La Troncal Food Corp. and Vicente Intriago v. Director, Division of Taxation

• Court: New Jersey Tax Court
• Decided: October 2, 2024
• Docket: 13472-2017
• Status: Published

Opinion

NOT FOR PUBLICATION WITHOUT APPROVAL OF THE TAX COURT COMMITTEE ON OPINIONS Corrected 11/6/24 – page 36, line 3 reads “concluded cost of” goods ------------------------------------------------x LA TRONCAL FOOD CORP. AND : TAX COURT OF NEW JERSEY VICENTE INTRIAGO, : DOCKET NO.: 013472-2017 : : : Plaintiff, : : v. : Approved for Publication In the New Jersey : Tax Court Reports DIRECTOR, DIVISION OF : TAXATION, : Defendant. : : -------------------------------------------------x

Decided: October 2, 2024

Chinemerem Njoku for plaintiff (C.N. Njoku, LLC., attorney).

Heather Lynn Anderson for defendant (Matthew S. Platkin, Attorney General of New Jersey, attorney).

NUGENT, J.T.C.

This opinion following trial resolves plaintiffs’ (collectively “Taxpayer”)

challenge to the assessment issued by defendant, the Director, New Jersey Division

of Taxation (“Taxation”), after audit of Taxpayer’s pizzeria. The auditor utilized an

indirect methodology and estimated revenue upon a finding that Taxpayer’s books

and records were insufficient to verify the sales as reported. Taxpayer produced

evidence at trial to contradict the reasonableness of the data and methodology

* employed in the auditor’s analysis.1 Taxation sought to admit the audit report and

certain work papers of the auditor,2 and testimony of the auditor’s supervisor in

support thereof based on her knowledge of audits in general. Thereby, the court also

decides Taxpayer’s objections to the admission of the evidence and Taxation’s

contentions that (1) the documents are admissible under Evid. R. 803(c)(6) (business

records exception) and Evid. R. 803(c)(8) (public records exception); and (2) the

witness’ testimony is admissible as an opinion of a “quasi-expert.”

FACTS

Taxpayer, La Troncal Corp., operated a business trading as Roma Pizza

Restaurant, located at 245 Adams Street, Newark. Vicente Intriago and his father-

in-law, Cesar Villa, were the principals and operators of the business from 2005

through October 2013. In January 2014, La Troncal Corp. and Vicente Intriago sold

the business to San Gerardo Food Corporation and Cesar Villa.3 Apparently, Villa

1 As part of its sales tax examination the auditor determined that Corporate Business Tax (“CBT”), Gross Income Tax-Employer (withholding taxes) (“GIT-ER”) and Litter Tax had also been under- reported. Given the auditor’s conclusions, Taxation issued a Notice of Assessment Related to Final Audit Determination in the total amount of $334,440.99. The estimated assessment covers the following taxes and audit periods: Sales and Use Tax (“SUT”), 4/1/11 – 3/30/2014; CBT, 1/1/11 – 12/31/13; Litter Tax, 1/1/2011 – 12/31/2013; and GIT-ER, 1/1/2012 – 12/31/2013. 2 Taxpayer objects to bate stamp numbers D000600-D000603, identified as a portion of the auditor’s work papers, and marked for identification as D-3. The audit report was marked for identification as D-1. 3 Taxpayer contends the buyer properly filed a Bulk Sale Notification at the time of the sale. Neither party proffered the Notification as evidence.

2 continued to operate a business at the same location after the sale. Intriago and Villa

were estranged at this point, and Intriago was neither an owner nor operator of that

business, nor did he work there. Intriago opened another pizzeria in Newark in April

2014.

At trial Taxpayer produced the following witnesses: Vicente Intriago and Aloy

E. Nwosu, CPA, who the court qualified as an expert over Taxation’s objection.4

Taxation proffered the assistant audit chief to testify. A Spanish speaking interpreter

assisted Intriago throughout the trial, and both parties admitted various documents

into evidence.

Intriago described how he and his father-in-law operated Roma pizzeria. The

pizzeria fronted Independence Park in Newark, located among a laundromat, and

other businesses that sold Spanish food and Portuguese food. In the summer food

trucks were parked outside of Taxpayer’s pizzeria. Taxpayer employed two

individuals full-time. Intriago worked at the front of the pizzeria interacting with

customers, and his father-in-law cooked.5 It was a small storefront business with

4 Taxation objected on the sole basis that Taxpayer did not require an expert witness since the case “is essentially a books and records case.” The court herein did not give weight to the expert’s opinion regarding the sufficiency of Taxpayer’s books and records which is a legal issue left to the court’s determination. The court found that the expert met the qualifications set forth in Evid. R. 703, and that the expert’s testimony regarding his reconciliation of the Taxpayer’s records and determination of tax due was credible and of assistance to the court. The court qualified the witness as an expert for that purpose. 5 On occasion La Troncal employed a delivery person who worked for a few hours a week, not full-time nor on a regular basis. 3 three tables, two in the dining area and one in the kitchen. Intriago’s relationship

with his father-in-law began to deteriorate around 2011. They fought frequently

about how the pizzeria should be run and its hours of operation. During that time

his father-in-law would take time off away from the business or open the pizzeria

for only four hours a day.

The pizzeria accepted both cash and credit cards, but sales were largely cash

transactions. Rent, salary, and utilities were paid in cash and vendor purchases were

largely made in cash and by check. Any remaining cash was deposited in the bank.

Sales were transacted with a cash register but the testimony regarding cash register

receipts was somewhat contradictory. Intriago testified that they did not retain

register receipts and used the cash register only to calculate the customer’s bill. On

cross-examination and re-direct he testified that they did retain at least some register

receipts that were provided to the former accountant to prepare Taxpayer’s tax

returns. The former accountant died in or around January 2013. After his death

Taxpayer was unable to retrieve any of the documents previously provided to his

office.

At trial, Intriago produced hand-written summaries of weekly income for

2012 he had prepared for the former accountant. Asked on cross-examination

whether he had also prepared a simultaneous record of the receipts used to create the

summaries, he said he had not. Per Intriago, contrary to the auditor’s report, the

4 bank statements produced to the auditor included cancelled checks attached to the

bank statements written for vendor purchases and Intriago pointed to the cash

deposits reflected in the bank statements.

