McCarter & English v. Director, Division of Taxation

TAX COURT OF NEW JERSEY

153 Halsey Street, 12th Floor

Hon. Mary Siobhan Brennan, J.T.C. P.O. Box 47025

JUDGE Newark, New Jersey 07101

(973) 645-4280

Fax: (973) 645-4283

Internet: njcourtsonline.com

April 29, 2014

Revised 4/30/2014 release date added

Michael A. Gruin, Esquire

Stevens & Lee

17 North Second Street, 16th Floor

Harrisburg, PA 17101

Jill C. McNally, Esquire

Deputy Attorney General

R.J. Hughes Justice Complex

25 Market Street

P.O. Box 106

Trenton, NJ 08625

Re: McCarter & English v. Director, Division of Taxation

Docket No.: 000541-2013

Dear Counsel:

This letter constitutes the court s opinion with respect to the parties cross-motions for summary judgment. The questions before the court are 1) whether the one year statute of limitations under the Urban Enterprise Zone ( UEZ ) tax exemption of N.J.S.A. 52:27H-79 applies and, if so, 2) whether a Consent Fixing Period of Assessment of New Jersey Taxes ( Consent ) retroactively applies to already expired periods. The Director, Division of Taxation ( Director ) denied Plaintiff s refund claim, in part, due to untimely filing and found that the Consent did not revive Plaintiff s untimely refund claims.

For the reasons explained more fully below, the court concludes that Plaintiff is not entitled to any further refund of Sales Tax for the period of January 1, 2008 through March 31, 2012. Additionally, the court concludes that the Consent did not extend the statute of limitation on periods that had expired prior to the executed Consent. As a result, the court denies Plaintiff s motion for summary judgment, grants the Director s cross-motion for summary judgment, and dismisses Plaintiff s complaint. The court will enter Judgment denying Plaintiff s UEZ refund claim to recover sales and use taxes paid during the period of January 1, 2008 through March 31, 2012.

I. Findings of Fact and Procedural History

The following findings of fact are based on the certifications, the joint stipulation of facts, and exhibits submitted by the parties with respect to plaintiff s motion. R. 1:7-4.1

Plaintiff, McCarter & English, LLP ( McCarter ), is a New Jersey Limited Liability Partnership. At all relevant times, McCarter was a qualified UEZ business.

In March 2012 the Director initiated a sales and use tax audit of McCarter covering the period from January 1, 2008 through December 31, 2011. In connection with the audit, McCarter executed a Consent on April 13, 2012. This Consent extended the deadline for the Director to issue an assessment of sales and use taxes against McCarter for the audit period until January 31, 2013. When the Consent was executed, periods of McCarter s refund claim had already tolled. On June 9, 2012 McCarter filed a sales and use tax refund claim, seeking a refund of taxes paid on its claimed UEZ purchases.2 By letter dated December 7, 2012, the Director granted McCarter a portion of the refund claim and denied the remainder of the claim, in part, on the grounds that it was outside of the one year statute of limitation.3 McCarter then timely filed a Complaint with the Tax Court, which the Director timely answered.4

II. Conclusions of Law

Summary judgment should be granted where 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. R. 4:46-2(c). In Brill v. Guardian Life Ins. Co., 142 N.J. 520, 523 (1995), our Supreme Court established the standard for summary judgment as follows:

[W]hen deciding a motion for summary judgment under Rule 4:46-2, the determination 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 fact finder to resolve the alleged disputed issue in favor of the non-moving party.

The express import of the Brill decision was to encourage trial courts not to refrain from granting summary judgment when the proper circumstances present themselves. Township of Howell v. Monmouth County Bd. of Taxation, 18 N.J. Tax 149, 153 (Tax 1999)(quoting Brill, supra, 142 N.J. at 541). This court concludes that the present matter is ripe for decision by summary judgment. There are no genuine issues of material fact in dispute between the parties on the procedural elements of McCarter s refund claim for the relevant tax period.

A. UEZ Statute of Limitations

The UEZ Act provides various economic benefits to businesses located in designated urban enterprise zones. One of the primary benefits of the UEZ Act is a broad exemption from sales and use tax for businesses located in the designated UEZ zones. N.J.S.A. 52:27H-79 establishes the UEZ sales tax exemption. Prior to April 1, 2011, subsection (a) read:

Retail sales of personal property (except motor vehicles and energy) and sales of services (except telecommunications and utility services) to a qualified business for the exclusive use or consumption of such business within an enterprise zone are exempt from the taxes imposed under the Sales and Use Tax Act, P.L.1966, c.30.(C.54:32B-1 et seq.).

The UEZ was amended effective April 1, 2011 and subsection (a) of N.J.S.A. 52:27H-79 now reads:

Receipts from retail sales of tangible personal property (except motor vehicles and energy) and sales of services (except telecommunications services and utility services to a qualified business for the exclusive use or consumption of such business within an enterprise zone are exempt from the taxes imposed under the Sales and Use Tax Act, P.L.1966, c.30.

(C.54:32B-1 et seq.).

Prior to April 1, 2011, former subsection (b) of N.J.S.A. 52:27H-79 read as follows:

Notwithstanding the provisions of subsection a. of this section, the seller shall charge and collect from a purchaser that is not a small qualified business the tax at the rate then in effect, and the tax shall be refunded to the purchaser by the filing, within one year following the date of sale, of a claim with the New Jersey Division of Taxation for a refund of sales and use taxes paid for the goods and materials. Proof of claim for refund shall be made by the submission of auditable receipts and such other documentation as the Director of the Division of Taxation may require.

