N.J.S.A. 54:32B-2 and 3; and if so, whether taxpayer can avoid its obligation to remit sales tax because the Director did not provide taxpayer with individualized notice of the amended tax statute.">
Rutgers School of LawDOCKET NUMBER: 00348-96 New Jersey Court Cases - Court Case Law from NJ - New Jersey Court Opinions
Peter G. Banta for plaintiff
(Winne, Banta, Rizzi, Hetherington & Basralian, attorneys).
Patrick DeAlmeida for defendant
(Peter Verniero, Attorney General of New Jersey, attorney)
KAHN, J.T.C. This is the court's opinion on the parties' cross-motions for summary judgment regarding
the taxability of burglar alarm monitoring systems. The issue of taxability is twofold: whether such
systems are subject to the New Jersey Sales and Use Tax if transmitted through telephone
communications pursuant to N.J.S.A. 54:32B-2 and 3; and if so, whether taxpayer can avoid its
obligation to remit sales tax because the Director did not provide taxpayer with individualized notice
of the amended tax statute.
The parties stipulated the following facts. Plaintiff is a New Jersey corporation with its
principal place of business in Bergenfield, New Jersey. Plaintiff provides central office guard
services monitoring alarm systems installed and connected to existing telephone service at the
customer's location. However, plaintiff does not install or provide telephone service at its consumer
locations. Such alarm systems are calibrated to detect a break in the circuitry. When activated, the
alarm system seizes the telephone line, disconnects other phones at the protected location, and
electronically initiates a telephone call to plaintiff's office that transmits electronic messages
regarding the detection. Once the electronic message is received, plaintiff's employee telephones
the customer, evaluates the genuineness of the alarm, and if necessary, contacts the appropriate
authorities. Plaintiff bills customers a flat monthly rate.
In the New Jersey State Tax News, (Jan./Feb. 1982), the Division of Taxation published its
interpretation of the sales and use tax laws. With respect to central station alarm systems, the
Division of Taxation stated:
In a central station alarm system where the burglar alarm company
transfers the ownership of the burglar alarm equipment to the
customer, there is a sale of such equipment which is subject to the
sales or use tax. Here again, the charges to the customer for central
station alarm system guard and protective services are for personal
services not subject to the tax.
[Ibid.]
Thus, plaintiff was not required to collect sales and use tax from consumers at that time.
On July 1, 1990, L. 1990 c.40 amended N.J.S.A. 54:32B-2 and-3 by expanding the tax's
application to telecommunications so as to include “all services and equipment provided in
connection with or by means of” telecommunications. N.J.S.A. 54:32B-2 (cc) defines
“telecommunications” as
...the act or privilege of originating or receiving messages or
information through the use of any kind of one-way or two-way
communication; including but not limited to voice, video, facsimile,
teletypewriter, computer cellular mobile or portable telephone,
specialized mobile or portable pager or paging service, or any other
type of communication; using electronic or electromagnetic methods,
and all services and equipment provided in connection therewith or
by means thereof.
Furthermore, N.J.S.A. 54:32B-2 (cc)(1)-(5) excludes from “telecommunications”
(1) one-way radio or television broadcasting transmissions available
universally to the general public without a fee;
(2) purchases of telecommunications by a telecommunications
provider for use as a component part of telecommunications provided
to an ultimate retail consumer who (a) originates or terminates the
taxable end-to-end communications or (b) pays charges exempt from
taxation pursuant to paragraph (5) of this subsection;
(3) services provided by a person, or by that person's wholly owned
subsidiary, not engaged in the business of rendering or offering
telecommunications services to the public, for private and exclusive
use within its organization, provided however, that
“telecommunications” shall included the sale of telecommunications
services attributable to the excess unused telecommunications
capacity of that person to another; and
(4) charges in the nature and subscription fees paid by subscribers for
cable television service; and
(5) charges subject to the local calling rate paid by inserting coins into
a coin operated telecommunications device available to the public.
