NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-0207-19
LABOSSIERE ASSOCIATES, INC.,
Plaintiff-Appellant/ Cross-Respondent,
v.
INDEPENDENCE HARBOR I CONDOMINIUM ASSOCIATION, INC.,
Defendant-Respondent/ Cross-Appellant. _____________________________
Argued December 1, 2020 – Decided February 12, 2021
Before Judges Haas, Mawla and Natali.
On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-3881-15.
James F. Sullivan argued the cause for appellant/cross- respondent (Sullivan and Graber, attorneys; James F. Sullivan, of counsel and on the briefs; Christine C. Ryan, on the briefs). Paul A. Sandars, III argued the cause for respondent/cross-appellant (Lum, Drasco & Positan LLC, attorneys; Paul A. Sandars, III and Scott E. Reiser, of counsel and on the briefs).
PER CURIAM
After defendant Harbor I Condominium Association, Inc., failed to remit
the final $141,206.62 installment payment of a $2,186,366.44 contract it entered
with plaintiff LaBossiere Associates, Inc., for design and construction-related
services, plaintiff filed claims for breach of contract, unjust enrichment, and
attorneys' fees. Defendant contended plaintiff improperly charged it for sales
tax on exempt capital improvements and failed to credit it for excess signage
expenses. Defendant also argued the project was poorly completed. The court,
after a non-jury trial, determined plaintiff was owed a balance of $48,993.24
from the remaining installment after crediting defendant $69,259.98 in sales tax
and $22,953.40 for signage costs.
We affirm in part and reverse in part. We affirm that portion of the court's
order that reimbursed defendant for excess signage expenses. We reverse the
court's order, however, to the extent it credited defendant for the sales tax
plaintiff paid, as the court's findings that the costs of the unsegregated products
and services provided were exempt capital improvements were not supported by
the applicable law or the trial evidence. Finally, we reject defendant's cross-
A-0207-19 2 appeal. We remand the matter, however, for the court to recalculate the
prejudgment interest award to correspond to the correct contract damages.
I.
Plaintiff is an interior design firm specializing in high-end residential and
commercial projects. Defendant operates and maintains a sixteen-building
condominium complex in Edgewater. Defendant sought to renovate and
refurbish the common areas in the complex and approached plaintiff after seeing
its work on other design projects in New Jersey.
Plaintiff prepared proposals totaling $2,186,366.44 that included new
carpets, painting and wall coverings, artwork, mailroom supplies, furniture,
signage, elevator refurbishment, and shipping. The proposals aggregated all
product cost and labor, with a specific dollar amount for each discrete portion
of the project.1 The signage proposal, however, provided:
Allowance for signage. Precise locations and quantities are yet to be specified, further review by board members required to determine necessary replacement and/or additions. Price may increase or decrease due to specific selections. All existing exit signs to remain.
Signage: +/- $34,650.80
[(emphasis added).]
1 For example, as to the artwork and elevator refurbishment costs, the proposals itemized the costs and labor as $207,500 and $67,200, respectively. A-0207-19 3 Defendant's attorney thereafter drafted a contract that incorporated by
reference plaintiff's proposals. The contract specified that the $2,186,366.44
contract price was inclusive of all work, materials, and labor, and that plaintiff
was responsible for paying seven percent sales tax on the entire contract amount.
The parties further agreed that the contract and proposals constituted the
entire agreement and any inconsistencies between the proposals and the contract
would be determined and controlled by the contract terms. Finally, defendant
agreed to pay plaintiff in five installments with the last payment of $141,206.62
due "upon satisfactory completion of the renovations and redecoration of the
buildings, pursuant to the terms and conditions of the agreement."
Lorna Chen testified at trial. Chen was a building manager and member
of defendant's board of directors that approved the project, the owner of two
condominiums at defendant's property, and a real estate agent with over thirty
years of experience. She stated that the goal of the project was to "enhance the
quality of life of our owners because we were sort of run down" and potential
buyers were not purchasing units because they could not tolerate the common
areas. She further noted that plaintiff completed the project and that they did "a
fabulous job."
A-0207-19 4 She also acknowledged, however, that one of the goals of the project was
"to increase the value of the condominium." When asked generally whether
there was an increase in the condominiums' value since the renovation, she
answered that the unit values increased "[s]ignificantly."
