Case Law Summaries

Atlantic City Linen Supply Inc. v. Director, Division of Taxation

• Opinion Date: November 6, 2003
• Business Law
• E-Mail

TAXATION; SALES TAX—The purchase of chemicals used by a commercial laundry to clean dirty linens and the like is subject to sales tax.

A commercial laundry “filed a claim for refund of sales tax it had paid on its purchases of chemicals and detergents used in its laundry and cleaning processes.” Its claim was denied. It appealed, but the Tax Court held that purchases of chemicals and detergents utilized in a laundering process were not exempt from sales tax. The taxpayer argued that “the laundering process is a refining or chemical process” within the meaning of New Jersey’s taxation statutes. The lower court agreed that “removing undesirable matter, including dirt and bodily fluids, from soiled linens qualified as a refining process within the meaning of the statute.” With that agreed-upon, the taxpayer contended that it met “all of the statutory criteria for the exemption, namely: (1) that there be a sale of chemicals or catalysts; (2) that the materials induced a refining or chemical process; (3) that they were integral or essential to the process; and (4) that the chemicals did not become a component part of (5) a finished product.” The lower court and the Appellate Division agreed that the laundry could not demonstrate the fifth element, namely that it had produced a finished product. The laundry thought that such a decision “improperly engrafted a new requirement onto the statute,” but the Appellate Division disagreed. It felt that while the laundry technically met the other criteria for a refining and manufacturing process, it was, in reality, a laundry. A laundry is a service provider and, as such, is entitled to certain tax exemptions. In fact, the taxpayer agreed that if it qualified for the exemption it was seeking, it would, in effect, be granted a double exemption. Further, while the laundry “transformed dirty linen into clean and usable linen, it did so by performing a service on the product and did not create a different end-product as required for the statutory exemption.”

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