Opinion
Docket No. A-2261-13T2
01-31-2014
Kinko's Network, Inc. v. Director, Division of Taxation
Joseph H. Orlando, Clerk Superior Court of New Jersey Appellate Division R.J. Hughes Justice Complex David J. Gutowski, Esq. Reed Smith, LLP Michael J. Duffy Deputy Attorney General Division of Law
NOT FOR PUBLICATION WITHOUT APPROVAL OF
THE TAX COURT COMMITTEE ON OPINIONS
Patrick DeAlmeida
Presiding Judge
Joseph H. Orlando, Clerk
Superior Court of New Jersey
Appellate Division
R.J. Hughes Justice Complex
David J. Gutowski, Esq.
Reed Smith, LLP
Michael J. Duffy
Deputy Attorney General
Division of Law
Dear Mr. Orlando and counsel:
This letter is issued pursuant to R. 2:5-1(b) to amplify the court's July 19, 2013 bench opinion granting partial summary judgment in favor of Kinko's Network, Inc. in the above- referenced matter. The effect of the court's decision was memorialized in a Judgment dated October 18, 2013. By its terms, the Judgment became final on December 3, 2013. The Director, Division of Taxation (the "Director") filed a Notice of Appeal on January 16, 2014.
I. Findings of Fact and Procedural History
This letter opinion sets forth the court's findings of fact and conclusions of law based on the parties' submissions on their cross-motions for summary judgment. R. 1:7-4.
Kinko's Ventures, Inc. ("Ventures") is a foreign corporation with no physical presence in New Jersey. It has no employees, tangible personal property, or real property in this State. Ventures owns various trademarks and trade names associated with paper and office supplies.
Ventures licenses its trademarks and trade names to plaintiff Kinko's Network, Inc. ("Network"), a Delaware corporation headquartered in California. The companies are affiliates. Network uses Ventures' trademarks and trade names to sell products in New Jersey pursuant to its licensing agreement with Ventures. Network pays a royalty to Ventures for the use of its trademarks and trade names that is based on the amount of sales in New Jersey. Pursuant to the licensing agreement, Network paid to Ventures $70,656,890 in royalty payments for New Jersey sales in 2002.
Because Ventures has no physical presence in New Jersey, it did not file a Corporation Business Tax ("CBT") return for 2002.
Network, however, filed a tax year 2002 CBT return in October 2003 because it was physically present and doing business in the State during 2002. On its return, Network deducted the $70,656,890 in royalty payments it made to Ventures as a business expense. However, pursuant to N.J.S.A. 54:10A-4.4(b), the so called "Add-Back Rule," Network added back to its income the $70,656,890 in royalty payments because those payments were made to a related company. The statute establishing the Add-Back Rule provides that a corporation need not add-back royalty payments to a related entity if doing so would be unreasonable. N.J.S.A. 54:10A-4.4(c)(1)(b). The Director promulgated a regulation explaining the circumstances in which the add-back of royalty payments to a related entity would be unreasonable under the statute. According to N.J.A.C. 18:7-5.18(b)(3) an add-back of royalty payments would be unreasonable if the entity to which the payments are made pays tax to New Jersey on the royalty income stream. Because Ventures did not file a 2002 CBT return and did not pay tax to New Jersey on its royalty income stream from Network, the exception to the Add-Back Rule was not applied on Network's 2002 CBT return.
In 2006, an auditor working on behalf of the Division of Taxation conducted an audit of both Ventures and Network. The two entities were represented by the same attorney and were audited by the same auditor.
In some of the papers in the motion record, the auditor is referred to as the MTC auditor. "MTC" is an acronym for the Multistate Tax Commission, an intergovernmental state agency created by the Multistate Tax Compact to facilitate the proper determination of State and local tax liability for multistate taxpayers. New Jersey is a Sovereignty Member of the Commission. The parties do not dispute that the MTC auditor was acting as an agent of the Division of Taxation when auditing Ventures and Network.
