Glenn W. Hansen, Jr. v. Director

NOT FOR PUBLICATION WITHOUT APPROVAL OF

THE TAX COURT COMMITTEE ON OPINIONS

TAX COURT OF NEW JERSEY

Patrick DeAlmeida R.J. Hughes Justice Complex

Presiding Judge P.O. Box 975

Trenton, New Jersey 08625-0975

(609) 292-8108 Fax: (609) 984-0805

October 19, 2012

Glenn W. Hansen, Jr.

Elaine Hansen

684 Kline Place

Bridgewater, New Jersey 08807-3135

Michelline Foster

Deputy Attorney General

Division of Law

R.J. Hughes Justice Complex

P.O. Box 106

25 Market Street

Trenton, New Jersey 08625-0106

Re: Glenn W. Hansen, Jr. and Elaine Hansen v.

Director, Division of Taxation

Docket No. 012212-2011

Dear Mr. and Mrs. Hansen and DAG Foster:

This letter constitutes the court s opinion after trial in the above-referenced matter in which plaintiffs challenge the final determinations of the Director, Division of Taxation denying their applications for a homestead property tax reimbursement for tax years 2009 and 2010. For the reasons explained more fully below, the Director s final determinations are affirmed.

*

I. Procedural History and Findings of Fact

Based on the evidence gathered during the trial, the court makes the following findings of fact.

In order to understand fully the legal questions before the court, a brief summary of the homestead property tax reimbursement program and its administration is warranted. A homestead property tax reimbursement is available to any person sixty-five or more years of age or who is disabled who meets certain income limits and who, as a homeowner, has made a long-term contribution to the fabric, social structure and finances of one or more communities in this State, as demonstrated through the payment of property taxes . . . on any homestead . . . used as a principal residence in this State for at least 10 consecutive years at least three of which as owner of the homestead for which a homestead property tax reimbursement is sought prior to the date that an initial application for a homestead property tax reimbursement is filed. N.J.S.A. 54:4-8.67. The amount of the reimbursement is the difference between the amount of property tax due in the year for which the reimbursement is claimed and the amount due in the base year. Ibid. The base year is tax year 1997 or the first year in which a claimant becomes eligible for a reimbursement after December 31, 1997. Ibid.

The Director, Division of Taxation, who is statutorily authorized to administer the homestead property tax reimbursement program, distributes an application form with instructions in the February following the close of the relevant tax year. The applications are due the following June 1, but the deadline is often extended by the Director pursuant to his statutory authority. Prior to July 1, the Legislature and Governor enact an Appropriations Act for the fiscal year starting July 1, which must include an appropriation for the homestead property tax reimbursements if the program is to be implemented. The reimbursements are made after enactment of the Appropriations Act, usually in August through October.

In light of this schedule, the following dates are relevant for the tax years at issue in this matter:

Application Appropriations Act Reimbursement

Tax Year 2 009 February 2010 Before July 1, 2010 for August 2010 to

Fiscal Year 2 011 October 2010

Tax Year 2 010 February 2011 Before July 1, 2011 for August 2011 to

Fiscal Year 2 012 October 2011

A homestead property tax reimbursement for tax year 2009 will be paid in fiscal year 2011, if authorized by the fiscal year 2011 Appropriations Act. A homestead property tax reimbursement for tax year 2010 will be paid in fiscal year 2012, if authorized by the fiscal year 2012 Appropriations Act.

During tax years 2009 and 2010 plaintiffs Glenn W. Hansen, Jr. and Elaine Hansen owned the residence at 684 Kline Place in Bridgewater Township. On April 28, 2010, plaintiffs timely filed with the Director an application for a homestead property tax reimbursement for tax year 2009. Pursuant to N.J.S.A. 54:4-8.67 eligibility for the program was predicated on annual income of . . . $70,000 or less in tax year 2008, or $80,000 or less in tax year 2009 . . . .

Plaintiffs application reported $71,655 in income for the couple for tax year 2009 (the worksheet attached to plaintiffs application contains income figures that, when totaled, equal $71,925. It is not clear to the court why plaintiffs reported only $71,655 income. The discrepancy is not relevant, as both figures are above $70,000 and below $80,000, the critical factor in this matter). The worksheet instructions for the tax year 2009 homestead property tax reimbursement asks [w]as your total 2008 Income $80,000 or less? If the taxpayer answers that question Yes, the instructions inform the taxpayer to enter the amount of income on line 5 and to complete the application. If the taxpayer answers the question No, the taxpayer is instructed to STOP. You are not eligible for a property tax reimbursement. Because they reported less than $80,000 in income, plaintiffs completed the application.

