Opinion
Docket No: 019582-2012
2013-10-16
RE: K S v. Director, Division of Taxation
K S Pro Se Richard Del Monaco Deputy Attorney General Division of Law R.J. Hughes Justice Complex
JUDGE
K S Pro Se Richard Del Monaco
Deputy Attorney General
Division of Law
R.J. Hughes Justice Complex
Dear Counsel:
This letter constitutes the court's opinion with respect to the summary judgment motion brought by the Director of the Division of Taxation ("Director"). In the complaint filed in this matter, K S ("plaintiff") challenges the Director's assessment of excise tax and sales and use tax under the Cigarette Tax Act (N.J.S.A. 54:40A-1) and the Sales And Use Tax Act (N.J.S.A. 54:32B-1) for cigarette purchases she made from an out-of-state vendor. For the reasons set forth below, the Director's motion for summary judgment is granted and the assessment is affirmed.
FINDINGS OF FACT AND PROCEDURAL HISTORY
The court makes the following findings of fact based on plaintiff's submissions to the court, certifications submitted by the Director, including plaintiff's answers to interrogatories, and the parties' oral argument on the motion.
The parties do not dispute that, between June 2006 and June 2009, plaintiff purchased cartons of cigarettes from Smoker's Den, an out-of-state mail order cigarette vendor ("Smoker's Den" or "vendor"). The cigarettes were delivered to her home in New Jersey for consumption by plaintiff and her mother. Plaintiff did not pay cigarette excise tax or sales and use tax when she bought the cigarettes.
During the years at issue, the federal Jenkins Act (15 U.S.C. § 375 et seq.) required any person or entity shipping cigarettes in interstate commerce to file a monthly report with the tax administrator of the State into which cigarettes were sent specifying "the name and address of the person to whom the shipment was made, the brand, [and] the quantity thereof." 15 U.S.C. § 376(a)(2). Accordingly, Smoker's Den submitted monthly reports ("vendor's reports") to the Director containing the name of each New Jersey customer who bought cigarettes from the vendor during the previous month, his or her shipping address, the shipment date by month and year, and the brand and quantity of cigarettes purchased. The reports chronicle plaintiff's cigarette purchases. The reports list plaintiff as the customer and plaintiff's New Jersey address as the address to which the cigarettes were shipped, and they relate the quantity and brand of cigarettes plaintiff purchased.
The Director supplied redacted copies of the Smoker's Den vendor reports which outlined the cigarette sales to plaintiff in response to the court's inquiry at oral argument.
On October 31, 2011, the Division sent plaintiff a letter advising plaintiff she purchased cigarettes from the Smoker's Den in the total amount of $2,887.55 and was liable for cigarette excise tax in the amount of $3,445.25 and sales and use tax in the amount of $201.48. A corresponding report prepared by the Division entitled "Cigarette Order Detail" accompanied the letter. According to the letter, interest and penalties would be assessed if plaintiff failed to pay the total tax amount due, and plaintiff was advised she could take advantage of a deferred payment plan if she met certain requirements. The letter also provided plaintiff with the following information: "If you disagree with the prices indicated and do not submit both the revised Cigarette Order Detail and the supporting documentation, the Sales and Use tax assessment for that order will not change. The Excise Tax Portion of your assessment, $3,445.25, will not change as a result of a change in price paid per carton. The Excise Tax is based on the quantity of cartons purchased, not the price paid."
The Jenkins Act (15 U.S.C. § 375 et seq.) did not require vendors to disclose to the State the price customers paid for cigarettes. As denoted on the Division's Cigarette Detail Report, the Division used Smoker's Den's website to determine the price plaintiff paid for her cigarettes. The Division provided to the court printed screen shots of the prices listed on the website. Based on the date stamp on the bottom of each page, the screen shots were taken on September 11, 2007 and November 13, 2007.
Plaintiff did not respond to the October 31, 2011 letter or otherwise provide documentation to dispute the purchases. On July 3, 2012, the Division issued plaintiff a Notice of Assessment, assessing tax in the amount of $3,646.73, late payment penalty in the amount of $182.34, amnesty penalty in the amount of $168.41, and interest calculated through July 20, 2012 in the amount of $1,603.83. The total assessment amount was $5, 601.31.
Following an administrative protest, the Director issued a Final Determination upholding the Notice of Assessment. The Final Determination set out the following amounts owed by plaintiff: tax in the sum of $3,646.73, a late penalty of $182.34, an amnesty penalty of $168.41, and interest calculated through December 31, 2012 in the amount of $1,918.43. The total amount owed by plaintiff was $5,915.91.
