GREATER WILDWOOD HOTEL MOTEL ASSOCIATION v. MAUREEN ADAMS
Annotate this CaseNOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0537-09T3
GREATER WILDWOOD HOTEL MOTEL
ASSOCIATION,
Plaintiff-Appellant,
v.
MAUREEN ADAMS, IN HER
OFFICIAL CAPACITY AS
DIRECTOR, DIVISION OF
TAXATION,
Defendant-Respondent.
_________________________________________________
Argued June 3, 2010 - Decided August 26, 2010
Before Judges Cuff, Payne and Fasciale.
On appeal from the Tax Court of New Jersey,
Docket No. 010510-2008.
Frank L. Corrado argued the cause for
appellant (Barry, Corrado, Grassi & Gibson,
P.C., attorneys; Mr. Corrado, on the brief).
Julian F. Gorelli, Deputy Attorney General,
argued the cause for respondent (Paula T.
Dow, Attorney General, attorney; Melissa
Raksa, Assistant Attorney General, of
counsel; Mr. Gorelli, on the brief).
PER CURIAM
On July 31, 2008, plaintiff, Greater Wildwood Hotel Motel
Association, filed a complaint in the Tax Court pursuant to Rule
8:2(a) against the Director of the Division of Taxation. In its
complaint, the Association sought a declaration that "the policy
of the New Jersey Division of Taxation to charge sales tax on
hotel and motel room rentals but not on condominium room or
transient room rentals a) violates the governing statute and
regulations; b) exceeds any authority granted the Division by
the statute and regulations; c) is arbitrary, capricious and
unreasonable; and d) violates the equal protection clause in the
state constitution." It sought a judgment declaring that the
current policy of the Division excluding all transient rentals
that are not conventional hotels or motels from the imposition
of state sales tax violates N.J.S.A. 54:32B-3(d) and N.J.A.C.
18:24-3.1(a) and exceeds the Division's delegated authority
under the Sales and Use Tax Act, N.J.S.A. 54:32B-1 through -54,
and enjoining the Division from implementing that policy or in
any way distinguishing between hotels or motels and other
transiently rented property in the application of the state
sales tax.
On April 1, 2009, the Association moved for summary
judgment, and on June 4, 2009, the Division filed a cross-
motion. Oral argument occurred on June 26, 2009. Thereafter,
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the tax judge issued a letter opinion, dated July 24, 2009,
denying the Association's motion and granting that of the
Division. A motion for reconsideration was denied following
further oral argument. This appeal followed.
I.
The Association is "a trade organization comprising more
than 167 lodging businesses. Its members are hotel and motel
owners in the greater Wildwood area, including North Wildwood,
Wildwood, Wildwood Crest, and Diamond Beach." The Association's
President, Stephen Tecco, has certified that: "Members of the
[Association] rent their properties out to tourists or
transients on a daily, weekly or monthly basis. Some of these
properties are open year-round; others are open seasonally,
principally in the summer." He has certified further that
"these properties offer a variety of services and amenities to
their guests, although the particular services vary from
property to property." The members of the Association, as hotel
and motel owners, are required to collect the State's seven-
percent sales tax, N.J.S.A. 54:32B-3(d), and its five-percent
room occupancy tax. N.J.S.A. 54:32D-1. However, according to
Tecco's certification:
8. Over the last decade, in the
Wildwoods and in other resorts, there have
been numerous conversions of existing hotels
and motels to condominiums. In addition,
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many hotels and motels have been razed and
condominiums built in their place.
9. Many if not most of these buildings
rent to tourists on a daily, weekly or
monthly basis. Some are available for
rental year-round; others are rented
seasonally, principally in summer.
10. Many of these properties provide
one or more of the services that the
Division considers indicative of whether a
rental property is a "hotel" for purposes of
subjecting it to the sales tax.
11. Nevertheless, many of these
properties are not considered "hotels" by
the Division and are therefore . . . not
subject to either the 7% sales tax or the 5%
room tax.
The Association's concern arises from the fact that, because
"condotels" are not subject to sales and occupancy taxes, they
can charge lower rates, thereby placing "traditional" hotels and
motels at a competitive disadvantage.
N.J.S.A. 54:32B-3(d) imposes a tax on "[t]he rent for every
occupancy of a room or rooms in a hotel in this State, except
that the tax shall not be imposed upon a permanent resident."
N.J.S.A. 54:32D-1 provides that: "In addition to any other tax,
assessment or use fee authorized by law, there is imposed and
shall be paid a hotel and motel occupancy fee of . . . 5% for
occupancies on and after July 1, 2004, upon the rent for every
occupancy of a room or rooms in a hotel subject to taxation
pursuant to [N.J.S.A. 54:32B-3(d)].
