SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-4045-97T3
GNOC, CORP. t/a THE GRAND,
Plaintiff-Appellant,
v.
DIRECTOR, DIVISION OF TAXATION,
Defendant-Respondent.
Argued January 24, 2000 - Decided February 25, 2000
Before Judges Petrella, Braithwaite and Coburn.
On appeal from the Tax Court of New Jersey,
whose opinion is reported at
17 N.J. Tax 327
(1998).
Janyce M. Wilson argued the cause for
appellant (Graham, Curtin & Sheridan
attorneys; Ms. Wilson and Kent L. Schwarz, on
the brief).
Marlene G. Brown, Deputy Attorney General,
argued the cause for respondent (John J.
Farmer, Attorney General, attorney; Ms. Brown,
on the brief).
The opinion of the court was delivered by
BRAITHWAITE, J.A.D.
Plaintiff, GNOC, Corp. t/a The Grand ("GNOC"), appeals from a
summary judgment granted by the Tax Court that dismissed its
complaint seeking to set aside the determination of defendant,
Director, Division of Taxation ("Director")See footnote 11. The determination
directed GNOC to pay the State of New Jersey $158,466 in sales and
use taxes pursuant to the New Jersey Sales and Use Tax Act,
N.J.S.A. 54:32B-1 to -29 (the "Act"). This appeal concerns the
applicability of the Act to complimentary alcoholic beverages
provided by GNOC to its patrons at its hotel-casino in Atlantic
City for the taxable period of January 1, 1991 through
September 30, 1994.
On appeal, GNOC contends: (1) a prior agreement between
plaintiff and the Director remains in effect and bars the Director
from taxing the alcoholic beverages given to patrons; 2) the
Director's interpretation of this agreement "tortures both the
language of the agreement" and the Act; (3) the Director deprived
plaintiff of due process "in failing to identify the basis for his
assessment as to complimentary alcoholic beverages;" (4)
"plaintiff's purchase of the alcoholic beverages provided to casino
patrons on a complementary basis" constitutes a non-taxable sale
for resale; and (5) based on the above arguments, plaintiff's
motion for summary judgment should have been granted. We reject
these contentions and affirm.
We need not recount at length the background and facts
relevant to this appeal. They are set forth fully in the Tax
Court's published opinion in a companion case decided on the same
day. See Boardwalk Regency Corp. v. Director, Div. of Taxation,
17 N.J. Tax 331 (Tax 1998), rev'd,
18 N.J. Tax 328 (App. Div. 1999).
This matter has its genesis in the Director's determination
that GNOC owed the State of New Jersey $135,732.40 for sales and
use taxes for providing complimentary alcoholic beverages to its
patrons. The Director notified GNOC of his determination by way of
a written assessment. The assessment did not include a break-down
of the amount due; it merely included the amount of the tax
liability, interest, and the amount credited. By way of
"explanation" of the assessment, the notice included a list of
applicable statutes. The explanation page was titled: "Sales &
Use Tax N.J.S.A. 54:32[B]-1 et. seq." On March 30, 1995, GNOC
submitted a formal protest and request for an administrative
hearing.
The protest was based on a statutorily authorized closing
agreement entered into between the Director and the casino industry
in 1981, and subsequently amended in 1986 and 1988. See N.J.S.A.
54:53-1. The relevant language of the 1981 agreement provides as
follows:
2. No sales tax will be imposed in the
provision of complimentary meals. However, a
use tax pursuant to N.J.S.A. 54:32B-6 will be
imposed upon the "cost" of a meal. For these
purposes, the cost of the meal would be deemed
to be 25" of the amount those meals are sold
to the public by the casino. However, no
sales and/or use tax will be imposed upon the
provision of complimentary liquor. Further,
no sales and/or use tax will be imposed for
any period prior to January 1, 1981.
