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The New York State Tax Appeals Tribunal has rejected a petition by General Electric Capital Corp. for a refund of more than $3 million in taxes, ruling that a finance company that becomes assignee to credit card accounts is not entitled to the return of sales taxes when the accounts become worthless debts. At issue was whether the state is obligated to recognize the assignment of a tax refund claim from an initial vendor to the purchaser. In its decision, the tribunal recognized the broad discretion afforded to the Commissioner of Taxation and adopted the position of the Division of Taxation that only the vendor who collected the tax may exclude the bad debt from taxable receipts. “We think it is important to note that any right to apply for a refund of sales tax arises, if at all, from the Tax Law and is based on the relationship of the refund applicant to the underlying transaction and the obligation for collection/payment of tax,” the tribunal said. The decision was signed by President Donald C. DeWitt and Commissioners Carroll R. Jenkins and Joseph W. Pinto Jr. Matter of the Petition of General Electric Capital Corp., 816785, arises from GE’s purchase of several credit card accounts from New York state-registered retail establishments and vendors. Eventually, GE Capital wrote off as worthless a number of uncollectible debts that it had purchased. The total of those debts included sales and use taxes, for which GE had already reimbursed the vendors. GE then sought a refund of about $3 million from the state. But an administrative law judge, and now the Tax Appeals Tribunal, rejected its petition. The matter hinged on the juxtaposition of Tax Law, General Obligations Law and regulatory authority. Under Tax Law �1132, the commissioner is empowered to enact regulations to exclude from tax liability receipts on uncollectible accounts. The commissioner exercised that authority through adoption of 20 NYCRR 534.7. That regulation allowed refunds only for the individual or company that made the sale giving rise to the uncollectible debt, except where the property was sold by a leased concession or where the receivables were transferred by a retail vendor to a finance company. In GE’s case, the administrative law judge yielded to the commissioner after finding that his discretion is particularly broad since the Legislature granted the Division of Taxation the authority to determine whether a refund will be allowed at all and the scope of any credit or refund. The ALJ concluded that since GE Capital was not a vendor and not the party required to remit tax to the state, it was not entitled to claim a refund on taxes that it did not directly remit. On the appeal, GE countered that the decision below was contrary to General Obligations Law �13-101, which allows for the free transfer of most claims. It also argued that the broad discretion afforded the commissioner by the administrative law judge constituted a violation of the equal protection and due process clauses of both the U.S. and State Constitutions. ONLY VENDOR ELIGIBLE The division insisted that the law and regulation are constitutionally sound and crystal clear: Only the vendor who actually collected, reported and remitted the tax is eligible to apply for a refund. The tribunal agreed. “As a result of the retail sales transactions which generated the sales tax at issue herein, the retail vendor was in a trustee relationship with the Department and had an obligation to collect and remit the applicable sales and use taxes,” the tribunal said. “[GE Capital], however, had no such trust relationship and no obligation to do so either contractually … or under any provision of the Tax Law.” Michael B. Infantino represented the Division of Taxation. Roger Cukras of Ingram Yuzek Gainen Carroll & Bertolotti in Manhattan appeared for GE Capital.

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