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A "hotel" is defined in N.J.S.A. 54:32B-2(j) as "a building
or portion of it which is regularly used and kept open as such
for the lodging of guests. The term 'hotel' includes an
apartment hotel, a motel, boarding house or club, whether or not
meals are served." Paragraph (m) of that statute defines a
"permanent resident" as "any occupant of any room or rooms in a
hotel for at least 90 consecutive days . . . with regard to the
period of such occupancy."
Regulations promulgated by the Division track N.J.S.A.
54:32B-3(d) in connection with the imposition of a sales tax on
hotel room occupancy. N.J.A.C. 18:24-3.1. The regulations
define a "hotel" to mean
a building or portion thereof, which is
regularly used and kept open as such for the
purpose of furnishing sleeping
accommodations and related services1 for pay
to tourists, transients, or travelers. It
includes, but is not limited to the
following:
1. An apartment hotel, bed and breakfast,
motel, inn, tourist home, tourist house or
court, tourist cabin and club;
2. A boarding house or rooming house
containing eight or more units; and
3. Any other building or group of buildings
in which sleeping accommodations are
1
The phrase "and related services" was added by amendment
effective December 1, 2008 while this matter was pending.
A-0537-09T3
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normally available to the public on a
transient basis.
[N.J.A.C. 18:24-3.2.]
The Division has formulated a policy for determining
whether an establishment qualifies as a "hotel" for purposes of
imposing the statutory sales and occupancy taxes. A 2005
publication by the Division's regulatory services section
states: "Implicit in the definition of hotel is transient use,
that is, hotel rooms are available at any time to travelers and
other transients and include linens, maid service and often room
service. Such facilities generally provide services other than
the normal conveniences of one's own home (e.g., room, maid,
linens)."
Another publication states, among other things:
The following considerations will help
in distinguishing room occupancies from the
rental of real property, which is exempt:
1. All accommodations which are
taxable are components of
facilities which are ordinarily
available to transients.
2. Most room occupancies include
linen services and/or maid
service.
3. Most taxable accommodations do not
provide cooking facilities to the
occupant. However, some
efficiency units and tourist
cabins whose occupancy charges are
taxable do provide cooking
A-0537-09T3
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facilities or some sort of dining
privileges.
4. Many facilities available for
transient occupancy provide room
service.
In a deposition given by Division Deputy Director Denise
Lambert-Harding, she acknowledged that N.J.S.A. 54:32B-3(d) is
the only statute authorizing the imposition of a sales tax on
the rental of a hotel room and that the only applicable
regulations were N.J.A.C. 18:23-3.1 and -3.2. Lambert-Harding
explained that the Division had a policy with respect to the
implementation of the hotel sales tax:
The policy is that a hotel is a
facility that offers in addition to the
conveniences . . . of one's own home,
various services. Traditionally services
would include maid service, room service,
linen service, meaning that the sheets were
on the bed when you got there. Towels, etc.
Additionally, she stated that there was an element of
"transiency" in the factors considered. Lambert-Harding
testified that the Division would consider whether "someone
could pull up at any hour of the day or night and basically get
a room, which is . . . how a traditional hotel would be
available." A determination whether a facility operated as a
hotel would depend on "the totality of the situation." The form
of ownership of the property would not be a consideration.
A-0537-09T3
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During the course of the deposition, the following exchange
occurred:
Q. Would you agree with me that there
is no requirement in either the statute
defining hotel or the regulation defining
hotel, that there be maid, linen or room
service; there is nothing.
A. Yes, there is nothing explicit in
the statute or the reg.
Q. So that the policy that the
Division has developed, is -- what is the
source of it if not the statute or the reg?
A. The policy is developed in
response to trying to implement a statute.
So, when the statute was enacted, the
Division would have to have determined what
did it mean by hotel, what was a hotel
occupancy. So, that is how a policy gets
developed over the course of several years.
Following the completion of discovery, cross-motions for
summary judgment were filed. In his July 24 written opinion,
the Tax Court judge found the Association and its members, the
real parties in interest in the litigation, had standing to
challenge the Division's regulations and policy interpretation
regarding what constituted a hotel because of the assertion that
the members "have suffered a competitive disadvantage and loss
of revenue and are harmed by the Director's continuing
interpretation of the statute."
The judge then found that the Division's regulation and
policy with respect to what constituted a hotel reflected a much
A-0537-09T3
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narrower definition than that contained in N.J.S.A. 54:32B-2(j).
The judge further concluded that "the Director's line drawing
may not be consistent with the statute and in fact logically
creates a competitive disadvantage for the members of the
plaintiff association vis a vis owners of condotels and other
title holders of property which compete with the members of the
plaintiff association."
