AccuZip, Inc. v. Director, Division of Taxation, No. 005744-2003 (N.J. Tax 8/13/2009)
| Decision Date | 13 August 2009 |
| Docket Number | No. 005744-2003.,No. 004692-2002.,005744-2003.,004692-2002. |
| Parties | ACCUZIP, INC. Plaintiff, v. DIRECTOR, DIVISION OF TAXATION, Defendant. QUARK, INC. Plaintiff, v. DIRECTOR, DIVISION OF TAXATION, Defendant. |
| Court | New Jersey Tax Court |
In these consolidated matters, plaintiffs AccuZIP, Inc. (hereinafter "AccuZIP") and Quark, Inc. (hereinafter "Quark;" and the plaintiffs collectively as "the Corporations") appeal from final determinations issued by defendant Director, Division of Taxation (hereinafter "the Director") finding the Corporations liable for the Corporation Business Tax (hereinafter "CBT"), pursuant to the Corporation Business Tax Act N.J.S.A. 54:10A-1 to -41 (hereinafter "the Act"), as a result of computer program sales to New Jersey customers. All parties have moved for summary judgment.
For the reasons set forth herein, AccuZIP's motion is granted; Quark's motion is granted in part and denied in part. The Director's motion as to AccuZIP is denied; but her motion as to Quark is granted in part and denied in part.
The facts are not in dispute:
AccuZIP is a Nevada Corporation with offices in California. It develops and sells computer mailing programs to customers nationwide. One such program allows businesses to clean up mailing lists to prevent duplicate mailings and to pre-sort mail so that businesses' mailings can qualify for lower postage rates with the United States Postal Service. The programs are sold on CD-ROMS and contain a licensing agreement, which provides in part:
BY USING THIS SOFTWARE YOU ARE AGREEING TO BE BOUND BY THE TERMS OF THIS AGREEMENT. IF YOU DO NOT AGREE TO THE TERMS OF THIS AGREEMENT, PROMPTLY RETURN THE UNOPENED DISK PACKAGE AND ACCOMPANYING ITEMS.
The agreement limits the purchaser to "use one copy of the specified software product above ("Software") on a single computer." In addition, customers
[M]ay have as many copies of the SOFTWARE in use as you have Licenses . . . [and] . . . if the number of users of the SOFTWARE could exceed the number of applicable Licenses, then you must have a reasonable mechanism or process in place to assure that the number of persons using the SOFTWARE concurrently does not exceed the number of Licenses.
The agreement further states:
2. COPYRIGHT. This SOFTWARE is owned by AccuZIP, Inc., or its suppliers, with a special distribution license to Datatech, and is protected by United States copyright laws and international treaty provisions. Therefore, you must treat the SOFTWARE like any other copyrighted material (i.e. a book or musical recording) except that you may (a) make copies of the SOFTWARE solely for backup or archival purposes, and (b) transfer the SOFTWARE to a single hard disk provided you keep the original solely for backup or archival purposes.
3. OTHER RESTRICTIONS. This AccuZIP/Datatech License Agreement is your proof of License to exercise the rights granted herein and must be retained by you. You may not sublicense, rent or lease the SOFTWARE, but you may transfer your rights under this AccuZIP/Datatech License Agreement on a permanent basis provided you transfer the License Agreement, the SOFTWARE, and all accompanying written materials and retain no copies, and the recipient agrees to the terms of this Agreement. You may not reverse engineer, decompile, or disassemble the SOFTWARE.
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5. TERM. This Agreement is effective from your date of receipt and shall remain in effect until terminated. You may terminate this License Agreement at any time by completely destroying the SOFTWARE and all copies in any form. AccuZIP/Datatech may terminate this Agreement if you fail to comply with any of its terms or conditions. Upon any termination of this License, you agree to destroy the SOFTWARE and all copies and written materials. Upon request, you must provide AccuZIP/Datatech with written certification of such destruction.
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GOVERNING LAW. This Agreement shall be governed by the laws of California.
AccuZIP marketed its products by placing advertisements in national trade magazines and maintaining a web page at www.accuzip.com. Customers placed orders for AccuZIP products via telephone, e-mail, or fax with an AccuZIP employee in California. The products were then shipped by using a common carrier from the California office. Technical support was provided to customers from the California office. AccuZIP did not have employees in New Jersey and did not own or rent any real property in New Jersey.
Between 1999 and 2001, AccuZIP had ninety-three customers in New Jersey who generated $64,744 in sales (i.e. 2% of the company's total gross income). In 2002 AccuZIP completed a Nexus Survey at the request of the Director. The Director found that AccuZIP was "doing business" in New Jersey for CBT purposes because it retained title to licensed software in this state. AccuZIP did not respond to the proposed determination or formal notice of assessment and the Division assessed an estimated CBT of $3,000 plus penalty and interest. AccuZIP timely filed this appeal.
Quark is a privately held Colorado corporation with its principal offices and headquarters in Denver, Colorado. Quark developed and copyrighted a desktop publishing computer program named QuarkXPress. The disks containing the QuarkXPress program were transferred to Quark's order fulfillment center where they were bundled with a paperback tutorial guide, reference manual and user's guide into a cardboard box. The box was "shrink-wrapped" with a clear plastic film and transported by a common carrier for delivery around the world. From April 1, 1988 through February 25, 1997 Quark sold the QuarkXPress program in the pre-packaged shrink-wrapped boxes to distributors and resellers who resold the product to end users. From February 26, 1997 through the end of the determination period no QuarkXPress programs were sold.
Visible through the shrink-wrapped packaging of the QuarkXPress program is an envelope on which is printed the following notice: The Single User Software License Agreement provides in pertinent part:
THIS LICENSE AGREEMENT SETS FORTH THE TERMS AND CONDITIONS OF THE LICENSE AND THE LIMITED WARRANTY FOR THE SOFTWARE ON THE ENCLOSED MAGNETIC AND/OR CD-ROM MEDIA. OPENING OF THE ENCLOSED PACKET ... SIGNIFIES YOUR ACCEPTANCE OF THE AGREEMENT. IF YOU DO NOT ACCEPT THIS AGREEMENT, DO NOT OPEN THE PACKET ...
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14. GOVERNING LAW AND JURISDICTION: This Agreement will be governed by the laws of the State of Colorado.
From August of 1992 through April 22, 1994 Quark employed Anish Kapadia as a regional sales representative for New York and New Jersey. One of his responsibilities was to solicit orders from resellers for Quark products in his territory. Mr. Kapadia conducted educational sessions at which he informed resellers' sales personnel of the benefits and features of Quark's software programs so that they would be better able to sell more inventory to end users. Mr. Kapadia worked out of his personal residence in New Jersey and used his personal car to travel on Quark business.
On or about June 30, 1995, the Director began an audit of Quark for CBT purposes. On September 10, 1996, the Director issued a notice of proposed determination for years 1993 through 1995 finding that Quark's licensing of software to New Jersey customers, while retaining title to such software, constituted "doing business" in New Jersey and required Quark to file a CBT return for those years. On August 25, 1997, the Division issued a notice of assessment and demand for payment in the amount of $250,000 of CBT for years 1993 through 1996. Quark filed a protest with the Director on September 11, 1997. On September 30, 2003, the Director issued a final determination letter finding that Quark is subject to CBT from 1988 through September 30, 2003. Quark timely filed this appeal.
The Court finds that the present matters are ripe for summary judgment. New Jersey's Court Rules provide that summary judgment is appropriate where:
The judgment or order sought shall be...
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