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Greater Wildwood Hotel Motel Association v. Adams


August 26, 2010


On appeal from the Tax Court of New Jersey, Docket No. 010510-2008.

Per curiam.


Argued June 3, 2010

Before Judges Cuff, Payne and Fasciale.

On July 31, 2008, plaintiff, Greater Wildwood Hotel Motel Association, filed a complaint in the Tax Court pursuant to Rule 8:2(a) against the Director of the Division of Taxation. In its complaint, the Association sought a declaration that "the policy of the New Jersey Division of Taxation to charge sales tax on hotel and motel room rentals but not on condominium room or transient room rentals a) violates the governing statute and regulations; b) exceeds any authority granted the Division by the statute and regulations; c) is arbitrary, capricious and unreasonable; and d) violates the equal protection clause in the state constitution." It sought a judgment declaring that the current policy of the Division excluding all transient rentals that are not conventional hotels or motels from the imposition of state sales tax violates N.J.S.A. 54:32B-3(d) and N.J.A.C. 18:24-3.1(a) and exceeds the Division's delegated authority under the Sales and Use Tax Act, N.J.S.A. 54:32B-1 through -54, and enjoining the Division from implementing that policy or in any way distinguishing between hotels or motels and other transiently rented property in the application of the state sales tax.

On April 1, 2009, the Association moved for summary judgment, and on June 4, 2009, the Division filed a cross-motion. Oral argument occurred on June 26, 2009. Thereafter, the tax judge issued a letter opinion, dated July 24, 2009, denying the Association's motion and granting that of the Division. A motion for reconsideration was denied following further oral argument. This appeal followed.


The Association is "a trade organization comprising more than 167 lodging businesses. Its members are hotel and motel owners in the greater Wildwood area, including North Wildwood, Wildwood, Wildwood Crest, and Diamond Beach." The Association's President, Stephen Tecco, has certified that: "Members of the [Association] rent their properties out to tourists or transients on a daily, weekly or monthly basis. Some of these properties are open year-round; others are open seasonally, principally in the summer." He has certified further that "these properties offer a variety of services and amenities to their guests, although the particular services vary from property to property." The members of the Association, as hotel and motel owners, are required to collect the State's seven-percent sales tax, N.J.S.A. 54:32B-3(d), and its five-percent room occupancy tax. N.J.S.A. 54:32D-1. However, according to Tecco's certification:

8. Over the last decade, in the Wildwoods and in other resorts, there have been numerous conversions of existing hotels and motels to condominiums. In addition, many hotels and motels have been razed and condominiums built in their place.

9. Many if not most of these buildings rent to tourists on a daily, weekly or monthly basis. Some are available for rental year-round; others are rented seasonally, principally in summer.

10. Many of these properties provide one or more of the services that the Division considers indicative of whether a rental property is a "hotel" for purposes of subjecting it to the sales tax.

11. Nevertheless, many of these properties are not considered "hotels" by the Division and are therefore . . . not subject to either the 7% sales tax or the 5% room tax.

The Association's concern arises from the fact that, because "condotels" are not subject to sales and occupancy taxes, they can charge lower rates, thereby placing "traditional" hotels and motels at a competitive disadvantage.

N.J.S.A. 54:32B-3(d) imposes a tax on "[t]he rent for every occupancy of a room or rooms in a hotel in this State, except that the tax shall not be imposed upon a permanent resident."

N.J.S.A. 54:32D-1 provides that: "In addition to any other tax, assessment or use fee authorized by law, there is imposed and shall be paid a hotel and motel occupancy fee of . . . 5% for occupancies on and after July 1, 2004, upon the rent for every occupancy of a room or rooms in a hotel subject to taxation pursuant to [N.J.S.A. 54:32B-3(d)].

A "hotel" is defined in N.J.S.A. 54:32B-2(j) as "a building or portion of it which is regularly used and kept open as such for the lodging of guests. The term 'hotel' includes an apartment hotel, a motel, boarding house or club, whether or not meals are served." Paragraph (m) of that statute defines a "permanent resident" as "any occupant of any room or rooms in a hotel for at least 90 consecutive days . . . with regard to the period of such occupancy."

