N. IOAKIMIDIS, LLC VS. DIRECTOR, DIVISION OF TAXATION (TAX COURT OF NEW JERSEY) ( 2018 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1978-16T1
N. IOAKIMIDIS, LLC, and
STELLA'S PIZZA, INC.,
Plaintiffs-Appellants,
v.
DIRECTOR, DIVISION
OF TAXATION,
Defendant-Respondent.
______________________________
Submitted March 13, 2018 – Decided July 17, 2018
Before Judges Sumners and Moynihan.
On appeal from Tax Court of New Jersey,
Docket Nos. 14362-2014 and 14364-2014.
Fernando Iamurri, PC, attorney for
appellants (Fernando Iamurri, on the brief).
Gurbir S. Grewal, Attorney General, attorney
for respondent (Heather Lynn Anderson,
Deputy Attorney General, on the brief).
PER CURIAM
The Division of Taxation (the Division) issued sales tax
assessments for a restaurant owned and operated by plaintiffs N.
Ioakimidis, LLC and Stella's Pizza, Inc., which was based upon a
methodology that did not rely upon business records because the
records were deemed inadequate. Plaintiffs appeal the Tax
Court's denial of their summary judgment motion contesting the
assessments and the granting of the Division's cross-motion that
the assessments were proper. We affirm.
In 2009, Nick Ioakimidis, owner and principal shareholder
of Stella's Pizza, Inc., transitioned operations of "Stella's
Pizza" from Stella's Pizza, Inc. to N. Ioakimidis, LLC, bearing
a different taxpayer identification number. A Pre-Audit
Questionnaire by the Division revealed that Stella's Pizza was
not retaining necessary business records, such as guest checks,
cash disbursement journals, sales journals, deposit slips,
vendor bills, payroll records, and cash register tapes. During
a pre-audit meeting in April 2011, the Division's auditor
requested plaintiffs produce their business records.
After two years expired without the records being produced,
another pre-audit meeting in May 2013 resulted in a renewed
records request. This time, plaintiffs responded by producing:
two Point of Service (POS) statements for the tax period of
January 1, 2006 to May 31, 2012; copies of W-2 and NJ W-31 forms
for tax years 2007 through 2009; a price list for tax year 2011;
1
Gross Income Tax Reconciliation of Tax Withheld.
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bank statements from Valley National Bank and PNC Bank; partial
vendor purchase invoices from Bart Foods from 2005 to 2010; a
vendor list for the period of April 1, 2005 through March 31,
2009 and of May 1, 2010 through May 31, 2012; and partial vendor
purchase invoice from Kalimera Food from 2006 to 2012.
After a careful review of the limited business records, the
auditor found several deficiencies: (i) inconsistencies between
gross receipts reported on plaintiffs' Corporation Business Tax
(CBT) returns and gross receipts reported on plaintiff's Sales
and Use Tax (SUT) returns; (ii) disparities between the menu
prices identified on plaintiffs' website and the paper menu
supplied by plaintiffs following the pre-audit meetings; (iii)
the SUT collected by plaintiffs exceeded the SUT remitted to
defendant; (iv) plaintiffs' bank statements did not correspond
to the reported gross receipts; (v) the sum of plaintiffs'
cancelled checks fell short of the purchase totals reported by
plaintiffs; (vi) none of the POS records corresponded to
plaintiffs' SUT returns; (vii) plaintiffs' paid wages in cash
and did not record all payroll transactions; and (viii) all cash
received from business operations was not deposited into
plaintiffs' bank accounts. The auditor also found
inconsistencies with individual line items for the identical tax
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periods and a discrepancy in the gross sales figures between the
POS records.
Consequently, the auditor conducted a markon analysis to
test plaintiffs reported taxable sales and determined that a 3.0
markon ratio should be applied to the purchases for the audit
period. Plaintiffs' SUT deductions were rejected for failure to
present any documentation. The auditor further applied the
applicable SUT rate to each audit year, and thereafter, reduced
the sum of the SUT paid by plaintiffs with their SUT returns.
The Division next issued Notices of Assessment Related to
Final Audit Determination to plaintiffs. Plaintiffs filed a
notice of protest. The Division's conferee2 accepted the 3.0
markon ratio and determined plaintiffs failed to maintain
adequate books and records and adequate internal control
procedures. The Division determined that because "the integrity
of the POS records [were] in question," Stella's Pizza, Inc. was
assessed $161,354.04 in unpaid CBT, SUT, Gross Income Tax –
Employer Withholding (GIT), and Litter Control Fee, including
penalties and interest, and N. Ioakimidis, LLC was assessed
2
The Division's Conference and Appeals Branch employ a conferee
who conducts administrative conferences with taxpayers. Clorox
Prods. Mfg. Co. v. Director, Div. of Taxation, 24 N.J. Tax 223,
227 n.6 (Tax 2008).
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$76,506.06 in unpaid SUT and GIT, including penalties and
interest.
After plaintiffs challenged the determination in Tax Court,
the parties' filed their respective motions for summary
judgment. In a comprehensive written opinion, Judge Joshua D.
Novin decided in the Division's favor. He rejected plaintiffs'
arguments that the Division erred in disallowing the POS
statements to determine their gross sales during the audit
periods; that the documents the Division requested were not
statutorily required to be maintained; that the Division had the
burden to analyze the POS system; and that the markon ratio and
methodology employed in making the assessments were flawed and
produced an arbitrary and capricious assessment.
