The CPA Journal

SN.J. Tax Court Decision Reinforces Strict Interpretation of Sales Tax Exemptions

By Irwin Mittleman, CPA, Maplewood, N.J.

The New Jersey Tax Court recently held that a state-mandated 10% impost fee added to the cost of New Jersey Nets basketball tickets was subject to sales tax. The fee was recorded as a liability payable to the New Jersey Sports and Exposition Authority (NJSEA) and was dedicated for the statutory purpose of constructing and operating professional sports facilities in New Jersey (Meadowlands Basketball Assoc. v. Dir., NJ Tax Ct., Dkt. No. 00665-98, 9-8-2000). The decision has been appealed to the New Jersey Superior Court (App. Div., Dkt. No. A-187-00T1).

Background

The plaintiff was the New Jersey Nets professional basketball team. During the tax period April 1, 1993, through March 31, 1997, tickets for Nets games included a separately stated admission charge, a 10% impost fee, and sales tax imposed only on the amount of the admission charge. At the conclusion of the basketball season, the entire amount of the impost fee was transferred to the NJSEA, a state agency entitled to a sales tax exemption under NJSA 54:32B-9(a)(1). The court recognized that, if the NJSEA was the purchaser, user, or consumer of the impost fee (i.e., it purchased goods in its own name), the fee would not be subject to sales tax but held that in this particular case the transfer of funds would not be deemed a direct purchase by the NJSEA.

The Court’s Holding

The court refused to allow the Nets to claim the sales tax exemption of the NJSEA for the impost fee, reasoning that, although the agency was the beneficiary of the charge, it was not the purchaser, user, or consumer as required by NJSA 54:32B-9(a)(1). The court also noted that a separate subdivision of the same statute, NJSA 54:32B-9(f), limits the sales tax exemption for admission charges to “athletic games or exhibitions only when the proceeds inure exclusively to the benefit of elementary or secondary schools.” Because there was no New Jersey court precedent on the issue, counsel for the Nets presented a similar case from the New York Division of Tax Appeals, In re: Buffalo Bills [(1988) NY LEXIS 490]. Although it admitted the similarities between the New York decision and the New Jersey statutes at issue, the court refused to be bound by the decision of a New York administrative tribunal.

Alternate argument. Nothing in the decision indicates that the court considered any argument that the impost fee was a tax which was not considered within the ambit of the definition of taxable receipt under NJSA 54:32B-3 and associated regulation NJAC 18:24-1.4. The regulation does, however, make the distinction that “excise taxes imposed on manufacturers, importers, producers, distributors, or vendors are included in the receipt on which sales or use tax is computed, even though the excise tax may be separately stated to the purchaser” [NJAC 18:24-1.4(b)(1)]. The regulation further states that “excise taxes which are imposed on the consumer are excluded from the taxable receipt; for example, the Federal retail excise taxes on heavy trucks and trailers sold at retail and the Federal luxury tax on certain retail purchases.”

The court was not asked to decide whether this impost fee was an excise tax or whether it was imposed on the consumer, but the court did state that the “plaintiff was required to collect the 10% impost on behalf of NJSEA from purchasers of tickets to Nets basketball games” [italics added].

Comment

New Jersey’s tax court has a significant history of interpreting sales tax exemption statutes in the most restrictive manner possible. In National Paving Company v. Dir. [13 NJ Tax 133 (1981)], the court refused to extend the sales tax exemption for material purchases afforded to contractors doing work for municipalities because the road being built for the municipality was not formally dedicated to it until after the construction was completed. In Commercial Refrigeration v. Dir. [446 A.2d 210 (1981)], a sales tax exclusion was disallowed on uncollectable receivables because the taxpayer failed to follow a strict administrative procedure to claim the deduction. The higher courts in New Jersey seem to be more willing to extend equitable principles to tax disputes; see Cosmair, Inc. v. Dir. [169 NJ 562 (1998)], sales tax, and Koch v. Dir. (NJ Sup. Ct., Dkt. No. A-135-97, 1-14-99), gross income tax.

State and Local Editor:
Stewart Buxbaum, CPA
S. Buxbaum & Company P.C.

Interstate Editor:
Nicholas Nesi, CPA
BDO Seidman LLP

Contributing Editors:
Henry Goldwasser, CPA
M.R. Weiser & Co. LLP

Steven M. Kaplan, CPA
Kahn, Hoffman, Nonenmacher & Hochman, LLP

Warren Weinstock, CPA
Marks Paneth & Shron, LLP

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STATE AND LOCAL TAXATION