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Greater Wildwood Hotel Motel Association v. Adams

A-0537-09T3 (N.J. Super. App. Div. 2010) (Unpublished)

TAXATION — The Tax Court is a court of limited jurisdiction and does not have the authority to adjudicate the validity of an agency’s policy in a particular fashion so as to impose a burden on an unrepresented class.

An association of hotel and motel owners in a municipality filed a complaint in the Tax Court against the Director of the Division of Taxation. They were seeking a declaration that the division’s policy to charge sales tax on hotel and motel room rentals but not on condominium rooms for transient room rentals, violated the law and was arbitrary, capricious, and unreasonable. It sought a judgment prohibiting the Division from distinguishing between hotels or motels and other transiently-rented property.

The Division had formulated a policy for determining whether an establishment qualified as a hotel for purposes of imposing the statutory sales and occupancy taxes. Implicit in its definition was a concept of transient use - that these rooms were available at any time for travelers and included linens, maid service, and often room service. Additionally, the Division stated that most taxable accommodations did not provide cooking facilities to the occupant.

While the Tax Court held that the Division’s regulation and policy with respect to what constituted a hotel reflected a much narrower definition than that authorized under law logically created a competitive disadvantage for hotel/motel owners, the court declined to order a remedy extending a tax burden to condominium owners who were not parties to the litigation and were not given an opportunity to be heard. The Court urged the Director to issue a more definitive rule, and in the rule-making process, to hear the conflicting arguments of the parties. The association filed its notice of appeal, and also a petition for rulemaking action, urging the Director to adopt a rule expanding the regulatory definition of the term hotel to include unconventional transient rentals such as condominiums that were rented out. The petition was denied.

The Appellate Division affirmed, finding that the Tax Court was correct in its position that it lacked jurisdiction to afford the association the relief sought. It held the Tax Court is a court of limited jurisdiction, and the association was challenging the Director’s informal policy with respect to the definition of a hotel in seeking an extension of the tax to cover condominium room or transient room rentals owned by parties that were not before the court. According to the Court, the Tax Court lacked jurisdiction to adjudicate the validity of an agency’s policy in a particular fashion so as to impose a burden on an unrepresented class.

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