The judge then observed that he had solicited submissions
by the parties regarding an appropriate remedy, and he noted
that the Association had offered two remedial alternatives: (1)
a declaration that the regulation is a nullity or (2) an
extension of the coverage of the regulation. He stated that the
Association preferred the latter. However, the judge declined
to order either remedy. In this regard, the judge recognized
certain decisions in which, in order to avoid a finding of
unconstitutionality, courts had extended the benefits of
statutes to previously excluded groups. However, he found that
precedent to be inapplicable to the Association's attempt to
extend a burden placed on its members to others who were not
parties to the litigation, and that any such effort would result
in a denial of the due process rights of the missing condotel
owners. Furthermore, the judge found that prior court decisions
to extend benefits had been made only after the courts had found
A-0537-09T3
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the governing statutes otherwise unconstitutional. In the
present context, the judge stated that he was not inclined to
find the Division's interpretation unconstitutional. He
observed: "The Director's interpretation and administration of
the statute may not be consistent with the statutory language
but, the constitutional standard for line drawing in tax cases --
rational basis -- is the easiest to satisfy" and that "[f]ew
distinctions made by tax statutes and taxing jurisdictions have
been held to violate the Director's authority to draw lines."
As a consequence, the judge held:
I conclude that I lack jurisdiction to
declare the tax applicable to an infinite
number of properties. Each property has a
unique factual form of ownership and method
of operations. Without having a fuller
record concerning the nature of the specific
competitor and without giving that
competitor an opportunity to be heard, I
cannot declare to whom the tax applies.
Accordingly I deny plaintiff's motion and
grant defendant's motion finding that I have
no power to declare the line drawn by the
Director invalid.
However, the judge then stated:
In the absence of legislative action, I
strongly urge the Director to issue a more
definitive rule, and in the rule-making
process, to hear the conflicting arguments
of the competing private parties.
Metromedia, Inc. v. Director, Division of
Taxation,
97 N.J. 313, 330-32 (1984).
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The Association moved for reconsideration, limiting its
motion to the issue of whether the judge had the jurisdiction or
authority to grant a remedy in this case. Counsel stated: "I'm
simply asking you to make formal the suggestion that you
presented to the Director at the end of your opinion and
suggesting to your Honor that you can do more than just
suggest." [Y]ou have more remedial jurisdiction than . . . your
The motion was denied, and this appeal
opinion suggests you do."
followed.
After the Association filed its notice of appeal, it also
filed a petition for rulemaking action pursuant to N.J.S.A.
52:14B-4(f) and N.J.A.C. 18:1-2.2, urging the Director to adopt
a rule expanding the regulatory definition of the term "hotel"
to include "unconventional" transient rentals such as condotels.
The petition was denied on January 4, 2010,
42 N.J.R. 92(a), and
no appeal was taken. However, while denying the Association's
petition, the Director acknowledged that the "manner in which
For
the hotel industry operates has evolved over time." Ibid.
that reason, the Director stated, the Division "is currently
drafting a regulatory proposal that it plans to publish
shortly." Ibid. To date, that proposal has not been
promulgated.
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II.
As the result of our review of the briefing in this matter
as well as applicable precedent, we are satisfied that the Tax
Court judge was correct in his position that he lacked
jurisdiction to afford the Association the relief that it sought
in this matter.
The New Jersey Constitution, in Article 6, section I,
paragraph 1 states:
The judicial power shall be vested in a
Supreme Court, a Superior Court, and other
courts of limited jurisdiction. The other
courts and their jurisdiction may from time
to time be established, altered or abolished
by law.
The Tax Court is such a court of limited jurisdiction, presently
deriving its powers from N.J.S.A. 2B:13-1 through -15.2 The
court's jurisdiction is set forth in N.J.S.A. 2B:13-2, which
states:
a. The Tax Court shall have
jurisdiction to review actions or
regulations with respect to a tax matter of
the following:
(1) Any State agency or official;
(2) A county board of taxation;
(3) A county or municipal official.
2
The Tax Court was established by L. 1978, c. 33,
N.J.S.A. 2A:3A-1 through -29. The present statute was enacted
in 1993.
A-0537-09T3
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b. The Tax Court shall have
jurisdiction over actions cognizable in the
Superior Court which raise issues as to
which expertise in matters involving
taxation is desirable, and which have been
transferred to the Tax Court pursuant to the
Rules of the Supreme Court.3
c. The Tax Court shall have
jurisdiction over any other matters as may
be provided by statute.
d. The Tax Court jurisdiction shall
include any powers that may be necessary to
effectuate its decisions, judgments and
orders.
Although the Tax Court is empowered by N.J.S.A. 2B:13-3 to
"grant legal and equitable relief so that all matters in
controversy between the parties may be completely determined,"
that power is limited to "causes within its jurisdiction."