In connection with the audit, the Division determined that Ventures was subject to tax in New Jersey for 2002 (and other years not applicable here) because it received income from the use of its trademarks and trade names to sell products in the State by a licensee. As a result of this determination, on June 12, 2006, the Division issued a proposed CBT assessment to Ventures for a period including 2002. At the time that the Division issued the June 12, 2006 Notice of Assessment, the prevailing law in New Jersey with respect to the applicability of the CBT to a trademark holding company with no physical presence in the State was set forth in Lanco, Inc. v. Director, Div. of Taxation, 379 N.J. Super. 562 (App. Div. 2005). In that case, which was then on appeal to the New Jersey Supreme Court, the Appellate Division held that such a trademark holding company was subject to CBT despite a lack of physical presence in the State if it was receiving royalty payments from the use of its intangible assets in the State by a licensee to generate retail sales.
On the same day that the Division issued its Notice that Ventures was subject to CBT for 2002, the Division issued a proposed CBT assessment to Network for 2002. The June 12, 2006 proposed assessment was based on adjustments described in documents attached to the Notice. The first page of the attachments to the Notice describe "Adjustments/Transactions Resulting in Assessments" as "(1) The receipts fraction of the allocation factor has been revised. The throw out rule is enforced," "(2) Penalties," and "(3) "Simple interest . . . ." The entry concerning the throw out rule directs the reader to "SEE THE ENCLOSED INFORMATION." The enclosed information includes several schedules that plainly indicate that an exception to the add-back of royalty payments to Ventures was considered during the audit.
Schedule 0931.3, for tax year ending "12/31/02," has four columns for the line "Interest & Intangible Expenses & Costs Addback" which appear as follows:
| Per Return | Per Audit | Difference | Tax Effect at 9% |
| 0 | 70,656,890 | 70,656,890 | 38,740 |
Also on the page are handwritten notations that appear to indicate that Network's original return reported $75,073,427 in income allocable to New Jersey. The record contains no explanation of who made the handwritten notations, although the Director appears to concede that the June 12, 2006 proposed adjustments were issued to Network in this partially handwritten fashion.
In addition, Schedule 1131, entitled "State Adjustments to Income" notes an addition to income for "Interest & Intangible Expenses & Costs Addback" of $70,656,890 for tax year 2002.
Finally, Schedule 1216, entitled "Interest and Intangible Expenses and Costs Addback," reports the following for tax year 2002:
As Reported 70,656,890
Audit Adjustments:
Reverse Amount Reported (70,656,890)
Patent Trademark and Copyright Fees
FF 1120, Line 26 - Other Deductions Detail 70,656,890
Interest and Intangibles Expenses
And Costs Addback Per Audit 70,656,890
According to a Certification by Network's counsel, at his request, the Division held a conference call on August 3, 2006 in which he participated. Also on the conference call were the auditor and two Division of Taxation officials. Counsel certifies that during the call he explained that if Ventures paid CBT on the royalty payments it received from Network for 2002 New Jersey sales, Network would be entitled to the exception to the Add-Back Rule for the royalty payments it made to Ventures. Network's counsel certified that a Division official stated that while Network might ultimately be entitled to an exception to the Add-Back Rule in the event Ventures paid 2002 CBT, the exception would not be allowed until Ventures actually paid its 2002 CBT obligations.
On August 8, 2006, the Division issued to Network a Notice of Assessment Related to Final Audit Determination. Attached to the Notice was a schedule of liabilities indicating that Network had, as a result of the audit, an outstanding CBT liability, including penalties and interest calculated to September 15, 2006, of $107,637.18. Also attached to the only version of the August 8, 2006 Notice in the motion record is the first page attached to the June 12, 2006 proposed CBT assessment. As noted above, that page notes that an adjustment was made to the allocation factor and directs the reader to "SEE THE ENCLOSED INFORMATION." Based on the moving papers, the court finds as fact that the statement "SEE THE ENCLOSED INFORMATION" refers to the schedules attached to the June 12, 2006 proposed CBT assessment, which were, by reference, incorporated into the August 8, 2006 Notice. Thus, even if those schedules were not physically attached to the August 8, 2006 Notice, the contents of the schedules were referenced in the August 8, 2006 Notice as the basis for the assessment.
On October 12, 2006, the New Jersey Supreme Court issued its opinion in Lanco, Inc. v. Director, Div. of Taxation, 188 N.J. 380 (2006). The Court affirmed the Appellate Division holding that a trademark holding company with no physical presence in New Jersey is subject to CBT by virtue of its receipt of royalty payments for use of its trademarks by a licensee to generate retail sales in this State.
On June 18, 2007, the United States Supreme Court denied Lanco Inc.'s petition for certiorari. 551 U.S. 1131, 127 S. Ct. 2974, 168 L. Ed.2d 702 (2007).