On June 29, 2010, the fiscal year 2011 Appropriations Act was enacted. The Appropriations Act placed limitations on funding for the homestead property tax reimbursement program for fiscal year 2011. Although the Act retained the $80,000 income limit for program eligibility, the Act authorized reimbursements only for those taxpayers who received a reimbursement for tax year 2008 (paid in fiscal year 2010) and who met in tax year 2009 the $70,000 income limitation that was in place for tax year 2008. The Act provides:

Notwithstanding the provisions of any law or regulation to the contrary, the amount hereinabove appropriated for Senior and Disabled Citizens Property Tax Freeze (PTRF) is subject to the following conditions: only citizens that received property tax reimbursements paid under the Senior and Disabled Citizens Property Tax Freeze program in fiscal year 2010 shall be eligible for property tax reimbursements in fiscal year 2011 in amounts equal to such reimbursement paid in fiscal year 2010, provided further, however, that citizens that would otherwise be ineligible in fiscal year 2011 based on fiscal year 2010 eligibility criteria shall not receive a property tax reimbursement in fiscal year 2011.

[P.L. 2010, c. 35.]

Thus, in order to receive a reimbursement for tax year 2009, a taxpayer must have: (1) received a reimbursement for tax year 2008; and (2) had income of less than $70,000, the fiscal year 2010 eligibility criteria, in tax year 2009. Plaintiffs satisfied the first criterion, given that they received a reimbursement for tax year 2008. They did not, however, satisfy the second criterion because their 2009 income exceeded $70,000.

The fiscal year 2011 Appropriations Act, therefore, affected plaintiffs in the following way: While plaintiffs satisfied the eligibility requirement for tax year 2009 because they had less than $80,000 in income as defined in N.J.S.A. 54:4-8.67, and therefore maintained the base year they previously established, they received no reimbursement for tax year 2009 because their tax year 2009 income exceeded the $70,000 limit in place for a tax year 2008 reimbursement.

On July 20, 2010, the Director issued written notice to plaintiffs denying their application for a reimbursement for tax year 2009. The notice correctly explained, [a]s a result of provisions in the State Budget for the current fiscal year, to be eligible for the 2009 reimbursement, 2009 income cannot exceed $70,000. The amount of income you reported for 2009 exceeded $70,000. The notice referred to the Appropriations Act as the State Budget, as it is commonly known.

On July 29, 2010, plaintiffs submitted a written protest to the Division. Plaintiffs noted that the instructions to the reimbursement application indicated that the income eligibility limit was $80,000 for tax year 2009. In addition, plaintiffs explained that they supplemented their income from social security through part-time work and had they been aware that the income limit would be reduced to $70,000 for tax year 2009 they would have limited their part-time income in 2009 to meet that criterion. In addition, plaintiffs noted that a portion of the social security payments they received in 2009 were benefits due to them in 2007 and 2008, but underpaid in those years by the Social Security Administration. Plaintiffs argued that the portion of their income that represented underpayments from 2007 and 2008 should be excluded from their 2009 income, which, in plaintiffs view, would bring their 2009 income below $70,000.

On October 15, 2010, an employee of the Division issued a letter revising plaintiffs reported income. The Division accepted plaintiffs argument that their social security income for 2009 should be reduced to $31,324, to reflect the fact that plaintiffs received in 2009 social security underpayments from prior years. The Division, however, informed plaintiffs that on their reimbursement application they erroneously used a net capital loss of $3,000 to offset other categories of income. New Jersey law does not permit the use of losses from one category of income to offset gains in other categories of income. See N.J.S.A. 54A:5-2. The Division, therefore, added $3,000 to the income reported by plaintiffs for 2009. The Division also made a $650 adjustment raising plaintiffs wage income, which was not explained at trial. As a result of these adjustments, the Division revised plaintiffs 2009 income to $73,692. The October 15, 2010 correspondence informed plaintiffs that their income exceeded the $70,000 limit for a reimbursement for tax year 2009. The letter stated that [a]s a result, you are not eligible to file for and receive a 2009 Property Tax Reimbursement and your application has been denied.

