Opinion
Docket No. 000004-2010
04-01-2013
Re: Judy Avallone v. Sears Holding Corp. d/b/a/ K-Mart, State of New Jersey, and David Rousseau, Treasurer of the State of New Jersey
William Riback, Esq. Theodore McEvoy, Esq. Greenberg Traurig, LLP Heather Lynn Anderson, Esq. Deputy Attorney General R.J. Hughes Justice Complex
JUDGE
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF
THE TAX COURT COMMITTEE ON OPINIONS
William Riback, Esq. Theodore McEvoy, Esq.
Greenberg Traurig, LLP
Heather Lynn Anderson, Esq.
Deputy Attorney General
R.J. Hughes Justice Complex
Dear Counsel:
The underlying appeal brought by plaintiff, Judy Avollone (individually "Ms. Avollone"), on behalf of herself and a putative class of similarly situated individuals (collectively the "Class") seeks relief arising out of the alleged failure of defendant Sears Holding Corporation ("Sears") to exclude purchases of certain household paper products made by the Class from New Jersey Sales and Use Tax.
This letter-opinion shall serve as the court's decision regarding five motions/cross-motions filed by the various parties hereto, namely: (1) the motion of Sears to dismiss the first two counts of the complaint for failure to state a claim upon which relief can be granted; (2) the motion of defendants State of New Jersey and David Rousseau, former Treasurer of the State of New Jersey ("State Defendants") for summary judgment as to the third count in the complaint; (3) the cross-motion of the Class for leave to amend the complaint; (4) the cross-motion of the Class to compel discovery from the State Defendants; and (5) the motion of the Class to admit Eric B. Snyder, Esq. pro hac vice.
These motions were filed, briefed, and argued before another Tax Court judge who retired before rendering a decision. The reserved motions and underlying matter were reassigned to this court for disposition.
For the reasons set forth in this letter-opinion, the court: (1) grants Sears' motion to dismiss the first two counts of the complaint for failure to state a claim upon which relief can be granted; (2) grants the State Defendants' motion for summary judgment as to the third count of the complaint; (3) denies the Class' cross-motion for leave to amend the complaint; (4) denies the Class' cross-motion to compel discovery from the State Defendants; and (5) denies the Class' motion to admit Eric B. Snyder, Esq. pro hac vice.
I. Facts and Procedural History
On or about March 25, 2009 and April 19, 2009 respectively, Ms. Avallone, a New Jersey resident, purchased disposable household paper products from K-Mart, which is operated by Sears, at its Camden County location. Sears is an Illinois corporation licensed to do business in New Jersey as a retailer. Ms. Avallone asserts that the purchased products are exempt from New Jersey's Sales & Use Tax Act, N.J.S.A. 54:32B-1 to -55 ("SUTA") pursuant to the Disposable Household Paper Products Exemption therein, at N.J.S.A. 54:32B-8.44. Ms. Avallone alleges that she suffered an ascertainable loss in the amount of $2.61 as a result of Sears' alleged failure to exclude from her purchase the aforementioned tax.
"Receipts from the following are exempt from the tax imposed under [SUTA:] sales of disposable household paper products, including towels, napkins, toilet tissues, cleaning tissues, diapers, paper plates and cups purchased for household use." N.J.S.A. 54:32B-8.44. The State Defendants conceded, for the purposes of their motion for summary judgment, that the products in question were exempt from sales tax.
The taxes at issue in this matter have been provided to the State pursuant to N.J.S.A. 54:32B-18. No refund claims have been filed with the Division of Taxation by the Class pursuant to N.J.A.C. 18:2-5.8. No written notice has been provided by the Class to Sears in regards to their alleged conduct pursuant to N.J.S.A. 54:32B-20(c).
The facts contained in this paragraph were provided as answers to additional clarification questions asked of counsel at the request of the court during a joint conference call in lieu of reopening oral argument. The answers those questions were confirmed in writing to the court by each counsel having the pertinent information and are incorporated into the record. There was no objection or dispute as to the answers provided.
