N. IOAKIMIDIS, LLC VS. DIRECTOR, DIVISION OF TAXATION (TAX COURT OF NEW JERSEY)

• Court: New Jersey Superior Court Appellate Division
• Decided: July 17, 2018
• Docket: A-1978-16T1
• Status: Unpublished

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court."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-1978-16T1

N. IOAKIMIDIS, LLC, and STELLA'S PIZZA, INC.,

Plaintiffs-Appellants,

v.

DIRECTOR, DIVISION OF TAXATION,

Defendant-Respondent. ______________________________

Submitted March 13, 2018 – Decided July 17, 2018

Before Judges Sumners and Moynihan.

On appeal from Tax Court of New Jersey, Docket Nos. 14362-2014 and 14364-2014.

Fernando Iamurri, PC, attorney for appellants (Fernando Iamurri, on the brief).

Gurbir S. Grewal, Attorney General, attorney for respondent (Heather Lynn Anderson, Deputy Attorney General, on the brief).

PER CURIAM

The Division of Taxation (the Division) issued sales tax

assessments for a restaurant owned and operated by plaintiffs N.

Ioakimidis, LLC and Stella's Pizza, Inc., which was based upon a methodology that did not rely upon business records because the

records were deemed inadequate. Plaintiffs appeal the Tax

Court's denial of their summary judgment motion contesting the

assessments and the granting of the Division's cross-motion that

the assessments were proper. We affirm.

In 2009, Nick Ioakimidis, owner and principal shareholder

of Stella's Pizza, Inc., transitioned operations of "Stella's

Pizza" from Stella's Pizza, Inc. to N. Ioakimidis, LLC, bearing

a different taxpayer identification number. A Pre-Audit

Questionnaire by the Division revealed that Stella's Pizza was

not retaining necessary business records, such as guest checks,

cash disbursement journals, sales journals, deposit slips,

vendor bills, payroll records, and cash register tapes. During

a pre-audit meeting in April 2011, the Division's auditor

requested plaintiffs produce their business records.

After two years expired without the records being produced,

another pre-audit meeting in May 2013 resulted in a renewed

records request. This time, plaintiffs responded by producing:

two Point of Service (POS) statements for the tax period of

January 1, 2006 to May 31, 2012; copies of W-2 and NJ W-31 forms

for tax years 2007 through 2009; a price list for tax year 2011;

1 Gross Income Tax Reconciliation of Tax Withheld.

2 A-1978-16T1 bank statements from Valley National Bank and PNC Bank; partial

vendor purchase invoices from Bart Foods from 2005 to 2010; a

vendor list for the period of April 1, 2005 through March 31,

2009 and of May 1, 2010 through May 31, 2012; and partial vendor

purchase invoice from Kalimera Food from 2006 to 2012.

After a careful review of the limited business records, the

auditor found several deficiencies: (i) inconsistencies between

gross receipts reported on plaintiffs' Corporation Business Tax

(CBT) returns and gross receipts reported on plaintiff's Sales

and Use Tax (SUT) returns; (ii) disparities between the menu

prices identified on plaintiffs' website and the paper menu

supplied by plaintiffs following the pre-audit meetings; (iii)

the SUT collected by plaintiffs exceeded the SUT remitted to

defendant; (iv) plaintiffs' bank statements did not correspond

to the reported gross receipts; (v) the sum of plaintiffs'

cancelled checks fell short of the purchase totals reported by

plaintiffs; (vi) none of the POS records corresponded to

plaintiffs' SUT returns; (vii) plaintiffs' paid wages in cash

and did not record all payroll transactions; and (viii) all cash

received from business operations was not deposited into

plaintiffs' bank accounts. The auditor also found

inconsistencies with individual line items for the identical tax

3 A-1978-16T1 periods and a discrepancy in the gross sales figures between the

POS records.

Consequently, the auditor conducted a markon analysis to

test plaintiffs reported taxable sales and determined that a 3.0

markon ratio should be applied to the purchases for the audit

period. Plaintiffs' SUT deductions were rejected for failure to

present any documentation. The auditor further applied the

applicable SUT rate to each audit year, and thereafter, reduced

the sum of the SUT paid by plaintiffs with their SUT returns.

The Division next issued Notices of Assessment Related to

Final Audit Determination to plaintiffs. Plaintiffs filed a

notice of protest. The Division's conferee2 accepted the 3.0

markon ratio and determined plaintiffs failed to maintain

adequate books and records and adequate internal control

procedures. The Division determined that because "the integrity

of the POS records [were] in question," Stella's Pizza, Inc. was

assessed $161,354.04 in unpaid CBT, SUT, Gross Income Tax –

Employer Withholding (GIT), and Litter Control Fee, including

penalties and interest, and N. Ioakimidis, LLC was assessed

2 The Division's Conference and Appeals Branch employ a conferee who conducts administrative conferences with taxpayers. Clorox Prods. Mfg. Co. v. Director, Div. of Taxation, 24 N.J. Tax 223, 227 n.6 (Tax 2008).

4 A-1978-16T1 $76,506.06 in unpaid SUT and GIT, including penalties and

interest.

After plaintiffs challenged the determination in Tax Court,

the parties' filed their respective motions for summary

judgment. In a comprehensive written opinion, Judge Joshua D.

Novin decided in the Division's favor. He rejected plaintiffs'

arguments that the Division erred in disallowing the POS

statements to determine their gross sales during the audit

periods; that the documents the Division requested were not

statutorily required to be maintained; that the Division had the

burden to analyze the POS system; and that the markon ratio and

methodology employed in making the assessments were flawed and

produced an arbitrary and capricious assessment.