In Rule 8:2, the Supreme Court undertook to define, in a
manner consistent with N.J.S.A. 2B:13-2, the jurisdiction of the
Tax Court. The Rule states in relevant part:
(a) General Jurisdiction. The Tax
Court shall have initial review jurisdiction
of all final decisions including any act,
action, proceeding, ruling, decision, order
or judgment including the promulgation of
any rule or regulation of a County Board of
Taxation, the Director of the Division of
Taxation, any other state agency or official
(including the Motor Vehicle Commission), or
3
Paragraph b. of the statute expands the jurisdiction of
the Tax Court beyond that afforded to it by legislation in
effect until 1993. General Motors Corp. v. City of Linden,
143 N.J. 336, 349 (1996).
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any county or municipal official with
respect to a tax matter (including the
realty transfer fee).
We have long recognized the limited jurisdiction of the Tax
Court. In Alid, Inc. v. North Bergen Township,
180 N.J. Super.
592 (App. Div.), appeal dismissed as moot,
89 N.J. 388 (1981),
we considered the Tax Court's jurisdiction under N.J.S.A. 2A:3A-
1 through -29, the predecessor to the present act, and
determined that the Tax Court lacked jurisdiction to hear the
plaintiffs' post-judgment motions and to grant relief against
the Township in the nature of mandamus, determining that such
relief was available only in the Law Division of the Superior
Id. at 603; see also N.J. Const. art. VI, § 5, ¶ 4.
Court.
After an extensive review of legislative history, id. at 599-
600, we held:
To attempt to equate the jurisdiction
of the Tax Court with that of the trial
divisions of the Superior Court, as the Tax
Court judge did in this case simply ignores
the clear language of both chapter 33 of the
Laws of 1978 and pertinent provisions of the
Judicial Article of our State Constitution.
The Superior Court, which is divided into
three, and only three, divisions, viz., "an
Appellate Division, a Law Division, and a
Chancery Division," N.J.Const. (1947), Art.
VI, § III, par. 2. On the other hand, the
Tax Court is, by the statute which created
it, "an inferior court of limited
jurisdiction." L.1978, c. 33, § 1, N.J.S.A.
2A:3A-1. It can constitutionally exercise
only that jurisdiction which the Legislature
has seen fit to confer upon it.
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[Id. at 601.]
In the present matter, the Association has mounted an
administrative and Constitutional challenge to the Director's
informal policy with respect to the definition of a hotel,
seeking its nullification or its extension in such a fashion as
to cover condotels. If the Association were challenging the
application of the policy to its members on such grounds, we
would have no difficulty finding jurisdiction. Township of W.
Milford v. Van Decker,
120 N.J. 354 (1990); Metromedia, Inc. v.
Dir. Div. of Taxation,
97 N.J. 313 (1984). However, that is not
the Association's position. As the Tax Court judge noted, the
Association does not seek relief from existing tax regulations
or policies on behalf of its members, it seeks to impose the
burden of such regulations and policies on others who are not
before the court. The Association has failed to establish
grounds for the Tax Court's jurisdiction over an action seeking
such relief, and our research has disclosed none.
In this regard, we do not find the statutory provision
affording jurisdiction to the Tax Court "to review actions or
regulations with respect to a tax matter" by a State agency or
official to govern this matter. In our view, the policy adopted
by the Director does not constitute a "final decision" as
required by Rule 8:2-(a). See also Exxon Corp. v. Twp. of E.
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Brunswick,
192 N.J. Super. 329, 336 (App. Div. 1983)
(determining that the Director's "advisory opinion" to
assessors, changing the prior assessment of underground fuel
storage tanks as tangible personal property to real property and
the Middlesex County Board of Taxation's directive based on that
opinion did not constitute final determinations within the Tax
Court's jurisdiction to review), certif. denied,
96 N.J. 312
(1984).
The difficulty here is that the policy at issue is not a
rule or regulation that would be subject to Tax Court review if
its applicability to Association members were challenged. It is
merely a policy, and the Tax Court lacks jurisdiction to
adjudicate the validity of policies or to order the Director to
modify his policies in a particular fashion so as to impose a
burden on an unrepresented class. We thus find that this matter
should have been instituted in the Superior Court, which could
then have transferred it to the Tax Court pursuant to N.J.S.A.
2B:13-2b if it had chosen to do so. Alternatively, the
Association could have appealed from the denial of its petition
for rulemaking, which clearly constituted a final decision.
However, the Association failed to follow either course.
As a consequence, we affirm the dismissal of this action,
but not without echoing the plea of the Tax Court judge that the
A-0537-09T3
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issues raised herein be addressed through rulemaking pursuant to
the Administrative Procedure Act, N.J.S.A. 52:14B-1 through -25.
Affirmed.
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