Plaintiffs thereafter requested an administrative hearing. In an August 4, 2011 letter, plaintiffs pointed out that both the instructions for the 2009 reimbursement and several issues of New Jersey State Tax News, a publication issued by the Division of Taxation, reported that the income eligibility criteria for the reimbursement program for tax year 2009 would be $80,000. Plaintiffs also reiterated that they had gauged their part-time work during the year in order to remain under the $80,000 limit and would have worked less had they known that a reimbursement would not be issued to taxpayers earning over $70,000.

On August 8, 2011, the Director issued a final determination denying plaintiffs administrative appeal. The final determination explained that the fiscal year 2011 Appropriations Act placed limitations on reimbursements for tax year 2009. The final determination included the above-cited passage from the Appropriations Act limiting reimbursements for tax year 2009 to those taxpayers who received a reimbursement for tax year 2008 and who met in 2009 the $70,000 income limitation in place for tax year 2008.1

Plaintiff s tax year 2010 reimbursement application, the filing date of which is not clear from the record, reported $79,549 in income. The application contained instructions indicating that eligibility for the program was predicated on income of $80,000 or less.

The fiscal year 2012 Appropriations Act, enacted into law on June 30, 2011, retains the $80,000 eligibility requirement for the program, but again limits reimbursements for fiscal year 2012 to those taxpayers who had less than $70,000 in income during tax year 2010. The act provides as follows:

Notwithstanding the provisions of any law or regulation to the contrary, the amount hereinabove appropriated for Senior and Disabled Citizens Property Tax Freeze is subject to the following condition: eligibility for property tax reimbursements in fiscal year 2012 shall be determined pursuant to section 1 of P.L. 1997, c. 348 (C. 54:4-8.67), except that citizens with annual income of more than $70,000 shall not be eligible for property tax reimbursement in fiscal year 2012.

[P.L. 2012, c. 85.]

On July 15, 2011, the Division issued a notice denying plaintiffs 2010 reimbursement application. The notice succinctly explained:

Your 2010 Property Tax Reimbursement Application has been processed and denied for the following reason(s):

As a result of provisions in the State Budget for the current fiscal year, to be eligible for the 2010 reimbursement, 2010 income cannot exceed $70,000. The amount of income you reported for 2010 exceeded $70,000.

Plaintiffs filed a timely complaint in this court challenging the August 8, 2011 final determination and the July 15, 2011 notice, which, by virtue of the direct appeal, constitutes the Director s final determination for tax year 2010.

II. Conclusions of Law

The court s analysis begins with the familiar principle that the Director s interpretation of tax statutes is entitled to a presumption of validity. Courts have recognized the Director s expertise in the highly specialized and technical area of taxation. Aetna Burglar & Fire Alarm Co. v. Director, Div. of Taxation, 16 N.J. Tax 584, 589 (Tax 1997) (citing Metromedia, Inc v. Director, Div. of Taxation, 97 N.J. 313, 327 (1984)). The scope of judicial review of the Director s decision with respect to the imposition of a tax is limited. Quest Diagnostics, Inc. v. Director, Div. of Taxation, 387 N.J. Super. 104, 109 (App. Div.), certif. denied, 188 N.J. 577 (2006). The Supreme Court has directed the courts to accord great respect to the Director s application of tax statutes, so long as it is not plainly unreasonable. Metromedia, supra, 97 N.J. at 327. See also GE Solid State, Inc. v. Director, Div. of Taxation, 132 N.J. 298, 306 (1993) ( Generally, courts accord substantial deference to the interpretation an agency gives to a statute that the agency is charged with enforcing. )

In addition, the Appellate Division has instructed this court to construe the statutes defining eligibility for homestead rebates narrowly. MacMillan v. Director, Div. of Taxation, 180 N.J. Super. 175, 178 (App. Div. 1981), aff d, 89 N.J. 216 (1982). [T]ax preference provisions are strictly construed against those claiming exemption. This is so with regard to local property taxes. It is also true with respect to state taxes. Ibid. (citations omitted). Where the homestead rebate statute is outspoken and unambiguous its terms must be strictly applied. Id. at 179. Accord Fedders Fin. Corp. v. Director, Div. of Taxation, 96 N.J. 376, 384-86 (1984); Vavoulakis v. Director, Div. of Taxation, 12 N.J. Tax 318, 329 (1992) , aff d o.b., 13 N.J. Tax 322 (App. Div. 1993).

