Opinion
Docket No. 000143-2013
04-13-2015
Re: Sandy Smith v. Director, Div. of Taxation
BY ELECTRONIC AND FIRST-CLASS MAIL Sandy Smith, Pro Se Absecon, New Jersey Paul Buonaguro Deputy Attorney General 25 Market Street, P.O. Box 106 Trenton, New Jersey 08625
NOT FOR PUBLICATION WITHOUT APPROVAL OF THE TAX COURT COMMITTEE ON OPINIONS
BY ELECTRONIC AND FIRST-CLASS MAIL
Sandy Smith, Pro Se
Absecon, New Jersey
Paul Buonaguro
Deputy Attorney General
25 Market Street, P.O. Box 106
Trenton, New Jersey 08625
Dear Ms. Smith and Deputy Attorney General Buonaguro:
This is the court's opinion in connection with defendant's summary judgment motion to dismiss the above captioned matter. Plaintiff filed the complaint against defendant's assessment of cigarette tax pursuant to N.J.S.A. 54:40A-1 to -45 ("Cigarette Tax Act"), and sales and use tax pursuant to N.J.S.A. 54:32B-1 to -29 ("Sales and Use Tax Act") totaling $9,402 (taxes, interest and penalty). Defendant ("Taxation") contends that the assessments are proper because it is undisputed that plaintiff made online purchases of 278 cartons of cigarettes from 2005 to 2009, from an out-of-state vendor, which were unstamped and for which no sales tax was collected. Plaintiff opposed the motion on grounds Taxation's assessment was untimely; the out-of-state vendor should be liable; she was unaware of her tax and reporting obligations; and that her 2007 Chapter 7 bankruptcy discharge pre-empted the assessments.
For the reasons stated below, the court grants Taxation's motion for summary judgment. It is undisputed that plaintiff purchased unstamped cigarettes from an unlicensed out-of-state vendor which did not file reports of the cigarettes shipped to plaintiff in New Jersey. No sales tax was collected on those purchases. Therefore, by law, Taxation's assessments are valid. Since no reports were filed for the cigarette purchases and also for the use tax due on those purchases, Taxation's assessment is not governed by any statute of limitations. For the same reasons, namely, failure to file the cigarette purchase reports required by both statutes, the bankruptcy discharge provisions do not apply. Plaintiff's ignorance of the law rendering her liable for tax on her cigarette purchases is no excuse and does not invalidate Taxation's assessment. The complaint is therefore dismissed. FACTS
Plaintiff purchased cigarettes online, from an out-of-state vendor, Cigarette Direct 2 U (or "CD2U"). Pursuant to an investigation conducted by the U.S. Department of Justice, Bureau of Alcohol, Tobacco, Firearms and Explosives ("ATF"), Taxation received information sometime in 2011, that CD2U had sold cigarettes to plaintiff through a Kentucky distribution company. CD2U had not filed reports of the cigarette sales as required by law. Nor had it paid the required excise tax (which is done by purchasing tax stamps). The invoices also did not indicate a separate charge for sales tax. Nor was there any voluntary payment of use tax by plaintiff.
Consequently, Taxation issued a Notice of Assessment on December 7, 2012 for the 278 cartons of cigarettes purchased by plaintiff between November 2005 and December 2009. The assessment was in the following amounts:
| Cigarette Tax | $7,143.50 |
| Use Tax | $ 543.19 |
| Late Payment Penalty | $ 139.10 |
| Amnesty Penalty | $ 105.93 |
| Interest (thru 12/20/12) | $1,231.50 |
| TOTAL | $9,163.22 |
Ms. Smith filed a timely complaint with this court. However, she had also simultaneously filed an administrative protest with Taxation. Taxation then issued a final determination on March 25, 2013 which upheld the assessment, noting "cigarettes purchased from [CD2U] are untaxed, therefore, the buyer must pay excise and sales tax on the cigarettes purchased." With updated interest of $1,471.12, Taxation demanded a total of $9,402.84.
The final determination noted that it got information of the purchases from CD2U. However, the certification from the Conferee in support of Taxation's summary judgment motion clarified that ATF provided Taxation this information sometime during 2011.