The judge found that because plaintiffs failed to satisfy

N.J.A.C. 18:24-2.4 by preserving sales slips, invoices,

receipts, cash register tapes, and guest checks receipts

corroborating the accuracy of the two POS statements provided,

the Division appropriately determined plaintiffs’ summary

records were inaccurate. The judge cited N.J.S.A. 54:32B-19,

which provides that "if a [tax] return when filed is incorrect

or insufficient, the amount of tax due shall be determined by

the director from such information as may be available. If

necessary, the tax may be estimated on the basis of external

5 A-1978-16T1 indices." He further relied upon Yilmaz, Inc. v. Dir., Div. of

Taxation, 390 N.J. Super. 435, 441 (App. Div. 2007), which held

that the Division's Director was "given broad authority to

determine the tax from any available information and, if

necessary, to estimate the tax from external indices." Hence,

the judge found it suitable that the auditor "turned to

consideration of other evidence to estimate plaintiffs' gross

sales and tax obligations," such as the 3.0 markon ratio; noting

plaintiffs failed to show it "produced an inconsistent or

aberrant result." The judge explained, plaintiffs

have not argued, offered, maintained or demonstrated that at trial that they will or are prepared to offer the testimony of an accountant, auditor, examiner or other expert in the field who has conducted a review or analysis of plaintiffs' business records, POS statements, SUT returns and the auditor's file, and would offer substantive alternate calculations to those of the auditor. Thus, a trial in this matter would seemingly amount to the court's review of [Division's] audit and conference practices on the basis of plaintiffs' unsubstantiated challenges to the auditor's and conferee's final conclusions. [The] standards governing the review of motions for summary judgment do not permit such proceeding.

Plaintiffs appeal arguing:

POINT I

THE LOWER COURT ERRED IN DENYING PLAINTIFFS' SUMMARY JUDGMENT MOTION AND GRANTING DEFENDANT'S CROSS[-]MOTION BY FAILING TO

6 A-1978-16T1 RECOGNIZE THE INHERENT LAWS AND ARBITRARY ASSUMPTIONS IN THE DIRECTOR'S METHODOLOGY AND BY DISREGARDING THE FACT THE DIRECTOR VIOLATED STATUTORY LAW BY DISCOUNTING THE DOCUMENTATION PROVIDED BY PLAINTIFFS[] IN ORDER TO PROPERLY DETERMINE GROSS SALES.

A. The Lower Court failed to recognize the unmistakable inherent flaws and wholly arbitrary assumptions in the State Auditor's markup methodology and calculations.

B. The Lower Court failed to recognize that the Arbitrator Deviated from Statutory Law by Arbitrarily Disregarding the Point of Sale Statements and the Plaintiffs' Accountant's Certification.

POINT II

THE LOWER COURT ERRED IN GRANTING DEFENDANTS' SUMMARY JUDGMENT MOTION BY SUBSTANTIALLY DEVIATING FROM THE BRILL[3] STANDARD SET FORTH BY OUR COURTS WHEN CONSIDERING SUMMARY JUDGMENT APPLICATIONS.

To inform our review of plaintiffs' contentions, we

consider some well-known general standards. When reviewing an

order granting summary judgment, we apply "the same standard

governing the trial court." Oyola v. Xing Lan Liu, 431 N.J.

Super. 493, 497 (App. Div. 2013). A court should grant summary

judgment when the record reveals "no genuine issue as to any

material fact" and "the moving party is entitled to a judgment

or order as a matter of law." R. 4:46-2(c). We accord no

3 Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520 (1995).

7 A-1978-16T1 deference to the trial judge's legal conclusions. Nicholas v.

Mynster, 213 N.J. 463, 478 (2013) (citations omitted). Summary

judgment should be denied when the determination of material

disputed facts depends primarily on credibility evaluations.

Petersen v. Twp. of Raritan, 418 N.J. Super. 125, 132 (App. Div.

2011). Although both parties moved for summary judgment,

because the court granted judgment in favor of the Division, we

consider the facts in a light most favorable to plaintiffs.

Brill, 142 N.J. at 523.

"A taxpayer challenging the [Division]'s determination

bears the burden of proof." UPSCO v. Dir., Div. of Taxation,

430 N.J. Super. 1, 8 (App. Div. 2013) (citing Atl. City Transp.

Co. v. Dir., Div. of Taxation, 12 N.J. 130, 146 (1953)). Those

transactions enumerated by the SUT Act, N.J.S.A. 54:32B-1 to -

55, are "presumed" to be "subject to tax until the contrary is

established, and the burden of proving that any such receipt,

charge or rent is not taxable . . . shall be upon the person

required to collect tax or the customer." N.J.S.A. 54:32B-

12(b). N.J.S.A. 54:32B-3(b) imposes a tax on the "receipts from

every sale . . . of" certain services. These include 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) and (4).

8 A-1978-16T1 Generally, we review "[a] tax court's interpretation of a

statute . . . de novo." Presbyterian Home at Pennington, Inc.

v. Borough of Pennington, 409 N.J. Super. 166, 180 (App. Div.

2009) (citing Twp. of Holmdel v. N.J. Highway Auth., 190 N.J.

74, 86 (2007)). On the other hand, we are mindful that we

extend some deference to the Division's interpretation of the

operative law based on "the Director's expertise, particularly

in specialized and complex areas of the Act," and the Director's

responsibility to interpret the law he is charged with

enforcing. Koch v. Dir., Div. of Taxation, 157 N.J. 1, 8

(1999). "However, this deference is not total, as the courts

remain the final authorities on issues of statutory

construction." Ibid. (citation omitted).

Applying these standards, we conclude plaintiffs' arguments

lack sufficient merit to warrant discussion in a written

opinion, R. 2:11-3(e)(2), and we affirm substantially for the

reasons set forth by Judge Novin in his cogent decision.

Affirmed.

9 A-1978-16T1