Regulations promulgated by the Division track N.J.S.A. 54:32B-3(d) in connection with the imposition of a sales tax on hotel room occupancy. N.J.A.C. 18:24-3.1. The regulations define a "hotel" to mean a building or portion thereof, which is regularly used and kept open as such for the purpose of furnishing sleeping accommodations and related services*fn1 for pay to tourists, transients, or travelers. It includes, but is not limited to the following:

1. An apartment hotel, bed and breakfast, motel, inn, tourist home, tourist house or court, tourist cabin and club;

2. A boarding house or rooming house containing eight or more units; and

3. Any other building or group of buildings in which sleeping accommodations are normally available to the public on a transient basis. [N.J.A.C. 18:24-3.2.]

The Division has formulated a policy for determining whether an establishment qualifies as a "hotel" for purposes of imposing the statutory sales and occupancy taxes. A 2005 publication by the Division's regulatory services section states: "Implicit in the definition of hotel is transient use, that is, hotel rooms are available at any time to travelers and other transients and include linens, maid service and often room service. Such facilities generally provide services other than the normal conveniences of one's own home (e.g., room, maid, linens)."

Another publication states, among other things:

The following considerations will help in distinguishing room occupancies from the rental of real property, which is exempt:

1. All accommodations which are taxable are components of facilities which are ordinarily available to transients.

2. Most room occupancies include linen services and/or maid service.

3. Most taxable accommodations do not provide cooking facilities to the occupant. However, some efficiency units and tourist cabins whose occupancy charges are taxable do provide cooking facilities or some sort of dining privileges.

4. Many facilities available for transient occupancy provide room service.

In a deposition given by Division Deputy Director Denise Lambert-Harding, she acknowledged that N.J.S.A. 54:32B-3(d) is the only statute authorizing the imposition of a sales tax on the rental of a hotel room and that the only applicable regulations were N.J.A.C. 18:23-3.1 and -3.2. Lambert-Harding explained that the Division had a policy with respect to the implementation of the hotel sales tax:

The policy is that a hotel is a facility that offers in addition to the conveniences . . . of one's own home, various services. Traditionally services would include maid service, room service, linen service, meaning that the sheets were on the bed when you got there. Towels, etc.

Additionally, she stated that there was an element of "transiency" in the factors considered. Lambert-Harding testified that the Division would consider whether "someone could pull up at any hour of the day or night and basically get a room, which is . . . how a traditional hotel would be available." A determination whether a facility operated as a hotel would depend on "the totality of the situation." The form of ownership of the property would not be a consideration.

During the course of the deposition, the following exchange occurred:

Q: Would you agree with me that there is no requirement in either the statute defining hotel or the regulation defining hotel, that there be maid, linen or room service; there is nothing.

A: Yes, there is nothing explicit in the statute or the reg.

Q: So that the policy that the Division has developed, is - what is the source of it if not the statute or the reg?

A: The policy is developed in response to trying to implement a statute.

So, when the statute was enacted, the Division would have to have determined what did it mean by hotel, what was a hotel occupancy. So, that is how a policy gets developed over the course of several years.

Following the completion of discovery, cross-motions for summary judgment were filed. In his July 24 written opinion, the Tax Court judge found the Association and its members, the real parties in interest in the litigation, had standing to challenge the Division's regulations and policy interpretation regarding what constituted a hotel because of the assertion that the members "have suffered a competitive disadvantage and loss of revenue and are harmed by the Director's continuing interpretation of the statute."

The judge then found that the Division's regulation and policy with respect to what constituted a hotel reflected a much narrower definition than that contained in N.J.S.A. 54:32B-2(j). The judge further concluded that "the Director's line drawing may not be consistent with the statute and in fact logically creates a competitive disadvantage for the members of the plaintiff association vis a vis owners of condotels and other title holders of property which compete with the members of the plaintiff association."

