Opinion
DOCKET NO. A-4539-10T1
04-25-2012
ENGLISH SEWAGE DISPOSAL, INC., Plaintiff-Appellant, v. DIRECTOR, DIVISION OF TAXATION, Defendant-Respondent.
Todd W. Heck argued the cause for appellant (Testa Heck Scrocca & Testa, P.A., attorneys; Mr. Heck, on the brief). Jill C. McNally, Deputy Attorney General, argued the cause for respondent (Jeffrey S. Chiesa, Attorney General, attorney; Lewis A. Scheindlin, Assistant Attorney General, of counsel; Ms. McNally, on the brief).
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
Before Judges Carchman and Fisher.
On appeal from the Tax Court of New Jersey, Docket No. 007870-2008.
Todd W. Heck argued the cause for appellant (Testa Heck Scrocca & Testa, P.A., attorneys; Mr. Heck, on the brief).
Jill C. McNally, Deputy Attorney General, argued the cause for respondent (Jeffrey S. Chiesa, Attorney General, attorney; Lewis A. Scheindlin, Assistant Attorney General, of counsel; Ms. McNally, on the brief). PER CURIAM
Plaintiff English Sewage Disposal, Inc. appeals from a judgment of the Tax Court concluding that plaintiff's charges for the transportation and disposal of waste pumped from its customers' septic waste systems were subject to sales tax under the Sales and Use Tax Act (the Act), N.J.S.A. 54:32B-1 to -29. In her written opinion of April 11, 2010, Judge Menyuk determined that under the "predominant purpose" test under the Act, plaintiff's transportation and disposal charges were taxable. We agree with the judge's well-reasoned conclusion and affirm.
The issue arose in the context of a motion for summary judgment. We briefly recite the relevant facts presented to the Tax Court on the motion. Plaintiff was engaged in the business of cleaning septic systems for residential and commercial customers. Included in its services were the pumping of customers' septic systems and the subsequent removal of the waste by transporting it to an appropriate disposal site.
In December 2004, defendant Division of Taxation (the Division) initiated an audit of plaintiff for the tax period of October 2000 through December 2004. The Division examined plaintiff's sales invoices for 2003 as a sample year. In these invoices, plaintiff typically set forth its charges as follows:
+----------------------------------------------------------------+ ¦Qty ¦Item ¦Description ¦Unit Price¦Amount ¦ +-----+--------------+------------------------+----------+-------¦ ¦ ¦ ¦Pumped septic system ¦ ¦ ¦ ¦1,500¦Gallons ¦ ¦0.16 ¦240.00 ¦ ¦ ¦ ¦tank/s ¦ ¦ ¦ +-----+--------------+------------------------+----------+-------¦ ¦ ¦ ¦3500# 4GPM Jetter to ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦clear drain line. Labor ¦ ¦ ¦ ¦1 ¦Jetter 3500 ¦ ¦300.00 ¦300.00T¦ ¦ ¦ ¦and wastewater disposal ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦is additional ¦ ¦ ¦ +-----+--------------+------------------------+----------+-------¦ ¦ ¦ ¦Labor - manhours ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦(includes estimated time¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦1 ¦Labor -Special¦for preparation, ¦300.00 ¦300.00T¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦materials selection, ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦travel and on site work)¦ ¦ ¦ +----------------------------------------------------------------+ Items taxed are indicated with a "T" adjacent to the amount billed.
The audit revealed that plaintiff did not collect or remit sales tax on the portion of each invoice referred to as "[p]umped septic system tank/s," charged on a "per gallon" basis. The Division's auditor concluded that this item was taxable.
As a result, in November 2005, the Division assessed plaintiff $57,582.62 in additional taxes plus penalties and interest. Plaintiff protested the assessment with the Division's Conference and Appeals Branch. The protest letter explained plaintiff's invoice method as follows:
[Plaintiff] has a schedule for transportation and dumping fees, which can range from $0.04 per gallon to $0.16 per gallon depending upon the type of waste. The first line item on the [plaintiff's] invoice is labeled "pumped septic system tank" which is the charge for the transportation and dumping fee that we believe is not taxable. We acknowledge thatThe protest letter also asserted that plaintiff invoiced its septic work in that manner based upon two letters issued to plaintiff's predecessor by the Division in response to an inquiry regarding matters pertinent to the audit. After considering plaintiff's protest, the conferee issued a final determination upholding the assessment, stating in part:
the terminology used by [plaintiff] for these fees [is] not very clear. But the intent was actually the charges for the transportation and dumping fees [sic].
