As part of the New York Budget Legislation (“S.B. 4009 / A.B. 3009”),  the Commissioner of the New York State Department of Taxation and Finance (“Commissioner”) will be given the right to appeal certain types of decisions from the New York State Tax Appeals Tribunal (“Tribunal”).  Currently, only taxpayers have the right to appeal Tribunal decisions.  This provision is on the cusp of becoming law after clearing both legislative chambers on May 1, 2023.  As of this morning, the legislation has been delivered to Gov. Kathy Hochul, who is expected to sign it.  If enacted, S.B. 4009 / A.B. 3009 would take effect immediately, upending the status quo and creating additional complexities in New York State tax litigation.

Currently, the vast majority of tax appeals in New York are brought in the Division of Tax Appeals.  The Division of Tax Appeals has two levels.  The first is the administrative law judge (“ALJ”) division, where evidence is generally presented to an independent trier of fact and a determination is issued.  ALJ determinations are then reviewable by the Tribunal (also independent).  Currently, the losing party, whether the Commissioner or the petitioner (who is usually the taxpayer) can request review of ALJ determinations but only the petitioner (the taxpayer) may request judicial review of an adverse decision of the Tribunal.

S.B. 4009 / A.B. 3009 will grant the Commissioner the right, in consultation with the New York State Attorney General, to petition for judicial review of a decision of the Tribunal that is “premised on” the “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.”  S.B. 4009–C / A.B. 3009–C, Part V § 1.  If the Commissioner exercises this right, any additional interest or penalties that would otherwise accrue on a tax liability during the Commissioner’s judicial appeal are stayed.  The Commissioner’s petition for judicial review must designate as respondents the Tribunal and the petitioner who commenced the proceeding before the Division of Tax Appeals (i.e., the taxpayer).

The implications of this change cannot be understated.  As mentioned, the legislation will change a longstanding rule that only allowed taxpayers, but not the Commissioner, to appeal Tribunal decisions.  This will inevitably crowd an already overcrowded judicial system.  Additionally, the specific and purportedly “limited” grounds for review requests inevitably create concerns and additional uncertainty for taxpayers.  For example, how does one determine in a complex case involving many different legal and factual issues what the Tribunal decision is “premised on”?   If a taxpayer raises both constitutional and New York statutory arguments in a tax appeals proceeding (a common practice in state tax litigation), and the Tribunal addresses both arguments but isn’t clear about the premise of its decision, would the Commissioner have a right to appeal?  Similarly, if the Tribunal adopts the reasoning of other state courts when deciding similar issues involving similar laws, could the Commissioner argue that it has the right to appeal the Tribunal’s decision because it is “premised on the interpretation of . . . the law of other states”?  Additionally, there will inevitably be close calls regarding whether a Tribunal decision is “premised . . . on federal law,” given that state tax issues can overlap with federal tax laws (and, occasionally, with other federal laws).  This uncertainty could give rise to further disputes on the issue of whether an appeal by the Commissioner is even allowed, which could correspondingly increase costs and waste judicial resources.  These uncertainties demonstrate a need for rules and regulations clearly delineating the Commissioner’s new appeal rights.

In addition, S.B. 4009 / A.B. 3009 would seemingly create a disparity between New York State and New York City tax litigation procedure, at least initially.  Similar to the New York Tax Law, the New York City Administrative Code does not currently permit the Commissioner of the New York City Department of Finance to appeal New York City Tax Tribunal decisions.  However, S.B. 4009 / A.B. 3009, if enacted, would not give the Commissioner of Finance the same right to petition for judicial review.

Overall, New York’s legislation may increase the cost and complexity of resolving New York state tax disputes.  The New York Tax Law already imposes on taxpayers the heavy burden of proving that the Commissioner’s assessment of additional tax is incorrect.  Allowing the Commissioner to seek judicial review of Tribunal decisions introduces an additional hurdle for taxpayers to overcome.

Contact the Authors: Maria Eberle, Lindsay LaCava, Mark Yopp, Trevor Mauck, Michael Tedesco and Dmitrii Gabrielov