Opinion
Docket No: 016785-2011
09-23-2014
RE: Rosa Jovanovic v. Director, Division of Taxation
Rosa Jovanovic, Pro Se 440 Magie Avenue Elizabeth, New Jersey 07208 Richard Del Monaco Deputy Attorney General Division of Law R.J. Hughes Justice Complex 25 Market Street P.O. Box 106 Trenton, New Jersey 08625-0106
CHRISTINE M. NUGENT JUDGE Rosa Jovanovic, Pro Se
440 Magie Avenue
Elizabeth, New Jersey 07208
Richard Del Monaco
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 following a trial of the above captioned matter in which Rosa Jovanovic ("plaintiff") challenged assessments by the Director, Division of Taxation ("defendant") for excise tax and sales and use tax under the Cigarette Tax Act (N.J.S.A. 54:40A-1) and Sales and Use Tax Act (N.J.S.A. 54:32B-1). For the reasons set forth below, the assessments are affirmed.
Procedural History and Findings of Fact
This matter was initiated by complaint filed on August 31, 2011, in the Mercer County Superior Court, Law Division, Special Civil Part. In the pleading, plaintiff acknowledged receipt of two Notices of Assessment issued by the Division of Taxation ("Division") in 2008. She further alleged that she timely filed a protest letter in August 2008 and that defendant had misplaced the letter. Defendant sought to adjourn the trial date set by the Superior Court in order to file a motion for transfer or to dismiss the complaint. The Honorable F. Patrick McManimon, J.S.C., found the matter appropriately subject to transfer to the Tax Court and on September 2, 2011 entered a transfer order.
Defendant filed an answer to the complaint and the parties exchanged discovery, including documents in the possession of third-party credit card companies obtained by subpoena during a protracted discovery process. Proceedings in this matter were adjourned on several occasions by the court to accommodate plaintiff's various family health emergencies including her knee surgery. The case was scheduled to proceed to trial on May 30, 2013 when instead this court remanded the matter to defendant's conference and appeals branch on an expedited basis to protect plaintiff's administrative rights. Following the review defendant issued a Final Determination upholding the assessments.
On that same date in May, defendant requested a court order to sequester plaintiff's husband at trial in the event she called him as a witness, claiming witness credibility was an issue in the case. The court granted the sequestration order. Two weeks later, on June 13, 2013, plaintiff's husband, Boban Jovanovic, filed his own tax court complaint against the defendant, challenging the assessment against Rosa Jovanovic. Defendant filed a motion to dismiss the complaint which Mr. Jovanovic opposed. He claimed that he had an interest in Rosa's case and that he had standing to prosecute the complaint because the parties file joint tax returns, and further, his wife had made payments to the Division from a joint bank account. This court granted defendant's motion to dismiss.
The within matter proceeded to trial on May 6, 2014, at which time plaintiff called two witnesses, Boban Jovanovic and Stephen DeLuca, a conferee within the Division's conference and appeals branch assigned to the matter. Defendant called Rosa Jovanovic, Stephen DeLuca and Jack Griffiths, Chief of Audit Activity, Excise Tax branch of the Division. The parties entered a binder of joint exhibits into evidence.
The court makes the following findings of fact based on the documentary evidence and witness testimony presented.
Plaintiff first became aware that she was being charged a total of $1,416.00 in excise tax and $173.82 in sales and use tax based on purchases of untaxed cigarettes from Smart Smoker, an out-of-state cigarette vendor, via two letters dated August 27, 2007, sent to her by the Division. On June 2, 2008, defendant issued plaintiff two Notices of Assessment indicating a total liability of $2,024.16, inclusive of late payment penalties and interest. Defendant sent plaintiff an amnesty letter dated May 6, 2009 to which she responded by letter dated May 11, 2009, and in 2011, plaintiff agreed to enter into a payment plan with the Division.
