Opinion
DOCKET NO. A-0460-12T1
06-09-2014
TUTTA ITALIA, INC., and NICK BOSCO, Plaintiffs-Appellants, v. DIRECTOR, DIVISION OF TAXATION; ART & SAN, LLC; and ARTURO SCARAMUZZINO, Defendants-Respondents.
John J. Hopkins, III, attorney for appellants Tutta Italia, Inc. and Nick Bosco. John J. Hoffman, Acting Attorney General, attorney for respondent Director, Division of Taxation (Melissa H. Raksa, Assistant Attorney General, of counsel; Heather Lynn Anderson, Deputy Attorney General, on the brief). Sestino S. Barone, attorney for respondents Art & San, LLC and Arturo Scaramuzzino.
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
Before Judges Messano and Sabatino.
On appeal from the Tax Court of New Jersey, Docket No. 0500-2010.
John J. Hopkins, III, attorney for appellants Tutta Italia, Inc. and Nick Bosco.
John J. Hoffman, Acting Attorney General, attorney for respondent Director, Division of Taxation (Melissa H. Raksa, Assistant Attorney General, of counsel; Heather Lynn Anderson, Deputy Attorney General, on the brief).
Sestino S. Barone, attorney for respondents Art & San, LLC and Arturo Scaramuzzino. PER CURIAM
Appellants, Tutta Italia, Inc. ("Tutta Italia") and Tutta Italia's former owner, Nick Bosco, appeal the Tax Court's dismissal of their complaint contesting the Division of Taxation's post-audit assessment that found them liable for unpaid sales and use taxes. The Tax Court judge dismissed the complaint because appellants failed to challenge the assessment, either in the Tax Court or administratively before the Division, within the ninety-day period prescribed by the applicable statutes and rules of the court. On appeal, Tutta Italia and Bosco raise a variety of arguments in an effort to excuse the tardy filing of their complaint. Because the Tax Court judge correctly rejected those proffered excuses and enforced the legally-mandated ninety-day time limit, we affirm.
Bosco was the owner of Tutta Italia, a company that operated an Italian specialty goods market in Colts Neck. Bosco eventually put the business up for sale. The business was purchased by respondent Arturo Scaramuzzino, through the latter's newly-formed corporation, respondent Art & San LLC ("Art & San").
Unless the context indicates otherwise, we will use the collective term "appellants" to refer to Bosco and/or Tutta Italia, since the briefs frequently refer to the two plaintiffs interchangeably.
The sale of the business included a bulk transfer to Scaramuzzino of the remaining inventory on the premises. The inventory was not subject to sales and use tax liability until it was sold to the public by the successor owner and operator.
In compliance with the New Jersey Sales and Use Tax Act, N.J.S.A. 54:32B-1 to -29, notice of the sale of the business was provided to the State. The Division subsequently issued a tax clearance letter for Tutta Italia on November 1, 2004.
N.J.S.A. 54:32B-22(c) requires that:
Whenever a person required to collect tax shall make a sale, transfer, or assignment in bulk of any part or the whole of his business assets, otherwise than in the ordinary course of business, the purchaser, transferee or assignee shall at least 10 days before taking possession of the subject of said sale, transfer or assignment, or paying therefor, notify the director by registered mail of the proposed sale and of the price, terms and conditions thereof whether or not the seller, transferer or assignor, has represented to, or informed the purchaser, transferee or assignee that he owes any tax pursuant to this act, and whether or not the purchaser, transferee or assignee has knowledge that such taxes are owing, and whether any such taxes are in fact owing.
The closing for the sale took place on or about October 18, 2004. Bosco was to receive most of the proceeds from the sale through a promissory note.
An auditor from the Division subsequently visited the establishment, now being operated by Scaramuzzino, on March 21, 2005, and again on January 17, 2006. The auditor issued a written report on January 25, 2006. Among other things, the auditor disagreed with Bosco's contention that the space was being operated "as an Italian specialty deli with a pizzeria." In particular, during the auditor's first visit to the premises, the deli side was empty while the pizzeria area contained a dozen or more customers eating lunch.
