MoFo New York Tax Insights - Volume 3, Issue 8 - August 2012

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In This Issue:

Taxpayers Prevail Where Department Used Unreasonable Audit Methodology; Motion Pictures Delivered in Digital Form are not Subject to Sales Tax; Guidance for Employers for Withholding on Nonresident Employees Under the “14-Day Rule”; Tribunal Affirms Denial of QEZE Tax Credits for Lack of a Business Purpose; Department Will Not Treat Insurance Company Reimbursements as Taxable “Premiums”; Insights in Brief.

Excerpt from Taxpayers Prevail Where Department Used Unreasonable Audit Methodology -

In a pair of decisions, each involving estimated sales tax assessments on restaurants, two separate New York State Administrative Law Judges struck down the audit methodologies used by the Department’s auditors. Matter of Richmond Deli & Bagels, Inc., and Nabila Hussain, DTA Nos. 823244 & 823250 (N.Y.S. Div. of Tax App., July 5, 2012) and Matter of Forestview Restaurant, LLC; Matter of George A. Peppes Officer of Forestview Restaurant, LLC, DTA Nos. 823465 & 823466 (N.Y.S. Div. of Tax App., June 28, 2012).

Both ALJs determined that the records provided by the restaurants’ owners during the audit were insufficient, and therefore the Department was within its rights to resort to an alternate audit methodology. However, both ALJs found in each case that the audit methodologies used were unreasonable and lacked a rational basis. Recognizing that the Department has a fair amount of leeway in choosing audit methodologies, in each case both ALJs nonetheless held that the audit methodology selected must be reasonably calculated to reflect the sales taxes due.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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