In each instance, one letter was addressed to plaintiff at 440 Magie Avenue and the other at 440 Magie Avenue, 1st floor, Elizabeth, New Jersey.
Plaintiff denied purchasing or receiving any cigarettes from Smart Smoker. She explained that she had likely been the victim of identity theft emanating from the loss or theft of her wallet and theorized that an unauthorized third party may have purchased the cigarettes in her name. Plaintiff was also convinced that defendant had mistakenly assessed her taxes for cigarettes purchased by someone with a similar social security number, identical to hers in all but one digit.
Under the federal Jenkins Act, any entity shipping cigarettes in interstate commerce is required to file a monthly report with the Division specifying "the name and address of the person to whom the shipment was made, the brand, [and] the quantity thereof." 15 U.S.C. § 376(a)(2). The proofs in this matter show that Smart Smoker provided the Division with copies of purchase orders documenting each sale of cigarettes shipped to plaintiff at her address. The documents identified plaintiff as the purchaser of fifty-nine cartons of untaxed cigarettes between April 2005 and March 2006 and formed the basis of the assessments in this matter.
Plaintiff did not testify during her case in chief. However, at the start of trial, she made a motion for judgment, arguing she had prima facie evidence to prove she was improperly assessed taxes that should have been billed to another taxpayer. She introduced a memorandum, apparently authored by a Division employee to a co-worker, labeled "Excise Tax", dated August 29, 2011, provided to her with defendant's responses to interrogatories. The subj ect line of the memorandum included plaintiff's name, followed by an identification number nearly identical to plaintiff's social security number, and two invoice numbers. It read "Re: Jovanovic, Rosa / ID # 043-XX-XXXX / Inv # 0500008046, 0500011503." Plaintiff's social security number begins "143" but is otherwise identical to the number in the subject line; only the first three numbers of the social security numbers differ. Noting that her social security number begins "143," plaintiff argued the document was proof defendant intended to bill the taxpayer whose security number begins "043." The memorandum read:
The court redacted the remainder of the social security number in this opinion pursuant to R. 1:38-7.
Attached are the original invoices dated August 27, 2007, notices of assessment dated June 2, 2008 and a deficiency notice dated May 6, 2009 (inv # 05000011503 only.) There is no correspondence from the taxpayer in the Cigarette Tax Group files.
Plaintiff argued that she included her social security number on correspondence sent to the Division, while, to the contrary, the "043" social security number appears "everywhere" on the Division's documents (namely, she suggested, on invoices, Notices of Assessment and Smart Smoker orders.) Moreover, the fact that there was no correspondence from plaintiff in the Cigarette Tax Group files was additional evidence that defendant improperly assessed her, plaintiff contended. She surmised that there were two accounts, one each for "143" and "043" which also explained why the Division was unable to locate her August 9, 2008 letter of protest.
After a review of the documents, plaintiff was unable to locate a social security number on any of the named documents and she offered no evidence that the Division relies on social security numbers when assessing cigarette excise or sales and use tax against taxpayers. The court denied plaintiff's motion for judgment.
During trial, the two Division employees explained how the Smart Smoker information is received by the Division and detailed the process that results in an assessment. The out-of-state cigarette vendor sends to the audit unit information about sales to New Jersey taxpayers. The information is then forwarded to the data warehouse unit which evaluates the data and generates a cigarette detail report ("invoice") from the information provided by the vendor, and creates the assessment.
In this case, the Division received eleven cigarette purchase orders from Smart Smoker on a computer disk (CD-ROM) in PDF format, containing plaintiff's name, her Elizabeth, New Jersey address, a customer identification number, an order date, cigarette brand, quantity, shipment date, price and terms of payment. Pursuant to its practice, Smart Smoker affixed a customer identification number to its purchase orders. The Division used the same number for reference in its correspondence. Jack Griffiths, chief of the audit unit, received the CD-ROM and printed the eleven Smart Smoker purchase orders, which he testified are true and accurate copies of the documents received.