Under a heading in his report entitled "Unusual Circumstances," the auditor particularly noted that:
[Bosco's] records made available did not include any detailed register tapes or sales journals. Examination of [Bosco's] worksheets attached to his copies of the Sales and Use Tax returns indicated that some transactions may have been unreported, and that some sales figures were estimated. [Bosco] did not record catering sales on a separate basis from other sales, and may well have not recorded many of these transactions, especially if they involved cash transactions. [Bosco] also claimed that his business was primarily a deli operation, and that most of sales came from raw meat sales, and not prepared foods. [Bosco's] own records indicate the opposite was true. The worksheets show that most transactions and sales were made on the register located on the restaurant/pizza side of the location, and not at the register located on the deli/store side of the business. Also, in the audit file is a copy of an ad in the Colts Neck Journal from April 2004 that clearly and prominent[ly]
states "we deliver." This ad refers to the gourmet meats section of the Italian market. Delivery of prepared platters is catering, and is taxable. [Bosco] provided no records of his catering and delivery sales.
The auditor further noted that "[i]nternal controls [were] lacking." In this regard, he observed that, during the relevant timeframe, "[Bosco] was not making bank deposits of cash receipts on a daily basis. . . . Z-tapes and any other cash register tapes were not made available for the audit. [Bosco] claimed that he did not keep them." Ultimately, the auditor concluded that:
[t]he records provided by [Bosco] were inadequate to perform the examination because of the unavailability of detailed sales documents, register detail and summary tapes, sales journals and other sales records that I felt could be relied upon to perform the examination. During the course of the examination it was discovered that [Bosco] was estimating sales to report for the Sales and Use Tax returns during 2003. As a result of this situation it was decided that an alternate method of auditing was necessary to establish [Bosco's] gross receipts and sales tax due.
On February 7, 2006, the Division issued to Bosco a "Notice of Assessment Related to Final Audit Determination" regarding the business. The notice stated that "as a result of a recent audit of [the business's] records," Bosco was "liable for the amount of $184,62 7.98 which includes penalty and interest."
Bosco sent a protest letter to the Division on April 7, 2006, contesting the Division's assessment of additional sales tax liability for the period from April 2001 through December 2004. In that letter, Bosco stated that "[a]t the time of the audit the business had been sold and most records were stored." Bosco insisted that the "business was largely an Italian deli with a 'side' operation of pizza and sandwiches." Bosco further explained that the deli's computer system had crashed right before the sale, wiping out all of the previous hard drive data.
The Division thereafter issued a "Notice of Finding of Responsible Person Status" to Bosco on June 8, 2006. The notice stated that Bosco was personally liable for the revised sum of $141,512.36. The notice further stated that if Bosco did not pay the computed taxes within ninety days or apply for a hearing within that time, the Division would enter a certificate of debt against him. Bosco did not do so.
Thereafter, Scaramuzzino filed a Chapter 7 bankruptcy petition in the United States District Court on September 18, 2007. Scaramuzzino's debts, including the note obligation to Bosco, were discharged by the Bankruptcy Court on December 18, 2007. The bankruptcy case was closed as of that date.
The Division issued a "Final Determination" to Bosco on July 17, 2008 for a revised sum of $133,536. The Final Determination recited, among other things, that "the taxpayer failed to maintain adequate books and records as defined in N.J.S.A. 54:32B-16 and N.J.A.C. 18:24-2.3 . . . and to make these records available to the Director as required." The Division also found that Bosco "failed to employ adequate internal control procedures as required by N.J.A.C. 18:24-2.15(a)(1)." Given that lapse, the Division stated that it was "permitted to determine the amount of tax from available information, including external indices," and that Bosco would have the burden of overcoming the presumption of correctness that attached to the Division's assessment. Finally, the Division again noted that Bosco had ninety days to file a complaint to challenge its final determination.
On October 30, 2008, the Division filed a Certificate of Debt against Bosco in the amount of $125,686.56. That same day, the Division filed a second Certificate of Debt against Tutta Italia totaling $133,536.
The difference in these respective figures for the two appellants are not explained in the record, but that difference is not an issue raised on appeal.
Bosco filed a motion seeking to reopen Scaramuzzino's bankruptcy on April 3, 2009. The Bankruptcy Court entered an order denying Bosco's motion on May 18, 2009.
