Linda M. Harrington, et al v. Director, Division of Taxation (9 complaints)

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NOT FOR PUBLICATION WITHOUT APPROVAL OF THE TAX COURT COMMITTEE ON OPINIONS TAX COURT OF NEW JERSEY Patrick DeAlmeida Presiding Judge R.J. Hughes Justice Complex P.O. Box 975 Trenton, New Jersey 08625-0975 (609) 292-8108 Fax: (609) 984-0805 February 22, 2016 William D. Grand, Esq. Steven B. Gladis, Esq. Greenbaum, Rowe, Smith & Davis, LLP 99 Wood Avenue South Iselin, New Jersey 08830-2712 Heather Lynn Anderson Deputy Attorney General Division of Law R.J. Hughes Justice Complex P.O. Box 106 Trenton, New Jersey 08625-0106 Re: Linda M. Harrington, et al. v. Director, Division of Taxation, et al. Docket No. 009529-2011 Docket No. 000622-2011 Docket No. 007022-2011 Docket No. 007023-2011 Docket No. 007024-2011 Docket No. 007025-2011 Docket No. 007027-2011 Docket No. 007052-2011 Dear Counsel: This letter constitutes the court’s opinion with respect to the motion on short notice of nonparty State of New Jersey, Office of Legislative Services (“OLS”) pursuant to R. 1:9-2 to quash a Subpoena Duces Tecum and Ad Testificandum served by plaintiffs on Martin Poethke, an OLS employee. OLS argues that the subpoena seeks information protected from disclosure by N.J.S.A. 52:11-70. For the reasons stated more fully below, the motion is denied. I. Findings of Fact and Procedural History The following findings of fact are based on the pleadings and the submissions with respect to the motion of OLS. In each of the above-listed matters plaintiffs challenge assessments by the Director, Division of Taxation of gross income tax on plaintiffs’ New Jersey lottery winnings. At the heart of plaintiffs’ claims is a challenge to the Director’s interpretation of an amendment to N.J.S.A. 54A:6-11. Prior to 2009, New Jersey lottery winnings were not included in taxable gross income. On June 30, 2009, N.J.S.A. 54A:6-11 was amended to include in taxable gross income lottery winnings “from a prize in an amount exceeding $10,000.” In addition, and crucial to plaintiffs’ claims, the amendment, although enacted on June 30, 2009, applies “to taxable years beginning on or after January 1, 2009.” L. 2009, c. 69, §5. Plaintiffs claim, in part, that the amendment to N.J.S.A. 54A:6-11 does not apply to New Jersey lottery prizes awarded between January 1, 2009 and June 30, 2009. In addition, plaintiffs allege that the retroactive application of the amendment of N.J.S.A. 54A:6-11 to such prizes would be manifestly unjust and, therefore, invalid. See Oberhand v. Director, Div. of Taxation, 193 N.J. 558 (2008). During discovery, plaintiffs’ counsel located on the New Jersey Legislature’s public website a Fiscal Note prepared by OLS to accompany A4102, the bill which ultimately was enacted as the amendment to N.J.S.A. 54A:6-11. In addition to the lottery prize amendment, A4102 included other amendments to the New Jersey Gross Income Tax Act designed to raise revenue. 2 The Fiscal Note includes an estimate that A4102, if enacted “would increase State gross income tax revenues by $1,011,000,000 in Fiscal Year 2010,” including “$8 million from the application of the gross income tax to certain lottery prize winnings, which will recur annually.” The Fiscal Note indicates that it was prepared by OLS pursuant to L. 1980, c. 67 (C. 52:13B-1, et seq.). The OLS is an agency of the Legislature established “to aid and assist the Legislature in performing its functions . . . .” N.J.S.A. 52:11-55. Among its statutory objectives, the OLS is to “[p]rovide upon request, legal, fiscal, research, information and administrative services and assistance for the Legislature, its officers, committees, commissions, members and staff.” N.J.S.A. 52:11-58(b)(1). Fiscal Notes, of the type at issue here, are authorized by N.J.S.A. 52:13B-1, et seq. The controlling statute provides that [w]henever any bill is introduced in either the Senate or General Assembly . . . the bill shall be immediately reviewed by the Legislative Budget and Finance Officer in the Office of Legislative Services. If, upon that review, the Legislative Budget and Finance Officer determines that the bill may increase or decrease expenditures or increase or decrease revenues of the State . . . the Officer shall immediately forward a request for a fiscal note to the Director of the Division of Budget and Accounting in the Department of the Treasury. [N.J.S.A. 52:13B-6.] The Director of the Division of Budget and Accounting thereafter forwards the request for a Fiscal Note to the agency required to carry out the purposes of the bill, if enacted. N.J.S.A. 52:13B-7(a). The appropriate agency within 20 business days prepares and returns to the Director of the Division of Budget and Accounting a Fiscal Note “containing the most accurate estimate possible, in dollars, concerning the amount by which expenditures or revenues will be increased or decreased for the State . . . .” N.J.S.A. 52:13B-7(b). Within 5 business days after receiving the Fiscal Note, 3 the Director of the Division of Budget and Accounting returns the Fiscal Note to the Legislative Budget and Finance Officer of the OLS with his or her notes regarding the accuracy of the Fiscal Note. Ibid. The Legislative Budget and Finance Officer then adds his own comments