PDF means "portable document format." It is a file format that allows the user to view documents uniformly regardless of the software or operating system used to create them. Adobe Systems Incorporated, PDF Reference, Sixth edition, Nov. 2006, p. 33, http://www.adobe.com/content/dam/Adobe/en/devnet/acrobat/pdfs/pdf_reference_1-7.pdf.
Initially, when Stephen DeLuca completed answers to plaintiff's supplemental interrogatories (as defendant's representative), the witness thought the Smart Smoker customer identification number was generated randomly by the Division. He later learned the numbers were in fact created by Smart Smoker and amended his answers accordingly.
The Division witnesses referred to both the Smart Smoker documents and the Cigarette Detail Reports as "invoices". Since the term "Order #" appears in the top right hand corner of the Smart Smoker documents the court will refer to them as "orders or purchase orders" and to the Cigarette Detail Reports as "invoices" for the sake of clarity.
Smart Smoker used two addresses to ship cigarettes to plaintiff, 440 Magie Avenue and 440 Magie Avenue, 1st floor. Even though plaintiff was the only customer on all eleven purchase orders, because Smart Smoker had shipped to plaintiff at two different addresses and assigned two different corresponding identification numbers, the Division followed suit. Seven of the cigarette purchase orders listed the customer identification as "SS334054" (shipped to 440 Magie.) The remaining four listed the customer identification as "SS408291" (shipped to 440 Magie Avenue, first floor.) The Division does not receive social security information from out-of-state cigarette vendors nor does it use them on the invoices. Rather, using the purchase orders received from Smart Smoker, the Division created two cigarette detail reports, or invoices, one for customer number "SS334054" and a second for customer number "SS408291". Defendant sent the invoices to plaintiff with the August 27, 2007 letters, one addressed to plaintiff at 440 Magie Avenue, and the other to 440 Magie Avenue, 1st floor, which set forth the amount of taxes due.
The Division prepared a cigarette invoice for Smart Smoker customer number SS3-34054 and assigned invoice number 0500008046, and prepared a second invoice for Smart Smoker customer number SS4-08291 to which it assigned invoice number 05000011503.
Notably, attached to the Notices of Assessment information regarding "Deferred Payment Plans" requires that the taxpayer's social security number and the first payment be provided when submitting a payment plan request. Plaintiff requested a payment plan in 2011.
As noted, the Smart Smoker documents contain various details about taxpayer's purchase, including the type of payment used to buy the cigarettes in a box labeled "terms." In this case the cigarettes were paid for by credit card, "VISAE" and "MCARDE," and by check. Copies of plaintiff's Capital One monthly credit card statements for VISA and Master Card accounts in plaintiff's name, for the relevant time period, were admitted into evidence. Each statement was addressed to "Rosa C. Jovanovic," at either 440 Magie Avenue, or at 440 Magie Avenue, 1st floor, dated sometime between April 2005 and March 2006. Each statement contains an entry that reads "Smart Smoker 866-312-5388 N Y." Defendant produced a credit card statement containing a corresponding date and charge for each cigarette purchase listed on the Smart Smoker purchase orders. The documents reflect cigarettes purchased by plaintiff in various amounts on the following dates: 9/8/05; 9/29/05; 10/27/05; 11/29/05; 1/4/06; 1/30/06. Plaintiff acknowledged that the credit card bills were paid off in full or in part each month as documented in the statements.
The documents show one purchase made 7/25/05 with a corresponding credit card charge on 8/4/05.
Plaintiff does not dispute that she lives with her husband at 440 Magie Avenue. At various times between 2004 and 2008 she was not at the residence. She stayed at her father's home to care for him as his health declined, and, at which time her husband collected and paid the bills. Indeed, plaintiff testified that she did not personally review several Capital One bank statements mailed to her home address when she was living with her father but admitted that many of the purchases were legitimate charges on the bills produced by defendant. She denied authorizing any of the cigarette purchases.