A Complaint and Answer were filed by the parties, and after the opportunity for discovery exchange, the Director filed the within motion.
In considering the motion, the court compared the purchases listed on the Director's Cigarette Detail Report with the vendor's reports. The Director's assertion that plaintiff purchased 134 cartons of cigarettes from the vendor is consistent with the information set forth in the vendor reports. Minor discrepancies between the vendor reports and the Division's Cigarette Detail Report exist. The Division's report states plaintiff purchased a total of 134 cartons of cigarettes while the vendor's reports state plaintiff purchased a total of 141 cartons. (Item by item, the vendor reports show purchases of 15 cartons unaccounted for in the Division's report, and the Division's report lists purchases of 6 cartons not included in the vendor's reports.) The Division underestimated the purchases by a total of 5 cartons, on which plaintiff was not assessed either excise tax or sales and use tax. For her part, in her answers to interrogatories plaintiff admitted to purchasing 116 of the 134 cartons assessed by the Division. With respect to the remaining 18 cartons, plaintiff claims she "does not remember" purchasing 4 "Seneca brand" cartons and 8 "Arrow brand" cartons, and she denies purchasing 6 "Ting Mountain brand" cartons.
CONCLUSIONS OF LAW
In deciding the Director's motion, this court is guided by the standard set forth in the seminal case Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520 (1995). That case directs that, when faced with a motion for summary judgment, the court must consider "whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party ... are sufficient to permit a rational fact finder to resolve the alleged disputed issue in favor of the non-moving party." Ibid. at 523. In accordance with R. 4:46-2, which governs motions for summary judgment, "[t]he judgment or order sought shall be rendered forthwith 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."
Upon considering the moving papers and oral argument, the court concludes there are no material facts in dispute, and the matter is appropriately resolved through summary judgment.
Here, the Director assessed cigarette excise tax and sales and use tax against plaintiff pursuant to the relevant statutes. N.J.S.A. 54:40A-1; N.J.S.A. 54:32B-1. Plaintiff argues she should be excused from paying the assessed taxes because she was unaware when she purchased the cigarettes that she would be responsible for the taxes. Moreover, according to plaintiff, she mistakenly thought it was the company's duty to collect tax and remit payment to the State, and she faults the company for failing to inform her of her tax obligations until after she bought the cigarettes. Plaintiff's contentions are without legal support.
In several letters sent to the court, plaintiff relates a conversation between herself and a representative of the vendor during which plaintiff first learned the vendor was not collecting taxes on the cigarette sales, a fact plaintiff claims the company "hid" from her. According to plaintiff, upon learning of the tax discrepancy, she no longer purchased cigarettes from the vendor.
The court's analysis is guided by the presumptive validity of the Director's determinations. See Campo Jersey, Inc. v. Director, Div. of Taxation, 390 N.J. Super. 366, 383 (App. Div. 2007), certif. denied, 190 N.J. 395 (2007). "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 determinations 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. 2006), certif. denied, 188 N.J. 577 (2006). Courts should 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.")(citations omitted).
"When 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). "[C]ourts are not free to substitute their judgment as to the wisdom of a particular administrative action for that of the agency so long as that action is statutorily authorized and not otherwise defective because arbitrary or unreasonable." Sutton Warehousing, Inc. v. Director, Div. of Taxation, 290 N.J. Super. 686, 697 (App. Div. 1996)(quotations omitted). "However, despite that deference, an administrative agency's interpretation will not be followed when the agency extends a statute 'to give it a greater effect than its language permits.'" Oberhand v. Director, Div. of Taxation, 193 N.J. 558, 568 (2008)(quoting GE Solid State, supra, 132 N.J. at 306).
The Cigarette Tax Act imposes tax on the sale, use, or possession for sale or use of cigarettes within the State and prescribes "a method for collection of that tax." Kasot, Inc. v. Director, Div. of Taxation, 24 N.J. Tax 588, 593 (Tax 2009). Tax is imposed "immediately after the cigarettes acquire taxable situs here." Ibid. at 597. Cigarettes acquire taxable situs "when, among other things, they are sold in New Jersey, possessed for sale in New Jersey, stored for sale in New Jersey, or stored for use in New Jersey." Ibid.
Individual taxpayers can purchase stamped or unstamped cigarettes. Taxpayers who buy stamped cigarettes are not required by the Cigarette Tax Act to take any further action because their cigarettes, as indicated by the stamps, have already been taxed. On the other hand, taxpayers who purchase unstamped cigarettes "for consumption, use or storage in this State" must obtain a license, file a report with the Director indicating they are in possession of unstamped cigarettes, and "remit tax together with the report." N.J.S.A. 54:40A-2, -3, -7; see also Kasot, Inc., supra, 24 N.J. Tax at 594. If a taxpayer does not report purchasing unstamped cigarettes and pay tax as required, "the Director may estimate and assess the taxes due from the taxpayer." Kasot, supra, 24 N.J. Tax at 598.
