May 3, 2011
JAY KAY JAY, INC., AND KATHLEEN A. TARTIVITA, PLAINTIFFS-APPELLANTS,
DIRECTOR, DIVISION OF TAXATION, DEFENDANT-RESPONDENT.
On appeal from the Tax Court of New Jersey, Docket No. 004957-2001.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted January 24, 2011
Before Judges Lisa, Sabatino and Alvarez.
Plaintiff Kathleen A. Tartivita operates an exotic bar, Jay Kay Jay, Inc. (JKJ), located in Keansburg. Defendant Director of the Division of Taxation (the Director) issued plaintiffs a modified notice of assessment, related to a final audit determination after administrative review, of $105,994 in Sales and Use Tax (SUT) and Corporation Business Tax (CBT), and $21,481 in Gross Income Tax (TGI-EE). Plaintiffs appealed to the Tax Court, and, after a trial, the Tax Court upheld the Director's assessment. For the reasons that follow, we affirm.
Tartivita is JKJ's president, and the on-site manager of its business, in existence since October 1992, trading as "Pumps Plus." She is JKJ's sole shareholder and president. In addition to functioning as an adult-themed bar which sells alcoholic beverages, food, and cigarettes, customers play billiards and observe exotic dancers. The business is open six days a week and has a maximum capacity of ninety patrons. JKJ employed ten people and paid its dancers as needed on a cash basis. Tartivita owns the building and receives rent from the corporation. She personally maintained JKJ's financial records, prepared and filed its tax returns, and paid corporate bills. Tartivita only kept cash register summary tapes of the daily sales, discarding more detailed versions. She compiled a spreadsheet reflecting gross receipts, but did not maintain or preserve other documents.
Marjorie Charnack, the Director's Auditor, initially requested JKJ's corporate records on July 25, 1997. This request was reported on October 23, 1997. On March 3, 1998, Tartivita provided the following JKJ records: copies of CBT-100s for 1993 through 1996; copies of federal 1120 forms for 1993 through 1996; general ledger worksheets for 1992 through 1996; worksheets for purchases; sales journal worksheet for 1992 through 1996; purchase disbursement journals for 1992 through 1996; and invoices, inventory purchases, and expenses for 2006.*fn1
Charnack, however, did not receive JKJ's detailed cash register tapes, bank statements, cancelled checks, W-2s or W-3s, depreciation schedules, 1099 forms, or price list. Charnack requested the missing records, along with a summary of JKJ's internal controls.
Upon concluding these necessary records were unavailable, Charnack notified JKJ's counsel she would therefore use the Investigation Unit's price and serving size estimates to perform a mark-up analysis. Charnack finished this analysis, to verify the accuracy of JKJ's reported gross sales, by June 15, 1999. She used 1996 as the sample year in part because it had the most records. Charnack ultimately accepted JKJ's reported alcohol purchases because the figures closely matched third-party vendor purchase information. Auditor John Mastellone provided Charnack with a $700 estimate of soda purchases because there were no records for the sale of soda without alcohol.
JKJ also did not produce any records for food or cigarette purchases for 1996, even though both items were sold during this period. Tartivita testified she did not provide these records because, prior to 1997, an independent food vendor operated the kitchen; however, she produced no records evidencing an agreement between JKJ and a concessionaire.*fn2 Tartivita stated she would pay the vendor at the end of each week depending on the amount of food sold. Her testimony that JKJ paid all sales tax on food sales conflicted with the post-audit report, and JKJ did not charge this third-party food vendor rent. Mastellone testified it would be unusual for JKJ to have an independent food concessionaire, and Charnack used Mastellone's $200 estimate for weekly food purchases accordingly.
Tartivita admitted cigarettes were sold but that she kept no sales records of them. Mastellone estimated JKJ sold at least fifteen packs per week, which the Investigation Unit purchased at $3.50 per pack. Tartivita claimed JKJ sold cigarettes behind the bar only after 1997 as, prior to that date, cigarettes were sold only in vending machines. Although JKJ reported $43,943 as the overall cost of goods sold for 1996, the total audited purchases totaled $56,727.
The Director issued a notice of assessment related to final audit determination on March 3, 1999, advising JKJ it owed SUT and CBT in the amount of $164,584.40. The Director also issued a notice to Tartivita advising her she owed TGI-EE totaling $29,702.75. Plaintiffs contested the amount due, and after administrative review the Director reduced both sums to $105,994 and $21,481 respectively.
Plaintiff appealed the final determination to the Tax Court, which conducted a hearing. The only employee who testified on Tartivita's behalf was Kimberly Sloane, who managed the business when Tartivita was absent, and who was present during the 1993 through 1997 SUT audit, N.J.S.A. 54:32B-1 to -29, and the 1992 through 1996 CBT audit, N.J.S.A. 54:10A-1 to -41. The three matters were ultimately dismissed as to SUT, CBT, and TGI-EE because, on November 21, 2008, the judge affirmed the Director's tax assessments in their entirety. He found the Director had the authority to use a mark-up analysis to verify the accuracy of the reported information because plaintiffs did not maintain required records, such as the detailed register tapes. The judge was also concerned that JKJ produced no food or cigarette invoices, despite the sale of those items during the sample audit period. He noted that, although the Director's methodology was not perfect,*fn3 it was reasonable and legally sufficient because plaintiffs failed to provide any records. The estimates used accounted for approximately ten percent of JKJ's gross sales. Moreover, Tartivita and JKJ proffered no evidence to support the assertions that an independent vendor sold food and that cigarettes were sold from a vending machine.