Plaintiff's husband testified that he has never smoked or purchased any cigarettes in the past and neither he nor his wife owns a store. He also confirmed plaintiff did not reside at the shared home for periods of time before her father's death, and that they reside on the ground floor, not the first floor, of the three story home. He explained that there is an unsecured communal mailbox at the premises and they experienced theft of mail from the mailbox (which went unreported to the post office and police.) But plaintiff admitted that she received all of the mail sent to her by the Division, including the mail addressed to the first floor of the home.
Likewise, there is dispute over the facts related to plaintiff's claim that the assessments resulted directly from the theft of her identity. According to plaintiff, once she learned that her wallet was missing she cancelled her credit cards, but she was unable to recall when the incident occurred and she did not file a written report with the police. The Capital One documents reveal that she has informed the company of several incidents of fraudulent activity on her credit cards, but that occurred between May 2008 and March 2012, after the Smart Smoker dates of purchase. And while the documents recount reports of the unauthorized use of plaintiff's credit cards the account numbers differ from those used to make the purchases listed by Smart Smoker. Plaintiff also provided a copy of her Capital One statement for a credit card account ending in 1073, showing that the bank credited her $377 as a "fraud adjustment" on July 8, 2005. But there is no corresponding Smart Smoker purchase in the records.
There was one exception. A Capital One Fraud Information Form dated February 13, 2008 documented plaintiff's report that a November 21, 2007 Smart Smoker charge on her account ending 5608 charge was fraudulent. That account number was one of three reported by Smart Smoker for purchases in 2005/2006. Notably, unlike other Capital One Fraud Information Forms from 2008-2012 in which plaintiff provided information related to the dollar amount of the suspect charge, whether she had authorized purchases from the vendor in the past, etc. no information on the fraud form, other than the date and company name, was filled out.
Plaintiff's claim that she filed a timely protest of the assessments is also not borne out by the facts. She testified that her father passed away on August 10, 2008 at 3:15 pm, as indicated on the death certificate that she enclosed with the protest letter to provide evidence of her father's declining health. A certified mail receipt was provided by plaintiff during discovery as proof she mailed her letter of protest, submitted under oath, to the Division on August 9, 2008. The address of the Division's conference and appeals branch was handwritten on the certified mail receipt and the receipt was stamped August 9, 2008. In the letter of protest, at paragraph 4(iii), plaintiff listed as one of her grounds for appeal:
During the period of purported purchases of said cigarettes, I also consistently took care of my gravely ill father. For more than two years, and during the time that purported Cigarettes were purchased I was his caretaker and most of the time lived at his house at 539 Jackson Ave, Elizabeth N.J. 07202 (My father past (sic) away on August 10, 2008. (Included please find my fathers (sic) death certificate) (Exhibit C) [Emphasis in original.]
Plaintiff was unable to explain how she mailed her father's death certificate, dated August 10, 2008, to the Division with her protest letter on August 9, 2008. She testified that her husband mailed the letter on her behalf at her request, and filled out the blanks on the certified mail receipt.
Conclusions of Law
The court's analysis is guided by the presumptive validity of the Director's determinations. See Campo Jersey, Inc. v. Director, Div. of Taxation, 390 N.J. Super. 366, 383 (App. Div. 2007), certif. denied, 190 N.J. 395 (2007). "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 determinations 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. 2006), certif. denied, 188 N.J. 577 (2006). Courts should 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.")(Citations omitted).
The Cigarette Tax Act imposes tax on the sale, use, or possession for sale or use of cigarettes within the State and prescribes "a method for collection of that tax." Kasot, Inc. v. Director, Div. of Taxation, 24 N.J. Tax 588, 593 (Tax 2009). Tax is imposed "immediately after the cigarettes acquire taxable situs here." Id. at 597. Cigarettes acquire taxable situs "when, among other things, they are sold in New Jersey, possessed for sale in New Jersey, stored for sale in New Jersey, or stored for use in New Jersey." Ibid.