The auditor’s investigation began in early September 2014, after the sale of

Taxpayer’s business. As part of the investigation the auditor prepared a Case History

outlining some of the auditor’s steps.6 Among the entries, the Case History contains

the following notes: “09/3/2014 Initial letter sent to taxpayer; 09/22/2014 Called the

Resturant [sic]; 09/26/2014 Visited the restaurant with my supersor [sic] James Pelka

for lunch. The pizza restuarant [sic], Trade name: Roma Pizza & Restaurant, is

located in the Ironbound Section of Newark, New Jersey; 10/06/2014 Attached

please find menu and the copy of the Bill from our Lunch. [L]isted [sic] on that

menu are completely different from the Roma Pizza menu. [T]he taxpayer have [sic]

a different menu (full menu with appertizer [sic], entries, and desserts) for

Ecuadorian Food; The day of our visit, we noticed 5 people working at the restuarant

[sic] (3 Cooks). The dining room area had 4 booths for a total seating occupancy of

16; 01/13/2015 Arbitrary Assessment sent to the Taxpayer by certified mail.” In the

report, the auditor’s observations among other facts, were deemed to be “Unusual

Circumstances.”

6 Taxation proffered the document as evidence in its case. The document was entered into the record without objection.

5 A copy of the assessment was sent to Intriago via certified mail to his personal

address listed on the CBT returns. Upon receipt of the assessment, Intriago

contacted the auditor to advise he had no more association with Roma pizzeria

having sold his interest in the business in January 2014, and therefore had limited

access to Taxpayer’s records. He requested additional time to produce any available

records as production was otherwise hampered by the dispute with his father-in-law

and the death of Taxpayer’s former accountant. Intriago then gathered and produced

the following to the auditor: a signed Post Audit Conference (signed as disagreed);

Bill of Sale of Business dated January 24, 2014; copies of forms NJ 927, W-2s, and

W-3s for 2012 and 2013 (two employees listed); and ST-50 tax returns for tax years

2012 and 2013.

At a subsequent meeting with the auditor, Intriago received an Information

Document Request (“IDR”) addressed to Taxpayer requesting: purchase invoices for

January through December 2013; bank statements for January 1, 2011 through

December 31, 2014; all New Jersey W-2 and W-3 forms for 2012, 2013 and 2014;

General Ledger or Trial Balance for 2011 through 2014; Cash Disbursement Journal

for January 1, 2013 through December 31, 2013; Signed Consent Form; signed

Acknowledgement of Responsibility Form, and signed Sampling Agreement. The

sample year selected was 2013. In response to the IDR, Intriago reproduced already

6 submitted documents, and he produced Taxpayer’s 2011 through 2013 bank

statements.

Based on a review of that information, the auditor advised that Taxpayer’s

documents were insufficient to conduct a full examination and that the case was

being sent to audit billing, with the estimated assessment unchanged. The audit

report dated June 15, 2015, was then issued in which the auditor reported his

conclusions. Per the report “Taxpayer’s provided records were insufficient to

conduct the audit.” In the section titled “Sales Tax” he explained the indirect method

he used to determine the tax liability as follows:

2013 was selected as the sample year. The taxpayer failed to provide purchase invoices and other documents requested on the NJ IDR (Record Request). Based on the facts listed above (Unusual Circumstances) the taxpayer’s records were deemed insufficient to conduct the audit examination. Hence, the auditor was forced to compute an estimated assessment to prevent additional period from expiring. Purchases for each year of the audit period were estimated to be $250,000. Because the taxpayer did not report beginning or ending inventories on the CBT Returns for all years in the audit period, the estimated purchases of $250,000 was used as the COGS. An estimated mark-on of 3.5 was applied to each year's COGS to determine the audited gross receipts. The taxpayer was given a 10% credit for theft and spillage (as per division practice). In addition, the taxpayer was given credit for Sales Tax reported during the audit period (See Electronic Index, Schedule S-1).

Per the audit report in calculating the CBT assessment the auditor “adjusted

Taxpayer’s reported COGs [cost of goods sold] and reported Gross Receipts using 7 the same estimated COGS and Sales resulting from the Sales Tax examination.” As

to the GIT-ER assessment, the auditor reported:

Payroll records were examined for the entire audit period (01/01/12 to 12/31/2013). The taxpayer provided W2s for all employees as per the NJ IDR. The taxpayer had only two employees on Payroll for years examined. However, during the auditor's visit to the restaurant for lunch on September 26, 2014, there were five people working that shift. Hence, additional GIT taxes were assessed for five employees and the taxpayer was given credit for taxes remitted (See Electronic Index, Eskort GIT Work Paper & Schedules G-1 and G-2).

After receipt of the estimated assessment, Taxpayer filed an administrative

protest with Taxation’s Conference and Appeals Branch (CAB), dated July 28, 2015.

Taxpayer followed up with a letter (from the accountant who would serve as his trial

expert) addressed to CAB, dated September 22, 2015. The letter was admitted into

evidence in Taxpayer’s case and reads:

Requested documents submitted herein

Please find attached the following documents to support our appeal:

Purchase invoices for the test period 01/01/2013 through 12/31/2013.

1. Bank statements [sic] the periods 01/01/2011 through 12/31/2014. 2. NJ W2s and W3s for years 2012, 2013 & 2014. 3. General Ledger or Trial Balance for years 2011, 2012, 2014 &2014 [sic]. None attached. (Taxpayer is a small pizza restaurant, no general ledger and trial balance. The summary of Receipts and Disbursements are attached to the bank statements enclosed herein).

8 4. Cash Disbursement Journal for period 01/01/2013 through 12/31/2013. (See summary of Receipts & Disbursements attached to bank statements). 5. Signed Consent Form – Already provided to auditor during visit. 6. Signed Acknowledgement of Responsibility Form – already provided to auditor. 7. Signed Sampling Agreement - already provided to auditor.

Other matters we need to bring to your attention:

-The business was owned by two people – 1. Mr. Vicente Intriago and 2. Mr. Villa Cesar.

-In January 31, 2014, the business was bought over by part-owner Mr. Villa Cesar and at that time, Mr. Vicente [sic] ceases to be an owner of the business.

-Since 2011 through 2013 the business has only two employees in the payroll.

-During these periods 2011 through 2013 the business has filed and reported State Sales taxes and State Payroll Taxes.