The court also found "Tartivita's testimony [to be] incredible" because:
She failed to cooperate with the audit and the auditor by constantly delaying meetings and failing to provide requested documents after numerous requests. Many documents were not provided until after the audit and Division of Taxation conference.
Prices and portion sizes suggested by Tartivita were substantially at variance with direct observation of the Division investigators. Although prices may have been higher at the later date when observed by the investigators, portion sizes that they observed were consistently smaller than those argued by JKJ, some as much as 100% -2 oz. v. 1 oz. liquor pours. No one confirmed Tart[i]vita's self-serving testimony.
Although this was not a "life style" case which could impute income based on family expenditures, the ownership of real estate and support of several dependent children is not consistent with income reputed by the Tat[i]vitas. Although these facts cannot be used to prove income they do undercut the credibility of Tart[i]vita's testimony regarding JKJ's business.
No one, not a food vendor, not a former lawyer or accountant, not an employee except for Ms. Sloane, a long-time employee dependent on Tart[i]vita, was called to corroborate Tart[i]vita's self-serving testimony which was at odds with the testimony of many employees of the Division of Taxation.
Tart[i]vita's uncorroborated testimony that a former bartender consistently gave away free drinks to a motorcycle gang as having a significant impact on her under reporting of gross sales borders on fantasy.
Plaintiffs' motion for reconsideration was denied, and they appealed on June 22, 2009.
This case is governed by the standards enunciated by the Supreme Court in Atlantic City Transportation Co. v. Director, Division of Taxation, 12 N.J. 130, 146 (1953). Assessments imposed by the Director are presumptively correct. Id. at 146 (quoting Aetna Life Ins. Co. v. City of Newark, 10 N.J. 99, 105 (1952)). "[T]he burden of proof is on the taxpayer to show otherwise." Ibid. That presumption can be rebutted only by cogent evidence." Pantasote Co. v. City of Passaic, 100 N.J. 408, 413 (1985).
As we have previously expressed it, "'naked assertions' of the taxpayer, without supporting records or documentation, are insufficient to rebut" the presumption of correctness. Yilmaz v. Dir., Div. of Taxation, 390 N.J. Super. 435, 440 (App. Div. 2006), certif. denied, 192 N.J. 69 (2007).
As a general matter, we also recognize the Tax Court's expertise in state tax matters. Id. at 443. We do not disturb its rulings unless they are plainly arbitrary or its findings of fact are not supported by substantial evidence. Ibid. (citing Alpine Country Club v. Borough of Demarest, 354 N.J. Super. 387, 390 (App. Div. 2002)).
We are satisfied that the Tax Court judge's twenty-three-page opinion was thorough, thoughtful, and reached correct conclusions of law as to facts which he reasonably found based on substantial credible evidence in the record. We therefore affirm for the reasons stated in that opinion, with only the following comments as to three of plaintiff's points of error. We do not comment on the points made as to the substance of the judge's decision, which points we perceive to be so lacking in merit as to not warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
Plaintiff, who is now pro se, asserts that "it was harmful error for the trial judge not to declare a mistrial when the attorney for the defendant disappeared." We think, but are not certain, that plaintiff's point is that a different attorney authored the Division's brief on appeal. She incorrectly asserts this contravenes Rule 1:11-2(a)(2). That rule merely requires that an attorney obtain leave of court to withdraw once a trial date is scheduled. That rule does not apply here. No rule prohibits a different Deputy Attorney General to become involved in an appeal. Plaintiff further contends the author of the brief has made numerous factual mistakes and otherwise changed the State's position in a manner inconsistent with that of the Deputy who presented the case, thereby making it impossible for her to defend the matter. We do not agree the record bears out the claim.
In similar fashion, plaintiff alleges that it was "plain error and prejudicial for trial judge to take nearly two years to render a decision." In reality, it took the judge approximately eighteen months after the last trial day to render his decision. Although the delay is regrettable for obvious reasons, no law makes it a basis for reversal.
Lastly, plaintiff contends she "should not be charged interest for the period of delays caused by the State of New Jersey, Division of Taxation and [the judge]." Unfortunately, this argument does not carry the day either. The Director informed plaintiffs of the tax assessments issued against them in March 1999. At any point in time, plaintiffs could have paid the assessments, paid them into court, or in some other fashion ensured that if the Tax Court decided against her, she would be protected from this precise outcome. Pursuant to statute, any taxpayer who fails to pay taxes due must pay interest and penalties on the unsatisfied sums. N.J.S.A. 54:49-3. By statute, plaintiffs are obliged to pay the total amount, including interest and penalties. Plaintiff has for the last eleven years avoided payment and retained use of the money. This argument also lacks merit.