Solvay Specialty Polymers, LLC v. Director, Division of Taxation ( 2024 )

NOT FOR PUBLICATION WITHOUT THE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 NOS. A-1165-22
A-1166-22
SOLVAY SPECIALTY
POLYMERS, LLC,
Plaintiff-Appellant,
v.
DIRECTOR, DIVISION OF
TAXATION,
Defendant-Respondent,
__________________________
SOLVAY SOLEXIS, INC.,
Plaintiff-Appellant,
v.
DIRECTOR, DIVISION OF
TAXATION,
Defendant-Respondent.
__________________________
Submitted February 5, 2024 — Decided February 14, 2024
Before Judges Sabatino and Mawla.
On appeal from the Tax Court of New Jersey, Docket
Nos. 9365-2019 and 9366-2019.
Inglesino, Webster, Wyciskala & Taylor, LLC,
attorneys for appellants (James Esposito and Joshua
Sherwood Veith (Ryan Law Firm, PLLC), on the brief).
Matthew J. Platkin, Attorney General, attorney for
respondent (Sara M. Gregory, Assistant Attorney
General, of counsel; Heather Lynn Anderson, Deputy
Attorney General, on the briefs).
PER CURIAM
Plaintiffs Solvay Solexis, Inc. (Solexis) in A-1166-22, and Solvay
Specialty Polymers, LLC (Polymers) in A-1165-22, appeal from a November 2,
2022 order and final judgment of the Tax Court, which granted them a partial
refund of certain sales and use taxes (SUT) paid to the Division of Taxation
(Division).1 The Tax Court also denied plaintiffs' challenge to N.J.A.C. 18:2-
5.8(d)(3) and (4), which requires taxpayers seeking an SUT refund provide
certain proofs to the Division pursuant to N.J.S.A. 54:32B-20(a) of the Sales
and Use Tax Act (SUT Act).2 We affirm.
1
We consolidate these appeals for purposes of this opinion.
2
N.J.S.A. 54:32B-1 to -55.
A-1165-22
2
In July 2015, plaintiffs filed refund claims with the Division for certain
SUTs they paid for manufacturing equipment, repair parts, and supplies used in
the production of chemicals. Solexis claimed a refund of $614,776.16—for the
period of July 1, 2011 through October 31, 2012. Polymers claimed a refund of
$938,622.82—for the period of January 1, 2012 through December 31, 2013.
Pursuant to its regulations, the Division required plaintiffs to complete
Form A-3730 and provide a detailed explanation of the basis for the claimed
SUT refunds, as well as supporting documentation to substantiate the claims.
Plaintiffs provided the following documentation for the applicable refund
periods: Systems, Applications, and Products data, Electronic Fund Transfer
(EFT) Debit reports with Automated Clearing House (ACH) data, a sample of
vendor confirmations and invoices stating sales tax was paid on purchases, and
a general ledger containing reference numbers to bank statements to trace
payments, and bank statements.
The Division denied plaintiffs' request for a refund because it could not
determine that sales tax was actually paid to vendors on the transactions, or that
use tax was accrued and remitted to the Division on the transactions if sales tax
was not paid. Plaintiffs filed administrative protests. Solexis protested the
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denial in the amount of $577,157.77 and Polymers in the amount of
$901,992.51.
The Division conferee reviewed plaintiffs' submissions and certified that
she accepted the proof of sales tax paid in all instances except: (1) where a
vendor invoice showed a lump sum charge, which did not separate or identify
taxable and non-taxable charges; (2) where the vendor invoice showed no sales
tax was charged; or (3) where plaintiffs could not show, in an ACH or bank
statement, that the invoice was paid. The conferee certified "no line items were
denied simply because [p]laintiffs did not produce a bank statement or cancelled
check." When the conferee was able to trace a vendor invoice to a payment on
any of plaintiffs' financial documents, the Division accepted the document as
proof of payment and granted the refund. However, most of plaintiffs' refund
claims were denied because the Division could not determine what SUT was
remitted to it.