In light of these developments, on October 20, 2006, Ventures paid $162,437 in CBT for the royalty payments it received from Network for 2002 New Jersey sales.
As explained in the August 8, 2006 Notice to Network, New Jersey law provides that a taxpayer subject to a CBT assessment may file a timely protest with the Division of Taxation seeking an administrative hearing. Network did not immediately file a protest. Instead, Network opted to take another route explained in the August 8, 2006 Notice: if the taxpayer pays the entire assessment within one year after the time to protest has expired, the taxpayer may thereafter file a refund claim within 450 days after the time to protest has expired. N.J.S.A. 54:49-14(b). This refund claim procedure effectively extends the generally applicable four-year period to seek a refund "after the payment of any original or additional tax assessed against" a taxpayer. N.J.S.A. 54:49-14(a). However, the extended period applies only to refund claims based on "those issues raised by the deficiency assessment itself and shall not include any additional issues with respect to the original assessment of tax." N.J.S.A. 54:49-14(b).
Network paid the entire assessment, with additional interest, in two payments on November 27, 2006 and December 19, 2006.
On January 30, 2008, within the time provided by N.J.S.A. 54:49-14(b), Network filed a refund claim. The refund claim indicates that it concerns the August 8, 2006 audit assessment, covers tax year 2002, and seeks a refund of $110,370.16, which includes the $107,637.18 assessed in the August 8, 2006 Notice and an addition $2,732.98 in interest paid by Network on December 19, 2006.
Attached to its refund claim is a detailed explanation of the grounds on which Network claimed it is entitled to a refund. Network explained that at the time the Division issued its August 8, 2006 Notice to Network, the audit of Ventures was still ongoing. Since Ventures had not yet been assessed CBT for 2002 and had not, therefore, paid the tax for that year, Network could not yet qualify for the exception to the Add-Back Rule established in N.J.A.C. 18:7-5.18(b)(3). Ventures subsequently paid CBT on the royalties it received from Network for 2002 sales. It therefore follows, according to the explanation, that Network is entitled to the Add-Back Rule exception for 2002 and to the recalculation of its CBT liability for 2002 after a deduction of $70,656,890 in royalty payments it made to Ventures.
On May 8, 2008, a Division auditor denied Network's refund request. The denial was explained as follows:
The Division is in receipt of your Claim for Refund of Paid Audit Assessment. Your claim is based on the belief that the MTC auditor added back the Royalty expenses paid to Kinko's Ventures, Inc. . . . This is NOT the case. The MTC auditor's assessment is based on the throw out of Non Sourced Receipts on New Jersey Schedule J, increasing the total allocation factor from .006092 to .017754. This was the only adjustment made by the MTC Auditor.The auditor, in effect, denied the refund claim as untimely because it concerned, in the auditor's view, an issue not addressed in the August 8, 2006 assessment. Thus, the claim was not subject to the extended period in which to seek a refund provided in N.J.S.A. 54:49-14(b). Instead, the auditor determined that because the refund claim was filed more than four years after the original payment of tax by Network, see N.J.S.A. 54:49-14(a), the claim was time barred. The auditor did not address the merits of Network's claim.
The add back of the $70,656,890 was reported by the Taxpayer on Schedule G-Part II. Please see the attached copies of pages from the 2002 return and MTC workpapers.
Based on Regulation 18:2-5.5(c) the refund claim is DENILED (sic) since the add back of the $70,656,890 was NOT made by the MTC Auditor.
On July 1, 2008, Network submitted to the auditor a written request for reconsideration of the denial of the refund claim. The reconsideration request recounted the August 3, 2006 telephone conference between Network's counsel, the auditor and Division representatives. In addition, the request references Schedule 0931.3, which is described in greater detail above. Counsel argued that the Add-Back Rule exception was "raised" during the audit as required by N.J.A.C. 18:2-5.5(c), entitling Network to file a refund claim pursuant to the extended time period established in N.J.S.A. 54:49-14(b).
On August 5, 2008, Network filed a Protest and Request for an Administrative Hearing before the Division of Taxation.
On August 6, 2008, the Division auditor denied Network's request for reconsideration of the denial of its refund claim.
