Opinion
# 2020-038-585 Claim No. 135284 Motion No. M-96034
12-14-2020
DEAN NASCA v. THE NEW YORK STATE DEPARTMENT of TAXATION and FINANCE
DEAN NASCA, Pro se LETITIA JAMES, Attorney General of the State of New York By: Glenn C. King, Assistant Attorney General
Synopsis
Defendant's pre-answer motion to dismiss the claim granted. Court lacks subject matter jurisdiction over the claim which must be brought as a CPLR article 78 proceeding in Supreme Court inasmuch as it seeks primarily equitable relief.
Case information
| UID: | 2020-038-585 |
| Claimant(s): | DEAN NASCA |
| Claimant short name: | NASCA |
| Footnote (claimant name) : | |
| Defendant(s): | THE NEW YORK STATE DEPARTMENT of TAXATION and FINANCE |
| Footnote (defendant name) : | |
| Third-party claimant(s): | |
| Third-party defendant(s): | |
| Claim number(s): | 135284 |
| Motion number(s): | M-96034 |
| Cross-motion number(s): | |
| Judge: | W. BROOKS DeBOW |
| Claimant's attorney: | DEAN NASCA, Pro se |
| Defendant's attorney: | LETITIA JAMES, Attorney General of the State of New York By: Glenn C. King, Assistant Attorney General |
| Third-party defendant's attorney: | |
| Signature date: | December 14, 2020 |
| City: | Saratoga Springs |
| Comments: | |
| Official citation: | |
| Appellate results: | |
| See also (multicaptioned case) |
Decision
Claimant, who is a pro se litigant, filed this claim seeking damages for the alleged violation of his federal and state constitutional rights as a result of the withholding of claimant's 2016 New York State tax refund by the New York State Department of Taxation and Finance (DTF). Defendant makes this pre-answer motion to dismiss the claim for lack of subject matter jurisdiction. Claimant opposes the motion.
The claim alleges that claimant, who is a certified public accountant in the State of New York, electronically filed his 2016 New York State income tax return on August 16, 2017, and that according to his tax return, he was entitled to a refund of $3,063 (see Claim No. 135284, ¶¶ 6, 10). The claim alleges that on September 5, 2017, claimant received a notice from DTF informing him that DTF was unable to verify some of the information on his 2016 tax return, requesting that he provide certain documents so that his return could be processed, and warning claimant that he would not receive his refund if he failed to respond (see id. at ¶ 11). The claim alleges that it was "impossible" for DTF to have independently verified claimant's "taxes, interest, job expenses and miscellaneous deductions, and college tuition itemized deductions or credit" (id. at ¶¶ 12,15) because DTF had no ability to do so, nor was there any "governmental, public or private agency that would have a database of those expenses that [defendant] could access in an attempt to independently verify those deductions prior to issuing a refund" (id. at ¶ 16). The claim alleges that DTF thus "is withholding a taxpayer's refund based on an impossible mechanism it alleged it performed" (id.).
The claim alleges that the September 5, 2017 notice failed to comply with " 'The Taxpayers' Bill of Rights' under Article 41 of the New York State Tax Law," "Publication 130-D, The New York State Tax Audit - Your Rights and Responsibilities, and Publication 131, Your Rights and Obligations Under the Tax Law" (id. at ¶¶ 17-18) inasmuch as it "did not name the technician conducting the audit, or a time and place for the audit, nor did [it] provide claimant with the opportunity to be represented," but rather required him "to make copies of all [his] records and send them to an address in Albany where an absentee audit will be conducted by an unknown individual without any oversight or input by the taxpayer or their representative" (id. at ¶ 21). The claim alleges that claimant responded to the September 5, 2017 notice in a letter "notifying DTF that the practice was not authorized by [the State Administrative Procedure Act (SAPA)]," and thus "violated [claimant's] due process rights and those rights enumerated by [defendant] in Publication 130-D and Publication 131" (id.at ¶ 22 [internal quotation marks omitted]).