Plaintiff's owner and lead designer, Philip LaBossiere, testified that the
goal of the project was "to update the entire property such that real estate values
would increase, sales would be faster[,] and the place would generally look
better." He stated that near the end of the project, defendant sent plaintiff several
punch lists of items that needed to be addressed to satisfactorily finish the
project. After completing all of the punch list items, he noted that "[t]here was
nothing but compliments and praise for the transformation aesthetically of the
buildings and how wonderful everything looked and how the general residents[]
. . . saw it as a very positive thing." He further testified that "everyone that hired
us was very pleased and I think they were all still in place before we finished
the last building[.]" Similarly, plaintiff's counsel read an excerpt from the
deposition testimony of Jorge Faerman, defendant's former property manager ,
who was employed during the time of the project. He confirmed that plaintiff
completed all of the punch list items.
A-0207-19 5 Joseph DiPadova, plaintiff's wallpaper and painting subcontractor,
testified that his company did the work on all sixteen of defendant's buildings
and "on the final walk through . . . everything was fine [and] everything was
completed." He also confirmed that he "addressed every single punch list item"
and that "[e]verything was accepted." He then noted that "[t]he only issue was
having access to the doors" to complete touch up painting and that "[i]f the
homeowner was there [they] did it, if they weren't [they] didn't do it and [they]
were told to just leave some paint there and that the engineering department
would take care of it."
With respect to work on the elevators, DiPadova stated he used a special
paint, which "was a spray on type of finish." He confirmed that "the material is
very expensive" and for removal, "[i]t would have to be sanded down and a
bonding primer would have to be applied and then a top coat."
Regarding artwork installed in the common areas, LaBossiere testified
that all the canvas-backed artwork was installed with anti-theft hardware, which
is "a point system of two pieces of hardware, one that's attached to the back of
the frame and one that goes on the wall and there's a special tool that is needed
to engage and disengage those two brackets." He noted subcontractors "applied
. . . an industrial strength two-sided tape that is stronger than anything that you
A-0207-19 6 could steal, in fact, . . . the wall covering would come with it or the wallboard
would come with it." More specifically, he noted that the tape has an adhesive
that "hardens and becomes . . . permanent."
Finally, as to the signage expenses, LaBossiere stated that the "plus or
minus" provision in the proposal "allow[ed him] the flexibility within [his]
responsibility of a contract to be sure all the signs are done properly." On cross-
examination, however, LaBossiere was confronted with his deposition
testimony in which he admitted that a client would "presumably" be entitled to
a credit if he spent less than the stated amount for signage in the proposal.
Finally, he acknowledged paying only $11,696.60 for the plastic signs required
to complete the project.
James Felekos, the property manager who replaced Faerman, testified on
behalf of defendant. He stated that his employment with defendant began after
plaintiff's project was "substantially complete" and "in what [he] would call the
punch list phase." When asked about the wallpaper and repainting work, he
testified that it "would extend the useful life of any of those items; the walls, the
metal doors, elevator cab doors, [and] flooring." Felekos admitted he had
personal knowledge of only "some" of the doors that needed to be repaired. He
A-0207-19 7 also admitted that he did not "recall the specifics" of plaintiff's completion of
the punch list items.
With respect to plaintiff's payment of sales tax, LaBossiere emphasized
that he was "obligated to pay the State of New Jersey on selling items that are
taxable" and he "studied that exemption very carefully and nothing applied" in
this case. He stated that "there was nothing under what we sold them that was
not taxable" so he "charged . . . New Jersey sales tax on everything we sold them
and then we paid the State of New Jersey on everything we sold them." He
testified that neither the flooring subcontractor nor the paint and wallpaper
subcontractor collected sales tax from plaintiff because they instead requested
an ST-3 form.2
LaBossiere testified that the sales tax charged "must have included labor"
since it applied to the entire contact price. He also noted that he never received
an ST-8 (Certificate for Capital Improvement) form from defendant for the
2 "In a sale-for-resale transaction, the purchaser, pursuant to N.J.A.C. 18:24- 10.2, provides the vendor a resale or exemption certificate, or ST-3 form, and the vendor accepts the certificate in lieu of collecting the sales or use tax. " Boardwalk Regency Corp. v. Dir., Div. of Tax'n, 17 N.J. Tax 331, 349 (Tax 1998), rev'd on other grounds, 18 N.J. Tax 328 (App. Div. 1999). A-0207-19 8 project.3 Plaintiff's bookkeeper confirmed LaBossiere's testimony and stated
that payments for taxes "were made with every payment that was received [by
plaintiff]" and acknowledged that as plaintiff "received money from [defendant,
she] would pay the sales tax of [seven percent] on that."