The judge then observed that he had solicited submissions by the parties regarding an appropriate remedy, and he noted that the Association had offered two remedial alternatives: (1) a declaration that the regulation is a nullity or (2) an extension of the coverage of the regulation. He stated that the Association preferred the latter. However, the judge declined to order either remedy. In this regard, the judge recognized certain decisions in which, in order to avoid a finding of unconstitutionality, courts had extended the benefits of statutes to previously excluded groups. However, he found that precedent to be inapplicable to the Association's attempt to extend a burden placed on its members to others who were not parties to the litigation, and that any such effort would result in a denial of the due process rights of the missing condotel owners. Furthermore, the judge found that prior court decisions to extend benefits had been made only after the courts had found the governing statutes otherwise unconstitutional. In the present context, the judge stated that he was not inclined to find the Division's interpretation unconstitutional. He observed: "The Director's interpretation and administration of the statute may not be consistent with the statutory language but, the constitutional standard for line drawing in tax cases - rational basis - is the easiest to satisfy" and that "[f]ew distinctions made by tax statutes and taxing jurisdictions have been held to violate the Director's authority to draw lines."

As a consequence, the judge held:

I conclude that I lack jurisdiction to declare the tax applicable to an infinite number of properties. Each property has a unique factual form of ownership and method of operations. Without having a fuller record concerning the nature of the specific competitor and without giving that competitor an opportunity to be heard, I cannot declare to whom the tax applies. Accordingly I deny plaintiff's motion and grant defendant's motion finding that I have no power to declare the line drawn by the Director invalid.

However, the judge then stated:

In the absence of legislative action, I strongly urge the Director to issue a more definitive rule, and in the rule-making process, to hear the conflicting arguments of the competing private parties. Metromedia, Inc. v. Director, Division of Taxation, 97 N.J. 313, 330-32 (1984).

The Association moved for reconsideration, limiting its motion to the issue of whether the judge had the jurisdiction or authority to grant a remedy in this case. Counsel stated: "I'm simply asking you to make formal the suggestion that you presented to the Director at the end of your opinion and suggesting to your Honor that you can do more than just suggest." [Y]ou have more remedial jurisdiction than . . . your opinion suggests you do." The motion was denied, and this appeal followed.

After the Association filed its notice of appeal, it also filed a petition for rulemaking action pursuant to N.J.S.A. 52:14B-4(f) and N.J.A.C. 18:1-2.2, urging the Director to adopt a rule expanding the regulatory definition of the term "hotel" to include "unconventional" transient rentals such as condotels. The petition was denied on January 4, 2010, 42 N.J.R. 92(a), and no appeal was taken. However, while denying the Association's petition, the Director acknowledged that the "manner in which the hotel industry operates has evolved over time." Ibid. For that reason, the Director stated, the Division "is currently drafting a regulatory proposal that it plans to publish shortly." Ibid. To date, that proposal has not been promulgated.


As the result of our review of the briefing in this matter as well as applicable precedent, we are satisfied that the Tax Court judge was correct in his position that he lacked jurisdiction to afford the Association the relief that it sought in this matter.

The New Jersey Constitution, in Article 6, section I, paragraph 1 states:

The judicial power shall be vested in a Supreme Court, a Superior Court, and other courts of limited jurisdiction. The other courts and their jurisdiction may from time to time be established, altered or abolished by law.

The Tax Court is such a court of limited jurisdiction, presently deriving its powers from N.J.S.A. 2B:13-1 through -15.*fn2 The court's jurisdiction is set forth in N.J.S.A. 2B:13-2, which states:

a. The Tax Court shall have jurisdiction to review actions or regulations with respect to a tax matter of the following:

(1) Any State agency or official;

(2) A county board of taxation;

(3) A county or municipal official.

b. The Tax Court shall have jurisdiction over actions cognizable in the Superior Court which raise issues as to which expertise in matters involving taxation is desirable, and which have been transferred to the Tax Court pursuant to the Rules of the Supreme Court.*fn3

c. The Tax Court shall have jurisdiction over any other matters as may be provided by statute.

d. The Tax Court jurisdiction shall include any powers that may be necessary to effectuate its decisions, judgments and orders.

Although the Tax Court is empowered by N.J.S.A. 2B:13-3 to "grant legal and equitable relief so that all matters in controversy between the parties may be completely determined," that power is limited to "causes within its jurisdiction."

