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TAX COURT OF NEW JERSEY

 

Kathi F. Fiamingo 120 High Street

Judge Mount Holly, NJ 08060

 Tel: (609) 288-9500 EXT 38303

 

NOT FOR PUBLICATION WITHOUT APPROVAL OF

THE TAX COURT COMMITTEE ON OPINIONS

June 19, 2019 

Russell K. Stewart

800 N. Kings Highway, Ste 201 

Cherry Hill, NJ 08034 

Miles Eckardt

Deputy Attorney General 

Attorney General of New Jersey

R.J. Hughes Justice Complex 

25 Market Street

Trenton, New Jersey 08625-0106 

Re: Michelle G. Darcey v. Director, Division of Taxation 

 Docket No. 001480-2018 

 

Dear Counsel:

This letter constitutes the court’s opinion with respect to the motion for summary judgment 

filed by the Director, Division of Taxation (“Director”) to dismiss Michelle G. Darcey’s 

(“plaintiff”) complaint. The court finds that the plaintiff failed to include in her income subject to 

New Jersey Gross Income Tax for 2013 all of the wages reported to her from her employer for that 

year. The court also finds that plaintiff is not entitled to a credit for taxes alleged to have been 

paid to the State of Pennsylvania in a prior taxable year on income paid to her in a later taxable 

year when she was a resident of New Jersey.

Thus for the reasons hereinafter detailed the court grants the Director’s motion for 

summary judgment and dismisses the complaint of plaintiff.
2 

A. Findings of Fact1 and Procedural History

In 2003 and 2004, plaintiff lived and worked in Pennsylvania. During those years, pursuant 

to an agreement with her employer, she had compensation deferred to future years. A portion of 

the compensation deferred in 2003 and 2004 was subject to tax by the State of Pennsylvania and 

the City of Philadelphia in those years. 

In 2013, plaintiff, then a resident of New Jersey, received a NJ Form W-2 from her 

employer reporting $1,139,399.12 as N.J. wages, tips, etc. Although plaintiff reported $1,136,961

as wages on her U.S. individual income tax return for 2013 she reported only $999,024 in wages 

on her 2013 New Jersey Gross Income Tax Return. 

Plaintiff’s 2013 NJ Gross Income Tax Return was audited and on October 5, 2017 a Notice 

of Deficiency (“NOD”) finding a tax deficiency in the amount of $15,681 was issued. The NOD 

stated that the wages should have been reported as $1,139,399 and stated that “[a]ll wages, 

regardless of where they are earned are subject to NJ Gross Income Tax.” (emphasis in original).

The NOD further noted that “Employee contributions to a 401(k) plan are deductible from 

wages.” Further, the NOD stated “Contributions are to only be taxed once; and upon the 

distribution of any plan, if one is to pay taxes on it, he/she should deduct the contribution amounts 

that were already taxed.” 

The NOD further noted that, 

Similar to the court ruling of[,] Estate of Tina Guzzardi v. Director, 

Division of Taxation (Dec 1995), the income that was previously 

taxed by Pennsylvania cannot be deducted from the income earned 

in the current tax year for New Jersey. Also, no credit is available 

for the taxes paid from 2003 & 2004 since they did not take place in 

the same taxable year.

 

1 The following facts are based on the respective statements of Material Facts submitted by the 

parties to the extent those facts are admitted for the purposes of this motion. 
3 

On December 5, 2017, plaintiff submitted a written protest to the NOD.

2 Before the 

Director could respond to the protest, plaintiff paid the contested tax and on February 27, 2018 

filed the instant complaint in the Tax Court. On April 30, 2018, the Director filed an answer and 

on April 30, 2019 filed the instant motion seeking summary judgment and dismissal of plaintiff’s 

complaint. On May 16, 2019, plaintiff submitted opposition to the motion. The Director submitted 

a reply on June 14, 2019. 

B. Discussion

1. Summary Judgment

Summary judgment should be granted where “the pleadings, depositions, answers to 

interrogatories and admissions on file, together with the affidavits, if any, show there is no 

genuine issue as to any material fact challenged and the moving party is entitled to a judgment or 

order as a matter of law.” R. 4:46-2(c). In Brill v. Guardian Life Insurance Company, 142 N.J.

