Shedlock v. Dir., Div. of Taxation
| Decision Date | 30 April 2019 |
| Docket Number | DOCKET NO.: 008644-2018 |
| Parties | VALERIE SHEDLOCK AND JUDITH SOLAN, COEXECUTORS OF THE ESTATE OF ANTHONY CALLEO Plaintiffs, v. DIRECTOR, DIVISION OF TAXATION Defendant. |
| Court | New Jersey Tax Court |
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE TAX COURT COMMITTEE ON OPINIONS
Stephen L. Klein for plaintiffs (Law Office of Stephen L. Klein, attorney).
Miles Eckardt for defendant (Gurbir S. Grewal, Attorney General of New Jersey, attorney).
BIANCO, J.T.C.
This opinion shall serve as the court's determination of cross-motions for summary judgment concerning the appeal by plaintiffs, Valerie Shedlock and Judith Solan ("Heirs"), of the assessment by defendant, the Director of the Division of Taxation ("Director") with regard to the Heirs' New Jersey inheritance tax liability for tax year 2016. The Heirs move to invalidate the Director's assessment, which included a two family home, located at 270 Farnham Avenue, Lodi, New Jersey ("Subject Property") as a taxable asset of the estate of the Anthony Calleo ("Decedent"), and seek a refund of taxes, interest paid, and costs of suit. In opposition, the Director moves to dismiss the complaint with prejudice claiming that, the transfer of the Subject Property was made in contemplation of death and was intended to take effect at the Decedent's death, and is therefore subject to the inheritance tax.
For the reasons set forth herein, the Heirs' motion is granted in part and denied in part; the Director's motion dismissing the complaint is denied.
The following facts are not disputed. On July 24, 2013, the Decedent, then age eighty-seven, executed a deed transferring his interest in the Subject Property to the Heirs for a sum of less than $100. The deed was recorded in the Bergen County Clerk's office on August 2, 2013. The deed does not contain any provision providing the Decedent with any right, title, interest, control, or power in the Subject Property. On the same date, the Decedent executed a will devising all of his estate, real, personal or mixed, to the Heirs.
Despite his transfer of the Subject Property to the Heirs, the Decedent continuously remained in the Subject Property until his death on August 29, 2016, which was three years and thirty-six days after the date of the execution of the deed, and three years and twenty-seven days after the deed was recorded. While the Decedent was living at the Subject Property with a tenant, the Heirs managed the Subject Property. There was a joint bank account between the Decedent and one of the Heirs, Ms. Valerie Shedlock, which was used to deposit the monthly rental income of $600 from the tenant and pay the maintenance expenses. Any additional maintenance expenses, as well as real estate taxes, were paid from funds of the Decedent. The Decedent reported the rental income and maintenance expenses for the Subject Property in his 2015 Federal income tax return. He also listed the Subject Property as a principal residence.
On June 29, 2017, the Heirs filed a New Jersey Inheritance Tax Return for the Decedent's estate ("inheritance tax return"). The Subject Property was not included in the inheritance tax return. The Division of Taxation ("Taxation") audited the inheritance tax return and issued a notice of assessment on May 7, 2018 that included as part of the estate, the Subject Property, valued at$425,000 on the date of the Decedent's death. This was based on Taxation's legal conclusion that the transfer of the Subject Property was intended to take effect at the death of the Decedent.
The Heirs paid the taxes and interest due under the notice of assessment to Taxation and timely filed a complaint in the Tax Court on June 11, 2018, seeking a refund and cost of suit.
Summary judgment should be granted when there is no genuine issue as to any material fact. See Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 528-29 (1995); R. 4:46-2. A genuine issue of material fact exists "only if, considering the burden of persuasion at trial, the evidence submitted by the parties, on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact." R. 4:46-2(c). Here, the only issue is whether Taxation's deficiency notice of assessment with regard to the Heirs' 2016 inheritance tax is invalid. The court finds that there is no genuine issue as to a material fact in the matter; therefore, a decision by summary judgment is appropriate.
