Opinion
Docket No. 007107-2011
06-05-2014
Re: Estate of Marie P. Frappolli v. Director, Division of Taxation
NOT FOR PUBLICATION WITHOUT APPROVAL OF
THE TAX COURT COMMITTEE ON OPINIONS
Patrick DeAlmeida
Presiding Judge
Wendy Wolff Herbert, Esq.
Fox Rothschild, LLP
Princeton Pike Corporate Center
997 Lenox Drive, Building 3
Lawrenceville, New Jersey 08648-2311
Heather Lynn Anderson
Deputy Attorney General
Division of Law
R.J. Hughes Justice Complex
25 Market Street
P.O. Box 106
Trenton, New Jersey 08625-0106
Dear counsel:
This letter constitutes the court's opinion with respect to the parties' cross-motions for summary judgment. At issue is the February 23, 2011 final determination of the Director, Division of Taxation assessing transfer inheritance tax against the Estate of Marie P. Frappolli. The central question before the court is whether Ms. Frappolli and Dorothea G. Angelou, the beneficiary who inherited Ms. Frappolli's assets, should be treated as domestic partners, thereby insulating the inheritance from transfer inheritance tax. Ms. Frappolli and Ms. Angelou never registered as domestic partners in New Jersey or any other jurisdiction even though they fulfilled the statutory requirements for a domestic partnership. In addition, the Estate challenges the Director's calculation of the value of the interest that Ms. Angelou inherited in the couple's residence. Prior to Ms. Frappolli's death, each party held a 50% undivided interest as joint tenants with the right of survivorship. Upon Ms. Frappolli's death, Ms. Angelou became 100% owner in fee simple of the residence. The Director included the full value of the property as part of the taxable estate. The Estate argues that, in the event that Ms. Angelou is not treated as a domestic partner of Ms. Frappolli, only half of the value of the property should be included in the taxable Estate.
For the reasons stated more fully below, the court concludes that Ms. Frappolli and Ms. Angelou may not be treated as domestic partners for tax purposes because they did not execute and file an Affidavit of Domestic Partnership with a local registrar in accordance with the New Jersey Domestic Partnership Act, N.J.S.A. 26:8A-1, et seq., and were not registered as domestic partners under the laws of any other jurisdiction. In addition, the court concludes that when calculating the value of the interest in the couple's residence inherited by Ms. Angelou, the Director correctly applied N.J.S.A. 54:34-1f and assessed transfer inheritance tax against the value of the entire property. The court concludes that the statute is a legitimate exercise of the Legislature's authority to raise revenue by rational means.
As a result of these conclusions, the court denies the Estate's motion for partial summary judgment and grants the Director's cross-motion for summary judgment. The court will enter Judgment affirming the Director's final determination.
I. Findings of Fact
The court makes the following findings of fact based on the materials submitted by the parties in support of their motions.
Marie P. Frappolli and Dorothea G. Angelou enjoyed a relationship of love, caring, mutual respect and friendship for many decades beginning when they were students. The two lived together as a couple, comingled their funds, maintained a household, participated in community activities together, and cared for each other through illnesses.
In 1966, Ms. Frappolli purchased a residence in Avalon in her own name. At that time, Ms. Angelou maintained a separate residence with her father. In 1980, after the death of her father, Ms. Angelou moved into the Avalon home with Ms. Frappolli. The couple lived together in the residence from that time until 2009, sharing household expenses from joint accounts.
On June 30, 1993, Ms. Frappolli conveyed the property to "Marie P. Frappolli as to an undivided fifty (50%) interest and Dorothea G. Angelou as to the remaining fifty (50%) percent interest, each undivided fifty percent interest being held as joint tenants with rights of survivorship and not as tenants in common." Ms. Angelou did not provide any consideration for the transfer. The deed listed the consideration for the transaction as $1.
On July 10, 2004, L. 2003, c. 246, the Domestic Partnership Act, took effect. The statute provided a number of rights and obligations for same-sex couples who registered as domestic partners. Among the rights accorded by the Act is the right of a surviving domestic partner to inherit a deceased domestic partner's assets free from imposition of the New Jersey transfer inheritance tax on the same basis as a spouse. N.J.S.A. 26:8A-2d. In order to register as domestic partners a couple's relationship must meet specified statutory criteria and the couple must execute and file an Affidavit of Domestic Partnership with the local registrar. N.J.S.A. 26:8A-4.
