BRACHA EXPORT CORPORATION v. DIRECTOR, DIVISION OF TAXATION

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1638-10T1

BRACHA EXPORT CORPORATION,

Plaintiff-Appellant,

v.

DIRECTOR, DIVISION OF TAXATION,

Defendant-Respondent.

___________________________________

March 20, 2012

Argued March 5, 2012 - Decided

Before Judges Ashrafi and Fasciale.

On appeal from the Tax Court of New Jersey, Docket No. 6659-2005.

Harold Leib argued the cause for appellant (Harold Leib & Associates, P.A., attorneys; Mr. Leib, on the brief).

David B. Bender, Assistant Attorney General, argued the cause for respondent (Jeffrey S. Chiesa, Attorney General, attorney; Lewis A. Scheindlin, Assistant Attorney General, of counsel; Marikae G. Toye, Deputy Attorney General, on the brief).

PER CURIAM

Plaintiff Bracha Export Corporation appeals from a November 9, 2010 order of the Tax Court granting summary judgment in favor of defendant, Director, Division of Taxation (the Division). Plaintiff filed its complaint after the Division denied its S-corporation election and an allocation claim for the tax years 1998, 1999, and 2000. We affirm.

In 2002, the Division notified plaintiff that it could not file S-corporation Business Tax Returns (CBT-100S) for the tax years 1998, 1999, and 2000, and was instead required to file Corporation Business Tax Returns (CBT-100). The Division determined that plaintiff had not timely filed a valid New Jersey S-corporation election form, and that not all of plaintiff's consenting shareholders had filed New Jersey Gross Income Tax, Non-Resident returns for those years. Plaintiff formally protested the decision, and the Division arranged an administrative conference.

At the conference, plaintiff produced an S-corporation election form dated February 10, 1998. The Division issued a conference report finding that it had denied S-corporation status because one of plaintiff's three consenting shareholders named on the election form had not filed a personal income tax return for the three years in question, contrary to the jurisdictional requirements of N.J.S.A. 54:10A-5.22(b)(1)-(3). The Division noted that "[i]n not receiving any contrary notification, [plaintiff] began to file as an S-Corporation in NJ beginning in 1998." The Division concluded that even if the election form had been properly filed in February 1998, plaintiff remained an unauthorized foreign corporation until August 1998 and the S-corporation election form would therefore have been rejected anyway.

On April 2, 2003, the Division issued a final determination confirming the findings and conclusions made at the conference. The Division notified plaintiff that under N.J.S.A. 54:51A-13, plaintiff had ninety days to appeal the determination. Instead of appealing, plaintiff amended its tax returns for 1998, 1999, and 2000 and filed CBT-100 returns. In August 2003, the Division notified plaintiff that it was denying an allocation claim made on the amended CBT-100 returns, and that plaintiff's outstanding tax for 1998, 1999, and 2000 with penalties and interest was $234,708.50. In September 2003, the Division issued an inquiry response letter to plaintiff explaining that its allocation claim had been disallowed because "form W-2 withholdings are in NJ and the [amended] CBT returns show 100% wages are allocated in NJ."

In October 2003, plaintiff protested the allocation denial. Plaintiff claimed that it had maintained a regular place of business in New York during the three tax years in question. On February 10, 2005, the parties participated in a conference regarding the allocation claim. Plaintiff asserted that it employed two workers on a part-time basis in a New York City warehouse used for shipping and receiving. The Division requested proof "such as an employment agreement, exact duties performed, NY income tax returns, detailed work schedule including salary that depicts the actual times and dates the two employees were present at the said warehouse." The Division also requested unemployment records and shipping and billing documents from the warehouse. Plaintiff responded that its accountant had not been "very knowledgeable concerning interstate taxation and payroll requirements or multistate activities[,] and as a result did not file any NYS payroll returns subsequent to the company's relocation to NJ."

On May 17, 2005, the Division issued a conference report. The Division found that plaintiff had provided copies of W-2s of two employees who allegedly worked at the warehouse, but who were reported on the W-2s as New Jersey employees. The Division concluded that plaintiff's proofs were inadequate, and issued a final determination on May 23, 2005 denying the allocation and upholding plaintiff's tax liability for $221,797.