520 (1995), the New Jersey Supreme Court established the standard for summary judgment: 

[W]hen deciding a motion for summary judgement under Rule 4:46-

2, the determination whether there exists a genuine issue with 

respect to a material fact challenged requires the motion judge to 

consider whether the competent evidential materials presented, 

when viewed in the light most favorable to the non-moving party in 

consideration of the applicable evidentiary standard, are sufficient 

to permit a rational factfinder to resolve the alleged disputed issue 

in favor of the non-moving party. 

 [Brill v. Guardian Life Ins. Co., 142 N.J. at 523.] 

The trial court’s “function is not . . . to weigh the evidence and determine the truth . . . but 

to determine whether there is a genuine issue for trial.” Id., at 540 (quoting Anderson v. Liberty 

Lobby, Inc., 477 U.S. 242, 249 (1986)). The trial judge must consider “whether the competent 

 

2 The Director notes that the protest letter contained a faulty mailing address, as a result of which 

receipt was delayed until February 20, 2018. A memorandum issued by the Conference and Appeals Branch 

conceded the timeliness of the protest, notwithstanding its untimely receipt.
4 

evidential materials presented, when viewed in the light most favorable to the non-moving party, 

are sufficient to permit a rational fact finder to resolve the alleged disputed issue in favor of the 

non-moving party.” Ibid. When the facts present “a single, unavoidable resolution” and the 

evidence “is so one-sided that one party must prevail as a matter of law,” then a trial court should 

grant summary judgment. Ibid. 

If a motion is based on facts not appearing of record or not judicially 

noticeable, the court may hear it on affidavits made on personal 

knowledge, setting forth only facts which are admissible in evidence 

to which the affiant is competent to testify and which may have 

annexed thereto certified copies of all papers or parts thereof 

referred to therein. 

 [R. 1:6-6]

All material facts submitted by the movant which are sufficiently supported are to be 

deemed admitted unless the other party specifically disputes such facts. See R. 4:46-2(b). 

“The party defending against a motion for summary judgment cannot defeat the motion 

unless it provides specific facts that show the case presents a genuine issue of material fact, such 

that a jury might return a verdict in its favor.” School Alliance Ins. Fund v. Fama Constr. Co., 353 

N.J. Super. 131, 135-136 (Law Div. 2001) (citing Anderson v. Liberty Lobby Inc., 477 U.S. 242, 

248 (1986)). Here there is no dispute as to the facts. Thus the matter is ripe for summary 

judgment. 

2. Legal Standard

“The settled rule is that there is a presumption that an assessment made by the proper 

authority is correct and the burden of proof is on the taxpayer to show otherwise.” Aetna Life Ins. 

Co. v. Newark, 10 N.J. 99, 105 (1952); Atlantic City Transp. Co. v. Dir., Div. of Taxation, 12 N.J.

130, 146 (1953). “Courts have recognized the Director’s expertise in the highly specialized and 

technical area of taxation.” Aetna Burglar & Fire Alarm Co. v. Director, Div. of Taxation, 16 N.J. 
5 

Tax 584, 589 (Tax 1997) (citing Metromedia, Inc. v. Director, Div. of Taxation, 97 N.J. 313, 327 

(1984)). “Generally, courts accord substantial deference to the interpretation an agency gives to a 

statute that the agency is charged with enforcing.” GE Solid State, Inc. v. Director, Div. of 

Taxation, 132 N.J. 298, 306 (1993). Taxation’s “interpretation will prevail as long as it is not 

plainly unreasonable.” Koch v. Dir., Div. of Taxation, 157 N.J. 1, 8 (1999) (citation and internal 

quotation marks omitted). “[A]n administrative agency may not, under the guise of interpretation, 

extend a statute to give it a greater effect than its language permits” GE Solid State, Inc. v. Dir., 

Div. of Taxation, 132 N.J. at 306. 

3. Gross Income Tax Act and Resident Credit

N.J.S.A. 54A:2-1 imposes a tax on the gross income of every resident of the State of New 

Jersey. Generally, the Gross Income Tax (“GIT”) applies to all income received, and domicile or 

residence will provide a sufficient basis for the imposition of the tax on income received. N.J.S.A. 

54A: 5-1; See Guzzardi, Estate of, v. Director, Div. of Taxation, 15 N.J. Tax 395 (Tax 1995) aff’d

16 N.J. Tax 374 (App. Div. 1996). N.J.S.A. 54A:5-1 enumerates categories of income properly 

included in an individual’s taxable gross income and includes salaries, wages, tips, fees 

commissions, bonuses, and other remuneration received in exchange for services rendered. 

“Under the clear and explicit provisions of subsection (a), any employed taxpayer is taxable on the 

full amount of the compensation received from his employment, whether it is in the form of a 

salary or commissions or otherwise.” Domenick v. Director, Division of Taxation, 176 N.J. Super. 

121, 128 (App. Div. 1980). Just as clearly, N.J.S.A. 54A:5-1(j) includes in taxable gross income 

“[a]mounts distributed from an employee trust attributable to contributions to the trust which were 

excluded from gross income under the provisions of chapter 6 of Title 54A of the New Jersey 
6 

Statutes, . . . and pensions and annuities except to the extent of exclusions in N.J.S.A. 54:6-10 

hereunder. . .” 

When examined as a whole, the GIT Act establishes a tax on New 

Jersey gross income reduced only by deductions, exemptions and 

credits expressly recognized by the Legislature. Vinnik, supra, 12 

N.J. Tax at 453-54. Thus, "[t]axation is the rule and exemption is the 

exception to the rule[,][and][t]he legislative design to release one 

from his just proportion of the public burden [must] be expressed in 

clear and unequivocal terms." AT & T Co. v. Director, Div. of 

Taxation, 13 N.J. Tax 534, 543 (Tax 1993); see also Princeton 

University Press v. Borough of Princeton, 35 N.J. 209, 214, 172 

A.2d 420 (1961). To the extent that plaintiffs seek to establish a 

deduction from taxable gross income, they have the burden of 

establishing a clear statutory basis therefor. See Amerada Hess 

Corp. v. Director, Div. of Taxation, 107 N.J. 307, 319-20, 526 A.2d 

1029 (1987), aff'd, 490 U.S. 66, 109 S. Ct. 1617, 104 L. Ed. 2d 58 

(1989); Metpath, Inc. v. Director, Div. of Taxation, 96 N.J. 147, 153, 

474 A.2d 1065 (1984); Princeton University Press, supra, 35 N.J. at 

214, 172 A.2d 420. 

Reck v. Dir., Div. of Taxation, 345 N.J. Super. 443, 449 (App. Div. 

2001) 

Plaintiff has provided nothing to this court demonstrating her entitlement to an exemption

from tax or deduction from income. Although plaintiff maintains, and the Director concedes, that 

a portion of the income paid to her by her employer in 2013 was previously taxed by the State of 

Pennsylvania, plaintiff provides no support for her claim that she is entitled to any exemption for 

such previously taxed income, or a deduction from her current gross income for such amounts.

Plaintiff argues that the amounts taxed in 2003 and 2004 were paid to her pursuant to the 

provisions of the Ryan Beck & Co., Inc. New Voluntary Deferred Compensation Plan (the “Plan”). 

The Director notes that the Plan was not made effective until 2005, after the compensation at issue 

was deferred and that the income could not have been deferred pursuant to that Plan. Nonetheless
7 

the Director argues that whether or not the deferred compensation was paid to plaintiff pursuant to 

the Plan provisions, the inclusion in taxable income in the year paid was the proper treatment. 

Specifically the Plan by its terms is a non-qualified deferred compensation plan intended 

to comply with the provisions of Internal Revenue Code 409A. Generally, under that provision of 

the Internal Revenue Code compensation deferred under an Section 409A plan is not taxable when 

the election to defer is made, but is taxable when the compensation is actually received or is no 

longer subject to a substantial risk of forfeiture. Thus, to the extent any of the income deferred in 

2003 and 2004 was paid pursuant to the Plan in 2013, it was taxed to plaintiff for federal income 

tax purposes in the year paid. As a result, such income is also subject to New Jersey gross income 

tax in the year of receipt. “The New Jersey Gross Income Tax Act requires use of federal 

accounting methods in reporting income. N.J.S.A. 54A:8-3(c) provides that ‘[A] taxpayer's 

accounting method under this act shall be the same as his accounting method for federal income 

tax purposes.’ Smoyer v. Taxation Div. Dir., 4 N.J. Tax 42, 46 (1982). Thus, assuming that any 

amounts paid to plaintiff represented income payable under the Plan, or its predecessor, New 

Jersey law requires that it be included in income in the year paid, in this case 2013. 

Plaintiff further argues that deferred income once taxed by the State of Pennsylvania, 

became “an asset assigned for the retirement benefit of the employee under applicable state law. 

It is thus a capital asset with a basis equal to its reported taxable value.” Plaintiff did not provide 

the applicable state law and the court is unaware of any such law. Under New Jersey law, “the 

basis of property shall be the adjusted basis used for federal income tax purposes, except as 

expressly provided for under [the New Jersey Gross Income Tax Act].” N.J.S.A. 54A:5-1(c). The 

evidence submitted demonstrates that plaintiff reported on her federal income tax return all of the 

income reported on her 2013 W-2, without reduction for basis. Thus, there is nothing in the record 
8 

to support plaintiff’s contention that she acquired a basis in the deferred income so that it was not 

subject to tax upon distribution. The court is unaware of any state or federal law which would 

support such a position. 

Nor has plaintiff provided any support for any other exclusion of the income from her 

taxable gross income. Thus the Director has demonstrated that there is no genuine issue of material 

fact that all of the income at issue was includable in plaintiff’s 2013 gross income tax return.

There is also no genuine dispute that plaintiff is entitled to a credit against tax. 3 N.J.S.A. 

54A:4-1(a) provides, in pertinent part, that a resident taxpayer shall be allowed a credit against the 

tax otherwise due ... for the amount of any income tax ... imposed for the taxable year by another 

state of the United States or political subdivision of such state... with respect to income which is 

also subject to tax” in New Jersey. “The design of the statute obviously is to avoid taxation of the 

same income by more than one state.” Sorensen v. Director, Division of Taxation, 2 N.J. Tax 470, 

475 (Tax 1981). “The purpose of the resident income tax credit is to minimize or avoid double 

taxation of New Jersey residents' gross income that is also subject to tax in the same year in another 

state. Ambrose v. Director, Div. of Taxation, 198 N.J. Super. 546, 552, 487 A.2d 1274 

(App.Div.1985).” Sutkowski v. Dir., Div. of Taxation, 312 N.J. Super. 465, 470 (App. Div. 1998). 

(Emphasis supplied). 

Neither the federal nor the state constitutions require an income tax credit for income taxed 

by a foreign jurisdiction. See Laurite v. Director, Division of Taxation, 12 N.J. Tax 483, 491 (Tax 

1992) add’d per curium o.b., 14 N.J. Tax 166 (App.Div.1993), certif. denied, 135 N.J. 301 (1994). 

A credit “is a matter of grace and a state may impose conditions on its application. The New Jersey 

 

3

 Although plaintiff does not argue for a credit against the tax, the court will nonetheless 

address this issue.
9 

Legislature has expressly imposed conditions on the calculation of the credit for out-of-state tax 

paid and has limited entitlement to credit to income taxed by another state in the same tax year.” 

Ibid. (emphasis added);

In Guzzardi, Estate of, v. Director, Div. of Taxation, 15 N.J. Tax 395 (Tax 1995), aff’d 16 

N.J. Tax 374 (App. Div. 1996) the taxpayer, while a resident of Pennsylvania, sold real property 

and received in return cash and notes to be paid on an installment basis. Pennsylvania taxed the 

entire gain realized by the taxpayer in 1981, the year of the sale. The taxpayers thereafter relocated 

to New Jersey. In 1988 the taxpayers recognized income on the sale for federal income tax 

purposes. The income was found to be taxable for New Jersey Gross Income Tax purposes without 

reduction for a capital loss carryover allowed for federal income tax purposes. In addition, the 

court found that the taxpayer was not entitled to a credit against tax for the tax paid on the income 

to Pennsylvania in a prior year. Id. at 405. Specifically, referencing the Appellate Court’s decision 

in Laurite, 14 N.J. Tax 166, the court found that “the resident credit is available only when double 

taxation by New Jersey and another state occurs in the same taxable year.” Guzzardi, 15 N.J. Tax 

405. 

For all of the foregoing reasons, the Director’s motion for summary judgment is granted. 

Plaintiff’s complaint is dismissed.

Very truly yours,

Kathi F. Fiamingo, J.T.C.