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Huff v. Director, Division of Taxation

24 N.J. Tax 231 (Tax Ct. 2008)

TAXATION; SALES TAX — It is an open question if a buyer could have purchased an item from a qualified enterprise zone seller, but purchases it elsewhere, whether the buyer is entitled to pay use tax for the item at the lower sales tax rate that would have been charged had the item actually have been purchased within the enterprise zone to which the purchased item was delivered.

A New Jersey company bought a boat in Florida. It entered into a docking contract with a New Jersey marina where the boat was stored after its sailing to New Jersey. When the boat owner filed a tax return, it included a use tax due of only three percent of the boat’s purchase price. The three percent figure was used because the marina was located in an urban enterprise zone where sales and use tax was leveled at fifty percent of the state’s six percent sales tax. The Tax Division’s Director issued an additional use tax assessment amounting to more than four times the amount claimed on the company’s tax return. The assessment was based on a price review of similar boats. Following a protest by the boat owner, the Director reduced the assessment to six percent of the boat’s purchase price and credited the three percent tax already paid. The remaining three percent of the boat’s sale price plus interest and late penalties were assessed by the Director on the company’s owner individually on the grounds that he controlled the use of the boat and that company had no actual business purpose for the boat. The Director added that the boat owner did not qualify for the three percent tax rate because he did not purchase it from a certified vendor within the enterprise zone.

On appeal, the Tax Court pointed out that in order for a vendor to be certified and to be allowed to charge the three-percent tax rate, it needed to meet certain criteria. The vendor must be newly engaged in the business in that zone and at least twenty-five percent of the vendor’s employees must both live in an enterprise zone and have been New Jersey residents for at least six months prior to being hired. In addition, the qualifying employees have to had been recipients of public assistance for six months prior to being hired or have been classified as low income individuals. It agreed with the Director that since the boat was not purchased within the enterprise zone, the boat owner was not entitled to the reduced sales tax rate. However, the Tax Court found that it could not decide the matter on summary judgment because the Director had not addressed the boat buyer’s argument that since he could have purchased the boat from a certified vendor within the enterprise zone, not receiving the reduction would amount to unconstitutional discrimination against interstate commerce. Since the matter of whether the boat buyer could have purchased the boat from a certified vendor within the enterprise zone existed, with both parties disputing the question, the Tax Court refused to grant summary judgment in favor of the Director and allowed the matter to proceed.

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