Taxpayer’s protest to CAB was assigned a July 2017, conference date. In lieu

of conducting an administrative conference, CAB first remanded the case back to

the auditor for reexamination. Taxation produced a memo from the auditor

addressed to CAB entitled “Re: Case Returned for Rexamination [sic].” The memo

dated April 28, 2017, was admitted into evidence by Taxation without objection. The

auditor’s memo reads:

The taxpayer’s representative, Mr. Aloy E. Nwosu, provided the below listed documents: 1. CBT Returns for the following years: 2011, 2012, and 2013 9 2. JETRO Cash & Carry (Restaurant Depot) Summary Purchase for 2011, 2012 and 2013 3. Bank Deposit Summarized for 2011, 2012, 2013, and January of 2014 4. A memo listing Rent Expense for 2011, 2012 and 2013

The auditor sent Third Party Request to Roma Performance Food Group, Inc., on July 28th, 2016 and January 9th, 2017 requesting purchase records for 2011, 2012, and 2013. The vendor failed to return the purchase records requested. On April 25th, 2017 the auditor met with Mr. Nwosu to discuss the audit status. Mr. Nwosu stated that the records provided are sufficient to conduct the audit examination. He pointed out that La Troncal Food Corp. is a “Mom and Pop” business and Sales Tax for the audit period should be determine [sic] based on the Bank Statement summary provided. Mr. Nwosu stated that he will not agree with any assessment determine [sic] by estimating the taxpayer’s gross receipts. The auditor discussed the records provided by the taxpayer’s representative with his supervising auditor Ms. Nokeima Jones. Ms. Jones agreed with the auditor that the records provided were not sufficient to conduct an audit examination. Therefore, this case is being returned to CAB without any adjustments to the original assessment. The auditor met with the taxpayer’s representative, Mr. Nwosu on April 27th, 2017 and informed him that the audit is being returned to CAB unchanged.

At trial, Taxpayer’s expert testified that he questioned the auditor’s continued

insistence that “the records provided were not sufficient to conduct an audit

examination” as set forth in the remand memo. In his memo returning the case to

CAB, the auditor rejected the information as “inadequate” and reaffirmed the

assessment.

10 The expert disagreed with the auditor’s concluded estimated figures and the

estimated assessment particularly given the size of Taxpayer’s business, that sold no

liquor, and which he described as “Mom and Pop.” He disagreed with the auditor’s

continued resort to an indirect mark-on methodology. Per the expert, when he

inquired why Taxpayer’s documents were still deemed insufficient the auditor told

him that “he had no time to perform an audit.” The expert clarified, though a general

ledger had not been provided, Taxpayer did provide information which comprises a

general ledger and a cash disbursements journal, including, bank statements;

summary of cash receipts; and cash disbursements, as well as the 2013 purchase

invoices as requested by the auditor.

In his testimony, the expert described how he reconciled Taxpayer’s various

information and documents, vendor statements of summary purchases, proof of

expenses like rent and salaries, bank statements and tax returns, and produced his

summaries to the auditor. Taxpayer relied on the expert’s review of the records

produced to the auditor and the expert’s ability to reconcile them with the tax returns.

Using the reconciliation, the expert concluded that taxpayer owed tax above the

amount remitted with the tax returns, though in an amount well below the

At trial, Taxation produced the assistant (field) audit chief because the auditor

who had performed the audit left Taxation a year or two after the audit, and per

11 Taxation, was unavailable to testify at trial. The assistant (field) audit chief was

proffered to testify about the auditor’s report and work papers, and her opinion of

the substance and quality of the auditor’s conclusions. Taxation sought to admit the

witness as one with personal knowledge of the audit based on her supervisory role

and proffered the witness as a “quasi-expert.”7 Given the unusual circumstances

presented, in the absence of the auditor, the court permitted the witness to testify to

gain an understanding of her role in the audit and to assess whether she had sufficient

personal knowledge to permit her to offer lay opinion testimony and to assess the

reliability of the documents at issue.8

The witness has been employed by Taxation since 1993 when she graduated

from college with a B.S. degree in accounting. She worked for Taxation in various

audit roles.9 As assistant chief she was responsible for reviewing audits that

exceeded $250,000 under her line of supervision. Ten supervisors reported to her,

and she supervised and oversaw between 45-50 employees. She testified generally,

that at the conclusion of any audit subject to her review she would review the audit

7 Essentially as a witness qualified to provide lay opinion testimony under Evid. R. 701. 8 The court reserved decision on Taxpayer’s objections subject to post-trial briefing on the issues. Notably, Taxation had included the name of other witnesses in a pre-trial submission, one of whom was in court during the trial but not called to testify. Taxation advised the court and Taxpayer it would not seek to reopen the evidence regardless of the court’s rulings on Taxpayer’s objections to the witness and documents under consideration. 9 At the time of trial, she was employed by Taxation as Chief of Audit. 12 narrative, the auditor’s work papers and any papers in the audit file. She would

check the work papers for accuracy but would not check every calculation or check

the math. She would make sure everything “tied in” from one work paper to the

next. The witness testified that as supervisor she followed that procedure with the

subject audit.

In response to questions about the subject audit, the witness was unable to

describe the contents of the audit file but said that the forms used by Taxation are

standardized and that all audit files generally contain the same documents. Asked

on cross-examination whether pre- and post-audit conferences were conducted in

this case, she had no knowledge. In reviewing an audit, she might approach the

auditor’s direct supervisor, or the auditor, if any issues arose. That did not occur

here. The witness had no conversations with the auditor or the auditor’s direct

supervisor in this case. She was not involved in the actual audit. Her role was

reviewing the audit file. The witness was not within the auditor’s direct line of

supervision during the time of the audit. She also testified that her supervisory

review did not include examination of Taxpayer’s 2013 purchase invoices, nor the

bank statements produced to the auditor as that was not a part of her role as a

manager.

Taxation relied on the witness to introduce the auditor’s report and work

papers drawing on her experience as an auditor to explain the purpose of the

13 documents and asked the witness questions about the specifics of the auditor’s

examination based on their contents. Taxpayer objected to the testimony alleging

that the witness lacked personal knowledge of the audit. Candid in its proffer,

Taxation stated that the audit report “speaks for itself, therefore the witness does not

have to have personal knowledge as much as reading the information that is in the

report and then I’ll be asking questions about [the witness’s] opinion regarding the

report.”

In response to the objection, Taxation elicited testimony about the witness’s

audit experience and the nature of her supervisory role in the subject audit.

Throughout the witness’s testimony Taxation asked her to describe the auditor’s

actions and asked her opinion of the audit results. The questions largely solicited

the witness’s opinion on two central topics: whether Taxpayer’s records were

sufficient to verify the tax returns and whether she considered the auditor’s actions

and his concluded estimates to be reasonable. In one instance, the witness was asked

“whether you can determine whether or not in your opinion, are the [Roma] purchase

invoices complete.” Asked by the court whether Taxation sought to qualify the

witness as an expert, Taxation explained, “it’s in her years of experience as a

Division of Taxation auditor as well as a supervisor, a quasi-expert, but not to the

full level of an expert . . . it’s a factual decision, this isn’t something that requires an

14 outside expert. It’s based on her years of experience. If she were the auditor, what

would she do because she can tell us what the standard procedure is.”