N.J.S.A. 54:34-1 imposes tax upon "the transfer of property, real or personal, of the value of $500.00 or over, or of any interest therein or income therefrom, in trust or otherwise, to or for the use of any transferee, distributee or beneficiary" by will or by "deed, grant, bargain, sale or gift made in contemplation of the death of the grantor, vendor or donor, or intended to take effect in possession or enjoyment at or after such death." N.J.S.A. 54:34-1.
The second paragraph of N.J.S.A. 54:34-1(c) provides a presumption that a transfer which was made more than three years prior to the death of the grantor shall not be deemed to have been made in contemplation of death.
Similarly, N.J.S.A. 54:34-1.1 extends a presumption that a transfer made more than three years prior to the death of the grantor shall not be deemed to be intended to take effect at death. However, this provision requires an additional condition for the grantor to meet: "irrevocable and complete disposition of all reserved income, rights, interests and powers in and over the property transferred."
A presumption of correctness is attached to the Director's assessment. See Meadowlands Basketball Assocs. v. Dir., Div. of Taxation, 19 N.J. Tax 85, 90 (Tax 2000), aff'd, 340 N.J. Super. 76 (App. Div. 2001). Furthermore, "the Director's construction of the operative law, which is not plainly unreasonable and with which the Legislature has not interfered, is entitled to prevail." Aetna Burglar & Fire Alarm Co. v. Dir., Div. of Taxation, 16 N.J. Tax 584, 589 (Tax 1997) (citing Metromedia, Inc. v. Dir., Div. of Taxation, 97 N.J. 313, 327 (1984)). However, "courts remainthe final authority with respect to statutory construction and have no obligation to summarily approve of the Director's administrative interpretations." Gray v. Dir., Div. of Taxation, 28 N.J. Tax 28, 35 (Tax 2014). See N.J. Guild of Hearing Aid Dispensers v. Long, 75 N.J. 544, 575 (1978). "An administrative agency may not under the guise of interpretation extend a statute to include persons not intended, nor may it give the statute any greater effect than its language allows." Kingsley v. Hawthorne Fabrics, Inc., 41 N.J. 521, 528 (1964).
When determining the meaning of a statute, the court must first consider the plain language. See GE Solid State v. Dir. Div. of Taxation, 132 N.J. 298, 306 (1993). "If the statute is clear and unambiguous on its face and admits of only one interpretation, we need delve no deeper than the act's literal terms to divine the Legislature's intent." State v. Butler, 89 N.J. 220, 226 (1982). See Kimmelman v. Henkels & McCoy, Inc., 108 N.J. 123, 128 (1987). Nonetheless, "if the plain language of a statute creates uncertainties or ambiguities, a reviewing court must examine the legislative intent underlying the statute and 'construe the statute in a way that will best effectuate that intent.'" Musikoff v. Jay Parrino's the Mint, L.L.C., 172 N.J. 133, 140 (2002) (quoting N.J. State League of Municipalities v. Dep't of Cmty. Affairs, 158 N.J. 211, 224 (1999)). "In undertaking that task, courts may ascertain the intent of the drafters by looking to extrinsic sources such as the statute's underlying purpose and history." Ibid. (citing Clymer v. Summit Bancorp., 171 N.J. 57, 66 (2002)). "Above all, [a court] must seek to effectuate the 'fundamental purpose for which the legislation was enacted.'" Ibid. (quoting Twp. of Pennsauken v. Schad, 160 N.J. 156, 170 (1999)).
Although the Director did not specifically use the words "made in contemplation of death" in the motion papers, the Director raised arguments that relate to the "made in contemplation of death" provision.1 Accordingly, the court finds that a brief discussion of the "made in contemplation of death" provision, and the motive of the Decedent when making the transfer, is appropriate here.
To that end, this court is satisfied that the legislative intent underlying the statute clearly supports the principle that the court need not address the motives of a decedent where the transfer of a property was made more than three years prior to the death of a decedent. Before amending N.J.S.A. 54:34-1 in 1951, the court was required to...
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