Federal tax collecting procedure is well known, but collection procedure in New York is shrouded in mystery. Lawyers delving into the field will find that the legal materials consist of short, often incoherent judicial opinions scattered across 100 years of changing laws. Typically, if a court opinion is unsatisfactory, the legislature reacts promptly by amending the New York tax law, so that one can never be confident that any given precedent is still valid.
As a result, New York tax law itself is highly confusing, repetitive, and contradictory. Much of the problem can be traced to a legislative decision, made many years ago, that tax collection procedure should reflect the law governing collection of ordinary money judgments. The choice has been a disaster in terms of coherence. New York's law of money judgments is itself rife with confusion, (1) and its interaction with tax law is almost completely mystifying.
This article is a first attempt at systematizing New York tax collection in a rational way. There has never been a study of New York tax collection procedure, although the State (and City of New York) is a potent force in debtor-creditor relations both here and abroad. At the moment, New York tax law is full of potholes. We can do little more than identify some of these and speculate how they might be filled, consistent with common sense, to the extent that the statutory materials allow.
The current study is limited to the New York tax warrant. This document issues from various taxing authorities in New York, most notably the State Department of Taxation and Finance ("DTF") and New York City's Department of Finance ("NYCDOF"). (2) Twenty-nine different liens arise from tax warrants issuable on behalf of the State or the City of New York. (3) Other taxes exist that do not involve warrants. (4) Taxes for which warrants are not issued are excluded from the present study. (5)
The tax warrant is many things. First, it is a judgment, or so the state and City of New York hope when they seek full faith and credit recognition in other states. Second, when docketed with the county clerk and with the Department of State, (6) the tax warrant creates a lien on real and personal property. (7) Third, it is a writ of execution to the county sheriffs; (8) alternatively, it authorizes a designated tax compliance officer (an employee of the DTF or other issuer of the warrant) to pursue collection as a sheriff might. (9)
The current study examines all of these features of the tax warrant. Part I describes the procedural minima necessary for a tax warrant to issue. Part II discusses the status of the tax warrant as a judgment worthy of full faith and credit in other courts. Part III examines the tax lien that arises by virtue of the tax warrant. Part IV considers liens that arise even prior to the issuance of the tax warrant. In particular, New York City has pre-warrant rights with respect to its corporate tax. In addition, the DTF has a lien against the property of purchasers of "any part or the whole [of a taxpayer's] business assets, otherwise than in the ordinary course of business." (10) These transactions are commonly referred to as "bulk sales." (11) Part V considers the priority to which a New York tax lien is entitled, as against various other liens that might arise from security agreements, money judgments, and federal taxes. Throughout our discussion, we attempt to alert readers when New York State procedures differ from those applicable to the Internal Revenue Service ("IRS").
THE PROCEDURAL ASPECTS OF A TAX WARRANT
The chief tax collector for the state of New York is the DTF. (12) This would be far from apparent to anyone who is tempted to learn New York tax law by reading the New York Tax Law. (13) The Tax Law usually refers to the Tax Commission, or to the Tax Commissioner. (14) In fact, the Tax Commission was abolished in 1986, to be replaced by the DTF. (15) In abolishing the Tax Commission, the New York state legislature did not bother to excise from the statutes references to the old Tax Commission. Instead, Tax Law section 2(1) variously defines "tax department" or "department" or "tax commission" to mean the DTF. (16) Furthermore, when such terms pertain to certain procedural appeal rights of taxpayers, these terms refer to the Division of Tax Appeals--an administrative court created in 1986 that is intended to be an independent tribunal like the United States Tax Court. (17) In all other matters (such as collection), these terms mean the Commissioner of the DTF.
The DTF has the power to issue tax warrants for taxes due and owing. (18) The NYCDOF has the ability to issue warrants for some purposes, but when it comes to the City's income tax, the state takes over collection responsibility. (19) The state's arrogation of New York City's right to collect its own taxes dates back to the financial crisis in the mid-1970s, when President Ford invited the City to "drop dead." (20) In connection with the City's financial recovery, the legislature enacted Article 30 of the Tax Law. (21) New York Tax Law section 1312 (part of Article 30) instructs the DTF to administer the New York City personal income tax and incorporates all of the administrative provisions of Article 22 (the state personal income tax), including the procedures involving tax warrants, into Article 30. (22) The state takeover of the City's income tax seems to have been intended to eliminate duplicative administration as a cost-saving measure.