In this case a customer can not [sic] purchase the transportation services or tipping fee without the septic cleaning service. The cost of transporting the waste and disposal of same are incidental to the total cost of the services performed and were not separately stated charges on [plaintiff's] invoice.The letters were critical to plaintiff's claims before the Tax Court. They were generated in the following context. From 1989 through June 1998, Robert L. Best served as the accountant for English Sewage Disposal, a general partnership owned by Jim D. Allen and Marion English (the English Partnership). During Best's representation of the English Partnership, he contacted the Division to clarify the proper tax treatment of his clients' business operations.
Neither the record below nor the record on appeal contained copies of the letters, materials, or information Best submitted to the Division.
In response to Best's requests, Edward A. Callahan of the Division sent Best two letters, one in 1989 and the other in 1990. The 1989 letter stated in relevant part:
Septic tank and cesspool cleaning does constitute a sewer service which is exempt from tax under paragraph [N.J.S.A.] 54:32B-3(b)(4) of the law. However, this exemption only applies where such services are performed on a regular contractual basis for a term of not less than thirty (30) days.[]The 1990 letter stated in relevant part:
. . . .
Transportation charges associated with the removal and disposal of waste would be considered a constituent element of the nontaxable service and consequently would not be subject to tax.
Please be advised that the occasional cleaning of septic tanks, not under a maintenance contract, [is] subject to New Jersey sales tax.
Transportation or trucking charges associate[d] with the removal and disposal of waste material is exempt from sales tax when separately stated. Likewise, the cost of dumping the waste material is exempt.
The labor charges are subject to New Jersey sales tax.
Plaintiff does not claim that it performs its septic tank services on a regular contractual basis for terms of thirty days or more.
Plaintiff, a New Jersey corporation, was incorporated in April 1998 by Paul Behrens, plaintiff's sole owner and president, and his then-partner Frederick J. Gross, for the purpose of acquiring all of English Partnership's assets and continuing its business operations. Plaintiff continued the business of pumping, transporting, and disposing of waste materials from the septic tanks of its commercial and residential customers. According to Behrens, plaintiff "at all relevant times has been primarily engaged in the business of pumping, transporting, and disposing of the contents of septic systems maintained by residential and commercial customers in southern New Jersey."
During the course of negotiations for that purchase, Behrens and Gross were provided with copies of the 1989 and 1990 letters. Behrens claims that he relied upon the advice provided by the Division in those letters during the operation of his business. Specifically, plaintiff charged its customers a "per gallon" fee, which according to Behrens "represented the cost of transportation and disposal of the removed solid waste to an off-site location," and was separate from charges for the cost of on-site labor for pumping activities. According to Behrens, plaintiff collected and remitted New Jersey sales tax on the portion of its invoices reflecting the on-site labor costs, but not on the portion attributable to the transportation and disposal of the waste.
In March 2008, plaintiff filed suit with the Tax Court. Thereafter, the Division moved for summary judgment. The Division argued that the "per gallon" charge was taxable and that its assessment against plaintiff was proper. Plaintiff countered that summary judgment was inappropriate because, at minimum, genuine issues of material fact existed regarding whether the predominant service plaintiff offered its customers was septic maintenance and on-site waste removal (taxable) or waste transportation and disposal (non-taxable), whether the "per gallon" charge represented charges for the transport and disposal of septic waste, and whether plaintiff was entitled to rely upon the Division's 1989 and 1990 letters.