As of April 1, 2011subsection (e) replaced the former subsection (b). N.J.S.A. 52:27H-79(e) now reads:

Notwithstanding the provisions of section 20 of P.L.1966, c30 (C.54:32B-20) and the provisions of R.S.54:49-14, the Director of the Division of Taxation in the Department of the Treasury shall refund to a person who is a qualified business the amount of any sales tax or any use tax paid by the person in connection with that person s purchase of tangible personal property or services that is exempt, pursuant to subsection a. of this section, from the taxes imposed by P.L.1966, c.30 (C.54:32B-1 et seq.) if the person who is a qualified business makes and files a claim for refund with the director within one year of the date the payment of tax for purchase is made.

McCarter argues that the statute does not state that a taxpayer loses the benefit of the exemption if it does not file a refund claim within one year. Further, McCarter contends that former subsection (b) and current subsection (e) simply state that the Director must refund the tax when a UEZ taxpayer timely files a refund claim within one year of the purchase of UEZ exempt items. Additionally, McCarter argues that interpreting the UEZ s one year provision in a way that would bar the taxpayer from the exemption after one year contradicts the New Jersey Sales and Use Tax Act ( SUTA ) as well as the New Jersey State Uniform Tax Procedure Act ( SUTPA ).

SUTA explains that a taxpayer may file a refund claim of sales tax within four years of the payment of the tax, unless the law imposing the tax fixes a shorter limit. McCarter admits that the UEZ Act created the sales tax exemption but contends that it is not the law imposing the tax. It argues that SUTA is the law imposing the tax and therefore the four year statute of limitation found in SUTA applies rather than the one year period set forth in the UEZ exemption statute.

The Director maintains that the plain language of the statute controls and that the UEZ law requires the qualifying business to pay the sales tax at the time of the sale and then file a refund claim within one year of the payment of the tax.

Non-compliance with a statute of limitation renders otherwise qualified claimants ineligible to obtain the statutory benefits. This court has long established that

[W]hen the Legislature does provide for refunds there must be strict compliance with its direction. Strict adherence to statutory requirements is mandated in tax matters because they involve the exigencies of taxation and the administration of government . . . . [O]ne who does not or cannot comply with the well-defined requisites or procedures has no right to a refund.

Great Adventure, Inc. v. Director, Div. of Taxation, 9 N.J. Tax 480, 484-85, 489 (Tax 1988).

This court will not deviate from such well-established application of the statute of limitation. The one year statutory requirement of the UEZ calls for a quid-pro-quo, whereby qualified businesses must pay the sales tax at the time of the sale and must then file a claim for refund within one year of the payment of the tax in order to reap the benefits of the UEZ law. This interpretation of the plain meaning of the statutory language is consistent with principle of strictly construing the statute of limitation in tax cases because of the necessity of predictability and certainty of governmental budgets and revenues. N.J. Transit Corp. v Borough of Somerville, 139 N.J. 582, 590 (1995) (citations omitted).

B. Applicability of Consent

Having found that the one year statute of limitation of the UEZ statute applies, it is necessary to determine whether McCarter s filing of the refund claim was within the one year limit. Given that McCarter filed the claim for refund on June 9, 2012, only sales and use tax paid on purchases made after June 9, 2011 would be eligible for a refund. With regard to sales and use tax paid on purchases made prior to June 9, 2011, the question becomes whether the April 13, 2012 Consent also acts to extend refund claims related to the previously expired periods.

McCarter argues that an assessment extension agreement also extends a taxpayer s refund claim rights for the same period. McCarter points to SUTA at N.J.S.A. 54:32B-27 as well as the Director s regulation of N.J.A.C. 18:2-5.7, which both state that sales or use tax refund claims may be filed up to six months after the last date by which the parties agree that any assessment of sales or use tax may be made. Thus, McCarter contends that the deadline to file a UEZ tax refund claim for purchases made during the audit period (January 1, 2008 through December 31, 2011) was extended to July 31, 2013. If so, McCarter s June 9, 2012 filing of the refund claim would be timely.

The Director contends that the Consent does not apply to UEZ refund periods that expired prior to the execution of the Consent. See N.J.S.A. 54:49-14(a); N.J.S.A. 54:49-6(b); N.J.S.A. 54:32B-27. The Director bolsters its position by reference to N.J.A.C. 18:2-5.7(a), which states:

If a taxpayer and the Division sign an agreement to extend the time during which an assessment can be made, the taxpayer's refund application period is automatically extended until the last date by which the parties agree that any assessment of New Jersey taxes must be made. The refund application period only applies to the particular taxes and periods expressly included in the extensionagreement. A taxpayer's opportunity to apply for a refund under such an agreement is extended to and includes the last date by which the parties agree that any assessment of New Jersey taxes must be made. An extensionagreementwill not receive refund application rights which expired prior to the agreement's execution.

The Director s application of N.J.A.C. 18:2-5.7(a) is proper. The Consent does not revive refund rights that expired prior to the execution of the Consent.

Having determined that the one year statute of limitations of the UEZ Act applies and that the Consent does not extend to already expired refund application rights, the court denies the taxpayer s motion for summary judgment and grants the Director s cross-motion for summary judgment. The court will enter Judgment denying Plaintiff s refund claim to recover additional taxes paid beyond the one year statute of limitations period and dismissing Plaintiff s complaint.

_______________________________

Hon. Mary Siobhan Brennan, J.T.C.

1 The joint stipulation of facts received by the Tax Court of NJ on January 31, 2014 is only signed by Attorney for Plaintiff, Michael A. Gruin, Esq.

2 McCarter s refund claim sought a refund of $413,241.89 in sales and use taxes paid during the audit period and the three months following this period (January 1, 2008 through March 31, 2012).

3 The Director granted Plaintiff a portion of the refund claim in the amount of $9,610.86 and denied the remainder of the claim in the amount of $403,631.03.

4 McCarter filed its Complaint with the Tax Court on March 7, 2013.

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