N.Y. Comp. Codes R. & Regs. tit. 20 § 64.5

Current through Register Vol. 46, No. 50, December 11, 2024

Section 64.5 - Bonds or other security

Tax Law, §§ 422, 423, 431(3)

(a) The Department of Taxation and Finance may require any distributor of alcoholic beverages to file or deposit and maintain with the department:

(1) a bond issued by a surety company which is (i) authorized to transact business in New York State; (ii) registered with and under the supervision of the Insurance Department of New York State; and (iii) approved by the Superintendent of Insurance as to solvency and responsibility; or

(2) such other acceptable security enumerated in subdivision (c) of this section.

Such bond or security must be in such amount as the department may require to secure the payment of any liability of such distributor pursuant to article 18 of the Tax Law. A bond or acceptable security may be required to be filed or deposited with the department before a distributor is registered or at any time thereafter and such bond or security is subject to being increased at any time it is deemed necessary as a protection to the revenues under article 18 of the Tax Law.

(b)

(1) Prior to the approval of an application for registration as a distributor of alcoholic beverages or during any subsequent review of a registered distributor, the Department of Taxation and Finance, in determining the need for and the amount or sufficiency of a bond, may:

(i) require and analyze an estimated six-month tax liability of the applicant or of the distributor based on anticipated or representative sales and uses of alcoholic beverages and the types of alcoholic beverages at issue;

(ii) require and analyze current financial statements of the applicant or distributor which have been independently certified as to reliability by a licensed public accountant or by a certified public accountant pursuant to an audit conducted by such accountant, with particular emphasis on the ratio of current assets to current liabilities and net worth (total assets less total liabilities) as determined in accordance with generally accepted accounting principles;

(iii) evaluate any independent information concerning an applicant's or distributor's nature of operations, reliability, overall financial status, liquidity, or history of financial solvency and stability; and

(iv) review the taxpayer's compliance record to determine whether there are or were any delinquencies in filing returns and/or payment of taxes as an alcoholic beverage distributor or for any other taxes due New York State for which the applicant or distributor may be or may have been responsible.

(2)

(i)Current financial statements as used in this paragraph means certified financial statements for a 12-month period of time ended not more than 18 months prior to the date such statements are submitted to the department. Where such certified financial statements are for a period ended more than six months prior to the date of submission, in addition to such certified financial statements, interim financial statements (on a monthly, quarterly or yearly basis) must be submitted to the department for a period of time ending within such six-month period. All financial statements submitted to the department must reflect the individual activities of the applicant or of the distributor, as the case may be. Where a certification is applicable to a consolidated group of entities, the financial spreadsheets upon which the certification was based, together with an analysis of all intercompany accounts, must also be provided. The department may require an unqualified opinion in support of such statements where it deems such an opinion necessary.

(ii) If an applicant or a distributor fails to supply current financial statements which have been independently certified by a licensed public accountant or by a certified public accountant and/or fails to supply an unqualified opinion where necessary in support of such statements, as required by this subdivision, the applicant will not be registered or such distributor's registration will be cancelled. However, on petition, either through the hearing process or on the motion of the department, the requirements for a certification by a licensed public accountant or by a certified public accountant and for an unqualified supporting opinion may be waived. If such requirements are waived, the department may instead require alternative certification or require the applicant or distributor to file a bond in such amount as is deemed appropriate, regardless of the net worth or financial status of the applicant or distributor.

(3) In general and provided there is no information which would indicate otherwise, an applicant or a distributor will be, or will not be, required to file and maintain with the department a bond pursuant to the provisions of this paragraph. Provided further, unless the applicant, distributor or the department can establish otherwise, to negate valuation considerations ( e.g., cost-to-market, intangibles, collectibility of receivables, intercompany accounts, etc.) only 80 percent of net worth shall be recognized for purposes of determining the amount of a bond.

(i) Generally, if an applicant's or a distributor's ratio of current assets to current liabilities (current ratio) is at least one-to-one and 80 percent of the net worth is equal to or greater than the six-month tax liability, a bond will not be required.

(ii) Generally, if an applicant's or a distributor's current ratio is at least one-to-one and 80 percent of the net worth is less than the six-month tax liability, a bond will be required for the difference between 80 percent of the net worth and the six-month tax liability.

(iii) Generally, if an applicant's or a distributor's current ratio is less than one-to-one and 80 percent of the net worth is equal to or greater than the six-month tax liability, a bond will be required for one third of the six-month tax liability.

(iv) Generally, if an applicant's or a distributor's current ratio is less than one-to-one and 80 percent of the net worth is less than the six-month tax liability, a bond will be required for the greater of:

(a) the difference between 80 percent of the net worth and the six-month tax liability; or

(b) one third of such six-month tax liability.

(v) Generally, the amount of a bond shall not exceed the estimated or representative six-month tax liability of the applicant or of the distributor. Where the six-month tax liability cannot be determined, for example where the applicant or distributor is unable to furnish an average monthly amount of alcoholic beverages sold or used within the State, the amount of a bond required to be filed and maintained with the department may be fixed by the department on any reasonable basis.

(vi) In addition to subparagraphs (i) through (v) of this paragraph, the amount of a bond required, if any, may be adjusted where any information indicates the need for a bond in greater or lesser amount.

