Stanislaus Food Prods. Co. v. Dir., Div. of Taxation
| Decision Date | 22 April 2021 |
| Docket Number | DOCKET NO: 011050-2017 |
| Parties | STANISLAUS FOOD PRODUCTS COMPANY, Plaintiff, v. DIRECTOR, DIVISION OF TAXATION, Defendant. |
| Court | New Jersey Tax Court |
NOT FOR PUBLICATION WITHOUT APPROVAL OF THE TAX COURT COMMITTEE ON OPINIONS
Leah Robinson for Plaintiff (Mayer Brown LLP for Plaintiff, attorneys).
Michael J. Duffy for Defendant (Gurbir S. Grewal, Attorney General of New Jersey, attorney).
CIMINO, J.T.C.
Congress enacted the Interstate Income Act of 1959, Pub. L. No. 86-272, 73 Stat. 555 (codified at 15 U.S.C. §§ 381-384) (P.L. 86-272) to preclude the states from imposing a net income tax on certain out-of-state sellers of tangible goods. In New Jersey, this net income tax would be the Corporation Business Tax (CBT). The Director does not dispute that the taxpayer here is an entity covered by P.L. 86-272 for the years at issue.
While taxpayer is not subject to the CBT, the Director argues that the taxpayer is subject to the Alternative Minimum Assessment (AMA) (L. 2002, c. 40, § 7), which, for the time period at issue, imposes either a gross receipts or profits tax exclusively upon P.L. 86-272 entities. To be clear, no entities are subject to the AMA except those protected by P.L. 86-272. The Director argues that he is merely imposing the AMA and is not forcing any P.L. 86-272 entity to pay a net income tax, such as the CBT. The taxpayer argues that the AMA is merely an end-run around P.L. 86-272. Both parties moved for summary judgment on this issue.
On the surface, this matter appears to be an esoteric tax issue involving two obscure taxation statutes: one federal and one state. However, wrapped inside is a weighty Constitutional issue. While this court is called upon to particularly decide the interplay between the two statutory provisions, the overriding issue is the competing roles of the state and federal governments.
A long time ago, New Jersey ratified the United States Constitution and agreed to a method of resolving disputes between the state and federal governments. Facing a trade war amongst the states, a constitutional convention was called in 1786. The convention culminated in the adoption of the United States Constitution which was ratified by New Jersey on December 18, 1787. The Constitution providedwhat has come to be known as the Commerce Clause which gives Congress the ability to determine the parameters for interstate commerce. To prevent the states from undercutting the dictates of Congress, through competing legislation or otherwise, the Constitution also contains the Supremacy Clause which provides legislation that is within the realm of Congress supersedes the conflicting will of a state legislature. To give the Supremacy Clause some teeth, the framers of the Constitution explicitly provided that state court judges must adhere to the Supremacy Clause.
Here the issue boils down to whether the AMA stands as an obstacle to the accomplishment and execution of the purposes and objectives of P.L. 86-272. While some may argue it is time for Congress to revisit P.L. 86-272 on policy grounds, it is not the role of the court to make that policy determination. The court is duty-bound to faithfully obey the constitutional framework spelled out by the Supremacy Clause and the Commerce Clause. For the reasons set forth in much greater detail in this opinion, the court determines that the AMA is being imposed contrary to the mandate of P.L. 86-272.
The taxpayer, Stanislaus Food Products Company, located in Stanislaus County, California, is a canner of tomato products. The taxpayer's tomato productsare shipped to food service independent distributors who in turn sell directly to restaurants.
The taxpayer employs a representative who lives in New Jersey. The representative does not have a set office in New Jersey and works from his home. The taxpayer provides a vehicle, phone, computer and samples to the representative. The representative visits restaurateurs and encourages them to compare their current sauce to taxpayer's. The representative provides the restauranteurs with names of independent distributors selling taxpayer's product. However, the representative has no responsibility for prices as these are set by the independent distributors.
The taxpayer makes calls to restauranteurs to verify that they have "converted" to the taxpayer's products. The taxpayer asserts that the calls are necessary since the restauranteur is purchasing the products from an independent distributor. Initially, the taxpayer maintained an inventory in South Plainfield, New Jersey, but that arrangement ended in June of 2011. For the tax years in question, 2012 through 2014, the taxpayer did not maintain an inventory of products in New Jersey.
