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Everest Reinsurance Co. v. Newark Division of Tax Abatement and Special Taxes

December 02, 1998

EVEREST REINSURANCE CO., PLAINTIFF,
v.
NEWARK DIVISION OF TAX ABATEMENT AND SPECIAL TAXES, AND CITY OF NEWARK, DEFENDANT.



The opinion of the court was delivered by: Small, J.t.c.

The plaintiff, Everest Reinsurance Co. ("Everest"), seeks interest and attorneys' fees incurred in connection with obtaining a refund of $847,359.95 in Newark City Payroll Tax (N.J.S.A. 40:48C-14 to -19 and Newark, N.J. Rev. Ordinance 10:6-3, originally enacted as 6S and FD021771 ( Feb. 17, 1971) and subsequent amendments), paid on December 22, 1997 and refunded on June 5, 1998.

[9]    After paying the tax on December 22, 1997, Everest sued for a refund. On May 15, 1998, the return date of plaintiff's summary judgment motion seeking the refund, interest, and attorneys' fees, the City conceded that a refund was due and would be paid. I deferred ruling on the interest and attorneys' fees issues until after the refund was paid, so that when I ruled, the full extent of plaintiff's costs and time it had to wait for the refund would be known. I entered an order to that effect on May 28, 1998. The refund was paid on June 5, 1998 (one week after the entry of the May 28, 1998 order), and the plaintiff revived its motion for interest and attorneys' fees.

For the reasons discussed below, I find that despite Everest's loss of the use of funds for almost six months, no statute authorizes the payment of interest on refunds of the Newark City Payroll Tax, and absent such statutory authorization, there is no authority for this court to award interest on the refund. I further find that the award of attorneys' fees in the amount of $10,767.42 is authorized by N.J.S.A. 54:51A-22, a provision of the State Tax Uniform Procedure Law, as amended by the Taxpayers' Bill of Rights, L. 1992, c. 175, and made applicable to the Newark City Payroll Tax by N.J.S.A. 40:48C-38.

The facts are not in dispute.

Everest is a Delaware corporation. It was incorporated in that state in 1973 under the name Prudential Reinsurance Company and in 1996 changed its name to Everest Reinsurance Company. It maintained offices in Newark from 1973 through May 12, 1997, when it moved to Liberty Corner, New Jersey. On September 22, 1997, Everest received a payroll tax assessment from the City of Newark for the period 1988 through the second quarter of 1997 in the amount of $4,101,348.22. A revised assessment in the amount of $4,463,120.69 was issued on September 30, 1997. The revisions related solely to the calculation of interest and penalties. Everest protested these two assessments, citing N.J.S.A. 40:48C-14(e), which provides that the definition of an "employer" subject to the Newark payroll tax excludes "any insurance company taxed by authority of another state or foreign country and subject to the provisions of P.L. 1950, c. 231 (C. 17:32-15)."

After the September 30, 1997 assessment, there were meetings between city officials and representatives of Everest. There was also correspondence from Everest to the City explaining why it was not subject to the payroll tax. In essence, from its initial correspondence, through all of its meetings with the City of Newark, Everest argued that the plain meaning of the statute exempting foreign insurers from the tax and the fact that it was a foreign insurer exempted Everest from the tax. Newark never contested the reading of the statute, nor the fact that Everest was a foreign insurer. At oral argument on the initial return date of Everest's summary judgment motion, the City conceded that a full refund was due. As early as December 1996, when the City's audit had commenced, Everest informed Newark that it was not subject to the tax, because it was a foreign insurance company. Although Newark asserted in a letter dated June 9, 1997 from the Manager of the Division of Tax Abatement and Special Taxes that Everest would "be exempted from such tax only if they have a certificate of exemption from the U. S. Department of Treasury," there is no foundation for that statement in the record of this case, or in my examination of the law. Newark's internal papers suggest that it needed proof that Everest was a Delaware corporation and that such proof had not been provided. After December 1996, the City did not take issue with the fact that Everest was a Delaware corporation. Clear documentary proof was submitted with the filing of Everest's summary judgment motion on April 9, 1998.