On or about the time of the amendment's enactment, the Division of Taxation issued a special notice
to all sales and use tax vendors concerning these changes in the sales and use tax law. Special
Notice To All Sales And Use Tax Vendors, Division of Taxation, July 1, 1990. This notice defined
“telecommunications” as articulated in N.J.S.A. 54:32B-2(cc) but paraphrased the exclusions
therefrom as follows:
The following telecommunications services are not taxable:
* One-way radio and television broadcasts available to the general
public without a fee
* cable television subscription charges
* telecommunications carrier access purchased for resale
* news media services
[Ibid. at 2.]
In 20 New Jersey State Tax News, 80-81 (July/Aug. 1991), the Division of Taxation
published its interpretation of the above amendments and specifically stated that alarm monitoring
services are “subject to tax for New Jersey Service addresses.” From July 1, 1990 to June 30, 1993,
plaintiff did not collect sales tax on receipts from burglar alarm monitoring systems. On September
29, 1993, the Director issued a notice of assessment arising from an audit of plaintiff's sales records.
After receiving said notice, plaintiff filed a protest. The parties subsequently held a conference
regarding the assessment. After that conference, the Director issued a final determination against
plaintiff for sales tax and interest. Pursuant to the 1996 Tax Amnesty program, plaintiff applied for
amnesty with respect to sales taxes due and payable from August 1, 1991 through June 30, 1993.
Amnesty was granted; all that remains in dispute is the taxability of plaintiff between July 1, 1990
to July 31, 1991. The amount at issue is approximately $144,480.30, to which interest continues to
accrue.
The Division of Taxation moves for summary judgment on the basis that the 1990 legislative
expansion of the New Jersey Sales and Use Tax applies to burglar alarm monitoring services. SeeAetna Burglar & Fire Alarm Co. v. Director, Div. of Taxation,
16 N.J. Tax 584, 587 (Tax 1997).
(Judge Axelrad held the 1990 amendment's language is unambiguous in its intention to apply the
sales tax to alarm monitoring services carried through telephone communications.) In addition, the
Division disputes taxpayer's claim it was entitled to special notice from the Director regarding each
change in the sales tax because it would be overly burdensome. Furthermore, the Division contends
that estoppel cannot be applied in this case because it is rarely invoked against a public entity. SeeDept. of Environmental Protection v. Dopp,
268 N.J. Super. 165, 175-176 (App. Div. 1993); seealsoBlack Whale, Inc. v. Director, Div. of Taxation,
15 N.J. Tax 338, 355 (Tax 1995). Finally, the
Division argues the plaintiff should not be permitted to dispute the applicability of the sales tax to
the plaintiff, because plaintiff's former counsel stated the issue of taxability was not being
contested.See footnote 1 SeeHoward Savings Bank v. Liberty Mutual Ins. Co.,
285 N.J. Super. 491, 497 (App.
Div. 1995); seealsoHartford Fire Ins. Co. v. Riefolo Const. Co. of No. America
81 N.J. 514, 523
(1980.)
Taxpayer moves for summary judgment on the basis that the sales tax imposed for the time
period at issue is unjustified because the language of the taxing statute is both unclear and
ambiguous. Moreover, taxpayer argues against imposition of the sales and use tax because the
Division of Taxation failed to provide proper notice of the tax law changes. Specifically, plaintiff
contends the July 1, 1990 special notice sent to vendors by the Division merely reiterated the
statutory language and failed to provide an interpretation that alarm monitoring services were now
subject to the tax. Thus, plaintiff allegedly believed the services were personal and not subject to
the tax. To further justify its belief that burglar alarm services were not taxable, plaintiff argues
sales and use tax vendors were most concerned with the rate change in the statute.
Plaintiff distinguishes Aetna, supra, because the liability period at issue in that case was after
the Division published its interpretation of the amendments in August, 1991; thus, plaintiff argues
Aetna was on notice. Moreover, plaintiff argues it did not receive notice of the tax law changes until
July 31,1991, when the Division of Taxation published its interpretation of the tax legislation
changes. Finally, taxpayers seeks application of estoppel because: 1) they relied on a published
1982 ruling; 2) the 1990 amendments were ambiguous and did not serve as effective notice; 3) the
notice given to vendors was as obscure as the statute; 4) the State's publication of its interpretation
was delayed for a year regarding the taxability of alarm monitoring systems; and, 5) the state singled
out plaintiff for assessment of taxes during the time at issue.