On September 20, 2010, the Director issued a Final Determination rejecting Network's refund claim. In support of his decision, the Director took the position that during the 2006 audit the auditor did not add-back Network's royalty payments to Ventures, given that the add-back of the payments was included on Network's original 2002 CBT returns. Instead, according to the Final Determination, the August 8, 2006 assessment was based on the entire net income reported by Network on its 2002 CBT return, the allocation of which was adjusted during the audit. Thus, the Director concluded, Network's refund claim concerns a tax liability not addressed in the August 8, 2006 assessment and not, as a result, subject to the extended refund claim period established in N.J.S.A. 54:49-14(b). The Director did not address the merits of Network's refund claim.
On December 17, 2010, Network filed a Complaint in this court challenging the September 20, 2010 Final Determination. The Complaint contains two counts. Count One requests that Network's 2002 CBT obligation be recalculated after allowing full deduction for the royalty payments Network made to Ventures for 2002 New Jersey sales. Count One also challenges the Director's application of the Throw-Out Rule, see N.J.S.A. 54:10A-6(B)(6), as amended by L. 2002, c. 40, §8, to determine the amount of Network's income allocable to New Jersey for CBT purposes for 2002. Count Two of the Complaint requests the award of reasonable litigation costs pursuant to N.J.S.A. 54:51A-22 because the Director's position is without a reasonable basis in fact or law.
On February 1, 2013, the Director moved pursuant to R. 4:46-2 for summary judgment in his favor on the question of whether Network's refund claim with respect to the Add-Back exception was timely filed. The motion did not address the substance of Network's refund claim. On February 14, 2013, the Director filed a Supplemental Certification in further support of his motion.
On May 14, 2013, Network cross-moved pursuant to R. 4:46-2 for summary judgment in its favor on the question of whether its refund claim with respect to the Add-Back exception was timely filed. The motion did not address the substance of Network's refund claim. In addition, Network moved for a remand of this matter to the Division of Taxation to permit Network to exhaust its administrative claims should the court find that its refund claim was timely filed.
On June 5, 2013, the Director filed opposition to the cross-motion and a reply brief in further support of his motion.
On July 19, 2013, the court heard oral argument from counsel. At the conclusion of the argument, the court issued a bench opinion denying the Director's motion for summary judgment and granting Network's cross-motion for summary judgment. The court concluded that Network's January 30, 2008 refund claim was timely filed pursuant to N.J.S.A. 54:49-14(b) because it is based on an issue raised by the August 8, 2006 deficiency assessment against Network. The court denied Network's request for a remand of this matter to the Division of Taxation. The court elected instead to decide the substantive merits of Network's claims.
On October 18, 2013, during a conference call with counsel, the court was informed that, although the Director disagreed with the court's decision regarding the timing of Network's refund claim, the Director conceded that Network's substantive claim to a refund, had it been filed in a timely fashion, was valid. Thus, the Director agreed that Judgment could be entered in favor of Network on Count One of its Complaint with the reservation of the Director's right to file an appeal with respect to the court's determination that Network's refund claim was timely filed. Network withdrew it claim to relief under the Throw-Out Rule, also alleged in Count One.
As a result of this conversation, the court, on October 18, 2013 entered Judgment granting Network the relief requested in Count One of the Complaint. The Judgment provides that in the event Network wished to seek relief under Count Two of the Complaint (seeking the award of reasonable costs to a prevailing party) it must file an application for such relief on or before November 29, 2013. The Judgment also provided that in the absence of such an application, the Judgment would become final on December 3, 2013. Network did not make an application for the award of reasonable costs. The Judgment, therefore, became final on December 3, 2013.
On January 16, 2014, the Director filed a Notice of Appeal with the Superior Court, Appellate Division. This letter opinion amplifies the court's July 19, 2013 oral opinion. R. 2:5-1(b).
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. 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 factfinder to resolve the alleged disputed issue in favor of the non-moving party.
The court finds that there are sufficient undisputed material facts and material facts on which the court has made findings of fact based on the motion record to make a legal determination of whether Network's January 30, 2008 refund claim was timely filed pursuant to N.J.S.A. 54:49-14(b).