Set forth below are excerpts of the witness’s trial testimony relevant to the

issues before the court.

Direct examination:

Q. You said the purchases were estimated. Based on your knowledge of this business from reading the audit report and listening to the testimony that you’ve heard from Taxpayer’s accountant and from Taxpayer’s former owner, does $250,000 seem reasonable to you in your experience? A. It appears reasonable to me. Q. Why do you believe that $250,000 is reasonable for purchases. A. Based on the testimony I heard before, the size, the location of the business, based on my experience, it’s a reasonable number, not an outrageous number. He didn’t have actual purchase invoices to add up so he had to do the best he could, I assume, at estimating what the number should be.

Court Questions: Ct. Q. And where did the $250,000 come from that the auditor determined as purchases. A. He just estimated. Ct. Q. Do you know what he based the estimate on? A. He just estimated based on the factors he knew – the size of the business, what would be a reasonable figure. Ct. Q. Again, you didn’t talk to the auditor about the basis for his estimate? A.No but it’s the procedure. It’s … I’ve been doing this a long time – this is what we do… He didn’t have any Taxpayer invoices to add up to … he had to pull a number out of … yeah … ok… I mean I am interpreting the narrative, and I am familiar with our procedures. So, he made up the number based on whatever factors he could consider.

15 Q. You heard testimony previously of the taxpayer accountant talking about purchase invoices. Have you had a chance to review the invoices that were submitted by the accountant? A. There were some invoices. Q. Were they complete? A. Clearly not. No. Q. Why do you say clearly not. A. Because over the course of the year you are going to see purchases of certain food items – if it’s a pizzeria they’re going to be buying the same kind of thing every week. You’re going to see purchases of the same food items every week. You’re going to see certain things purchased on a regular basis. There was not a complete set of purchase invoices there … All I can testify to is what the auditor wrote that he did not have all the invoices. The auditor did not have all the purchase invoices. Q. Are these documents sufficient to show you as an auditor what the purchases are, for the sample period. A. These are not a year’s worth of invoices.

Cross-examination:

Q. In the report it says [Taxpayer] didn't provide purchase invoices from periods beginning 1/1/13 through 12/2013. Correct? A. Correct Q. Did you subsequently see that document at the time that you did your review? A. No. There were no documents in the file. Q. You testified to some purchase invoices from [Roma] Performance this afternoon. Correct? A. Correct…I don’t know if these invoices were provided to the auditor or not. They were presented to the court. I have no idea if they were presented to the auditor. Q. So did you even review any documents at all that was provided during the audit period or after the audit period. A. I reviewed the audit file in 2015. Q. You don’t know whether Mr. Intriago subsequently provided these documents to Conference and Appeals. A. Yeah, that I don’t know, that information I wouldn’t have. Q. Because it was not reflected in the auditor’s report, correct? A. Correct. 16 Q. So you don’t know what happened at CAB? A. I assume they upheld the assessment and that’s how we ended up here. Q. So basically, what they did was to uphold everything that was said despite the fact that the purchase invoices were provided. A. The purchase invoices weren’t provided. Q. Did CAB approve the audit report provided by [the auditor]? A. Yes. Q. And you know it didn’t include the purchase invoices provided to the Division. A. I didn’t know who the invoices were provided to. There was only a handful…. Q. [The auditor’s] report did not include the purchase invoices in the report. A. I don’t know if they provided them to him or to conference or not. I don’t know who they were provided to. They were only a handful anyway. They weren’t helpful. … I have no knowledge of when we got these invoices. I’m not exactly clear when the invoices were provided. Whoever they were provided to it was only a handful, they aren’t even helpful.

Q. And plaintiff’s accountant submitted bank statements for the court to review, and I’m going to ask you again, are bank statements sufficient to support filed tax returns. A. No. Q. Other than not being a source document, are there any other reasons why a bank statement might not be sufficient to support a filed tax return. A. A sale doesn’t necessarily make its way into the bank. Q. Why. A. There’s a number of reasons. There could be cash purchases, sales would be recorded but bank statements only record what makes its way to the bank. So, then you could have spent the money on purchases, there could have been some kind of cash wages or payout of cash tips. Q. So, if you had an audit where the only documents provided were bank statements, your conclusion would be, what would your conclusion be? 17 A. My conclusion would be I couldn’t verify that the reported sales were accurate because I didn’t have enough documents that supported the sales. I didn’t have the documents to show where the sales number comes from. Q. And if you come to that conclusion as an auditor, what would your next step be. A. My next step would be to ask the taxpayer if they had any other documents. Q. And if they didn’t? A. Then I would probably have to make an estimate… I’d have to make an estimate. Q. Can you explain what you mean by an estimate. A. If I can’t verify that the taxpayer’s returns are correct, in order to protect the State’s interest, I have to do an estimated assessment and if the taxpayer has any other documents, he would come forward with them. Q. What do you mean by estimated assessment? A. We will look at what was reported and perhaps estimate a tax liability based on what we have seen, what we have available to us. And, also, again to protect the state’s interest we will do an estimated assessment. Q. What did the auditor do in this case based on his audit narrative. A. The auditor did do an estimated assessment. He worked with what he had and tried to come up with a little more detailed estimate of what would be reasonable whereas sometimes we just literally make up a number if taxpayer doesn’t provide us with any records at all.

Court questions:

Ct. Q. What are you basing what you just said that he tried to come up with something reasonable – are you reading something from the report or are you just testifying to this based on your experience. A. Well, I’m reading what he did on the report but she’s asking me what I would do as an auditor with a limited amount of information. Ct. Q. You said he tried to come up with an estimate…a reasonable estimate…but where does it say that. You said that’s what he did. A. Well, I inserted the word ‘reasonable.’ He estimated an amount of purchases and implied an estimated mark on to come up with an estimated sales figure. The term reasonable was my testimony but the part, what he did, was from the audit report. 18 Ct. Q. What was the estimated mark on used by the auditor. A. 3.5. Ct. Q. Do you know what he based the estimate on. A. He just estimated based on the facts that he knew – the size of the business, what would be a reasonable figure.

Q. Did you speak with the auditor about it? A. No but its procedure. Q. Based on your years of experience do you believe [the number] is reasonable. A. Yes.

