Matter of Continental Arms Corp. v. Commissioner of Finance, 71 N.Y.2d 973 (1988)
When a business frustrates a tax audit by failing to make records available upon demand, the Tax Commission is authorized to use a test period audit to assess sales tax deficiency and is not compelled to resort only to its subpoena authority.
Summary
Continental Arms Corp. challenged the Tax Commission’s use of a test period audit to determine sales tax deficiency, arguing that the Commission should have been compelled to use its subpoena power. The Court of Appeals held that the Tax Commission was authorized to use a test period audit because Continental Arms frustrated a complete audit by failing to make records available upon demand. The court reasoned that tax law grants broad authority to the Commission to examine records and assess deficiencies based on available information.
Facts
Continental Arms Corp. was subject to a sales tax audit by the New York State Tax Commission. Although Continental Arms maintained records, it repeatedly failed to make those records available to the Commission’s auditor upon request. Due to this lack of cooperation, the Tax Commission conducted a test period audit to assess sales tax deficiency.
Procedural History
The Tax Commission determined a sales tax deficiency based on the test period audit. Continental Arms challenged the determination, arguing that the Commission should have been compelled to use its subpoena power to obtain the records. The lower courts ruled against the Tax Commission. The Court of Appeals reversed the lower court’s decision and reinstated the Tax Commission’s determination.
Issue(s)
Whether the Tax Commission is authorized to use a test period audit to assess a sales tax deficiency when a business frustrates a complete audit by refusing to make records available upon demand, or whether the Tax Commission is compelled to resort only to its subpoena authority.
Holding
Yes, the Tax Commission is authorized to use a test period audit because the taxpayer frustrated the accomplishment of an unabridged audit by refusing to make records available upon demand.
Court’s Reasoning
The Court of Appeals reasoned that the Tax Law (§ 1135[d]) requires businesses to maintain records that