In support of plaintiff's argument that plaintiff's primary service to its clients was transportation and disposal, Behrens certified that a minority of plaintiff's septic service charges involved labor:
The separately-stated labor charges on [plaintiff's] 2003 invoices exceeded fifty (50%) percent of the invoice total only four (4) times, or on .27% of [the] invoices. The separately-stated labor charges on [plaintiff's] 2003 invoices exceeded twenty (20%) percent of the invoice total 252 times, or on 17.17% of [the] invoices. Thus, stated labor charges as a percentage of the invoice totals for the sample year were less than fifty (50%) percent of the invoice total 99.9973% of the time, and less than twenty (20%) percent of the invoice total 82.83% of the time.Behrens further noted that plaintiff is required to be registered with and licensed by New Jersey as a solid waste transporter and that plaintiff chooses the ultimate disposal site for the solid waste removed from its customers' tanks without input from the customers.
The judge granted the Division's motion. First, the court found that plaintiff did not separately state its charges for transportation adequately, which the court held required reference to "transportation" or "some synonym for transportation." Second, the court found that the predominant purpose or true object of plaintiff's service to its customers was the taxable service of removal of waste from their septic systems, as opposed to the non-taxable service of transportation and disposal, because "[t]he focus of . . . the true object or predominant purpose test is on what exactly is being purchased by [the] customer, rather than on what the vendor does in order to provide the service[,]" and in this case, "customers are employing [plaintiff] to remove septic waste from their tanks."
Third, the court found that N.J.S.A. 54:49-11b, which excuses the payment of penalties or interest "attributable to the taxpayer's reasonable reliance on erroneous advice furnished to the taxpayer in writing by an employee of the Division[,]" did not apply. The court held it was not reasonable for plaintiff to rely upon the 1989 and 1990 letters where they were provided to a different legal entity than plaintiff, with different ownership, before N.J.S.A. 54:49-11b was even enacted. The court further held that plaintiff did not follow the advice of those letters because the 1990 letter "clearly stated that transportation and trucking charges must be separately stated. . . . [I]t is not sufficient to put those charges in a separate line item on the invoice — transportation charges must be labeled in a way so that they are identifiable as transportation charges." This appeal followed.
When reviewing a grant of summary judgment, we employ the same standard that governs the trial court. Perrelli v. Pastorelle, 206 N.J. 193, 199 (2011). Under that standard, "summary judgment should be granted only if the record demonstrates 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.'" Ibid. (quoting R. 4:46-2(c); Henry v. N.J. Dep't of Human Servs., 204 N.J. 320, 330 (2010); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995)).
The Act imposes a sales tax upon the receipts from every sale of the service of maintaining, servicing or repairing certain personal and real property. Specifically, during the audit period, N.J.S.A. 54:32B-3(b), provided that there "shall" be a six percent tax upon:
(b) The receipts from every sale, except for resale, of the following services:
. . . .
(2) . . . [M]aintaining, servicing, repairing tangible personal property not held for sale in the regular course of business . . . .
. . . .
(4) Maintaining, servicing or repairing real property . . . excluding garbage removal and sewer services performed on a regular contractual basis for a term not less than 30 days.[]
Neither party raises the issue of whether plaintiff's business involved the servicing of real or personal property. We need not decide this issue.
During the pertinent audit period, the Act defined "receipts" in relevant part as "the charge for any service taxable under this act . . . excluding the cost of transportation where such cost is separately stated in the written contract, if any, and on the bill rendered to the purchaser[.]" N.J.S.A. 54:32B-2(d) (1999). N.J.S.A. 54:32B- 8.11 (1998) exempted from the tax "[r]eceipts from charges for the transportation of persons or property, except for energy[.]"
N.J.S.A. 54:32B-2(d) was later amended to delete the exclusion of separately stated transportation charges from taxable receipts. L. 2005, c. 126, § 1. "Receipt" is currently defined as "the amount of the sales price of any tangible personal property, specified digital product or service taxable under this act."
N.J.S.A. 54:32B-8.11 was later amended to exclude from the exemption "delivery charges; transportation services provided by a limousine operator; and the transportation of energy." L. 2006, c. 44, §8.
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Resolution of this issue turns on whether plaintiff satisfied the requirement that the cost of transportation be "separately stated" in order for it to be exempt from taxation. As noted by the Tax Court, neither the legislative history for the Act, nor case law, directly sheds light on the meaning or scope of the phrase "separately stated." See Cosmair, Inc. v. Dir., N.J. Div. of Taxation, 109 N.J. 562, 567 (1988) ("[t]here is a 'dearth of legislative history behind the enactment' of the Sales and Use Tax Act") (citation omitted). We must rely on principles of statutory interpretation. See id. at 568.
