Opinion
DOCKET NO. A-1980-13T1
06-17-2016
ROBERT H. HILL and SARAH K. HILL, minors, Plaintiffs-Appellants, v. DIRECTOR, STATE OF NEW JERSEY DIVISION OF TAXATION, Defendant-Respondent.
Roy B. Hill, appellant pro se. Robert Lougy, Acting Attorney General, attorney for respondent (Melissa H. Raksa, Assistant Attorney General, of counsel; Ramanjit K. Chawla, Deputy Attorney General, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Fuentes and Koblitz. On appeal from the Tax Court of New Jersey, Docket Nos. 017501-2011 and 018645-2011, whose opinion is reported at 27 N.J. Tax 311 (Tax 2013). Roy B. Hill, appellant pro se. Robert Lougy, Acting Attorney General, attorney for respondent (Melissa H. Raksa, Assistant Attorney General, of counsel; Ramanjit K. Chawla, Deputy Attorney General, on the brief). PER CURIAM
The minor plaintiffs, Robert H. and Sarah K. Hill, through their father, Roy B. Hill, appeal from Tax Court Judge Mala Sundar's October 23, 2013 grant of defendant Director of the Division of Taxation's (Taxation) summary judgment motion dismissing plaintiffs' complaints. We affirm substantially for the reasons expressed in Judge Sundar's published opinion, Hill v. Dir., Div. of Taxation, 27 N.J. Tax 311 (Tax 2013).
We call the Hills by their first names for clarity, intending no disrespect.
Plaintiffs are Pennsylvania residents and beneficiaries of New Jersey resident trusts created by their grandparents. The trustee paid New Jersey tax on behalf of each plaintiff on the income from the trusts during 2006 and 2007. Roy then reported to Taxation that plaintiffs did not receive New Jersey source income during 2006 and 2007 and sought a refund. After they were denied a refund, Roy sent a notice to Taxation of plaintiffs' "wish to appeal" the denial, alleging in a brief letter that plaintiffs were not residents of the State and were not obligated to pay New Jersey gross income tax (GIT) for their trust income, which he did not identify as coming from New Jersey resident trusts. Taxation subsequently issued a refund in 2008 of all New Jersey GIT received from the trusts.
A tax audit discovered that plaintiffs received New Jersey source income and thus were subject to New Jersey GIT. In 2010, Taxation sent plaintiffs notices of deficiency, alleging each plaintiff's liability for unpaid 2006 and 2007 taxes including interest and penalties. Following unsuccessful challenges, Taxation issued final determinations confirming notices of deficiency in the amount of $9726 for Robert and $10,287 for Sarah.
We note a mathematical error in the 2006 calculation of Robert's liability as reflected in the opinion. Rather than $8765, the correct number is $6765. See id. at 319.
Plaintiffs appealed to the Tax Court, arguing Taxation should be bound by its decision to refund the taxes paid. Plaintiffs further argued it was now too late to report the payment of New Jersey taxes to the Pennsylvania taxing authority to receive a Pennsylvania tax refund, and therefore Taxation should be estopped from seeking payment.
Plaintiffs' other arguments in their appeal, that the Tax Court decision was manifestly unjust, unconstitutional, and contrary to the 1977 "Reciprocal Personal Income Tax Agreement Between Commonwealth of Pennsylvania and State of New Jersey," see S. 1500, 210th Leg., Reg. Sess. (N.J. 2002), are without sufficient merit to require discussion in this opinion. R. 2:11-3(e)(1)(E). --------
Judge Sundar determined "[t]he only issue is the propriety of Taxation's demand for return of the refunds it [mistakenly] paid plaintiffs for tax years 2006 and 2007." Hill, supra, 27 N.J. Tax at 319. Applying the New Jersey Gross Income Tax Act (the GIT Act), N.J.S.A. 54A:1-1 to :10-12, the judge explained why plaintiffs were not entitled to refunds:
[T]here is no issue that the GIT Act's scheme imposes tax upon New Jersey source trust income distributed or paid to a non-resident beneficiary.
Plaintiffs concede that they received distributions of New Jersey source income from the two resident trusts. Thus, under the statutory scheme, such distributions are taxable to the nonresident plaintiffs. Therefore, Taxation should not have issued the refunds to plaintiffs.
[Id. at 319-20.]
Further, Taxation had statutory authority to recoup the erroneous refunds pursuant to N.J.S.A. 54A:9-4(c)(4):
An erroneous refund shall be considered an underpayment of tax on the date made, and an assessment of a deficiency arising out of an erroneous refund may be made at any time within 3 years from the making of the refund, except that the assessment may be made within 5 years from the making of the refund if it appears that any part of the refund was induced by fraud or misrepresentation of a material fact."A taxpayer challenging the Director's determination bears the burden of proof." United Parcel Serv. Gen. Servs. Co. v. Dir., Div. of Taxation, 430 N.J. Super. 1, 8 (App. Div. 2013), aff'd, 220 N.J. 90 (2014).