In a June 12, 2019 order, the court entered judgment in favor of plaintiff
in the amount of $48,993.24, and judgment in favor of defendant in the amount
of $92,213.38. In its accompanying statement of reasons, the court determined
that "the contract lists the sales tax as $143,033.32[,] clearly contrary to law, as
it represents a calculation based on the lump sum contract price of
$2,043,333.12."
Citing H.J. Bradley Inc. v. Director, Division of Taxation, 4 N.J. Tax 213
(Tax 1982), the court stated "[w]here a contractor installs property that becomes
part of real property, the contractor is not to collect sales tax from the customer
but must obtain from the customer a completed Certificate of Capital
Improvement for permanent retention." The court held that "apart from the
carpet, which is specifically excluded by [N.J.S.A. 54:32B-3(b)(2)(v)], the
3 A ST-8 Form is used "[w]hen the use of materials and supplies by a contractor results in a capital improvement" and acts to "relieve[] the customer of responsibility for payment of tax on the services performed by the contractor in installing the materials." Elbert Lively & Co. v. Dir., Div. of Tax'n, 5 N.J. Tax 431, 439-40 (Tax 1983) (citing N.J.S.A. 54:32B-3(b)(2)(v)). A-0207-19 9 chattels became fixtures because they were actually annexed to the real estate,
applied to the use and purpose of the real estate[,] and were annexed with the
intention that they become a permanent accession to the property."
In support of its findings that some of plaintiff's work constituted non -
taxable capital improvements, the court emphasized that Chen "testified since
the renovation the units had increased in price" and "the renovation increased
the property's value." The court noted "wall coverings are not included" as a
taxable service and concluded "since . . . the wallpaper [was] a capital
improvement, neither the materials nor the labor [were] subject to tax." The
court relied on an invoice4 from DiPadova and estimated the cost of wallpaper
at $401,800. Based on this figure, the court calculated that plaintiff improperly
charged a seven percent sales tax of $28,126.
It also found that the "application of paint, but not the paint" itself was
taxable and that the paint charges in the invoices5 do not include labor. The
court surmised that since plaintiff's proposal listed "Paint and Wall Covering"
at $955,557.50, and as it already concluded the cost of wallpaper was $401,800,
4 The referenced invoice entitled "paint and wallcovering" includes a description of paint services within its estimate cost of wallcoverings for fourteen buildings in the complex. 5 The parties have not included these referenced invoices in the record. A-0207-19 10 then the cost of painting must have been $306,242.50. 6 After applying a seven
percent sales tax, the court calculated that plaintiff improperly charged
$21,463.98 to defendant for paint.
The court next determined that the "refurbishing of the elevator cabs and
painting of the elevator doors and frames with specialty paint [did] not . . .
constitute [taxable] 'interior' painting, but capital improvement based upon
[DiPadova's] testimony [about] the specialty paint used to refurbish the cabs[.]"
The court noted plaintiff's proposal listed the price for the elevators at $67,200,
"which d[id] not include the $6[]300 for painting the exterior." After adding the
total price of the elevator refurbishment, the court calculated that plaintiff
improperly charged a seven percent sales tax of $5145 on these services.
Finally, the court noted the artwork was "affixed . . . to the walls in a
manner such that its removal would cause damage to the walls" and determined
that "the artwork constituted a capital improvement." After noting plaintiff
charged defendant $207,500 for the artwork based on its proposal, it calculated
that defendant was improperly charged a seven percent sales tax in the amount
of $14,525 for the artwork.
6 It is unclear from the record how the court derived the $306,242.50 figure, as deducting $401,800 from $955,557.50 equals $553,757.50. A-0207-19 11 The court noted that plaintiff "was responsible for both obtaining the ST -
8 [form] from [defendant] and payment for any sales tax due and owing" and
that he "had the responsibility of obtaining from his suppliers/subcontractors
invoices which correctly break down the services from the materials as the
services are taxable and the materials are not." It noted that plaintiff "may
thereafter pursue such remedies as he may have with the State of New Jersey."