ANALYSIS

I. Sales and Use Tax Act

Taxation’s proffer is best understood against the backdrop of the statutory

scheme established through the Sales and Use Tax Act, N.J.S.A. 54:32B-1 to -29

(the “Act”). As a vendor of tangible personal property (the pizzeria’s sale of

prepared food), Taxpayer was responsible for collecting tax on the sale of its

products. N.J.S.A. 54:32B-3(c)(1); N.J.S.A. 54:32B-12(a). The Act “squarely places

on the vendor the obligation of establishing that it correctly reports its collections of

tax.” Yilmaz, Inc., v. Dir., Div. of Taxation, 22 N.J. Tax 204, 230 (Tax 2005), aff’d,

390 N.J. Super. 435 (App. Div. 2007).

The Act requires that taxpayers maintain books and records of its transactions

for examination by the Director, charged with verifying that a taxpayer has filed

returns properly and paid the correct amount of tax. N.J.S.A. 54:32B-16; N.J.A.C.

19 18:24-2.3, 2.4. In performing that obligation, the Director may find a taxpayer has

failed to file a tax return, or that a filed return is “incorrect or insufficient.” N.J.S.A.

54:32B-19. By law, “Taxation can reconstruct a taxpayer’s receipts subject to tax

and determine the correct tax if the taxpayer’s books and records are inadequate or

there are justifiable reasons to believe that a filed tax return ‘is incorrect or

insufficient.’” Saulwil, Inc. v. Dir., Div. of Taxation, 31 N.J. Tax 433, 447 (Tax

2020) (internal citation omitted).

The Director “shall . . . determine[] [the amount of tax] from such information

as may be available.” N.J.S.A. 54:32B-19. The statute has broad application,

authorizing Taxation to estimate the tax using “external indices, such as stock on

hand, purchases, rental paid, number of rooms, location, scale of rents or charges,

comparable rents or charges, type of accommodations and service, number of

employees or other factors.” Ibid. The adequacy of a taxpayer’s books and records

depends on the “facts and circumstances of each case.” Saulwil, 31 N.J. Tax at 449.

The Act authorizes the Director “[t]o prescribe methods for determining the

amount of receipt . . . and for determining which of them are taxable and which are

nontaxable.” N.J.S.A. 54:32B-24(4). In a direct cash audit, a taxpayer’s gross

receipts are reconciled between a taxpayer’s filed tax returns, and the taxpayer’s

records including, general ledgers, sales journals, summary sales records, etc. When

a taxpayer’s books and records are deemed to be inadequate Taxation may resort to

20 an indirect audit method, such as a mark-on analysis. The mark-on calculation

results from a comparison of the price that the taxpayer charges for the items sold as

compared to the cost paid for them. Whether using a direct or indirect methodology,

the auditor often selects a representative test period, or sample period, for use in

analyzing the purchases (generally selecting either a block sample or statistical

sampling method). With a mark-on analysis, after selection of a sample/test period,

the auditor “compares the cost of goods sold as developed from invoices and the

records of suppliers to the menu prices, developing a ratio of cost to selling price for

the test period . . . then arrives at an estimate of gross receipts . . . by applying that

ratio to the cost of purchases” for each of the audit years. Charley O’s, Inc. v. Dir.,

Div. of Taxation, 23 N.J. Tax 171, 176 (Tax 2006). If the auditor determines there is

insufficient data to conduct a mark-on analysis, the auditor may instead complete an

estimated assessment. The methodology is set out in the State of New Jersey, Dep’t

of the Treas., Div. of Tax’n, N.J. Manual of Audit Procedures, 58-59 (2022):

When an auditor finds it necessary to prepare an estimated tax assessment (ETA), the following procedure is to be used to determine the amounts. The assessment shall be the higher of: • $2,000; • At least two times the estimated underpayment based on items being questioned or absent any information for the audit period; or • At least two times the highest liability of a comparable period within the past five years.

If no information is available, then an estimate may be based on similar businesses or other external indices. 21 Ibid.

Taxation’s assessments are entitled to a presumption of correctness. Quest

Diagnostic v. Dir., Div. of Taxation, 21 N.J. Tax 484 (Tax 2004). “[T]he broad

discretion allowed Taxation under N.J.S.A. 54:32B-19, and the presumptive

correctness afforded its determinations, are based on the expectation that Taxation,

as a governmental agency, will be reasonable in its initial determination that a

taxpayer’s books and records are inadequate.” Saulwil, 31 N.J. Tax at 447 (internal

citation omitted).

Once attached, a taxpayer may rebut the presumption through “cogent

evidence that must be ‘definite, positive and certain in quality and quantity to

overcome the presumption.’” Yilmaz, 22 N.J. Tax at 233-4 (citation omitted).

“Naked assertions” by the taxpayer are ineffective in rebutting the presumption.

TAS Lakewood v. Dir., Div. of Taxation, 19 N.J. Tax 131, 140 (Tax 2000).

Taxpayer’s evidence must focus on the “reasonableness of the underlying data used

by the Director and the reasonableness of the methodology used.” Yilmaz, 22 N.J.

Tax at 236 (internal citation omitted). “An ‘aberrant’ methodology will overcome

the presumption of correctness. [ ] An imperfect methodology will not.” Ibid.

(citation omitted). See Charley O’s (where auditor increased purchases by arbitrary

amount the court found methodology to be aberrant “not merely imperfect.”) 23 N.J.

Tax at 186. 22 The court finds the following evidence is particularly relevant to the

determination of whether Taxpayer’s evidence is of a sufficient nature to overcome

the presumption of correctness that attaches to the assessment. Both Taxpayer’s

expert and Intriago credibly testified that Taxpayer’s purchase invoices were

provided to the auditor. Thereby, they were available to him in deciding on the

quality and sufficiency of the books and records. Regarding the reasonableness of

the underlying data and methodology used by the auditor to estimate the assessment,

Intriago credibly testified about the size of the pizzeria operating prior to January

2014, the number of employees at Taxpayer’s business, and how those conditions

differed from the auditor’s description of the business during his September 2014

visit, observed after the date of the sale. Moreover, Taxpayer’s expert produced

evidence that his reconciliation of Taxpayer’s books and records demonstrated that

the Taxpayer had a tax obligation well below the amount of Taxation’s estimated

assessment. In sum, the court finds Taxpayer produced cogent evidence that is

“definite, positive and certain in quality and quantity” directed at the reasonableness

of the auditor’s data and methodology. Yilmaz, 22 N.J. Tax at 233-4. The court

finds the evidence calls into question the accuracy of the assessment sufficient to

overcome the presumption of correctness.

The court next examines the law as it applies to Taxpayer’s objections to

Taxation’s evidence. Thereafter, the court will review the entirety of the admissible

23 evidence to decide whether Taxpayer has, by a preponderance of the evidence,

persuaded the court that the assessment in question should be reduced.

