ROBIN T. GROSSMAN - DECISION - 07/24/00. In the Matter of ROBIN T. GROSSMAN TAT (E) (UB) - DECISION TAT (E) (UB), TAT (E) (UB)

Transcription

1 ROBIN T. GROSSMAN - DECISION - 07/24/00 In the Matter of ROBIN T. GROSSMAN TAT (E) (UB) - DECISION TAT (E) (UB), TAT (E) (UB) UNINCORPORATED BUSINESS TAX PETITIONER'S SERVICES AS AN ACTOR, INCLUDING SERVICES PERFORMED AS AN EMPLOYEE, WERE PART OF AN ACTING BUSINESS REGULARLY CARRIED ON BY HIM, THE INCOME FROM WHICH WAS SUBJECT TO THE UBT FOR THE CALENDAR YEARS ENDING DECEMBER 31, 1983 AND DECEMBER 31, JULY 24, 2000 NEW YOR CITY TAX APPEALS TRIBUNAL APPEALS DIVISION

2 New York City Tax Appeals Tribunal x : In the Matter of : : DECISION ROBIN T. GROSSMAN, : : TAT (E) (UB) : TAT (E) (UB) Petitioner. : TAT (E) (UB) : : x Robin T. Grossman ("Petitioner") filed an Exception to that portion of a Determination of an Administrative Law Judge ("ALJ") dated August 27, 1999, which found that Petitioner's services as an actor, including services performed as an employee, were part of an acting business regularly carried on by him, the income from which was subject to the New York City Unincorporated Business Tax ("UBT") for the calendar years ending December 31, 1983 and December 31, 1984 (the "Tax Periods"). The ALJ sustained two Notices of Determination issued by the New York City Department of Finance (the "Department"), asserting deficiencies in UBT for the Tax Periods. 1 Petitioner appeared by John O. Michaelson, Esq., of Ernst & Young LLP. Respondent appeared by Gail S. Miller, Esq., Assistant Corporation Counsel, New York City Law Department. Both parties filed briefs, though neither party requested oral argument. 1 In addition, the ALJ found that Petitioner performed services as an employee rather than as an independent contractor, with regard to "As the World Turns" and "Another World" for the calendar years ending December 31, 1982, 1983 and 1984 and cancelled the UBT deficiency asserted by the Department for the calendar year ending December 31, However, no exceptions have been taken with respect to those findings of the ALJ.

3 Petitioner is a professional actor who resided in New York 2 City (the "City") during the Tax Periods. D u r i n g t h e T a x Periods, Petitioner performed work as a professional actor for different entities, but the majority of his time was spent working on the television series, "Another World" (the "Television Series"). The Television Series was owned by Proctor and Gamble Productions, Inc. (the "Principal") and was managed by Benton & Bowles, Inc. (the "Agent"). On February 22, 1983, Petitioner, using his professional name of "Robin Thomas," entered into a contract with the Agent to render acting services on the Television Series for a period of approximately 105 consecutive weeks, commencing on March 7, 1983 and ending on March 24, The contract provided that Petitioner's services were subject to the direction and control of the Agent, and that Petitioner was required to attend all conferences, readings, rehearsals, photographic sessions and other similar sessions, at such times, places and on such days as required by the Agent. The contract further provided that the Agent could unilaterally terminate the contract at the end of (a) a specific cycle as set forth in the contract; (b) as a result of Petitioner's breach of contract; or (c) upon the cancellation of the Television Series. The Agent set the time that Petitioner was required to arrive and leave work on the Television Series. Petitioner was required to be on the set at a specific time daily, and to remain there until the filming of the show ended, which was between 6:00 P.M. and 7:00 P.M. The Agent, on a daily basis, set the overall work 2 The ALJ's factual findings have generally been adopted to the extent they are pertinent to the issue before us. After reviewing the Record of the Hearing we decline to amend any of the ALJ's findings of fact relating to the characterization of Petitioner's acting jobs and advertising expenses during the Tax Periods. -2-

4 schedule with which Petitioner had to comply. Pursuant to the contract, Petitioner was required to perform all of the services himself and could not have anyone assist him in such work. Every aspect of his performance on the Television Series was controlled by a script from which he could not deviate and/or by a director who instructed him as to what he did and said and the manner in which he did it. Petitioner's actions, demeanor, expressions, and even the clothing that he wore, were controlled by the Agent. Under the terms of the contract, Petitioner was paid on a per program basis. He was eligible for two-weeks paid vacation. The contract further provided that Petitioner had the right to be absent during the term of each contract for a professional leave of not more than six (6) weeks for the purpose of appearing in a motion picture, television special or Broadway play, subject to the approval of the Agent. However, consent was not needed for Petitioner to participate in commercials, television shows, movies or plays which did not interfere with his role, or in advertising or endorsing any product that was not competitive with a product of the Principal. Petitioner's compensation was not based upon the profits, nor did he bear any losses, of the Television Series. The Agent made all payments for Petitioner's medical insurance, retirement fund, unemployment insurance and worker's compensation. During the Tax Periods, Petitioner was a member of various actors' unions to which he had to belong to in order to work on the Television Series and the other projects with which he was involved. In addition to income earned from the Television Series, Petitioner earned income from performing acting services for at -3-

