The opinion of the court was delivered by: Small
Black Whale, Inc., (the "Taxpayer") appeals from the October 26, 1992, determination of the Director of the New Jersey Division of Taxation (the "Director") that the Taxpayer was liable for $41,539.01 plus interest in New Jersey Sales and Use Tax (N.J.S.A. 54:32B-1 to -29) with respect to its use in New Jersey of a fishing and passenger boat, Black Whale III. Additionally, or in the alternative, the Taxpayer seeks a refund of $20,160.49 sales and use tax paid in 1990 with respect to the use in New Jersey of a similar vessel Black Whale IV.
For the reasons expressed below I have determined that the Director's assessment should be affirmed and the Taxpayer's refund request denied.
Taxpayer argues that the use of both Black Whale III and IV are exempt from New Jersey use tax by virtue of N.J.S.A. 54:32B- 8.12 which provides:
Receipts from sales or charges for repairs, alterations or conversion of. . . vessels primarily engaged in commercial party boat (head boat) sport fishing and subject to annual inspection by the United States Coast Guard, and of governmentally-owned ships, barges and other vessels and property used by or purchased for the use of such vessels, machinery, apparatus and equipment for fuel, provisions, supplies, maintenance and repairs (other than articles purchased for the original equipping of a new ship) are exempt from the tax imposed under the Sales and Use Tax Act.
[N.J.S.A. 54:32B-8.12 (emphasis added).]
The Taxpayer also argues that the two vessels are exempt from tax because, in the alternative, their purchases were either casual sales or sales for resale. Finally, the Taxpayer argues that the conduct of the Division of Taxation estops the Director from making an assessment with respect to Black Whale III. The Director disputes the Taxpayer's four arguments and asserts additionally that the refund claim is barred by the applicable statute of limitations and the decision in Vicoa v. Director, Div. of Taxation, 166 N.J. Super. 496 (App. Div. 1978).
The parties initially filed cross motions for summary judgment which this court denied because it found that there were disputes with regard to material issues of fact which could not be resolved by examining affidavits. R. 4:46-2 and Judson v. Peoples Bank & Trust Co. of Westfield, 17 N.J 67, 73-75 (1954).
At trial the court heard three witnesses, Deborah Whitcraft and Audrey Whitcraft-Webby for plaintiff and the Division of Taxation investigator who handled this matter for defendant (the investigator). The testimony of the witnesses differed and to the extent that I have adopted one version of the facts or another, I have found greater credibility in the testimony of the witness whose version I have adopted.
The Division of Taxation's investigations with regard to Black Whale, Inc., involved four vessels: (1) a small boat (an Aquasport "six pack") on which tax had not been paid or assessed, (2) Black Whale II, a boat on which tax has never been assessed, and (3) Black Whale III and (4) Black Whale IV, the boats on which the tax assessments are the subject of this appeal.
In November 1989 the Division of Taxation investigator and a since-retired co-worker paid a visit to the office of Black Whale, Inc., which was located in the Beach Haven residence of Deborah Whitcraft, the principal owner and employee of Black Whale, Inc. He made inquiry about all four vessels, the small boat which he had seen at Black Whale's dock in Beach Haven, and Black Whales II, III, and IV, vessels he had not seen but about which he had found signs and brochures at the dock. During the course of a one and one-half hour interview, Ms. Whitcraft provided the investigator with information and documentation on the use of the three Black Whale vessels. Some of the documents were pulled from Black Whale's files by Ms. Whitcraft-Webby, (Ms. Whitcraft's sister and subordinate in the operations of Black Whale, Inc.) who was present at this initial November 1989 meeting. Although the investigator could not recall whether there was anyone present other than Ms. Deborah Whitcraft, I find from her testimony and the testimony of Ms. Whitcraft-Webby that Ms. Whitcraft-Webby was present. Among the documents given to the investigator at that initial meeting were copies of the contract for Black Whale IV with Trump's Castle hotel (D-2), various purchase invoices for the boats and supplies, and coast guard certificates of documentation and certification. The June 1987 contract with Trump's castle relating to Black Whale III (D-1) was not given to the investigator at that time. I find that at the time of the November 1989 interview, the investigator had a copy of a brochure (D-5) relating to the daily cruises of Black Whale III to Trump's Castle in Atlantic City or other similar written material. The investigator testified that he had no brochures at the time of the November 1989 interview. Ms. Whitcraft testified that the pretext for the investigator's unannounced visit and interview were a sighting of the Aquasport and the observation of signs at the dock as well as brochures, which were found in a weather protected box at the dock.
Subsequent to the November 1989 visit, Ms. Whitcraft and the investigator continued telephone Discussions, approximately twelve over the period from November 1989 to February 1990, about the taxability of Black Whales II, III, and IV. *fn1 Ms. Whitcraft also periodically supplied the investigator with additional written materials. During the course of their conversations, at some point Ms. Whitcraft and the investigator agreed that tax would be assessed on Black Whale IV and not on Black Whales II and III. Pursuant to that agreement reached in their phone conversations of January 8 and 9, 1990, Ms. Whitcraft sent the investigator a letter on January 10, 1990. Although the investigator denies having received the January 10, 1990 letter, Ms. Whitcraft sent another letter dated January 19, 1990, which differed from the January 10th letter by the addition of two brief sentences. I find that this January 19, 1990, letter was the result of a Discussion between the investigator and Ms. Whitcraft subsequent to his receipt of the January 10th letter.
The facts as recited in the January 19, 1990, letter would support the agreement that the Black Whale IV be taxed and the Black Whales II and III not be taxed.
In furtherance of the agreement reached by the investigator and Ms. Whitcraft, the investigator wrote to Ms. Whitcraft on February 13, 1990:
After careful consideration it has been determined that Black Whale II and Black Whale III do qualify as tax exempt purchases under N.J.S.A. 54:32B-8.12. Therefore, no Sales and Use Tax Assessment is hereby made against these vessels.
The purchase and use of Black Whale IV does not qualify as a tax exempt purchase under the scope of N.J.S.A. 54:32B-8.12.
The letter then went on to quantify the assessment against Black Whale IV. Pursuant to the agreement, Ms. Whitcraft submitted a check in full payment of the tax of $15,600 on May 11, 1990, and requested an abatement of penalty and interest. On May 30, 1990, the investigator's supervisor wrote a letter granting the abatement of penalty and interest. On or about June 18, 1990, the full amount of abated interest was paid. One month later, on July 18, 1990, Ms. Whitcraft received a letter from the Division of Taxation which began:
Information compiled by the Division of Taxation indicates that the activity engaged in by the Black Whale III does not entitle it to the sales tax exemption granted ...