GNOC, Corp. v. Director, Division of Taxation

167 N.J. 62, 768 A.2d 1051 (2001)

Opinion Date: April 3, 2001
Business Law
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TAXATION; SALES TAX—The complementary provision of alcoholic beverages to casino patrons is a non-taxable sale; therefore, casinos are obligated to pay sales tax on the alcoholic beverages that they purchase from their suppliers.

A casino owner sued the Division of Taxation after the Division levied sales and use taxes against the casino in respect of complimentary alcoholic beverages given to patrons. In 1981, the casino owner, together with other casino owners, entered into an agreement with the Division which provided that no sales or use taxes were to be imposed on the provision of complimentary liquor. A 1986 and a 1988 amendment to that agreement also exempted complementary meals and non-alcoholic beverages from a sales and use tax. The agreement specifically provided that subsequent legislation on the issue of sales and use tax on complementary beverages and meals would supercede the relevant portions of the agreement. Therefore, since 1981, the casino owner had paid no sales and use taxes on alcoholic beverages it purchased from suppliers for complimentary use. In 1990, the Legislature repealed the exemption of alcoholic beverages from the six percent retail tax. At the same time, the Legislature repealed the Alcoholic Beverage Wholesale Tax Act. Therefore, since 1990, the receipts of any sale of alcoholic beverages have been subject to New Jersey’s six percent sales tax under the New Jersey Sales and Use Tax Act. The Division determined that the casino owner owed approximately $135,000 in sales and use taxes on alcohol it had purchased. The casino owner filed suit in tax court seeking to set aside the Division’s determination. The tax court dismissed the complaint recognizing that the Division was not taxing the provision of complimentary beverages from the casino to its patrons, but was assessing only tax owed on the purchase of alcoholic beverages from suppliers. The casino owner appealed arguing, inter alia, that the subsequent legislation did not supercede the agreement because the legislation only pertained to alcoholic beverages and not to other complimentary items. The Appellate Division disagreed, reasoning that although the Division had broad discretion to enter into final agreements with taxpayers, it could not enter into an agreement that would nullify future legislative enactments. The Appellate Division also rejected the casino owner’s argument that even if the agreement were no longer in effect, complimentary provision of alcoholic beverages to its patrons constituted a non-taxable sale. The Court reasoned that providing free drinks to patrons is a transfer for no consideration and therefore did not constitute a “resale” of the beverages. The casino owner appealed. The Supreme Court affirmed the tax court’s decision relying in part on the definition of “retail sales” at N.J.S. 54:32B-2(e) which defines it as “a sale of tangible personal property to any person for any purpose, other than for resale . . .” It agreed with the Appellate Division that a transfer for no consideration is not a resale. Further, the Supreme Court concluded that the Legislature clearly intended in the 1990 enactment to subject alcoholic beverages to the Sales and Use Tax Act by expressly repealing the exemption for alcoholic beverages and by excluding alcoholic beverages from the benefit of the fifty percent sales and use tax exemption afforded to retailers in urban enterprise zones.

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