In 1986, the parties amended their agreement. The relevant
portion of the agreement provides:
2. No sales or use tax will be imposed
in the provision of complimentary meals or
complimentary liquor effective January 1,
1986. For purposes of this amended agreement
"complimentary meals" shall mean any
transaction where the patron is not required
to pay any cash consideration for any portion
of the price (including any possible sales
tax) of food or (non-alcholic) beverage.
3. With respect to issuance of coupons
to be used by bus patrons or others which are
utilized to satisfy a portion of retail price
of the meals consumed by such patrons, sales
tax will be imposed upon the full value of
said meals pursuant to N.J.S.A. 54:32B-2(c);
and said sales tax shall be collected from the
patrons and remitted pursuant to N.J.S.A.
54:32B-12, -14, -17 and -18. For purposes of
this amended agreement the term "coupon" shall
mean any coupon, token or other emolument
which entitles the holder to a discount or
credit on the purchase price of meals or (non
alcholic) beverage but shall not include
coupons or other documents which are accepted
in total satisfaction of the purchase price
(including any possible sales tax) of such
meals or beverage as described in Paragraph 2,
above.
In 1988, the agreement was amended again. The amendment was
to Paragraph 3 of the 1986 agreement and provides:
3. With respect to issuance of coupons
to be used by bus patrons or others, sales tax
will be imposed upon the price charged for a
meal including nonalcoholic beverages, less
the face value of the coupon pursuant to
N.J.S.A. 54:32B-3(c); and said sales tax shall
be collected from the patrons and remitted
pursuant to N.J.S.A. 54:32B-12, -14, -17 and
18. For purposes of this amended agreement
the term 'coupon' shall mean any coupon, token
or other emolument which entitles the holder
to a discount or credit on the purchase price
of meals or non-alcoholic beverage for which
the casino receives no reimbursement.
Essentially, the agreement and its amendments address how the
Director will treat complimentary meals provided by the casino to
its patrons under the Act. In 1981, the parties agreed that a
percentage of the cost that would have been charged to the public
if the complimentary meal had actually been sold would be subject
to a use tax. At the time of the 1986 amendment, fully
complimentary meals were exempt from the Act, but meals for which
a portion of the cost was paid for with casino coupons were subject
to sales tax on the full value of the meals. Thus, the 1986
amendment exempted only fully complimentary meals and alcoholic
beverages from tax. Finally, the 1988 amendment subjected the
"price" of the meal, less the discount provided by the coupon, to
the sales tax. "[T]he 1986 and 1988 agreements abandoned an effort
to collect taxes for fully complimentary meals in exchange for an
agreement by the plaintiff to collect and pay the sales tax for
partially 'comped' meals and [non-alcoholic] beverages." Boardwalk
Regency, supra, 18 N.J. Tax at 333.
In the Tax Court opinion in this case, the judge set forth the
status of sales and use taxes with respect to the sale of alcoholic
beverages at the time of the agreement, and after July 1, 1990. He
observed:
With regard to alcoholic beverages, the
sale of such beverages by a retailer to a
customer was specifically exempted from the
six percent "retail" sales tax of N.J.S.A.
54:32B-3 beginning July 1, 1980 through July
1, 1990. See N.J.S.A. 54:32B-8.34, repealed
by L. 1990, C. 40 § 11. Instead, alcoholic
beverages were taxed only under the Alcoholic
Beverage Wholesale Sales Tax Act, N.J.S.A.
54:32C-1 et seq., at 7.3 percent of the
wholesale price charged to the retailer. See
N.J.S.A. 54:32C-3.
In July 1990, N.J.S.A. 54:32B-8.34, the
exemption of alcoholic beverages from the six
percent "retail" sales tax, was repealed by
the Legislature. At the same time, the
Legislature repealed the Alcoholic Beverage
Wholesale Sales Tax Act. Thus, since July 1,
1990, the receipts from any "retail sale" of
alcoholic beverages have been specifically
subject to New Jersey's six percent sales tax
under the Act. The taxable periods involved
in these matters are all after July 1, 1990.