Although their relationship satisfied the statutory criteria for a domestic partnership, Ms. Frappolli and Ms. Angelou did not execute and file an Affidavit of Domestic Partnership with the local registrar. Nor did the couple register as domestic partners in any other jurisdiction that recognizes domestic partnerships or similar relationships. See N.J.S.A. 26:8A-6c ("A domestic partnership, civil union, or reciprocal beneficiary relationship entered into outside of this State, which is valid under the laws of the jurisdiction under which the partnership was created, shall be valid in this State.").
On October 25, 2006, the Supreme Court issued its opinion in Lewis v. Harris, 188 N.J. 415 (2006). In that case, the Court held that the State Constitution requires that same-sex couples be afforded access to a government-sanctioned relationship that provides all of the rights and obligations of marriage. Although unanimous in their holding with respect to the constitutional mandate to recognize same-sex couples, the Justices split with respect to the remedy. Four Justices, constituting a majority, held that the constitutional mandate could be satisfied either by extending the ability to marry to same-sex couples or by providing a distinct, government-sanctioned relationship that would provide same-sex couples with all of the rights and obligations of marriage. A three-Justice minority held that the sole available remedy was to amend the marriage statutes to permit same-sex couples to marry. The Legislature opted to enact legislation authorizing civil unions.
On February 19, 2007, L. 2006, c. 103, the Civil Union Act, became effective. Pursuant to this statute, same-sex couples were authorized to enter into government-recognized civil unions with all of the rights and obligations of marriage. Among the rights accorded to civil union partners is the right of a surviving civil union partner to inherit the assets of a deceased civil union partner free from imposition of the transfer inheritance tax. Ms. Frappolli and Ms. Angelou did not enter into a civil union in New Jersey. Nor did the couple enter into a marriage or civil union in any other State or country that provides government recognition to same-sex couples. See Attorney General Formal Opinion 3-2007 (Feb. 16, 2007)(opinion that New Jersey will recognize as valid same-sex relationships formed under the laws of other States and foreign nations beginning February 19, 2007).
Notably, at the time that the Legislature authorized civil unions, it amended the Domestic Partnership Act effective February 19, 2007 to limit domestic partnership to couples who are each 62 years of age or older. L, 2006, c. 103, §91. The authorization of civil unions did not alter the rights and responsibilities of existing domestic partnerships, except that eligible domestic partners were given notice and an opportunity to enter into a civil union. Entry into a civil union, when joined by both parties to an existing domestic partnership, operates to terminate the domestic partnership. Ibid.
On March 8, 2009, Ms. Frappolli died. She named Ms. Angelou as Executrix and sole residual beneficiary of the Estate. This resulted in Ms. Angelou inheriting Ms. Frappolli's 50% undivided interest in the Avalon residence, along with personal property and other assets of significantly less value.
On August 24, 2009, the Estate filed a New Jersey Decedent Inheritance Tax return with the Division of Taxation. The return reported that on the date of death the Avalon residence had a value of $1,200,000 and was subject to a $64,659 mortgage. The return estimated Ms. Frappolli's equity in the house on the date of death as $567,675 ($1,200,000 - $64,659 ÷ 2 = $567,675 (rounded)). The return also listed the value of personal property at $28,550 and an additional $20 in transfers. On the return, Ms. Angelou was reported as a Class A beneficiary, the spouse, civil union, domestic partner category. In light of this designation, the return reported no transfer inheritance tax due. See N.J.S.A. 54:34-2a (providing that no transfer inheritance tax shall be imposed on transfers from a decedent to a husband, wife or domestic partner).
