Adp Vehicle Registration, Inc. v. Director
| Decision Date | 11 December 2018 |
| Docket Number | DOCKET NO. 014946-2014 |
| Parties | ADP VEHICLE REGISTRATION, INC., Plaintiff, v. DIRECTOR, DIVISION OF TAXATION, Defendant. |
| Court | New Jersey Tax Court |
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE TAX COURT COMMITTEE ON OPINIONS
Hollis L. Hyans, admitted pro hac vice, for plaintiff (Morrison & Foerster, LLP, attorneys; Steven T. Rappoport, on the briefs).
Marlene G. Brown for defendant (Gurbir S. Grewal, Attorney General of New Jersey, attorney).
NUGENT, J.T.C.
This is the court's opinion regarding cross-motions for partial summary judgment filed by the parties on the underlying complaint challenging the corporate business tax ("CBT") assessed against plaintiff, ADP Vehicle Registration, Inc. ("Taxpayer" or "ADPVR"), by defendant, the Director, Division of Taxation ("Taxation"), for tax years ending June 2008 through June 2010. During the periods under appeal, Taxpayer was a wholly owned subsidiary of New Jersey-based ADP, Inc. ("ADP"), and claimed to operate as a California holding company that conducted no business and had no employees. Taxpayer's sole asset was an 80% general partnership interest in Computerized Vehicle Registration ("CVR"), a California general partnership operating nationwide. The only issue before this court is whether Taxpayer maintained a regular place of business ("RPOB") outside New Jersey during the years under appeal.
If less than 100% of a corporation's activities and property are in New Jersey, its income inside and outside of New Jersey may be apportioned under a statutory formula. N.J.S.A. 54:10A-6. During the years at issue, a corporation that maintained an RPOB outside of New Jersey was entitled to apportion its income based on a three-factor formula comprising of the corporation's payroll, property, and sales inside New Jersey, as compared to its activity nationwide. If a corporation failed to maintain an RPOB outside the State, 100% of its income would be apportioned to New Jersey. Ibid. Taxation enacted a regulation to define RPOB. See N.J.A.C. 18:7-7.2. The parties' interpretation of the regulation forms the core of this dispute.
Here, Taxation contends that if the RPOB of Taxpayer is uncertain, then the court should find the credit it afforded for taxes paid to other jurisdictions represents a fair and reasonable allocation of Taxpayer's activities inside and outside the State. Otherwise, the court should remand the matter to Taxation for consideration of an alternate form of allocation adjustment pursuant to N.J.S.A. 54:10A-8 ("Section 8"), under which Taxation is granted statutory discretion to adjust the allocation factor. Taxation acknowledges that Taxpayer and CVR are engaged in a unitary business relationship, and thus pursuant to N.J.A.C. 18:7-7.6(h)(1), Taxpayer is deemed to have an RPOB wherever CVR maintains one.
Taxpayer contends it has demonstrated an RPOB through CVR's activities. Because of its unitary nature with CVR, Taxpayer's claim derives not from its own business activity but from that of CVR. Moreover, Taxpayer argues, in the event it fails to meet its burden to prove that CVR had an RPOB, it is entitled to allocate income on an alternative basis. According to Taxpayer, it is entitled to apportion income under Section 8, using the three-factor formula, to avoid the "palpable misapportionment" that results from Taxation's allocation of 100% of Taxpayer's income to this State. Hess Realty Corp. v. Dir., Div. of Taxation, 10 N.J. Tax 63, 81-82 (Tax 1988). In further reliance on Hess, Taxpayer claims Taxation not only has the discretion to act but "has an obligation to adjust a particular allocation formula if it is unfair in that it does not effect a fair and proper allocation of the [Taxpayer's] entire net income . . . reasonably attributable to the State." Ibid. (citing F.W. Woolworth Co. v. Dir., Div. of Taxation, 45 N.J. 466, 497 (1965) (internal quotation marks omitted). In Taxpayer's view, employment of the three-factor formula accounts for its proportionate business conducted both inside and outside of New Jersey. Taxation argues that such relief is entirely discretionary and not obligatory. The parties also differ as to the procedural mechanism required to trigger Section 8 relief. They presented arguments addressing Taxpayer's claim for relief under Section 8 in supplemental briefing to the court.