with respect to the accuracy of the Fiscal Note. N.J.S.A. 52:13B-8. When the Legislative and Finance Officer has a complete Fiscal Note, he or she transmits the Fiscal Note to the first-listed sponsor of the relevant bill, who may object to the Fiscal Note. N.J.S.A. 52:13B-10. After three days, the Legislative and Finance Officer “shall cause the fiscal note . . . to be printed and promptly made available through the Office of Legislative Services to all members of the Legislature and to the general public.” N.J.S.A. 52:13B-11. The Legislature’s intention that Fiscal Notes prepared by the OLS be available to the public is underscored by N.J.S.A. 52:11-78 (a)(2). That statute provides as follows: a. The Office of Legislative Services shall make available to the public and maintain in electronic form the following information: * * * (2) the text of all bills introduced during the current two-year session of the Legislature, including amended versions, as well as sponsor statements, committee statements, and fiscal notes . . . [N.J.S.A. 52:11-78(a)(2)(emphasis added).] On January 14, 2016, plaintiffs’ counsel served a Subpoena Duces Tecum and Ad Testificandum on Martin Poethke, an OLS employee who is identified in the Fiscal Note as the Lead Fiscal Analysis who prepared the Fiscal Note. The Subpoena seeks Mr. Poethke’s testimony and the production of the following documents in the possession of the OLS: 1. Documents that evidence the types of taxes or tax increases that were available in 2009 pursuant to New Jersey taxation statutes to raise money for the State to meet the State’s fiscal needs. 4 2. All documents related to the preparation of and content of the Fiscal Note dated June 30, 2009, a copy of which is attached hereto. According to plaintiffs’ counsel, a primary objective of the Subpoena is to identify how the $8 million estimate in the Fiscal Note related to lottery winnings was calculated. Plaintiffs hope to determine if Mr. Poethke included in his estimate revenue from gross income tax on lottery winnings from prizes awarded between January 1, 2009 and June 30, 2009. In addition, plaintiffs seek information relating to other potential sources of tax revenue available at the time that A4102 was enacted. The deposition of Mr. Poethke pursuant to the Subpoena, originally scheduled for February 4, 2016, was adjourned with plaintiffs’ consent to Wednesday, February 24, 2016. On Friday, February 19, 2016, the OLS moved, on short notice, pursuant to R. 1:9-2 to quash the Subpoena in its entirety. The motion papers included a return date of February 24, 2016, the date scheduled for the deposition, just three business days after the motion was filed. After receipt of the OLS moving papers, the court, on February 19, 2016, held a telephone conference with counsel for plaintiffs and counsel for the OLS. The court’s intention was to secure plaintiffs’ consent to adjourn Mr. Poethke’s deposition to allow the court to issue a reasonable schedule for briefing on the motion. Plaintiffs’ counsel reminded the court of a previously scheduled, and fast approaching, deadline for submission of plaintiffs’ summary judgment motion and declined to consent to adjourn the deposition. Plaintiffs’ counsel instead offered to state his arguments in opposition to the motion during the conference call and have the court decide the motion prior to the February 24, 2016 deposition without written opposition from plaintiffs. 5 Counsel for the OLS consented to this approach. The court agreed to plaintiff’s suggestion and heard oral argument from both attorneys during the February 19, 2016 telephone conference. On Monday, February 22, 2016, the court held a second telephone conference with counsel for plaintiffs, the OLS, and both the Director, Division of Taxation and the Director, Division of State Lottery. An attorney representing taxpayers in similar, but unconsolidated, matters also participated in the February 22, 2016 telephone conference. II. Conclusions of Law Plaintiffs served the Subpoena on Mr. Poethke pursuant to R. 4:14-7 seeking information plaintiffs believe to be within the scope of discovery. A party “may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action,” R. 4:10-2(a), or which “is reasonably calculated to lead to the discovery of admissible evidence.” In re: Liquidation of Integrity Ins. Co., 165 N.J. 75, 82 (2000). There shall be a substantial liberality in the granting of discovery in New Jersey courts. Shanley & Fisher, P.C. v. Sisselman, 215 N.J. Super. 