The commissioners of agriculture and labor also have powers to issue warrants. (23) In the case of agriculture, warrants may issue against a wholesale buyer of agricultural products or milk if the commissioner of agriculture was forced to pay a producer from the agricultural producers (or milk) security fund. (24) The commissioner of labor may issue a warrant if an employer defaults on payments into the unemployment insurance fund. (25) For ease of exposition, however, we shall refer to the DTF as the enforcing party. Unless otherwise indicated, what is true for the DTF will be true for other agencies (such as the NYCDOF) entitled to issue a tax warrant.
Assessment and Notifications
At least in recent times, the tax lien arising from a warrant has been made quite uniform across all twenty-nine instances of it. (26) Accordingly, we discuss those concepts that all the state and city tax liens (based on warrants) have in common. We duly note when a specific tax lien varies from the general pattern.
"Assessment" stands for the time when the DTF records the tax debt as due and owing. (27) Unlike in the federal system, (28) New York State assessment does not give rise to a lien. (29) In New York, lien creation occurs later--when the tax warrant is docketed by the county clerk. (30) When a taxpayer is required to file a return, the tax is assessed as soon as the return is filed, provided a return is indeed filed. Where the return is filed but the tax is not actually paid, the DTF may proceed directly to enforce the assessment. Under these circumstances, the taxpayer in effect admits she owes the money. The collection process may begin.
Where no return is filed, or where the return erroneously calculates the tax, the DTF is authorized to make a "correct" calculation. (31) Upon doing so, it must send the taxpayer a "notice of deficiency" (for personal income tax or franchise tax) (32) or a "notice of determination" (for sales and use tax). (33) This notice sets out the DTF's calculation of any excess over the tax reported by the taxpayer. The DTF usually has only three years after the return is filed to issue such a notice of deficiency or determination. (34) The amount shown in the notice of deficiency or determination becomes an assessment, unless within (usually) ninety days, the taxpayer files for a hearing with the Division of Tax Appeals ("DTA"). (35) If the taxpayer does not timely seek a hearing, the DTF assesses the extra tax and issues a notice and demand for it. (36)
If the taxpayer fully pays a warrant for taxes assessed, the taxpayer is still free to file an administrative refund claim for amounts paid within a look-back refund claim statute of limitations period--usually two or three years. (37) If the claim for refund is not allowed, the taxpayer may bring suit for a refund with the DTA, thereby contesting the underlying liability for the amount that had, at one time, been shown in a warranty The issue of whether a notice of deficiency or determination was properly sent to the taxpayer's last known address is a frequent subject of DTA hearings. It is well settled that if a taxpayer has failed to timely contest a properly addressed notice because the taxpayer never received it or was simply late in doing so, all is not lost. One can always just pay the tax and put in a refund claim, which, if not granted, may be the subject of a DTA hearing. (39)
If a taxpayer timely contests a notice of deficiency or determination by filing a petition for a DTA hearing, an administrative law judge will hold the hearing and issue a ruling. (40) Either party may take exception to that ruling; the exception is heard by a three-member administrative body, the Tax Appeals Tribunal ("TAT"), based (as of January 30, 2012) in Albany, New York. (41) If the DTF loses in the TAT, it may not appeal but instead must seek legislative change for future cases since TAT opinions are binding precedents, unlike DTA opinions. (42) If the taxpayer loses before the TAT, the taxpayer has four months to take a special Article 78 proceeding directly to the Appellate Division of the Supreme Court, Third Department (sitting in Albany) to review the TAT ruling. (43) Similar to the procedure involving appeals from the United States Tax Court to the federal circuit courts of appeal, (44) New York law requires that a taxpayer wishing to file in the Third Department either pay the tax or post an appeal...