The conferee explained the problem as follows:
Plaintiffs accrued use tax on some items, and then took
"credits" against the use tax accrued on some items and
remitted the rest to [the Division] as use tax. However,
[p]laintiffs could not reconcile the self-help credits they
allegedly took against the total use tax accrued and the
returns filed. That is, [p]laintiffs could not provide any
detail on how they calculated the credits. Therefore,
[the Division] could not determine if the line items
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included in the refund claims were already credited
against the use tax remitted. Plaintiffs admitted they
could not determine what line items were included in
the credits and, despite my numerous requests, never
provided any information on how the credits were
calculated.
Solexis's documentation showed it took a credit of $544,470.85 against a
total accrued use tax of $987,227.90 but could only substantiate $172,099.76 of
the credits. Therefore, the conferee concluded Solexis should have paid
$815,128.14 in use tax ($987,227.90 - $172,099.76 = $815,128.14). However,
Solexis had only paid $442,757.10 and "could not document or explain [the]
difference."
Likewise, Polymers accrued use tax of $1,494,221.28, took credits of
$656,583.24, and could only substantiate $470,107.10 of the credits. The
conferee concluded Polymers should have paid $1,024,114.18, ($1,494,221.28 -
$470,107.10 = $1,024,114.18). Instead, Polymers paid $837,637.88, leaving
$186,476.30 that it could not document or explain.
On May 19, 2019, the Division issued its final determinations on both
protests. It granted Solexis's request for a refund of $162,059.02 in use tax
overpayments, and $3,659.09 in sales tax overpayments and offset the refund
against $372,317.04 in use tax Solexis had accrued but did not pay. The
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Division granted Polymers a $263,061.89 refund and offset the refund by
$186,476.30 in unpaid tax.
Solexis and Polymers each filed a complaint with the Tax Court,
challenging these final determinations. They argued they submitted sufficient
proofs of payment, challenged the validity of N.J.A.C. 18:2-5.8(d)(3) and (4),
and alleged certain purchases were exempt from SUTs. Each party moved for
summary judgment. The Tax Court issued a detailed written opinion denying
plaintiffs' motion and granting the Division's cross-motion on January 19, 2022.
The court rejected plaintiffs' challenge to N.J.A.C. 18:2-5.8(d), which
they claimed added language to, or contradicted N.J.S.A. 54:32B-20(a), and thus
was arbitrary and capricious. Regarding the Division's decision to offset
plaintiffs' refund against use tax credits, the court held the Division could not
"formally assess[] additional use tax" outside of the statute of limitations
deadline in N.J.S.A. 54:32B-27. The court rejected the Division's assertion the
offset did not constitute an additional assessment, holding "the allowance of an
offset is tantamount to a reopening and audit of closed [tax] years." Allowing
the collection of additional tax for years closed without an audit would conflict
with N.J.S.A. 54:32B-27 and 54:49-6 and would "dissuade taxpayers from
requesting a refund." Accordingly, the court held the Division properly denied
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the refund, but could not offset the use tax credit based on an untimely additional
use tax assessment.
The court found the regulations were not arbitrary or capricious because
"the Legislature intended to grant the Director [of the Division of Taxation]
rulemaking deference" by enacting N.J.S.A. 54:32B-20(a). The regulations did
not contradict the statute by impermissibly limiting the documentation taxpayers
can provide in seeking a refund because the regulations were structural
guidelines and subject to review by the court.
I.
On appeal, plaintiffs argue they presented reliable evidence of the SUTs
remitted to the Division, and the only issue was the evidence did not conform to
the specific type of evidence required by the regulations. They claim N.J.A.C.
18:2-5.8(d)(3) works to limit the type of proofs the Division will accept to
canceled checks or bank statements and grants the Division discretion to decide
whether it will accept alternate forms of proof, leaving taxpayers with no
recourse if the Division rejects otherwise valid proofs.
Plaintiffs claim N.J.A.C. 18:2-5.8(d)(4)'s requirement that refund claims
"with [twenty-five] or more separate transactions" include a spreadsheet with
specific identification information does not conform to modern business
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practices, which involve electronic purchases that are automatically recorded
using resource planning software applications. They assert most businesses
today do not pay vendors by check, and instead use EFT.
Plaintiffs assert N.J.S.A. 54:32B-20(a) does not authorize the Division to
limit the documentation taxpayers can provide when they apply for a refund.
