* 

NOT FOR PUBLICATION WITHOUT APPROVAL OF 

THE TAX COURT COMMITTEE ON OPINIONS 

TAX COURT OF NEW JERSEY 

Mala Sundar R.J. Hughes Justice Complex 

 JUDGE P.O. Box 975 

 25 Market Street 

 Trenton, New Jersey 08625 

 Telephone (609) 815-2922 

 TeleFax: (609) 376-3018 

 taxcourttrenton2@judiciary.state.nj.us

December 13, 2017 

Robert A. Fee, Esq. 

East Gate Center 

309 Fellowship Road, Suite 200 

Mount Laurel, New Jersey 08054 

Heather Lynn Anderson 

Deputy Attorney General 

R.J. Hughes Justice Complex 

25 Market Street, P.O. Box 106 

Trenton, New Jersey 08625-0106 

Re: Saulwil, Inc. v. Director, Div. of Taxation 

Docket No. 014062-2013 

Samuel and Louise Hammer v. Director, Div. of Taxation 

Docket No. 014061-2013 

Dear Counsel: 

This letter opinion constitutes the court’s decision of motion by defendant (“Taxation”), 

made at the end of plaintiffs’ proofs under R. 4:37-2(b). Taxation sought dismissal of the abovecaptioned complaints on grounds plaintiffs’ failed to meet their burden of proof and failed to 

overcome the presumptive correctness of Taxation’s final determinations, which imposed Sales 

and Use (“S&U”) tax assessment upon the corporate plaintiff for tax periods 2007-2011 under an 

audit reconstruction method of the corporate plaintiff’s restaurant business, and consequent gross 

income tax upon the individual plaintiffs. Plaintiffs opposed the motion. 
2 

For the reasons stated below, the court denies the motion and will continue the trial to give 

Taxation the opportunity to put forward its proofs, if it so chooses. The court will then consider 

all the evidence before it in deciding whether plaintiffs have, by a preponderance of the evidence, 

proven what the correct S&U assessment should be. Trial will continue on January 4, 2018. 

BRIEF PROCEDURAL HISTORY

On December 9, 2011, Taxation issued a Notice of Assessment Related to Final Audit 

Determination to the corporate plaintiff, an S corporation, imposing S&U tax of $655,638.15 for 

tax periods October 2007 to September 2011. With penalty and interest, the amount totaled 

$801,983.97. 

As a result of the corporate audit, the individual plaintiffs, as owners of the S corporation, 

were deemed to have received a “constructive distribution” of S corporation income. This resulted 

in a gross income tax assessment upon them for the audited tax periods. 

After an administrative protest, Taxation’s conferee made adjustments to the markup 

percentage for food and increased the allowance for waste. This reduced the audited overall 

markup percentage, which in turn reduced the sales tax assessment. With no changes to the audited 

use tax assessment, the total S&U tax was reduced to $246,851, which with penalty and interest 

totaled $330,649 for the tax period October 2007 to September 2011. Corresponding reductions 

were effectuated to the individual plaintiffs’ gross income tax liability. Taxation then issued its 

final determination. 

On September 17, 2013, plaintiffs’ timely filed a complaint in this court challenging the 

final determination. 

On August 8, 2016, Taxation moved for summary judgment claiming that there were no 

materially disputed facts to support its contention that the corporate plaintiff lacked adequate books 
3 

and records. In support, it furnished the audit report (including the auditor’s “diary” of events

during the entire audit), plaintiffs’ administrative protest, Taxation’s conferee’s report, and its final 

determination. Taxation sought an order affirming its final determination, which by law, is 

afforded a presumption of correctness. 

Plaintiffs duly opposed the motion with certain documents and supporting certifications, 

contending that there were sufficient contemporaneous books and records which were provided 

to, but either rejected or refused to be considered by Taxation (such as bank statements and sale 

summaries), and that its electronically maintained records as to the restaurant sales were never 

reviewed by Taxation. Plaintiffs claimed that if tried, they could prove the existence of, and thus, 

the adequacy of books and records of the corporate plaintiff, which would then show that 

Taxation’s S&U tax assessments were excessive. 

