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Gemini Restoration, Inc v. Director


March 5, 2012


On appeal from the Tax Court of New Jersey, Docket No. 010535-2007.

Per curiam.


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 conclusions in that case and finds it to be controlling in this case as well.

So therefore, for those reasons, and for the reasons set forth in the defendant's papers, I am denying summary judgment for the plaintiff and granting summary judgment for the defendant.

That statement is the entirety of the judge's analysis with regard to the decision to grant the Director's cross-motion for summary judgment. The judge made no findings of fact as to the nature of the service rendered by Gemini. Other than stating that Newman was precisely on point, the judge offered no legal analysis resulting in his conclusion that summary judgment should be granted to the Director. Clearly, the decision did not meet the requirements of Rule 1:7-4(a).

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c). This means the trial judge must "consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party in consideration of the applicable evidentiary standard, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co., 142 N.J. 520, 523 (1995). "The 'judge's function is not himself [or herself] to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.'" Id. at 540 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct. 2505, 2511, 91 L. Ed 2d 202, 212 (1986)). A factual dispute is not genuine for purposes of Rule 4:46-2 when "there exists a single, unavoidable resolution of the alleged dispute . . . ." Brill, supra, 142 N.J. at 540. Thus, "when the evidence 'is so one-sided that one party must prevail as a matter of law,' the trial court should not hesitate to grant summary judgment." Ibid. (quoting Liberty Lobby, supra, 477 U.S. at 252, 106 S. Ct. at 2512, 91 L. Ed. 2d at 214) (internal citation omitted).

On appeal, we are required to use the same approach as the trial court. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). If no genuine issues of fact exist in the record, we then decide whether the lower court's legal determinations were correct. Walker v. Atl. Chrysler Plymouth, 216 N.J. Super. 255, 258 (App. Div. 1987).

SUT, as embodied in N.J.S.A. 54:32B-1 to -53, is "a tax upon every sale of tangible personal property, except as otherwise provided, and upon receipts from every sale, except resale, or certain enumerated services." Newman, supra, 14 N.J. Tax at 316. N.J.S.A. 54:32B-3(b)(4) levies SUT for services rendered in:

Maintaining, servicing or repairing real property, other than a residential heating system unit serving not more then three families living independently of each other and doing their cooking on the premises, whether the services are performed in or outside of a building, as distinguished from adding to or improving such real property by a capital improvement, but excluding services rendered by an individual who is not in a regular trade or business offering his services to the public, and excluding garbage removal and sewer services performed on a regular contractual basis for a term not less than 30 days.

Under Newman, the determination of whether a service is a capital improvement hinges on whether it "either increases the value of the underlying property or extends its useful life." Newman, supra, 14 N.J. Tax at 330. The party seeking the tax exemption bears the burden of proving that the service is a capital improvement. Id. at 318, 329. This comports with the mandate that tax "exemptions are to be construed narrowly."

Amerada Hess Corp. v. Div. of Taxation, 107 N.J. 307, 320 (1987) (quoting Fedders Fin. Corp. v. Div. of Taxation, 96 N.J. 376, 386 (1984)), aff'd, 490 U.S. 66, 109 S. Ct. 1617, 104 L. Ed. 2d 58 (1989).

In Newman, the taxpayer was the sole proprietor of a company that refinished hardwood floors. Supra, 14 N.J. Tax at 314. It contended that this activity was not subject to SUT because it results in a capital improvement. Id. at 314-15. The judge in Newman agreed with the Director that this process was taxable because it is done "precisely to maintain, service or repair . . . by restoring it to a previous condition and removing surface imperfections from the wood." Id. at 323. The renewal of the finish, making the appearance of the floor "almost as good as that of a new floor . . . is obviously maintenance, service or repair." Ibid. The Newman court then concluded that refinishing work did not constitute a capital improvement. Id. at 330. Although the taxpayer conceded that the refinishing service did not involve the installation of tangible personal property, id. at 325, it asserted that the fact that refinishing "extends the life of the floor" had the dispositive characteristics found only in a capital improvement. Id. at 326. The judge in Newman rejected this argument, concluding that a capital improvement must either increase the value of the property or extend its useful life, and in actuality, refinishing did neither. Id. at 329-30.

The nature of the services rendered by Gemini is not in dispute. Simply stated, it is the removal of water from water-damaged wood in a structure and the subsequent application of antimicrobial materials to arrest any decay that might result. Certainly, in theory the application of such chemicals might extend the life of the structure, as might the refinishing of a floor. The burden was on the taxpayer, however, to present such proofs as it had available prior to argument on the motion for summary judgment, if those proofs existed. At summary judgment, the proofs Gemini presented were in fact no different than those presented by the taxpayer in Newman. In refinishing a floor, it is made "almost as good as . . . a new floor." Newman, supra, 14 N.J. Tax at 323. In drying a floor and applying antimicrobial materials, Gemini returns the floor to a condition that is almost as good as new. Both processes involve a preliminary treatment of wood followed by the application of a protective agent.

We therefore conclude that the Tax Court's legal determination, that Newman controls the outcome, is correct. The Director prevails as a matter of law. Accordingly, we find the grant of summary judgment to the Director to be proper. See Brill, supra, 142 N.J. at 540.



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