"The paramount goal of all statutory construction is to give effect to the Legislature's intention." Id. at 570. A court must first consider the plain language of the statute, which "should be read according to its ordinary or general meaning, so long as that reading comports with the statute's legislative intent." Koch v. Dir., Div. of Taxation, 157 N.J. 1, 7 (1999). Where a statute can be interpreted in more than one way, courts should interpret it "in an integrated way without undue emphasis on any particular word or phrase and, if possible, in a manner which harmonizes all of its parts so as to do justice to its overall meaning." Ibid. (citation and internal quotation marks omitted).
New Jersey courts "generally defer to the interpretation that an agency gives to a statute that agency is charged with enforcing." Id. at 8. The courts have recognized the Director's expertise, "particularly in specialized and complex areas of the Act." Ibid. The Director's interpretation of the Act will prevail "as long as it is not plainly unreasonable." Ibid. (quoting Metromedia, Inc. v. Dir., Div. of Taxation, 97 N.J. 313, 327 (1984)). Consequently, "the Director's assessment of sales tax due is accorded a presumption of correctness." L & L Oil Serv., Inc. v. Dir., Div. of Taxation, 340 N.J. Super. 173, 183 (App. Div. 2001).
The New Jersey Sales and Use Tax is "a major source of revenue and should be assessed 'on as broad and equitable a base as possible.'" Metpath, Inc. v. Dir., Div. of Taxation, 96 N.J. 147, 152 (1984) (citation omitted). The Act provides that all receipts from the services mentioned in N.J.S.A. 54:32B-3(b) are presumptively subject to tax until the contrary is established. N.J.S.A. 54:32B-12(b). In other words, "[t]axation is the rule; exemption is the exception to the rule." Ronson Corp. v. Dir., Div. of Taxation, 22 N.J. Tax 652, 656 (App. Div. 2005) (quoting Phelps Dodge Indus., Inc. v. Dir., Div. of Taxation, 8 N.J. Tax 354, 358 (Tax 1986)). Consequently, "tax exemptions are to be construed narrowly." Metpath, Inc., supra, 96 N.J. at 152. See also Cosmair, supra, 109 N.J. at 569 ("tax exemptions are to be strictly construed against those seeking exemptions"). The taxpayer bears the burden of establishing eligibility for an exemption. N.J.S.A. 54:32B-12(b). See also L & L Oil, supra, 340 N.J. Super. at 183.
Here, both the Tax Court and the Division's determinations that plaintiff did not separately state its transportation and disposal charges on its invoices are reasonable and consistent with the language and purpose of the Act. The description "[p]umped septic system tank/s" fails to inform a reasonable outside observer that this charge covered transportation and disposal costs. Given that the Act presumes that receipts such as those at issue here are subject to tax, N.J.S.A. 54:32B-12(b); taxpayers bear the burden of establishing otherwise, L & L Oil, supra, 340 N.J. Super. at 183; and tax exemptions are strictly construed against those seeking exemptions, Cosmair, supra, 109 N.J. at 569; finding plaintiff's charges for "[p]umped septic system tank/s" not taxable would do injustice to the language and purpose of the Act, especially in light of the Division's finding to the contrary, see Koch, supra, 157 N.J. at 8.
Plaintiff claims that "the legislative purpose underlying statutory requirements as to separately stating taxable and nontaxable charges on [plaintiff's] invoices is to facilitate the proper tax administration rather than to fully inform customers of the exact statutory basis for the nontaxable portion of the seller's charges." While this may be true, plaintiff's ultimate conclusion — that this purpose merely requires that taxable and nontaxable charges not be commingled — is not. Separating taxable and nontaxable charges without fully and accurately describing those charges fails to facilitate proper tax administration because it deprives the Division of the ability to ensure that the taxpayer accurately determined which charges were taxable and which were not. As noted by the Division, such a rule would "inevitably facilitate avoidance of proper tax collection."
Plaintiff argues that the Tax Court "disregarded" the certified testimony of Behrens showing that Behrens intended the "[p]umped septic system tank/s" charge to cover transportation and disposal expenses. Plaintiff's intent is irrelevant. What matters is whether plaintiff complied with the requirements of the Act, not whether plaintiff intended to comply.
