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Township of Lyndhurst, New Jersey v.

2009 WL 749566 (U.S> Dist. Ct. D. N.J. 2009) (Unpublished)

TAXATION; SALES TAX— In New Jersey, only municipalities within which international airports are located have the authority to enforce payment of delinquent hotel occupancy taxes; otherwise, such authority is vested solely in New Jersey’s Director of Taxation.

Cities in New Jersey are authorized to impose a tax on hotel occupancy. The amount of the tax depends on the class designation of the city. A municipality asserted that a particular entity was an “internet travel company” who collected “rent” from its customers. The internet company calculated the tax it owed based on its negotiated room rate with each hotel, not on the higher amount it charged its own customers. The way this worked was that the internet company paid a negotiated room rate plus the tax collected to the hotel, and the hotel, in turn, filed tax returns and remitted the hotel tax to the municipality. The municipality sued, alleging that the internet company should pay the hotel tax based on the higher rate it charged its own customers, not on the lower rate at which it purchased the room from the hotel. It also asserted that the internet company’s failure to remit the tax directly to the municipality amounted to tax evasion.

The lower court dismissed the case, holding that various provisions cited by the municipality as authority to tax dealt with a municipality’s police power, not with the power of taxation. The Court found that New Jersey’s Director of Taxation was the one required to collect the tax and the one who had the power to determine the amount of the tax. Thus, it held that a municipality lacked standing to sue a taxpayer by alleging the improper tax was paid. It held that to permit a municipality to sue to enforce the amount due under the statute would negate the Director of Taxation’s power to determine the amount of the tax. Further, a section of the statute dealing with cities having an international airport had specific provisions authorizing those cities, not this municipality, to enforce the payment of delinquent hotel occupancy taxes. It noted that no such language was included in the statute for cities, such as this one, without airports. Further, it found that the Legislature’s grant of power to municipalities like the municipality challenging the taxpayer in the current matter was not broad under this particular statute.

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