On August 16, 2005, plaintiff filed a three-count complaint alleging improper assessments and seeking an abatement. The Division filed a timely answer, and on April 19, 2010 moved for summary judgment. Plaintiff filed opposition.

on November 9, 2010, the judge conducted arguments, issued an oral opinion, and entered summary judgment in favor of the Division, dismissing plaintiff's complaint with prejudice. The judge concluded that plaintiff had not filed a timely appeal from the denial of S-corporation tax status, and that plaintiff had produced no evidence to show that it had two employees working at a New York City warehouse. This appeal followed.

On appeal, plaintiff contends that the judge erred by granting the Division's motion for summary judgment. Plaintiff argues that it maintained a regular place of business outside New Jersey and was therefore entitled to allocate a portion of its income. Plaintiff also contends that the judge should not have concluded that plaintiff's appeal of the Division's final determination denying S-corporation election was time-barred by the ninety-day appeal period, pursuant to N.J.S.A. 54:51A-14 and Rule 8:4-1(b). We disagree.

Our review of a grant of summary judgment is de novo, and we apply the same Rule 4:46 standard that governs the trial court. LVNV Funding, L.L.C. v. Colvell, 421 N.J. Super. 1, 6 (App. Div. 2011) (citing Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007)); Coastal Eagle Point Oil Co. v. West Deptford Twp., 19 N.J. Tax 301, 304 (App. Div. 2001). Rule 4:46-2(c) provides that summary judgment is appropriate

if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law. An issue of fact is genuine only if, considering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact.

"[T]he determination [of] whether there exists a genuine issue with respect to a material fact challenged requires the motion judge to consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party in consideration of the applicable evidentiary standard, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995). We decide first whether a genuine issue of material fact existed and then, if not, whether the judge drew the correct legal conclusions. Henry v. N.J. Dep't of Human Serv., 204 N.J. 320, 330 (2010) (citing Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998)). Furthermore, "after passage of adequate time to complete the discovery, summary judgment should be granted 'against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.'" Brill, supra, 142 N.J. at 533 (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265, 273 (1986)).

We give great weight to an administrative agency's interpretation of its own regulations. N.J. Builders Assoc. v. Dep't of Envtl Prot., 169 N.J. Super. 76, 89-90 (App. Div.) (citing In re Plainfield-Union Water Co., 57 N.J. Super. 158, 177 (App. Div. 1959)), certif. denied, 81 N.J. 402 (1979). Thus, "[w]hen an administrative agency interprets and applies a statute it is charged with administering in a manner that is reasonable, not arbitrary or capricious, and not contrary to the evident purpose of the statute, that interpretation should be upheld, irrespective of how the forum court would interpret the same statute in the absence of regulatory history." Blecker v. State, 323 N.J. Super. 434, 442 (App. Div. 1999). Furthermore, we recognize that the Division has particular expertise in the specialized and complex area of the Corporate Business Tax Act (the Act), N.J.S.A. 54:10A-1 to -41. Metromedia, Inc. v. Dir., Div. of Tax., 97 N.J. 313, 327 (1984).

The Act requires foreign and domestic corporations to pay an annual franchise tax "for the privilege of having or exercising [a] corporate franchise . . .[,] deriving receipts from sources . . .[,] engaging in contacts . . ., or . . . doing business, employing or owning capital or property, or maintaining an office[.]" N.J.S.A. 54:10A-2. "The amount of the tax is determined on the basis of net worth and net income." Somerset Apts. v. Dir., Div. of Tax., 134 N.J. Super. 550, 554 (App. Div. 1975) (citing N.J.S.A. 54:10A-4 and N.J.S.A. 54:10A-5). N.J.S.A. 54:10A-6 provides a formula to determine allocation of net income between New Jersey and other states, depending upon property, sales, and payroll. N.J.A.C. 18:7-7.1 provides:

(b) In the absence of a regular place of business, 100 percent of [the corporate taxpayer's] entire net income must be allocated to New Jersey.
 