Finally, the court rejected defendant's "belated claims of poor
workmanship, poor quality artwork, misplacement of furniture, undersized dirt -
trapping mats, etc., which [were] belied by the relatively minor character of
punch list items . . . in terms of the sheer volume of the work, and satisfaction
with the overall outcome" by Chen. With respect to signage, the court noted
that the credit of $22,953.40 was "based upon plaintiff's deposition testimony
wherein he testified the allowance would appear to warrant a credit to defendants
if the signage cost were less than the allowance and his trial testimony." The
court also found no enforceable agreement for defendant to pay plaintiff's legal
fees.
Plaintiff submitted a letter objecting to the June 12, 2019 order as granting
defendant "double recovery" on the sales tax deductions, and the court amended
the order on June 19, 2019, so that judgment was only granted in favor of
A-0207-19 12 plaintiff in the amount of $48,993.24. Both parties moved for reconsideration,
which the court denied in an August 12, 2019 order. The court, however, granted
plaintiff's request for prejudgment interest from the filing date of its complaint.
This appeal followed.
On appeal, plaintiff first claims the trial court erred by concluding it was
not required to pay sales tax on the entire contract. Second, it maintains the trial
court erred by "rewriting" the lump sum contract to include an allowance for
unused signage costs. In its cross-appeal, defendant argues the trial court erred
by: 1) failing to credit it fully with regard to improperly charged sales taxes on
plaintiff's services, including signage and shipping; 2) rejecting its claims of
poor workmanship; and 3) awarding plaintiff prejudgment interest. We address
each of the parties' arguments seriatim. 7
II.
In its first point, plaintiff contends the court improperly found that
portions of the redesign and refurbishment work of defendant's common areas
were capital improvements. Specifically, plaintiff argues the evidence adduced
7 Plaintiff has not specifically addressed the court's rejection of its claim for attorneys' fees. As it failed to brief this issue, it is deemed waived. See Sklodowsky v. Lushis, 417 N.J. Super. 648, 657 (App. Div. 2011) (citations omitted). A-0207-19 13 at trial failed to support the conclusion that the project resulted in an "increase
in the capital value [or] in a significant increase in the useful life of those areas."
We agree.
Our review of a trial court's fact-finding in a non-jury case is limited.
Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150, 169 (2011). "The general
rule is that findings by the trial court are binding on appeal when supported by
adequate, substantial, credible evidence. Deference is especially appropriate
when the evidence is largely testimonial and involves questions of credibility."
Ibid. (quoting Cesare v. Cesare, 154 N.J. 394, 411-12 (1998)). However, we
owe no deference to a trial court's interpretation of the law, and review issues of
law de novo. State v. Parker, 212 N.J. 269, 278 (2012); Mountain Hill, LLC v.
Twp. Comm. of Middletown, 403 N.J. Super. 146, 193 (App. Div. 2008).
The Sales and Use Tax Act imposes a tax on the "receipts from every sale
. . . of" certain services connected with "[i]nstalling tangible personal property"
or "[m]aintaining, servicing[,] or repairing real property." N.J.S.A. 54:32B-
3(b)(2), (4). Services connected with the installation of tangible personal
property, however, are exempt from sales tax if the "property . . . when installed,
will constitute an addition or capital improvement to real property, property or
land." N.J.S.A. 54:32B-3(b)(2)(v). Similarly, services that maintain, service,
A-0207-19 14 or repair real property are exempt from taxation if they "add[] to or improv[e]
the real property by a capital improvement." N.J.S.A. 54:32B-3(b)(4). These
exemptions, like others, must "be strictly construed against the claimant." Quest
Diagnostics, Inc. v. Dir., Div. of Tax'n, 387 N.J. Super. 104, 109 (App. Div.
2006).
The determination of whether a service is a capital improvement hinges
on whether it "results in an increase in the value of the real property or a
significant increase in the useful life of such property." N.J.A.C. 18:24-
5.16(a)(6)(i); see also N.J.A.C. 18:24-4.6(a)(2)(i), (ii). Examples of services on
real property that are not tax exempt include "[r]epainting the interior or exterior
of a building," "[p]atching a roof," and "[p]ower-washing a building." N.J.A.C.