200, 215-216 (App. Div. 1987). This court has the discretion to determine the scope and manner of discovery between the parties. Payton v. New Jersey Turnpike Auth., 148 N.J. 524, 559 (1997). A central issue before the court in each of these matters is whether the June 30, 2009 amendment to N.J.S.A. 54A:6-11 was intended by the Legislature to apply to New Jersey lottery winnings from prizes awarded between January 1, 2009 and June 30, 2009. Plaintiffs seek to depose Mr. Poethke, a government official who, pursuant to his statutory authority, prepared an estimate of anticipated revenue from the amendment to N.J.S.A. 54A:6-11. Mr. Poethke’s fiscal estimate was distributed to the members of the Legislature for their review while considering 6 whether to enact the amendment. In addition, the fiscal estimate, in the form of a Fiscal Note, was made available to the public at that time, as is required by statute. Plaintiffs intend to ask Mr. Poethke how he calculated the estimated revenue from gross income taxes assessed on New Jersey lottery winnings as a result of the amendment, and whether he included in his estimate taxes from lottery winnings of the type won by plaintiffs. In addition, plaintiffs seek documents supporting the estimate and information relating to other potential sources of tax revenue to the State at the time that the amendment to N.J.S.A. 54A:6-11 was enacted. All of this information is quite plainly within the scope of discovery, as it is directly relevant to the subject matter of these actions and reasonably calculated to lead to the discovery of admissible evidence. The OLS contends that the information sought by plaintiffs, while within the scope of permissible discovery, is protected from disclosure by statute. Rule 1:9-2 permits the court “on motion made promptly [to] quash or modify the subpoena . . . if compliance would be unreasonable or oppressive . . . .” This rule allows the court to quash a Subpoena on the grounds of statutory privilege. In re: Grand Jury Proceedings of Guarino, 104 N.J. 218 (1986). In support of its argument, OLS relies on N.J.S.A. 52:11-70. That statute provides: All request for legal assistance, information or advice and all information received by the Office of Legislative Services in connection with any request for fiscal, budgetary or research service or for the drafting or redrafting of bills, resolutions or amendments thereof for introduction in the Legislature shall be regarded as confidential and no information in respect thereto shall be given to the public or to any person other than the person or persons making such request or any officer or person duly authorized to have such information, unless and until the person making such request consents thereto or the subject matter shall have been made public is some manner. [N.J.S.A. 52:11-70.] 7 The record contains ample convincing evidence that the information sought by plaintiffs is not protected from disclosure by N.J.S.A. 52:11-70. It is quite plain that the Fiscal Note prepared by Mr. Poethke has “been made public in some manner.” The Fiscal Note was, pursuant to a statutory directive, made available for public review by the OLS. A review of the Legislature’s public website, www.njleg.state.nj.us, today by the court revealed that Mr. Poethke’s Fiscal Note is available for inspection, downloading and printing by the public. Thus, to the extent that the Fiscal Note can be considered a “request for . . . information or advice” or “information received by the [OLS] in connection with any request for fiscal, budgetary or research service or for the drafting or redrafting of bills, resolutions or amendments thereof for introduction in the Legislature,” N.J.S.A. 52:11-70, the Fiscal Note is not confidential because of its public disclosure. In addition, nothing in N.J.S.A. 52:11-70 renders confidential the method used by Mr. Poethke to calculate the estimated revenue increase he predicted from income taxes on New Jersey lottery winnings as a result of the amendment to N.J.S.A. 54A:6-11. The OLS, through Mr. Poethke, fulfilled its statutory obligation to distribute to the public an estimated fiscal impact from a bill pending before the Legislature. The public is entitled to rely on that estimate to determine whether to support enactment of the bill, to evaluate the decision of the Legislature to amend N.J.S.A. 54A:6-11, to explore the basis of Mr. Poethke’s estimate, and, as is the case here, to prosecute judicial challenges to how the amendment to N.J.S.A. 54A:6-11 is interpreted and applied by the Director, Division of Taxation. The court also finds no basis to quash plaintiffs’ demand that Mr. Poethke provide testimony and documents in his possession or control regarding other potential sources of tax revenue available at the time that the amendment to N.J.S.A. 54A:6-11 was enacted. The request 8 is broad and of limited relevance. The selection among various potential sources of tax revenue is a prerogative of the elected branches of government. The Legislature and Governor are solely responsible for developing public policy, including the State’s fiscal policies. To the extent that the elected branches selected the taxation of certain New Jersey lottery winnings over other potential sources of revenue, that election would be insulated from judicial review. It also seems unlikely that a legislative decision to forgo particular potential sources of tax revenue in favor of generating gross income tax from certain New Jersey lottery winning would be of little, if any, use to the court in determining whether the Director, Division of Taxation’s interpretation and application of the amendment to N.J.S.A. 54A:6-11 comports with legislative intent. Still, the scope of discovery is broad. Plaintiffs will be permitted to explore the extent of Mr. Poethke’s knowledge of alternative sources of tax revenue available at the time that A4102 was considered by the Legislature. Very truly yours, Patrick DeAlmeida, P.J.T.C. cc: DAG Ramanjit K. Chawla DAG Thu Lamb 9

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