The claim further alleges that on May 10, 2018, claimant sent a letter to DTF's Acting Commissioner Nonie Manion stating that he intended "to seek legal action if this illegal practice was not discontinued," and that DTF has not responded but "continu[es] to illegally withhold the refund Claimant sought on [his] return" (id. at ¶¶ 25-26). The claim alleges that claimant thus "filed a 'request for conciliation conference' with the Bureau of Conciliation and Mediation Services," and that the conference was held on June 25, 2020 (id. at ¶ 27). The claim alleges that at the conference, "[t]he conciliation conferee agreed that Claimant was entitled to the total refund of $3,063.00, as originally claimed on" his 2016 tax return, and that "on July 21, 2020, Claimant signed a consent that granted [him] the entire refund of $3,063.00" (id. at ¶ 27).
The claim alleges that DTF nevertheless continues to withhold claimant's 2016 tax refund in violation of his due process rights under the federal and state constitutions inasmuch as "[t]he change in procedure/process/rule by DTF to indefinitely withhold a taxpayer's refund unless the taxpayer submits to an absentee audit that circumvents the rights and protections taxpayers are entitled [to], pursuant to New York State laws . . . was never authorized by [SAPA]" (id. at ¶ 30 [internal quotation marks omitted]). The claim alleges that "Manion intentionally directed DTF to illegally withhold tax refunds, in violation of [SAPA], to force involuntary compliance with absentee audit notices" (id. at ¶ 33 [emphasis in original and internal quotation marks omitted]), and that "this illegal procedure" has caused claimant to lose clients, many of whom "had been subject to the violation of their rights by the illegal procedure implemented under the color of law by" defendant (id. at ¶ 34).
Defendant now makes this pre-answer motion to dismiss the claim for lack of subject matter jurisdiction pursuant to CPLR 3211 (a) (2) on the ground that the claim seeks purely equitable relief, which is unavailable in the Court of Claims. Defendant argues that although the claim seeks damages in the amount of "up to $100,000, for violation of New York State Tax Law § 3034 and 42 U.S.C. § 1983" (Claim No. 135284, ¶ 35), "[a] recovery of money damages in the present case would necessarily depend upon a determination that [defendant] implemented an illegal procedure and wrongfully withheld claimant's tax refund" (King Affirmation, ¶ 6). Defendant further argues that "claimant's reliance on Tax Law § 3034 appears misplaced as that [section] relates only to 'unauthorized collection actions,' which is not the case here" (id. at ¶ 8).
Tax Law § 3034 (a), which is included in Article 41 of the Tax Law, also known as the Taxpayers' Bill of Rights, provides, as relevant here, that "[i]f, in connection with any collection of any tax with respect to a taxpayer, any officer or employee of the department recklessly or intentionally disregards any provision of any tax, or any regulation promulgated under any of such taxes, such taxpayer may bring a civil action in the court of claims for damages against the state."
In opposition to the motion, claimant argues that DTF violated New York State Tax Law § 3034 when it "implemented the Case Identification and Selection System 'CISS' that directed the illegal withholding and collection of taxpayer refunds, without the required authorization necessary from the New York State tax regulations" (Nasca Affidavit in Opposition, ¶ 6). Claimant argues that the CISS conflicted with DTF's longstanding policy - as reflected in 20 NYCRR §§ 151.5(a) and 158.1 - of providing taxpayers with their refunds without first compelling them to prove the deductions upon which the claimed refund was based, and thus the CISS constituted a change in DTF's rules and/or procedures that required authorization under [SAPA] (see id. at ¶¶ 15-23). Claimant argues that because DTF failed to follow the rulemaking procedures laid out in [SAPA] or the New York State Tax Regulations, the CISS policy was not authorized and resulted in "the illegal withholding and collection of Claimant's tax" (id. at ¶ 25). Claimant argues that the Court thus has jurisdiction over this claim pursuant to Tax Law § 3034 and "is not required to overturn or annul any aspect, with respect to the dollar amount, of the Claimant's refund" (id.at ¶ 26). Claimant further argues that DTF violated his equal protection rights under the state constitution when it subjected to him to a " 'routine desk audit' " - i.e. the process of requesting that claimant send documentation verifying his deductions to Albany for review - inasmuch as that process was created through publications by the Division of Taxation, which have no legal effect and thus cannot "supersede rights granted by the legislature" (id. at ¶¶ 39, 42). Claimant argues that DTF thus lacked "the authority to withhold taxpayer refunds and force certain taxpayers to prove deductions prior to issuing those refunds," and that "[t]he creation of an unconstitutional process, that circumvented the rights of taxpayers created by the legislature, violated Claimant's equal protection under the [New York State] Constitution" (id. at ¶ 43).