On May 20, 2009, the Division sent Bosco a letter notifying him of the State's tax amnesty program. The program offered taxpayers an opportunity to pay any unpaid owed taxes, plus one-half of the balance of interest due as of May 1, 2009, while waiving the remaining interest and penalties. The letter indicated that Bosco's total amnesty amount, which would be due by midnight on June 15, 2009, was $83,581.17. Bosco's attorney responded to the amnesty offer on May 22, 2009, indicating that Bosco was "in the process of appealing the tax assessment." In fact, no such appeal or challenge had yet been filed.
Bosco then filed a second motion to reopen Scaramuzzino's bankruptcy. By order dated December 16, 2009, the Bankruptcy Court agreed to reopen the bankruptcy "for the limited purpose of Lifting the Automatic Stay" in order to "allow the debtor [Scaramuzzino] to be named as a party in a suit to apportion sales tax liability with a creditor, Nick Bosco, in the New Jersey Tax Court." The order further stated that "[a]ll parties in the New Jersey Tax Court [m]atter shall be allowed discovery from this debtor."
11 U.S.C.A. § 362(a)(1) generally provides for an automatic stay in bankruptcy proceedings, which is applicable to:
the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title.
Bosco and Tutta Italia eventually filed a complaint in the Tax Court on February 16, 2010, seeking to redetermine the amount of sales and use tax due and also to apportion that amount between appellants and the successor owners of the business. The Division filed a motion to dismiss the complaint as untimely, because the complaint had been filed long after the ninety-day statutory deadline had passed.
In responding to the Division's dismissal motion, appellants contended that they had not violated the ninety-day filing deadline or, alternatively, if they had, they possessed sufficient justification for taking additional time before filing their complaint. More specifically, appellants claimed that they had been precluded by the automatic stay in Scaramuzzino's bankruptcy from mentioning him in the complaint, until such time as the bankruptcy stay was lifted. Appellants further argued that they could not have proceeded earlier with an action in the Tax Court because Scaramuzzino was allegedly a necessary party to their case, and that entire controversy principles disallowed his omission from the lawsuit. Appellants also asserted that they needed discovery from Scaramuzzino concerning the business's operations and records, and that such discovery allegedly would not have been obtainable from him because of his bankruptcy protection.
After hearing oral argument, Tax Court Judge Gail L. Menyuk agreed with the Division that appellants' complaint had been filed over a year and a half late, and that there was no legal justification to excuse that untimeliness. The judge consequently granted summary judgment to the Division, for extensive reasons that she orally placed on the record on August 9, 2012.
We note that appellant failed to obtain a transcript of the judge's oral decision, and did not do so until after all briefs were filed and we specifically requested the omitted transcript. See R. 2:5-3 (prescribing an appellant's obligation to provide the trial transcript); R. 2:5-4(a) (delineating the required contents of the record on appeal). Appellants did not move to supplement their brief after that transcript was belatedly furnished to us.
After dismissing the Division from the case, the judge then wrote counsel for appellants and the remaining defendants, Scaramuzzino and Art & San. The judge noted her intention to dismiss the complaint as to those remaining defendants because appellants' counsel had conceded at oral argument that his clients had no monetary or other claims against the codefendants except to the extent that appellants would have sought discovery from them in order to establish their now-dismissed claims against the Division. The judge invited appellants to lodge with the court an objection to this proposed dismissal of the private codefendants by a specified date. Appellants submitted no such objection. Consequently, the judge entered a final order on September 10, 2012, dismissing the complaint against Scaramuzzino and Art & San.
Appellants now contend on appeal that the Tax Court erred in deeming their complaint as untimely and in thus dismissing their complaint for lack of jurisdiction. They reiterate their position that they had been prevented by various circumstances from filing the complaint within ninety days of the Division's final determination. They allege that Scaramuzzino was a necessary party to the lawsuit, and that they were precluded from naming him as a codefendant because of the bankruptcy stay. Appellants further maintain that they would have violated the entire controversy doctrine by suing the Division and not including Scaramuzzino and his company in that lawsuit as codefendants. Appellants also claim that they could not have obtained discovery from Scaramuzzino and his company until the bankruptcy stay was lifted.
