The New York Budget Bill, SB.4009/A.B.3009, introduced on Sunday includes a provision allowing the NYS Department of Taxation and Finance (“Department”) to appeal determinations of the Tax Appeals Tribunal to the New York State Appellate Division under certain circumstances. Currently, the Tax Law allows only the taxpayer to appeal determinations of the Tax Appeals Tribunal.
Specifically, the bill would give the Department the right to appeal…
“a decision of the tax appeals tribunal that is premised on interpretation of the state or federal constitution, international law, federal law, the law of other states, or other legal matters that are beyond the purview of the state legislature.”
This is broad. The Department would have the right to appeal a determination on any issue other than one involving the construction or interpretation of only New York State law. Many complex tax issues include a constitutional or federal law component and decisions on these issues would be appealable by the Department.
What if the provision is enacted?
We expect that the provision will be enacted as it was included in Governor Hochul’s executive budget proposal. If this provision is enacted it will dramatically change the appellate landscape for tax cases in New York. Currently, New York taxpayers can defeat an assessment or secure a refund through a favorable conclusion in the Division of Tax Appeals. (The Division of Tax Appeals process is composed of two steps. First, the matter is tried before an Administrative Law Judge, with the Administrative Law Judge level being akin to a trial court where the record is set. Second, either party can appeal an Administrative Law Judge determination to the Tax Appeals Tribunal. If the Department wins at the Tax Appeals Tribunal, the taxpayer can appeal the determination to the Appellate Division of the New York courts. However, if the taxpayer wins at the Tax Appeals Tribunal level, the Department cannot appeal; the Tribunal’s determination for the taxpayer is final.) If the new provision is enacted, determinations of the Tax Appeals Tribunal in favor of the taxpayer will no longer be final in all situations, and taxpayers will face the prospect of having to litigate a favorable decision within the New York courts. This would give the Department at least three, and potentially four, bites at the apple! This could – and likely will – add years and significant litigation costs to the protest process.
Pursuant to the budget bill, if the Department appeals a Tax Appeals Tribunal Determination any interest and penalties that would otherwise accrue on the underlying liability would be stayed until 15 days after a final determination (i.e., the issuance of a judicial decision where no further appeals are allowed). Even so, the Department should consider adopting a formal “payment under protest” program, allowing taxpayers appealing assessments to pay the tax to stop interest from accruing during the Division of Tax Appeals dispute without forfeiting any protest rights and converting their assessment into a refund claim. The Department has entered into such agreements informally, but a formal program would streamline the process.
From a litigation strategy standpoint, the provision may impact future decisions of the New York State Appellate Division, which has historically heard only cases that the Department has won before the Tax Appeals Tribunal. A determination of the Tax Appeals Tribunal can only be overturned by the court in certain circumstances, such as if the determination was arbitrary and capricious. This high standard for appeal has been detrimental to taxpayers. However, if this provision is enacted, the deference to the Tax Appeals Tribunal should apply to taxpayers in defending cases where the Department is the appellant. However, the additional time and cost that this provision adds to the litigation process is a huge price to pay for any speculative benefit for taxpayers in Appellate Division appeals.