18:24-5.8. The party seeking the tax exemption bears the burden of proving that
the service is a capital improvement. Newman v. Dir., Div. of Tax'n, 14 N.J.
Tax 313, 318, 329 (Tax 1994). This comports with the mandate that tax
"exemptions are to be construed narrowly." Amerada Hess Corp. v. Div. of
Tax'n, 107 N.J. 307, 319-20 (1987) (quoting Fedders Fin. Corp. v. Div. of Tax'n,
96 N.J. 376, 386 (1984)).
In Newman, the Tax Court addressed whether refurbishing hardwood
floors was considered a capital improvement. 14 N.J. Tax at 314-15. The
A-0207-19 15 taxpayer contended that this activity was not subject to sales tax because it
resulted in a capital improvement of the property. Ibid. The court determined
refurbishment of the floor was a taxable service because it was done "precisely
to maintain, service[,] or repair . . . by restoring it to a previous condition and
removing surface imperfections from the wood," and the renewal of the finish,
making the appearance of the floor "almost as good as that of a new floor . . . is
obviously maintenance, service or repair." Id. at 323. The Newman court
concluded that refinishing work did not constitute a capital improvement. Id. at
330.
The taxpayer in Newman asserted that refurbishing "extends the life of the
floor" and has the dispositive characteristics found only in capital
improvements. Id. at 325-26. The Tax Court rejected this argument, concluding
that a capital improvement must either increase the value of the property or
extend its useful life and refinishing did neither. Id. at 329-30. Specifically, the
court concluded "refinishing does not increase the useful life of the floor, but
rather prevents a decrease in that useful life." Id. at 327; see also H.J. Bradley,
Inc., 4 N.J. Tax at 228 (holding the taxpayers installation of an above-ground
swimming pool was not a capital improvement because there was no evidence it
A-0207-19 16 "resulted in an increase in the capital value of the real property or resulted in a
significant increase in the useful life of the real property").
With respect to whether the contractor or customer is responsible for
paying sales tax, New Jersey tax regulations, provide:
(a) Services rendered by a contractor in maintaining, servicing, or repairing real property, except as hereinafter provided, are subject to tax. When charging the tax on maintaining, servicing, and repairing real property, a contractor must charge the sales tax on only that portion of his or her bill attributable to services. The tax on materials used in performance of such services is the responsibility of the contractor.
....
(c) In all instances, sales or use taxes on materials used in maintaining, servicing, or repairing real property where such materials are provided by the contractor as part of his or her services, are the responsibility of the contractor rather than of the contractor's customer. The contractor should charge tax only on the separately stated service portion of his or her bill.
[N.J.A.C. 18:24-5.8.]
In Tozour Energy Systems Inc. v. Director, Division of Taxation, the
taxpayer performed maintenance and repair work on commercial heating and
cooling systems but failed to itemize services and materials used in its contracts
with customers. 23 N.J. Tax 341, 343-44 (Tax 2007). The taxpayer charged its
customers sales tax on the entire comingled contract but did not pay tax on its
A-0207-19 17 use of the materials. Id. at 344. In finding the taxpayer liable, the Tax Court
acknowledged "the difficulty [under certain situations] in separating the price of
the service contract into components for labor and parts . . . ." Id. at 354. As a
consequence, the court noted the Division of Taxation has advised taxpayers
that "if a contractor does not itemize the materials and labor for a taxable job,
the entire receipt is subject to tax." Ibid. (citing Division of Taxation, Tax
Topic: Contractors and New Jersey Taxes (rev. Oct. 2016) ("S&U-3")); see also
Division of Taxation, Tax Topic: Sales Tax and Home Improvements (rev. Sept.
2017) ("S&U-2").8
Here, the trial court improperly applied a test for when a chattel becomes
a fixture in determining plaintiff's tax liability. As noted, the test for whether
services are a tax-exempt capital improvement project requires analyzing
whether the work "results in an increase in the value of the real property or a
significant increase in the useful life of such property," not affixation. N.J.A.C.
18:24-5.16(a)(6)(i).