II. Lay Opinion Testimony

The New Jersey rules of evidence address two types of witness testimony, fact

testimony, either in the form of lay testimony or lay opinion testimony (Evid. R. 602

and Evid. R. 701) and expert testimony (Evid. R. 702 and Evid. R. 703). Under

Evid. R. 602 “[a] witness may testify to a matter only if evidence is introduced

sufficient to support a finding that the witness has personal knowledge of the matter.”

Ibid. Personal knowledge also forms the foundation for testimony under Evid. R.

701, “Opinion Testimony of Lay Witnesses.” Lay witness opinion testimony is

admissible “in the form of opinions or inferences” if the testimony “(a) is rationally

based on the witness’ perception; and (b) will assist in understanding the witness’

testimony or determining a fact in issue.” Ibid.

A witness who qualifies as an expert under the rule may testify in the form of

opinion where “scientific, technical, or other specialized knowledge will assist the

trier of fact to understand the evidence or to determine a fact in issue.” Evid. R. 702.

“[E]xpert testimony is untethered to the constraints of personal knowledge and

perception . . . [a]n expert may base an opinion or inferences on facts or data that are

perceived by the expert or that are made known to the expert at or before the hearing.

Evid. R. 703.” E&H Steel Corp. v. PSEG Fossil, LLC., 455 N.J. Super. 12, 25 (App.

24 Div. 2018). Taxation’s witness was never named as an expert for Taxation in pre-

trial discovery, or at any time before trial. R. 4:10-2(d). Nor did Taxation proffer

the witness as an expert at trial.

Taxation contends its witness has the requisite personal knowledge of the

audit to support admission of her quasi-expert opinion testimony having supervised

both the auditor and the auditor’s direct supervisor.10 Taxation relies on E&H Steel

Corp., a breach of contract case, to support its position. 455 N.J. Super. at 12. The

plaintiff there agreed to fabricate steel for equipment used at the defendant’s power

station. The bid price was based on the defendant’s documents and specifications

included in the bid package. Claims arose when the defendant made post-contract

changes to the specifications with new drawings that required additional labor and

cost resulting in disputed change orders. The plaintiff filed a construction lien and

complaint for breach of contract followed by the defendant’s counterclaim. The

court conducted a Evid. R. 104 hearing to determine whether the plaintiff required

an expert to establish a prima facie case. Id. at 18.

At the hearing the plaintiff proffered the testimony from a company vice-

president. The witness had worked at E&H for more than 30 years including as a

general laborer, shop employee, and fabricator, handling the fabrication process on

10 The record lacks any testimony to explain what actions the witness took in supervising any of the auditor’s supervisors as part of the subject audit process. 25 projects from start to finish, and acting as eventual engineering manager where he

handled the review of drawings for change orders. Ibid. The witness testified about

his direct involvement in the bid process for the disputed contract, describing in

detail the fabrication process, pricing, and how he interpreted and analyzed the

defendant’s changes with specifications that differed materially from the bid

drawings, requiring revisions and repricing. Id. at 19. The trial court found the

testimony to be “very technical, extremely arcane, and very detailed” and necessary

for the jury to hear. Id. at 21. Per the trial court, because of the technical nature of

the testimony the court found that the witness had in fact provided expert testimony

but denied the plaintiff’s late designation of the witness as its expert. Id. at 22.

The appellate division agreed that the witness’s testimony was “technical,

arcane and involved specialized knowledge” but found “the nature of the testimony

did not transform the engineer into an expert witness.” Id. at 26. The court

emphasized that “New Jersey law does not mandate that lay testimony, and even lay

opinion testimony, based on scientific, technical or other specialized knowledge,

automatically triggers the need for compliance with the rules for admissibility of

expert testimony.” Ibid. The appellate court found the witness’s testimony at the

hearing “related the factual details of the parties’ interactions and described his own

role in the events.” Id. at 27. “His explanation of the bases for plaintiff’s claims

[along with documentary evidence admitted] . . . were integral parts of the parties’

26 business dealings, rather than litigation tools or after-the-fact analyses of the type

that might be created by an expert specifically for trial.” Ibid. Per the court, “any

opinions expressed by [the witness] arose from his personal dealings with the project

and knowledge of the field. Because the factual predicate of the testimony emanated

from [his] personal perception, he was permitted to offer lay opinions.” Ibid.

Taxation also relies on Cast Art Indus., LLC v. KPMG LLP, to support its

position. 416 N.J. Super. 76, 100 (App. Div. 2010), rev’d on other grounds, 209 N.J.

208 (2012). In Cast Art, the plaintiff merged with a competitor, and later found the

competitor had substantially overreported its revenue through faulty accounting

practices. Id. at 97. After the merger the plaintiff’s business failed, and it sued the

competitor’s accounting firm for damages. At trial the plaintiff presented the

testimony of its president to establish that its business was profitable before the

merger. Moreover, that reliance on the “cash crunch” caused by disparity of the

competitor’s actual receivables and what the plaintiff had expected, based on the

competitor’s audited pre-merger financial statements, was a substantial factor in the

plaintiff’s financial failure. Id. at 100. On appeal, the court rejected the defendant’s

argument that the plaintiff’s president’s testimony was insufficient and that an

outside expert was required on the issue. Because the witness served as president

both before and after the merger the appellate court found him to be “extremely

knowledgeable about the giftware business generally and Cast Art’s business

27 operations specifically.” In sum, the court found that he was qualified to provide the

testimony, no outside expert was needed. “A party to an action with expertise gained

through such personal experience may express an opinion of the sort ordinarily

provided by an expert.” Ibid. Commenting on the extent of the witness’s knowledge

the court noted, “[i]ndeed, it is doubtful whether any outside expert could have

obtained comparable knowledge of Cast Art’s business operations and the cause or

causes of its financial collapse after the merger.” Ibid.

Taxation equates the witness’s role as the auditor’s supervisor with the

personal knowledge that qualified lay opinion testimony in the cases it cites.11

Taxpayer seeks to strike Taxation’s witness’s testimony in its entirety. Per Taxpayer,

the witness did not perform the audit, prepare the report, or discuss the auditor’s

examination with him or ask how he reached his concluded estimates. She did not

ask any questions of the auditor or his supervisors. She did not perform an in-depth

review of the audit report and work papers; she did not review the purchase invoices

or bank statements at the time of the audit; she did not know the basis for the

auditor’s estimated purchases of $250,000 used as the cost of goods sold; or the 3.5

11 While Taxation relies as well on Navarro v. George Koch & Sons, 211 N.J. Super. 558 (App. Div. 1986), this court finds the case provides no support for Taxation’s position because the appellate court there had no occasion to analyze the testimony of the witness. “Since the case is to be retried the precise basis for exclusion of [the company president’s] testimony [in defending a product liability claim] may well be rendered moot at this juncture. However, we observe merely that such evidence does not always fall into the category of expert testimony.” Id. at 582-3.