On August 19, 2009, Ms. Avallone filed a class action complaint ("Complaint") in New Jersey Superior Court on behalf of the Class claiming that Sears (in Count One) violated the Consumer Fraud Act, N.J.S.A. 56:8-1 to -20 ("CFA") with respect to its business practice in connection with the sale of products exempt from New Jersey Sales and Use Tax, and (in Count Two) committed common law negligence with respect to its business practices of collecting sales taxes on items sold at its retail locations; and that the State Defendants (in Count Three) violated the New Jersey Civil Rights Act, N.J.S.A. 10:6-1 to -3 ("NJCRA") by way of their enforcement of the State Uniform Tax Procedure Law, N.J.S.A. 54:48-1 to 54-6 ("SUTPL"), specifically N.J.S.A. 54:49-14(c), which provides that "[e]ach taxpayer shall file a separate refund claim. A refund claim on behalf of a class is not permitted." Id.
The Superior Court transferred the matter to the Tax Court on January 8, 2010 in accordance with N.J.S.A. 2B:13-2b. The aforementioned motions/cross-motions were filed on various dates between January 22, 2010 and August 23, 2010, and were consolidated for oral argument on September 16, 2010. As of January 1, 2013, the entire matter, including the pending motions on reserve, was re-assigned to this court. Upon reviewing the file, this court determined that it was unnecessary for the parties to re-argue the motions.
II. Sears' motion to Dismiss Counts One and Two of the Complaint
for Failure to State a Claim upon which Relief can be Granted
SUTA provides, in relevant part, that
[t]he director shall refund or credit any tax, penalty or interest erroneously, illegally or unconstitutionally collected or paid if application to the director for such refund shall be made within four years from the payment thereof. Such application may be made by a customer who has actually paid the tax.
[N.J.S.A. 54:32B-20(a).]
Under SUTPL,
When any law of this state heretofore or hereafter enacted levies or imposes any state tax, unless expressly prohibited by the law imposing or levying such tax the provisions of this subtitle shall be applicable to such tax, and the collection thereof may be enforced by the commissioner in the manner provided in this subtitle.There is a provision in the SUTPL that also governs the tax refunds. N.J.S.A. 54:49-14(a) provides that "[a]ny taxpayer, at any time within four years after the payment of any original or additional tax assessed against him....may file with the director a claim under oath for refund." The two refund provisions do not conflict. This court need not address the issue further since the Appellate Division has concluded that sales tax refunds are governed exclusively by the provisions of the SUTA. Kawa, supra, 24 N.J. Tax at 451.
[ N.J.S.A. 54:48-4.]
"N.J.S.A. 54:32B-20(a) provides plaintiff's exclusive remedy for excess taxes collected by a vendor where the excess taxes have been remitted to the Director." Kawa v. Wakefern Food Corp., 24 N.J. Tax. 39, 54 (Tax 2008) (emphasis added).
In Kawa, supra, the plaintiffs made several purchases from supermarkets that overcharged the amount of sales tax due on said purchases. Id. at 41. Instead of filing a claim for refund with the Division of Taxation, the plaintiffs filed a complaint in the Tax Court against the supermarkets alleging violations of the CFA. Ibid. In dismissing the complaint in Kawa, the Tax Court concluded that "the Division of Taxation has exclusive jurisdiction in the first instance...to refund the [sales] tax pursuant to N.J.S.A. 54:32B-20(a)." Kawa v. Wakefern Food Corp, supra, 24 N.J. Tax at 51. The Appellate Division affirmed holding that, "[p]laintiffs exclusive refund remedy lay within the framework of the SUTA..." Kawa v. Wakefern Food Corp., 24 N.J. Tax. 444, 451 (App. Div. 2008), certif. den. 200 N.L. 369 (2009) (citation omitted).
The complaint in Kawa, supra, was filed as a class action. 24 N.J. Tax at 41.