Prior to July 15, 2006, the Cigarette Tax Act imposed tax at a rate of $0.12 for each cigarette sold, used, or possessed for sale or use in the State. N.J.S.A. 54:40A-8. Effective July 15, 2006, the rate increased to $0.12875. Effective July 1, 2009, the rate increased further to $0.135.
Through the Cigarette Tax Act, the State seeks to collect tax revenue that would otherwise be lost when taxpayers buy unstamped cigarettes from out-of-state vendors, who "usually do[] not have enough legal connection with the State to be required to pay and collect taxes." N.J.S.A. 54:40A-46, quoting Senate Budget and Appropriations Committee Statement Assembly No. 1838 (March 14, 2005) (enacted as L. 2005, c. 85). Without the scheme imposed by the statute, cigarettes shipped into the State would remain untaxed. Indeed, the "licensing and reporting requirements are the primary mechanisms for administering and enforcing the tax." Kasot, supra, 24 N.J. Tax at 597. The Jenkins Act, by requiring out-of-state vendors to file reports with the State when they sell cigarettes to New Jersey taxpayers, assists the State in collecting the cigarette excise tax because it ensures the State will learn of relevant cigarette sales even where taxpayers fail to comply with the licensing and reporting requirements set forth in the Cigarette Tax Act.
For all years relevant to this case, the federal statute that set forth the obligations of out-of-state vendors shipping cigarettes in interstate commerce was the Jenkins Act, passed by Congress in 1949. Under the Jenkins Act, out-of-state cigarette vendors were not required to pay state taxes or inform customers of their duty to remit taxes. On March 31, 2010, the Prevent All Cigarette Trafficking Act ("PACT Act") was signed into law, overhauling the Jenkins Act and redefining the responsibilities of cigarette vendors. Under the PACT Act, out-of-state vendors shipping cigarettes in interstate commerce "must collect any taxes that state or local laws require in-state retailers to collect." Gordon v. Holder, 721 F.3d 638, 642 (D.C. Cir. 2013). The PACT Act also requires out-of-state vendors to include on the bill of lading and on the outside of the package the following statement: "CIGARETTES/SMOKELESS TOBACCO: FEDERAL LAW REQUIRES THE PAYMENT OF ALL APPLICABLE EXCISE TAXES, AND COMPLIANCE WITH APPLICABLE LICENSING AND TAX-STAMPING OBLIGATIONS." The statute is "aimed primarily at combating three evils: tobacco sales to minors, [illicit] cigarette trafficking, and circumvention of state taxation requirements." Gordon v. Holder (Gordon I), 632 F.3d 722, 723 (D.C. Cir. 2011).
The Sales and Use Tax Act, as suggested by its name, imposes both a tax on retail sales of tangible personal property as well as a complementary use tax. The use tax is a tax on any tangible personal property "purchased at retail unless that property has been or will be subject to the sales tax." Sogness v. Director, Div. of Taxation, 25 N.J. Tax 355, 359 (Tax 2010). In other words, the use tax is a tax "on the possession and enjoyment of that which was purchased and for which no sales tax was paid." Boardwalk Regency Corp. v. Director, Div. of Taxation, 18 N.J. Tax 328, 334 (App. Div. 1999)(quoting McGraw-Hill Inc. v. Director, Div. of Taxation, 9 N.J. Tax 372, 382 (Tax 1987)). It is worth noting that, "a primary purpose of the [use] tax is to prevent the State from losing revenue when tangible personal property purchased out-of-state and therefore not subject to New Jersey sales tax is nonetheless used here to the same extent as is property purchased here for which New Jersey sales tax is paid." Diamondhead Corp. v. Director, Div. of Taxation, 4 N.J. Tax 255, 258 (Tax 1982).
The Sales and Use Tax Act provides that when a taxpayer makes a purchase and does not pay tax to the seller, the taxpayer must pay tax directly to the Division within twenty days of the purchase. N.J.S.A. 54:32B-14(b). The tax is calculated by multiplying the base price of the merchandise in question by a statutorily defined percentage. Sogness, supra, 25 N.J. Tax at 360.
Prior to July 1, 2006, the statute imposed a 6% tax. After July 1, 2006, the statute imposed a 7% tax.