28 markup. Where the witness admitted that the auditor’s estimates had no basis, she

relied on her personal experience to justify her conclusions that the auditor’s

estimated figures were reasonable. The witness opined on the quality of both the

purchase invoices and the bank statements of which she had no prior knowledge but

which she examined for the first time at trial. Per Taxpayer, without knowledge of

the audit, her personal experience should not qualify her to testify to what the auditor

did here.

This court is unpersuaded by Taxation’s argument and finds the witness lacks

the requisite personal knowledge of and level of participation in the audit to provide

the lay opinion testimony proffered. The witness did not observe Taxpayer’s

business directly, undertake her own review of any of Taxpayer’s records, or discuss

the audit with anyone who did. Her testimony is based on her general knowledge of

audits and of audit reports pursuant to Taxation’s audit manuals. The evidence

supports the fact that the witness has personal knowledge of general audit

procedures, including the audit of pizzerias, and could offer admissible witness

testimony of that nature, but the witness was not offered for that purpose. Rather,

Taxation proffered the witness to provide her opinion about the substance of

Taxpayer’s audit. To that end, Taxation’s questions elicited inadmissible lay opinion

testimony to support or corroborate the actions of the auditor and the estimated

assessment. Her opinions were not rationally based on her personal perception of

29 the subject audit. Instead, they were derived from the witness’s knowledge of prior

audits. However, each audit differs with each standing on its own.

The witness candidly explained that her testimony was based on a reading of

the auditor’s report and work papers at trial, and the trial testimony of Taxpayer’s

witnesses. She did not actively participate in the audit. Instead, the witness served

as a high-level supervisor assigned to review and sign off on the auditor’s documents

and send the case on to billing which role did not provide her with sufficient

knowledge of the audit to opine on its results.

Absent the auditor to offer testimony about his re-examination of Taxpayer’s

additional documents or his basis for again rejecting Taxpayer’s books and records

as insufficient, Taxation was unable to proffer meaningful testimony from the trial

witness on that issue. Notably, among the witness testimony, a substantial portion

involved questions about Taxpayer’s 2013 purchase invoices. Taxation questioned

the witness at length about the purchase invoices, eliciting her opinion that the

invoices were “incomplete” and “insufficient.” In fact, the witness never saw the

invoices prior to trial nor were the invoices part of the audit file reviewed by her. As

noted, Taxpayer produced the documents at CAB by letter dated September 2015.

By then the witness had completed her supervisory audit review and sent the

assessment to billing, months earlier, in June 2015.

30 Unlike the witness, at the time the case was remanded to the auditor for re-

examination, the auditor should have had in his possession Taxpayer’s 2013

purchase invoices.12 Per the CAB conference report, Taxpayer’s production of the

new information served as the basis for CAB to remand the case to audit. Yet, in the

remand memo, the auditor never mentioned that he reviewed the newly supplied

purchase invoices, documents the auditor had specifically requested in the initial

IDR. The auditor omitted any analysis of the supplemental information, or rationale

12 The expert’s September 2015 letter to CAB included the documents. The records are also referenced as received in the CAB conference report, a document Taxation placed in evidence without objection, which reads, in pertinent part: “[t]he taxpayer hired a new representative who provided”: -A confirmation from Jetro (Restaurant Depot) stating that the taxpayer made purchases of $58,547, $56,720, and $57,149, for the years 2011, 2012 and 2013, respectively. The supporting invoices were not provided. -17 purchase invoices from Performance Food Service (Roma) for 2013 totaling $13,744. The taxpayer purchased boxes, bags, cups, flour, tomato sauce, spices, oil, pepperoni and mozzarella and parmesan cheese. -A written rent statement from the landlord, Romana Romano, attesting that the taxpayer paid rent in cash monthly in the amount of $24,000, $24,600, and $25,200 for 2011, 2012 and 2013 respectively. The amounts were equal to the reported rent expense. -A worksheet illustrating the proposed gross receipts. Bank deposits were summarized for each year in the audit period and an additional amount was added for estimated cash receipts. The representative added $56,114, $61,907, and $47,328 for the years 2011, 2012 and 2013, respectively, stating that soda and pizza products were paid with cash.” The case was remanded back to Audit for a re-examination in light of the new information. No changes were made.

31 to support the auditor’s decision that he still found Taxpayer’s books and records

insufficient and continued the use of an indirect methodology.

Taxation likewise seeks to rely on the witness testimony as evidence that the

data and methodology used by the auditor in setting the assessment were reasonable.

However, per the witness’s candid testimony, she was not testifying from personal

knowledge of Taxpayer’s documents or the auditor’s actions, but rather she was

“interpreting” the auditor’s narrative.

If admitted, the witness’s opinions could provide Taxation with proof to justify

the auditor’s actions in making an estimated assessment, as well as the

reasonableness of the auditor’s data and methodology and resulting estimated

assessment. Such a ruling would permit Taxation to boot strap the proofs with

improper testimony that constitutes nothing more than speculation. Saulwil, 31 N.J.

Tax 433. It would frustrate the purpose of the rule and undermine the necessity for

the limitations on lay opinion testimony. For those reasons, the court strikes

Taxation’s witness’s testimony from the record.

III. Business Records (Evid. R. 803(c)(6) and Public Records (Evid. R.

803(c)(8))

Taxation contends that even without the witness testimony to support the

auditor’s actions, “the documents speak for themselves,” and should properly be

32 admitted as exceptions to hearsay under Evid. R. 803(c)(6) and Evid. R. 803(c)(8).13

Taxpayer objects to the documents as inadmissible hearsay and untrustworthy. It

argues the contents of the documents resulted from factual errors committed by the

auditor that impact the validity of the assessment, suggesting for example, that the

auditor erred in stating that Taxpayer’s bank statements did not reflect any cash

deposits, or cancelled checks for Taxpayer’s purchases, and the auditor’s failure to

recognize the production of purchase invoices when Taxpayer admitted evidence to

13 Evid. R. 803(c)(6), “Records of Regularly Conducted Activity” (Business Records) reads:

A statement contained in a writing or other record of acts, events, conditions, and, subject to Rule 808, opinions or diagnosis, made at or near the time of observation by a person with actual knowledge or from information supplied by such a person, if the writing or other record was made in the regular course of business and it was the regular practice of that business to make such writing or other record. This exception does not apply if the sources of information or the method, purpose or circumstances of preparation indicate that it is not trustworthy.