After oral argument, Taxation, in response to the court's query, indicated that it would abate the penalties for late payment ($139.10) and amnesty ($105.93).
In response to Taxation's interrogatories, plaintiff did not deny buying the cigarettes but stated that "it's been years and I never kept track so I have no way of knowing if in fact they are all ones ordered." She claimed that she had no intention of defrauding anyone, and since she had never once been timely notified of her obligation to pay taxes it was not her "fault," therefore she "should not owe anything." She stated that she presumed all taxes were included in the purchase price and that CD2U failed to notify her otherwise. She added that she has limited income comprising only of social security benefits, and her home is being foreclosed upon, therefore, she could not pay the untimely assessed amounts. LAW
All the invoices indicate that payments were made by check, thus, plaintiff could have traced the check payments to the purchases.
New Jersey imposes two taxes upon the sale or use of cigarettes. The first is an excise tax called the Cigarette Tax. The second is a sales or use tax. Both are a type of excise tax.
(A) Cigarette Tax
This is an excise tax imposed on the sale, use, or consumption, or possession for use of cigarettes in NJ. N.J.S.A. 54:40A-8. Once sold or bought, and unless expressly exempted, the cigarettes "immediately become subject to the tax" which "must be paid." N.J.A.C. 18:5-2.1(b). The tax is in the form of a revenue tax stamp, which can only be purchased and affixed to "each pack of cigarettes" by licensed distributors. N.J.S.A. 54:40A-11; N.J.A.C. 18:5-3.1. Since New Jersey imposes the tax "at the top of the distribution chain through" the sale of tax stamps to a licensed distributor, Kasot, Inc. v. Director, Div. of Taxation, 24 N.J. Tax 588, 593 (Tax 2009), individual taxpayers can purchase the stamped cigarettes without being liable to Taxation for the cigarette tax because, as indicated by the stamps, the tax has already been paid.
Dealers (wholesale and retail) cannot accept deliveries of unstamped cigarettes. N.J.S.A. 54:40A-16.
A person who buys unstamped cigarettes for use or consumption in New Jersey is defined as a "consumer." See N.J.S.A. 54:40A-2f (a "consumer" is a person who is neither a distributor nor a manufacturer, and who buys cigarettes for use or consumption in New Jersey, "to which New Jersey revenue stamps have not been attached"). A consumer must procure a license (at a cost of $1). N.J.S.A. 54:40A-3. See also N.J.A.C. 18:5-6.11 ("each consumer is required to apply for a consumer's license on Cigarette Tax Bureau Form CC-2" for a $1 fee).
A licensed consumer who has acquired unstamped cigarettes for use, storage or consumption, must file a report with Taxation on or before the twentieth day of the month following receipt of such cigarettes, showing the amount of cigarettes received. See N.J.S.A. 54:40A-7. Such a consumer must also pay the full amount of the cigarette tax due. Ibid.; N.J.A.C. 18:5-5.12 (a "licensed consumer who acquires unstamped cigarettes for consumption, . . . or use" must "file a monthly report on Form CC-1 (Consumer's Report of Cigarette Purchases), together with Schedule A (Unstamped Cigarette Purchases)" and also remit the full tax at the specified rate).
Federal law requires an out-of-State cigarette vendor who sells cigarettes to a buyer and ships them into New Jersey must file a monthly report of all cigarette shipments with Taxation. The report must include a memorandum or copy of the invoice covering each and every shipment of cigarettes during the previous month into the state, such memorandum or invoice to include the name and address of the person to whom the shipment was made, and the brand and the quantity of cigarettes. 15 U.S.C. §376 (a)(2). The same burden is also imposed by New Jersey law.
There was no proof to dispute that CD2U was a not a New Jersey licensed distributor and that it had not purchased New Jersey tax stamps to attach to the cartons shipped to Ms. Smith. Indeed, had the cigarette packages sold to plaintiff contained the tax stamps Taxation could not have imposed and collected the cigarette tax from plaintiff. Therefore, plaintiff is liable for tax as a consumer of unstamped cigarettes.