Having considered these points on appeal in light of the applicable law, we affirm the Tax Court's dismissal of the complaint as untimely, substantially for the sound reasons noted in Judge Menyuk's thoughtful oral opinion. We amplify her analysis with the following commentary.
The ninety-day filing deadline enforced by Judge Menyuk is plainly and unconditionally set forth in the governing statutes and Rules of Court. N.J.S.A. 54:32B-21(a) specifies that "[a]ny aggrieved taxpayer may, within 90 days after any decision, order, finding, assessment or action of the Director of Taxation . . . , appeal therefrom to the tax court in accordance with the provisions of the State Tax Uniform Procedure Law." (Emphasis added). Moreover, N.J.S.A. 54:32B-21(b) directs that "[t]he appeal provided by this section shall be the exclusive remedy available to any taxpayer for review of a decision of the director in respect of the determination of the liability of the taxpayer for the taxes imposed by this act." (Emphasis added).
The State Uniform Tax Procedure Law, N.J.S.A. 54:49-18(a), likewise provides that:
If any taxpayer shall be aggrieved by any finding or assessment of the director, he may, within 90 days after the giving of the notice of assessment or finding, file a protest in writing signed by himself or his duly authorized agent, certified to be true, which shall set forth the reason therefor, and may request a hearing. Thereafter the director shall grant a hearing to the taxpayer, if the same shall be requested, and shall make a final determination confirming, modifying or vacating any such finding or assessment.A corresponding section of the State Uniform Tax Procedure Law governing appeals to the Tax Court also requires that "all complaints shall be filed within 90 days after the date of the action sought to be reviewed." N.J.S.A. 54:51A-14(a) (emphasis added).
[(Emphasis added).]
This ninety-day filing limitation is repeated in Rule 8:4-1(b), which unambiguously states that "[c]omplaints seeking to review actions of the Director of the Division of Taxation . . . with respect to a tax matter . . . shall be filed within 90 days after the date of the action to be reviewed." (Emphasis added). The ninety-day time period "shall be calculated from the date of service of the decision or notice of the action taken." R. 8:4-2(a). Notably, "[t]he statutory time periods incorporated by these rules are jurisdictional. Accordingly, they are not within the relaxation power of the Tax Court." Pressler & Verniero, Current N.J. Court Rules, comment 1 on R. 8:4-1 (2014) (citations omitted).
As Judge Menyuk properly noted in her oral decision, our courts "have consistently held that strict compliance with statutory deadlines and tax statutes is an unqualified jurisdictional imperative." The Tax Court has therefore repeatedly dismissed taxpayer appeals in instances where the ninety-day period for filing was not observed. See, e.g., Slater v. Dir., Div. of Taxation, 26 N.J. Tax 322, 333-35 (Tax 2012); Off v. Dir., Div. of Taxation, 16 N.J. Tax 157, 164-66 (Tax 1996); Peoples Exp. Co., Inc. v. Dir., Div. of Taxation, 10 N.J. Tax 417, 424 (Tax 1989).
"[I]f a plaintiff fails to file within the prescribed statutory timeframe, that plaintiff must be proscribed from an appeal in the Tax Court and any considerations of its case on the merits." Slater, supra, 26 N.J. Tax at 334 (citing F.M.C. Stores Co. v. Morris Plains, 100 N.J. 418, 425 (1985)). Importantly, "the burden of ensuring a protest to Taxation has been filed timely falls squarely, and solely upon the taxpayer." Ibid. (citing Dougan v. Dir., Div. of Taxation, 17 N.J. Tax 110 (App. Div. 1997)).
Both the Supreme Court and the Tax Court have recognized the "solid policy basis" that underlies a strict enforcement of the ninety-day filing deadline. F.M.C. Stores Co., supra, 100 N.J. at 425. The Supreme Court has noted that "[s]trict adherence to statutory time limitations is essential in tax matters, borne of the exigencies of taxation and the administration of . . . government." Id. at 424-25 (citing N.Y., Susquehanna & W. R.R. Co. v. Vermeulen, 44 N.J. 491 (1965); Princeton Univ. Press v. Princeton Borough, 35 N.J. 209 (1961)). Specifically, such time limitations in tax statutes are strictly construed in order to provide finality and predictability of revenue to state and local government." Bonanno v. Dir., Div. of Taxation, 12 N.J. Tax 552, 556 (Tax 1992) (citing Pantasote, Inc. v. Dir., Div. of Taxation, 8 N.J. Tax 160, 164-66 (Tax 1988)).