5 least three other small theater entities: Children's Television, Clean Sweep NYC Theater, and Apple Tree Productions. During the Tax Periods, Petitioner also received residual income with respect to work performed prior to the Tax Periods. The recipients to whom Petitioner provided services during the Tax Periods; the amounts received by Petitioner for those services; and, whether federal, state and local taxes and FICA tax were withheld from such payments are noted below: AMOUNT TAXES FICA YEAR SERVICE RECIPIENT RECEIVED WITHHELD WITHHELD B&B Talent Services, Inc. $102, Yes No 1983 Children's Television No Yes 1983 Artist Management Associates 3, No Yes 1983 Compton Advertising, Inc. 1, No No 1983 Talent & Residuals, Inc. 1, No Yes 1984 B & B Talent Services, Inc. $ 90, Yes No 1984 Clean Sweep NYC Theater 1, Yes No 1984 Apple Tree Productions Yes No 1984 Artist Management Associates No Yes During the Tax Periods, Petitioner filed New York State Resident Income Tax Returns and U.S. Individual Income Tax Returns and paid the taxes due therein. He did not file UBT Returns for the Tax Periods. Each U.S. Individual Income Tax Return filed by Petitioner during the Tax Periods included a Schedule C ("Profit or Loss from Business or Profession") in which Petitioner claimed the following deductions for expenses related to his services as a professional actor: advertising; bank service charges; commissions; 3 Petitioner's tax returns list the payor as "B & B Talent Services, Inc.," even though the contract was with Benton & Bowles, Inc. -4-

6 depreciation; legal and professional fees; travel and entertainment expenses; union dues; makeup expenses; business meals; health club fees; taxis; buses; subway fares; gifts; publications; insurance premiums; office expenses; rent; utilities; telephone charges; training and instruction costs; photographs; and haircut expenses. Petitioner testified that, although he could not recall the specific basis for the deductions listed on the Schedules C, they related to all his services as a professional actor. Petitioner specifically testified that he practiced lines, called his agent, and called his studio to check on his "times" from his claimed home office. During the Tax Periods, Petitioner continually advertised both his availability for professional acting services and his current and his past acting achievements in various professional theatrical publications. Notices of Determination dated July 20, 1987 and April 29, 1987 were issued by the Department against Petitioner asserting UBT deficiencies for the calendar years ending December 31, 1983 and December 31, 1984, respectively, including tax and interest, of $3, and $2,188.29, respectively. Petitioner filed Petitions, dated July 28, 1987 and July 7, 1987 requesting a redetermination of the deficiencies asserted for the calendar years ending December 31, 1983 and 1984, respectively. With respect to the issue before us, Petitioner, at hearing, asserted that the acting services that he performed with respect to the Television Series were not part of a business regularly carried on by him sufficient to subject him to the UBT -5-

7 4 for the Tax Periods. In response, the Commissioner contended that, even if Petitioner was an employee of the Television Series, he nonetheless was liable for UBT for the Tax Periods because the acting services he provided as an employee constituted part of a business regularly carried on by him. In relevant part, the ALJ found that: (1) Petitioner established that he performed services as an employee, rather than as an independent contractor, with regard to the Television Series during the Tax Periods; (2) Petitioner's acting career was a "regularly carried on" business activity; (3) Petitioner's services as an employee with regard to the Television Series were performed in furtherance of and for the direct benefit of his regularly carried on acting business; (4) Petitioner performed and offered to perform acting services to the general public on an independent basis during the Tax Periods; and (5) although Petitioner did not employ any assistants, he did maintain an office in connection with his performance of services as an employee during the Tax Periods. Thus, the ALJ concluded that Petitioner's services as an actor, including services performed as an employee, were part of an acting business regularly carried on by him, the income from which was subject to the UBT for the Tax Periods. On appeal, Petitioner asserts that the ALJ erred when he concluded that Petitioner's services as an actor, performed by him as an employee were part of an acting business, the income from which was subject to the UBT. Petitioner contends that the ALJ incorrectly concluded that: (1) Petitioner's treatment of his acting income on Schedule C of his U.S. Individual Income Tax 4 The ALJ noted, and we concur, that although Petitioner has not argued that he was an employee with respect to his other acting assignments, the amount of his income from those assignments was under the threshold level for imposing a UBT liability during each of the Tax Periods. Petitioner therefore cannot be found subject to the UBT unless his income from the Television Series is found subject to the UBT. -6-

