Articles Posted in Tax Law

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In this appeal, the New Jersey Supreme Court considered whether the 2000 and 2001 financial agreements between plaintiffs EQR-Lincoln Urban Renewal Jersey City, LLC (EQR-Lincoln), and EQR-LPC Urban Renewal North Pier, LLC (EQR-North Pier), and defendant, the City of Jersey City (City), incorporated 2003 amendments to the Long Term Tax Exemption (LTTE) Law, N.J.S.A. 40A:20-1 to -22. Plaintiffs were limited liability companies that qualified as urban renewal entities under the LTTE Law. Each plaintiff entered into a separate financial agreement with the City to obtain a property tax exemption relating to an urban renewal project involving construction of an apartment building. Among other things, the financial agreements required plaintiffs to pay the City an “annual service charge” in lieu of property taxes. Plaintiffs filed a two-count complaint seeking a declaratory judgment against the City seeking: (1) a judgment declaring that the applicable law and financial agreements permitted plaintiffs to pay “excess rent” to affiliated entities under certain ground leases, with the effect of eliminating the “excess net profit” that plaintiffs might otherwise owe to the City; and (2) a judgment declaring that the parties’ financial agreements incorporated future changes to applicable law, such that plaintiffs could calculate their “allowable profit rate” in accordance with the 2003 amendments to the LTTE Law. The trial judge granted partial summary judgment on Count II, reasoning that the express language of the contract, “as amended and supplemented,” demonstrated that the parties agreed to incorporate future amendments to the LTTE Law in their financial agreements. The trial judge further concluded that the 2003 amendments to the LTTE Law applied to the financial agreements, and that legislative history supported his conclusions. The trial judge denied the City’s motion for reconsideration. The Appellate Division reversed, finding LTTE Law did not sanction plaintiffs’ unilateral changes to their financial agreements. The Supreme Court affirmed the Appellate Division. View "EQR-LPC Urban Renewal North Pier, LLC v. City of Jersey City" on Justia Law

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In this case, the issue this case posed to the New Jersey Supreme Court was presented by the United States Court of Appeals for the Third Circuit: whether, under New Jersey law, a tax sale certificate purchaser holds a tax lien. In 1998, plaintiff Princeton Office Park, L.P. purchased a 220,000 square foot commercial building on thirty-seven acres of land in the Township of Lawrence. Princeton Office Park did not satisfy its real estate tax obligation to the Township of Lawrence. By 2005, Princeton Office Park owed the Township of Lawrence in back taxes and unpaid penalties. The Township conducted a public auction of municipal tax liens. Defendant Plymouth Park Tax Services, LLC bid on a tax sale certificate for Princeton Office Park’s property. As the owner of the tax sale certificate following the public auction, Plymouth Park paid municipal real estate taxes and charges for Princeton Office Park’s property through the second quarter of 2008. By operation of law, Plymouth Park’s additional payments were added to the sum required for Princeton Office Park to redeem the tax sale certificate owned by Plymouth Park. The redemption amount accrued interest at a rate of eighteen percent following the sale. In 2007, Plymouth Park filed a tax lien foreclosure action against Princeton Office Park seeking to enjoin Princeton Office Park from exercising any right of redemption of the certificate, and requesting a declaration that Plymouth Park was the owner in fee simple of the disputed property. The Chancery Division entered an order establishing a deadline by which Princeton Office Park could redeem the certificate. While Plymouth Park’s foreclosure action was pending in the Chancery Division, Princeton Office Park filed a voluntary Chapter 11 bankruptcy petition. Plymouth Park filed an initial proof of claim in the Bankruptcy Court, citing “taxes” as the basis for its claim. Plymouth Park then objected to Princeton Office Park’s Plan of Reorganization. The United States Bankruptcy Court ruled in favor of Princeton Office Park. The United States District Court for the District of New Jersey affirmed, substantially adopting the reasoning of the United States Bankruptcy Court. The District Court construed the Tax Sale Law to confer on the purchaser of a tax sale certificate a lien, but not a lien that would permit the holder of the certificate to collect unpaid taxes owed to the municipality. Plymouth Park appealed to the United States Court of Appeals for the Third Circuit. The New Jersey Supreme Court answered the Third Circuit's question in the affirmative: the purchaser of a tax sale certificate possesses a tax lien on the encumbered property. View "In re: Princeton Office Park v. Plymouth Park Tax Services, LLC" on Justia Law