In 1975, our Constitution was amended to authorize the enactment of laws to allow homeowners and residential tenants a rebate or a credit of a sum of money related to property taxes paid by or allocable to them at such rates and subject to such limits as may be provided by law. N.J. Const. (1947) Art. VIII, 1, par. 5. Since that time, the Legislature has enacted a series of homestead rebate programs for resident homeowners and tenants. Vavoulakis v. Director, Div. of Taxation, supra, 12 N.J. Tax at 323-24. Although the programs have had various names and eligibility requirements, the purpose of the programs has consistently been the beneficent purpose of alleviating the heavy realty tax burden. Rubin v. Glaser, 83 N.J. 299, 307, app. dis., 449 U.S. 977, 101 S. Ct. 389, 66 L. Ed. 2d 239 (1980).

As noted above, a homestead property tax reimbursement is available to older and disabled taxpayers who have resided in the State and paid local property taxes for long periods of time. There is no question that plaintiffs meet all of the criteria for reimbursements for tax years 2009 and 2010, apart from the income criterion.

As noted above, in N.J.S.A. 54:4-8.67, the Legislature provided that an eligible claimant for a homestead property tax reimbursement is someone who has an annual income of . . . $70,000 or less in tax year 2008, or $80,000 or less in tax year 2009 . . . . The statute does not contain a specific income eligibility limit for tax year 2010. The Director has interpreted the statute to include an $80,000 income limit for 2010. There is no dispute that plaintiffs meet the income eligibility requirement for tax years 2009 and 2010. The Director recognizes that plaintiffs qualified for the program for both tax years and retained the base year that they previously established. The Legislature, however, did not appropriate funds to pay reimbursements to plaintiffs or any other taxpayers who are eligible for the program for tax years 2009 and 2010, but who had income of more than $70,000 in those tax years.

The mere fact that plaintiffs fulfill the eligibility criteria for the program does not entitle plaintiffs to a reimbursement. It is a fundamental tenet of New Jersey law that money may not be withdrawn from the State treasury in the absence of a legally enacted appropriation authorizing the expenditure. As Justice Handler explained in City of Camden v. Byrne, 82 N.J. 133, 146 (1980), the prohibition on the expenditure of State funds that are not included in the annual Appropriations Act is the center beam of the State s fiscal structure. This is true even if a statute enacted independently from the Appropriations Act appears to dedicate revenue to a particular recipient or class of recipients.

In Camden v. Byrne, several municipalities and counties challenged the failure of the Governor and Legislature to appropriate and expend state revenues pursuant to various statutes which purported to dedicate State revenues for local government uses. At issue, among other laws, were several tax statutes which allotted a percentage of the revenue collected by the State under the statutes as aid to municipalities for general municipal purposes. Id. at 142. The funds had been appropriated to municipalities for many years and the municipalities had planned their budgets based on the expectation that the funds would again be appropriated in fiscal year 1975. Ibid. The Governor and Legislature, however, enacted an Appropriations Act for fiscal year 1975 that did not include an appropriation to the municipalities of any of the revenue raised by the relevant tax statutes. All of the taxes raised by the statutes were allocated to the State. In a subsequently filed suit, the municipalities sought to compel the appropriation of the funds they anticipated receiving based on the express language of the tax statutes allotting a percentage of the taxes raised to municipalities. Id. at 143.

The Supreme Court began its analysis with Article VIII, Section II, paragraph 2 of the State Constitution. That provision states:

No money shall be drawn from the State treasury but for appropriations made by law. All moneys for the support of the State government and for all other State purposes as far as can be ascertained or reasonably foreseen, shall be provided for in one general appropriation law covering one and the same fiscal year.

[N.J. Const. art. VIII, 2, par. 2.]

The Court held that [t]here cannot be the slightest doubt that the above-quoted provision of our Constitution firmly interdicts the expenditure of state monies through separate statutes not otherwise related to or integrated with the general appropriation act governing the state budget for a given fiscal year. Id. at 146. This is so even if a statute purports to dedicate funds to a particular purpose or vests in an intended recipient a substantive right to State funds. Id. at 148.