A Division of Taxation representative thereafter audited the Estate's return. On July 1, 2010, the Division issued a Notice of Assessment. While the Division agreed with the asset values reported on the Estate's return, the Division changed Ms. Angelou's beneficiary designation to Class D, unrelated beneficiary. See N.J.S.A. 54:34-2d (imposing 15% tax on first $700,000 of transfers and 16% tax on transfers in excess of $700,000 to any beneficiary not otherwise listed in the statute at a lower tax rate). As a result of this revision, the Division assessed transfer inheritance tax in the amount of $89,078.05 against the Estate. With interest to July 20, 2010, the outstanding obligation of the Estate was set at $95,277.87. The Division did not change the value attributed to the interest in the residence that Ms. Angelou inherited from Ms. Frappolli.
Ms. Angelou subsequently made a payment of $24,095.41 under protest to reduce the amount of accumulating interest.
On September 10, 2010, Ms. Angelou filed a Notice of Protest with the Division of Taxation on behalf of the Estate. In her Notice of Protest, Ms. Angelou detailed the long-term relationship between Ms. Frappolli and Ms. Angelou and argued that she should be treated as a Class A beneficiary of the Estate because the couple satisfied all of the requirements for a domestic partnership, even though they never executed and filed an Affidavit of Domestic Partnership with a local registrar.
On February 23, 2011, the Director issued a final determination rejecting the Estate's claims with respect to the couple's domestic partnership. In addition, the Director recalculated the Estate's transfer inheritance tax liability. The Director increased the value of Ms. Angelou's inheritance by considering her inherited interest in the couple's residence to be the full value of the property pursuant to N.J.S.A. 54:34-1f. That statute provides that the full value of property jointly held by a decedent and a beneficiary must be included in the taxable estate. In light of the Director's final determination, the transfer inheritance tax liability of the Estate was determined to be $178,845.57. After application of interest and a credit for Ms. Angelou's payment of $24,095.41, the Director set the outstanding transfer inheritance tax liability of the Estate to be $179,787.84.
On March 20, 2011, the Estate filed a Complaint in this court challenging the Director's final determination.
The Complaint is stamped "received" by this court on May 20, 2011. The court's case management system and written acknowledgement of filing both indicate that the Complaint was filed on March 20, 2011. The May filing date exceeds the statute of limitations for establishing jurisdiction in this court. The discrepancy cannot be explained from court records. The court will give the Estate the benefit of the doubt and consider the Complaint to have been filed on March 20, 2011, within the statutory timeframe for challenging the February 23, 2011 final determination.
After discovery, the Estate moved for partial summary judgment in its favor on the question of whether the Director correctly included the entire value of the couple's residence in the taxable estate. The Director thereafter cross-moved for summary judgment on both issues. After the close of briefing, the court heard oral argument from counsel.
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 no disputed material facts at issue in this matter. The parties' claims, therefore, are ripe for resolution by motion.
The court's analysis of the validity of the Director's final determination begins with the familiar principle that the Director's interpretation of tax statutes is entitled to a presumption of validity. "Courts 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."). A. Ms. Angelou's Status as Class D Beneficiary.
During the time that Ms. Frappolli was alive and living with Ms. Angelou the Legislature enacted two statutes, the Domestic Partnership Act and the Civil Union Act, both of which provided the couple with the opportunity to enter into government-recognized unions. Under either statute, the couple could have entered into government-sanctioned relationships that would have insulated Ms. Angelou's inheritance from transfer inheritance tax. The couple elected not to take advantage of the benefits offered by those statutes.
The Domestic Partnership Act, the only statutory provision under which the Estate seeks relief, creates a simple method for registering as domestic partners. Two persons who desire to become domestic partners must satisfy various statutory criteria associated with their relationship. N.J.S.A. 26:8A-4b. It is undisputed that Ms. Frappolli and Ms. Angelou satisfied these criteria prior to Ms. Frappolli's death. In addition, the couple is required to execute and file with the local registrar an Affidavit of Domestic Partnership, along with the appropriate fee. N.J.S.A. 26:8A-4a; -4b(8). The local registrar then issues a Certificate of Domestic Partnership with the date the domestic partnership was established. The Certificate of Domestic Partnership is recorded in the local registrar's records and with the State registrar. N.J.S.A. 26:8A-8.
