October 2003

Six Months for Sales Tax Refunds

By Michael Buxbaum, CPA

On April 28, 2003, administrative law judge Timothy Alston, in Order DTA #819157, ruled in favor of the petition by Voicemate for an overpayment refund. The order, which cannot be appealed by the Tax Department, explained that, “The Division’s interpretation of the statutory phrase ‘in a form which is able to be processed’ as used in Tax Law section 1139 is far too expansive.”


The taxpayer, a computer software company called Voicemate, applied for an overpayment refund of sales and use tax for computer hardware used in designing and developing custom computer software for sale, as per the exemption provided by section 1115(a)(35) of the New York State Tax Law. The Tax Department received the refund claim and supporting schedules on November 18, 2001. Six months later, the Tax Department decided to refer the matter to a field audit. The taxpayer filed for a Bureau of Conciliation and Mediation Services (BCMS) conference regarding the refund claim on September 20, 2002, 10 months after filing the claim, but this was denied as premature. On January 30, 2003, Voicemate filed a petition for summary judgment with the Division of Tax Appeals.

What the Law Says

Tax Law 1139(b) provides for the following:

If an application for refund or credit is filed with the commissioner of taxation and finance as provided in subdivision (a) of this section, the commissioner of taxation and finance shall grant or deny such application in whole or part within six months of receipt of the application in a form which is able to be processed and shall notify such applicant by mail accordingly. Such determination shall be final and irrevocable unless such applicant shall, within ninety days after the mailing of notice of such determination, petition the division of tax appeals for a hearing. [Emphasis added]

As the judge noted, “Tax Law 1139(b) thus mandates that the Division either grant or deny a refund application, in whole or part, within six months of receipt of the application in a form which is able to be processed.”

Section 534.2(a)(2)(i) of the Division’s regulations states that a refund or credit application must contain, along with other information about the applicant and his petition, the following: the period covering the refund or credit claimed and its amount; a full, factual explanation on which the claim is based, including substantiation of the claim’s basis and amount; and a certification that no part of the tax paid for which the claim is made has been refunded or credited to the applicant by the person to whom it was paid, or, in the case of an application by a vendor, a certification and evidence satisfactory to the Department of Taxation and Finance that he has refunded the tax to his customer.

The Division claimed that the subject refund application was not in processable form as a result of Voicemate’s refusal to permit a business field audit. It decided the audit was necessary in order to verify the petitioner’s assertions that it was entitled to the sales tax exemption. The taxpayer claimed that the refund application was in processable form before the matter was referred for field audit. Second, the Division’s field audit record indicated that petitioner’s representative did not object to audit work on the refund claim, but did object to an audit that was at least partly concerned with examining possible tax implications arising from telephony and information services sales. Voicemate’s reluctance to cooperate in such an investigation should have no relevance to the refund claim.

Judge Alston further explained, “As a result, petitioner’s refund claim has been placed in bureaucratic limbo, having been effectively denied, but (according to the Division) petitioner having no administrative appeal rights. Significantly, by its interpretation of Tax Law Section 1139(b) the Division has arrogated to itself the sole right to determine whether refund claim applicants, such as petitioner, have substantiated their claims and thus has arrogated to itself the authority to determine which applicants may exercise their appeal rights granted under Tax Law 1139(b).”

When Tax Law section 1139(b) was amended in 1998, “shall” was substituted for “may” and “within six months of receipt of the application in a form which is able to be processed” was added. In a letter to the governor, then–Commissioner of Taxation and Finance Michael H. Urbach explained this amendment as follows:

The bill would require the Department to grant or deny sales tax refund applications within six months of the receipt of a processible application. The bill amended by the sponsor to add the language “in a form which is able to be processed” in response to our concern that the six month time frame could have required the Department to deny incomplete refund applications to the detriment of some taxpayers, rather than risk authorizing an improper payment. The “processing” concept is derived from existing language in section 1139(f) of the Tax Law, for Lemon Law sales tax refunds, and in sections 688(e) and 1088(e) of the Tax Law, for personal income tax and corporate franchise tax purposes.


Voicemate was ordered a hearing on the refund claim’s merits by Judge Alston. The taxpayer decided to avail itself of the full administrative process with a Bureau of Conciliation and Mediation Services conference. The audit should be resolved after the refund has been granted and should have little impact because the taxpayer sells custom computer software that is not taxable.

Editor’s Note: The author was the petitioner’s representative in the case discussed above.

Michael Buxbaum, CPA, is with S. Buxbaum and Company CPAs, LLP, and can be contacted at

Mark H. Levin, CPA
H.J. Behrman & Company LLP

Contributing Editors:
Henry Goldwasser, CPA
Weiser LLP

Neil H. Tipograph
Imowitz Koenig & Co., LLP

Warren Weinstock, CPA
Marks Paneth & Shron, LLP

This Month | About Us | Archives | Advertise| NYSSCPA
The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

©2003 CPA Journal. Legal Notices

Visit the new