The generally applicable refund statute provides that
[a]ny taxpayer, at any time within four years after the payment of any original or additional tax assessed against him, unless a shorter limit is fixed by the law imposing the tax, may file with the director a claim under oath for refund, in such form as the director may prescribe, stating the grounds therefor . . . .This refund claim period commences upon the payment of an original or additional tax. Godwin Pumps of Am. v. Director, Div. of Taxation, 19 N.J. Tax 325, 327 (Tax 2001). In addition, prior to a 1998 amendment, which is relevant here, a taxpayer that paid an assessment of tax made by action of the Director - i.e., through issuance of a Notice of Assessment - without first filing a protest or appeal could not later claim a refund of the amount paid, even if the refund claim was made within the four-year period provided by N.J.S.A. 54:49-14(a). See People's Express Co. v. Director, Div. of Taxation, 10 N.J. Tax 417, 431-34 (Tax 1989).
[N.J.S.A. 54:49-14(a).]
The enactment of L. 1998, c. 106, §13, effective September 14, 1998, changed this limitation. This legislation amended N.J.S.A. 54:49-14 to provide as follows:
b. No taxpayer shall be precluded from claiming a refund of additional tax assessed solely on the ground that the taxpayer neither protested or appealed from any part of the assessment. A taxpayer may, pursuant to this subsection, file a claim for the refund of the assessment of additional tax if (1) the taxpayer neither protested nor appealed from the assessment, (2) theN.J.A.C. 18:2-5.5 (c)(1)(v) mirrors the statute in that it allows a refund claim under the extended period provided in N.J.S.A. 54:49-14(b) based only on "the ground(s) for the additional tax assessment provided in the notice of assessment . . . ."
taxpayer paid the assessment in full within one year after the expiration of the period allowed for filing a protest of the assessment, (3) the taxpayer files the claim for the refund within 450 days of the expiration of the period allowed for filing such a protest, and (4) the amount of the refund claimed pursuant to this subsection does not exceed the amount of the assessment paid. The time periods provided shall apply solely for purposes of refund claims under this subsection and shall be inapplicable with respect to any penalty and interest payments that may be due. A refund claim shall be filed under oath, in a form as the director may prescribe, and shall state the grounds therefor, which grounds shall be limited to those issues raised by the deficiency assessment itself and shall not include any additional issues with respect to the original assessment of tax. . . . .
[N.J.S.A. 54:49-14(b)(emphasis added).]
Network sought a refund of its 2002 CBT payment pursuant to N.J.S.A. 54:49-14(b). The taxpayer paid the assessment in the August 8, 2006 Notice of Assessment and filed a refund claim within the time set forth in N.J.S.A. 54:49-14(b). The Director does not dispute these facts. In addition, it is undisputed that Network filed its refund claim under oath on the form prescribed by the Director. The only dispute between the parties is whether the refund claim concerns an issue "raised by the deficiency assessment itself," as required by N.J.S.A. 54:49-14(b).
The approved form is Form A-1730. During oral argument and in the briefs counsel refer to Network's refund claim as a "1730" claim due to the form's numerical designation.
The Director argues that the refund claim concerns the exception to the Add-Back Rule, which was not addressed during the audit of Network and was not raised by the August 8, 2006 deficiency. According to the Director, Network added-back its royalty payments to Ventures on its original 2002 CBT return filed in 2003. The auditor did not alter the add-back reported on Network's original return. The Director contends that the only change made by the auditor was an adjustment to Network's allocation of its income to New Jersey under the Throw-Out Rule. Thus, the argument follows, Network's claim for a refund under the exception to the Add-Back Rule had to be filed within four years of its 2003 payment of CBT with its original return and could not be filed under the extended period allowed by N.J.S.A. 54:49-14(b). Because Network's refund claim was filed on January 30, 2008, more than four years after Network's payment of CBT with the filing of its original return in 2003, the refund claim was untimely.
Network, on the other hand, argues that the issue of the exception to the Add-Back Rule is raised by the August 8, 2006 Notice. In support of this argument, Network relies on the schedules attached to the June 12, 2006 proposed assessment, which the court has found were incorporated in the August 8, 2006 Notice by the direction to the reader to "SEE THE ENCLOSED INFORMATION." According to Network, the schedules, in particular schedule 0931.3, reflects the fact that the exception to the Add-Back Rule was raised during the audit.