Pursuant to N.J.S.A. 54:32B-20(c), a taxpayer also has the right to seek a refund of over assessed sales tax from a vendor prior to that vendor's remittance of the collected funds to the Division of Taxation. N.J.S.A. 54:32B-20(c) provides, in relevant part:
A purchaser may seek a refund of over-collected sales or use tax from the seller. This refund procedure shall provide the first course of remedy available to a purchaser seeking such a refund. A cause of action seeking a return of over-collected sales or use taxes from the seller shall not accrue until the purchaser has provided written notice to a seller and the seller has had sixty days to respond. Such notice shall contain the information necessary to determine the validity of the request.Furthermore, N.J.A.C. 18:2-5.8 provides, in relevant part:
[Id. (emphasis added).]
If the taxpayer overpaid sales tax when making a retail purchase, the taxpayer may request a refund directly from the vendor from whom the purchase was made. However, if the vendor has already submitted the tax to the State, the taxpayer must complete a Claim for Refund (Form A-3730) and include supporting documents to substantiate the claim.
[Id.]
Based on the plain language of both N.J.S.A. 54:32B-20(a), N.J.A.C. 18:2-5.8, along with the Appellate Division's holding in Kawa, supra, 24 N.J. Tax at 451, and since the sales tax Sears allegedly overcharged the Class has been remitted to the Division of Taxation, the court dismisses Count One and Count Two of the Class' complaint against Sears for failure to state a claim upon which relief can be granted.
It is of no consequence that the Class brought this action against Sears alleging violations of the CFA and common law negligence since the "[New Jersey] Legislature intended the refund remedy provided by N.J.S.A. 54:32B-20(a) to be the exclusive remedy for the refund of overpaid sales tax after that money has been remitted to the state." Kawa, supra, 24 N.J. Tax at 54. Further, irrespective of certain amendments to the SUTA in 2005, the Tax Court determined "[t]here is no evidence that...the Legislature [in amending SUTA] intended to create or permit a common law cause of action or an action under the Consumer Fraud Act where tax has already been paid over to the Director." Id. at 58.
Even if Sears had not remitted the excess sales tax to the Division of Taxation, N.J.S.A. 54:32B-20(c) clearly provides that no cause of action accrues until "the purchaser has provided written notice to a seller and the seller has had sixty days to respond" Id. (emphasis added). Since the Class has not complied with the sixty-day notice requirement of N.J.S.A. 54:32B-20(c), whether or not a cause of action for a refund directly from Sears can be maintained under the CFA or common law negligence is not ripe for judicial determination.
III. State Defendants' motion for summary judgment as to Count Three of the Complaint
The State Defendants moved for summary judgment on two separate grounds, namely (1) that the matter should be dismissed against the State Defendants because the Class has not filed a sales tax refund claim, therefore no state action (or failure to act) is in dispute or otherwise at issue in this case; and (2) that N.J.S.A. 54:49-14(c) is constitutional and does not violate the class' substantive due process rights.
A. Ripeness for Judicial Review
Pursuant to New Jersey's Court Rule 4:46, a court shall grant a motion for summary judgment
. . . 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.
[R. 4:46-2(c).]
If "summary judgment turns on a question of law, or if further factual development is unnecessary in light of the issues presented, then summary judgment need not be delayed [where discovery is incomplete]. United Savings Bank v. State, 360 N.J. Super. 520, 525 (App. Div. 2003) (citations omitted). Since plaintiffs' complaint against the State Defendants turns on a question of law, and since there are no genuine issues of material facts, the matter is ripe for summary judgment based on the aforementioned standard.
The Appellate Division in Kawa, supra, held that "[j]udicial review is [only] available after the Director has acted on the claimant's request for refund of sales tax remitted to the State." Id. at 450. Since the Class has not filed any claims with the Division of Taxation, opting instead to pursue judicial review of their claims under an alleged due process violation, there is no actual adverse determination involving the Division of Taxation for review before this court. Accordingly, the court grants the State Defendant's motion for summary judgment as to Count Three of the Class' complaint.