(c) The mere ownership of assets outside New Jersey does not constitute a basis for allocating less than 100 percent of the taxpayer's net income to New Jersey.
 

N.J.A.C. 18:7-7.2(a) defines "regular place of business" as "any bona fide office (other than a statutory office), factory, warehouse, or other space of the taxpayer which is regularly maintained, occupied and used by the taxpayer in carrying on its business and in which one or more regular employees are in attendance." The regulation also provides four factors to assist the Division in determining whether a location constitutes a regular place of business:

1. Bona fide office: An office in which an employee in attendance performs significant duties related to the business of the taxpayer. A token office, space of the taxpayer or any place where an employee does not actually perform significant duties constituting part of taxpayer's business does not constitute a regular place of business.

2. Space of the taxpayer: The taxpayer must be directly responsible for the expenses incurred in maintaining the regular place of business and must either own or rent the facility in its own name and not through a related person or entity. The regular place of business should be identifiable as belonging to the taxpayer by, for example, reflecting the taxpayer's name on the exterior and interior of the building and being listed in the taxpayer's name in a telephone book.

 
3. Regularly maintained, occupied and used by the taxpayer in carrying on its business: The taxpayer must regularly maintain, occupy and use the premises by employing one or more regular employees who are in attendance during normal working hours. Premises are not regularly maintained, occupied and used in the event employees are in attendance only on a part time basis and, in their absence, telephone messages are received by an answering service or recording device.
 

4. Regular employee: A regular employee must be under the control and direction of the taxpayer in transacting the taxpayer's business and/or performing work on behalf of the taxpayer. The officers of the taxpayer are generally deemed to be regular employees of the taxpayer while independent contractors and members of the taxpayer's board of directors are not regular employees of the taxpayer. The method or procedure by which a taxpayer reports the compensation paid to an individual (such as a W-2 form) shall not be conclusive as to whether the individual is a regular employee[.]

[N.J.A.C. 18:7-7.2(1)-(4) (emphasis added).]

This is not the first time we have considered the phrase "maintain[] a regular place of business outside this State," N.J.S.A. 54:10A-6, and examined the correct application of the factors listed at N.J.A.C. 18:7-7.2(1)-(4). In Hoeganaes Corporation v. Director, Division of Taxation, 145 N.J. Super. 352, 359-62 (App. Div. 1976), we rejected a taxpayer's attempt to allocate income to other states in which it employed full-time salesmen from home. The taxpayer had argued that the use of space in the employees' homes constituted maintaining offices. Id. at 359. We observed that the taxpayer did not rent space for the salesmen, had no regular employees in attendance during normal working hours, and had no control over the upkeep of the offices. Id. at 357-58. Thus, "[i]n the ordinary and well understood meaning of the regulation[,] the [salesmen's] offices [were] not regularly maintained, occupied and used by the taxpayer." Id. at 359. We concluded:

A regulation, like a statute, of necessity must be general. The drafters could not possibly anticipate every factual situation. Therefore, because they did not specify that the rent must be paid by the taxpayer or that the taxpayer must own the premises is not of any moment. The language sufficiently conveys to the reader a concept which covers the situation sufficiently "regularly maintained" and "occupied and used by the taxpayer" and "regular employees in attendance" imply a place which to the ordinary person is more than a location where an employee writes up reports in his own home.

[Id. at 360.]

The Tax Court has followed the standard explained in Hoeganaes. In Rocappi, Inc. v. Director, Division of Taxation, 3 N.J. Tax 311, 313 (Tax 1981), the taxpayer attempted to allocate a share of its net income to offices in California and Massachusetts. However, the taxpayer "admitted that employees were not always in attendance," and that it only indirectly controlled the premises, which were actually maintained by the taxpayer's parent company. Id. at 319. As such, the court concluded that "[o]bjectively viewed, the operations did not resemble regular places of business as that phrase is generally understood, and even if they did, they were not regularly maintained, occupied and used by [taxpayer]." Id. at 320-21.