The judge found that because plaintiffs failed to satisfy
N.J.A.C. 18:24-2.4 by preserving sales slips, invoices,
receipts, cash register tapes, and guest checks receipts
corroborating the accuracy of the two POS statements provided,
the Division appropriately determined plaintiffs’ summary
records were inaccurate. The judge cited N.J.S.A. 54:32B-19,
which provides that "if a [tax] return when filed is incorrect
or insufficient, the amount of tax due shall be determined by
the director from such information as may be available. If
necessary, the tax may be estimated on the basis of external
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indices." He further relied upon Yilmaz, Inc. v. Dir., Div. of
Taxation, 390 N.J. Super. 435, 441 (App. Div. 2007), which held
that the Division's Director was "given broad authority to
determine the tax from any available information and, if
necessary, to estimate the tax from external indices." Hence,
the judge found it suitable that the auditor "turned to
consideration of other evidence to estimate plaintiffs' gross
sales and tax obligations," such as the 3.0 markon ratio; noting
plaintiffs failed to show it "produced an inconsistent or
aberrant result." The judge explained, plaintiffs
have not argued, offered, maintained or
demonstrated that at trial that they will or
are prepared to offer the testimony of an
accountant, auditor, examiner or other
expert in the field who has conducted a
review or analysis of plaintiffs' business
records, POS statements, SUT returns and the
auditor's file, and would offer substantive
alternate calculations to those of the
auditor. Thus, a trial in this matter would
seemingly amount to the court's review of
[Division's] audit and conference practices
on the basis of plaintiffs' unsubstantiated
challenges to the auditor's and conferee's
final conclusions. [The] standards
governing the review of motions for summary
judgment do not permit such proceeding.
Plaintiffs appeal arguing:
POINT I
THE LOWER COURT ERRED IN DENYING PLAINTIFFS'
SUMMARY JUDGMENT MOTION AND GRANTING
DEFENDANT'S CROSS[-]MOTION BY FAILING TO
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RECOGNIZE THE INHERENT LAWS AND ARBITRARY
ASSUMPTIONS IN THE DIRECTOR'S METHODOLOGY
AND BY DISREGARDING THE FACT THE DIRECTOR
VIOLATED STATUTORY LAW BY DISCOUNTING THE
DOCUMENTATION PROVIDED BY PLAINTIFFS[] IN
ORDER TO PROPERLY DETERMINE GROSS SALES.
A. The Lower Court failed to recognize the
unmistakable inherent flaws and wholly
arbitrary assumptions in the State Auditor's
markup methodology and calculations.
B. The Lower Court failed to recognize that
the Arbitrator Deviated from Statutory Law
by Arbitrarily Disregarding the Point of
Sale Statements and the Plaintiffs'
Accountant's Certification.
POINT II
THE LOWER COURT ERRED IN GRANTING
DEFENDANTS' SUMMARY JUDGMENT MOTION BY
SUBSTANTIALLY DEVIATING FROM THE BRILL[3]
STANDARD SET FORTH BY OUR COURTS WHEN
CONSIDERING SUMMARY JUDGMENT APPLICATIONS.
To inform our review of plaintiffs' contentions, we
consider some well-known general standards. When reviewing an
order granting summary judgment, we apply "the same standard
governing the trial court." Oyola v. Xing Lan Liu, 431 N.J.
Super. 493, 497 (App. Div. 2013). A court should grant summary
judgment when the record reveals "no genuine issue as to any
material fact" and "the moving party is entitled to a judgment
or order as a matter of law." R. 4:46-2(c). We accord no
3
Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520 (1995).
7 A-1978-16T1
deference to the trial judge's legal conclusions. Nicholas v.
Mynster, 213 N.J. 463, 478 (2013) (citations omitted). Summary
judgment should be denied when the determination of material
disputed facts depends primarily on credibility evaluations.
Petersen v. Twp. of Raritan, 418 N.J. Super. 125, 132 (App. Div.
2011). Although both parties moved for summary judgment,
because the court granted judgment in favor of the Division, we
consider the facts in a light most favorable to plaintiffs.
Brill, 142 N.J. at 523.
"A taxpayer challenging the [Division]'s determination
bears the burden of proof." UPSCO v. Dir., Div. of Taxation,
430 N.J. Super. 1, 8 (App. Div. 2013) (citing Atl. City Transp.
Co. v. Dir., Div. of Taxation, 12 N.J. 130, 146 (1953)). Those
transactions enumerated by the SUT Act, N.J.S.A. 54:32B-1 to -
55, are "presumed" to be "subject to tax until the contrary is
established, and the burden of proving that any such receipt,
charge or rent is not taxable . . . shall be upon the person
required to collect tax or the customer." N.J.S.A. 54:32B-
12(b). N.J.S.A. 54:32B-3(b) imposes a tax on the "receipts from
every sale . . . of" certain services. These include services
connected with "[i]nstalling tangible personal property," or
"[m]aintaining, servicing, or repairing real property."
N.J.S.A. 54:32B-3(b)(2) and (4).
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Generally, we review "[a] tax court's interpretation of a
statute . . . de novo." Presbyterian Home at Pennington, Inc.
v. Borough of Pennington, 409 N.J. Super. 166, 180 (App. Div.
2009) (citing Twp. of Holmdel v. N.J. Highway Auth., 190 N.J.
74, 86 (2007)). On the other hand, we are mindful that we
extend some deference to the Division's interpretation of the
operative law based on "the Director's expertise, particularly
in specialized and complex areas of the Act," and the Director's
responsibility to interpret the law he is charged with
enforcing. Koch v. Dir., Div. of Taxation, 157 N.J. 1, 8
(1999). "However, this deference is not total, as the courts
remain the final authorities on issues of statutory
construction." Ibid. (citation omitted).
Applying these standards, we conclude plaintiffs' arguments
lack sufficient merit to warrant discussion in a written
opinion, R. 2:11-3(e)(2), and we affirm substantially for the
reasons set forth by Judge Novin in his cogent decision.
Affirmed.
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