Plaintiff also asserts that the court placed "unprecedented emphasis upon form over substance" by holding that plaintiff failed to separately state its charges because it did not use the word "transportation" or "some synonym for transportation." However, plaintiff cites no New Jersey law in support of this proposition. Instead, plaintiff cites four out-of-state cases, none of which supports plaintiff's position. Three of the cases conclude that the taxpayer in question properly stated separately its nontaxable charges by doing so in records other than the taxpayer's invoices; however, they fail to address the issue relevant here: namely, whether the content of the taxpayer's breakdown was sufficiently clear to satisfy the statutory requirements. See Roberts v. Glander, 102 N.E.2d 242 (Ohio 1951); St. Francis Hosp. Ass'n v. Bowers, 131 N.E.2d 624, 625 (Ohio Ct. App. 1954); Scott Paper Co. v. Johnson, 159 A.2d 319 (Me. 1960).
In the fourth case, Southern Exposure of Eagan, Inc. v. Commissioner of Revenue, 1999 Minn. Tax LEXIS 53 (Minn. Tax. Ct. Oct. 20, 1999), the Minnesota tax court concluded that the taxpayer, the operator of a weight training business, could treat one-third of all monthly membership fees as taxable membership dues and two-thirds of the fees as non-taxable weight training services, despite the fact that the distinction was not separately stated in the membership contracts, noting that "form will not be exalted over substance." Id. at *11-12. However, nowhere in Southern Exposure does the court indicate whether Minnesota's tax law at the time had a "separately stated" requirement similar to New Jersey's.
Regardless, the Tax Court's rationale here does not exalt form over substance; it effectuates the language and purpose of the Act. We conclude that the Tax Court's conclusions as to whether plaintiff "separately stated" the questioned charges were well-supported by the record.
We reach the same conclusion as to the Tax Court's decision that the predominant purpose of plaintiff's septic services was taxable and reject plaintiff's claim to the contrary.
As we previously noted, under the Act, taxation is the rule, and exemption is the exception, Ronson Corp., supra, 22 N.J. Tax at 656, and the taxpayer bears the burden of establishing eligibility for an exemption, N.J.S.A. 54:32B-12(b).
In analyzing whether a taxpayer's receipts qualify for an exemption, our courts have looked at the predominant purpose or true object of the product or service being provided. See, e.g., Adamar of N.J. v. Dir., Div. of Taxation, 17 N.J. Tax 80, 93-95 (Tax 1997) (holding that a hotel's purchase of amenities was not a "sale for resale" because the "true object" of the rental of a hotel room is the use of the room, not the acquisition of its amenities), aff'd o.b., 18 N.J. Tax 70 (App. Div. 1999); D.P.S. Acquisition Corp. v. Dir., Div. of Taxation, 16 N.J. Tax 292, 299-303 (Tax 1997) (holding that plaintiff's predominant service was taxable parking lot maintenance and not tax-exempt garbage removal where plaintiff provided the service of sweeping parking lots and disposing of the debris in dumpsters located on the customers' properties), aff'd o.b., 17 N.J. Tax 592 (App. Div. 1998); KSS Transp. Corp. v. Baldwin, 9 N.J. Tax 273, 279-81 (Tax 1987) (holding that the predominant use of plaintiff's air carrier was taxable private use, not tax-exempt "common carrier" use), aff'd o.b., 11 N.J. Tax 89 (App. Div.), certif. denied, 118 N.J. 184 (1989).
Plaintiff asserts that the Tax Court failed to grant all favorable factual inferences to plaintiff and presumed facts not in the record when deciding the following:
In this case, customers are employing [plaintiff] to remove septic waste from their tanks. If they think about it at all, those customers likely understand that the septic waste must be transported and deposited somewhere and that costs for transportation and disposal are probably included in the charges invoiced to them. What they are really paying for, however, is the removal of septic waste from their premises.Plaintiff also noted that "[n]o customer of [plaintiff] provided any statement of intention which came before the [tax court]."
