New York Department of Taxation and Finance Refusal to Issue Certificate of Authority Upheld

On January 19, 2023, the State of New York Tax Appeals Tribunal Bar issued judgement in the case of In the Matter of the Petition of Bar 13, Inc. After reviewing the facts of the case and considering petitions from both sides, the Administrative Law Judge determined the Department of Taxation was within its power to refuse to issue a certificate of authority despite Bar 13, Inc declaring Chapter 11 Bankruptcy because the Department had previously revoked Bar 13’s certificate of authority.

Before September 11, 2021, Bar 13 held a valid certificate of authority, and was responsible for collecting and remitting taxes. On October 11, 2019, the Department issued a notice of proposed revocation, asserting Bar 12 owed over one million dollars in sales tax liabilities, penalties, and interest.  This notice was challenged by Bar 13—a challenge that was withdrawn July 28, 2021, by Bar 13 with the Department of Taxation agreeing to toll revocation until September 27, 2021, to allow Bar 13 to try to negotiate a payment plan for its liabilities. Unfortunately, no mutually agreeable payment plan was reached, and on September 28,2021, the Department revoked the certificate of authority. On September 30, 2021, Bar 13 filed for Chapter 11 bankruptcy, which stays certain state administrative actions under United States law.

A new application for a certificate of authority was filed with the Department of Taxation on October 9, 2021; the certificate that was denied and is the primary issue in this case. On this application, the company name was listed as “” though the FEIN was the same as Bar 13, Inc. In addition, the question “[h]as any assessment been issued to the entity that has not been paid in full?” was answered no, as was “[h]as the entity previously held a sales tax certificate of authority?”. A question asking if a certificate had been revoked in the previous year was left unanswered. The final refusal notice for this application was issued on January 7,2022, a decision which was challenged to and upheld by the Bureau of Conciliation and Mediation Services before being appealed to the Tax Appeals Tribunal.

In its appeal, Bar 13, Inc claimed the Department of Taxation should issue the certificate for two main reasons: they were trying to negotiate payment of debts and because of protection provided by US law under Chapter 11 filings. In the findings, the Administrative Law Judge says first says the initial assessment is not at issue due to previous agreements stemming from the initial withdrawal of challenge on July 28,2021. To the taxpayer’s claim regarding their attempt to negotiate, the ALJ found they had no statutory authority to mandate settlements, and the petitioner had not cited an authority claiming the Department would be required to issue a certificate of authority under this set of circumstances. Chapter 11, the ALJ determined, also would not apply in this case because it prevents states from revoking licenses, while this case dealt with re-issuing the certificate, which is not covered. Further, the bankruptcy filing was not an issue because the Department refused to issue the certificate not only because of outstanding liabilities but also because it had previously revoked a certificate of authority from this business entity. Under New York law, the Division of Finance can refuse to issue a certificate of authority if a previous one has been suspended or revoked within a year of the application. This application was made October 9, 2021, and the other had been revoked on September 9, 2021 within a year. As a result, the Tax Appeals Tribunal sustained the revocation.

This case is important for taxpayers as it highlights both the power of the New York Department of Taxation to refuse to issue certificates of authority as well as highlighting where protections of Chapter 11 bankruptcy proceedings do not apply. The Department is free to withhold issuance of certificates of tax authority to a business entity that has had one revoked in the previous year and is not required to take ongoing negotiations for debts into account when issuing notices of revocation or denying re-applications. And though Chapter 11 does offer protection from local authorities revoking active tax licenses, at least in New York state, it does not require local authorities to re- issue licenses that have been suspended or revoked.

(In the Matter of the Petition of Bar 13, Inc for Review of a Denial, Suspension, Cancellation, or Revocation of a License, Permit, or Registration under Articles 28 and 29 of the Tax Law,  Decision DTA No, 830817, signed Anthony Giardina, president, Dierdre K Scozzafava and Cynthia M Monaco, dated January 19, 2023, Albany,NY)

Posted on February 24, 2023