[Trump Plaza, supra, 17 N.J. Tax at 329-30.]
Because of the change in the tax law, specifically the repeal
of N.J.S.A. 54:32B-8.34, the exemption for retail sales of alcohol,
the Director took the position that the agreement with respect to
complimentary alcoholic beverages was "moot." The decision to
render this portion of the agreement moot was based on the
following language of the agreement:
[I]f legislation is enacted which provides for
specific taxability or exemption, the
legislation will be held to supersede this
Agreement and the Division of Taxation and the
casino-hotels will no longer be bound by the
Agreement for those taxable periods subject to
the new legislation.
The above clause was required to be in the parties' agreement
because of the language of N.J.S.A. 54:53-4(b), which in relevant
part provides that:
[A] closing agreement with respect to a
taxable period ending subsequent to the date
of the agreement is subject to any change in,
or modification of the law enacted subsequent
to the date of such agreement and made
applicable to such taxable period, and each
closing agreement shall so state.
[Ibid.]
Because the Director concluded that the parties' agreement
was superseded by the change in the tax law, he assessed GNOC for
the complimentary alcoholic beverages. On October 2, 1996, GNOC
filed a complaint in the Tax Court, contesting the tax assessment,
and seeking to abate the assessment in its entirety. By this
time, the assessment, including interest, totaled $158,466.
The counts of the complaint pertinent to this appeal are
counts one and five. Count one sought abatement of the Director's
final determination on the basis of the agreement. Count five
demanded abatement of the taxes because the Director did not
satisfy the notice requirements of N.J.S.A. 54:50-6.
On May 1, 1997, the parties filed a joint partial stipulation
of facts. Thereafter, the parties cross-moved for summary
judgment, and on January 21, 1998, the Tax Court granted summary
judgment to the Director. See Trump Plaza, supra, 17 N.J. Tax at
330.
In deciding this matter, the Tax Court judge concluded that
the parties' agreements "have absolutely no bearing on these
matters with regard to alcoholic beverages." Trump Plaza, supra,
17 N.J. Tax at 330. He determined that "the agreements merely set
forth the law at the time with respect to the taxation of
alcohol[ic] beverages." Ibid. Stated another way, the agreement
reiterated that because alcoholic beverages were exempt from sales
and use taxes when the agreement was made, no liability attached to
GNOC when it provided complimentary alcoholic beverages to its
patrons.
The judge went on to find that "[t]he Director is not taxing the
'provision' of complimentary alcoholic beverages by the casinos to
their patrons. The Director has only assessed the tax owed on the
purchase of the alcoholic beverages by the casinos from their
suppliers." Ibid.
Although we agree with the Tax Court's decision to grant
summary judgment to the Director, we disagree that the agreements
have no bearing on this matter. "[A]n order or judgment will be
affirmed on appeal if it is correct, even though the judge gave the
wrong reasons for it." Ellison v. Evergreen Cemetery,
266 N.J.
Super. 74, 78 (App. Div. 1993) (citing Isko v. Planning Bd.,
51 N.J. 162, 175 (1968)).
We are satisfied that the resolution of this appeal is
contingent on the interpretation of the parties' agreement. GNOC
acknowledges that the agreement contains language, required by
N.J.S.A. 54:53-4(b), which provides that subsequent changes in
legislation shall supersede the parties' agreement. It argues,
however, that the repeal of the sales and use tax exemption on
alcoholic beverages does not satisfy the requirement to supersede
the agreement.
As noted above, the language of the agreement provides:
[I]f legislation is enacted which provides for
specific taxability or exemption, the
legislation will be held to supersede this
Agreement and the Division of Taxation and the
casino-hotels will no longer be bound by the
Agreement for those taxable periods subject to
the new legislation.