A few years after Rocappi, the Tax Court addressed the same issue again. In Shelter Development Corporation v. Director, Division of Taxation, 6 N.J. Tax 547, 556 (Tax 1984),1 the taxpayer "did not have a written or oral lease for, nor did it directly or indirectly pay rent on, [an alleged out-of-state] office." It was "obvious from the nature and extent of the services rendered that [the claimed employees] were not employees of taxpayer":

A management fee was paid to a professional corporation in the amount of $4,375 for services rendered for the entire year of 1975. The secretarial services rendered by Lila Levine, an employee of a related corporation, and the payment of $900 to her for such services did not render her a "regular employee" of plaintiff "in attendance" at the New York office.

[Id. at 557 (footnote omitted).]

Thus, the court concluded that "[t]he phrase 'regular employees in attendance' signifies more than the performance of services on an ad hoc basis as the need arose." Ibid.

Here, we reject plaintiff's argument that it should be permitted to allocate net income to a warehouse located in New York City. Plaintiff claimed that it employed two workers at the warehouse for the purpose of shipping and receiving goods for local customers. However, when the Division requested evidence of these operations, plaintiff did not provide sufficient documentation to show that the warehouse was a regular place of business, that plaintiff maintained it as such, or that the two employees were regular in attendance. Nor was sufficient evidence forthcoming at the summary judgment hearing. Because plaintiff did not provide proof, the judge correctly granted summary judgment in favor of the Division.

Plaintiff argues that N.J.S.A. 54:10A-6 "does not require the same employee be exclusive, only that there be employees regularly employed on the premises for thirty five hours or more." However, N.J.A.C. 18:7-7.2(3) explicitly states that "[p]remises are not regularly maintained, occupied and used in the event employees are in attendance only on a part time basis[.]" Moreover, even if aggregating part-time hours were permissible, plaintiff's documentation remains insufficient to raise a material issue of fact.

The judge correctly observed that it is "not a material issue of fact to simply deny the allegation." He stated:

In this case I believe that if the taxpayer had all of the evidence that would lead this [c]ourt to another conclusion, then that evidence should have been placed on the table. And I don't see it here.

I'm even more disturbed by the fact that some of the very things that the [c]ourt mentioned that would have helped it to make its determination were in fact asked [for] by the Director more than five years ago and have . . . yet to be produced in this case.

We agree and conclude that plaintiff did not substantiate its allocation claim or produce sufficient evidence to raise a material issue of fact by which plaintiff could overcome the Division's motion for summary judgment.

Furthermore, we conclude that the judge correctly determined that plaintiff had not filed a timely appeal of the Division's final determination denying S-corporation tax status for the tax years 1998, 1999, and 2000.

Pursuant to Rule 8:4-1(b), a taxpayer has ninety days from the date of the Division's action to file a complaint with the Tax Court. The State Uniform Tax Procedure Law, N.J.S.A. 54:48-1 to 53-19, provides the same. N.J.S.A. 54:51A-14(a). Moreover, N.J.S.A. 54:51A-16 states that "[t]he appeal . . . shall be the exclusive remedy available to any taxpayer for review of an action of the Director . . . with respect to any tax matter[.]"

In matters of taxation, strict adherence to statutory deadlines is crucial to the effective administration of government. F.M.C. Stores Co. v. Borough of Morris Plains, 100 N.J. 418, 424 (1985). Thus, "[f]ailure to file a timely appeal is a fatal jurisdictional defect." Id. at 425 (citing Clairol v. Kingsley, 109 N.J. Super. 22 (App. Div.), aff'd, 57 N.J. 199 (1970), appeal dismissed, 402 U.S. 902, 91 S. Ct. 1377, 28 L. Ed. 2d 643 (1971)). Furthermore, filing a complaint "after the statutory deadline has resulted in the dismissal of the taxpayer's appeal." Ibid.2

Here, plaintiff did not file a timely appeal. The Division issued its final determination on April 2, 2003. The deadline to appeal was July 1, 2003. Plaintiff appealed on August 16, 2005, more than two years after the ninety-day filing deadline had passed. Review of the Division's determination denying S-corporation election is therefore time-barred, as the Tax Court correctly found.