Individual taxpayers can purchase stamped or unstamped cigarettes. Taxpayers who buy stamped cigarettes are not required by the Cigarette Tax Act to take any further action because their cigarettes, as indicated by the stamps, have already been taxed. On the other hand, taxpayers who purchase unstamped cigarettes "for consumption, use or storage in this State" must obtain a license, file a report with the Director indicating they are in possession of unstamped cigarettes, and "remit tax together with the report." N.J.S.A. 54:40A-2, -3, -7; see also Kasot, Inc., supra, 24 N.J. Tax at 594. If a taxpayer does not report purchasing unstamped cigarettes and pay tax as required, "the Director may estimate and assess the taxes due from the taxpayer." Kasot, supra, 24 N.J. Tax at 598.
Prior to July 15, 2006, the Cigarette Tax Act imposed tax at a rate of $0.12 for each cigarette sold, used, or possessed for sale or use in the State. N.J.S.A. 54:40A-8. Effective July 15, 2006, the rate increased to $0.12875. Effective July 1, 2009, the rate increased further to $0.135.
Through the Cigarette Tax Act, the State seeks to collect tax revenue that would otherwise be lost when taxpayers buy unstamped cigarettes from out-of-state vendors, who "usually do[ ] not have enough legal connection with the State to be required to pay and collect taxes." N.J.S.A. 54:40A-46, quoting Senate Budget and Appropriations Committee Statement Assembly No. 1838 (March 14, 2005) (enacted as L. 2005, c. 85). Without the scheme imposed by the statute, cigarettes shipped into the State would remain untaxed. Indeed, the "licensing and reporting requirements are the primary mechanisms for administering and enforcing the tax." Kasot, supra, 24 N.J. Tax at 597. The Jenkins Act, by requiring out-of-state vendors to file reports with the State when they sell cigarettes to New Jersey taxpayers, assists the State in collecting the cigarette excise tax because it ensures the State will learn of relevant cigarette sales even where taxpayers fail to comply with the licensing and reporting requirements set forth in the Cigarette Tax Act.
The Sales and Use Tax Act, as suggested by its name, imposes both a tax on retail sales of tangible personal property as well as a complementary use tax. The use tax is a tax on any tangible personal property "purchased at retail unless that property has been or will be subject to the sales tax." Sogness v. Director, Div. of Taxation, 25 N.J. Tax 355, 359 (Tax 2010). In other words, the use tax is a tax "on the possession and enjoyment of that which was purchased and for which no sales tax was paid." Boardwalk Regency Corp. v. Director, Div. of Taxation, 18 N.J. Tax 328, 334 (App. Div. 1999)(quoting McGraw-Hill Inc. v. Director, Div. of Taxation, 9 N.J. Tax 372, 382 (Tax 1987)). It is worth noting that, "a primary purpose of the [use] tax is to prevent the State from losing revenue when tangible personal property purchased out-of-state and therefore not subject to New Jersey sales tax is nonetheless used here to the same extent as is property purchased here for which New Jersey sales tax is paid." Diamondhead Corp. v. Director, Div. of Taxation, 4 N.J. Tax 255, 258 (Tax 1982). The Act provides that when a taxpayer makes a purchase and does not pay tax to the seller, the taxpayer must pay tax directly to the Division within twenty days of the purchase. N.J.S.A. 54:32B-14(b). The tax is calculated by multiplying the base price of the merchandise in question by a statutorily defined percentage. Sogness, supra, 25 N.J. Tax at 360.
Prior to July 1, 2006, the statute imposed a 6% tax. After July 1, 2006, the statute imposed a 7% tax.