8 Returns indicated that he believed that his employment on the Television Series furthered his acting business as a whole; (2) Petitioner held several acting jobs during the Tax Periods; (3) Petitioner was subject to UBT because he took certain deductions on his U.S. Individual Income Tax Returns; (4) Petitioner engaged in a continual effort to solicit additional acting assignments; and (5) an office-in-the home deduction as an employee results in Petitioner being subject to UBT. In response, the Commissioner contends that the ALJ's finding that Petitioner was liable for UBT during the Tax Periods because the services he provided as an employee constituted part of an acting business regularly carried on by him should be affirmed. Respondent asserts that: (1) Petitioner's services as an employee on the Television Series were part of the business regularly carried on by him; (2) Petitioner maintained the type of office required by the applicable UBT regulation; and (3) Petitioner regularly performed or offered to perform similar services to the general public on an independent basis. Determination. For the following reasons, we sustain the ALJ's During the Tax Periods, the UBT was imposed by former S46-3.0(a) of the New York City Administrative Code (the "Code") [currently (a)] on "the unincorporated business taxable income of every unincorporated business wholly or partly carried on within the city." An unincorporated business is defined, in relevant part, in former S46-2.0(a) of the Code [currently (a)] to include "any trade, business, profession or occupation conducted, engaged in or being liquidated by an individual...." However, the UBT statute contains exemption provisions by which taxpayers engaging in specified activities are deemed not to be engaged in an unincorporated business, and thus are not subject to the UBT. -7-

9 One of the UBT exemption provisions is contained in former S46-2.0(b) of the Code [currently (b)] which provides: The performance of services by an individual as an employee or as an officer or director of a corporation, society, association, or political entity, or as a fiduciary, shall not be deemed an unincorporated business, unless such services constitute part of a business regularly carried on by such individual. (Emphasis added.) The UBT Rules provide at 19 RCNY 28-02(e)(4), in pertinent part, that services performed as an employee can constitute part of a regularly carried on unincorporated business under certain circumstances 5 : Personal services rendered by an individual as an employee... will ordinarily be deemed part of a business regularly carried on by such individual if such services are performed in furtherance of or for the direct benefit of other business activities, professional activities, or occupational activities the conduct of which constitutes an unincorporated business under the provisions of Sec (a)(1). For purposes of the preceding sentence, services as an employee... performed by an individual will not be deemed to be performed in furtherance of or for the direct benefit of other business, professional or occupational activities of the individual (i) if the individual does not 5 As the ALJ noted, although the UBT Rules were not promulgated until after the Tax Periods, they have been both cited and relied upon by the parties in this proceeding. -8-

10 maintain an office or employ assistants in connection with such services and his services as an employee... are performed on a full-time basis for one employer or principal and constitute the primary or chief occupational activity of the individual, or (ii) if the services as an employee... are contracted for or undertaken and performed entirely independent of any other business, professional or occupational activity engaged in by the individual. Where an individual maintains an office or employs assistants in connection with the performance of services as an employee... for one or more employers or other principals, the services so performed will be deemed part of a business regularly carried on if the individual regularly performs or offers to perform similar services to the general public on an independent basis. Thus, even though the ALJ has determined (and Respondent has not filed an Exception with respect to such conclusion) that Petitioner was an employee with respect to the services he rendered on the Television Series, those services can be deemed to be part of an unincorporated business, (and the income from such services can be includible in unincorporated business taxable income) if such services constituted part of a business regularly carried on by such individual. Under these facts, Petitioner's acting career was a regularly carried on business activity and the services he performed as an employee were in furtherance of, and directly benefitted, such business activity. By his own actions, -9-

11 Petitioner clearly showed that he considered his activities as an employee of the Television Series and his income from other acting jobs (including residuals) as one business. In his advertising, Petitioner referenced his services as an employee on the Television Series. In addition, for purposes of the Schedule C of his U.S. Individual Income Tax Returns, Petitioner treated his services with respect to the Television Series as having been part of his acting business. On each of his Schedule C's for the Tax Periods, Petitioner lumped together all of his acting income (including income relating to his services with respect to the Television Series) as income from a single acting business; and all of his business deductions (including deductions relating to his services with respect to the Television Series) as deductions relating to a single acting business. Petitioner asserts that, contrary to the ALJ's finding, he did not have "multiple acting jobs" during the Tax Periods. Although Petitioner acknowledges that he received minimal amounts of income from approximately three additional sources (other than the Television Series) during the Tax Periods, he contends that the majority of this income is attributable to one "limited run" play as well as residuals from prior work on commercials. 6 Thus, Petitioner argues that his activities do not support a finding that he is subject to the UBT with respect to the services he performed for the Television Series as an employee. While it is undisputed that Petitioner's main source of income during the Tax Periods was from his work on the Television Series, the Record below indicates that, during the calendar year ending December 31, 1983 Petitioner had four additional sources of income; and that, during the calendar year ending December 31, 6 Petitioner characterized his other income in a slightly different fashion when arguing that he did not regularly perform and offer to perform acting services (see infra p.12, paragraph 1) However, we find this to be a distinction without a difference. -10-