Plaintiff also argues that the Division should be estopped from denying the S-corporation election because the denial is "so egregious as to amount to a forfeiture of [plaintiff's] property[.]" We disagree.

Estoppel of the Division's assessment of a tax is rarely appropriate. Black Whale, Inc. v. Dir., Div. of Tax., 15 N.J. Tax 338, 354-55 (Tax 1995); State, Dep't of Envtl. Prot. and Energy v. Dopp, 268 N.J. Super. 165, 176 (App. Div. 1993). "In practice, taxing authorities in New Jersey have never been estopped, either by their spoken words, their written words, or their actions, from imposing a tax." Black Whale, supra, 15 N.J. Tax at 355.3

Plaintiff places heavy reliance on Toys "R" Us, Inc. v. Director, New Jersey Division of Taxation, 300 N.J. Super. 163, 165 (App. Div. 1997), where the taxpayer made an untimely refund claim after paying the underlying tax in reliance on an official publication that the Division amended during the audit period. We remanded that case because "[d]epending on the time the Division changed its position, its agent may have been mistaken in assessing the tax in the first place. In other words, if the Division had already changed its position, then the assessment was a mistake." Id. at 172. Such is not the case here.

Plaintiff has not indicated any official statements, letters, or publications on which it relied in not filing a timely appeal of the Division's denial of its S-corporation election. In fact, the judge stated, "I don't see any reasons in equity or otherwise to . . . continue." Moreover, the filing of CBT-100 returns for the years in question demonstrates plaintiff's decision to forego the appeal.

After reviewing plaintiff's remaining arguments, we have determined that they lack sufficient merit to warrant consideration in a written opinion. R. 2:11-3(e)(1)(E).

A

1 On several other occasions, the Tax Court has also construed the requirements of N.J.S.A. 54:10A-6 and followed Hoeganaes, supra, 145 N.J. Super. at 360. See, e.g., N.J. Natural Gas v. Dir., Div. of Tax., 24 N.J. Tax 59, 73 (Tax 2008) (holding that the residences of out-of-state employees working from home did not constitute regular places of business); River Sys., Inc. v. State, Dep't of Treasury, Div. of Tax., 19 N.J. Tax 599, 607-09 (Tax 2001) (holding that where a related corporation maintains a regular place of business outside New Jersey and performs services for the New Jersey corporation, the activities of the related corporation are not attributable to the New Jersey corporation for purposes of N.J.S.A. 54:10A-6); SMZ Corp. v. Dir., Div. of Tax., 5 N.J. Tax 232, 237 (Tax 1982) (concluding that an out-of-state gasoline station owned and leased by a New Jersey real estate company did not constitute a regular place of business), rev'd and rem'd on other grounds, 193 N.J. Super. 305 (App. Div. 1984).

2 See, e.g., Mayfair Holding Corp. v. N. Bergen Twp., 4 N.J. Tax 38, 41 (Tax 1982) ("Compliance with statutory filing requirement is an unqualified jurisdictional imperative, long sanctioned by our courts."); Sun Life Assurance Co. of Canada v. City of Orange, 2 N.J. Tax 25, 28 (Tax 1980) (dismissing taxpayer's claim for failure to comply with filing deadline to appeal from county board tax judgment).

3 In Black Whale, supra, 15 N.J. Tax at 355-56, the Tax Court reviewed cases where taxpayers asserted that a taxing authority was estopped from imposing a tax. The court observed:

Estoppel has not barred the imposition of a tax where a taxing authority has by inaction failed to impose a tax in prior years or on a prior transaction.

Estoppel has not barred the imposition of a tax which a governmental representative has verbally indicated by words or writing is not applicable, or would be imposed differently than eventually assessed.

Taxing authorities have been permitted to impose taxes contrary to general written statements by the taxing authority.
 

[O]ur Supreme Court has permitted the State to revise a specific written determination of a state official, when that state official was wrong and had no authority to write that a refund was due.
 
[Ibid. (citations omitted).]