With respect to the cigarette excise tax, plaintiff acquired unstamped cigarettes for use within the State; accordingly, she was required to obtain a license, report her purchases, and pay the tax. She did not. Plaintiff also failed to remit tax as required by the Sales and Use Tax Act when she purchased untaxed merchandise to be used in the State. As a result, the Director was permitted to estimate and assess both cigarette excise tax and use tax against her. Notably, because plaintiff did not report any of her purchases, the Director could properly assess tax at any time. N.J.S.A. 54:49-6(b), 54:40A-21; 54:32B-27(b).
Plaintiff does not dispute that no tax was paid in connection with the purchases. Rather, her challenge to the assessment is based on the unfairness she perceives in the law; specifically, she argues it is unfair she, rather than the vendor, is held responsible for a tax of which she claims she was unaware. Plaintiff's lack of awareness with respect to her obligations under the Cigarette Tax Act and the Sales and Use Tax Act does not relieve her of her liability to pay the tax under the Acts. She is charged with the knowledge that New Jersey imposes tax on the sale of cigarettes. "Every person is conclusively presumed to know the law; ignorance is no excuse." Schirmer-National Co. v. Director, Div. of Taxation, 17 N.J. Tax 495, 502 (Tax 1998) (citing Graham v. New Jersey Real Estate Comm'n, 217 N.J. Super. 130, 138 (App. Div. 1987)), affd, 19 N.J. Tax 47 (App. Div. 2000).
Moreover, plaintiff acknowledges buying the vast majority of the cartons serving as the basis for the Director's assessment. As to the contested cartons, plaintiff offers only her own uncorroborated testimony that she was "unsure" whether she bought cartons of Seneca and Arrow brand cigarettes "because of [her] memory" and she "didn't purchase the King Mountains." Plaintiff has not introduced any documentary evidence to substantiate her testimony. She states she does not have copies of any past invoices, providing the following explanation: "The company upset me and didn't listen when I asked them not to contact us by phone or mail and I took it out on the receipts they sent or what they made up as receipts by ripping them up and throwing it in the garbage . . . didn't know I might need them for the court."
The "naked assertions" of the taxpayer, without supporting records or documentation, are insufficient to overcome the presumption of validity that attaches to the Director's assessment. TAS Lakewood v. Director, Div. of Taxation, 19 N.J. Tax 131, 140 (Tax 2000). The evidence put forth by plaintiff in this case is of the type courts have previously held insufficient to rebut the presumption. See, e.g., ibid. at 134, 139-41 (2000)(taxpayer did not overcome the presumption where it offered only "the uncorroborated testimony of [the taxpayer's vice president]" and could not produce any records because it had "disposed of all its operating books and records in a trash dumpster"); Yilmaz v. Director, Div. of Taxation, 22 N.J. Tax 204, 233 (Tax 2005), aff'd, 390 N.J. Super. 435 (App. Div. 2007)(testimony of taxpayer, corroborated by taxpayer's accountant, was insufficient by itself to overcome the presumption); Atlantic City Transp. Co. v. Director, Div. of Taxation, 12 N.J. 130, 146 (1953)(taxpayer did not overcome the presumption where it produced no "pertinent evidence" to support its claim that it did not operate lines over a public street); Ridolfi v. Director, Div. of Taxation, 1 N.J. Tax 198, 201-03 (Tax 1980)(taxpayer's evidence was insufficient to overcome the presumption where he introduced no documentary evidence or records to support his contentions, but rather relied solely on his testimony based on his experience in the operation of his business).
The burden was on plaintiff to introduce sufficient evidence showing the Director's assessment was based on untrue or inaccurate data to overcome to presumption of correctness associated with the assessment. Plaintiff did not meet her burden. Moreover, the proofs introduced by the Director support the assessment. And, while there were discrepancies between the Division's report and the vendor's reports, the Director's assessment was based on the set of records most favorable to plaintiff. The assessment underestimated the quantity reported by the vendor.
Plaintiff's other argument against imposition of the taxes is based on her inability to pay. (The court executed an order waiving the filing fee based on a Certificate of Indigency filed by plaintiff.) While the court is not unsympathetic to plaintiff's plight, her financial situation has no bearing on whether cigarette excise tax and sales and use tax were properly assessed against her under the law. Moreover, the State offered plaintiff the opportunity to make deferred payments of which she did not avail herself.
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The court affirms the Director's assessment. According to the records of the Division of Taxation, plaintiff made payments totaling $145.74 while this matter was under protest and is therefore entitled to a credit in that amount against the total assessment.
Very truly yours,
Christine Nugent, J.T.C.