The Estate concedes that Ms. Frappolli and Ms. Angelou did not execute and file an Affidavit of Domestic Partnership. It argues, however, that the couple substantially complied with the statute and that the execution and filing of an Affidavit of Domestic Partnership is, in effect, a formality which can be overlooked in light of the couple's long-term relationship. The plain language of the statute negates the proposition that the statute's protections can be applied to a couple who has not executed and filed an Affidavit of Domestic Partnership, even if they otherwise satisfy the statutory requirements for a domestic partnership.
N.J.S.A. 26:8A-6f, a provision of the Domestic Partnership Act, provides:
Two adults who have not filed an Affidavit of Domestic Partnership shall be treated as domestic partners in an emergency medical situation for the purposes of allowing one adult to accompany the other adult who is ill or injured while the latter is being transported to a hospital, or to visit the other adult who is a
hospital patient, on the same basis as a member of the latter's immediate family, if both persons, or one of the persons in the event that the other person is legally or medically incapacitated, advise the emergency care provider that the two persons have met the other requirements for establishing a domestic partnership as set forth in section 4 of P.L. 2003, c. 246 (C.26:8A-4); however, the provisions of this section shall not be construed to permit the two adults to be treated as domestic partners for any other purpose as provided in P.L. 2003, c. 246 (C.26:8A-1 et al.) prior to their having filed an Affidavit of Domestic Partnership.
[(emphasis added).]
It is quite plain that the Legislature authorized limited circumstances - emergency medical situations - in which a couple may be treated like domestic partners, even though they have not executed and filed an Affidavit of Domestic Partnership. The facts of this case do not fall within the exception to the Affidavit requirement. This commonsense provision represents a rational legislative response to challenges a couple may face when confronted with a medical emergency. No similar exigencies are present when a couple neglects to make sufficient estate planning decisions over a period of years during which they might otherwise have obtained a registered domestic partnership.
In addition, the legislative decision not to recognize couples who have not fulfilled the statutory requirements for a government-sanctioned relationship is in accord with the State's longstanding policy prohibiting the recognition of common law marriages. See N.J.S.A. 37:1-10 (providing that no marriage contracted after December 1, 1939 shall be valid unless the couple first obtained a marriage license and had their marriage solemnized by a person authorized by law to do so); Yaghoubinejad v. Haghighi, 384 N.J. Super. 339, 341 (App. Div. 2006)(noting that N.J.S.A. 37:1-10 abolishes common law marriage in New Jersey). Couples who fail to execute and file an Affidavit of Domestic Partnership are treated in the same fashion as couples who live together for many years as husband and wife but neglect to obtain a marriage license and have their union solemnized.
In light of the unequivocal language of N.J.S.A. 26:8A-6f, the court is constrained to reject the Estate's argument. The political and legal battle for government recognition of same sex couples resulted, in its early stages, in the enactment of the Domestic Partnership Act. Couples wishing to obtain the benefits of government recognition of their relationships, including the tax benefits associated with the inheritance of property, must, as is the case with mixed-gender couples, fulfill the statutory requirements to receive the protections of the law. Ms. Frappolli and Ms. Angelou elected not to enter into a domestic partnership. They are, of course, free to order their affairs in any manner they see fit. They must, however, accept the legal consequences, including the ramifications of the tax laws, of their decisions. General Trading Co. v. Director, Div. of Taxation, 8 3 N.J. 122 (1980)(taxpayer is free to organize her financial affairs in any way she pleases, but is bound by the tax consequences of her decisions, even if unwise); accord Lugano v. Director, Div. of Taxation, ___ N.J. Tax ___ (Tax 2014).
The court notes that in the years after Ms. Frappolli's death, same-sex couples were afforded the right to marry in New Jersey. See Garden State Equality v. Dow, 434 N.J. Super. 163 (Law Div. 2013)(holding that in light of the United States Supreme Court holding in United States v. Windsor, 113 S. Ct. 2675 (2013), same-sex couples in New Jersey civil unions are unconstitutionally denied federal benefits afforded to married couples, requiring the State to permit same-sex marriages); Garden State Equality v. Dow, 216 N.J. 314 (2013)(denying stay of trial court decision requiring State to permit same-sex marriages); As Gays Wed in New Jersey, Christie Ends Court Fight, The New York Times, Oct. 21, 2013 (reporting that the State withdrew its appeal of trial court decision requiring State to permit same-sex marriages).