GNOC argues that the word "specific" in the clause requires
that to supersede the agreement, subsequent legislation must impose
a sales and use tax on complimentary food and beverages. Because
the legislation only repeals the exemption from the tax on
alcoholic beverages, and not specifically on complimentary items,
GNOC asserts that the legislation does not nullify the agreement.
The Director takes the position that the legislation repealing the
exemption for alcoholic beverages does override the agreement.
We agree with the Director. We base our support of his
decision, in part, on the statute authorizing the Director to enter
into closing agreements with taxpayers. N.J.S.A. 54:53-4(b)
provides in its entirety as follows:
In any suit, action or proceeding, such
agreement, abatement, refund or credit made in
accordance therewith, shall not be annulled,
modified, set aside or disregarded; provided,
however, a closing agreement with respect to a
taxable period ending subsequent to the date
of the agreement is subject to any change in,
or modification of the law enacted subsequent
to the date of such agreement and made
applicable to such taxable period, and each
closing agreement shall so state.
[Ibid.]
This provision is "part of '[a]n act to establish the authority of
the Director of the Division of Taxation to enter into closing
agreements and compromises with taxpayers within certain
limitations.'" Boardwalk Regency, supra, 18 N.J. Tax at 332.
(citations omitted) (alteration in original). Although the
Director has broad discretion to enter into final and conclusive
agreements with taxpayers, he or she cannot enter into an agreement
that would nullify and render meaningless future legislative
enactments. See id. at 332-33. Adopting GNOC's position would
have the effect of rendering the Legislature's repeal of the
exemption for sales and use taxes on alcoholic beverages
meaningless.
The purpose of the statute authorizing closing agreements and
compromises, N.J.S.A. 54:53-1 to -15, is to permit the Director
broad discretion to bring about permanent and conclusive closure to
an issue of taxpayer liability. See N.J.S.A. 54:53-1, -4. There
are, however, limitations placed on the Director's discretion. One
limitation is that the Director cannot enter into a closing
agreement that precludes the effectiveness of subsequent
legislation that would otherwise impact the closing agreement. The
Director cannot enter into a closing agreement that exceeds the
express or implied authority granted by the Legislature. See
generally Public Serv. Elec. & Gas Co. v. New Jersey Dep't of
Envtl. Protection,
101 N.J. 95, 108 (1985); Gloucester County
Welfare Bd. v. New Jersey Civil Serv. Comm'n,
93 N.J. 384, 397-99
(1983).
Although we conclude that the Director cannot enter into a
closing agreement that precludes the effectiveness of subsequent
legislation, we are also satisfied that the Director did not exceed
his authority in entering into this particular agreement because
GNOC's interpretation of the agreement is incorrect. GNOC's
argument, as noted earlier, is premised on the word "specific" in
the subsequent legislation provision of the agreement.
Because general principles of contract interpretation apply to
the agreement, the word "specific" should be considered in the
context of the agreement, taking into account the agreement's
purpose, the surrounding circumstances and the objective the
parties sought to obtain. See Tessmar v. Grosner,
23 N.J. 193, 201
(1957); Marchak v. Claridge Commons, Inc.,
134 N.J. 275, 282
(1993). In construing the meaning of this imprecise term, "'[t]he
court's function is to assess what was written in the context of
the circumstances under which it was written, and accord to
language a rational meaning in keeping with the express general
purpose.'" Acme Markets, Inc. v. Wharton Hardware & Supply Corp.,
890 F. Supp. 1230, 1243 (D.N.J. 1995) (quoting Regan v. Regan,
246 N.J. Super. 473, 478 (Ch. Div. 1990)). The court must also
construe unclear contractual language "in accord with justice and
common sense." Krosnowski v. Krosnowski,
22 N.J. 376, 387 (1956)
(citation omitted); Ballantyne House Assoc. v. City of Newark,
269 N.J. Super. 322, 333 (App. Div. 1993). The writing must also be
given a reasonable construction. Coolidge & Sickler v. Regn,
7 N.J. 93, 99 (1951). Thus, the interpretation of the clause should
be that which a reasonable, intelligent person would accord to it.