8 These publications are regularly updated and revised. Plaintiff refers to the September 2017 version of these bulletins. A copy of the March 2007 S&U-2 contains identical language as the language we rely on. Therefore, reliance on the updated bulletins does not affect our analysis. A-0207-19 18 In determining that the wallpaper, elevator refurbishment, and artwork
services provided by plaintiff were capital improvements, the court relied, in
part, on Chen's testimony that one of the reasons for defendant hiring plaintiff
was "to increase the value of the condominium" and that the value of the
condominiums increased "[s]ignificantly" after plaintiff completed the project.
In that regard, the court emphasized that she was an experienced real estate
agent, a member of defendant's board at the time of the project and owned two
units in the property. While we typically defer to a trial court's factual findings
when they are supported by adequate, substantial, credible evidence, especially
when that evidence "is largely testimonial and involves questions of credibility,"
Seidman, 205 N.J. at 169 (quoting Cesare, 154 N.J. at 411-12), Chen's testimony
failed to meet this standard. Indeed, it amounted to bare and conclusory
assertions that were untethered to the precise work in the common areas
specifically. By way of example only, Chen's testimony failed to address that a
large portion of plaintiff's work involved painting and $710,154.62 in carpeting,
which indisputably do not qualify as capital improvements. Further, and as
defendant concedes in its merits brief, the court "did not hear any testimony
from . . . Chen or any other witness as to the amount by which the project
A-0207-19 19 increased property values" and "no expert was proffered to opine as to the value
of the improvement."
Defendant provided no other proof to demonstrate the increase in value to
the property as a result of plaintiff's specific services in the common areas or
that such an increase in value was not attributable to market factors outside of
the restoration project. Accordingly, Chen's testimony was insufficient to
justify the court's finding that a majority of plaintiff's services were capital
improvements. See L & L Oil Serv., Inc. v. Dir., N.J. Div. of Tax'n, 18 N.J. Tax
514, 532 (Tax 2000) (finding that the plaintiff failed to show that its services
were a capital improvement as it "presented no proof that its services enhanced
the value of the real property").
Nor were the court's other reasons sufficient support to justify that the
wallpaper, elevator refurbishment, and artwork services provided by plaintiff
were tax-exempt capital improvements. The court's findings are either
unsupported by adequate, substantial, and credible evidence in the record or
contrary to the applicable tax law on capital improvements.
First, the court found the materials and labor for the wallpaper were capital
improvements and not subject to tax. The court nonetheless failed to elaborate
on its reasoning as to why wallpaper is sufficiently different from interior
A-0207-19 20 painting, which is not considered a capital improvement. See N.J.A.C. 18:24-
5.8(a)(5). In this regard, Felekos, the building's property manager who took
over after Faerman and whose testimony the court found was "of limited value,"
merely testified that wallpaper "would extend the useful life of . . . the walls."
Such reasoning underlying this conclusory testimony would render any
maintenance, service, or repair on a wall surface a capital improvement. Like
in Newman, wallpaper does not "increase the useful life of the [walls], but rather
prevents a decrease in that useful life." 14 N.J. Tax at 327 (emphasis removed).
The court similarly erred when it determined the elevator refurbishment
was a capital improvement. We conclude plaintiff's refurbishing of the elevators
is sufficiently analogous to the floor refinishing service provided by the plaintiff
in Newman. According to the court's own description of plaintiff's work, the
contract included "[m]etal restoration" and "[s]eal[ing] all brass with several
coats of acrylic lacquer, clean[ing] all bronze doors, cleaning all call buttons[,]
cleaning all thresholds[,] replac[ing] of elevator mirrors . . . , [s]upply[ing] and
install[ing of] brass handrails . . . , [and] remov[ing] old elevator wall coverings
and replac[ing them] with new laminate." The type of paint used on the exterior
doors had no bearing on the fact that restoring the elevators as a whole "to a
previous condition and removing surface imperfections" was "obviously
A-0207-19 21 maintenance, service or repair" and subject to sales tax. Newman, 14 N.J. Tax
at 330.