B. The Constitutionality of N.J.S.A. 54:49-14(c)
In Kawa, supra, The Appellate Division affirmed the Tax Court's holding that "[t]he SUTPL bars refund claims for taxes overpaid to the State on behalf of a class." 24 N.J. Tax at 450 (citations omitted). The Class asserts that N.J.S.A. 54:49-14(c) which requires "[e]ach taxpayer [to file] a separate refund claim", while not permitting "[a] refund claim on behalf of a class," is unconstitutional since sales tax refund claims are generally low-value in nature, causing the burden of obtaining individual relief to outweigh the benefit of obtaining the tax refund as the cost of legal representation is likely to surpass the value of relief on an individual basis. As a result, the Class contends that N.J.S.A. 54:49-14(c) leaves individuals without an effective remedy for the overpayment of sales tax.
Neither the Tax Court in Kawa, supra, 24 N.J. Tax at 39 or the Appellate Division in Kawa, supra, 24 N.J. Tax at 444 address the issue of the constitutionality of N.J.S.A. 54:49-14(c).
The court finds that the question of the constitutionality of N.J.S.A. 54:49-14(c) is not ripe for judicial determination here. The Class does not challenge the constitutionality or applicability of N.J.S.A. 54:32B-20 or N.J.A.C. 18:2-5.8. By virtue of the collective failure of the Class to follow the procedure set forth in N.J.A.C. 18:2-5.8 and properly apply for a sales tax refund from the Division of Taxation, the court need not reach the issue as to the constitutionality of N.J.S.A. 54:49-14(c).
IV. The cross-motion of the Class for leave to amend the complaint
The court denies this motion since the counts alleged in the complaint against Sears, as well as the additional allegations contained in the proposed amended complaint are deficient as a matter of law due to the failure of the Class to comply with the written notice provision of N.J.S.A. 54:32B-20(c) and the Appellate Division's holding that the exclusive remedy for the refund of overcharged sales tax is under SUTA. Kawa, supra, 24 N.J. Tax at 451. The additional allegation against the State Defendants is also not ripe for judicial review for the same reasons set forth in Section III(A) of this letter-opinion.
In the proposed amended complaint, additional allegations against Sears include (1) violations of the CFA arising out of Sears' failure to have reasonable accounting measures in place including but not limited to failing to properly identify taxable items and non-taxable items and the resulting failure to property account and disburse money owed to the State of New Jersey; (2) violations of the SUTA alleging that Sears fails to satisfy the SUTA requirement of a showing of reasonable business practices in relation to the collection of taxes and the Sears' failure to have reasonable accounting measures in place including but not limited to failing to properly identify taxable items and non-taxable items and the resulting failure to property account and disburse money owed to the State of New Jersey. The proposed amended complaint also sets forth an additional allegation against the State Defendants for violations of the SUTA for collecting taxes made illegal by N.J.S.A. 54:32B-8.44.
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V. The cross-motion of the Class to compel discovery from the State Defendants
As set forth in Section V above, the court determined that judicial review is not available to the Class at this stage in the proceedings for failure to properly file a claim for a refund pursuant to N.J.A.C. 18:2-5.8. Accordingly, further discovery is not appropriate at this time.
VI. The motion of the Class to admit Eric Snyder pro hac vice
The court denies the Class' motion to admit Eric Snyder pro hac vice, since the matter is moot given the court's determination of the preceding motions/cross-motion.
VII. Conclusion
For the reasons set forth herein, the court grants Sears' motion to dismiss Counts One and Two of the Complaint for failure to state a claim upon which relief can be granted; grants the State Defendants' motion for summary judgment dismissing Count Three of the Complaint; which effectively dismisses the entire complaint.
The court further denies the Class' cross-motion for leave to amend the complaint, and motions to compel discovery from the State Defendants, and to admit Eric B. Snyder, Esq. pro hac vice.
A copy of the court's Order and Final Judgment reflecting the decision this letter opinion is enclosed. Respectfully submitted, Vito L. Bianco, J.T.C
(Actual signature used on original letter opinion.)
Hon. Vito L. Bianco, J.T.C.
VLB:JAS Encl.