In Rule 8:2, the Supreme Court undertook to define, in a manner consistent with N.J.S.A. 2B:13-2, the jurisdiction of the Tax Court. The Rule states in relevant part:

(a) General Jurisdiction

The Tax Court shall have initial review jurisdiction of all final decisions including any act, action, proceeding, ruling, decision, order or judgment including the promulgation of any rule or regulation of a County Board of Taxation, the Director of the Division of Taxation, any other state agency or official (including the Motor Vehicle Commission), or any county or municipal official with respect to a tax matter (including the realty transfer fee).

We have long recognized the limited jurisdiction of the Tax Court. In Alid, Inc. v. North Bergen Township, 180 N.J. Super. 592 (App. Div.), appeal dismissed as moot, 89 N.J. 388 (1981), we considered the Tax Court's jurisdiction under N.J.S.A. 2A:3A-1 through -29, the predecessor to the present act, and determined that the Tax Court lacked jurisdiction to hear the plaintiffs' post-judgment motions and to grant relief against the Township in the nature of mandamus, determining that such relief was available only in the Law Division of the Superior Court. Id. at 603; see also N.J. Const. art. VI, § 5, ¶ 4. After an extensive review of legislative history, id. at 599-600, we held:

To attempt to equate the jurisdiction of the Tax Court with that of the trial divisions of the Superior Court, as the Tax Court judge did in this case simply ignores the clear language of both chapter 33 of the Laws of 1978 and pertinent provisions of the Judicial Article of our State Constitution. The Superior Court, which is divided into three, and only three, divisions, viz., "an Appellate Division, a Law Division, and a Chancery Division," N.J.Const. (1947), Art. VI, § III, par. 2. On the other hand, the Tax Court is, by the statute which created it, "an inferior court of limited jurisdiction." L.1978, c. 33, § 1, N.J.S.A. 2A:3A-1. It can constitutionally exercise only that jurisdiction which the Legislature has seen fit to confer upon it.

[Id. at 601.]

In the present matter, the Association has mounted an administrative and Constitutional challenge to the Director's informal policy with respect to the definition of a hotel, seeking its nullification or its extension in such a fashion as to cover condotels. If the Association were challenging the application of the policy to its members on such grounds, we would have no difficulty finding jurisdiction. Township of W. Milford v. Van Decker, 120 N.J. 354 (1990); Metromedia, Inc. v. Dir. Div. of Taxation, 97 N.J. 313 (1984). However, that is not the Association's position. As the Tax Court judge noted, the Association does not seek relief from existing tax regulations or policies on behalf of its members, it seeks to impose the burden of such regulations and policies on others who are not before the court. The Association has failed to establish grounds for the Tax Court's jurisdiction over an action seeking such relief, and our research has disclosed none.

In this regard, we do not find the statutory provision affording jurisdiction to the Tax Court "to review actions or regulations with respect to a tax matter" by a State agency or official to govern this matter. In our view, the policy adopted by the Director does not constitute a "final decision" as required by Rule 8:2-(a). See also Exxon Corp. v. Twp. of E.

Brunswick, 192 N.J. Super. 329, 336 (App. Div. 1983) (determining that the Director's "advisory opinion" to assessors, changing the prior assessment of underground fuel storage tanks as tangible personal property to real property and the Middlesex County Board of Taxation's directive based on that opinion did not constitute final determinations within the Tax Court's jurisdiction to review), certif. denied, 96 N.J. 312 (1984).

The difficulty here is that the policy at issue is not a rule or regulation that would be subject to Tax Court review if its applicability to Association members were challenged. It is merely a policy, and the Tax Court lacks jurisdiction to adjudicate the validity of policies or to order the Director to modify his policies in a particular fashion so as to impose a burden on an unrepresented class. We thus find that this matter should have been instituted in the Superior Court, which could then have transferred it to the Tax Court pursuant to N.J.S.A. 2B:13-2b if it had chosen to do so. Alternatively, the Association could have appealed from the denial of its petition for rulemaking, which clearly constituted a final decision. However, the Association failed to follow either course.

As a consequence, we affirm the dismissal of this action, but not without echoing the plea of the Tax Court judge that the issues raised herein be addressed through rulemaking pursuant to the Administrative Procedure Act, N.J.S.A. 52:14B-1 through -25.


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