Third, the court improperly determined that the artwork constituted a
capital improvement. In making this finding, the court relied on LaBossiere's
own testimony that the two-sided tape used for the artwork was strong enough
that "the wall covering . . . or the wallboard would come with it" if removed and,
as a result, those pieces were essentially "permanent." Proving affixation alone,
however, is insufficient to demonstrate that any particular maintenance, service,
or repair of real property is necessarily a capital improvement. As noted, there
must be sufficient evidence in the record that the installation increased the value
of, or extended the useful life of, the real property. See N.J.A.C. 18:24-
5.16(a)(6)(i). As in Newman, regardless of the perceived permanency of
affixing some artwork to the walls, there is a lack of credible evidence in the
record to support the court's finding that they constituted capital improvements
either because they increased the value of the property or extended its useful
life.
Similarly, defendant is not entitled to credit for tax on the paint or
painting. While plaintiff is responsible for paying to the Division of Taxation
the tax on materials it uses in its services as a contractor, N.J.A.C. 18:24 -5.8,
A-0207-19 22 the parties' contract clearly indicated that defendant would pay the cost of those
taxes to plaintiff, which it did by paying the first four installments without
objection. Further, the record before us is devoid of how much was spent on the
materials for paint. We do not address the trial court's mathematical errors in
calculating the sales tax on this portion of the project because granting any tax
credit would be entirely speculative and unsupported by adequate, substantial,
and credible evidence in the record. As noted, neither the contract nor proposals
separated the material and labor, and defendant is therefore responsible for sales
tax on the total amount of the bill if the charges for labor and materials are not
distinctly separated. Tozour Energy Sys., 23 N.J. Tax at 354.
Defendant relies on Polaris Corporation v. Director, Division of Taxation,
12 N.J. Tax 70, 72 (Tax 1991), for the proposition that sales tax a contractor
pays on materials "cannot be passed on to [defendant] as a resale customer."
This reliance, however, is misplaced as the contractor in Polaris "paid no sales
tax on its purchase of the raw materials in question, nor did it charge its . . .
customers for sales or use tax." Id. at 72. The Tax Court in Polaris only decided
the contractor's tax liability and made no decision on whether a contractor can
pass on the tax for materials used in a project. Indeed, regulations from the
Division of Taxation on a contractor's services to real property state a
A-0207-19 23 "contractor is not required to pay tax on materials at the time of purchase" as
long as it issues an ST-3 form, which plaintiff appropriately did. N.J.A.C.
18:24-5.9(b).
III.
In its second point, plaintiff argues that the court improperly "relied on
deposition testimony about the signage allowance rather than the contract itself
to award a credit for signage." As a result, plaintiff maintains defendant is
obligated to pay the full contract price without credit for a signage allowance.
We disagree.
The construction of a contract is a question of law. Kieffer v. Best Buy,
205 N.J. 213, 222-23 (2011) (citing Jennings v. Pinto, 5 N.J. 562, 569-70
(1950)). Consequently, we review the trial court's interpretation of a contract
de novo. Id. at 222 (citing Jennings, 5 N.J. at 569-70).
The language of a contract, by itself, must determine the agreement's force
and effect if it is "plain and capable of legal construction." Manahawkin
Convalescent v. O'Neill, 217 N.J. 99, 118 (2014) (citation omitted). However,
"[e]ven in the interpretation of an unambiguous contract, [the court] may
consider 'all of the relevant evidence that will assist in determining [its ] intent
and meaning.'" Ibid. (alteration in original) (quoting Conway v. 287 Corp. Ctr.
A-0207-19 24 Assocs., 187 N.J. 259, 269 (2006)). Our Supreme Court has adopted an
expansive view of the parol evidence rule that permits consideration of "all of
the relevant evidence that will assist in determining the intent and meaning of
the contract." Conway, 187 N.J. at 269.
"In general, the parol evidence rule prohibits the introduction of evidence
that tends to alter an integrated written document." Id. at 268 (citation omitted).
However, as we have made clear:
[T]he parol evidence rule applies only to prevent the substantive alteration of contractual terms agreed upon by parties and expressed in an integration of their bargain, by resort to other prior or contemporaneous agreements or understandings. But the parol evidence rule does not even come into play until it is first determined what the true agreement of the parties is — i.e., what they meant by what they wrote down. Only when that is determined is one in an appropriate position to raise the bar of the parol evidence rule to prevent alteration or impugnment of the agreement by the asserted contradictory prior or contemporaneous agreement.
[Garden State Plaza Corp. v. S.S. Kresge Co., 78 N.J. Super. 485, 496 (App. Div. 1963).]