Taxpayer lastly claims that under the facts presented, Taxation's application of a tax based on 100% apportionment to New Jersey with credit for taxes paid to other jurisdictions is inconsistent with the statutory design and violates the Due Process and Commerce Clauses of the United States Constitution. Notably, Taxpayer provides a stark illustration of the difference between CVR's reported 2% allocation and Taxation's 100% allocation.
The court concludes Taxpayer has established an RPOB outside of New Jersey through the maintenance of an RPOB by CVR in California. As such, Taxpayer's statutory allocation throughuse of the three-factor formula was appropriate, and therefore, the court need not consider the alternative arguments presented.
The facts rely on submissions of the parties, including affidavits authored by both ADP and CVR employees.
Taxpayer filed CBT-100 tax returns in New Jersey for the periods ending June 2008 through June 2011 using a three-factor allocation formula.1 On their audit, Taxation identified four issues in Taxpayer's tax returns that were subject to dispute: pass-through income, royalty expense, RPOB, and the allocation factor, though only the finding on RPOB is at issue here. According to the audit report, On that basis, Taxation determined Taxpayer did not maintain an RPOB and adjusted the allocation factor to 100% for the tax periods ending June 2008 - June 2010 and assessed additional taxes due, with credit for taxes paid to other jurisdictions.2 Notably, in the tax period immediately following the audit at issue, and subsequent to repeal of the RPOB requirement, Taxation applied the three-factor apportionment formula to Taxpayer's reported income, and a refund issued. Taxpayer appealed the Final Determination by timely filing a complaint with this court.
During all relevant years, CVR operated a nationwide computerized business that provided electronic vehicle title and registration services through software developed to achieve its business model. CVR's partnership receipts constitute Taxpayer's sole source of income. CVR filed partnership tax returns in more than twenty states during the years at issue reporting wages attributable to at least 200 CVR employees nationwide. The facts reveal CVR had a business location in El Paso, Texas, which served as a customer service call-center, and a location in Portland, Oregon, where CVR software developers performed their duties. Not including California and New Jersey, the record offers sparse details on CVR's other business locations. Taxpayer focused largely on the operation of its California office as the basis of its RPOB claim.
Until January 1, 2009, CVR's California office was located at 12610 Park Plaza, Cerritos, California. Thereafter, CVR relocated its offices to 7000 Village Drive, Buena Park, California (collectively "the California office"). Upwards of sixty people worked at the California office full-time under the control and direction of CVR management, and ultimately reported to the on-site General Manager, Scott Herbers. CVR's General Manager and Vice President of Research and Development were among several members of CVR's management team at the California office. The California location also housed the office of the Controller, the contracts administration department, CVR auditors, and a majority of the research and development team. CVR's management team in California made managerial decisions affecting the day-to-day operation of CVR's business.
Business operations required CVR to contract with State departments of motor vehicles. CVR's contracts with both the New Jersey and Massachusetts motor vehicle agencies were executed at the California offices, listing CVR's California address. In its motion papers, Taxpayeridentifies the location as CVR's "headquarters," and the California address appears on the CVR website. While Taxation admits that CVR conducted business at the California office for the years under appeal, the characterization of CVR's California location as its "headquarters" was met with Taxation's continuing objection.
According to the tax returns, the majority of CVR's total nationwide property was located in California: for 2008, 83.9099%; for 2009, 80.8280%; and for 2010, 85.9946%. Additionally, more than one third of CVR's total nationwide payroll was attributable to California: for 2008, 33.9525%; for 2009, 37.2513%; and for 2010, 42.010%. The majority of CVR's total nationwide sales were attributable to California: for 2008, 64.5834%; for 2009, 60.6058%; and for 2010, 60.6996%. A review of CVR's payroll records discloses contrasting figures regarding New Jersey activity. Six out of CVR's 210 employees worked in New Jersey in 2008; five out of 202 in 2009; and, five out of 170 in ...
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