On December 22, 1997, a revised assessment was made for the years 1994, 1995, 1996, and the first two quarters of 1997, in the amount of $847,359.95. The amount of tax was reduced, because the assessment period commenced in 1994, rather than 1988, and penalties and interest were not assessed. The assessment included the following language:

You may take advantage of our 1997 Newark Tax Amnesty!! No payment of INTEREST or PENALTY if the outstanding tax amount ($847,359.95) is paid before December 31, 1997.

HAVE A HAPPY HOLIDAY!!!

Newark asserts that the reason for the reduction in the tax assessment had to do with concerns about the relevant statute of limitations for making an assessment.

On the same date that the assessment was made, it was paid, and the complaint in the pending matter was filed. Two reasons can explain the quick payment and challenge to the assessment: (1) if tax was actually due, interest and penalty could only be avoided if payment was made during Newark's tax amnesty, which expired on, and required payment of the tax on or before, December 31, 1997, Newark, N.J. Rev. Ordinance 7RCD(AS) 110697 (Nov. 6, 1997), and (2) N.J.S.A. 40:48C-38, quoted below, which requires payment of the tax as a precondition for challenging an assessment.

"Any aggrieved taxpayer may appeal any decision, order, finding, assessment or action of the chief fiscal officer of any municipal- ity adopting an ordinance hereunder to the tax court in accordance with the provisions of the State Tax Uniform Procedure Law, R.S. 54:48-1 et seq., upon payment of the amount stated by said chief fiscal officer to be due. The appeal provided by this section shall be the exclusive remedy available to any taxpayer for review of a decision of the chief fiscal officer in respect of the determination of a liability for the taxes imposed hereunder." [N.J.S.A. 40:48C-38. Emphasis added.]

After the filing of the within matter and plaintiff's summary judgment motion, the refund was paid, leaving at issue whether plaintiff is entitled to interest and attorneys' fees.

I.

INTEREST

The taxpayer asserts that it is entitled to interest on the $847,359.95 tax payment which the City held for almost six months. It asserts that its rights to interest flow from its equitable entitlement to compensation for the deprivation of its use of money for six months under the common law and under the State Tax Uniform Procedure Law. For the reasons discussed below, I find that the taxpayer, as a matter of law, is not entitled to interest, although its equitable claims do not fall on unsympathetic ears.

A.

Interest on Tax Refunds is not Paid Unless Specifically Authorized.

Under New Jersey law, there is no interest on tax refunds without specific statutory authority. New York Life v. Lyndhurst, 280 N.J. Super. 387, 389-390 (App. Div. 1995); Frieman v. Randolph, 185 N.J. Super. 152, 163 (App. Div. 1982); 713 Co. v. Jersey City, 94 N.J. Super. 210, 214 (App. Div. 1967); Hahne Realty Corp. v. Newark, 19 N.J.L. 12, 17 (E. & A. 1937); and Employers' Fire Ins. Co. v. Director, Div. of Taxation, 8 N.J. Tax 43, 46-49 (Tax 1985) (citing many cases). It is a well settled rule of law in New Jersey that interest is not recoverable on an abatement of a tax liability unless provision therefor is made by statute. [713 Co. v. Jersey City, 94 N.J. Super. 210, 214 (App.Div. 1967), citing many cases.]

Although the 713 Co. case ultimately allowed, on equitable grounds, some interest for Jersey City's postjudgment retention of substantial refunds, its Discussion of the law makes clear that the payment of prejudgment interest on tax refunds requires statutory authority. Prejudgment interest is not a matter of equity. See Hudson County Chamber of Commerce v. Jersey City. 310 N.J. Super. 208 (App. Div. 1997), aff'd 153 N.J. 254 (1998) and New York Life v. Lyndhurst, supra, 280 N.J. Super. at 389-90, (both discussing the lack of authority for the awarding of prejudgment interest unless authorized by statute). In the case before me, judgment was entered on May 28, 1998, and the refund was paid one week later, on June 5, 1998.

The cases cited to me by both parties and discussed at length in Hudson County Chamber of Commerce v. Jersey City, supra, deal with the general rule that prejudgment interest is not imposed on governmental entities. See, for example, Newark Bd. of Educ. v. Levitt, 197 N.J. Super. 239 (App. Div. 1984). Where interest has been awarded against ...


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