See Corn Exchange Nat'l Bank & Trust Co. v. Taubel,
113 N.J.L. 605,
609 (1934).
Here, the parties' joint stipulation of facts stated that the
1981 agreement provided that "[n]o sales and/or use tax will be
imposed upon the provision of complimentary liquor. Further, no
sales or use tax will be imposed for any period prior to January 1,
1981." Although the above is the parties' stipulation, it is taken
out of context from paragraph two of the agreement. Paragraph two
is not in dispute; it provides as follows:
No sales tax will be imposed in the provision
of complimentary meals. However, a use tax
pursuant to N.J.S.A. 54:32B-6 will be imposed
upon the "cost" of a meal. For these
purposes, the cost of the meal would be deemed
to be 25" of the amount these meals are sold
to the public by the casino. However, no
sales and/or use tax will be imposed upon the
provision of complimentary liquor. Further,
no sales and/or use tax will be imposed for
any period prior to January 1, 1981.
[(emphasis added).]
GNOC's presentation isolates the language in the second half
of paragraph two and completely disregards the word "however."
"Words and phrases are not to be isolated but related to the
context and the contractual scheme as a whole, and given the
meaning that comports with the probable intent and purpose . . . ."
Newark Publishers' Ass'n. v. Newark Typographical Union No. 108,
22 N.J. 419, 426 (1956). The word "however" is "used to indicate a
reservation after something conceded." Webster's Third New
International Dictionary (1971). In paragraph two of the
agreement, "however" is a word of relation that refers to the
antecedent language concerning the cost of the meal. Cf. State in
the Interest of S.Z.,
177 N.J. Super. 32, 35 (App. Div. 1981)
(citations omitted) (reiterating the principle that "where no
contrary intention appears 'referential and qualifying phrases
refer solely to the last antedecent.'").
When the language exempting sales and use taxes is considered
with the rest of the language of the paragraph, particularly the
sentence that begins with "however" and follows the definition of
the cost of the meal, the parties' intention becomes clear. In
1981, the parties agreed to exempt GNOC from sales tax on
complimentary meals, but also agreed that a use tax would be
imposed on twenty-five percent of the cost of the meal to the
public. Without clarification, a complimentary meal could very
easily have been interpreted to include complimentary alcoholic
beverages. However, even though a percentage of the cost of the
meal would be subject to the use tax, the law in effect at the time
of the agreement exempted alcoholic beverages from the sales and
use tax. We are satisfied that the purpose of the language
exempting complimentary alcoholic beverages was to avoid having the
cost of such beverages included in the twenty-five percent cost
that formed the basis for the imposition of the use tax on
complimentary meals. Our review of the subsequent amendments to
the agreement does not cause us to conclude that any language
changes agreed to by the parties altered this original
understanding.
Because we are satisfied that the provision exempting
complimentary alcoholic beverages was meant to clarify that they
could not be taxed pursuant to the parties' formula for taxing
complimentary meals, we conclude that the word "specific" does not
compel a reading that subsequent legislation must address the
taxation of complimentary food and beverages. We therefore hold
that the statute repealing the exemption for sales and use taxes on
alcoholic beverages supersedes the parties' agreement.
Although we have concluded that the alcoholic beverages portion of the parties' agreement is superseded by the change in the law, we note that the Director's interpretation of the word "provision" is unreasonable. With respect to the "provision" of complimentary alcoholic beverages by the casinos to their patrons, the parties' agreement would preclude a tax on the purchase of the same alcoholic beverages by the casinos that they provided to their patrons on a complimentary basis. The Director urges that exempting plaintiff from taxability for the "provision" of complimentary alcoholic beverages does not release plaintiff from a tax obligation for the purchase of the alcohol from the distributor. We previously disposed of this issue in Boardwalk Regency, supra, in which we noted:
We agree that there cannot be both a sales tax on the purchase and a use tax on the enjoyment upon abandonment of the intention to sell an item bought for purposes of resale, and that an agreement as to one had to constitute a settlement of the taxability of both the purchase and use of the item. In other words, because of the interrelationship between the purchase and use of the same item, a settlement as to the sales tax must resolve any claim regarding the use tax with respect to that item, and vice-versa.