12 1984, he had three additional sources of income. Petitioner's testimony with respect to the type of activity which generated the income indicates that, while a specific portion of the income was attributable to a "limited run play" and some of the income was attributable to residuals, he was unsure as to what amounts were paid to him for specific projects, commercials and appearances or residuals. (Tr. 57,59,105, ,120) Petitioner's testimony thus falls short of the quantum needed to clearly demonstrate that acting activity engaged in outside of his primary employment was somehow de minimus. In general, we reject Petitioner's assertion that, in order to conclude that he had a business apart from his employment on the Television Series, the evidence would have to indicate that he had a number of acting jobs (although Petitioner does not indicate what is the "number"). According to Petitioner, "the issue is one of magnitude." However, there is no magical number of "acting jobs" which will trigger the application of the UBT under these facts and circumstances. As Respondent states, "the issue is the nature of the employee's activities and not the quantity." Petitioner asserts that the fact that he aggregated all of his acting income and expenses on his Schedules C for the Tax Periods, should not be construed to indicate that his work on the Television Series was part of his acting business, as his method of reporting income is not dispositive of the issue of whether he was conducting a business. While neither we nor the ALJ have concluded Petitioner's treatment of his income on his U.S. Individual Income Tax Return is dispositive of the issue before us, it is most certainly one factor which should be considered in reaching a conclusion. Lastly, as the ALJ also found, Petitioner has satisfied the -11-

13 two criteria contained in the UBT Rules at 19 RCNY 28-02(e)(4). 7 The two criteria are as follows: (1) Petitioner must have regularly performed and offered to perform acting services to the general public on an independent basis. Petitioner contends that he did not satisfy this requirement since the only other acting job he had during the Tax Periods consists of a "limited run" play and since his purpose in taking out advertisements in various trade publications was to promote his role in his current Television Series and not to solicit acting assignments. However, the Record below clearly shows that Petitioner advertised in trade publications to both obtain new parts and to publicize existing roles or performances (Tr ) and incurred substantial expenditures for travel, entertainment and advertising, and the services of an agent, all of which are reflective of such business activity. In addition, Petitioner's testimony shows that he did not recall the specific activities (other than the Television Series and the "limited run" play) which generated income during the Tax Periods and thus, we cannot know whether his only other acting job, during the Tax Periods, was the "limited run" play. (2) Petitioner either maintained an office or employed an assistant in connection with his performance of services as an employee. Although he did not hire any assistants, Petitioner's U.S. Individual Income Tax Returns and testimony evidences that, during the Tax Periods, he maintained an office in connection with his services for the Television Series. During the Tax Periods, Petitioner claimed deductions on his Schedules C for office and rent expense for each of the years. In addition, Petitioner testified that such deductions were for an office that he set up in 7 Even though these Rules were not adopted until after the Tax Periods, the Rule was referred to by both parties in their briefs and the ALJ in his Determination. -12-

14 his home to practice lines, make business telephone calls and handle the paperwork relating to his services on the Television Series. Petitioner contends that he did not maintain a traditional office and that such office was not "a formal office as was envisioned by the UBT Rules." However, the UBT Rules in question here do not indicate what if any specific requirements were envisioned with respect to an office and we are unpersuaded by Petitioner's arguments that the office maintained here fell short of any purported requirement envisioned by the UBT Rules. More importantly, however, it is the existence of such an office combined with the other facts mentioned above which lead us to conclude that Petitioner's services as an actor, including services performed as an employee, were part of an acting business carried on by him, the income from which is subject to UBT. While each one of the above facts alone might not have impelled this result, the combination of all the factors present herein is controlling. -13-

15 Accordingly, the ALJ's Determination is affirmed with respect to the sole issue before us and the Notices of Determination for the Tax Periods are sustained in full. 8 Dated: July 24, 2000 New York, New York MARK FRIEDLANDER Commissioner and President CHRISTOPHER R. LYNN Commissioner 8 We have considered all other arguments raised by the parties and deem them unpersuasive. -14-