March 30, 2006
Mr. Justice Holmes stated: “Men must turn square corners when they deal with the Government.”[fn1] The Court has also recognized – as it should – that “‘It is no less good morals and good law that the Government should turn square corners in dealing with the people than that the people should turn square corners in dealing with their government.’”[fn2] Recently, the New York State Tax Appeals Tribunal (the “Tribunal”) held the New York State Division of Taxation (the “Division”) to that doctrine, finding that a notice mailed to the wrong address, and not received in sufficient time to file a protest, was invalid.[fn3]
OfficeMax, Inc. (“OfficeMax”) the well-known retailer of office supplies throughout the United States, was audited by the Division with respect to its sales and use tax liabilities.
OfficeMax used its address in Ohio on its sales and use tax returns. The Ohio address was also the location the Division’s auditor visited on 16 occasions during the course of the audit. Statements of Proposed Audit Changes were mailed to that address. Payment confirmations by the Division were mailed to the Ohio address. The Notice of Determination at issue, dated June 2, 2000, however, was not mailed to OfficeMax. It was mailed to an unrelated lessor, Idealease, located in Illinois. That address was obtained from a highway use tax return that was filed by Idealease in connection with a single truck rented by OfficeMax, after indications that the Ohio address was bad or invalid appeared on the Division’s computer. No one in the Division knew precisely why a bad address was noted on OfficeMax’s account, acknowledging that the notations could have resulted from an interface in the computer. The Idealease address was plucked by the computer by use of an algorithm; no person ever reviewed the new address that was selected to ensure that it was a proper address.
After being contacted by OfficeMax regarding its non-receipt of the notice, the Division remailed the notice, which, although postmarked August 30, 2000, was not received by OfficeMax until September 21, 2000, beyond the 90-day period from the June 2, 2000 mailing within which OfficeMax could have filed a timely protest. The remailed notice was sent to OfficeMax’s Ohio post office box. The statute of limitations on assessment for the years at issue ran on June 20, 2000.
The Mailing Rules
A Notice of Determination is required to be mailed by certified or registered mail to the person for whom it is intended “at the address given in the last return filed by him [i.e., the taxpayer] pursuant to [Article 28] or in any application made by him.”[fn4] If the Division follows these mailing directions, there is a presumption of receipt of the deficiency notice by the person to whom it is addressed.[fn5] However, no such presumption exists if the Division does not properly address the notice.
The Division’s Position
The Division took the position that the assessment was valid, despite the fact that the notice was mailed to the wrong address and was not received by OfficeMax in time to file a petition. In particular, the Division argued, inter alia, that: (1) Idealease was OfficeMax’s agent; (2) the address of Idealease was “a current address used by Petitioner”; (3) the Division was not required under the statute, Tax Law section 1147, to use a specific address if a taxpayer had multiple addresses; and (4) OfficeMax was not prejudiced by its receipt of the notice after the time within which to protest had passed, since “Petitioner’s rights to challenge the assessment were preserved.”
OfficeMax argued that the notice was improperly mailed under Tax Law section 1147(a)(1), and was therefore invalid, and that the Division’s remailing of the notice on August 30, 2000, which was not received within the 90-day period to file a protest, was barred by the statute of limitations on assessment.
The Division presented the testimony of four witnesses to describe its computer systems and the procedures it uses to address and mail notices: a Task Process Manager, a Supervisor of Data Processing, the Principal Clerk, and the Principal Mailroom Supervisor. No one was able to explain why the Idealease address was used. The Division merely argued that it was justified in utilizing computerized address files to monitor address changes, given the large number of New York taxpayers.
The Division also called the auditor, who acknowledged receiving inquiries from OfficeMax regarding the whereabouts of the June 2 notice, but did not take affirmative action regarding remailing the notice until late August.
OfficeMax called its Fleet Manager, who testified that OfficeMax leased one truck in New York from Idealease, which was large enough to require the filing of Highway Use Tax (“HUT”) returns. Idealease prepared and filed the HUT returns on behalf of OfficeMax as required under its lease agreement with OfficeMax; the quarterly payments were approximately $50 each. The Fleet Manager, who was OfficeMax’s primary contact with Idealease, testified that no one from Idealease contacted him regarding receipt of the notice and he and a Tax Analyst for OfficeMax testified that Idealease was not authorized to act as agent for OfficeMax. The Division presented no evidence to support its claim that Idealease was OfficeMax’s agent.
The Administrative Law Judge (“ALJ”) Determination
The ALJ found that the Division ignored the plain language of Tax Law section 1147(a)(1), which required that notices be sent to the address on the “last return filed by him [i.e., the taxpayer] pursuant to the provisions of this article,” and found the Division’s argument that it was free to use any address if a taxpayer had multiple addresses as “lack[ing] any legal support.” The Division’s assertion that Tax Law section 1147(a)(1) provides flexibility in addressing notices to the address either in the last return filed or in any “application” filed by the taxpayer was rejected.
Likewise, the ALJ rejected the Division’s argument that Idealease was OfficeMax’s agent, finding that “uncontradicted evidence” established that the contrary was true. Finally, the ALJ agreed with OfficeMax that the notice was invalid, since the evidence in the record established that the notice was received after the time to file a protest had run.
The Tribunal’s Decision
The Tribunal agreed with the ALJ that the notice was improperly mailed, since it was not mailed to the address required by law – the address on the last sales and use tax return filed by OfficeMax – not the location of a company from whom it merely rented a truck. Relying on the “credible evidence” that the notice was received after the time to file a protest had passed, the Tribunal concluded that the notice was invalid.
Food for Thought
It is troubling that the Division took a position contrary to the plain language of the statute and forced OfficeMax to litigate the viability of the misdirected notice. As numerous cases rejecting improperly and late filed returns, refund claims, and protests attest, taxpayers must comply with the law or face the consequences. The onus should fall on the party in control. Here, the failure to identify such an obvious error in OfficeMax’s address was preordained by a system described by the Division’s witnesses in which the addressing and mailing of assessment notices is totally automated, with no human verification or intervention at any stage of the process. Having chosen to eliminate human intervention from the notice issuance process, the Division rightfully paid the price.
In procedural and substantive matters, the Division demands that taxpayers turn square corners in their compliance with the terms of the Tax Law. The Division should be held to the same standard – no more and no less.
1 Rock Island, A. & L. R. v. United States, 254 U.S. 141, 143 (1920).
2 Heckler v. Community Health Servs. of Crawford County, Inc., 467 U.S. 51, 61 n.13 (1984) (citation omitted). See also Gastime, Inc. v. Director, Div. of Taxation, 20 N.J. Tax 158, 166 (2002) (holding that the square corners doctrine required that the government “‘comport itself with compunction and integrity’” (citation omitted)).
3 Matter of OfficeMax, Inc., DTA Nos. 818769 & 818770 (N.Y.S Tax App. Trib., Mar. 24, 2005). This case involved the validity of two notices, one dated June 2, 2000 (DTA No. 818770), which asserted use tax, penalty and interest, and another notice, dated June 12, 2000 (DTA No. 818769), which asserted interest and penalty on the sales tax portion of the audit. Both notices were mailed to the wrong address. The June 2, 2000 notice was not received by OfficeMax within the 90-day period for protesting the notice; the June 12, 2000 notice was received on September 5, 2000, a few days short of the 90 days within which to file a petition for hearing. The Tribunal held that the June 12, 2000 notice was valid. That portion of the Tribunal’s decision is on appeal and the June 12, 2000 notice is not addressed in this article.
4 N.Y. Tax Law § 1147(a)(1).
This article appeared in State Tax Notes.
Paul Frankel and Michael Pearl represented OfficeMax in this case.