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In re New Cingular Wireless PCS, LLC

Supreme Court of New York, Third Department

August 3, 2017

In the Matter of NEW CINGULAR WIRELESS PCS, LLC, Petitioner,
v.
TAX APPEALS TRIBUNAL OF THE STATE OF NEW YORK et al., Respondents.

          Calendar Date: April 28, 2017

          Wilson Law Group LLC, Somerville, New Jersey (Margaret C. Wilson of counsel), for petitioner.

          Eric T. Schneiderman, Attorney General, Albany (Robert M. Goldfarb of counsel), for Commissioner of Taxation and Finance, respondent.

          Before: Garry, J.P., Egan Jr., Lynch, Clark and Aarons, JJ.

          MEMORANDUM AND JUDGMENT

          Egan Jr., J.

         Proceeding pursuant to CPLR article 78 (initiated in this Court pursuant to Tax Law § 2016) to review, among other things, a determination of respondent Tax Appeals Tribunal denying petitioner's request for certain refunds of sales and use tax imposed under Tax Law articles 28 and 29.

         Petitioner is a limited liability company that, among other things, provides Internet access services to its customers nationwide. Between November 2005 and September 2010, petitioner erroneously billed and collected sales tax from its customers for such services, and those taxes, in turn, were remitted to the

         Department of Taxation and Finance. In 2009, 54 separate class action lawsuits were filed on behalf of petitioner's customers in 44 states, alleging that petitioner improperly had charged them taxes for Internet access service, and those actions subsequently were consolidated in the United States District Court for the Northern District of Illinois. Thereafter, in June 2011, the federal court approved a global settlement agreement between petitioner and a national settlement class with state-specific subclasses, including a New York subclass, consisting of current and former customers who had paid taxes for Internet access service during the period at issue.

         For taxing jurisdictions like New York, the settlement agreement required petitioner to file a refund claim on behalf of its impacted customers - subject to each individual state's own laws relative to refunds or refund procedures (Matter of AT & T Mobility Wireless Data Servs. Sales Tax Litig., 789 F.Supp.2d 935, 983 [ND Ill. 2011]). By the express terms of the settlement agreement, each settlement class member consented to (1) petitioner filing a claim for refund of the Internet access taxes erroneously collected, (2) payment of the refund by the taxing authority to petitioner or directly to the court's escrow account, and (3) the distribution of the net settlement funds to the customers by the escrow agent under the supervision of the court. Consistent with the terms of the settlement agreement, petitioner assigned all of its rights, title and interest in any refund it received to the settlement class customers. To the extent that a specific taxing authority required petitioner to refund the erroneously collected taxes to the affected customers prior to such authority granting or paying a refund claim, the settlement agreement provided that the payment by petitioner of a sum representing such taxes into a pre-refund escrow account would constitute repayment thereof. [1]

         In November 2010, petitioner submitted a claim for a refund of sales tax or credit. Petitioner twice modified the amount of its claim - ultimately seeking a refund of approximately $106 million. There is no dispute that, as of the point in time that petitioner submitted its claim for a refund, petitioner had not funded any escrow account, including the pre-refund escrow account referenced in the settlement agreement [2]. Thereafter, in August 2012, the Division of Taxation denied petitioner's refund claim, finding that petitioner had failed to reimburse its customers for the sales tax collected and, further, that the supporting documentation tendered by petitioner was insufficient to permit the Division "to determine how the refund amounts shown for each customer were determined."

         Following the Division's denial of petitioner's refund claim, petitioner and the settlement class entered into a "clarifying" agreement dated September 9, 2013, which provided, in relevant part, that any payments made by petitioner to either the New York escrow account or the pre-refund escrow account would be considered as payments made to the settlement class, that the funds so deposited would be used to make refunds and, further, that such funds would be considered as refunds to the settlement class at the moment they were deposited into such accounts. Consistent with the terms of the clarifying agreement, petitioner was prepared to make the required deposit if the Division would concede that such deposit would satisfy the requirements of Tax Law § 1139 (a).

         In October 2012, petitioner filed a petition contesting the denial of its refund claim. The Division moved for summary determination contending, among other things, that petitioner was not entitled to the requested refund due to its failure to refund the erroneously collected taxes to its customers. Petitioner opposed the Division's motion and cross-moved for partial summary determination. By determination dated July 17, 2014, an Administrative Law Judge (hereinafter ALJ) granted the Division's motion, finding, among other things, that the plain language of Tax Law § 1139 (a) and 20 NYCRR 534.2 required petitioner to repay the erroneously collected taxes to its customers before it could apply for a refund. Petitioner thereafter sought to reopen the record pursuant to 20 NYCRR 3000.16, which vests an ALJ with discretion to reopen the record based upon, among other things, newly discovered evidence. Petitioner's motion was supported by an affidavit indicating that, as of August 14, 2014, petitioner - in accordance with the terms of the global settlement agreement - had entered into an escrow agreement and funded a pre-refund escrow account in the amount of $106, 038, 598.59. By order dated December 4, 2014, the ALJ denied petitioner's motion, finding that the subject affidavit did not constitute newly discovered evidence.

         Petitioner filed exceptions to both the ALJ's July 2014 decision in favor of the Division and the denial of its motion to reopen the record. Respondent Tax Appeals Tribunal heard oral argument in this matter in August 2015 and, in February 2016, affirmed the ALJ's July 2014 decision and upheld the denial of petitioner's motion to reopen the record [3]. Petitioner then commenced this CPLR article 78 proceeding to challenge the Tribunal's determination.

         With respect to petitioner's application to reopen the record, the parties debate whether the affidavit attesting to the funding of the pre-refund escrow account in August 2014 constitutes newly discovered evidence or newly created evidence and, as to the merits of petitioner's refund application, argue over, among other things, whether petitioner had to repay its customers before seeking a refund from the Division. However, in their zeal to advance their competing interpretations of Tax Law § 1139 (a) and the corresponding regulations, the parties appear to have lost sight of one salient fact - namely, that petitioner's customers are owed in excess of $106 million - moneys that were erroneously collected by petitioner in the form of ...


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