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Nor is the court convinced by the Estate's argument that the Director should be estopped from treating Ms. Angelou as a Class D beneficiary because the Division of Taxation website, on an unspecified date, discussed inheritance tax implications for domestic partners, but did not mention the need for domestic partners to execute and file an Affidavit of Domestic Partnership. Instances in which estoppel has been applied against a government agency are rare. Department of Envt'l Protection and Energy v. Dopp, 268 N.J. Super. 165, 175-76 (App. Div. 1993). "In practice, taxing authorities in New Jersey have never been estopped, either by their spoken words, their written words, or their actions, from imposing a tax." Black Whale, Inc. v. Director, Div. of Taxation, 15 N.J. Tax 338, 355 (Tax 1995). There are numerous cases in which "[e]stoppel has not barred the imposition of a tax which a government representative has verbally indicated by words or writing is not applicable, or would be imposed differently than eventually assessed." Ibid. (citing Rubenstein v. Township of Upper Pittsgrove, 12 N.J. Tax 494, 499-501 (Tax 1991); Town of Kearney v. Director, Div. of Taxation, 11 N.J. Tax 232, 236 (Tax 1990); L.S. Village, Inc. v. Township of Lawrence, 8 N.J. Tax 287, 296-97 (Tax 1985), aff'd o.b., 8 N.J. Tax 327 (App. Div. 1986); New Jersey Dental Serv. Plan, Inc. v. Baldwin, 7 N.J. Tax 421, 430 (Tax 1985), aff'd o.b., 8 N.J. Tax 335 (App. Div. 1986); Saint Michael's Passionist Monastery v. City of Union City, 5 N.J. Tax 415, 418-19 (Tax 1983); Armstrong v. Director, Div. of Taxation, 5 N.J. Tax 117, 135-36 (Tax 1983), aff'd ob, 6 N.J. Tax 447 (App. Div. 1984); Mayfair Holding Corp. v. Township of North Bergen, 4 N.J. Tax 38, 41 (Tax 1982); Gehin-Scott v. Township of Willingboro, 176 N.J. Super. 642, 647-48 (Tax 1980)).
The Estate's estoppel claim fails for several reasons. First, the motion record is bare of any credible evidence with respect to the Division of Taxation website statements on which the Estate relies. The only evidence in the motion record on this point is a certification from Joseph P. Hurley, Jr., Esq., a friend of Ms. Frappolli and Ms. Angelou. Mr. Hurley visited the Division's website after Ms. Frappolli's death. According to Mr. Hurley, the website "listed all of the statutory requirements that a beneficiary had to meet to qualify as a domestic partner." He continues, "[n]owhere on the web page was there any notice to a reader that domestic partners who fulfilled the substantive requirement (sic) to meet domestic partnership status were required to file an affidavit confirming that they were in fact domestics (sic) partners." After reviewing the website, Mr. Hurley concluded that Ms. Frappolli and Ms. Angelou qualified as domestic partners.
The Hurley certification does not include a printout of the website to which it refers. It is not possible, therefore, to determine with any degree of precision the statements on which the Estate relies. His description of the website, which is nothing more than hearsay, provides only a vague summary of what he recalls to have read. This alone is sufficient to reject the Estate's estoppel argument. In addition, if Mr. Hurley's description of the website is taken as true, then the website "listed all of the statutory requirements that a beneficiary had to meet to qualify as a domestic partner." Presumably, that list would have included the statutory requirement to execute and file an Affidavit of Domestic Partnership, an integral part of creating a domestic partnership in New Jersey. Moreover, Mr. Hurley reports that he looked at the website after Ms. Frappolli died. This statement in no way supports the proposition that the couple relied on the website when electing not to enter into a domestic partnership. Mr. Hurley's review of the website after Ms. Frappolli's death could not possibly have influenced the decisions the couple made while both were alive. There is no evidence in the motion record that the critical parties here - Ms. Frappolli and Ms. Angelou - read the Division of Taxation website prior to Ms. Frappolli's death.