Summary judgment should be granted where “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 non-moving party is entitled to a
judgment or order as a matter of law.” R. 4:46-2. In Brill v. Guardian Life Insurance Co. of
America,
142 N.J. 520 (1995), our Supreme Court revised the summary judgment standardSee footnote 2 and
articulated,
When deciding a motion for summary judgment under Rule 4:46-2,
the determination whether there exists a genuine issue with respect to
a material fact challenged requires the motion judge to consider
whether the competent evidential materials presented, when viewed
in the light most favorable to the non-moving party in consideration
of the applicable evidentiary standard, are sufficient to permit a
rational factfinder to resolve the alleged disputed issue in favor of the
non-moving party.
[Id. at 523.]
Furthermore, “[t]he court must accept as true all evidence which supports the position of the party
defending against the motion and must accord him [or her] the benefit of all legitimate inferences
which can be deduced therefrom, and if reasonable minds could differ, the motion must be denied.”
Brill, supra, 142 N.J. at 535, citing to S. Pressler, Current N.J. Court Rules, R. 4:40-2 comment
(1991)(other citations omitted).
For the foregoing reasons, this court grants summary judgment for the defendant, Director,
Division of Taxation and hereby denies taxpayer's motion for summary judgment. There is no
dispute as to a material fact and the Division of Taxation is entitled to summary judgment as a matter
of law. Brill, supra.
This court disagrees with the Division of Taxation's contention that taxpayer is not permitted
to dispute the issue of taxability because taxpayer's former counsel allegedly conceded the issue.
The alleged concessions were contained in a letter dated May 31, 1996, whereby taxpayer's former
counsel confirmed tax payments were being made under the New Jersey Amnesty Program for the
period of August 1, 1991 through June 30, 1993. Moreover, this letter disputed the amount allegedly
owed for the period commencing July 1, 1990 through July 31, 1991. With respect to the July 1,
1990 to July 31, 1991 time period at issue, taxpayer's former counsel stated “my client reserves the
right to contest this (amount of taxes) on the basis that the regulation was not promulgated properly
and that my client did not have knowledge of the taxability. The issue of taxability is not being
contested.” Despite the positive statement “the issue of taxability is not being contested,” this court
finds both statements taken together appear to contradict one another other. Regardless of whether
the statements qualify as a concession or not, this court would still grant defendant's motion for
summary judgment and deny plaintiff's motion for summary judgment.
This court grants summary judgment to the Division of Taxation and denies same to the
taxpayer for two reasons. First, the sales and use tax is applicable to the burglar alarm monitoring
systems provided by taxpayer. SeeAetna, supra. Second, every person is conclusively presumed
to know the law; ignorance is no excuse. SeeGraham v. N.J. Real Estate Commission,
217 N.J.
Super. 130, 138 (App. Div. 1987) referring to In re Mild,
25 N.J. 467, 485 (1957).
In Aetna, supra,
16 N.J. Tax 584, Judge Axelrad thoroughly reviewed the state's sales tax
and its applicability to alarm monitoring services. Specifically, the Aetna court determined the New
Jersey sales tax is applicable only to those services enumerated in N.J.S.A. 54:32B-3(b) - 3(f).
Aetna, supra, 16 N.J. Tax at 586, citing to Newman v. Director, Division of Taxation,
14 N.J. Tax 313, 316 (1994), aff'd
15 N.J. Tax 228 (App. Div. 1995). Furthermore, Judge Axelrad enunciated
that
[a]pplication of New Jersey sales tax to “telecommunication and “all
services...provided in connection therewith” was accomplished
through the 1990 amendments to N.J.S.A. 54:32B-2 and -
3 L. 1990,
c. 40. N.J.S.A. 54:32B-3(f) specifically provides for a tax on “[t]he
receipts from every sale, except for resale, of intrastate or interstate
telecommunications charged to an address in this State, regardless of
where the services are billed or paid” (emphasis added).
[Aetna, supra, 16 N.J. Tax at 586.