20 NYCRR § 151.5 (a) provides, as relevant here, that "[e]very taxpayer who claims a refund or credit of New York State personal income tax withheld, or of New York State estimated income tax paid during the year, must file a New York State income tax return to obtain any such refund or credit, even though such taxpayer would not otherwise be required to do so." 20 NYCRR § 158.1 provides, in pertinent part, that "[e]very person subject to New York State income tax or liable for the collection thereof, and any person required to file a New York State return of information with respect to income, must keep such permanent books of account or records including inventories, as are sufficient to establish the amount of gross income, deductions, credits and other matters required to be shown by such person in any New York State income tax return," and that "[t]he Tax Commission is authorized to prescribe the contents and form of New York State income tax returns, documents and statements and may require the inclusion thereof of any information . . . it deems necessary for the proper enforcement of article 22 of the Tax Law" (20 NYCRR § 158.1 [a], [b]).
It is well established that the subject matter jurisdiction of the Court of Claims "is limited to actions seeking money damages against the State in appropriation, contract or tort cases" (Ozanam Hall of Queens Nursing Home v State of New York, 241 AD2d 670, 671 [3d Dept 1997], citing Court of Claims Act § 9 [2]; Psaty v Duryea, 306 NY 413, 417 [1954]). The essential nature of the claim is not necessarily defined by a party's characterization of the claim (see Buonanotte v New York State Off. of Alcoholism & Substance Abuse Servs., 60 AD3d 1142, 1143 [3d Dept 2009], lv denied 12 NY3d 712 [2009]; Madura v State of New York, 12 AD3d 759, 761 [3d Dept 2004], lv denied 4 NY3d 704 [2005]), but rests upon identification of the issues actually presented in the claim (see Sidoti v State of New York, 115 AD2d 202, 203-204 [3d Dept 1985]). In order to determine whether the Court of Claims has jurisdiction over a claim, the Court must engage in a two-part inquiry. First, the Court must determine " '[w]hether the essential nature of the claim is to recover money, or whether the monetary relief is incidental to the primary claim' " (Ozanam Hall of Queens Nursing Home, 241 AD2d at 671, quoting Matter of Gross v Perales, 72 NY2d 231, 236 [1988]; see City of New York v State of New York, 46 AD3d 1168, 1169 [3d Dept 2007], lv denied 10 NY3d 705 [2008]). "The second inquiry, regardless of how a claimant categorizes a claim, is whether the claim would require review of an administrative agency's determination - which the Court of Claims has no subject matter jurisdiction to entertain" (City of New York, 46 AD3d at 1169). As pertinent to this claim, pursuant to CPLR article 78, Supreme Court has exclusive subject matter jurisdiction pursuant to CPLR article 78 to review whether a "determination was made in violation of lawful procedure, was effected by an error of law or was arbitrary and capricious or an abuse of discretion" (CPLR 7803 [4]; see CPLR 7804 [b]), and may grant strictly equitable relief.
