                          State of New York
                   Supreme Court, Appellate Division
                       Third Judicial Department
Decided and Entered: December 8, 2016                   521443
________________________________

In the Matter of BLACKHAT
   CHIMNEY & FIREPLACE, INC.,
                    Petitioner,
      v                                     MEMORANDUM AND JUDGMENT

TAX APPEALS TRIBUNAL OF THE
   STATE OF NEW YORK et al.,
                    Respondents.
________________________________


Calendar Date:   October 21, 2016

Before:   McCarthy, J.P., Egan Jr., Lynch, Clark and Aarons, JJ.

                             __________


     Justin S. White, Williamsville, for petitioner.

      Eric T. Schneiderman, Attorney General, Albany (Robert M.
Goldfarb of counsel), for Commissioner of Taxation and Finance,
respondent.

                             __________


McCarthy, J.P.

      Proceeding pursuant to CPLR article 78 (initiated in this
Court pursuant to Tax Law § 2016) to review a determination of
respondent Tax Appeals Tribunal sustaining a sales and use tax
assessment imposed under Tax Law articles 28 and 29.

      Petitioner is involved in the sale, repair and installation
of chimneys and fireplaces. In October 2008, petitioner was
informed that it would undergo a tax audit by the Department of
Taxation and Finance to review petitioner's sales and use tax
liability. Upon completion of the audit, the Department assessed
petitioner with additional tax liability, interest and penalties
in the amount of $85,652.89. Petitioner submitted a petition
                               -2-                521443

with the Division of Tax Appeals seeking a revision of the tax
determination. After a full hearing on the matter, an
Administrative Law Judge found the assessment proper. Respondent
Tax Appeals Tribunal upheld that determination. Petitioner
thereafter commenced this CPLR article 78 proceeding in this
Court.

      Petitioner's contention that there were "too many errors"
to sustain the assessment is without merit. "Every person
required to collect tax shall keep records of every sale" and
make such records "available for inspection and examination at
any time upon demand by the tax commission or its duly authorized
agent or employee" (Tax Law § 1135 [a-g]). "Upon an audit . . .
the [Department] is required to request appropriate records and
. . . determine whether such materials are capable of supporting
a complete audit. Should the records produced by the taxpayer
prove to be insufficient to verify taxable sales receipts and
conduct a complete audit, the [Department] may rely upon external
indices to estimate the correct amount of tax due. Where, as
here, an indirect audit method has been employed, the taxpayer
challenging such an audit has the burden of establishing by clear
and convincing evidence that the audit method or tax assessment
was erroneous" (Matter of Wolkowicki v New York State Tax Appeals
Trib., 136 AD3d at 1228 [internal quotation marks and citations
omitted]; see Tax Law § 1138 [a] [1]; Matter of Hwang v Tax
Appeals Trib. of the State of N.Y., 105 AD3d 1151, 1153 [2013]).1
Even where a petitioner is able to show that some of the
auditor's calculations were imprecise, "where the taxpayer's own
failure to maintain proper records prevents exactness in
determination of sales tax liability, exactness is not required"
(Matter of Meyer v State Tax Commn., 61 AD2d 223, 402 [1978]; see
Matter of Wolkowicki v New York State Tax Appeals Trib., 136 AD3d
at 1228). Additionally, this Court's review of the issue of
penalties "is limited to assuring that the assessment of the
penalty determination was supported by substantial evidence and
is not arbitrary or capricious" (Matter of CS Integrated, LLC v
Tax Appeals Trib. of State of N.Y., 19 AD3d at 886, 889; see


     1
        Petitioner does not argue that it provided records
capable of supporting a direct audit.
                              -3-                521443

Matter S.H.B. Super Mkts. v Chu, 135 AD2d 1048, 1050 [1987]).

      Substantial evidence supports the determination that
petitioner failed to establish by clear and convincing evidence
that the audit method was erroneous in a manner detrimental to
him. Initially, the record reflects that the auditor requested
certain documents with the expense totals and cost of goods sales
at least a year prior to finalizing the tax assessment, and
petitioner and its representative repeatedly failed to provide
the necessary documents. The insufficiency of the records
provided necessitated the use of gross sales totals in the
calculations. Otherwise, as respondent Commissioner of Taxation
and Finance recognizes, the auditor made a calculation error by
using an 11-month test period for his calculation rather than the
agreed upon eight-month test period. However, it is
uncontroverted that this error had the effect of lowering
petitioner's tax liability, and therefore petitioner is not
entitled to any relief. Finally, although petitioner points to
evidence presented of an alternative method for estimating tax
liability, even if that method was proper, "[t]he use of an
otherwise acceptable audit method is not rendered unreasonable
merely because a different audit methodology might provide a more
precise estimate of tax liability" (Matter of MacLeod v Megna, 75
AD3d 928, 930 [2010] [internal quotation marks and citation
omitted]). As substantial evidence supports the determination,
we find no basis to disturb it (see Matter of Dong Ming Li v
Commissioner of Taxation & Fin., 65 AD3d 763, 765 [2009]).

      Likewise, we will not disturb the penalty imposed. The
record reflects that the insufficiencies of petitioner's
record-keeping system were brought to petitioner's attention
during a previous audit. Moreover, petitioner failed to show any
reasonable cause for continuing to use that same record-keeping
system despite the prior notice of its insufficiency (see Matter
of Hwang v Tax Appeals Trib. of the State of N.Y., 105 AD3d at
1154). Petitioner's remaining contentions have been considered
and are without merit.

     Egan Jr., Lynch, Clark and Aarons, JJ., concur.
                              -4-                  521443

      ADJUDGED that the determination is confirmed, without
costs, and petition dismissed.




                             ENTER:




                             Robert D. Mayberger
                             Clerk of the Court