(c)

(1) In lieu of the bond referred to in subdivision (b) of this section, an applicant or distributor may deposit with the Department of Taxation and Finance other security, approved by the department, in such amounts as it may require. Among the kinds of security which may be acceptable are the following:

(i) certificated United States Treasury Bonds;

(ii) certificated bonds of New York State;

(iii) certificated bonds of any political subdivision of New York State having general governmental powers and in connection with which the credit of the political subdivision is pledged for the payment of the interest and principal due on such bonds;

(iv) financial institution passbooks and certificates of deposit;

(v) irrevocable standby letters of credit made payable to the New York State Department of Taxation and Finance; and

(vi) any other forms of security acceptable to the Department of Taxation and Finance.

(2)

(i) Bonds offered as collateral under this subdivision must be certificated and may be either bearer or registered bonds, having maturity dates at least five years subsequent to the date of deposit with the Department of Taxation and Finance. The amount of the bonds will generally be based on the fair market value, not to exceed par value on maturity, determined as of the date of deposit. If such bonds are of the coupon type, the interest coupons must be attached. Certificated registered bonds offered as collateral must be in the name of the distributor and must be accompanied by a properly executed assignment or power of attorney with respect to such bonds in such form as the Department of Taxation and Finance may require.

(ii) Any interest accruing on bonds offered as collateral under this subdivision shall belong to the distributor.

(3)

(i) Financial institution passbooks and certificates of deposit offered as collateral under this subdivision must represent money on deposit with a financial institution approved by the Department of Taxation and Finance. Certificates of deposit must have maturity dates at least one year subsequent to the date of deposit with the Department of Taxation and Finance. Additionally, financial institution passbooks and certificates of deposit offered under this subdivision must be:

(a) prepared in the name of the distributor;

(b) accompanied by a signed undated withdrawal slip;

(c) accompanied by a properly completed letter of transmittal in such form as the Department of Taxation and Finance may require, advising that the proceeds of such passbook accounts or certificates of deposit may be withdrawn by the department and applied against any liability of such distributor pursuant to article 18 of the Tax Law; provided, however, that any interest accruing on such accounts or certificates shall belong to the distributor; and

(d) accompanied by a letter prepared on the letterhead of the financial institution and signed by an officer of such financial institution:

(1) identifying the passbooks or certificates of deposit by account number and confirming that withdrawal of principal from the passbook or certificate of deposit offered as collateral will not be permitted without written consent from the Department of Taxation and Finance; and

(2) stating that any right of setoff which the financial institution may possess against the distributor resulting from a defaulted obligation of such distributor shall be subservient to the interest of the Department of Taxation and Finance in the passbook or certificate of deposit offered as collateral.

(ii) Any interest accruing on passbooks or certificates offered as collateral under this subdivision shall belong to the distributor.

(4) Standby letters of credit offered as collateral under this subdivision must:

(i) be irrevocable for such period of time as the Department of Taxation and Finance shall determine;

(ii) be made payable to the New York State Department of Taxation and Finance;

(iii) be issued or confirmed by a bank approved by the Department of Taxation and Finance; and

(iv) contain such other payment terms as are acceptable to the Department of Taxation and Finance.

(5) Any security deposited with the Department of Taxation and Finance pursuant to this subdivision must have a fair market value at least equal to the amount of any bond required pursuant to subdivision (b) of this section. Fair market value greater than the par value of the security on maturity will not be recognized. Accepted marketable securities deposited as security under this subdivision shall be kept in the joint custody of the Comptroller and the Commissioner of Taxation and Finance and may be sold by the Department of Taxation and Finance, should it become necessary to do so in order to recover any sums due from the distributor pursuant to article 18 of the Tax Law. No such sale shall be had until after the distributor has had an opportunity to litigate the validity of any tax at issue, in the manner set forth in section 430 of the Tax Law, if such distributor elects to do so. Upon any such sale of securities, the surplus, if any, above the sums due under article 18 of the Tax Law, shall be returned to such distributor.

(d) The registration of a distributor of alcoholic beverages may be denied or cancelled upon a failure to file or increase the amount of a bond or a failure to deposit or increase the amount of acceptable security when required by the department, or for any failure to maintain in full force and effect such bond or security. A bond may be required to be filed with the department, acceptable security may be required to be deposited with the department or the amount of such bond or security may be required to be increased at any time it is deemed necessary to secure the payment of any sums due pursuant to article 18 of the Tax Law. Unless otherwise required, such bond or acceptable security must be filed, deposited or increased within 30 days of the date of a notice and demand therefor. In the event a bond is not filed, acceptable security is not deposited or such bond or security is not increased within the time set by the Department of Taxation and Finance, a notice of denial or cancellation shall be sent by registered mail to the applicant or the distributor. In addition to denying or cancelling the registration of a distributor of alcoholic beverages, in the case of the failure to file a bond or deposit acceptable security or increase the amounts thereof, the Department of Taxation and Finance may forward a written statement of facts showing such failures to the New York State Liquor Authority and may request the revocation or suspension of any license or licenses of such applicant or distributor on account of such failures.

(e) Any determination pursuant to this section with respect to the necessity for or the amount of a bond or acceptable security or any increase to the amounts of such bond or security may be challenged through a hearing process, provided a petition for review of such determination is timely filed. (See Part 3000 of this Title for hearing procedures in the Division of Tax Appeals and Part 4000 of this Title for conciliation proceedings in the Bureau of Conciliation and Mediation Services of the Division of Taxation.)

N.Y. Comp. Codes R. & Regs. Tit. 20 § 64.5