Evid. R. 803(c)(8), “Public Records, Reports, and Findings, Subject to Rule 807,” reads:

(A) a statement contained in a writing or other record made by a public official of an act done by the official or an act, condition or event observed by the official if it was within the scope of the official’s duty either to perform the act reported or to observe the act, condition or event reported and to make the written statement; or (B) statistical findings of a public official based upon a report of or an investigation of acts, conditions, or events, if it was within the scope of the official’s duty to make such statistical findings. This exception does not apply if the sources of information or other circumstances indicate that such statistical findings are not trustworthy.

33 the contrary. Taxpayer highlights that the auditor visited the business premises in

September 2014, after Intriago had sold his share of the business to Villa and San

Gerardo Food Corporation. The conditions the auditor observed, including the

number of employees and seating, differed from Taxpayer’s.14 Per Taxpayer, the

auditor’s errors necessitate a finding that neither rule should apply to admit the

hearsay evidence. Per Taxation, any factual errors in the documents are a matter of

their credibility rather than admissibility.

Taxation contends the auditor’s report and work papers meet the threshold

standard under the rules and thereby attain a “circumstantial probability of

trustworthiness.” State v. Matulewicz, 101 N.J. 27, 29-30 (1985). In addition,

Taxation relies on the Court’s language addressing the Public Records rule where

the Court reiterated “the view expressed in variant contexts recogni[zes] ‘[t]here is

a presumption, absent contrary testimony, that those responsible for services to the

public will carry out their duties in a proper, careful and prudent manner.’" Id. at

31 (internal citation omitted).

In considering application of the two rules, this court finds under Evid. R.

803(c)(6) the threshold requirements have been met (record of an act, in writing,

14 The auditor referenced the employee information in the section of the report related to the GIT- ER assessment. In the section of the report titled “Unusual Circumstances” the auditor referenced the number of employees and the amount of seating he observed at the September 2014 visit and cross-referenced same in the section on the SUT assessment. The auditor’s report also made note of his observations regarding the menu items offered for sale at that pizzeria. 34 made by one with actual knowledge, in the regular course of business/regular

practice of that business to make the writing, prepared at or near the time of

observation). As to Evid. R. 803(c)(8), the court likewise finds the threshold

requirements have been met (statement in writing, of act observed by a public

official acting within the scope of official duty). However, that does not end the

court’s inquiry. The rules and case law make clear, reliability is the lynchpin to the

admission of documents otherwise excluded by hearsay under these rules.

Matulewicz, 101 N.J. 27. Records that meet the rules’ threshold requirements attain

a “circumstantial probability of trustworthiness,” but “general acceptance of

reliability will not attach if ‘the trial court, after examining them . . . and hearing the

manner of their preparation explained, entertains serious doubt as to whether they

are dependable or worthy of confidence.’” Id. at 29-30 (internal citation omitted).

“[T]he source of the information and the method and circumstances of the

preparation of the writing must justify allowing it into evidence.” Id. at 29 (internal

citation omitted). The Supreme Court remanded the Matulewicz case to the trial

court to develop a record of the “quality and nature” of the forensic chemist report

at issue. Id. at 32.

In this case, the court has serious concerns over the quality and manner of the

auditor’s methodology as well as the underlying data collected during the audit

examination of Taxpayer’s business. As to the methodology utilized, the auditor

35 failed to describe what in fact he did to determine the estimated assessment.

Moreover, the audit report and work papers contain figures for the auditor’s

concluded cost of goods sold (COGS) and an estimated mark-on but omit any

analysis to describe how the auditor reached those estimates.

The evidence also reveals a fatal flaw in the underlying audit data. The auditor

relied on information he obtained during a September 2014 visit to the wrong

business. La Troncal and Intriago sold the business nine months earlier in January

2014. That data collected and contained in the audit report as it relates to the

auditor’s estimated assessment, had no application to Taxpayer’s business. The data

was collected from the wrong Taxpayer. The court is unable to parse the data in the

report absent an explanation of the steps the auditor followed, and how the auditor

used the information to arrive at the assessment. Thereby, the court has no ability to

determine the extent to which the data affected the accuracy of the assessment.

Moreover, the period of the sales tax audit extended through March 2014 resulting

in an assessment that covered a period when La Troncal was no longer operating.

Those facts are undisputed.

Under the Business Records rule, and the precedential case law, the method

and circumstances surrounding the preparation of the writing must justify allowing

the hearsay statements into evidence. Matulewicz, 101 N.J. 27; Evid. R. 803(c)(6)

(Per the rule, “This exception does not apply if the sources of information or the

36 method, purpose or circumstances of preparation indicate that it is not trustworthy.”)

The evidence here raises serious concerns about the auditor’s methodology and the

unreliable nature of the data used in setting the assessment. As a result, this court

finds the documents are not trustworthy and will not be admitted into evidence under

Evid. R. 803(c)(6) as an exception to hearsay. The same analysis underlies this

court’s consideration of the Public Record exception to the hearsay rule, under Evid.

R. 803(c)(8). Based on the record, the court is unable to conclude that the auditor

did his duty in a “proper, careful and prudent manner” to admit the documents as

exceptions to hearsay under the rule. Matulewicz, 101 N.J. at 31.

Based on all the relevant and admissible evidence as set forth above, the court

finds the methodology used to set the assessment is aberrant given the auditor’s

unexplained methodology and the collection and use of unreliable data wholly

irrelevant to Taxpayer’s business. The court finds no basis on which to uphold the

validity of the assessment and sets it aside.

Despite that result, the relevant evidence shows that Taxpayer is still liable

albeit for some taxes based on its expert’s analysis, which this court finds credible.

The expert explained how he reconciled Taxpayer’s purchase and expense

information, bank statements and tax returns, to conclude under-reported differences

in the sales tax that La Troncal reported in the total amount of $416,847. The expert

concluded that Taxpayer owes sales tax over the amount remitted, of $29,179

37 ($416,847 x 7%). The expert likewise concluded an under-reported difference in

CBT tax in the amount of $35,757. The expert concluded that Taxpayer owes CBT

tax over the amount remitted, of $5,365 ($35,757 x 15%). The expert concluded the

total tax owed is $34,544. Although Taxation offered effective cross examination

of Taxpayer’s witnesses, the court finds both Intriago’s testimony and the expert’s

testimony to be credible.

The court finds that the expert’s conclusions were based on sufficient credible

evidence to support his concluded CBT and S&U tax liability. Taxpayer has met its

burden of persuasion by a preponderance of the evidence as to those taxes. Notably,

litter tax was omitted from the expert’s reconciliation. Pursuant to R. 8:9-3, counsel

shall provide the court with a calculation of the total tax due, including any

applicable interest and penalties, and any litter tax computation, within twenty days

of the date of this opinion, for the entry of judgment.