[18 N.J. Tax at 334.] Therefore, we agree with GNOC insofar as the Director's interpretation of the word "provision" tortures the language of the agreement. This conclusion, however, does not affect the ultimate outcome of the appeal. The ultimate outcome of the appeal is governed by the parties' agreement, which is now superseded by the legislation repealing the exemption on alcoholic beverages.
GNOC also raises due process issues, claiming that the Director's notice of assessment was wholly inadequate under N.J.S.A. 54:50-6, and that the Director's introduction of a novel legal theory at the hearing before the Tax Court deprived it of due process. N.J.S.A. 54:50-6(c) provides:
An assessment notice . . . shall include a statement of the reason for the assessment sufficient to inform a reasonable lay person of the statutory requirements which in the opinion of the director require the assessment, the actions or omissions of the taxpayer which require the assessment, or the nature of the insufficient documentary evidence, if any, which has prompted the assessment; including:
(1) in the case of an underpayment or failure of payment, a statement of the corresponding alleged correct amount and correct date of payment . . . .
[Ibid.]
Here, the Director's assessment notice to GNOC did not include a statement of reasons for the assessment.
"The touchstone of due process is fair notice and an opportunity to be heard." Towne Oaks at South Bound Brook v. Borough of South Bound Brook, 326 N.J. Super. 99, 102 (App. Div. 1999). Due process does not require the imposition of inflexible rules. See, e.g., Nicoletta v. North Jersey Dist. Water Supply Comm'n, 77 N.J. 145, 164-66 (1978). The Director argues that because GNOC was afforded the opportunity of review in the Tax Court, the taxpayer has been afforded adequate due process. See New York, Susquehanna and W. R.R. Co. v. Vermeulen, 44 N.J. 491, 501-02 (1965). We agree.
The Tax Court judge granted GNOC discovery to address its due process claims. We note that GNOC's protest letter specifically addressed the issue of complimentary alcoholic beverages and sales and use taxes. It can therefore be inferred that GNOC received adequate notice to comprehend the basis of the assessment. We cannot conclude on this record that GNOC's due process rights were violated.
Finally, GNOC claims that even if the agreement is no longer in effect, the complimentary provision of alcoholic beverages to patrons constitutes a non-taxable sale for resale. We disagree. We previously resolved this issue with respect to non-alcoholic beverages. See Boardwalk Regency, supra, 18 N.J. Tax at 330. We agreed with the Tax Court judge who concluded "that the complimentary providing of non-alcoholic beverages to casino patrons . . . 'is a transfer for no consideration, or at least for legally insufficient consideration, and does not constitute a "resale" of the beverages.'" Ibid. (citation omitted). Because there was no resale, "'the sale-for-resale exemption disappeared, and [the casino] became, for tax purposes, the consumer or 'end user' of the nonalcoholic carbonated beverages' and, thus, . . . 'a use tax became due on the beverages [the casino] purchased under the sale-for-resale certificates.'" Ibid. The fact that here we are dealing with alcoholic beverages does not lead to a different result. GNOC is responsible for a use tax on the alcoholic beverages purchased under the sale-for-resale certificates and provided to patrons on a complimentary basis.
We conclude that summary judgment was properly granted to the Director because the agreement regarding alcoholic beverages was superseded by the legislative change. Further, the casino's complimentary provision of alcoholic beverages did not constitute a resale for tax purposes, and GNOC was not deprived of due process.
Affirmed.
Footnote: 1 1 The Tax Court decision is published as Trump Plaza Assoc. v. Director, Div. of Taxation, 17 N.J. Tax 327 (Tax 1998).