Here, the Division issued a "Notice of Finding of Responsible Person Status" to Bosco on June 8, 2006. The notice stated that Bosco had "90 days from the date of this notice to apply to the Director of the Division of Taxation for a hearing, pursuant to N.J.S.A. 54:49-18." Therefore, Bosco had until September 6, 2006 to request such an administrative hearing, but he failed to do so.
The Division subsequently issued its Final Determination to appellants on July 17, 2008. The Final Determination expressly indicated that if appellants were "not in accord" with the Division's determination, they could "file a complaint . . . directly with the Tax Court of New Jersey in accordance with the N.J.S.A. 54:51A-13 et seq. This complaint must be received within ninety (90) days from the date of this notice." (Emphasis added). Accordingly, appellants should have known that they had until October 15, 2008, to file a complaint with the Tax Court. It is undisputed that they did not do so. It was not until February 16, 2010 — over a year and a half after the Division had issued its Final Determination notice — that appellants finally filed their complaint in the Tax Court.
Given this chronology, appellants' failure to comply with the ninety-day filing requirement constituted "a fatal jurisdictional defect." F.M.C. Stores Co., supra, 100 N.J. at 425 (citing Clairol v. Kingsley, 109 N.J. Super. 22 (App. Div.), aff'd, 57 N.J. 199 (1970), appeal dismissed, 402 U.S. 902, 91 S. Ct. 1377, 28 L. Ed. 2d 643 (1971)). Consequently, Judge Menyuk properly dismissed the complaint on this basis.
Appellants' reliance upon principles of entire controversy, and their related attempt to characterize Scaramuzzino and Art & San as "necessary parties" to this case, are misplaced. Appellants rely in their brief upon Circle Chevrolet Co. v. Giordano, Halleran & Ciesla, 142 N.J. 280 (1995), for the proposition that "all parties which may be known, must be named in the initial pleadings of a case" under the entire controversy doctrine. However, as Judge Menyuk rightly noted in her oral decision, the current version of the Rules of Court concerning the entire controversy doctrine, as they were amended in 1998 after the issuance of Circle Chevrolet, focuses upon the nonjoinder of claims rather than parties. As required, Rule 4:30A states that "[n]on-joinder of claims required to be joined by the entire controversy doctrine shall result in the preclusion of the omitted claims to the extent required by the entire controversy doctrine." (Emphasis added).
The comment to Rule 4:30A clearly explains that the 1998 amendment of the rules "eliminated mandatory party joinder under the entire controversy doctrine," because of "both practical and conceptual difficulties in the implementation of a party-preclusion rule and too many perceived instances of injustice[.]" Pressler & Verniero, Current N.J. Court Rules, comment 1 on R. 4:30A (2014). Therefore, after the rule amendment, "preclusion of a successive action against a person not a party to the first action has been abrogated except in special situations involving both inexcusable conduct . . . and substantial prejudice to the non-party resulting from omission from the first suit." Ibid.
Now that the mandatory party joinder requirement has been abolished, it has "been replaced by clarification of the parties' disclosure obligations and of the range of appropriate court responses to failure of compliances therewith." Ibid. Specifically, under Rule 4:5-1(b)(2), "[e]ach party shall include with the first pleading a certification" and "shall disclose in the certification the names of any non-party who should be joined in the action pursuant to R. 4:28 or who is subject to joinder pursuant to R. 4:29-1(b) because of potential liability to any party on the basis of the same transactional facts."
This Rule is made applicable to the Tax Court by Rule 4:1, which states that "[t]he rules in Part IV, insofar as applicable, govern the practice and procedure of civil action in the Superior Court, Law and Chancery Divisions, the surrogate's courts and the Tax Court except as otherwise provided in Part VI and Part VIII." (Emphasis added).