Finally, Mr. Hurley certifies that after he reviewed the website he came to the conclusion that the couple qualified as domestic partners. The relevance of Mr. Hurley's belief is not explained in the record. He is not a beneficiary of the Estate, and does not certify that he represents the Estate or Ms. Angelou. He merely states that as a friend of Ms. Angelou he assisted in filing the inheritance tax return. In addition, Mr. Hurley's reliance on the website to assist in completing a tax return was not reasonable. Surely, an attorney with Mr. Hurley's years of experience, including his 22 years of experience in representing the Delaware Division of Taxation, would understand that competent representation in tax matters requires counsel to consult statutes and legal precedents when completing an inheritance tax return. Mr. Hurley does not reference his review of any statute, regulation, Division of Taxation bulletin, instruction or other written materials. It is difficult for this court to accept the proposition that an attorney with longtime experience representing an out-of-State taxing authority would credibly argue to this court that it was reasonable for him to draw conclusions about New Jersey tax law and provide assistance in completing an inheritance tax return based solely on his review of a website. B. The Director's Valuation of Ms. Angelou's Property Interest.
New Jersey assesses transfer inheritance tax on "the passing of property, or an interest therein, in possession or enjoyment, present or future, by distribution by statute, descent, devise, bequest, grant, deed, bargain, sale or gift" in specified circumstance. N.J.S.A. 54:33-1. The categories of taxable transfers are defined in N.J.S.A. 54:34-1. That statute provides, in relevant part, as follows:
[A] tax shall be and is hereby imposed at the rates set forth in section 54:34-2 of this Title upon the transfer of property, real or personal, of the value of $500.00 or over, or of any interest therein or income therefrom, in trust or otherwise, to or for the use of any transferee, distributee or beneficiary in the following cases:
* * *
c. Where real or tangible personal property within this State of a resident of this State . . . is transferred by deed, grant, bargain, sale or gift made in contemplation of the death of the grantor, vendor or
donor, or intended to take effect in possession or enjoyment at or after such death.
A transfer by deed, grant, bargain, sale or gift made without adequate consideration and within three years prior to the death of the grantor, vendor or donor of a material part of his estate or in the nature of a final disposition or distribution thereof, shall, in the absence of proof to the contrary, be deemed to have been made in contemplation of death within the meaning of subsection c. of this section; but no such transfer made prior to such three-year period shall be deemed or held to have been made in contemplation of death.
* * *
f. The right of the surviving joint tenant or joint tenants, person or persons, to the immediate ownership or possession and enjoyment of real or personal property held in the joint names of two or more persons . . . shall upon the death of one of such persons, be deemed a transfer taxable in the same manner as though such property had belonged absolutely to the deceased joint tenant . . . and had been devised or bequeathed by his will to the surviving joint tenant . . . excepting therefrom such part of the property as such survivor or survivors may prove to the satisfaction of the Director of the Division of Taxation to have originally belonged to him or them and never to have belonged to the decedent.
[N.J.S.A. 54:34-1f.]
"The event triggering the tax is the death of the decedent and the tax is intended to reach transfers of a donative nature." Heine v. Director, Div. of Taxation, 10 N.J. Tax 435, 439 (Tax 1989)(citations omitted). "The Legislature intended to tax only transfers of a donative nature and not properties that were owned by the donee." Estate of Hammerle v. Director, 22 N.J. Tax 342, 347 (Tax 2005). The tax is imposed on the "clear market value of the property transferred." N.J.S.A. 54:34-5.
The Estate argues that the valuation provision of N.J.S.A. 54:34-1f is an invalid exercise of legislative authority to the extent that it imposes transfer inheritance tax on the value of the 50% interest held by Ms. Angelou before Ms. Frappolli's death. According to the Estate, the transfer of a 50% interest to Ms. Angelou in 1993, even though made with token consideration, cannot be considered a gift made in contemplation of death because the transfer took place more than three years prior to Ms. Frappolli's death. See N.J.S.A. 54:34-1c. Thus, according to the Estate, Ms. Angelou's 50% interest in the Avalon residence must be considered to be a completed gift and her absolute property, and not included in the assets she inherited from Ms. Frappolli. The court is in agreement with the Estate on this point. The 50% interest in the property transferred to Ms. Angelou made in 1993 cannot be considered a gift made in contemplation of death subject to transfer inheritance tax under N.J.S.A. 54:34-1c. The transfer took place more than three years prior to Ms. Frappolli's death.