Noting that the power and authority to appropriate funds lies solely and exclusively with the legislative branch of government, ibid., the Court held that the Legislature and Governor have the constitutional prerogative to establish the State s fiscal policy and to determine how the State s revenue will be expended each fiscal year. This power includes the ability not to appropriate funds for programs and benefits established by law, even where an intended recipient reasonably anticipated receipt of those funds. The import of this holding is fatal to plaintiffs claims: There can be no redress in the courts to overcome either the Legislature s action or refusal to take action pursuant to its constitutional power over state appropriations. Id. at 149.

Here, it is readily apparent that the Legislature and Governor made an intentional and advertent decision when they elected to limit the appropriation for homestead property tax reimbursements for tax years 2009 and 2010 to those instances in which a taxpayer had income of less than $70,000. The relevant Appropriations Acts contain express language limiting the appropriations for the reimbursement program in this fashion. Fiscal restraints, policy considerations or both lead to the decision to trim the amount of State funds that would be used for the reimbursement program in fiscal years 2011 and 2012. It would have been within the constitutional prerogative of the legislative branches to appropriate no funds for the reimbursement program had they elected to do so. Placing a $70,000 income cap on the funding of the program was within their power as well. This court does not have the authority to second guess the fiscal decisions of the elected branches of government, who alone have the power and responsibility to raise revenue and expend State funds for the operation of government.

The fact that plaintiffs reasonably anticipated that the State would fund reimbursements for taxpayers who had income of less than $80,000 in 2009 and 2010 does not change the result here. Like the municipalities in Camden v. Byrne, plaintiffs are intended recipients of State revenue based on the express language of a statute. Any right that they have to receive that revenue, however, is predicated on a duly enacted appropriation contained in an annual Appropriations Act. Plaintiffs cannot demand that the State fully fund a tax benefit provided in a statute if the Legislature and Governor determine through the enactment of an Appropriations Act that fiscal restraints do not permit funds to be expended in a particular fiscal year. Plaintiffs expectations simply were not met.

Nor is the court swayed by plaintiffs reliance on the instructions that accompanied their reimbursement applications. The instructions were not erroneous. The instructions, in effect, state that taxpayers who had income of less than $80,000 in 2009 and 2010 are eligible for a reimbursement. This statement is true. Plaintiffs had income of less than $80,000 in each of the relevant tax years and, as a result, are eligible for a reimbursement in each of those years. The Director does not dispute this fact and conceded that plaintiffs satisfied the criteria for participation in the program and have maintained their base year. Although eligible for a reimbursement, plaintiffs are within the class of eligible taxpayers for whom an appropriation for a reimbursement was not made. The Legislature and Governor elected not to use State revenue in fiscal years 2011 and 2012 to pay for reimbursements for taxpayers, like plaintiffs, who had income of more than $70,000. The same is true with respect to the various issues of the State Tax News upon which plaintiffs rely. Those publications accurately report the $80,000 income criterion, and do not indicate that an appropriation to fund the reimbursement is guaranteed to be enacted by the elected branches of government.2

The Director s final determinations are in accord with controlling law. No appropriation has been enacted to award plaintiffs a homestead property tax reimbursement for tax years 2009 and 2010. The court will enter Judgment affirming the Director s final determinations.

Very truly yours,

Patrick DeAlmeida, P.J.T.C.

1 The Division initially issued a final determination dated June 22, 2011 addressed to plaintiffs, but which began with the phrase Dear Mr. & Mrs. Rubin. The June 22, 2011 final determination referred to the fiscal year 2011 Appropriations Act, which was enacted on June 29, 2011, seven days after3 June 22, 2011. In addition, the June 22, 2011 final determination was contained in envelope postmarked July 23, 2011, more than a month after June 22, 2011. It is not clear what was intended by the June 22, 2011 final determination, but it appears the date and the reference to Mr. and Mrs. Rubin are typographical errors. The Director relies on the August 8, 2011 final determination as the resolution of plaintiffs administrative appeal.

2 This is not to suggest that plaintiffs would prevail if the instructions or State Tax News were interpreted to indicate that taxpayers with less than $80,000 in income in 2009 and 2010 were entitled to receive a reimbursement. As noted above, a statutory entitlement to receive State revenue is subject to the annual appropriations process. Surely then, instructions or publications from a State agency purporting to guarantee the receipt of State revenue are subject to the same limitation.