Here, there was sufficient evidence to support the court's finding that
defendant was entitled to a $22,953.40 credit for the signage costs. First, the
contract incorporated the signage proposal by way of the integration clause in
paragraph one. Unlike the estimates for carpeting, wall coverings, artwork, and
A-0207-19 25 the elevator refurbishment, the amount of compensable signage was not clearly
established, as evidenced by the parties use of the "+/-" symbol. Further, in
LaBossiere's deposition testimony, he stated that defendant was "presumably"
entitled to a credit if less than $34,650.80 was spent on signage. The court was
clearly permitted to consider that evidence to "assist in determining the intent
and meaning of the contract." Conway, 187 N.J. at 269. Accordingly, after
considering the intent of the parties and the language in the signage clause, the
trial court did not err in granting defendant such an allowance.
IV.
In its cross-appeal, defendant first maintains that "the trial court erred in
its calculation of the actual amount due" under the sales tax credit for paint and
wallpaper and that it is entitled to credit for the sales tax on the signage and
shipping services plaintiff provided. In defendant's second point, it asserts the
trial court erred when it failed to issue credits for plaintiff's "poor
workmanship." We disagree with these arguments.
In light of our conclusion that the wallpaper and paint services provided
were not capital improvements, we find no merit in defendant's contention for
further credit on the sales tax. We also find the trial court correctly concluded
that defendant is not entitled to a credit on the sales tax it paid for the signage
A-0207-19 26 because defendant failed to introduce any evidence that the signs either
increased the value of the property or extended its useful life.
Similarly, we also disagree that defendant is entitled to a credit on the
sales tax it paid for shipping because, as we have discussed, all the items plaintiff
shipped were subject to the sales tax. See Division of Taxation, Out of State
Sales & New Jersey Sales Tax (rev. Mar. 2009) ("ANJ-10") ("Charges for the
delivery of property (or services) from a seller directly to a customer are subject
to [s]ales [t]ax if the items sold are subject to tax . . . ."). Finally, we find no
reason to disturb the trial court's rejection of defendant's claims of poor
workmanship because the court's finding that defendant's contentions were
"belied by the relatively minor character of punch list items . . . in terms of the
sheer volume of the work, and [defendant's] satisfaction with the overall
outcome" was amply supported by the record. See Seidman, 205 N.J. at 169.
In its final point, defendant maintains that plaintiff owes it $7776.24, upon
consideration of all its alleged credits. It also argues plaintiff is not entitled to
prejudgment interest. We disagree that defendant is entitled to any award for
the reasons we have already determined but remand for the trial court to amend
plaintiff's prejudgment interest to accurately reflect plaintiff's damages.
A-0207-19 27 "[T]he award of prejudgment interest on contract and equitable claims is
based on equitable principles." Cnty. of Essex v. First Union Nat'l Bank, 186
N.J. 46, 61 (2006). The trial court, accordingly, has sole discretion in deciding
whether and how to award prejudgment interest, which we will not disturb
unless it "represents a manifest denial of justice." Litton Indus., Inc. v. IMO
Indus., Inc., 200 N.J. 372, 390 (2009) (quoting Cnty. of Essex v. First Union
Nat'l Bank, 186 N.J. 46, 61 (2006)).
In awarding prejudgment interest, the court's principal attention focuses
on whether:
[T]he defendant has had the use, and the plaintiff has not, of the amount in question; and the interest factor simply covers the value of the sum awarded for the prejudgment period during which the defendant had the benefit of monies to which the plaintiff is found to have been earlier entitled.
[Rova Farms Resort, Inc. v. Invs. Ins., 65 N.J. 474, 506 (1974).]
Here, as noted, since we do not find that defendant is entitled to any
additional credits, we find no reason to disturb the trial court's discretionary
determination that plaintiff is entitled to prejudgment interest. On remand,
however, the court should amend plaintiff's judgment to reflect the correct
amount of damages.
A-0207-19 28 To the extent we have not addressed any party's remaining arguments it is
because we have determined that they are without sufficient merit to warrant
discussion in a written opinion. See R. 2:11-3(e)(1)(E).
Affirmed in part, reversed in part, and remanded for proceedings
consistent with this opinion. We do not retain jurisdiction.
A-0207-19 29