Plaintiff maintains that any tax was likely included in the price of the cigarettes since she was never led to believe otherwise. "Stamped cigarettes sold by a licensed distributor to wholesale and retail dealers" would "include the cigarette tax in the sales price" and that tax is then "eventually passed on to the consumer." Kasot, supra, 24 N.J. Tax at 593. However, and by logical extension, if the cigarettes are unstamped, it means that the tax was not paid by the distributor, thus, the additional cost was not passed on (i.e., charged) to the consumer.
It is undisputed that plaintiff is a consumer because she purchased unstamped cigarettes for her use and consumption from CD2U. Plaintiff was therefore required by law to have procured a license, filed monthly reports for the unstamped cigarettes she purchased from CD2U free of tax from November 2005 through December 2009, and paid the cigarette tax with those reports. As this court held, the Cigarette Tax Act is "designed to impose a tax on the sale of cigarettes and to prescribe a method for collection of that tax through a system of licensing distributors, dealers and consumers." Ibid.
Plaintiff's failure to obtain a license does not absolve her of her liability for Cigarette tax. Tax is upon use or consumption, and can be collected from the user or consumer. Otherwise, internet purchases of unstamped cigarettes can successfully evade tax. This is impermissible. See N.J.S.A. 54:40A-46 (the Cigarette Tax Act collects tax revenue which would otherwise be lost when taxpayers buy unstamped cigarettes from out-of-state vendors who do not "have enough legal connection with the State to be required to pay and collect taxes); Kasot, supra, 24 N.J. Tax at 596 (intent of the Cigarette Tax law is "to tax every unstamped cigarette that comes into New Jersey and is destined for sale or use here"). Requiring out-of-state vendors to file reports of cigarettes shipped into New Jersey allows Taxation to learn of the cigarette purchases and collect the excise tax even where the consumer fails to comply with the licensing and reporting requirements of the Cigarette Tax Act. In the absence of such reports, Taxation is authorized to impose the tax upon the consumer and fulfill the legislative objective of receiving tax revenue from cigarette sold and shipped to New Jersey consumers. Violation of the law by a distributor or dealer does not, as argued by plaintiff, absolve her of her obligations and tax liabilities because the Cigarette Tax Act specifically makes a consumer liable for purchasing, using or consuming unstamped cigarettes. This is so even if plaintiff's failure to comply with the law was neither deliberate nor with an intent to defraud Taxation.
This is also why the law provides Taxation sufficient authority to assess unpaid Cigarette Tax on the consumer, and collect the tax from the consumer, and even treat the unpaid tax as a lien. See N.J.S.A. 54:40A-21 (State Tax Uniform Procedure Law applicable to the administration of the Cigarette Tax Act); N.J.A.C. 18:5-9.1 (unpaid Cigarette Tax, plus the interest and penalties on the same is a "personal debt" owed by the taxpayer and is a lien on the taxpayer's property). If no report is filed, then Taxation is not limited by a time-frame to assess the cigarette tax. See N.J.S.A. 54:49-5 which authorizes Taxation to estimate and assess the tax where the taxpayer fails to file a report required by any state tax law.
The term "taxpayer" is a "person required to report or to pay any taxes, interest, or penalties or license fee, imposed" under the Cigarette Tax Act. N.J.A.C. 18:5-1.1.
Because she was required to but did not file the monthly reports of the unstamped cigarette purchases, plaintiff's argument that her Chapter 7 bankruptcy discharged her from those debts is unavailing. Bankruptcy law does not discharge taxes for "which a return, or equivalent report or notice, if required-- was not filed or given . . ." 11 U.S.C. §523(a)(1)(B)(i). Plaintiff was "required" to notify Taxation that she was a consumer, having purchased unstamped cigarettes online. Such notice was by procuring a license. She did not do so. If she had procured the license, she was obligated to file monthly tax reports and pay the Cigarette Tax. She failed her obligation in this regard. Therefore, her Chapter 7 bankruptcy discharge offers no protection nor does it void Taxation's assessment.
