On appeal from the Tax Court of New Jersey, Docket No. 007870-2008.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued February 7, 2012 -
Before Judges Carchman and Fisher.
Plaintiff English Sewage Disposal, Inc. appeals from a judgment of the Tax Court concluding that plaintiff's charges for the transportation and disposal of waste pumped from its customers' septic waste systems were subject to sales tax under the Sales and Use Tax Act (the Act), N.J.S.A. 54:32B-1 to -29. In her written opinion of April 11, 2010, Judge Menyuk determined that under the "predominant purpose" test under the Act, plaintiff's transportation and disposal charges were taxable. We agree with the judge's well-reasoned conclusion and affirm.
The issue arose in the context of a motion for summary judgment. We briefly recite the relevant facts presented to the Tax Court on the motion. Plaintiff was engaged in the business of cleaning septic systems for residential and commercial customers. Included in its services were the pumping of customers' septic systems and the subsequent removal of the waste by transporting it to an appropriate disposal site.
In December 2004, defendant Division of Taxation (the Division) initiated an audit of plaintiff for the tax period of October 2000 through December 2004. The Division examined plaintiff's sales invoices for 2003 as a sample year. In these invoices, plaintiff typically set forth its charges as follows:
Qty Item Description Unit Price Amount 1,500 Gallons Pumped septic system tank/s
1 Jetter 3500 3500# 4GPM Jetter to clear drain line. Labor and wastewater disposal is additional
Labor - manhours (includes estimated time for preparation, materials selection, travel and on site work)
Items taxed are indicated with a "T" adjacent to the amount billed.
The audit revealed that plaintiff did not collect or remit sales tax on the portion of each invoice referred to as "[p]umped septic system tank/s," charged on a "per gallon" basis. The Division's auditor concluded that this item was taxable.
As a result, in November 2005, the Division assessed plaintiff $57,582.62 in additional taxes plus penalties and interest. Plaintiff protested the assessment with the Division's Conference and Appeals Branch. The protest letter explained plaintiff's invoice method as follows:
[Plaintiff] has a schedule for transportation and dumping fees, which can range from $0.04 per gallon to $0.16 per gallon depending upon the type of waste. The first line item on the [plaintiff's] invoice is labeled "pumped septic system tank" which is the charge for the transportation and dumping fee that we believe is not taxable. We acknowledge that the terminology used by [plaintiff] for these fees [is] not very clear. But the intent was actually the charges for the transportation and dumping fees [sic].
The protest letter also asserted that plaintiff invoiced its septic work in that manner based upon two letters issued to plaintiff's predecessor by the Division in response to an inquiry regarding matters pertinent to the audit. After considering plaintiff's protest, the conferee issued a final determination upholding the assessment, stating in part:
In this case a customer can not [sic] purchase the transportation services or tipping fee without the septic cleaning service. The cost of transporting the waste and disposal of same are incidental to the total cost of the services performed and were not separately stated charges on [plaintiff's] invoice.
The letters were critical to plaintiff's claims before the Tax Court. They were generated in the following context. From 1989 through June 1998, Robert L. Best served as the accountant for English Sewage Disposal, a general partnership owned by Jim D. Allen and Marion English (the English Partnership). During Best's representation of the English Partnership, he contacted the Division to clarify the proper tax treatment of his clients' business operations.*fn1
In response to Best's requests, Edward A. Callahan of the Division sent Best two letters, one in 1989 and the other in 1990. The ...