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The taxpayer, Bocceli, LLC, is the taxpaying sublessee of a commercial property owned by Penns Grove Associates in the Township of Carney's Point. The Township's tax assessment list incorrectly listed Prime Accounting Department as the owner. In 2007, the Township wrote to Prime Accounting requesting updated income and expense information for purposes of assessing the value of the property. Prime Management's interest in the property transferred to a new lessee, WIH Hotels, Inc. That inquiry eventually reached WIH, which submitted a late response and paid taxes for 2007. WIH entered into a sublease with Bocceli, which became responsible for property tax payments. In 2008, the managing member of Bocceli visited the tax collector's office, made a tax payment, and requested that the tax assessment list be changed to designate "Bocceli, LLC" as the owner and that notices be sent to the property. According to the Township, the clerk advised the managing member that a deed needed to be presented to the assessor's office to change the list. No deed was presented, and Prime Accounting remained on the list. The tax assessor sent the annual request to Prime Accounting. When it was returned undelivered, the Township reviewed its records and discovered that WIH had responded to the prior year's request. It sent another request to WIH, which did not forward it to Bocceli. Later that year, the tax collector advised the tax assessor of the address that the managing member had provided, but it continued to list Prime Accounting as the owner. In early 2009, the assessor notified Bocceli of the annual tax assessment. Thus, at that time, the assessor was aware of Bocceli's responsibility to pay property taxes and used Bocceli's mailing address to serve the notice of assessment that prompted this tax appeal. The tax assessment list continued to designate Prime Accounting as the entity responsible to pay the taxes. The issue before the Supreme Court centered on whether a tax appeal complaint timely filed, but one which did not name the aggrieved taxpayer as the plaintiff, should have been dismissed for lack of subject matter jurisdiction. The Supreme Court concluded that Bocceli's misdesignation of the plaintiff did not deprive the tax court of subject matter jurisdiction. "The defect in the complaint did not prejudice the Township and [could] be corrected by an amended complaint that relate[d] back to the filing of the original complaint." View "PrimeAccounting Department v. Township of Carney's Point" on Justia Law

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New Jersey uses a three-factor formula to calculate a multi-state corporation’s New Jersey Corporate Business Tax (CBT) by apportioning income between New Jersey and the rest of the world. For taxpayers with regular places of business outside of New Jersey, the portion of entire net worth and entire net income that is subject to New Jersey tax is determined by multiplying each by an allocation factor that is the sum of the property fraction, the payroll fraction, and two times the sales fraction, divided by four. The sales fraction is at issue in this case. Without the "Throw-Out Rule," the sales fraction is calculated by dividing the taxpayer’s receipts (sales of tangible personal property, services, and all other business receipts) in New Jersey by total receipts. The Throw-Out Rule increases a corporation’s New Jersey tax liability by “throwing out” sales receipts that are not taxed by other jurisdictions from the denominator of the sales fraction. This always increases the sales fraction, causing the apportionment formula and resulting CBT to increase. Whirlpool Properties, Inc. appealed its assessment from 2002, arguing that the Throw-Out Rule was unconstitutional. Upon review of the applicable legal authorities, the Supreme Court held that corporate taxpayers having a substantial nexus to New Jersey may constitutionally apply the Throw-Out Rule to untaxed receipts from states that lack jurisdiction to tax it due to an insufficient connection with the corporation but not to receipts that are untaxed because a state chooses not to impose an income tax. View "Whirlpool Properties, Inc. v. Div. of Taxation" on Justia Law

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The issue before the Supreme Court in this case was whether plaintiff International Schools Services, Inc. (ISS) was properly denied a tax exemption for 2002 and 2003 under the state tax code. ISS has owned and occupied the West Windsor Township property at issue in this case since 1989. ISS is a nonprofit corporation and maintains a tax-exempt status under the Internal Revenue Service Code. Although West Windsor Township granted ISS a property tax exemption from 1990 through 2001 for the portions of ISS's property that it actually occupied, the exemption was denied for 2002 and 2003 based on the Township's review of ISS's activities. ISS appealed to the Tax Court which found that ISS had not satisfied the first prong of a three-part test (the "Paper Mill Playhouse" test) requiring that the entity seeking tax exemption be "organized exclusively for the moral and mental improvement of men, women, and children." The Appellate Division reversed that decision, and remanded for the Tax Court to address the remaining prongs of the test. On remand, the Tax Court held that ISS had not satisfied the second prong of the test because the schools, not ISS, were performing the activities sufficient for tax exemption, and ISS was merely assisting them. Focusing on the rates charged for rent to some of its for-profit affiliates, the Tax Court found also that ISS had not satisfied the third prong of the test. The Appellate Division disagreed with the Tax Court with regard to the second prong of the test, but found that ISS failed the third prong due to the subsidies it provided to its affiliates. Upon review, the Supreme Court found that West Windsor Township properly denied a property tax exemption to ISS for the tax years 2002 and 2003 because the commingling of its effort and entanglement of its activities and operations with its profit-making affiliates was significant and substantial, with the benefit in the form of direct and indirect subsidies flowing only one way-from ISS to the for-profit entities. View "International Schools Services, Inc. v. West Windsor Township" on Justia Law