & Fin., 24 Misc.3d 1017, 1021–1022, 879 N.Y.S.2d 915). We reject those contentions. Although plaintiff's fourth cause of action sought a refund of app......