Ms. Angelou's inheritance of full ownership of the Avalon residence falls not under N.J.S.A. 54:34-1c, but N.J.S.A. 54:34-1f. That provision of the statute imposes transfer inheritance tax on "the right of the surviving joint tenant or joint tenants, person or persons, to the immediate ownership or possession and enjoyment of real or personal property held in the joint names of two or more persons . . . ." It is Ms. Angelou's right to full ownership and possession of the Avalon residence, unburdened by Ms. Frappolli's right of survivorship, which is subject to transfer inheritance tax. Ms. Angelou did not have this property right prior to Ms. Frappolli's death.
The Estate also challenges the Legislature's directive on how Ms. Angelou's inherited interest in the Avalon property is to be measured. According to the unequivocal language of N.J.S.A. 54:34-1f, the inherited property interest is to be taxed "as though such property had belonged absolutely to the deceased joint tenant . . . ." The Estate does not argue that the statute violates a fundamental right (any claim that the Estate may have with respect to the equality of treatment of same-sex couples is addressed by the fact that Ms. Frappolli and Ms. Angelou could have entered a domestic partnership or civil union and been treated in the same manner as a married, mixed-gender couple for inheritance tax purposes). It appears that the Estate's argument amounts to little more than its disagreement with the Legislature's fiscal policy choice.
As our Supreme Court has explained, "with the exception of those cases in which a fundamental right is involved - and no such right is implicated here - 'a state statute does not violate substantive due process if the statute reasonably relates to a legitimate legislative purpose and is not arbitrary or discriminatory. Briefly stated, if a statute is supported by a conceivable rational basis, it will withstand a substantive due process attack.'" Ocean Pines, Ltd v. Borough of Point Pleasant, 112 N.J. 1, 10 (1988)(quoting Greenberg v. Kimmelman, 99 N.J. 552, 563-64 (1985)(citations omitted)). The Court continued, "[w]hen reviewing a statute in light of such a challenge, we are concerned not with the wisdom of the legislation but solely with the question of whether it has a lawful purpose." Ibid. (citing Hutton Park Gardens v. Town Council, 68 N.J. 543, 563 (1975); Lane Distributors, Inc. v. Tilton, 7 N.J. 349, 365 (1951)).
The evident purpose of N.J.S.A. 54:34-1f is to raise revenue. "The power to raise revenue or to tax is among the most fundamental of governmental powers." In re: Commissioner of Ins. Orders A-92-189 and A-92-212, 137 N.J. 93, 98 (1994)(citing In re: Commissioner of Ins., 132 N.J. 209, 226 (1993)). The elected branches of government have considerable latitude to determine the State's fiscal policies, including the source and scope of tax revenue.
Here, the Legislature determined that when a person acquires the right to ownership and possession of property previously held as a joint tenant as the result of the death of another joint tenant, the measure of that inheritance will be the value of the entire property. The court cannot conclude that this approach lacks any rational explanation. It is rational for the Legislature to determine that when a party with an ownership interest in a portion of a parcel subject to another person's right of survivorship obtains title to the entire property free of any right of survivorship the value of that inheritance can be measured by the value of the entire parcel. Surely, when the statute is applied to the facts of this case, its rational basis is evident. Ms. Angelou inherited more than a 50% interest in the Avalon residence. On the death of Ms. Frappolli she also inherited ownership and possession of the entire parcel, unencumbered by a right of survivorship. The 50% interest Ms. Angelou owned before Ms. Frappolli's death became more valuable, as it was no longer subject to a right of survivorship and had merged into the larger interest, given Ms. Angelou full ownership of the parcel. While other methods of valuing this inheritance might well be considered reasonable, or even preferable, the Legislature's decision to tax the value of the entire parcel is rational and must be enforced by this court.
The court will enter Judgment affirming the Director's February 23, 2011 final determination.
Very truly yours,
Patrick DeAlmeida, P.J.T.C.