Although the claim seeks money damages as compensation for defendant's allegedly illegal withholding of claimant's 2016 New York State tax refund, the gravamen of the claim is that defendant's withholding of the tax refund - on the ground that it required claimant to submit documentation in order to verify certain deductions in claimant's 2016 tax return - constituted a change in defendant's own procedures and/or rules, that defendant failed to comply with the rulemaking procedures under SAPA and the New York State Tax Regulations in promulgating that change, and that therefore the CISS constituted an improper and unauthorized procedure that resulted in the illegal withholding of claimant's 2016 tax refund (see Claim No. 135284, ¶¶ 8-9, 22, 24, 30; Nasca Affidavit in Opposition, ¶¶ 15-25). In the Court's view, the claim for money damages is thus incidental to the primary relief sought, namely, a determination that defendant's CISS procedure was promulgated in violation of the applicable rulemaking procedures and thus was invalid, and resulted in the illegal withholding of claimant's 2016 tax refund pursuant to an "absentee audit policy" (id. at ¶ 22) that, as applied, violated claimant's federal and state constitutional rights, as well as the rights referenced in certain publications promulgated by defendant. Therefore, the claim would necessarily require the Court to review defendant's administrative determination that claimant's 2016 tax return was not verifiable without submission by claimant of certain documentation to support the deductions claimed on the tax return, and to pass on the question of whether defendant was required to follow the applicable rulemaking procedures in establishing the CISS procedure at issue here, which the Court lacks jurisdiction to entertain.
Moreover, claimant was required to have challenged the withholding of his tax refund through DTF administrative procedures, and then, if necessary, in Supreme Court. Under Article 22 of the Tax Law - which governs the imposition and administration of the personal income tax - taxpayers must file a claim for a "refund of an overpayment of income tax" within certain statutory deadlines (Tax Law § 687 [a]). Pursuant to Article 40 of the Tax Law, which "establish[ed] an independent division of tax appeals within [DTF]" (Tax Law § 2000), any denial of a tax refund by DTF may be appealed by filing a petition with the Division of Tax Appeals (see id. § 2008 [1]), which is "separate from and independent of the authority of [the DTF commissioner]" and is "operated and administered by a tax appeals tribunal" (id. § 2002). Any decision of the Tax Appeals Tribunal, "which is not subject to any further administrative review, shall finally and irrevocably decide all the issues which were raised in proceedings before the division of tax appeals upon which such decision is based," unless the petitioner commences a proceeding pursuant to CPLR article 78 within four months after the notice of the decision is served on all the parties to the proceeding (Tax Law § 2016; see Tax Law § 690 [a] ["A decision of the tax appeals tribunal shall be subject to judicial review in the manner provided for by (Tax Law § 2016)"]). Thus, according to the statutory scheme laid out in the Tax Law, judicial review of any decision by DTF to withhold a tax refund is properly brought in Supreme Court after the exhaustion of administrative remedies before the Division of Tax Appeals, and not, as here, in the Court of Claims.
Claimant's reliance on Tax Law § 3034 (a) for the contention that the Court has jurisdiction over the claim is incorrect, for the following reasons. As discussed above, Tax Law § 3034 - which is entitled "Civil damages for certain unauthorized collection actions" - is contained within the Taxpayers' Bill of Rights in Article 41 of the Tax Law, and it authorizes a private right of action to permit taxpayers to bring civil actions for damages in the Court of Claims where, "in connection with any collection of any tax with respect to a taxpayer," any DTF officer or employee "recklessly or intentionally disregards any provision of any tax, or any regulation promulgated under any of such taxes" (Tax Law § 3034 [a] [emphasis added]). Defendant argues, without elaboration, that Tax Law § 3034 "relates only to 'unauthorized collection actions,' " and thus does not apply to this claim (King Affirmation, ¶ 8). Claimant argues that the collection of tax may be "understood more broadly to encompass the receipt of a tax payment before a formal assessment occurs " (Nasca Affidavit, ¶ 10 [emphasis in original]), that DTF's implementation of CISS "directed the illegal withholding and collection of taxpayer refunds" (id. at ¶ 11), and that Tax Law § 3034 applies to the facts of this claim. As reflected in the statutory language and the parties' arguments, whether the Court has jurisdiction over this claim ultimately depends upon whether DTF's refusal to issue claimant a refund constitutes an act "in connection with any collection of any tax" under Tax Law § 3034. Inasmuch as neither the statute nor Article 41 of the Tax Law define the term, and there is no state decisional authority interpreting Tax Law § 3034, the Court must apply the rules of statutory construction in determining whether the refusal to issue a tax refund is a collection action.