However, plaintiff's arguments are unavailing. Even when viewing plaintiff's contentions in the light most favorable to it, the proofs at best suggest that plaintiff's business involved a percentage of transportation and disposal, not that the transportation and disposal was the predominant purpose of that business.
For example, Behrens's certification that plaintiff "has been primarily engaged in the business of pumping, transporting, and disposing of the contents of septic systems" does not describe what percentage of plaintiff's business involved pumping versus transporting and disposing, and does not lead to the inference that the predominant purpose of plaintiff's business is transportation and disposal. Neither does Behrens's certification that plaintiff was required to be registered and licensed as a solid waste transporter; as the Division points out, "the license simply permits [plaintiff] to move solid waste on New Jersey roads," and "does not control whether a service is taxable or not taxable for Sales Tax purposes." At best, the license establishes that transportation and disposal are an aspect of plaintiff's business.
Also, Behrens's certification that a minority of its charges to its customers covered the cost of labor does not lead to the inference that the predominant purpose of plaintiff's work was transportation and disposal. In fact, the only invoice in the record shows that, assuming "[p]umped septic system tank/s" covers the cost of transportation and disposal, less than fifty percent of plaintiff's charges ($240 out of a total of $840) were for those expenses. Plaintiff entirely fails to explain the significance of one of the three charges on that invoice — "3500# 4GPM Jetter to clear drain line. Labor and wastewater disposal is additional" — or whether that charge relates to pumping, transporting, disposing, or some other purpose. The reference to "clear[ing] [a] drain line" suggests that this charge relates to pumping or servicing the septic tank, or at the very least does not relate to transportation and disposal, especially given the note that "disposal is additional" and the fact that plaintiff taxed its customers for this invoice item.
Considering plaintiff's burden to establish eligibility for an exemption, see N.J.S.A. 54:32B-12(b), plaintiff's response to the Division's motion for summary judgment failed to demonstrate a genuine issue as to whether the predominant purpose of plaintiff's business was transportation and disposal. See R. 4:46-2(c).
Plaintiff next maintains that the Tax Court erred in determining that the exemption for transportation contained in N.J.S.A. 54:32B-8.11 did not apply to the present case. We disagree.
As we previously noted, during the audit period, N.J.S.A. 54:32B-8.11, exempted from taxation "[r]eceipts from charges for the transportation of persons or property, except for energy[.]" The Tax Court concluded that
it is evident from the plain language of N.J.S.A. 54:32B-2(d) that the exemption for transportation contained in N.J.S.A. 54:32B-8.11 was not intended to apply here. Such a construction would have rendered the specific exclusion of transportation costs from receipts from otherwise taxable services in N.J.S.A. 54:32B-2(d) meaningless.
Plaintiff alleges that this interpretation "eviscerated" N.J.S.A. 54:32B-8.11 because "[u]nder the Tax Court's interpretation, [N.J.S.A. 54:32B-8.11] would apparently never apply to any taxpayers in any circumstances[.]" Plaintiff suggests that
the most logical reconciliation of these statutory provisions is that they apply in tandem as follows: (1) if the taxpayer's predominant business activity is transportation, section 8.11 applies without regard to whether the transportation charges
are separately stated; and (2) conversely, if the taxpayer is found not to be predominantly engaged in transportation services, the exemption for transportation charges will nevertheless apply if those charges were separately stated on the taxpayer's invoices.
Even assuming plaintiff's "logical reconciliation" to be true, given that plaintiff failed to show that its predominant business activity is transportation or that it adequately separately stated its transportation charges on its invoices, this interpretation does not enable plaintiff to prevail.
The only interpretation of N.J.S.A. 54:32B-8.11 that would benefit plaintiff would be an exemption from taxation of any charges for transportation, regardless of the predominant purpose of plaintiff's business, and regardless of whether those charges were separately stated. Such an interpretation would, as the Tax Court aptly noted, render meaningless the specific "separately stated" exception of N.J.S.A. 54:32B-2(d). See In re Commitment of J.M.B., 197 N.J. 563, 573 (2009) ("[w]hen interpreting a statute or regulation, we endeavor to give meaning to all words and to avoid an interpretation that reduces specific language to mere surplusage") (internal quotation marks and citations omitted). We reject this view of the exemption as well as plaintiff's argument in that regard.
