This case, Matter of New Cingular Wireless PCS LLC, DTA No. 825318 (N.Y.S. Tax App. Trib., Feb. 16, 2016), presents a fact pattern that reflects the cost to a business owner for failing to make sales tax refunds. Here, New Cingular Wireless, now known as AT&T Mobility (“AT&TM”), improperly collected and remitted sales tax on charges for Internet access. It was then eligible for a refund from the State of New York but applied for such without first actually refunding the over-collected amounts back to customers! Most importantly, it was not entitled to remedy its error resulting in a cost to the company of $100 million.
The Administrative Law Judge (ALJ) in the case determined that because AT&TM had not repaid the tax to its customers, it failed to satisfy Tax Law § 1139(a), which provides that “[n]o refund or credit shall be made to any person of tax which he collected from a customer until he shall first establish to the satisfaction of the tax commission, under such regulations as it may prescribe, that he has repaid such tax to the customer.” Not only did the New York State Tax Appeals Tribunal affirm the decision of an ALJ denying sales tax refunds of over $100 million, it also affirmed the ALJ’s separate decision denying the company’s motion to reopen the record.
AT&TM entered into a class action settlement agreeing to reimburse its customers, including New York customers, for over-collected sales tax by filing refund claims on their behalf. The agreement involved the creation of an escrow account to receive sales tax refunded by the states, with these funds to be distributed to the customers by an escrow agent under court supervision. AT&TM agreed to fund a pre-refund escrow fund, but then claimed the state tax refund without making any payments to the pre-refund escrow fund.
Soon after the ALJ decision, AT&TM filed a motion to reopen the record which was denied by the ALJ who noted that the Tribunal’s Rules of Practice and Procedure only allow the record to be reopened for newly discovered evidence. Because AT&TM’s “new” evidence had not been in existence at the time of the original hearing, it was not “newly discovered” evidence. The Tribunal affirmed the ALJ on both grounds stating that the language of § 1139 is unambiguous and that reopening the case would be contrary to the Tribunal’s mission to provide a defined, fair and efficient hearing mechanism which is also final.
While the New York statute is clear in its requirement that customers must be repaid before a vendor can obtain a refund, some hardship may result to vendors faced with making a potential refund in the tens, or even hundreds, of millions. In this case, the amount of refunds was $100 million! Here, AT&TM claimed it failed to fund the pre-refund escrow account because the State of New York had indicated it would not qualify for a refund based upon other reasons. So, according to AT&TM, it became a $100 million gamble.
Don’t gamble! If you are a business owner in the Tri-State and have any questions or concerns relating to your collection of state sales taxes, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com for a FREE consultation. Call 212-490-0704 today.