Judge Menyuk aptly explained in her oral decision why the present court rules and case law concerning the entire controversy doctrine do not justify or excuse appellants' late filing of their complaint. As the judge observed:
[T]he entire controversy doctrine does not require that plaintiffs refrain from filing its appeal as to the Director's final determination of plaintiff's tax liability. The only thing that was required of plaintiffs was that they identify Scaramuzzino and . . . Art & San, as potential parties.
[(Emphasis added).]
Moreover, the bankruptcy petition involving the successor owners did not relieve appellants of their obligation to contest the Division's tax assessment within the required ninety days. We recognize that 11 U.S.C.A. § 362(a) generally "operates as a stay . . . of the commencement or continuation . . . of a judicial . . . action or proceeding against the debtor . . . that arose before the commencement of the [bankruptcy] case." However, 11 U.S.C.A. § 362(b)(9) sets forth exceptions to the automatic stay, including, among other things, "an audit by a governmental unit to determine tax liability," "the issuance to the debtor by a governmental unit of a notice of tax deficiency," "a demand for tax returns," and "the making of an assessment for any tax and issuance of a notice and demand for payment of such an assessment."
Although appellants contend that they were prevented from moving forward with their challenge to the Division's assessment in a timely fashion because of the automatic stay associated with Scaramuzzino's bankruptcy, their attorney conceded during oral argument in the Tax Court that appellants did not have any affirmative claim for damages against either Scaramuzzino or Art & San. Rather, appellants simply wanted discovery from the successor owners in order to substantiate their own contentions against the Division. Such discovery, however, could have been pursued without naming Scaramuzzino or Art & San in the complaint as codefendants.
In her oral decision, Judge Menyuk correctly found that, without a separate substantive claim against Scaramuzzino and Art & San, appellants were merely seeking a redetermination of their own tax liabilities that had been assessed by the Division. It was up to the Division to determine whether Scaramuzzino and Art & San should eventually be joined as necessary parties, if, hypothetically, a redetermination revealed that those new owners were liable for a portion of the taxes. At that time, any bar posed by the bankruptcy stay could be raised. We agree with Judge Menyuk that merely identifying Scaramuzzino and Art & San as potential responsible parties for some of the taxes due would not have violated the stay, until some action was actually taken against them.
Moreover, alternative steps existed that appellants could have taken in order to pursue the information that they allegedly needed from Scaramuzzino and Art & San within the prescribed ninety-day timeframe. It was not necessary to name them as parties to the suit to obtain such discovery. Instead, appellants could simply have subpoenaed Scaramuzzino for his deposition, and requested him to turn over pertinent documents, pursuant to Rules 4:14-1 and 4:14-7(a).
"Except as otherwise provided by R. 4:14-9(a), after commencement of the action, any party may take the testimony of any person, including a party, by deposition upon oral examination."
"The attendance of a witness at the taking of depositions may be compelled by subpoena[.] . . . The subpoena may command the person to whom it is directed to produce designated books, papers, documents or other objects which constitute or contain evidence relating to all matters within the scope of examination[.]"
Rule 8:6-1(a), which governs discovery in the Tax Court, states that "[d]iscovery may be taken in accordance with the provisions of R. 4:10-1 through R. 4:18-2 and R. 4:22 through R. 4:25," subject to certain exceptions. Of relevance here, Rule 8:6-1(a)(1) requires that "leave of court, granted with or without notice, . . . be obtained if a party seeks to take a deposition by oral examination prior to the expiration of 60 days after service of the complaint."
Although the Rules applicable to the Tax Court thus require that a party first obtain permission from the Court before taking a deposition, there is nothing in the Rules that would have barred appellants from requesting such discovery here. As Judge Menyuk correctly stated:
Neither party has cited to the Court any applicable bankruptcy law which would bar the issuance of such subpoena to compel the testimony of Scaramuzzino as long as no claim is being brought against him as to which the bar of bankruptcy is going to be raised. All we're talking about is testimony and documents here from Scaramuzzino.
For these many reasons, the Tax Court's dismissal of appellants' untimely complaint is affirmed.
Because appellants have conceded they have no substantive claims against Scaramuzzino and Art & San, and that they were named as codefendants solely for discovery purposes, the court's dismissal of those defendants likewise is affirmed.
--------
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPEALATE DIVISION