On appeal from the Division of Tax Appeals.
Michels, Ard and Furman. The opinion of the court was delivered by Michels, P.J.A.D.
[176 NJSuper Page 124] Petitioner Anthony Domenick (Domenick) appeals from a final decision of the Division of Tax Appeals (Division), sustaining the denial by respondent Director of the Division (Director) of a claim for partial refund of a tax paid under the New Jersey Gross Income Tax Act, N.J.S.A. 54A:1-1 et seq., L. 1976, c. 47, § 54A:1-1 et seq. , for the year 1976. Domenick sought to exclude from gross income taxes, under N.J.S.A. 54A:5-1(a), a portion of the commissions he received from employment as an outside wine and liquor salesman. The portion he sought to exclude represented the amount of expenses he incurred in his sales activities which were not reimbursed by his employer. He claimed that because self-employed wine and liquor salesmen can exclude all selling expenses in the computation of their "net
profits from business" taxable under N.J.S.A. 54A:5-1(b), he should also be allowed a like exclusion under N.J.S.A. 54A:5-1(a) to avoid what he asserted to be dissimilar taxation of similarly situated persons, forbidden by equal protection guarantees. Thus, at issue is whether the New Jersey Gross Income Tax Act as applied to Domenick is violative of his constitutional guarantee to equal protection under the law.
The parties have stipulated the facts. Domenick is a wine and liquor salesman employed by a liquor wholesaler in the State of New Jersey. He, as well as other wine and liquor salesmen employed by various liquor wholesalers in the State, are members of Local 19, Distillery, Rectifying, Wine and Allied International Union of America, A.F.L.-C.I.O. (Local 19), and are covered by a collective bargaining agreement (agreement) between Local 19 and the New Jersey Wine and Spirit Wholesalers Association. Domenick is employed as an outside salesman, soliciting sales on a full-time basis for his employer, away from his employer's place of business. He makes his own schedule, but usually calls upon all accounts weekly. He determines his own hours of work. He does not have offices at his employer's premises, although he does attend sales meetings there every two weeks. Domenick does not make sales reports, but merely submits orders. His employer furnishes him with price lists and order pads. He uses his own car for soliciting and occasionally for delivering wines and liquors. Domenick chooses his own territory in which to operate, except that under the terms of the agreement he may not call upon an account which is currently served by another salesman employed by his employer. The agreement specifically provides for the rate of commissions and expenses which are to be paid all employed salesmen. With the exception of the partial reimbursement for expenses provided for in the agreement, Domenick is paid strictly on a commission basis and he must pay for all his business costs and expenses, such as gas, entertainment, promotional expenses and permit fees required by the State Division of Alcoholic Beverage Control. The agreement also provides that Domenick, as well as all
employed salesmen, are entitled to receive a draw against commissions and are under no liability "for any deficiencies in their guaranteed minimum drawing" upon separation from employment. Insofar as reimbursement of expenses is concerned, the agreement provides:
6:02. The Employer shall pay to all covered salesmen who have been assigned to a territory partial reimbursement for expenses in the amount of One Hundred, Fifty ($150.00) Dollars per month. Effective October 1, 1976, the said amount shall be increased to Two Hundred ($200.00) Dollars per month. There shall be no reduction in this amount during the regular vacation shutdown as is provided for under ARTICLE XV, section 15:01 and during the third week of vacation referred to in sections 15:04 and 15:05 of this Agreement. Said expenses shall not be paid, however, to any salesmen while they are on personal leave or layoff. Salesmen who are out on approved sick leave will be paid said expenses for the first thirty (30) days of such approved sick leave.
6:03. Any salesman now receiving more expense monies or a higher rate of commission or other benefits not herein provided for, shall continue to receive the same without diminution or reduction.
The agreement does not require that Domenick, or any other salesman, submit proof of expenses in any amount as a precondition to receiving "partial reimbursement for expenses."
In addition to the payment of commissions and partial reimbursement of expenses provided by the agreement, Domenick's employer pays for his benefit and protection, Social Security and withholding taxes and workers' compensation and unemployment compensation insurance premiums. His employer also makes contributions to the Wine and Liquor Salesmen of New Jersey Retirement Fund to provide him pension benefits, and to the Wine and Liquor Salesmen of New Jersey Welfare Fund to provide him and his family life insurance, Blue Cross, Blue Shield and major medical insurance.
Domenick filed with the Director a claim for a refund of $38 of gross income tax paid for the taxable period July 1, 1976 to December 31, 1976. He sought to exclude $1,900 in selling expenses from the commissions he received during that period. The Director denied his claim, holding that N.J.S.A. 54A:5-1(a) subjects to taxation the full amount of commissions received by persons employed as ...