While some of the aforementioned facts would be important in determining whether an entity is protected by P.L. 86-272 for years prior to 2012, the Director does not dispute that the taxpayer was an entity covered by P.L. 86-272 for 2012 through 2014.
At the onset, the taxpayer filed its returns and paid the Corporation Business Tax (CBT) based upon its net income. The Director then audited taxpayer's returns and issued a deficiency assessment. The taxpayer filed amended returns indicating it qualified as a P.L. 86-272 taxpayer, thus exempting it from a net income tax such as the CBT. Agreeing that the taxpayer qualified as a P.L 86-272 entity for 2012 through 2014, the Director allowed a refund of the CBT. However, the Director imposed the Alternative Minimum Assessment (AMA) gross profits tax and reduced the amount of the refund.
The taxpayer appealed to this court challenging the Director's ability to impose the AMA on a P.L. 86-272 entity. The taxpayer moved for partial summary judgment as to this issue. The Director cross-moved for partial summary judgment asserting that it is proper to impose the AMA. Our Supreme Court has indicated that summary judgment provides a prompt, business-like and appropriate method of disposing of litigation in which material facts are not in dispute. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 530 (1995). The Director did not dispute the central material fact in this case, that is, the taxpayer was an entity covered by P.L. 86-272 from 2012 to 2014. Thus, the court was left with the legal issue of the applicability of the AMA to P.L. 86-272 taxpayers for the years in question.
After deciding the motions for partial summary judgment in favor of the taxpayer, the Director requested reconsideration. The traditional standard for reconsideration as to final orders requires that the trial judge overlooked some pertinent law or incorrectly assessed some material fact. R. 4:49-2. See also D'Atria v. D'Atria, 242 N.J. Super. 392, 401 (Ch. Div. 1990). This rigorous standard is important to ensure a certain degree of finality in litigation while at the same time providing a safety valve in the event of trial court error.
However, the prior decision in this case was not final, but interlocutory. There are still outstanding issues to be addressed after this reconsideration motion is addressed. "Interlocutory orders are always subject to revision in the interests of justice." Lombardi v. Masso, 207 N.J. 517, 536 (2011). As stated by the rule governing interlocutory orders, "[a]ny order or form of decision which adjudicates fewer than all the claims as to all the parties . . . shall be subject to revision at any time before the entry of final judgment in the sound discretion of the court in the interest of justice." R. 4:42-2. Compare R. 4:49-2.1 As explained in commentaryto our rules of court, "[a] significant aspect of the interlocutory nature of an order is its amenability to the trial court's control until entry of final judgment without interposition of considerations appropriate to finality." Pressler & Verniero, Current N.J. Court Rules, cmt. 3 on R. 4:42-2 (2020). This rule makes sense since "[t]hat special power afforded to judges over their interlocutory orders derives from the fact that cases continue to develop after orders have been entered and that judges likewise continue to think about them." Lombardi, 207 N.J. at 536.
"Although the rule is expansive, the power to reconsider an interlocutory order should be exercised 'only for good cause shown and in the service of theultimate goal of substantial justice.'" Ibid., (quoting Johnson v. Cyklop Strapping Corp. 220 N.J. Super. 250, 263-64 (App. Div. 1987)). The Director here is not merely seeking another bite at the apple2, but is trying to develop the record in a complex tax case involving two competing tax statutes, one federal and one state with an overlay of constitutional issues. The traditional standard for reconsideration which must be used for final orders (and for good cause may be used for interlocutory orders) is simply inapplicable here. Considering the importance and complexity of the issues raised in this action, the court has good cause to address the refined and expanded arguments of the parties with an eye towards the ultimate goal of substantial justice.
As indicated at the outset, the issue is whether the New Jersey Alternative Minimum Assessment (AMA) is preempted by P.L. 86-272, a federal law. To fully understand the issue, some background as to taxation of corporations in New Jersey is necessary. In 1945, New Jersey enacted the Corporation Business Tax (CBT). L. 1945, c. 162 (codified as N.J.S.A. 54:10A-1 to -28.) Initially, the tax was only basedon a corporation's net worth allocated to New Jersey. L. 1945, c. 162, § 5. In 1958, the Act was amended to also tax net income allocable to New Jersey. L. 1958, c. 63. N.J.S.A. 54:10A-5(c). The starting point for this tax is a determination of "net income" which includes net income from all sources whether within or outside the state. L. 1958 c. 63, § 1(k). N.J.S.A. 54:10A-4(k).
While the ...
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