Moreover, the Division exceeded the statute and its legislatively delegated
authority because the regulations contradict N.J.S.A. 54:48-3, which requires it
to "provide . . . a uniform procedure to be followed by taxpayers in relation to
any state taxes and to afford uniform remedies and procedures . . . ."
Plaintiffs contend the regulations are arbitrary and capricious because
they unreasonably "restrict taxpayers' ability to prove that tax was erroneously
collected or paid." They point to N.J.A.C. 18:2-5.8(d)(3)(i), which requires that
Form A-3730 "must be filed with documents, such as invoices, receipts, proof
of payment of tax, and exemption certificates . . . ," and argue the regulation's
use of the word "must" is unduly restrictive. They note other mandatory
language in N.J.A.C. 18:2-5.8(d)(3)(iii)(1) that "[p]roof of sales tax remitted to
sellers is required and the Division will accept copies of canceled checks." They
also point to N.J.A.C. 18:2-5.8(d)(4), which states: "Refund claims of sales and
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use tax with [twenty-five] or more separate transactions or credit memoranda
must be filed with a computer spreadsheet."
Plaintiffs argue the requirement that a taxpayer provide a cancelled check
or bank statement—even if the taxpayer paid electronically—is arbitrary and
capricious. They assert the statute is more expansive than the regulations and
does not prevent the Division from reviewing a particular category of documents
to determine refund eligibility. Therefore, N.J.A.C. 18:2-5.8(d)(3) and (4) are
not necessary to effectuate the statute because taxpayers already bear a high
burden when they seek a refund, and the regulations make the burden heavier.
"An appellate court accords a highly deferential standard of review to tax
court decisions." N.J. Tpk. Auth. v. Twp. of Monroe, 30 N.J. Tax 313, 318
(App. Div. 2017). We "will not disturb a tax court's findings 'unless they are
plainly arbitrary or there is a lack of substantial evidence to support them'
because '[t]he judges presiding in the Tax Court have special expertise.'" Ibid.(quoting Glenpointe Assocs. v. Teaneck, 241 N.J. Super. 37, 46 (App. Div.
1990)). However, we review a tax court's conclusions of law de novo. Ibid.(citing Toll Bros. v. Twp. of W. Windsor, 173 N.J. 502, 549 (2002)).
II.
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The Legislature enacted the SUT Act "to provide as far as feasible a
uniform procedure to be followed by taxpayers in relation to any state taxes and
to afford uniform remedies and procedures which may be resorted to by the state
in the collection of any of its taxes." N.J.S.A. 54:48-3. To that end, N.J.S.A.
54:32B-20(a) empowers the Director to pay tax refunds on application of a
taxpayer provided "the person shall first establish to the satisfaction of the
[D]irector, under such regulations as the [D]irector may prescribe, that the
person has repaid to the customer the amount for which the application for
refund is made."
N.J.S.A. 54:49-14(a) states: "Any taxpayer . . . may file with the
[D]irector a claim under oath for refund, in such form as the [D]irector may
prescribe . . . ." N.J.S.A. 54:32B-24 provides in pertinent part:
[T]he [D]irector . . . is hereby authorized and
empowered . . . [t]o make, adopt and amend rules and
regulations appropriate to the carrying out of this act
and the purposes thereof . . . [and t]o require any person
required to collect tax to keep detailed records of all
receipts, amusement charges, or rents received, charged
or accrued, including those claimed to be nontaxable,
and also of the nature, type, value and amount of all
purchases, sales, services rendered, admissions,
occupancies, names and addresses of customers, and
other facts relevant in determining the amount of tax
due and to furnish such information upon request to the
[D]irector . . . .
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It is well-established "the [L]egislature may delegate to an administrative
agency the authority to promulgate rules and regulations interpreting and
implementing a statute . . . ." T.H. v. Div. of Developmental Disabilities, 189
N.J. 478, 490 (2007). However, an administrative agency's power to promulgate
regulations "may not, under the guise of interpretation, extend a statute to give
it a greater effect than its language permits." GE Solid State, Inc. v. Dir., Div.
of Tax'n, 132 N.J. 298, 306 (1993) (citing Kingsley v. Hawthorne Fabrics Inc.,
41 N.J. 521, 528 (1964)). Regulations that "flout the statutory language and
undermine the intent of the Legislature" are invalid. Ibid.Here, as the Tax Court aptly noted, the governing statute "utilizes
discretionary language and purposefully lacks any restrictive terminology."