After oral arguments, the court issued a letter opinion dated January 26, 2017, denying the 

motion for summary judgment. The court found that there was a genuine issue as to material facts, 

viz., as to the presence/maintenance of adequate books and records, and whether the same were 

perused by Taxation. The court however granted summary judgment on the use tax portion of 

Taxation’s audited assessment since plaintiffs’ opposition in this regard was insubstantial.1

Trial on the sales tax portion of the assessment was held for two days in September and 

October, 2017 respectively. At the end of plaintiffs’ case, Taxation moved for involuntary 

 

1 The court also permitted plaintiffs to adduce testimony of the software consultant’s principal over objections of 

Taxation that it was never notified that this individual would be a potential witness. The court however, imposed a 

monetary sanction upon plaintiffs for violating court rules as to lack of notice of witnesses, and adjourned the trial so 

Taxation could depose the individual. The court subsequently denied Taxation’s motion to bar testimony of the 

software consultant’s principal, which was made on grounds the individual was not an expert and in any event lacked 

personal knowledge of the functioning of the restaurant software at the plaintiff’s restaurant. The court also denied 

plaintiffs’ motion to submit summaries of documents for trial since they did not submit the necessary support for the 

same or provide the actual records for the court’s review. At trial however, plaintiffs claimed they could produce only 

summaries of the daily restaurant sale transactions. 
4 

dismissal of the complaints under R. 4:37-2(b). Taxation maintained that plaintiffs failed to meet 

their burden of proof and to overcome the presumptive correctness of its final determination. 

FINDINGS 

(A) Standard Applicable for Deciding Motions Under R. 4:37-2(b) 

Rule 4:37-2(b), titled “Involuntary dismissal; effect thereof,” provides as follows:

(b) At Trial-Generally. After having completed the presentation of the 

evidence on all matters other than the matter of damages (if that is an issue), 

the plaintiff shall so announce to the court, and thereupon the defendant, 

without waiving the right to offer evidence in the event the motion is not 

granted, may move for a dismissal of the action or of any claim on the 

ground that upon the facts and upon the law the plaintiff has shown no right 

to relief. Whether the action is tried with or without a jury, such motion 

shall be denied if the evidence, together with the legitimate inferences 

therefrom, could sustain a judgment in plaintiff's favor. 

A dismissal pursuant to a motion granted under R. 4:37-2(b) is one with prejudice, and “operates 

as an adjudication on the merits.” R. 4:37-2(d). 

In MSGW Real Estate Fund, L.L.C. v. Borough of Mountain Lakes, 18 N.J. Tax 364 (Tax 

1998), the Tax Court analyzed the application of R. 4:37-2(b) to a local property tax case by 

examining the evidentiary standard vis-à-vis the presumptive correctness of a tax assessment. It 

began the analysis with the established principle that assessments are presumptively correct, that 

this presumption “can be rebutted only by cogent evidence,” which proof must be “‘definite, 

positive and certain in quality and quantity.’” Id. at 373-74 (citing and quoting Pantasote Co. v. 

City of Passaic, 100 N.J. 408, 413 (1985)).

The court then ruled that before deciding the case on its merits, it must always find first 

whether the plaintiff has overcome an assessment’s presumptive correctness. MSGW, supra, 18 

N.J. Tax at 376. In so deciding, and where a motion is made under R. 4:37-2(b) “at the close of 

plaintiff’s proofs,” the court “must accept such evidence as true and accord the plaintiff all 
5 

legitimate inferences which can be deduced from the evidence.” Ibid. Even if the defendant does 

not make this motion, the court must, at conclusion of the trial, “first determine whether the 

presumption of validity has been overcome,” for which purpose it must view the evidence “as if a 

motion for judgment at the close of all the evidence had been made pursuant to R. 4:40-1 . . . 

employing the evidentiary standard applicable to such a motion.” Id. at 377 (quoting and relying 

upon Dolson v. Anastasia, 55 N.J. 2, 5-6 (1969)). Thus, “the presumption of validity has been 

overcome should be determined only once, either at the close of the plaintiff’s proofs in the context 

of a R. 4:37-2(b)(2) motion, or at the conclusion of the trial.” MSGW, supra, 18 N.J. Tax at 380. 

In either situation (i.e., with or without a R. 4:37-2(b) motion), the examination of the 

evidence is never stringent. Rather, the evidence that is “required under R. 4:37-2(b)” is 

considered “using the artificial standard, or ‘rose-colored glasses.’” Id. at 379 (relying on Borough 

of Rumson v. Peckham, 7 N.J. Tax 539 (Tax 1985) which court had termed the presumption as 

having an “artificial probative effect” and whose “bubble bursts” when a taxpayer provides 

sufficient proof to overcome the presumption). 

Nonetheless, plaintiff must proffer evidence that is “sufficient to demonstrate” what the 

assessment should be “thereby raising a debatable question as to the validity of the assessment.” 

MSGW, supra, 18 N.J. Tax at 376. That evidence, even when viewed through the “rose-colored 

glasses” must show that plaintiff’s complaint is “based on sound theory and objective data rather 

than on mere wishful thinking.” Ibid. (citation and internal quotation marks omitted). 

If the court grants a motion for involuntary dismissal or decides at the conclusion of the 

case, on its own, that plaintiff did not overcome the presumptive correctness of an assessment, the 

complaint is subject to dismissal. Id. at 378-79. 
6 

If, however, the court “determines, in ruling on the R. 4:37-2(b) motion, that the 

presumption has been overcome,” then it must “weigh and evaluate the evidence and decide the 

appeal on the merits whether or not the plaintiff's proofs, in themselves, are sufficient to overcome 

the presumption.” Id. at 377. Plaintiff’s burden at this stage is by a preponderance of the evidence. 

Ibid. The court can nonetheless affirm an assessment, despite its determination that plaintiff 

provided enough evidence to rebut the presumption, because “[e]vidence which is sufficient . . . to 

overcome the presumption . . . is not necessarily sufficient to carry” the plaintiff’s “burden of 

proof when all the evidence is subjected to critical analysis and weighing by the court.” Id. at 379. 

Thus, at this juncture, the court does not view plaintiff’s evidence as a “mechanical” function or 

as benignly as it does for purposes of deciding a R. 4:37-2(b) motion.2

(B) Evidence Need to Overcome the Presumptive Correctness of Taxation’s Determinations

In Yilmaz, Inc. v. Director, Div. of Taxation, 22 N.J. Tax 204 (Tax 2005), aff’d, 390 N.J. 

Super. 435 (App Div.), certif. denied, 192 N.J. 69 (2007), the Tax Court incorporated the standards 

and burden of proof applied in challenges to local property tax assessments, to challenges 

involving assessments arising from Taxation’s audit reconstruction, because both assessments are 

entitled to the same presumptive correctness. 22 N.J. Tax at 231-32, 236 (citing to Atlantic City 

Transp. Co. v. Director, Div. of Taxation, 12 N.J. 130 (1953), which relied upon a local property 

tax case, Aetna Life Ins. Co. v. City of Newark, 10 N.J. 99 (1952)). The court concluded that 

where the issue “is the reasonableness of the methods employed by [Taxation] for an audit period

 

2

 In MSGW, supra, both parties had provided expert reports/testimony. See 18 N.J. Tax at 373. The defendant there 

did not move to dismiss at the end of plaintiff’s proofs. Id. at 380. The court ruled that “the entire record, when 

viewed under the evidentiary standard discussed above, contains adequate evidence to enable plaintiff to overcome 

the presumption of validity which attached to the assessments under appeal.” Ibid. It then proceeded to “weigh and 

evaluate all the evidence and determine whether either party has established, by a preponderance of the evidence, that 

the true value of the subject property as of the applicable assessment dates was such as to warrant adjustments in the 

assessments.” Ibid. 
7 

where plaintiff ha[s] virtually no records of its receipts,” and where by statute, a vendor is required 

to “demonstrate by way of adequate records that it has correctly reported the tax,” then, such 

plaintiff-vendor must provide evidence which is “definite, positive and certain in quality and 

quantity,” a standard developed and applied in challenges to local property tax appeals. Id. at 230, 

233-34. Specifically, the court held as follows: 

[I]n a case involving a challenge to a determination by [Taxation] based on 

an audit of a cash business, involving only factual issues and the methods 

employed by [Taxation], the standard set forth in Pantasote Co., supra . . . 

is a reasonable and practical one. That is, the presumption that [Taxation’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.’ . . . That evidence must focus on the reasonableness of the 

underlying data used by [Taxation] and the reasonableness of the 

methodology used . . . . An ‘aberrant’ methodology will overcome the 

presumption of correctness . . . . An imperfect methodology will not. 

[Yilmaz, supra, 21 N.J. Tax at 236 (citing Pantasote Co., supra, 100 N.J. at

413)]. 

Although the Appellate Division in affirming the decision stated that a taxpayer who has 

inadequate books and records must be held “to a higher standard, particularly for the assessment 

of a ‘trust fund tax.’” such as the sales tax, “see 390 N.J. Super. at 442, it is clear that the nature 

of evidence needed to overcome the presumptive correctness of a tax assessment, whether it be 

imposed by Taxation (as in Yilmaz, supra), or by a taxing district (as in MSGW, supra), are the 

same. In other words, whether it be local property tax or S&U tax, the “type of evidence required 

to be produced by the taxpayer,” is the same, namely, “definite, positive and certain in quality and 

quantity,” and not mere speculation or subjective conclusions. This conclusion is logical because 
8 

the Appellate Division noted that the trial court’s incorporation of the evidentiary standard was 

“logical and consistent with case law.” Yilmaz, supra, 390 N.J. Super at 441.3

The Appellate Division did observe that a taxpayer can present “competent independent 

evidence, expert or otherwise, to challenge that presented by” Taxation to prove either an aberrant 

methodology or excessive assessment amount, or provide evidence through cross-examination of 

the auditor to provide evidence “that is sufficient to overcome the presumed correctness of” 

Taxation’s assessment. Id. at 442. Again, however, this does not mean that the evidentiary 

standard of presenting cogent evidence is any higher or different from that stated in MSGW, supra. 

(C) Rule 4:37-2(b) Motions vis-à-vis Overcoming the Presumptive Correctness of Taxation’s 

Determinations 

The decision in Yilmaz case did not indicate that there was a motion under R. 4:37-2(b). 

Rather, the court rendered its opinion after conclusion of the proofs of both parties. However, it 

is untenable to contend that because of this fact, and since Taxation’s final determinations enjoy a 

presumption of correctness, the MSGW’s standards in examining a motion under R. 4:37-2(b), 

cannot be applied to State tax matters. 

First, the court rule applies to all civil cases. Therefore, the standards for analyzing the 

motions set forth by our Supreme Court applies to State tax matters involving Taxation’s final 

determinations. The Supreme Court has interpreted the rule as follows: 

In the case of motions for involuntary dismissal, the test is, as set forth in 

R. 4:37-2(b) and equally applicable to motions for judgment [under R. 4:40-

1], whether the evidence together with the legitimate inferences therefrom, 

could sustain a judgment in . . . favor of the party opposing the motion, i.e., 

if, accepting as true all the evidence which supports the position of the party 

 

3

 In United Parcel Services Co. v. Director, Div. of Taxation, 25 N.J. Tax 1, 12-13 (Tax 2009), aff’d, 430 N.J. Super. 

1 (App. Div. 2013), aff’d, 220 N.J. 90 (2014), the Tax Court noted that the assignment of a presumptive correctness 

to Taxation’s final determinations was itself derived from local property tax cases, and the “evolution” of using the 

same standards/burden of proof in local property tax matters and state tax cases justified extension of such standards 

for analyzing challenges to corporation business tax (“CBT”) assessments. 
9 

defending against the motion and according him the benefit of all inferences 

which can reasonably and legitimately be deduced therefrom, reasonable 

minds could differ, the motion must be denied. The point is that the judicial 

function here is quite a mechanical one. The trial court is not concerned with 

the worth, nature or extent (beyond a scintilla) of the evidence, but only 

with its existence, viewed most favorably to the party opposing the motion. 

[Dolson, supra, 55 N.J. at 5-6 (citation and internal quotation marks 

omitted)]. 

Second, the MSGW court incorporated the Supreme Court’s standard for deciding motions 

to dismiss under R. 4:37-2(b) when advanced in local property tax cases. Thus, that same standard, 

as explicated by the highest court, should apply to tax cases such as the instant matters. 

Third, the MSGW court analyzed the evidentiary standard as to the presumption of 

correctness by relying on the Supreme Court’s decision in Pantasote, supra. See MSGW, supra, 

18 N.J. Tax at 373-74. That same case was relied upon in Yilmaz, supra, an S&U case, to 

incorporate the evidentiary standard and burden of proof applied in challenges to local property 

tax assessments because both assessments are entitled to the same presumptive correctness.4

 

Consequently, there is nothing to suggest that the Yilmaz court would (or could) have 

applied a heightened or different standard in analyzing a R. 4:37-2(b) motion in a trial involving a 

State tax matter (such as S&U tax assessments involving an audit reconstruction), or that it rejected 

the mechanical/”rose-colored glasses” scrutiny afforded to evidence in the context of a R. 4:37-

2(b) motion. 

In light of the above analysis, this court, in deciding Taxation’s motion to dismiss under R.

4:37-2(b), will view the evidence proffered by plaintiffs with the liberality afforded to such 

 

4 Even the term “aberrant” as used in Yilmaz, supra, has its genesis in local property tax cases. See Pantasote, supra, 

100 N.J. at 415 (an assessment’s presumptive correctness is overcome when “the quantum of the assessment was far 

wide of the mark of true value” or “is so far removed,” or if “the method of assessment itself is so patently defective 

and aberrant.”). However, “inadequacies in the municipality’s evidence or deficiencies in the assessment 

methodology will not impugn the presumption of validity.” Ibid. 
10 

evidence for identical motions made in civil cases as well as local property tax assessment cases 

in determining whether plaintiffs provided sufficiently competent evidence that raise a debatable 

question as to the correctness of Taxation’s final determination. If the court denies the motion, it 

will weigh all evidence before it to decide whether plaintiffs, by a preponderance of the evidence, 

have proven what the correct S&U assessment should be. Of course this decision will be made 

after providing Taxation the opportunity to go forward with its proofs. See R. 4:37-2(b) (a movant 

makes a dismissal motion “without waiving . . . [its] right to offer evidence in the event the motion 

is not granted.”). See also R. 4:40-1 (where a motion for judgment “is made prior to the close of 

all the evidence and is denied, the moving party may then offer evidence without having reserved 

the right to do so.”).

(D)This Court’s Denial of a Pre-Trial Summary Judgment Motion Does Not Require it to Apply 

any Higher or Other Standard in Determining a R. 4:37-2(b) Motion vis-à-vis Overcoming 

the Presumptive Correctness of Taxation’s Determinations 

As noted above, the court had denied Taxation’s summary judgment to dismiss the 

complaints there were material facts in dispute as to the adequacy of books and records. The 

matter therefore proceeded to trial so plaintiffs could prove they did not suffer an inadequacy of 

books and records, and what the correct assessment should be. At the end of plaintiffs’ proofs, 

Taxation moved to once again dismiss the complaints on grounds plaintiffs did not prove the 

adequacy of books and records, thus, did not overcome the presumptive correctness of Taxation’s 

final determination, but under R. 4:37-2(b). 

It is true that in a summary judgment motion, whether there exists a genuine issue as to a 

material fact in dispute 

requires the motion judge to consider whether the competent evidential 

materials presented, when viewed in the light most favorable to the nonmoving party in consideration of the applicable evidentiary standard, are 
11 

sufficient to permit a rational factfinder to resolve the alleged disputed issue 

in favor of the non-moving party. This assessment of the evidence is to be 

conducted in the same manner as that required under Rule 4:37-2(b). 

[Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995)]. 

Thus, “the essence of the inquiry in each [motion under R. 4:37-2(b) for directed verdict at end of 

plaintiff’s case, or under R. 4:40-1 or under R. 4:46-1 for summary judgment] is the same: whether 

the evidence presents a sufficient disagreement to require submission to a jury or whether it is so 

one-sided that one party must prevail as a matter of law.” Brill, supra, 142 N.J. at 536 (citations 

and quotations omitted). Yet this “process . . . is not the same kind of weighing that a factfinder 

(judge or jury) engages in when assessing the preponderance or credibility of evidence” since the 

motion judge grants all inferences in favor of the non-movant, whereas, the “ultimate factfinder 

may pick and choose inferences from the evidence.” Ibid. 

Although the standard for the “assessment of evidence” is the same in determining a 

summary judgment motion or a R. 4:37-2(b) motion, a party denied summary judgement pre-trial 

is not precluded from moving for involuntary dismissal or directed verdict under R. 4:37-2(b). 

Similarly, while the analysis in either motion will be the same, a denial of a summary judgment 

pre-trial will not preclude a court from denying a motion under R. 4:37-2(b). In deciding a 

summary judgment motion, the court examines if there are materially disputed facts as to which 

there is a genuine issue. At trial following denial of the summary judgment, the material facts 

which were disputed will be (or sought to be) proven. In thereafter deciding a motion to dismiss 

after plaintiff’s proofs, and as applied to tax cases, this court will be analyzing whether the taxpayer 

has overcome the presumptive correctness afforded Taxation’s assessments with its proffered 

proofs using the standards articulated in R. 4:37-2(b) (or under R. 4:40-1 if no such motion was 

made) as explicated in MSGW, supra. 
12 

Thus, here, when this court denied Taxation’s pre-trial summary judgment motion, it did 

not decide that plaintiffs overcame the presumptive correctness of Taxation’s final determinations. 

Therefore, it is incorrect to conclude the only thing left is for the court to weigh plaintiffs’ evidence 

under a preponderance standard. Such a construction would also violate R. 4:37-2(b) or R. 4:40-

1 as Taxation should have the opportunity and ability to present its own proofs. 

(E) Plaintiffs Have Provided Sufficiently Competent Evidence to Overcome the Presumptive 

Correctness of Taxation’s Determination

Plaintiffs provided testimony of both owners of the corporate plaintiff (the individual 

plaintiffs herein). They testified as to the restaurant’s operations, and how the daily receipts were 

accounted/deposited. Plaintiffs also provided testimony of the corporate plaintiff’s bookkeeper 

who testified as to the restaurant’s operations; method/routine of collecting the daily receipts from 

each server; method/routine of reconciling those receipts with the computerized cash register; 

method/routine of reconciling the daily total collections with the daily total summaries produced 

by the computerized cash register; method/routine of running the summarized reports; the general 

ledgers that were maintained; and the history and use of the restaurant software. The corporate 

plaintiff’s accountant testified as to the CBT returns preparation and recited the minimal 

differences between the federal and state corporate tax returns. He also testified that the corporate 

plaintiff’s audit by the Internal Revenue Service for 2007 resulted in a $668 federal income tax 

liability for the individual plaintiffs, and for 2008 resulted in no changes to the corporate federal 

return filed. 

Plaintiffs also provided testimony of the principal of a software company, which had 

installed and maintained a pre-written commercially available restaurant-specific software for the 

corporate plaintiff. The principal testified as to purpose and function of the restaurant software 
13 

installed in the restaurant’s computers; how the computer monitors in the specific areas of the 

restaurant function; how the ordering of food/drink is traced at each location (restaurant, bar, 

kitchen); the “queuing” functionality of the software by which the food/drink is tracked from its 

order-to-preparation-to-service stages; the manner in which summary records (daily, monthly, 

annual) are computed by the software; and some of the reasons why daily records of the inputted 

data became unavailable or inaccessible (such as due to software upgrades or replacements). 

Plaintiffs further provided the following documents:5 

(A) Copies of statements of the corporate plaintiff’s two bank accounts for 2008-2010. 

Included was a “Bank Deposit Summary” for each year prepared by the plaintiffs 

itemizing the monthly total deposits/credits from which items of the reversed bank 

errors, reversed checks/credits, transfers, and Commerce Bank Line of Credit 

Advances were deducted to show the “Net taxable deposits.”

(B) Copies of the general ledger for 2007-2009. Included was a sheet summarizing the 

General Ledger Comparison to Tax returns for the last quarter 2007, 2008-2010, and 

the first three quarters of 2011. The summary showed that the gross receipts reported 

on the S&U returns for each period was lesser than that shown on the general ledger 

($5,780 for 2007; $70,366 for 2008; $10,039 for 2009; $16,359 for 2010, and $1,958 

for 2011). The difference between the gross receipts reported on the general ledger 

versus the CBT returns for 2008 and 2009 was -$1 and $2 respectively. 

(C) Summaries of the daily/monthly cash registers for 2008-2011 and a “daily server 

report” dated May 21, 2017.

(D) Tax returns for 2007-2011. Included was a sheet summarizing the difference in the 

amounts reported on the CBT and S&U returns which showed that the receipts on the 

S&U returns for each year 2008-2010 was lesser than the receipts reported on the CBT 

returns ($70,367 for 2008; $10,037 for 2009; and $16,359 for 2010). 

(E) Forms 1099-K issued by two “merchant card” (credit card) companies for 2011. 

Included was a comparison sheet showing the difference between the credit card 

receipts on the monthly summaries for 2011 versus the Forms 1099-Ks for 2011 

(showing that the monthly summaries exceeded the 1099-Ks by $7,194.24). 

 

5

 The documents were all admitted into evidence without objection by Taxation. 
14 

Plaintiffs contend that their proofs sufficiently demonstrated that they had more than 

adequate books and records, thus, Taxation’s very basis for performing an audit reconstruction, 

which was a determination that there were inadequate books and records, was incorrect. They note 

that the bank statements amply demonstrate that Taxation’s conclusion of irreconcilably large bank 

deposits (for 2008, the sample year) was baseless, which is yet another reason why Taxation’s 

decision to proceed with the audit reconstruction is questionable. Finally, they argue, although the 

books and records concededly show a difference in receipts as reported for S&U versus CBT, the 

discrepancy is markedly lesser than the assessment, thus, proves that quantum of assessment is 

excessive. They point out that the aberrance is also evident because Taxation’s markup results in 

an almost 150% increase of sales which would imply an equally high amount of unreported (thus, 

audited purchases), yet Taxation did not increase the purchase amounts during audit and had 

accepted the purchases reported on the corporate plaintiff’s CBT returns as credible. 

Taxation argues that even if one donned “rose-colored glasses,” the evidence proffered by 

plaintiffs is nowhere close to overcoming the presumptive correctness of its sales tax assessment 

for the tax years at issue. It notes that until the day of trial, and even during trial, plaintiffs chose 

not to produce a single cash-register tape that would verify the cash register summaries despite 

having restaurant-specific software, which per the software consultant’s testimony, is capable of 

printing out a breakdown of each individual item sold each day, even if it is only for periods in 

2010 or 2011 when the software was replaced with the current software. Taxation argues that this 

single fact combined with the testimony that daily cash register tapes were not retained, is fatal to 

plaintiffs’ complaint, as was the failure to provide bank statements and general ledgers. 

The court finds that plaintiffs have provided evidence that is of sufficient quality and 

quantity to raise a question as to the presumptive correctness of Taxation’s determination that the 
15 

corporate plaintiff maintained inadequate books and records justifying an audit reconstruction and 

the consequent S&U assessment.6 Plaintiffs’ evidence specifically targets Taxation’s assertions 

and conclusions of the purported inadequacy of books and records due to irreconcilable bank 

deposits for 2008 by providing objective documentary evidence, such as bank statements showing 

entries of inter-bank transfers, reversed checks, and reverse credits due to bank errors, and

testimonial evidence as to record-keeping. The 2008 bank statement clearly showed a reversal of 

approximately $1,757,764.10 due to bank error of debiting the account for insurance premiums, 

which incorrectness was evident when comparing the total insurance payments for 2008 in the 

general ledger (which was about $123,000). Although Taxation claimed it proceeded with the 

audit reconstruction because it was never provided with the bank statements or general ledgers for 

other years included in the audit, and not solely due to the 2008 bank deposit discrepancy, plaintiffs 

(who refuted the allegation of non-provision) proffered those documents for, and at trial. Cf. 

Yilmaz, supra, 22 N.J. Tax at 217 (noting that the taxpayer’s accountant’s reconstruction of the 

bank statements did not contain any “supporting documentation . . . such as loan documents or 

bank statements,” and the same were not “produced at trial.”). At no point did Taxation object to 

their use as evidence or dispute their validity. 

The court also finds the testimony of the software company’s principal of how nearimpossible it is to manipulate the software to conceal sales (thus, receipts) and further that he had 

never used or dealt with a software known to do so, would raise a question in the mind of a factfinder as to the correctness of Taxation’s complete rejection of the computer-generated summaries 

provided by the plaintiffs, and thus, the correctness of its determination that the books and records 

 

6

 As noted above, the court granted Taxation’s motion for summary judgment as to the use tax assessment. However, 

since the error rate for the use tax was based upon the 2008 audited gross receipts, and the validity of the same was 

yet to be tried, the amount of use tax to be assessed was left open. 
16 

were inadequate. See also N.J.A.C. 18:24-2.3(a) (can “dispose [] individual . . . cash register tapes, 

. . . after . . . 90 days from the last date of the most recent . . . period for the filing of sales tax 

returns to which such individual sales documents pertained.”);

7 Charley O’s, Inc., t/a Scotty’s 

Steakhouse v. Director, Div. of Taxation, 23 N.J. Tax 171, 187 (Tax 2006) (use of cash register 

summaries can be permissible substitutes for the daily cash register tapes); cf. Yilamz, supra, 390 

N.J. Super. at 438 (finding that the taxpayer “did not retain cash register receipts, did not use guest 

checks and did not maintain summary records of sales.”). 

Admittedly, the receipts reported in the S&U returns are somewhat lower than the reported 

receipts in the general ledgers and on the CBT returns. The court was also unable to trace each of 

the entries that plaintiffs claim should be reduced from the total bank deposits (reversed checks, 

inter-bank transfers and line-of-credit advances). However, these factors do not destroy the 

sufficiency of the quality and quantity of evidence proffered for purposes of a R. 4:37-2(b) motion 

under the “rose-colored glasses” standard and where this court is satisfied that plaintiffs’ proofs 

are not subjective or “wishful thinking.” Further, although plaintiffs did not provide any expert’s 

evidence to show that Taxation’s markup analysis or data used for such markup was an aberrant 

methodology, this does not require granting Taxation’s motion. This is because the plaintiffs are 

primarily contesting Taxation’s assertions that the corporate plaintiff maintained inadequate books 

and records and which records, if perused by Taxation, would not have required a markup and 

would not have resulted in so excessive an assessment, even if some inaccuracies were present. 

 

 

7

 Effective May 16, 2016, such records must be maintained “for a period of four years from the last date of the most 

recent quarterly period for the filing of sales tax returns,” and further, retain the “summary sales records” for at least 

“four years from the last date of the quarterly period for the filing of sales tax returns.” See 47 N.J.R. 2919(a) (Dec. 

7, 2015); 48 N.J.R. 824(a) (May 16, 2016).
17 

CONCLUSION 

For the aforementioned reasons, the court denies Taxation’s motion under R. 4:37-2(b). 

Trial will continue on January 4, 2018 to allow Taxation the opportunity to, if it so desires, present 

any and all proofs. The court will then decide whether plaintiffs have proven, by a preponderance 

of the evidence, what the S&U assessments should properly be. 

Very Truly Yours, 

 

 Mala Sundar, J.T.C.