On appeal from the Tax Court of New Jersey, Docket No. 010535-2007.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Telephonically Argued November 1, 2011
Before Judges Grall and Alvarez.
Plaintiff Gemini Restoration, Inc. (Gemini), a company in the business of rehabilitating structures damaged by natural disasters such as floods, appeals the November 4, 2010 grant of summary judgment to defendant Director, New Jersey Division of Taxation (Director). The summary judgment affirmed the Director's assessment of a balance due, exclusive of penalties or interest, of $215,569.07 in unpaid Sales and Use Tax (SUT) assessments for the period January 1, 2001, to September 30, 2005. We affirm.
On July 21, 2006, the Director mailed a "notice of assessment related to final audit determination" to Gemini in the amount of $281,032.90, including penalties and interest, in additional SUT. Gemini filed a protest with the Director's Conference and Appeals Branch. The conferee considered Gemini's additional materials regarding sales related to sanitizing carpets, which the Director agrees is a tax-exempt service. As a result, the conferee issued a second determination, final in nature, dated July 9, 2007, reducing Gemini's SUT liability to $214,080.18, to which $36,697.10 in penalties and interest were added. Gemini was then credited with a $40,000 payment, resulting in a balance due to the Director of $210,777.28.
Gemini appealed to the Tax Court, and cross-motions for summary judgment were thereafter filed. At oral argument on November 4, 2010, the dispute centered upon Gemini's claim that the services performed constitute capital improvements. Gemini contended that its service of removing excess water from water-damaged wood, and applying antimicrobial chemicals, extends the life of the wood found in a structure, thereby resulting in a capital improvement. Gemini also argued that the court should take testimony from its expert, despite having filed the initial motion for summary judgment and contending it was entitled to that relief, presumably because there was "no genuine issue as to any material fact," and it was "entitled to a judgment or order as a matter of law." See R. 4:46-2(c). Gemini further claimed that because it was a subcontractor, it was not required to obtain capital improvement certificates from homeowners. Although Gemini acknowledged such certificates were ordinarily required for exemptions from SUT, it attempted to shift the responsibility to obtain them to the insurance companies who contracted for its services, analogizing the situation to a contractor-subcontractor arrangement.
The Director countered that Gemini's work was solely the repair of water-damaged wood to insureds at the request of insurance companies, and that maintaining, servicing, and repairing real property under these circumstances is a taxable service subject to additional SUT. It reminded the Tax Court judge that in order for an exemption to be obtained for work performed as a capital improvement, the regulation requires a certificate of capital improvement be obtained from the homeowners by either the insurance companies or Gemini, and that neither had occurred. Initially, the Tax Court judge made the following statement:
I guess what I'm hearing . . . is that maybe we just don't have enough facts to make this decision today. [Plaintiff's counsel] is prepared to offer an expert and has submitted a certification of somebody who reportedly is an expert. The State hasn't had an opportunity yet to depose that person.
You know, it sounds . . . to me like this is really a material fact in this case. Is it . . . or is it not? You know, maybe we need to hear some testimony and help the Court understand what the difference -- I'm not sure I understand the difference, quite honestly, even after your explanation, that there's really any difference between cleaning up after a flood or cleaning up after a dinner party. What's the difference?
The Director responded to the judge's question by reiterating that Gemini received a "credit," as initially conceded, for carpet cleaning but that the dispute centered on the appropriate characterization of Gemini's application to structural wood of antimicrobial treatment.
After hearing arguments, the court took a recess. Upon returning, the judge said:
All right. I took some time to review some of the case law and I think the pertinent case, which is on point, is Judge Andrews' decision in Newman [v.] Division of Taxation, 14 N.J. Tax, 313 [(Tax 1994), aff'd, 15 N.J. Tax 228 (App. Div. 1995)].
I've read that case, I've reviewed the briefs provided and I believe that Judge Andrews' case and his reasoning in there control the decision in this case. I believe it's precisely on point and even though it is a Tax -- a Trial Court decision, this Court accepts his reasoning and ...