Plaintiff also claims that the Tax Court erred in invoking the "true object" test, arguing that this test applies only "under the separate statutory exemption under [N.J.S.A.] 54:32B-2(e) for 'sale for resale.'" Plaintiff further asserts that while the "true object" test "focuses on . . . customer intentions and expectations as to the . . . service in question . . . , customer expectations and intentions are largely (if not completely) irrelevant to the present issue of whether [plaintiff's] disputed charges were in fact for exempt transportation and disposal services."
Plaintiff cites no authority for the proposition that the "true object" test cannot apply outside of the "sale for resale" context. Regardless, plaintiff does not dispute the applicability of the "predominant purpose" test to the issues here. See KSS Transp., supra, 9 N.J. Tax at 277-81 (utilizing the predominant use test in a case interpreting N.J.S.A. 54:32B-8.35, which exempts from sales tax receipts from the sale of aircraft used for common carriage). See also D.P.S. Acquisition, supra, 16 N.J. Tax at 300 ("[t]he Appellate Division in KSS Transp. Corp. v. Director, Div. of Taxation, 11 N.J. Tax 89, 94 (App. Div. 1989), aff'g 9 N.J. Tax 273 (Tax 1987), approved the use of the predominant use test with regard to exemptions under the sales and use tax"). Plaintiff does not prevail under this test, and the "true object" test is no longer relevant to our inquiry.
Finally, plaintiff asserts that the Tax Court erred in determining that plaintiff is not excused under N.J.S.A. 54:49-11b from the payment of penalties or interest on that assessment. We disagree.
As a general rule, taxpayers who fail to pay their taxes in a timely manner are subject to penalties and interest. See N.J.S.A. 54:49-3. However, under N.J.S.A. 54:49-11b,
[t]he director shall waive the payment of any part of any penalty or any part of any interest attributable to the taxpayer's reasonable reliance on erroneous advice furnished to the taxpayer in writing by an employee of the Division of Taxation acting in the employee's official capacity, provided that the penalty or interest did not result from a failure of the taxpayer to provide adequate or accurate information.
This statute applies only where "(1) an authorized Division employee furnishes written advice; (2) the advice is based on adequate and accurate information from the taxpayer; (3) the advice is erroneous; and (4) the taxpayer must reasonably rely on the advice." L & L Oil, supra, 340 N.J. Super. at 189.
The Tax Court concluded that plaintiff's reliance upon the 1989 and 1990 letters was not reasonable because (1) the advice in those letters was rendered to English Partnership, not to plaintiff, and plaintiff is a different legal entity from English Partnership; and (2) the letters were provided to English Partnership "eight and nine years before plaintiff acquired its business and assets, and three and four years before the effective date of [the statute]."
While not directly on point, Richardson v. Director, Division of Taxation, 14 N.J. Tax 356 (Tax 1994), supports the Tax Court's determination. In Richardson, the court held that application of N.J.S.A. 54:49-11b to a letter issued by the Division and relied upon by a taxpayer before the statute was enacted "would change the rules and expectations under which both state employees and taxpayers operated" before the statute was enacted. Id. at 368. While plaintiff's reliance here occurred after the statute was enacted, when the 1989 and 1990 letters were written, the Division "had no way of knowing that any 'erroneous advice' contained in those instructions would entitle taxpayers to full abatement of deficiency interest." Ibid. Also, the plain language of the Act states that for penalties and interest to be excused, the erroneous advice must be "furnished to the taxpayer," N.J.S.A. 54:49-11b (emphasis added), not the entity from whom the taxpayer purchased its business and assets.
In any event, we need not resolve these issues, as we accept the Tax Court's conclusion that the advice provided in the 1989 and 1990 letters "was not completely inaccurate. [The 1990 letter] clearly stated that transportation and trucking charges must be separately stated." As the Tax Court observed, "it is not sufficient to put those charges in a separate line item on the invoice — transportation charges must be labeled in a way so that they are identifiable as transportation charges." Plaintiff did not comply with the advice of the 1989 and 1990 letters, and that failure resulted in the Division's tax assessment. N.J.S.A. 54:49-11b does not apply and plaintiff is liable for penalties and interest.
Affirmed.
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION