***** **TAX COURT**  **OF NEW**  **JERSEY**

**495 Martin Luther King Blvd.** 

CHRISTINE NUGENT **Newark, New Jersey 07102**  **JUDGE (609)**  **815**

**- 2922**  **Ext.54610 Fax:**  **(609) 815** 

**- 2923** 
**August 25, 2023 Jill T. Sorger,**  **Esq. 211 Gates Ave**  **Montclair, New Jersey 07042 Anthony D. Tancini,**  **Esq. Deputy Attorney General**  **25 Market Street, P.O. Box 106 Trenton, New Jersey 08625** 
**Re: Kodus Leasing, Inc. v. Director, Division of Taxation**  **Docket No.: 014517-2015 Dear Counsel:** 
**Thi s is the court’s decision after trial of the**  **within matter**  **where Kodus Leasing, Inc.**  **(“Kodus” or “taxpayer”), challenged an**  **assessment issued by the Division of Taxation (“Division”**  **or “defendant”) under the Sales and Use Tax Act, N.J.S.A. 54:32B-1 to -55, (“SUT” or “Act”).**  **Kodus is engaged in the used car business.**  **Defendant initiated an**  **audit based on**  **taxpayer’s filed**  **tax returns on**  **which Kodus**  **reported deductions in the amount of $5,038,243 on total**  **reported sales**  **in the amount of $6,865,570**  **, for 2009 through**  **the third quarter of 2012. The auditor denied**  **$1,000,000 of taxpayer’s reported deductions and issued a Notice of**  **Assessment Based on Final Audit Determination**  **(“NOA”) for unpaid s**  **ales t**  **ax**
**. 1**  **Taxpayer filed a n**  **administrative protest to** 

**1 Taxpayer contends it received no advance notice of the audit and thereby had no**  **opportunity to participate in the audit process.** **2**

**the Division’s Conference and Appeals Branch (“CAB”) where the assessment was**  **unchanged**

**. A**  **Final Determination issued by the Director of the Division**  **affirmed the assessment. Based on documentary proof and witness testimony, taxpayer posits that the deductions**  **at issue did not represent retail sales, but rather the vehicles were sold for resale o**  **r to out -of-**  **state purchasers and thereby exempt from sales tax.**  **At trial taxpayer also argued that the “standard” of**  **the review at audit and at CAB**  **differ , and because the audit proceeded without taxpayer’s**  **opportunity to participate that should factor into the court’s decision when considering the**  **evidence. Per defendant, taxpayer failed to maintain adequate books and records for its busine ss**  **to support its allegations that the $1 million in the denied deductions represente d tax exempt sales.**  **After a review of the proofs and arguments in support of the parties’ positions, th e court**  **fi nds no**  **basis to disturb the final determination of defendant. Procedural History** 
**Per t he**  **Division’s audit narrative, the auditor examined**  **taxpayer’s filed tax returns**  **comprised of corporate business tax**  **returns (**  **CBT -100**  **), SUT**  **returns (**  **ST -50**  **), and**  **sales and use**

**tax “Master Cash Summary Prints** 

**. ”**  **According to the CBT** 

**- 100**  **, taxpayer’s business is**  **listed as “Used Car**  **– Wholesale**  **, ” and the**  **only corporate officer listed is**  **Igor Borko who serves as the**  **president of Kodus**

**. Mr.**  **Borko is taxpayer’s**  **sole employee. The audit period at issue**  **for the sales** 

**tax is**  **April 1, 2009, through September 30, 2012. 2** 

**2 This is because**  **taxpayer ceased filing ST**

**- 50s in the third quarter of 2012. Per the narrative,** 

**“ [s]**  **ince the auditor was unable to contact the taxpayer to start the audit, the CBT-100 r**  **eturns could not be audited” so n**  **o assessment was made. Moreover, the narrative listed as “concessions” to taxpayer,**  **no arbitrary or estimated**  **Use Tax assessment on fixed ass ets or expenses.** **3**

**In the narrative it was noted that ,**  **beginning in 2013 ,**  **many attempts were made**  **to notify taxpayer about**  **the audit, including through**  **telephone calls and certified letters sent to taxpayer’s last known address in South Amboy, New Jersey, and**  **to “**  **taxpayer’s only known home address in**  **Brooklyn, New York.” A ll certified letters sent were returned to defendant marked “Return to**  **Sender,” and “phone calls made to the business location were unanswered.” The narrative further**  **stated, “[h]**  **aving exhausted all avenues in an effort to contact the taxpayer the auditor closed the**  **audit case on 6/24/13.” The auditor made**  **an “Estimated ” a**  **ssessment of $70,000**  **in sales tax**  **based on denial of “sales deductions.”**  **A Notice of Assessment Related to Final Audit Determination**  **(“ NOA**  **”) dated July 2, 2013, reflecting this amount, plus penalties and interest,**  **was issued**

**. Taxpayer wrote a**  **protest letter to**  **CAB dated April 5, 2014, to**  **challenge the SUT** 

**assessment**

**. In the letter t**  **axpayer advised that the NOA mailed by the Division**  **was sent to the**  **wrong address, even though taxpayer’s**  **address at Newfoundland, NJ ,**  **had remained the same for**  **20 years. In correspondence to taxpayer dated October 7, 2014, d efendant**  **acknowledged receipt**  **of the p rotest** 

**. Per the CAB Conference Report,**  **defendant contacted taxpayer on March 12, 2015**  **, to schedule an appeal conference**  **. In a telephone call on March 27, 2015 , the parties discussed what**  **was needed and taxpayer advised of**  **its intent to forward to d efendant a**  **n Appointment of Taxpayer Representative form**  **. T axpayer**  **returned the form to defendant, but**  **it was only**  **partially complete. No taxpayer information was provided. The section seeking taxpayer information (name, a**  **ddress, mailing address, tax ID number/social security number) was left entirely blank.**  **In t he section**  **seeking information for the taxpayer repres entative a name**  **was provided but**  **not an address. A**  **box for the representative’s phone number, fax number and representative ID had bee n**  **previously redacted**  **, so it is unclear**  **to the court what information taxpayer provided. The form is signed by 4** 

**“presiden t” and dated March 19, 2015.**  **Defendant called taxpayer to obtain a completed form and**  **to schedule a conference**

**. Neither t**  **axpayer n or taxpayer**  **’s representative**  **responded or requested**  **to meet with the conferee**

**. CAB set a date for a conference instead.**  **By letter dated April 6, 2015,**  **taxpayer was advised that CAB scheduled a conference for May 5, 2015**  **“in accordance with the Division’s acknowledgement letter of October 07, 2014” and taxpayer’s “failure to respond to schedule (sic) a conference.**  **” The letter advised that any need to**  **reschedule would have to be addressed in writing.**  **It further advised taxpayer that documentation in support of its contention must be received by**  **CAB either before or at the conference, to consist**  **of: a listing of all non** 

**- taxable sales with VIN and purchaser that matches the amount shown on**  **taxpayer’ s sales and use tax retur**  **ns for the audit period**  **, as well as underlying documentation for**  **exemption for each sale deducted. Per the report, a**  **t the scheduled conference no one appeared on t axpayer**  **’s behalf. Instead, Mr. Borko**  **appeared unscheduled at CAB on May 15, 2015, but the conferee was out of the office.**  **Defendant contacted taxpayer on May 19, 2015, and advised taxpayer to provide**  **its documents to**  **CAB on or before June 2, 2015. The parties met and conducted a conference o**  **n June 5, 2015**

**. Th**  **e conferee deemed the documents produced to be insufficient to support taxpayer’s challenge**  **and offere**  **d taxpayer the opportunity to provide any**  **additional available documents. In response, taxpayer**  **produced a handful of additional business**  **documents a s well as TD bank statements for**  **March, April, May ,**  **and June of 2011. After administrative review the assessment remained**  **unchanged. Defendant issued a**  **F inal**  **D etermination**  **dated August 11, 2015**  **, affirming the tax** **5**

**liability, 3**  **and taxpayer timely filed a complaint to Tax Court to appeal defendant’s decision.**  **Defendant filed a motion for summary judgment which was denied by this court. 4** 
**F ACTS**  **Mr. Borko testified at trial on taxpayer’s behalf. A**  **t trial, t axpayer**  **produced approximately 73 business documents**  **, as well as**  **the following fourteen months of TD bank statements :**  **November 2009, September and October 2010, January 2011, March through August 2011, November 2011, December 2011, January 2012**  **, and April 2012.**  **All were admitted into evidence without objection.**  **5 Defendant produced the**  **conferee at trial along with docu**  **ments related to the administrative appeal process all of which were admitted**  **into evidence without objection. Kodus began operations in 1999.**  **As taxpayer’s sole employee, Mr. Borko operates**  **taxpayer’ s business**  **alone . He explained that t**  **he nature of the business has**  **changed over time. As**  **the export market took hold taxpayer purchased vehicles for overseas customers.**  **That testimony appeared to**  **comport with taxpayer’s position on motion for summary judgment where Mr. Borko**

**3 Tax Type**  **Period Tax**  **Liability Penalties**  ***** **Interest Interest to**  **Date Total** 
**Sales Apr. 2009** 

**to Sept. 2012**  **$70,000.00 $3,500.00**  **$22,939.08 08/20/2015**  **$96,439.08**

**Total $70,000**  **$3,500.00 $22,939.08**  **$96,439.80** ***Post- trial**  **defendant waived the penalty.**

**4 Defendant**  **’s summary judgment**  **mot ion**  **alleged that Kodus provided insufficient evidence**  **regarding whether its sales were subject to SUT. Taxpayer argued that a material issue of fact**  **existed based on**  **taxpayer’s documents and on Mr. Borko’s**  **certification that all**  **vehicles sold by**  **taxpayer were for resale and thereby excluded from the definition of “retail sale** 

**. ”**  **N.J.S.A. 54:32B-2(e).** 

**5 At trial, taxpayer marked the business documents, in bulk, as exhibit**  **one, and the bank statements as exhibit**  **two**

**. 6** 

**certified “Kodus is not**  **engaged in the retailing of motor vehicles in the State of New Jersey. Kodus purchases motor vehicles at auction and exports them to other motor vehicle dealers**  **outside the State of New Jersey.”**  **Marked as exhibit one , a**  **t trial taxpayer produced**  **73 business**  **documents related to taxpayer’s**  **vehicle transactions during the audit period** 

**. Mr. Borko testified about one category of**  **document called a**  **reassignment form. According to the witness he**  **prepared a reassignment form**  **for each v**  **ehicle taxpayer sold, provided**  **that the vehicle was to be registered in New Jersey** 

**. The**  **witness testified about two**  **additional forms related to**  **the vehicles taxpayer bought or sold through auction.**  **Lastly, t axpayer produced**  **the fourteen months of TD**  **bank statements that purported to show the sale of vehicles to overseas customers.**  **According to Mr. Borko, he**  **underst oo**  **d taxpayer was obligated to collect sales tax and remit it to the State whenever**  **“ taxpayer s**  **old a car in New**  **Jersey. ”**  **Within exhibit one taxpayer produced thirteen reassignment forms.**  **The witness explained**  **that as a dealer ,**  **taxpayer was required to**  **purchase reassignment forms**  **which are numbered and**  **sold thirty to a book. The witness**  **testified that d uring the audit period he**  **filled out a form for each vehicle taxpayer sold, “unless it was sold for export overseas.”**  **For a vehicle to be registered in New Jersey, the dealer was required to prepare a reassignment form for presentation t**  **o t**  **he New Jersey Motor Vehicle Commission** 

**. The witness was asked about taxpayer’s retention of the forms**  **and the response was contradictory. He first said that he produced two reassignment book s at the**  **CAB on behalf of taxpayer, but later testified that he did not have the reassignment books for 2009**  **through 2012. Instead, he said he**  **only had a few of the forms, and the others must have been lost.**  **Each reassignment form had a section entitled “Sale Price,” “Net Sale,” and “Sales Tax Collected.”** **7**

**One or two of the forms produced at trial included a figure for sales tax and/or sale price, but on**  **others the sections were either left blank or the figures were unreadable**

**. Mr. Borko**  **testified that taxpayer bought and sold vehicles at auction and taxpayer**  **included various documents related to those tran sactions**  **as part of exhibit one.**  **There were a**  **variety of different vehicle**  **forms, some readable and some unreadable. The witness exp**  **lained in**  **general terms**  **that the documents represented the sales of vehicles to other dealers, and thereby**

**non- taxable wholesale transactions**  **. H e did not offer testimony about every document produced**  **or how it related to a vehicle sale**

**. The testimony in that regard was spotty.**  **Upon its**  **review of exhibit one the court located documents that appear to**  **correspond to twenty** 

**- four vehicle**  **transaction s taxpayer**  **made through the Manheim auction house during the audit period. 6**  **Among the exhibit one documents t**  **he witness testified about**  **two different**  **auction forms** 

**. The**  **first form set out the**  **buyer ’s**  **name, VIN, model, vehicle make,**  **a sale price and a column of**  **ten or so categories of fees related to the vehicle transaction.**  **Th e last number in the column read**  **“net amount of check.” The auction document**  **was otherwise unidentified by the witness, so**  **for the sake of c**  **larity the court will refer to it as a vehicle summary sheet.**  **Whil e not every one of the**  **twenty -four vehicles was documented through a vehicle summary sheet the court counted twenty** 

**one vehicle summary sheets representing taxpayer’s**  **auction activity during the audit period. Exhibit one contained a second auction document about which the witness offered**  **testimony . It was affixed with the**  **Manheim auction**  **logo . The document was otherwise**  **unidentified by the witness so the court will here inafter**  **refer to it as a Manheim receipt. Each** 

6 **Of the twenty**

**- four auction vehicles documented the evidence shows**  **one vehicle purchased by**  **taxpayer at auction and twenty**  **-three vehicles sold by taxpayer at auction** 

**. 8** 

**receipt contained**  **certain dollar figures, including “Selling Price,” “Buyer’s Fee,” and a category**  **called “Buy Net.” Using the documents**  **, t he court sought to calculate taxpayer’s total revenue if**  **possible, however, the selling price on the Manheim receipt did not match**  **the sales price on the**  **corresponding summary sheet for any of the vehicle**  **s . Using a combination of the two document**  **types the court calculated taxpayer’s total revenue by using the “net”**  **figure for the**  **twenty**

**- three**  **documented sales which**  **tota led**  **$243,875. 7**  **Besides the documentary evidence, t he witness**  **provided some testimony about the auction transactions**  **themselves . Mr. Borko**  **explained that**  **t here were instances when**  **he might bring a car**  **to auction to sell on a client’s behalf. In that case, taxpayer would sell the car an d receive a fee**  **for its services. The witness described that kind of sale as “represent[ing]” a client at auction.**  **This testimony arose when the witness was asked why some of the**  **vehicle summary sheets contained**  **handwritten numbers on them in addition to any of the printed figures that appeared**  **. Defense counsel pointed**  **the witness to one such document**  **and the witness was unable to explain what the**  **han dwritten figure**  **s represented. The**  **witness’s explanation**  **was confusing. In the column on the face of the document was listed the following: “Sale Price: 3,350; Selling**  **Fee: 195.00; Net Amount of check: 3,155.” The face of that document contained the number “3,000” handwritten and**  **circled. Asked on cross examination what the circled number represented the wi tness testified he** 

**7 Taxpayer produced summary sheets for only twenty-one of the vehicles sold at auction, so the**  **court used the net figure on the bottom of the Manheim recei pt to calculate the revenue for the**  **other two vehicles. E**  **xhibit one also contained several checks written to taxpayer that accounted for four of the vehicles taxpayer sold at auction.**  **Notably, t he check amount matched the net check**  **figure on four of**  **the corresponding vehicle summary sheets. I**  **n defendant’s post- trial brief, it**  **contends that exhibit one shows twenty-six vehicle transactions at auction amount ing to $297,540,**  **rather than the total calculated by the court. There was no testimony regarding d efendant’s**  **calculation. 9** 

**did not remember but surmised “maybe I paid $3,000 for the car.” Unsure what had transpired**  **, he explained he might instead**  **have represented a client on that sale, sold the car for $3,500 at the auction and the buyer told him to “keep $500 for myself, and I will cut the person a chec**  **k for $3,000 . . . so I had to give them back $3,000 and the difference would be my company prof**  **it.” 8**  **There was no testimony from the witness**  **regarding the total**  **amount of revenue taxpayer received from the**  **auction sales**  **during the audit period. On direct examination**  **th e**  **witness was asked to determine, based on th**  **e auction documents**  **, what percentage of taxpayer’s business was done through auction.**  **The witness first**  **said ,**  **“maybe 90%” then candidly stated that he did not know**  **but said “most” of taxpayer’s business was “wholesale and export.”**  **The witness then**  **tacitly acknowledged**  **that taxpayer engaged in retail sales.**  **Mr. Borko was asked by taxpayer’s attorney what percentage of taxpayer’s**  **transactions constituted “**  **retail sales ,” the witness said he did not know.**  **9 Lastly,**  **the witness testified about the**  **bank statements marked as exhibit two. Mr. Borko**  **focused on several entries designated as**  **“ wire transfers**  **” which represented money deposited**  **to taxpayer’s bank account. According to the witness, the**  **wire transfers serve**  **as proof of taxpayer’s**

**overseas ve hicle sales.**  **Based on the court’s review of the bank statements the documents**  **include**

**8 A**  **mong the twenty- four**  **fee sheets , fifteen had handwritten numbers on them with no explanation**  **as to what the numbers represent** 

**.**

9 **Per Schedule S -1**  **of the auditor’s worksheet, taxpayer offset the reported gross sales by cert ain**  **deductions which produced a sales tax liability for tax year 2009, and for the first, s econd and**  **fourth quarters of tax year 2010. N o tax was reported for the third quarter of**  **2010, tax year 2011, and the first three quarters of 2012. During that period**  **the entire amount of the reported gross sales were offset by the identical amount of deductions. The reported gross sales for the audi**  **t period less the reported deductions provid**  **ed the reported taxable sales of $1,827,227 ($6,865,570 -**  **$5,038,243). 10** 

**a total of**  **eighteen incoming**  **wire transfer entries**  **. Each entry includes a dollar amount, date**  **, and**

**a name. The**  **bank statements contain no information to identify the purpose of the wire transfer,**  **such as a VIN, vehicle**  **make or model, or any other indication**  **that the deposit reflect**  **s proceeds**  **from the sale of a vehicle. On cross-**  **examination c ounsel asked the witness about five of the wire**  **transfer transactions and the witness recalled the details to**  **three of th ose five.**  **The three**  **transactions involved a Russian**  **buyer who purchased**  **a total of three vehicles. The witness**  **otherwise testified , g**  **enerally ,**  **that “**  **all ”**  **the wire transfers were payment for vehicles taxpayer sold outside of New Jersey and**  **that most were**  **likely sold and exported out of the country. Mr. Borko**  **was asked on cross**

**- examination if he obtained exemption certificates from**  **customers, particularly, Taxation Form ST**

**- 3 (sale for resale) and/or Taxation Form ST** 

**- 10 (Motor**  **Vehicle Sales and Use Tax Exemption Report), to represent taxpayer’s sales exempt fro**  **m New Jersey sales tax. In response, the witness requested that the State attorney show h**  **im an example of an exemption certificate, but the attorney did not. Mr. Borko**  **was candid**  **in his response that he**  **has no familiarity with the exemption forms, taxpay er has never used them and until the trial the**  **witness had been unaware of any obligation to use them. Taxpayer’s lawyer asked the witness to describe taxpayer’s record keeping. The witness**  **said, “I kept everything I could.” Asked whether taxpayer kept c opies of his records of every**  **vehicle sale, Mr. Borko testified**  **“I brought what I had.” The witness was clear in his testimony**  **that he did not prepare or maintain lists of the vehicles sold by**  **taxpayer with identifying numbers, make, model and buyer name.**  **The witness testified vaguely about an event in 2011**  **he said impacted**  **taxpayer’s records. While the witness explained he**  **did not**  **have a good memory of the**  **event, he recalled that a flood or hurricane may have destroyed some documents, or at least** **11**

**rendered some unreadable. He explained that “w**  **hatever I**  **brought to court, whatever I**  **gave the Division,**  **is all I have.”**  **The conferee testified about CAB review. Upon revie**  **w of**  **taxpayer’s documents**  **th e**  **conferee determined that for the second quarter of 2011, the ST-50 showed $1,084,975 in sales**  **, and deductions in the same amount. F**  **or that same period taxpayer’s documents revealed $132,500**  **in deductions exempt from tax and the bank statements**  **revealed deposits of $800,576. Per**  **the conferee taxpayer failed to provide documentation that all the sales for the qua**  **rter were deductible**

**. She**  **then applied her**  **analysis to the full audit period consisting of fourteen quarters and con**  **cluded that taxpayer did not support that all sales for the audit period were deductible** 

**. The conferee**  **concluded that taxpayer’s taxable sales would have well exceeded the additional $1,000,000**  **defendant assessed and well more than the $70,000 in sales tax assessed for the audit period** 

**. ANALYSIS** 
**Pursuant to statute**  **, “[t] here is imposed and there shall be paid a tax**  **...upon: (a)**  **[t] he**  **receipts from every retail sale of tangible personal property**

**. . . .” N.J.S.A. 54:32B-3**  **(a)**

**. A “retail**  **sale” a**  **s defined in N.J.S.A. 54:32B-2**  **(e) , “**  **means any sale, lease, or rental for any purpose, other**  **than for resale, sublease, or subrent. ” Ibid.**  **Per N.J.S.A. 54:32B**  **-12(a), one required to collect the**  **tax is obligated to do so when collecting the price of the goods sold at retail. That indi vidual**  **is de**  **signated as a State “**  **trustee for and on account of the State .” Ibid.**  **The trustee is**  **personally liable for the tax.**  **N.J.S.A. 54:32B-14 (a)** 

**. A presumption**  **exists that**  **the sale**  **of tangible personal property is**  **taxable unless**  **the person**  **required to**  **collect the**  **tax can**  **demonstrate otherwise.**  **N.J.S.A. 54:32B-12(b). See**  **also Hospital**  **Portrait Svc.**  **v. Dir.**  **, Div.**  **of Taxation**  **, 6 N.J.**  **Tax 305, 314**  **(Tax 1983),**  **aff'd o.b. 7**  **N.J. Tax**  **431 (App.**  **Div. 1984). Thereby, a**  **taxpayer is exempt from SUT if the taxpayer can prove that a 12** 

**transaction at issue is not a retail sale, but rather is a sublease or resale , for instance through use of**  **a resale certificate, Form ST**  **-3. See**  **N.J.A.C. 18:24-1.1.**
**P ursuant to**  **N.J.S.A. 54:32B-10(a), “ receipts from**  **any sale of a motor vehicle**  **” (and**  **“aircraft, boat, vessel”) are exempt**  **if “at the time of taking delivery,” the purchaser :** 

**(1) is a nonresident of this State, (2) has no permanent place of abode in this State,**  **(3) is not engaged in carrying on in this State any employment, trade,**  **business or profession in which the motor vehicle . . . will be used**  **in this State, (4) prior to taking delivery, furnishes to the seller: any affidavit,**  **statement or additional evidence, documentary or otherwise, which the director may require to assure proper administration of the tax**  **imposed upon subsection**  **(a) of**  **section 3, and**  **(5) 10**  **[ Ibid**  **.]**
**Form ST** 

**- 10**  **, Motor Vehicle**  **Sales and**  **Use Tax**  **Exemption Report,**  **collects the**  **information required**  **to meet**  **the motor vehicle exemption under N.J.S.A. 54:32B-10(a) and**  **is used**  **to report**  **the sales**  **tax exemption**  **to the Division.**  **See N.J.A.C. 18:24-1.1.**  **Tax exemptions are narrowly construed against the claimant. Int’l Sch. Servs., In c. v. West**  **Windsor Twp., 207 N.J. 3, 1 5**  **(2011) (“a statute granting exemption from property taxation . . . is subject to strict construction”);**  **Ronson Corp. v. Dir., Div. of Taxation, 22 N.J. Tax 652, 656 (App. Div. 2005) (“exclusions and deductions are matters of legislative grace which must be st**  **rictly construed against the claimant”)** 

**. “One who claims exemption must bring himself clearly within**  **the exemption provisions.” C ontainer Ring**  **v. Dir. ,**  **Div. of Taxation , 1**  **N.J. Tax 203, 208**  **(Tax 1980),**  **aff’d o.b. 4 N.J. Tax 527 (App. Div. 1981).** 

**10 Section (5) only applies to “aircraft, boat or other vessel.”** **13**

**A taxpayer required to collect and remit sales tax is obligated to maintain records**  **of its sales. The relevant statute reads:** 

**Every person required to collect any tax imposed by this act shall keep records of every purchase, purchase for lease, sale or**  **amu sement charge or occupancy and of all amounts paid, charged**  **or due thereon and of the tax payable thereon, in such form as the director may by regulation require.**  **Such records shall include a true copy of each sales slip, invoice, receipt, statement or me**  **morandum upon which subsection (a) of section 12 [C.54:32B-**  **12] requires that the tax be stated separately.**  **Such records shall be available for inspection and examination at any time upon demand by the director**  **or his duly authorized agent or employee and shall be preserved for a period of four years, except that the director may consent to their**  **destruction within that period or may require that they be kept longer.**  **[N.J.S.A. 54:32B-16.] Defendant is responsible for the administration and collection of SUT under the**  **Act.**
**N.J.S.A. 54:32B-24. Under N.J.S.A. 54:32B-24(5), the**  **Director of the Division**  **is authorized to** 

**“ require any person required to collect tax to keep detailed records of all receipts**  **. . . charged or accrued, including those claimed to be nontaxable, and also of the nature, type, value**  **and amount of all purchases, sales, services rendered**  **. . . and to furnish such information upon request of the director.**  **” Ibid. T**  **he Director is also**  **authorized and empowered to “ prescribe methods for**  **deter mining the amount of receipt**  **. . . and for determining which of them are taxable and which are nontaxable.**  **” N.J.S.A. 54:32B-24(4).**  **At the time of the audit N.J.A.C.**  **18:24-2.4 provided: (a)**  **Where summary**  **records are**  **maintained which**  **show, by sales**  **location, total**  **receipts and**  **taxable receipts,**  **the vendor**  **may dispose**  **of**

**individual sales**  **slips, invoices,**  **receipts, statements,**  **memoranda of**  **price, or**  **cash register**  **tapes, except**  **as provided**  **in Section**  **2.5 (Resale**  **and exemption**  **certificates), 2.6**  **(Out -of**  **State sales)**  **and 2.8 (Purchase**  **records), of**  **this Chapter,**  **after the**  **lapse of**  **a period not**  **less than 90**  **days from**  **the last**  **date of**  **the 14**  **most recent**  **quarterly (or** 

**monthly) period for** 

**the filing**  **of sales**  **tax returns**  **to which**  **such individual**  **sales documents per**  **tain. (b)**  **In all**  **instances, summary**  **sales records**  **as described**  **here in**  **shall be**  **retained**

**for a p eriod** 

**not less**  **than four**  **years from**  **the last**  **date of**  **the quarterly**  **(or monthly) period for the filing**  **of sales**  **tax returns**  **to which**  **summary records**  **pertain. [**  **N.J.A.C. 18:24-2.**  **4(a), (b).]**  **11 Per the SUT regulations, retailers must maintain all purchase invoices for a period of**  **four**
**years. N.J.A.C. 18:24-2.8 (seller must maintain invoices showing the names and addresses of**  **persons from whom purchases were made, t he amounts of all purchases, the dates upon which all**  **purchases were made and the nature of the items purchased). Defendant**  **is empowered**  **to determine**  **the tax**  **due where**  **either, a**  **return is**  **not filed,**  **or if**  **a**
**return is**  **filed, it**  **is incorrect**  **or insufficient.**  **N.J.S.A. 54:32B-**  **19. In th**  **at event**  **“ the amount of tax**  **due shall be determined by t he director**  **from such information as may be available. ”**  **Ibid**

**. See**  **also Ridolfi, t/a Hub Bar v. Dir., Div. of Taxation, 1 N.J. Tax 198, 203**  **( Tax**  **1980); Yilmaz,**  **Inc.**

**v. Dir**  **., Div**  **. of Taxation, 22 N.J.**  **Tax 204, 230**  **(Tax 2005),**  **aff’d , 390**  **N.J. Super. 435, 441 (App.**  **Div. 2007) (the**  **Director is**  **vested with**  **the “ broad**  **authority to**  **determine the**  **tax from**  **any available**  **information, and, if**  **necessary, to**  **estimate the**  **tax from**  **external indices.**  **”).**
**At trial**  **t axpayer produced scant books and records. Taxpayer was unable to present**  **documentation to support all of taxpayer’s sales and claimed exemptions for the a udit period.** 
**T axpayer produced auction documents as proof of nontaxable transactions of some**  **twenty plus** 

**11 Effective May 16, 2016, the**  **Director amended N.J.A.C. 18**  **:2 4-2.4.**  **The amendments replaced “may dispose of” with**  **“must maintain” i ndividual**  **sales slips,**  **invoices, receipts,**  **statements, memoranda**  **of price,**  **or cash**  **register tapes**  **in N.J.A.C. 1**  **8 :2**  **4-2.4 (a)** 

**. 47 N.J.R. 2919(a), (December**  **7, 2015). The amendments also**  **changed the 90-day period to four years in N.J.A.C. 18**  **:2 4-2.4**  **(a) and deleted the phrase (or monthly) in**  **N.J.A.C. 18 :2**  **4-2.4 (a),**  **(b). Ibid.**  **Lastly, t he amendments**  **also deleted the three cross**

**- references to Sections 2.5, 2.6, and 2.8 in N.J.A.C. 18**  **:2 4-**  **2.4 (a) as they**  **were no longer necessary. Ibid** 

**. 15** 

**vehicles it sold to dealers during the audit period for the total amount of ,**  **at best , $243,875, (using**  **the court’s calculation ).**  **12 B**  **ecause the figures on the corresponding vehicle documents differed, the evidence was ineffective proof of the actual revenue taxpayer obtained fro**  **m the auction sales.**
**H andwritten calculations on the forms**  **cast further**  **doubt as to the amount of**  **revenue generated by taxpayer from the transactions. C**  **redible evidence of the dollar amount of taxpayer’s revenue, and the**  **total of exempt sales represented by the documents,**  **is thereby lacking.**  **Taxpayer also produced TD**  **bank statements as proof of wire transfers; non-**  **taxable sales taxpayer testified represent sales to overseas purchasers. The court finds that the ban**  **k statement entries**  **similarly lack the reliability to be considered as proof of exempt sales. The only**  **information on each**  **bank statement was the dollar amount of the wired sum, and a name,**  **purportedly the buyer’s name. The witness did not testify about each transaction, t he location of**  **each buyer at the time of purchase**  **, etc. Moreover,**  **the bank statements added none of the required facts**  **since the documents lack information to prove the purpose of the deposits. The wire transfers** 

**are un**  **supported by any documentation, e .g.,**  **shipping documents associated with each vehicle, the description of the vehicle, the date of transfer, the dollar amount of the transaction**  **, whether the amount of the wire represented revenue to taxpayer, etc., to support the fac**  **t that the wire transfers represent taxpayer’s revenue from the sale of vehicl**  **es shipped overseas. Taxpayer**  **did not pro duce other**  **documentation showing that the sales were exempt such as by providing appropriate exemption or resale certificates matching the amount sh**  **own on the**

**sa les and use tax**  **returns. The witness acknowledged that taxpayer failed to maintain**  **such certificates and explained that he had no understanding or knowledge about**  **their use. It was not** 

**12 E**  **ven assuming defendant’s figure is correct, $297,540, it would**  **only support that taxpayer is**  **unable to substantiate the**  **dollar amount of exemptions claimed.** **16**

**taxpayer’s practice to keep lists of its sales, taxable or non**

**- taxabl**  **e, to identify the VIN, purchaser, price, and the like, which might provide proof of sales in summary form.**  **The only other documents the witness testified about were the New Jersey motor vehicle**  **reassignment forms. Information on the thirt een forms prod**  **uced at trial was ineffective proof of**  **the taxpayer’s sales revenue. Beyond those documents, t axpayer never identified any of the other**  **73 business documents produced**  **as constituting proof of either taxable or non**

**- taxable sales. T**  **he court is unable to infer that taxpayer should be credited with any additional reve**  **nue, or SUT exemption,**  **based on those remaining documents absent credible testimony to that effect. In**  **viewing the documentary evidence, a t best the auction sales accounted for**  **$243,875 for th**  **e entire audit period. Similarly, the wire transfers total roughly $900,000 over the audit peri**  **od. The two figures combined falls well**  **-short of taxpayer’s claimed exemption in the amount of $5,038,243. Kodus**  **posits that this court should consider the totality of the evidence presented**  **and find**  **that taxpayer sufficiently proved the assessment is incorrect in reliance on**  **Saulwil, Inc. v. Dir .,**  **Div. of Taxation, 31 N.J. Tax 433 (Tax 2020). Per the taxpayer, i n the spirit of**  **Saulwil the court**  **should consider Mr. Borko’s testimony to**  **conclude that taxpayer is not liable for the assessed tax**  **for simply failing to keep adequate books and records.**
**In Sau**  **l wil**  **, the court found that the taxpayer maintained adequate books and record**  **s and the Division was incorrect to employ an estimated markup methodology in assessi**  **ng the taxpayer’s sales and use tax liability.**  **Id. at 436. The taxpayer in**  **Saulwil provided the Division with**  **daily and monthly**  **sales summaries generated by the**  **point- of** 

**- sales**  **software program located in**  **the taxpayer’s restaurant, which**  **summary information the Division rejected on the basis that**  **it was**

**“ useless without cash register tapes or guest checks to verify the totals contained in**  **the summaries**  **.” Id.**  **at 438. The Division reconstructed**  **the taxpayer’s gross receipts by computing a 17** 

**higher markup of 3.92% overall, using the**  **taxpayer’s purchases for a two** 

**- week**  **period within**  **the audit period. Ibid.**  **The court found the lack of cash register tapes (“an undefined phrase vis-à- vis a POS**  **software program”) was not fatal to the taxpayer’s case. Id.**  **at 449. Ruling in favor of the taxpayer ,**  **the c ourt found that the Division’s “de**  **termination to**  **estimate a markup percentage and inflate the reported receipts was unnecessary and unsupported” by statute.**  **Id. at 449. “W**  **hether a taxpayer’ s**  **records are ‘inadequate’**  **depends on the facts and circumstances of each case. It is not necessarily**  **the quantity of records, but also the quality. ”**  **Ibid. Additionally, “a taxpayer need not maintain**  **the best**  **or perfect**  **records,” but rather its records “**  **should be sufficient (sic)**  **enough to support the veracity of its filed returns.**  **” Ibid**  **. I n addition to**  **the credible testimony**  **the taxpayer provided , the**  **taxpayer ’s sales summaries**  **served as “**  **actual contemporaneous records for the audit period and**  **provided a cumulative running total of all sales each day.” Id.**  **at 450. Those records served as**  **“the best evidence in computing tax.” Ibid.**
**I n its analysis this**  **court consider**  **ed the testimony of Mr. Borko**  **and finds that the**  **case at hand**  **is distinguish**  **able from Saulwil**  **. The taxpayer in Saulwil**  **provided the Division with comprehensive contemporaneous records for the audit period, which documented a running total**  **of all sales each day. T**  **he discrepancies between the taxpayer’s monthly summaries and the journals it maintained were minor. To the contrary,**  **Kodus was unable to provide**  **documentary proof of its total sales during the audit period or the total exempt sales transacted eit**  **her through purchase and sales records**  **, through sales summaries**  **, or through use of**  **tax -exempt**  **certificates**

**. The witness testimony was also lacking in that regard.**  **The witness testified largely in generalities**  **unsupported by adequate, reliable,**  **documentary evidence. Unlike in**  **Saulwil ,**  **here the Division was not presented with the “best evidence in computing t**  **ax.” The**  **evidence before this**  **court 18** 

**supports the fact**  **that taxpayer**  **maintained inadequate books and records for the audit period at**  **issue . The lack of adequate books and records left defendant no option but to**  **resort to other**  **evidence to approximate the SUT due for the audit period.** 
**T he Di**  **vision’s assessment carries a presumption of correctness.**  **Atlantic City Transport. Co. v. Dir.**  **, Div**

**. of Taxation, 12 N.J. 130, 146 (1953);**  **Aetna Life Ins. Co. v. City of Newark, 10 N.J. 99, 105**  **(1952). “[T] he presumption that the Director’s assessment is correct can be rebutted**  **only by cogent evidence that must be ‘ definite, positive and certain in quality and quantity to**  **overcome the presumption.’ ”**  **Yilmaz, Inc. v.**  **Dir .,**  **Div . of Taxation, 22**  **N.J. Tax**  **at 236** 

**. The**  **evidence must “focus on the reasonableness of the underlying data used by the Direc tor and the**  **reasonableness of the methodology used. ”**  **Ibid. “ An**  **‘ aberrant**  **’ methodology will overcome the**  **presumption of correctness ”**  **; while “**  **an imperfect methodology will not.” Ibid.**  **“In the absence of evidence that the amount of the assessment is ‘far wide of the mark,’ the taxpayer c**  **annot overcome the presumption simply by attacking the Director’s methodology.”**  **Yilmaz , 390 N.J.**  **Super. at 441. This case more approximates the facts set out in**  **Yilmaz , rather than in**  **Saulwil**

**. In**  **Yilmaz ,**  **the defendant’s audit of the taxpayer’s tax returns revealed discrepancies between t he SUT and** 
**CBT returns. 22 N.J. Tax at 216. T he taxpayer**  **did not maintain a general ledger, a purchase journal, guest checks or register tapes.**  **Yilmaz , 22**  **N.J. Tax**  **at 213. Invoices for cash payouts**  **were kept only**  **a short period of time then thrown away** 

**. Ibid.**  **The only documents retained by the taxpayer**  **that had any relation to gross receipts were bank statements showing deposits into its**  **bank accounts. Id.**  **at 2 16** 

**. The**  **Tax C ourt reiterated the statutory obligation of the taxpayer “to**  **maintain records and make them available to the Director.” Id.**  **at 235. The trial court upheld the**  **assessment and rejected the taxpayer’s assertions that the assessment was unreasonable. Id.**  **at 237.** **19**

**“ The**  **‘ naked assertions**  **’ of the taxpayer, without supporting records or documentation,**  **are insufficient to rebut the presumption that the Director’s assessment is correc**  **t.” Id.**  **at 2 31 (internal**  **citations omitted) . T**  **he appellate court affirmed**  **the trial court ,**  **finding that it**  **“appropriately rejected plaintiff’s suggestion that the onus should be on the Director to esta**  **blish that it used ‘the most reasonable means available’ or ‘the best possible method’ to estimate the t**  **axpayer’s receipts.”**  **Yilmaz , 390 N.J. Super. at 441.** 
**K odus additionally argues that it did not receive proper notice of the audit, and**  **so was left without the**  **opportunity to present the necessary books and records to support the exempt sales. Taxpayer posits that it was harmed by the inability to participate**  **in the audit process, and that the audit essentially constitutes a “different standard” than the CAB review**  **where taxpayer may have had the opportunity to meet with the auditor at taxpayer’s place of business to faci**  **litate production of its records** 

**. Th**  **e court finds taxpayer’s position to be**  **unavailing. T**  **he evidence shows that at least one of the addresses used by the auditor to alert taxpayer to the audit**  **was an address used by taxpayer**  **during the audit period. In the 2014 protest letter taxpayer contends it maintained the Newfoundland,**  **NJ ,**  **business address for over 20 years . However, in addition to the Newfoundland**  **address, t he**  **TD bank**  **statements list taxpayer**  **’s address in South Amboy,**  **one of the addresses the auditor cites in the audit**  **narrative used to send taxpayer certified mail . Th**  **at serves as unrefuted**  **proof that taxpayer**  **did maintain an alternate address**  **during the relevant time, and an address**  **apparently used by defendant**  **in its attempts to notify taxpayer about the audit.**  **Notwithstanding any confusion in notice to taxpayer, there is insufficient evidence to s how**  **that taxpayer’s absence during the audit made a difference. Taxpayer’s own tes timony belies the**  **fact that taxpayer maintained adequate**  **books and records, or records of the exempt sales claimed**  **in the tax returns. The fact that taxpayer was provided multiple opportunities to provide docum ents** **20**

**to the Division made no difference to the documents produced. Even acknowledging that**  **some unidentified**  **records may have been destroyed by a flood, there is no testimony to support a finding that taxpayer**  **ever maintained adequate books and records.**  **At trial in this case, the witness testimony contributed little more than “naked**  **assertions, ”**  **in the face of evidence that was scant, and at times both confusing and contradictory. Taxpayer’s**  **proofs failed to sufficiently support the veracity of its tax r**  **eturns to serve as the**  **cogent evidence required**  **to overcome the presumpti ve correctness of the**  **Director’s determination.**  **The evidence fails to support taxpayer’s claims that the $1,000,000**  **tax ed sales**  **( denied as a deduction from gross**  **sales by the Division**  **) represented tax exempt sales, either as resales or as sales made to out**  **-of state purchasers** 

**. For the**  **above reasons**  **, the**  **court finds that taxpayer has not provided sufficient proofs**  **to disturb the Division’s final determination. Therefore, the final determination stand**  **s ,**  **and the complaint is dismissed** 

**. Very truly yours,**  **Christine Nugent, J.T.C. /s/**