It is well settled that "[w]here words of a statute are free from ambiguity and express plainly, clearly and distinctly the legislative intent, resort may not be had to other means of interpretation" (McKinney's Cons. Laws of NY, Book 1, Statutes § 76). However, "[w]here there is doubt as to the meaning of the language of a statute, various extrinsic matters throwing light on the legislative intent may be considered by the courts" (id. § 120). The text of Tax Law § 3034 and Article 41 of the Tax Law do not define what constitutes the "collection of any tax" and offer no guidance as to whether the refusal to issue a refund is a collection action subject to its ambit. Thus, the Court will turn to the statute's legislative history to determine whether the withholding of a state tax refund was intended to constitute a collection action subject to Tax Law § 3034.
Enacted as part of Chapter 577 of the Laws of 1997 (also known as the Taxpayer Bill of Rights Act of 1997), Tax Law § 3034 was a legislative initiative advanced by then-Governor George E. Pataki (see Bill Jacket, L.1997, ch. 577). The Governor's Program Bill Memorandum accompanying the bill stated that Tax Law § 3034 was "modeled after Internal Revenue Code [IRC] § 7433" (Bill Jacket, L.1997, ch. 577, at 43), which reads much like Tax Law § 3043 in that it permits a taxpayer to bring a civil suit "[i]f, in connection with any collection of Federal tax with respect to a taxpayer," an officer or employee of the Internal Revenue Service (IRS) "recklessly or intentionally, or by reason of negligence" disregards any provision of the IRC or regulations promulgated thereunder (26 USC § 7433 [a] [emphasis added]). The United States Court of Appeals for the First Circuit has held that there is no claim for damages under IRC § 7433 due to the refusal of the IRS to issue a tax refund because a claimant would be required to prove that the IRS "incorrectly determined the amount of [claimant's] tax liability," and that the "legislative history of [IRC § 7433] tell us that an action under this provision may not be based on alleged . . . disregard in connection with determination of tax" (Gonsalves v I.R.S., 975 F2d 13, 16 [1st Cir 1992] [emphasis in original and internal quotation marks omitted]). The Court finds persuasive and relies upon the decision of the First Circuit Court of Appeals in Gonsalves and holds that the refusal or denial to issue a refund is an action taken with regard to the determination of the tax owed and is not an action taken in connection with the collection of a tax, and, therefore, that Tax Law § 3034 does not apply to the facts of this claim to confer jurisdiction upon the Court.
The First Circuit also held that "[t]axpayers who wish to challenge the IRS' calculation of their tax liability must file either a petition for redetermination in the Tax Court, . . . or a refund action in district court," and that IRC § 7433 "was not intended to supplement or supersede, or to allow taxpayers to circumvent these procedures" (Gonsalves, 975 F2d at 16).
Inasmuch as the Court concludes that it lacks subject matter jurisdiction over the claim because it seeks primarily equitable relief and thus should have been brought in Supreme Court pursuant to CPLR article 78 after administrative remedies had been exhausted (see Bobreski v State of New York, UID No. 2009-015-202 [Ct Cl, Collins, J., Sept. 16, 2009] [Court lacked subject matter to entertain claim seeking damages for the failure of DTF to issue tax refund because it would require the Court to review an administrative determination, which is properly challenged in a CPLR article 78 proceeding]), and that Tax Law § 3034 does not apply inasmuch as the refusal to issue a tax refund does not constitute a collection action within the meaning of that provision, the claim must be dismissed.
Accordingly, it is
ORDERED, that defendant's motion number M-96034 is GRANTED, and claim number 135284 is hereby DISMISSED.
December 14, 2020
Saratoga Springs, New York
W. BROOKS DeBOW
Judge of the Court of Claims Papers considered: 1. Claim No. 135284, filed September 3, 2020; 2. Notice of Motion to Dismiss, dated October 8, 2020; 3. Affirmation of Glenn C. King, AAG, in Support of Motion to Dismiss, dated October 8, 2020, with Exhibit A; 4. Affidavit of Dean Nasca in Opposition to Defendant's Motion to Dismiss, sworn to November 25, 2020, with Exhibit A.