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As to the relevant procedural process, upon receipt of an assessment the taxpayer who files a timely protest is afforded the right to an administrative hearing before the conference and appeals branch. A Final Determination is issued by the Director following administrative review. Suecharon v. Director, Div. of Taxation, 20 N.J. Tax 371, 375 (Tax 2002)("[o]ne provision of the State Tax Uniform Procedure Law directly applicable to the filing of appeals is N.J.S.A. 54:49-18a. This statute, as amended in 1992 by L. 1992, c. 175, § 14, provides that, after a taxpayer files a protest with respect to any 'finding or assessment,' the Director must make a 'final determination confirming, modifying or vacating any such finding or assessment,' and '[t]he time for appeal to the Tax Court pursuant to subsection a. of R.S. 54:51A-14 . . . shall commence [90 days] from the date of the final determination by the director.' The time for appeal set forth in N.J.S.A. 54:51A-14a is ' 90 days after the date of the action sought to be reviewed. ' "). Where there is no request for a hearing the appeal period from the Director's assessment "begins at the time the assessment was originally issued . . . ." Peoples Exp. Co., Inc. v. Director, Div. of Taxation, 10 N.J. Tax 417, 424 (Tax 1989).
Plaintiff alleged that she timely filed a protest letter "lost or misplaced by the Division." This court finds that, notwithstanding her claim, the letter could not have been sent to the Division via certified mail on August 9, 2008 since it contained a copy of plaintiff's father's death certificate dated the following day, August 10, 2008. And the date of death was corroborated by plaintiff's testimony. Moreover, it is logical to infer that another item was mailed by certified mail on August 9, 2008, and the receipt was used by plaintiff in this matter.
Plaintiff's actions lent considerable confusion and delay to these proceedings. When no filing deficiency was raised by defendant in this matter, the court remanded the case for administrative review to ensure that plaintiff's due process right afforded by statute was met. The evidence shows that plaintiff never filed a protest in August 2008 despite her protestations to the contrary. Instead, plaintiff filed a complaint with the Superior Court, in August 2011, ultimately transferred to this court for disposition, thereby circumventing the (90 day) statutory filing requirement. However, based on the procedural history of the claim this court concludes that the complaint is not subject to dismissal for untimely filing.
The testimony of the Division witnesses and the documents of record in this matter substantiate the fact that plaintiff purchased the cigarettes, or they were purchased on her behalf with her knowledge, triggering the tax obligation. Based on that evidence, reliable in nature, the court finds the testimony of plaintiff and her husband lacks credibility and rejects plaintiff's claim that the taxes were improperly assessed against her. The charges that appear on the Smart Smoker documents and the corresponding credit card statements provide proof that plaintiff's credit cards were used to make the cigarette purchases which form the basis for the assessments. Plaintiff acknowledged that she accepts mail at both addresses used to ship the cigarette orders, 440 Magie and 440 Magie, 1st floor, and admitted that correspondence from the Division and from Capital One sent to both addresses was received by her.
Moreover, the claim that the Division is holding plaintiff responsible for taxes attributable to a different taxpayer based on confusion over plaintiff's social security number has no merit since neither Smart Smoker nor the Division use (taxpayer) social security numbers to identify purchasers, according to the testimony of the Division witnesses, which this court finds credible. A taxpayer who requests a payment plan with the Division is required to provide a social security number. Plaintiff began a payment plan in 2011, which may explain why the excise tax unit possessed plaintiff's personal identifier.
The claim that purchases assigned to plaintiff were the result of fraud or identity theft is also contrary to the evidence. Use of the credit cards to purchase Smart Smoker cigarettes continued after plaintiff was billed for purchases, contrary to her claim that she cancelled the cards immediately upon learning of the fraud. And rather than challenge the charges, the Jovanovics paid them.
For all of the foregoing reasons, the assessments are affirmed. The Clerk of the Tax Court is instructed to enter judgment in accordance with the ruling of the court.
Very truly yours,
/s/
Christine Nugent, J.T.C.