The court concludes that the motion record supports Network's position. The court finds that the schedules attached to the June 12, 2006 proposed assessment of CBT evidence the fact that Network, which was audited at the same time as Ventures and represented by the same counsel, raised with the auditor the prospect that if Ventures was compelled to file CBT returns and pay CBT on the revenue realized from Network's royalty payments for 2002 New Jersey sales, then Network would be entitled to an exception to the Add-Back Rule for 2002. Schedule 0931.3 shows for tax year 2002 on the line identified as intangible expenses add-back a "Per Return" figure of 0, a "Per Audit" figure of $70,656,890 and a "Difference" of $70,656,890. It is undisputed that Network's actual 2002 CBT return showed an add-back of royalty expenses of $70,656,890. The only plausible explanation for the "Per Return" figure of 0 on schedule 0931.3 is that it is a reflection of Network's argument that it is entitled to an exception to the Add-Back Rule because the Division, while auditing Network, was simultaneously notifying Ventures that it was subject to CBT for 2002 and had to pay tax on the royalty payments it received from Network for 2002 sales. The "Per Audit" figure of $70,656,890 reflects the fact that the auditor rejected Network's position, because the Division was not prepared to conclude that Network was entitled to the exception to the Add-Back Rule until Ventures actually filed its CBT return and paid the tax.
The Division's attempt to attribute these figures to a scrivener's error is unconvincing for several reasons. First, the Director did not produce a certification from the scrivener certifying that the figures on schedule 0931.3 were errors. Second, the magnitude of the alleged error - a $70.6 million deduction for a taxpayer that had only $75 million of income - makes the scrivener's error theory incredible. Third, the alleged error which first appeared on a schedule attached to the June 12, 2006 proposed assessment was not corrected in the August 8, 2006 Notice, which referenced the "enclosed information" that included schedule 0931.3. Nor are the handwritten notations on schedule 0931.3 evidence that the "error" was corrected by the auditor. The meaning of the notes is unclear, but it appears that the author entered the allocation figure reported by Network on its return and the allocation figure ultimately adopted by the auditor. The allocation of Network's income was an issue separate from the exception to the Add-Back Rule. Both issues were raised during the audit. The handwritten notes appear to concern nothing other than the adjustment to allocation - an issue not addressed in Network's refund claim.
Additionally, schedule 1131 and schedule 1216 both reflect the fact that the exception to the Add-Back Rule was raised by the August 8, 2006 assessment. Schedule 1131 shows the add- back of $70,656,890 as a "State Adjustment to Income." Schedule 1216, concerning "Intangible Expenses Cost Add Backs," shows an "As Reported" figure of $70,656,890, an "Audit Adjustment Reverse Amount Reported" of ($70,656,890) and then an "Intangibles Expenses and Costs Addback Per Audit" figure of $70,656,890. The only credible explanation for these figures is that the schedule reflects Network's position that it should be granted an exception to the Add-Back Rule and the auditor's rejection of that position.
The court understands that Network's originally reported add-back of $70,656,890 was not changed by the auditor. The mere fact that the figure was not changed, however, does not mean that the exception to the Add-Back Rule was not considered during the audit. If, as Network claims, it requested an exception to the Add-Back Rule and its request was rejected by the auditor, then the add-back reported on Network's CBT return would not be changed by the auditor. The add-back on the return did not change because the issue of an exception was raised by the taxpayer and rejected. It is the very fact that the auditor refused to change the add-back figure that Network challenges in its refund claim.
As a general rule, "[c]ourts 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 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."). However, "'the courts remain the 'final authorities' on issues of statutory construction and are not obliged to 'stamp' their approval of the administrative interpretation.'" Koch v. Director, Div. of Taxation, 157 N.J. 1, 8 (1999)(quoting New Jersey Guild of Hearing Aid Dispensers v. Long, 75 N.J. 544, 575 (1978)).
The court concludes that Network's claimed exception to the Add-Back Rule, based on Ventures' payment of CBT on the income stream associated with Network's royalty payments to Ventures for 2002 New Jersey sales, was raised by the August 8, 2006 Notice of Assessment. Network's January 30, 2008 refund claim, therefore, was filed within the extended refund claim period established in N.J.S.A. 54:49-14(b). The Director's reliance on the shorter refund claim period established in N.J.S.A. 54:49-14(a) to determine that Network's refund claim was untimely was erroneous.
The court makes no finding with respect to the contents of the telephone conference held on August 3, 2006. The court's determination is based on its factual findings with respect to the schedules attached to the June 12, 2006 proposed assessment, which were referenced by and incorporated into the August 8, 2006 Notice.
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Very truly yours,
Patrick DeAlmeida, P.J.T.C.