Justia Tax Law Opinion SummariesArticles Posted in New Jersey Supreme Court
Waksal v. Director, Division of Taxation
At issue in this case was the deductibility of a worthless nonbusiness asset under the New Jersey Gross Income Tax Act. The Waksals filed a complaint in Tax Court, challenging a deficiency assessed on their sale of the asset on the ground that section 5-1c of the Act authorized their deduction of a worthless nonbusiness debt by incorporating the Internal Revenue Code’s treatment of such debts into New Jersey’s tax law through language stating that gains or losses should be determined by methods use “for federal income tax purposes.” The Waksals and the Director of the Division of Taxation cross-moved for summary judgment, and the Tax Court granted the Director’s motion, holding that section 5-1c only applies when a taxpayer has sold, exchanged or disposed of property, and that its applicability may depend on the circumstances of the underlying transaction. The Tax Court dismissed the Waksals’ complaint. The Waksals appealed, and the Appellate Division affirmed substantially for the reasons cited by the Tax Court. Upon review, the Supreme Court concluded that the worthless nonbusiness debt at issue was not a “sale, exchange or other disposition of property.” Section 5-1c did not integrate into the Act every provision of the Internal Revenue Code governing capital gains and losses, and 26 U.S.C.A. 166(d)(1)(B) did not constitute a federal “method of accounting” for purposes of this case. View "Waksal v. Director, Division of Taxation" on Justia Law
PrimeAccounting Department v. Township of Carney’s Point
The taxpayer, Bocceli, LLC, is the taxpaying sublessee of a commercial property owned by Penns Grove Associates in the Township of Carney's Point. The Township's tax assessment list incorrectly listed Prime Accounting Department as the owner. In 2007, the Township wrote to Prime Accounting requesting updated income and expense information for purposes of assessing the value of the property. Prime Management's interest in the property transferred to a new lessee, WIH Hotels, Inc. That inquiry eventually reached WIH, which submitted a late response and paid taxes for 2007. WIH entered into a sublease with Bocceli, which became responsible for property tax payments. In 2008, the managing member of Bocceli visited the tax collector's office, made a tax payment, and requested that the tax assessment list be changed to designate "Bocceli, LLC" as the owner and that notices be sent to the property. According to the Township, the clerk advised the managing member that a deed needed to be presented to the assessor's office to change the list. No deed was presented, and Prime Accounting remained on the list. The tax assessor sent the annual request to Prime Accounting. When it was returned undelivered, the Township reviewed its records and discovered that WIH had responded to the prior year's request. It sent another request to WIH, which did not forward it to Bocceli. Later that year, the tax collector advised the tax assessor of the address that the managing member had provided, but it continued to list Prime Accounting as the owner. In early 2009, the assessor notified Bocceli of the annual tax assessment. Thus, at that time, the assessor was aware of Bocceli's responsibility to pay property taxes and used Bocceli's mailing address to serve the notice of assessment that prompted this tax appeal. The tax assessment list continued to designate Prime Accounting as the entity responsible to pay the taxes. The issue before the Supreme Court centered on whether a tax appeal complaint timely filed, but one which did not name the aggrieved taxpayer as the plaintiff, should have been dismissed for lack of subject matter jurisdiction. The Supreme Court concluded that Bocceli's misdesignation of the plaintiff did not deprive the tax court of subject matter jurisdiction. "The defect in the complaint did not prejudice the Township and [could] be corrected by an amended complaint that relate[d] back to the filing of the original complaint." View "PrimeAccounting Department v. Township of Carney's Point" on Justia Law
Whirlpool Properties, Inc. v. Div. of Taxation
New Jersey uses a three-factor formula to calculate a multi-state corporation’s New Jersey Corporate Business Tax (CBT) by apportioning income between New Jersey and the rest of the world. For taxpayers with regular places of business outside of New Jersey, the portion of entire net worth and entire net income that is subject to New Jersey tax is determined by multiplying each by an allocation factor that is the sum of the property fraction, the payroll fraction, and two times the sales fraction, divided by four. The sales fraction is at issue in this case. Without the "Throw-Out Rule," the sales fraction is calculated by dividing the taxpayer’s receipts (sales of tangible personal property, services, and all other business receipts) in New Jersey by total receipts. The Throw-Out Rule increases a corporation’s New Jersey tax liability by “throwing out” sales receipts that are not taxed by other jurisdictions from the denominator of the sales fraction. This always increases the sales fraction, causing the apportionment formula and resulting CBT to increase. Whirlpool Properties, Inc. appealed its assessment from 2002, arguing that the Throw-Out Rule was unconstitutional. Upon review of the applicable legal authorities, the Supreme Court held that corporate taxpayers having a substantial nexus to New Jersey may constitutionally apply the Throw-Out Rule to untaxed receipts from states that lack jurisdiction to tax it due to an insufficient connection with the corporation but not to receipts that are untaxed because a state chooses not to impose an income tax.
International Schools Services, Inc. v. West Windsor Township
The issue before the Supreme Court in this case was whether plaintiff International Schools Services, Inc. (ISS) was properly denied a tax exemption for 2002 and 2003 under the state tax code. ISS has owned and occupied the West Windsor Township property at issue in this case since 1989. ISS is a nonprofit corporation and maintains a tax-exempt status under the Internal Revenue Service Code. Although West Windsor Township granted ISS a property tax exemption from 1990 through 2001 for the portions of ISS's property that it actually occupied, the exemption was denied for 2002 and 2003 based on the Township's review of ISS's activities. ISS appealed to the Tax Court which found that ISS had not satisfied the first prong of a three-part test (the "Paper Mill Playhouse" test) requiring that the entity seeking tax exemption be "organized exclusively for the moral and mental improvement of men, women, and children." The Appellate Division reversed that decision, and remanded for the Tax Court to address the remaining prongs of the test. On remand, the Tax Court held that ISS had not satisfied the second prong of the test because the schools, not ISS, were performing the activities sufficient for tax exemption, and ISS was merely assisting them. Focusing on the rates charged for rent to some of its for-profit affiliates, the Tax Court found also that ISS had not satisfied the third prong of the test. The Appellate Division disagreed with the Tax Court with regard to the second prong of the test, but found that ISS failed the third prong due to the subsidies it provided to its affiliates. Upon review, the Supreme Court found that West Windsor Township properly denied a property tax exemption to ISS for the tax years 2002 and 2003 because the commingling of its effort and entanglement of its activities and operations with its profit-making affiliates was significant and substantial, with the benefit in the form of direct and indirect subsidies flowing only one way-from ISS to the for-profit entities.