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Keywords

liabilitystatutetax lawcorporationregulation
liabilitystatutetax lawregulation

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Bloomingdale Bros., Div. of Federated Dept. Stores, Inc. v. Chu, 119 A.D.2d 41, 505 N.Y.S.2d 258

Facts

The petitioner operates a chain of retail department stores across several states, including New York. In 1976, the State Department of Taxation and Finance issued a notice demanding sales and use taxes for the period from September 1, 1971, to August 31, 1974, based on purchases made by non-New York residents as gifts for New York residents at the petitioner's out-of-state stores. These gifts were shipped to the New York donees at the request of the nonresident purchasers, leading to the dispute over tax liability.

The pertinent stipulated facts are as follows. Petitioner owns and operates a chain of retail department stores in the States of New York, New Jersey, Connecticut, Massachusetts and Pennsylvania. In 1976, the State Department of Taxation and Finance issued a notice of determination and demand for sales and use taxes due for the period September 1, 1971 through August 31, 1974. This assessment, as is relevant to this case, was based on the purchase of merchandise by non-New York residents (nonresidents), as gifts for New York residents, at petitioner's out-of-State stores.

Issue

Did the receipt of a gift by a New York resident, which was purchased out of state by a nonresident, constitute a sale subject to taxation under New York sales tax law?

Did the receipt of a gift by a New York resident, which was purchased out of state by a nonresident, constitute a sale subject to taxation under sales tax law?

Rule

The New York sales tax is a 'transactions tax' and a 'destination tax,' where liability arises at the time of the transaction, and the point of delivery or possession transfer controls the tax incident and rate.

That the New York sales tax is both a “transactions tax” and a “destination tax” ( 20 NYCRR 525.2 [a] [2] and [a] [3] ). Liability for the sales tax arises at the time of the transaction ( 20 NYCRR 525.2 [a][2] ). Moreover, “ * * * the point of delivery or the point at which possession is transferred by the vendor to the purchaser or designee controls both the tax incident and the tax rate” ( 20 NYCRR 525.2 [a] [3] ).

Analysis

The court analyzed the Tax Commission's interpretation of the sales tax regulations and found that it improperly extended the application of the sales tax statute beyond its intended scope. The court emphasized that the actual sale occurred when the nonresident paid for the goods in the out-of-state stores, not when the gifts were received by the donees in New York. The court concluded that the Tax Commission's determination was inconsistent with the statutory definition of a sale, which requires consideration in exchange for the transfer of property.

In light of the above, we annul the Tax Commission's determination on the ground that its interpretation of its regulations in this case improperly extended and enlarged Tax Law § 1105(a) to apply to situations not intended to be covered by the sales tax law.

Conclusion

The court annulled the Tax Commission's determination, granted the petition, and remitted the matter for further proceedings consistent with its ruling.

Determination annulled, petition granted, and matter remitted.

Who won?

Multistate Department Store Corporation prevailed because the court found that the Tax Commission's assessment of sales tax on the gifts was not supported by the statutory definition of a sale.

Petitioner contends that the Tax Commission's interpretation of the above-referenced regulations improperly extended the application of the State sales tax statute beyond that intended by the Legislature.

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