Judge Axelrad reviewed the “telecommunications” definition provided in N.J.S.A. 54:32B-2 (cc)
and
the exclusions therefrom in N.J.S.A. 54:32B-2(cc)(1)-(5).
This court previously determined that burglar alarm monitoring services are
telecommunications within the meaning of N.J.S.A. 54:32B-2(cc). SeeAetna, supra, 16 N.J. Tax
at 586-590. More specifically, Judge Axelrad found the applicable statute was neither “unclear or
of doubtful meaning.” Ibid. at 587. Like Aetna, Schirmer also relies upon telecommunications to
provide monitoring services.
Absent the ability to notify the central station of an intruder, fire, or
other emergency, an Aetna [Schirmer] alarm would be worthless.
The value of any monitoring system lies in its ability to communicate
a message by telephone in the event of an emergency. As such, this
use of the phone is a direct, significant and indispensable component
of the burglar... alarm monitoring service, falling within the purview
of N.J.S.A. 54:32B-3.
[Id. at 588.]
While this court recognizes that the time period at issue in Aetna, supra, is different from the time
period in question in the case at bar,See footnote 3 this court refers and gives deference to Judge Axelrad's careful
analysis of the New Jersey Sales Tax legislation. The issue of notice existed, but was not crucial
to the outcome of the case in Aetna, supra, at 589. In Aetna, the court determined the “Director's
interpretation is not unreasonable and is consistent with the language and probable legislative intent
of N.J.S.A. 54:32B-2 and -3. Thus, it should prevail.” Ibid.
While Aetna, supra, did not hinge on the issue of notice, the plaintiff in the case at bar argues
it was owed some individual notification of the tax amendments. It is well settled authority that
“every person is conclusively presumed to know the law, statutory and otherwise.” Graham v. N.J.
Real Estate Commission,
217 N.J. Super. 130, 138 (App. Div. 1987) referring to In re Mild,
25 N.J. 467, 485 (1957); Widmer v. Twp. of Mahwah,
151 N.J. Super. 79 (App. Div. 1977); seealsoGibraltar Factors Corp. v. Slapo,
41 N.J. Super. 381 (App. Div. 1956), aff'd
23 N.J. 459 (1957);
Newark v. Yeskel,
6 N.J. Super. 434 (Ch. Div. 1949), aff'd
5 N.J. 313 (1950); Szczesny v. Vasquez,
71 N.J. Super. 347 (App. Div. 1962); Russo v. Forrest,
52 N.J. Super. 233 (App. Div. 1958); Mayfair
Holding Corp. v. North Bergen Twp.,
4 N.J. Tax 39, 41 (Tax 1982). Furthermore, “a statute does
have the effect, immediately upon its enactment, of giving notice to all persons that the law will be
as set forth in the statute, on and after the specified date for it to come into effect.” Brasko v.
Duchek,
127 N.J. Eq. 567 (Prerog. Ct. 1940) referring to Diamond Glue Co. v. U. S. Glue Co.,
187 U.S. 611,
23 S.Ct. 206,
47 L.Ed. 328 (1903). Thus, individuals are put on notice of legislative
enactments on the date the legislation becomes effective. Ibid. Not only was taxpayer put on notice
of the tax law changes on the date the sales tax amendment's effective date, July 1, 1990, but the
Special Notice To All Sales And Use Tax Vendors, July 1, 1990, contained a hotline number for
questions arising from the new tax law changes. If there was any question, taxpayer had the
obligation to contact the Division of Taxation when the special notice was received.
Accordingly, this court finds the plaintiff was on notice of the July 1, 1990 tax law
amendments as of the effective date of said amendments, July 1, 1990. As such, taxpayer is
therefore required to remit the sales tax to the Director, Division of Taxation. In accordance with
this court's finding that taxpayer was on notice of the tax law changes as of July 1, 1990, the
estoppel doctrine is not applicable to the case at bar.See footnote 4 For the aforementioned reasons, summary
judgment is granted for the Director, Division of Taxation, and taxpayer's cross-motion for summary
judgment is denied. Order to be entered in accordance with R. 4:42-1(c).
Footnote: 1 In a letter dated May 31, 1996, taxpayer's former counsel stated, “my client reserves the
Super. at 175-176.]