Deriving from the statute's broad language, the Division promulgated N.J.A.C.
18:2-5.8(d)(3), which requires "[r]efund claims of sales and use tax must include
documentation of all transactions to substantiate the tangible personal property
or service that is the subject of the refund claim and the amount requested." As
a result, taxpayers must file form A-3730 and include "documents, such as
invoices, receipts, proof of payment of tax, and exemption certificates."
N.J.A.C. 18:2-5.8(d)(3)(i). The portion of the regulation plaintiffs object to
states:
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Proof of sales tax remitted to sellers is required
and the Division will accept copies of canceled checks.
If payment was made electronically, the Division will
accept copies of bank statements with an itemization of
all the transactions that make up the electronic
payment. A request for use of an alternative proof of
payment must be requested in writing to the [SUT]
[r]efund [s]ection and written approval received by the
claimant prior to submission of such alternative proof
of tax payment in support of the refund claim. Any
approved alternate proof of payment must provide a
trail between the documents presented by use of
notation, highlighting, or other identification of the
particular matching transactions.
[N.J.A.C. 18:2-5.8(d)(3)(iii)(1).]
Additionally, plaintiffs object to N.J.A.C. 18:2-5.8(d)(4), which states:
Refund claims of sales and use tax with [twenty-
five] or more separate transactions or credit memoranda
must be filed with a computer spreadsheet. A computer
spreadsheet is a computer program that arranges
numerical and textual data into a table of rows and
columns. The computer spreadsheet must display
information for each transaction that is included as the
subject of the refund claim.
We reject plaintiffs' arguments these regulations should be invalidated
because they do not comport with modern business practices or promote uniform
remedies and procedures for refunds required by N.J.S.A. 54:48-3, and constrict
the legislative intent behind N.J.S.A. 54:32B-20(a). As the Tax Court found,
N.J.S.A. 54:32B-20(a) "is silent as to any documentation requirements and
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leaves the Director with the power to address this [issue]. Therefore, the
[regulations] do not contradict" the statute. As the conferee noted and the Tax
Court correctly found, the "regulations . . . provide taxpayers with a structured
procedure for SUT refunds[,] . . . lay[ing] out what documentation is acceptable
and how to prove payment of remitted SUT." Contrary to plaintiffs' arguments,
the regulations are flexible and do not work against the statute. They do not
limit taxpayer proofs to canceled checks. The regulations expressly permit a
taxpayer to submit "alternative proof."
Our Supreme Court has stated there are instances where "literalism must
be avoided because '[t]here is no surer way to misread any document than to
read it literally.'" McNeil v. Legis. Apportionment Comm'n, 177 N.J. 364, 374
(2003) (quoting Guiseppi v. Walling, 144 F.2d 608, 624 (2d Cir.1944) (Hand,
J., concurring), aff'd sub nom., Gemsco, Inc. v. Walling, 324 U.S. 244 (1945)).
Plaintiffs read the regulations in an overly literal manner and ignore the meaning
of their plain language.
Although plaintiffs aver this dispute is about unlawful regulations, a
review of the record shows the total refunds were denied because of the
insufficiency of the proofs presented. As the conferee noted, plaintiffs' proofs
"failed to reconcile its use tax accruals to its use tax remittances." This was
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essential for the Division to understand "what items are included in the credits
[p]laintiffs applied to calculate the reported use tax due." Without the
reconciliation the Division could not "determine whether the line items for
which [p]laintiffs s[ought] a refund were already included in the credits against
tax remitted."
The Division's response to the proofs plaintiffs submitted not only shows
where plaintiffs fell short but reinforces our conclusion the Division neither
limited the types of proofs plaintiff could submit, nor violated the Legislature's
directive in N.J.S.A. 54:48-3 to afford a ready means for taxpayers to obtain
refunds. The Division's response was neither a mistake of law or fact, and the
Tax Court's conclusion plaintiffs failed to show the regulations were
unreasonable, arbitrary, or capricious was sound. To the extent we have not
addressed an argument raised on appeal it is because it lacks sufficient merit to
warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
Affirmed in A-1165-22 and A-1166-22.
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