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Boardwalk Regency Corp. v. Director, Division of Taxation

A-4008-97T1 (N.J. Super. App. Div. 1999) (Unpublished)

TAXATION; COMPROMISES—The Director of Taxation has the authority to compromise tax disputes even if the compromise affects the way sales or use taxes are applied to a taxpayer’s business in future periods.

According to the Court, the complimentary providing of non-alcoholic beverages to casino patrons and employees “is a transfer for no consideration, or at least for legally insufficient consideration, and does not constitute a ‘resale’” Accordingly, the Court ruled that “[w]ith this provision to the patrons, the sale-for-resale exemption disappeared and [the casino] became, for tax purposes, the consumer or ‛end user’ of the non-alcoholic carbonated beverages” and thus, held that “a use tax became due on the beverages [the casino] purchased under the sale-for-resale certificates.” In the course of prior litigation involving this issue, the lower court ruled that the Director of the Division of Taxation did not have the power to compromise a tax dispute. By New Jersey statute, within certain limitations, the Director has the power to enter into closing agreements and compromises with taxpayers. One of those limitations is that such agreements are to be “in respect of any state tax for any taxable period ending prior to or subsequent the date of such agreement.” A closing agreement may be reached in any case in which there appears to be an advantage to have the case permanently and conclusively closed, or if good and sufficient reasons are shown by the taxpayer for desiring a closing agreement and the Director determines that the State will sustain no disadvantage. The lower court believed that the agreements in question should have been limited in time and that they were unauthorized because they “would govern the future tax liability of a taxpayer for an indeterminate period of time.” The Appellate Division read the authorizing statute liberally, and held that such agreements were authorized because they concerned a “taxable period ending ... subsequent to the date of such agreement.” According to the Court, the Director has broad discretion and if the agreements in question were designed to settle a dispute concerning the taxability of transactions, including those in dispute, the administrative action must be deemed presumptively valid. In addition, a court “will strain to give effect to the terms of a settlement whenever possible,” even when an administrative agency is involved. To the extent that there may have been a factual dispute regarding what was settled by the agreements, the lower court was directed to resolve it.


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