Plaintiff's contention that she cannot be taxed because she had no notice of her tax obligations is also unavailing. While understandably it is mostly lawyers and those involved in the area of the law (including law professors and law students) who pore over statutes and regulations, this does not mean that non-lawyers do not have "notice" of such laws. The law is published for all to see. Nothing is hidden. That the cigarette tax law is not routinely studied or viewed by cigarette consumers, or even advertised by vendors, does not mean it does not exist, or that the public do not have "notice" of the law. "Every person is conclusively presumed to know the law: ignorance is no excuse." Schirmer-National Co. v. Director, Div. of Taxation, 17 N.J. Tax 495, 502 (Tax 1998) (citation omitted). A person is also "chargeable with notice of what [a] statute contains." Gibraltar Factors Corp. v. Slapo, 41 N.J. Super. 381 (App. Div. 1956), aff'd, 23 N.J. 459, appeal dismissed, 355 U.S. 13 (1957).
(B) Sales or Use Tax
Sales tax is imposed on the receipts from every retail sale of tangible personal property. N.J.S.A. 54:32B-3(a). Use tax, on the other hand, is imposed on the use within New Jersey of any tangible personal property purchased at retail. N.J.S.A. 54:32B-6. The tax is "on the exercise of a right or power over tangible personal property." Diamondhead Corp. v. Director, Div. of Taxation, 4 N.J. Tax 255, 257 (Tax 1982).
The purpose of use tax is very similar to the purpose of the Cigarette Tax, namely, 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). Thus, use tax is complementary to the sales tax "as an aid to its enforcement" since it aims to capture the sales tax that should have but was not collected from the buyer. Boardwalk Regency Corp. v. Director, Div. of Taxation, 18 N.J. Tax 328, 334 (App. Div. 1999).
A purchaser who does not pay sales tax must pay use tax "within 20 days of the date the tax was required to be paid" to Taxation. N.J.S.A. 54:32B-14(b). The buyer also has a "duty to file a return" in this regard. Ibid. Similar to the remedy for unfiled Cigarette Tax reports, Taxation can determine the unpaid sales tax by using available information (such as here, the cigarette invoices) and collect the same from the customer. N.J.S.A. 54:32B-19. See also N.J.S.A. 54:49-5 (made applicable to the Sales and Use Tax Act by N.J.S.A. 54:32B-28) which authorizes the Director to estimate and assess the tax where the taxpayer fails to file a report required by any state tax law).
It should be noted that the use tax on "out-of-state purchase of cigarettes from unlicensed vendors" can be computed "only the purchase price" and not by adding the assessed cigarette tax to the purchase price. Sogness v. Director. Div. of Taxation, 25 N.J. Tax 355, 361 (Tax 2010).
Plaintiff's arguments against imposition of the uncollected sales tax by CD2U, and thus, unpaid use tax by her on her purchases of the cigarettes are the same as for the cigarette tax imposition. The arguments are all unavailing for the same reasons stated before pertaining to the Cigarette Tax. CONCLUSION
The court is sympathetic to plaintiff's assertions of her lack of intent to defraud anyone and her inability to pay. However, these factors do not affect the validity of the assessment and Taxation's duty to make the assessment.
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Summary judgment should be granted when "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). A court "should deny a summary judgment motion only where the party opposing the motion has come forward with evidence that creates a "genuine issue as to any material fact challenged.'" Brill v. Guardian Life Ins. Co. of America, 142 N.J. 520, 529 (1995). If not, summary judgment is appropriate.
Here, the issue was the validity of Taxation's assessments for Cigarette Tax and the unpaid sales tax on the internet purchases of cigarettes from an out-of-state vendor. None of the facts material to this issue were disputed. Therefore, and for the reasons explained before, summary judgment in favor of Taxation is appropriate. The complaint is accordingly dismissed.
Taxation assessment is affirmed without inclusion of penalties for late payment ($139.10) and for failure to utilize the amnesty program ($105.93). An Order and final Judgment in accordance with this opinion is attached herewith.
Very truly yours,
/s/
Mala Sundar, J.T.C.