On appeal from the Tax Court of New Jersey, Docket Nos. 6102-2007, 0159-2007, whose opinions appear at: Wells Reit II-80 Park Plaza, LLC v. Director, Div. of Tax'n, 24 N.J. Tax 98 (2008), and Chicago Five Portfolio, LLC v. Div. of Tax'n, 24 N.J. Tax 342 (2008).
The opinion of the court was delivered by: A. A. RODRÍGUEZ, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Rodríguez, Reisner and Chambers.
In this opinion, we address conflicting Tax Court decisions regarding a 2006 legislative amendment*fn1 to New Jersey's realty transfer fee on property purchases over $1,000,000, also known as the "Mansion Tax," N.J.S.A. 46:15-7.2. This amendment, codified as N.J.S.A. 46:15-7.4, provides a refund of the Mansion Tax to contracts for commercial properties that were "fully executed before July 1, 2006," provided that the deed was transferred on or before November 15, 2006. We address both appeals in one opinion. The source of the dispute is that two Tax Court judges came to different interpretations of the phrase "fully executed before July 1, 2006." We hold that:
(1) N.J.S.A. 46:15-7.4 is not an "exemption" from the Mansion Tax, but rather a refund provision; (2) as such, the section should be construed in favor of the taxpayer; and (3) the plain meaning and common usage of the phrase "fully executed before July 1, 2006" means a real estate contract that is signed and binding upon the parties before July 1, 2006, whether or not there are subsequent amendments to the terms.
The statutory section at issue here provides:
[F]or the transfer of real property that was classified pursuant to the requirements of N.J.A.C. 18:12-2.2 as Class 4A "commercial properties" at the time of the recording of the deed, provided that the deed was recorded on or before November 15, 2006, and that was transferred pursuant to a contract that was fully executed before July 1, 2006, the fee imposed pursuant to section 8 of [L.] 2004, c. 66 shall be refunded to the grantee by the filing, within one year following the date of the recording of the deed, of a claim with the New Jersey Division of Taxation for a refund of the fee paid. Proof of claim for refund shall be made by the submission of such documentation as the Director of the Division of Taxation may require. [N.J.S.A. 46:15-7.4.]
Wells Reit II -- 80 Park Plaza, LLC (Wells Reit)
On June 13, 2006, Wells Reit's assignor entered into a contract with Newark Urban Renewal Investors, L.P., (Newark Urban) to purchase property located at Park Place in Newark for $155,000,000. All parties signed the contract on that date. The contract included a "due diligence period," which was to end on June 21, 2006. The parties subsequently agreed to seven contract amendments, each referring to June 13, 2006, as the date the contract was formed. A July 25, 2006 amendment reduced the price to $147,500,000.
On September 21, 2006, the purchaser assigned the contract to Wells Reit and the parties closed on the sale. Wells Reit paid a $1,475,000 realty transfer fee set by N.J.S.A. 46:15-7.2 and recorded the deed. Wells Reit subsequently filed an RTF-3 Claim for Refund of the realty transfer fee with the Division of Taxation. The Division denied Wells Reit's claim for the following reasons:
Your claim contained a contracted sale-purchase agreement . . . for a purchase price of $155,000,000. The sale agreement had several amendments and the July 25, 2006 [amendment] set the purchase price at $147,500,000 to reflect the consideration amount on the deed. Although the deed was recorded before the November 15, 2006 deadline as mandated by [L. 2006, c. 33] [the Division] must deny your claim because the contract sale was not fully executed on July 1, 2006[,] as provided by statute.
Wells Reit appealed this decision and filed a complaint against the Director, Division of Taxation (Director) in the Tax Court.
After both parties moved for summary judgment, the judge granted summary judgment in favor of the Director. The judge concluded that "[i]n enacting the [M]ansion [T]ax as a revenue-raising measure for general State purposes, the Legislature carved out, in N.J.S.A. 46:15-7.4, a limited exclusion from the tax for certain transactions." Wells Reit II -- 80 Park Plaza, LLC v. Dir., Div. of Tax'n, 24 N.J. Tax 98, 103 (Tax 2008). The judge found that N.J.S.A. 46:15-7.4 was "equivalent to an exemption from the tax[,] which should be construed narrowly." Ibid. Therefore, the judge construed "the phrase 'fully executed before July 1, 2006' as referring to a contract signed on or before June 30, 2006, none of the essential terms of which was amended in a material respect on or after July 1, 2006."
Id. at 103-04. Therefore, the Director's motion for summary judgment was granted, Wells Reit's motion was denied, and the complaint was dismissed. Id. at 104. Wells Reit appealed.
Chicago Five Portfolio, Inc. (Chicago Five)
On June 12, 2006, Chicago Five's assignor agreed to purchase property in Fort Lee for $18,155,000 from ECS-FT. Lee, LLC. A month later, the parties agreed to lower the purchase price to $17,400,000 and added a new economic feasibility clause, which allowed the purchaser to terminate the contract if it concludes "that the acquisition of the property is not economically feasible . . . prior to the expiration of the due diligence period." In August 2006, the purchaser assigned its rights to Chicago Five. The transaction closed on August 16, 2006.
Pursuant to N.J.S.A. 46:15-7.2, Chicago Five paid a realty transfer fee in the amount of $174,000 and subsequently filed an RTF-3 Claim for Refund of the realty transfer fee. The Division denied the claim, finding:
Your claim contained an Agreement of Sale from ECS-FT. Lee, LLC to Storage Specialists, LLC with a contracted sales price of $18,155,000. The assignment of purchase and sale agreement shows Storage Specialists, LLC as assigning over rights to Chicago Five Portfolio, LLC on August 14, 2006. The deed dated August 22, 2006[,] was transacted from ECS-FT. Lee, LLC to Chicago Five Portfolio, LLC with a stated consideration of $17,400,000. Therefore, [the Division] must deny your claim because the Agreement of Sale dated June 12, 2006 lists a buyer who is not the stated buyer in the deed.
Chicago Five appealed the decision and filed a complaint against the Director in the Tax Court. Both parties moved for summary judgment. Judge Vito L. Bianco granted summary judgment to Chicago Five. In his published decision, the judge wrote:
This court must respectively disagree with the standard applied in [Wells Reit, supra, 24 N.J. Tax 98,] for determining whether a Mansion Tax refund is warranted. In this court's view, interpreting the contract phrase ["]fully executed["] based upon the narrow standard established for tax exemptions was never contemplated by the Legislature in its adoption of N.J.S.A. 46:15-7.4. To determine whether the taxpayer was entitled to a refund of the Mansion Tax, the court in Wells Reit inter-mingled the narrow tax exemption standard with an abbreviated contract analysis focused solely on a change to an essential term of a contract. [Chicago Five Portfolio, LLC v. Dir., Div. of Tax'n, 24 N.J. Tax. 342, 349 (Tax 2008) (emphasis removed).]
Judge Bianco then engaged in statutory interpretation. Because the Legislature provided no definition of the term "fully executed," Judge Bianco consulted ...