We have recognized "where an agency or other government body has the responsibility to take in or disburse moneys, the common law of New Jersey has typically held that the entity has the inherent power to correct its mistakes." Playmates Toys, Inc. v. Dir., Div. of Taxation, 316 N.J. Super. 509, 513-14 (App. Div. 1998), aff'd o.b., 162 N.J. 186 (1999). Our Supreme Court narrowed the holding to clerical errors, as opposed to errors in judgment, deciding that, in the corporate tax arena, the power to correct mistakes "does not confer on the Division of Taxation an unlimited inherent authority to correct and revise erroneous tax determinations once made." Playmates Toys Inc. v. Dir., Div. of Taxation, 162 N.J. 186, 187 (1999).
In a 2002 published decision, the Tax Court stated "that the concept of clerical error as used in Playmates Toys should be broadly construed and the concept of error in judgment should be narrowly construed." Lenox, Inc. v. Dir., Div. of Taxation, 20 N.J. Tax 464, 475 (Tax 2002). The Tax Court defined the term "error in judgment" as referring only to "an erroneous final determination of the merits of a taxpayer's liability for tax, resulting from a mistaken interpretation of substantive law or a misunderstanding of the facts relating to the determination." Ibid. Applying these cases and the GIT Act to these facts, Judge Sundar appropriately granted summary judgment in favor of Taxation.
Pursuant to N.J.S.A. 54A:9-4(c)(4), Judge Sundar held "Taxation was authorized to treat the refunds it made as underpayment of GIT owed, and thus, recoverable." Hill, supra, 27 N.J. Tax at 320. The judge analyzed Playmates Toys, Inc. and Lenox, Inc., noting, unlike the current litigation, both cases involved a corporation business tax (CBT) and the statute imposing the CBT "did not provide for recovery of erroneous funds." Id. at 321. Though the GIT Act does specifically provide for the recovery of erroneous refunds, the judge nonetheless applied the holdings of those cases to limit Taxation's ability to seek recovery of GIT refunds mistakenly paid to those refunds resulting from "purely clerical" errors. Id. at 325. The judge further found that plaintiffs' refunds were the result of clerical errors and "that the Statement of Accounts sent by Taxation for each tax year to plaintiffs [with the refunds] were not 'final determinations' by Taxation which were based upon the 'merits' of plaintiffs' liability for tax." Id. at 324-35 (quoting Lenox, Inc., supra, 20 N.J. Tax at 475).
Lastly, noting "Taxation's employees cannot waive the requirements of the application of the law," the judge rejected plaintiffs' argument that Roy detrimentally relied upon oral advice from a Taxation employee in 2001 or 2002 that plaintiffs were not subject to GIT. Id. at 325-27.
Pursuant to the New Jersey Court Rules, summary judgment must be granted "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 no genuine issue of material fact exists, we must then decide de novo whether the judge's ruling on the law was correct, giving all legitimate favorable inferences to the non-moving party. See R. 4:46-2(c); Tarabokia v. Structure Tone, 429 N.J. Super. 103, 106 (App. Div. 2012), certif. denied, 213 N.J. 534 (2013).
"Our review of a decision by the Tax Court is limited." United Parcel Serv. Gen. Servs. Co., supra, 430 N.J. Super. at 7. "A Tax Court judge's findings will not be disturbed unless we conclude they are arbitrary or lack substantial evidential support in the record." Estate of Warshaw v. Dir., Div. of Taxation, 27 N.J. Tax 287, 291 (App. Div.), certif. denied, 216 N.J. 86 (2013).
"While factual findings of a Tax Court judge are entitled to deference because of that court's expertise in the field, the judge's interpretation of a statute is not entitled to such deference and is subject to our de novo review." Cohen v. State, Div. of Taxation, 28 N.J. Tax 548, 558 (App. Div. 2015) (quoting Waksal v. Dir., Div. of Taxation, 215 N.J. 224, 231 (2013)). However, "[w]e have recognized the Director's expertise, particularly in specialized and complex areas of the [GIT] Act" and the "Director's interpretation will prevail 'as long as it is not plainly unreasonable.'" Koch v. Dir., Div. of Taxation, 157 N.J. 1, 8 (1999) (quoting Metromedia, Inc. v. Dir., Div. of Taxation, 97 N.J. 313, 327 (1984)). Judge Sundar's decision granting summary judgment in favor of Taxation is well-reasoned and based on controlling precedent.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION