Court Opinion

ID: 9702379
Source: CourtListenerOpinion
Date Created: 2023-08-25 23:09:05.082059+00
Date Added: 2024-06-11T18:21:37.162872
License: Public Domain

*562Justice WALLACE, JR.,
delivered the opinion of the Court.
Congress amended the federal estate tax law effective January 1, 2002, in part, to increase the value of assets that could pass free of federal estate tax under the unified credit provision and to phase out the state death tax credit, the source of New Jersey estate tax revenue. To avoid the loss of revenue due to the federal changes, in July 2002, the Legislature amended N.J.S.A. 54:38-1 to provide that the New Jersey estate tax would not follow the federal amendments, but would continue to be computed in accordance with the federal state tax credit in effect on December 31, 2001. The statute was made retroactive to January 1, 2002.
In the two estates in this appeal, both decedents died after January 1, 2002, and prior to the adoption of the amendments to N.J.S.A. 54:38-1 in July 2002. Each estate administrator filed a State estate tax return reflecting that no taxes were due. The Director of the New Jersey Division of Taxation (Director) imposed estate taxes under N.J.S.A 54:38-1 on both estates. Plaintiffs filed separate actions in the Tax Court contending that the estates should not be subject to the retroactive tax law because the statute was not intended to impose a tax on estates that would not have paid taxes under the law in effect on December 31, 2001. Alternatively, plaintiffs urged that the doctrine of manifest injustice should be applied to eliminate the retroactive aspect of the amendment. The Tax Court held that N.J.S.A 54:38-1 was applicable to the two estates, but that the doctrine of manifest injustice applied to eliminate the retroactive effect of the statute. The Director appealed. The Appellate Division reversed, concluding that the amendment applied to decedents’ estates, but that it was error to apply the doctrine of manifest injustice to a tax statute. We granted plaintiffs’ petition for certification. We now hold that, although the amendment to N.J.S.A. 54:38-1 applies to the estates, under the circumstances presented, the Tax Court properly considered the doctrine of manifest injustice to bar the retroactive application of the statute to plaintiffs.
*563I.
The essential facts are not disputed. On April 3, 1998, Cynthia Oberhand (Mrs. Oberhand) executed her Will. She named her husband Robert Oberhand (Mr. Oberhand) executor and trustee, and established two trusts, a Marital Trust and a Family Trust. The Will provided that the maximum amount that could pass free of federal estate tax (essentially, the federal exclusion amount, 26 U.S.C.A. § 2010(c)), would be distributed to the Family Trust, and the balance of the residuary estate would be distributed to the Marital Trust.1 The formula of the trusts was designed to avoid or limit the amount of federal and state estate taxes. Mr. Oberhand was to receive the net income from the Marital Trust for his life, with discretionary distributions of principal. Under the terms of the Family Trust, Mr. Oberhand was entitled to receive discretionary distributions of income and principal, but could not receive any principal from the Family Trust until the Marital Trust was exhausted. Upon Mr. Oberhand’s death, the remainder of both trusts was to be distributed equally to the decedent’s and Mr. Oberhand’s surviving children. Mrs. Ober-hand died on March 28, 2002, leaving an estate valued at $864,905.98. On January 6, 2003, the estate filed a State Estate Tax Return, together with a copy of the federal estate tax return, showing no taxes were due.
Eugene Seidner (Mr. Seidner) executed his Will in 1999. Similar to Mrs. Oberhand’s Will, Mr. Seidner’s Will provided for a Marital Trust and a Family Trust with appropriate formulas. Mr. *564Seidner died on January 25, 2002, survived by his wife, Harriet Seidner (Mrs. Seidner). He left an estate of approximately $744,251.89. On January 15, 2003, the estate filed a State Estate Tax Return, together with a copy of the federal estate return, showing that no taxes were due.
Effective January 1, 2002, Congress amended the federal estate tax laws. Pertinent to this appeal, the amendment included an increase in the amount of property that could pass free of federal estate tax under the unified credit provision (I.R.C. § 2011) from $675,000 to $1,000,000. Those changes had a direct impact on the revenue that New Jersey would receive because the New Jersey estate tax was integrated with the federal estate tax. In an effort to counter the loss of revenue due to the federal changes, the Legislature acted to decouple the New Jersey estate tax from the federal estate tax by amending its estate tax law, N.J.S.A. 54:38-la(2)(a) (the Amendment).
On March 25, 2002, the Senate proposed Senate Bill 1378 to address this concern. The statement to the bill provided in part that
the New Jersey estate tax ... be computed as though the terms of the federal estate tax, including those governing liability for that tax and allowance of the state [death] tax credit, continued to apply to the estates of resident decedents dying after December 31, 2001, as they did to that of a residential decedent dying on that date.
[S.B. 1378, 2002 Leg. 210th Sess. (N.J.2002).]
A similar bill was introduced in the Assembly as Bill No. 2302 on May 9, 2002. A statement identical to that of the Senate bill was appended to the Assembly bill and echoed the concern of the loss of revenue due to changes in the federal estate tax laws. Eventually, the Assembly bill was substituted for the Senate bill and signed into law on July 1, 2002. The Amendment was effective immediately and was made applicable to the estate of any resident dying after December 31, 2001, thus making it retroactive for a six-month period.
The Amendment provided in part as follows:
*565a. In addition to the inheritance, succession or legacy taxes imposed by this State under authority of chapters 33 to 36 of this title (R.S. 54: et seq.), or hereafter imposed under authority of any subsequent enactment, there is hereby imposed an estate or transfer tax.
(2)(a) Upon the transfer of the estate of every resident decedent dying after December 31, 2001 which would have been subject to an estate tax payable to the United States under the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.l et seq.), in effect on December 31, 2001, the amount of which tax shall be, at the election of the person or corporation liable for the payment of the tax under this chapter, either
(i) the maximum credit that would have been allowable under the provisions of that federal Internal Revenue Code in effect on that date against the federal estate tax that would have been payable under the provisions of that federal Internal Revenue Code in effect on that date on account of taxes paid to any state or territory of the United States or the District of Columbia.
[N.J.S.A. 54:38-la(2).]
At the time decedents executed their respective Wills and as of the dates of their deaths, neither federal nor New Jersey estate taxes would have been due from the estates. Also, if Mrs. Oberhand had died in 2001 when the federal estate credit was $675,000, then her estate of $864,905.98 would have been divided as follows: $675,000 (the then-maximum federal estate tax exclusion) into the Family Trust, and the remaining $189,905.98 into the Marital Trust that qualified for the 26 U.S.C.A. § 2056 marital deduction. In that event, no federal or state taxes would have been due. Because of the changes in the federal estate tax law that established an estate credit of $1,000,000 beginning January 1, 2002, after Mrs. Oberhand’s death on March 28, 2002, the formula in the Will required the entire estate to pass to the Family Trust.
Similarly, if Mr. Seidner had died in 2001, then his estate of $744,251.89 would have passed as follows: $675,000 into the Family Trust, and the remaining $69,251.89 into the Marital Trust, with no federal or state estate taxes due. Again, as a result of the increase in the federal estate tax credit to $1,000,000, the formula in his Will provided that the executrix should place the entire estate into the Family Trust.
*566As noted, the Amendment was made retroactive to all estates arising between January 1, 2002 and July 1, 2002, the date on which the Amendment was approved. The Director concluded that the Amendment applied to the two estates. As a result, the Director imposed a tax against Mrs. Oberhand’s estate on the $189,905.98 excess above the $675,000 estate credit that passed to the Family Trust, and imposed a tax against Mr. Seidner’s estate on the $69,251.89 excess above the $675,000 estate credit that passed into his Family Trust.
Plaintiff, Mr. Oberhand, as Executor of the Estate of Mrs. Oberhand, filed a complaint in the Tax Court contesting the Director’s assessment. Plaintiff and the Director subsequently agreed that if New Jersey estate taxes were due, the amount exclusive of interest would be $20,124.09. Following cross-motions for summary judgment, the Tax Court held that the Amendment applied to decedent’s estate and that the statute was constitutional. However, the Tax Court concluded that retroactive application of the Amendment resulted in a manifest injustice to the estate; therefore, the court barred the retroactive application of the Amendment to the estate. Oberhand v. Dir., Div. of Taxation, 22 N.J. Tax 55 (2005). Consequently, the Tax Court vacated the tax assessment against the Oberhand estate.
Plaintiff, Mrs. Seidner, as Executrix of the Estate of Mr. Seidner, also filed a complaint in the Tax Court challenging the application of the Amendment to the estate. In a letter opinion, the Tax Court reversed on the basis of the decision in the Oberhand matter.
The Director appealed and the two cases were consolidated. The Appellate Division affirmed the Tax Court’s construction of the statute as applying retroactively to the estates and that the statute was constitutional. Oberhand v. Dir., Div. of Taxation, 388 N.J.Super. 239, 242, 907 A.2d 428 (2006). However, the panel disagreed with the Tax Court’s conclusion that the doctrine of manifest injustice should apply in the “judicial evaluation of retro*567active tax laws,” and reversed the judgments of the Tax Court. Id at 240, 907 A.2d 428.
We granted plaintiffs’ petition for certification. Oberhand v. Dir., Div. of Taxation, 190 N.J. 255, 919 A.2d 849 (2007).
II.
Plaintiffs argue that the Amendment does not apply to the estates because the plain language of the statute demonstrates a legislative intent that the six-month retroactive period was intended to impose an estate tax on those instances where the estates would have had to pay a tax if the date of death were December 31, 2001 or earlier. They contend that, if the decedents had died in 2001, the portion of their estate distributed to the Family Trust would have been equal to the then applicable federal estate exclusion amount of $675,000, with the balance distributed to the Marital Trust. Consequently, no tax would have been due. Plaintiffs also urge that even if the statute applies, because it resulted in a harsh and unfair result, the doctrine of manifest injustice should apply to bar the imposition of an estate tax against decedents’ estates.
The Director counters that both courts below correctly concluded that the Amendment expressly applies to the estates, and that plaintiffs’ interpretation of the Amendment would eviscerate its purpose. The Director explains that plaintiffs’ interpretation is not limited to the period of retroactivity expressed in the statute. Therefore, an estate for someone dying after the July 1, 2002 enactment of the Amendment, could argue that no tax would have been payable if the date of death was on or before December 31, 2001, and therefore no tax should be payable based on the actual date of death. The Director contends that the Legislature could not have intended that result. Additionally, the Director contends that the equitable doctrine of manifest injustice has been used sparingly and only in non-tax cases, and should not be extended to bar the retroactive application of the Amendment to plaintiffs.
*568III.
We first address plaintiffs’ argument that the plain language of N.J.S.A. 54:38-l(a)(2)(a) evinces a legislative intent not to impose taxes on an estate that would not have been subject to a federal estate tax under the law in effect on December 31, 2001.
We start with the notion that the general rules of statutory construction apply to tax statutes. Am. Fire & Cas. Co. v. N.J. Div. of Taxation, 189 N.J. 65, 78-79, 912 A.2d 126 (2006). When an administrative agency that is charged with enforcing a statute interprets that statute, we give substantial deference to the agency’s interpretation. GE Solid State, Inc. v. Dir., Div. of Taxation, 132 N.J. 298, 306, 625 A.2d 468 (1993) (citing Merin v. Maglaki, 126 N.J. 430, 436-37, 599 A.2d 1256 (1992)). However, despite that deference, an administrative agency’s interpretation will not be followed when the agency extends a statute “to give it a greater effect than its language permits.” Ibid. Thus, if the agency interpretation of a statute is plainly at odds with the plain meaning of the statute, the agency interpretation will be set aside.
In determining the meaning of a statute, we consider first the plain language of the statute. If the language is clear, we interpret the statute consistent with its plain meaning. Id. at 307, 625 A.2d 468. If the language is not clear, we look to the legislative history to aid in determining the legislative intent of the statute. After all, our goal is to interpret the statute consistent with the intent of the Legislature. State v. Lewis, 185 N.J. 363, 369, 886 A.2d 643 (2005). Nevertheless, we “should strive to avoid statutory interpretations that ‘lead to absurd or unreasonable results.’ ” Ibid, (citations and quotations omitted).
In this case, because the plaintiffs’ and the Director’s interpretations are reasonable, we resort to the legislative history to discern the meaning of the statute. As noted above, the legislative purpose in adopting the statute was to decouple our estate tax laws from the federal estate tax laws, because effective January 1, 2002, the federal law provided a substantial increase in *569the estate tax deduction from $675,000 to $1,000,000. The Legislature sought to avoid the loss of estate tax revenues by maintaining the New Jersey estate tax at the level it was prior to the January 1, 2002 change in the federal law. In his decision below, the Tax Court judge looked to the legislative history of the Amendment to conclude that
the Committee Statements provide that the Amendments were intended to result in computation of New Jersey estate tax as though the terms of the federal estate tax, including those governing liability for that tax and allowance of the state legacy tax credit, continued to apply to the estate of resident decedents dying after December 31, 2001 as they did to that of a resident decedent dying on that date. This language indicates that under the Amendments, the Director’s responsibility is simply to determine estate distributions under the law in effect on the date of death and apply to those distributions the federal estate tax law in effect on December 31, 2001.
[Oberhand, supra, 22 N.J. Tax at 60.]
That interpretation was the one advanced by the Director and is consistent with a plain reading of the statute. Because we give deference to the Director’s interpretation of the Amendment, we accept that interpretation as the one intended by the Legislature.
Despite our agreement with the Director’s interpretation of the Amendment, we recognize that plaintiffs’ contention that the text of the statute indicates that the statute only applies to estates that would have owed a federal estate tax as of December 31, 2001, is a plausible reading of the statute. However, as the Tax Court observed, if plaintiffs’ interpretation were correct, any estate could make that same argument and it would not be “confined to the period of retroactive application of the Amendments.” Oberhand, supra, 22 N.J. Tax at 64. Plaintiffs concede that point.
We agree that the Legislature did not intend that even for “someone dying after July 1, 2002, (the date of enactment of the Amendments) an estate could claim that no tax would have been payable if the date of death was on or before December 31, 2001, and therefore no tax should be payable based on the actual date of death.” Id. at 63-64. That would be an absurd result and we will not interpret the Amendment in that manner. See State v. Lewis, supra, 185 N.J. at 369, 886 A.2d 643.
*570Further, we reject plaintiffs’ argument that our pronouncement in Fedders Fin. Corp. v. Dir., Div. of Taxation, 96 N.J. 376, 385, 476 A.2d 741 (1984), should lead to a different result. In Fedders, we stated that when the statutory language is in doubt and there is no legislative history to dispel that doubt, “the court should construe the statute in favor of the taxpayer.” Ibid. Unlike in Fedders, in the present case the legislative history dispels any doubt. The statute is intended to tax transfers of assets after December 31, 2001 in excess of $675,000, the federal estate tax exclusion on December 31, 2001. Because the legislative history dispels any doubt in the interpretation of the statute, we find no reason to apply Fedders.

IV.

Plaintiffs contend that the Appellate Division erred in rejecting the Tax Court’s application of the doctrine of manifest injustice. As noted above, the Amendment was adopted on July 1, 2002, and made applicable to all decedents dying after December 31, 2001. Thus, the Amendment is retroactive for a six-month period.
A.
Before discussing plaintiffs’ manifest injustice argument, we comment generally on factors we consider in determining whether a statute should be applied prospectively or retroactively. To be sure, prospective application of a statute is favored over retroactive application. Gibbons v. Gibbons, 86 N.J. 515, 521, 432 A.2d 80 (1981).
It is a fundamental principle of jurisprudence that retroactive application of new laws involves a high risk of being unfair. There is general consensus among all people that notice or warning of the rules that are to be applied to determine their affairs should be given in advance of the actions whose effects are to be judged by them. The hackneyed maxim that everyone is held to know the law, itself a principle of dubious wisdom, nevertheless presupposes that the law is at least susceptible of being known. But this is not possible as to law which has not been made.
[Id. at 522, 432 A.2d 80 (quoting Weinstein v. Investors Sav. & Loan Ass’n, 154 N.J.Super. 164, 167, 381 A.2d 53 (App.Div.1977), certif. denied, 75 N.J. 598, 384 *571A.2d 828 (1978)); see also Gen. Motors Corp. v. Romein, 503 U.S. 181, 191, 112 S.Ct. 1105, 1111, 117 L.Ed.2d 328, 340 (1992) (noting that retroactive legislation “presents problems of unfairness that are more serious than those posed by prospective legislation, because it can deprive citizens of legitimate expectations and upset settled transactions”).]
Nevertheless, if the Legislature expresses an intent that the statute is to be applied retroactively, the statute should be so applied. Gibbons, supra, 86 N.J. at 522, 432 A.2d 80. Moreover, the legislative intent may either be expressed in the language of the statute or implied in that “retroactive application may be necessary to make the statute workable or to give it the most sensible interpretation.” Ibid. There are other situations that retroactive application is the better course. For example when the statute is “ameliorative or curative,” it may be applied retroactively. Id. at 523, 432 A.2d 80.
Despite a clear intent that a statute is intended to apply retroactively, we recognize two instances in which we will not apply it retroactively. First, we will not apply a statute “retroactively if retroactive application would be unconstitutional.” Nobrega v. Edison Glen Assocs., 167 N.J. 520, 537, 772 A.2d 368 (2001). Plaintiffs have abandoned that argument so we need not examine the constitutional issue. The final test we may consider in the retroactivity analysis is whether that application would result in “manifest injustice.” Ibid.
In Nobrega, we expressly reaffirmed the manifest injustice doctrine, noting that “we have experienced no unique difficulty defining the contours of the manifest injustice standard.” Id. at 546, 772 A.2d 368. To be sure, we have applied the manifest injustice doctrine sparingly. Id. at 546-47, 772 A.2d 368 (concluding “that applying the Disclosure Act retroactively to bar plaintiffs’ claims would constitute manifest injustice”); State Troopers Fraternal Ass’n v. State, 149 N.J. 38, 56, 692 A.2d 519 (1997) (finding manifest injustice in retroactive application of administrative regulation amending back-pay rule because of “reasonable reliance” by employees on pre-amendment rule determining when *572to retire or resign from employment). We turn now to address the manifest injustice analysis to the retroactivity inquiry.
B.
The doctrine of manifest injustice is “designed to prevent unfair results that do not necessarily violate any constitutional provision.” State Troopers, supra, 149 N.J. at 54, 692 A.2d 519 (citing Phillips v. Curiale, 128 N.J. 608, 625, 608 A.2d 895 (1992)); see Nobrega, supra, 167 N.J. at 537, 772 A.2d 368; Nelson v. Bd. of Educ. of Old Bridge, 148 N.J. 358, 369, 689 A.2d 1342 (1997); In re D.C., 146 N.J. 31, 50, 679 A.2d 634 (1996); Edgewater Inv. Assocs. v. Borough of Edgewater, 103 N.J. 227, 239, 510 A.2d 1178 (1986); N.J. Dep’t of Envtl. Prot. v. Ventron Corp., 94 N.J. 473, 498, 468 A.2d 150 (1983); Gibbons, supra, 86 N.J. at 523-24, 432 A.2d 80. “Hence, while our inquiry into whether there has been a ‘manifest injustice’ is informed by our consideration of issues of constitutional due process, it is not necessarily determined by those issues.” In re D.C., supra, 146 N.J. at 58, 679 A.2d 634. In the manifest injustice analysis we “look to matters of unfairness and inequity” in determining whether to apply the doctrine to avoid the retroactive application of a statute. Ibid. “Because there is no litmus test for decision, we must consider in the weighing process the extent to which” the decedents were not able to change their Wills “in reliance on the existing law ... or had [their] reasonable expectations defeated.” Phillips, supra, 128 N.J. at 625, 608 A.2d 895. “[R]eliance on existing law by the affected party and the unfairness of changing that law are the important factors in making the retroactivity decision.” In re D.C., supra, 146 N.J. at 58, 679 A.2d 634. In evaluating those factors, a court must weigh “the public interest in the retroactive application of the statute against the affected party’s reliance on previous law, and the consequences of that reliance.” Nelson, supra, 148 N.J. at 372, 689 A.2d 1342 (citations omitted).
*573We turn now to weigh the respective interests of the parties to determine whether the doctrine of manifest injustice warrants relief to plaintiffs in this case. On its face, the Amendment represents a determination by the Legislature that there would be a loss of revenue to the State under the then-existing statute due to changes in the federal estate tax structure. The Statements appended to the bills demonstrate that concern. The Assembly and Senate Budget Committees projected significant revenue loss if our estate tax statute was not “decoupled” from its federal counterpart, evidencing a strong public interest in the application of the Amendment. Thus, there is an important public interest in the policy behind the Amendment.
That public interest, however, is not as relevant when viewed in the context of retroactive application of the Amendment. The Amendment was not intended to increase the estate tax revenues after December 31, 2001, but rather to prevent the loss of revenues resulting from changes in the federal law. Additionally, the lost revenue estimates contained in the Legislature’s statements begin with Fiscal Year 2003 and do not estimate revenue that would be collected or lost as a result of the six-month period of retroactivity. Thus, there is no evidence that the public interest in preserving revenue for outlying years is as strong for the six-month retroactive period of the Amendment, as opposed to the period after adoption of the Amendment in July 2002. In short, the record does not reveal that the denial of retroactive application of the Amendment to plaintiffs’ estates would seriously impact the State’s revenues.
Conversely, the decedents relied on the previous law, and that reliance was patently reasonable. When the decedents executed their Wills and at the time that each died, the trust formulae were framed in such a fashion that no federal or state taxes would be due. It is clear that if the decedents had died on or before December 31, 2001, there would not have been any federal or state estate taxes due. It was solely due to the six-month retroactive application of the Amendment, coupled with the federal estate tax changes and the trust formulae, that the Director imposed State *574estate tax assessments for the estates. Clearly, the decedents did not have an opportunity to amend their estate plans to avoid the adverse estate tax consequences. The reliance on the previous law by plaintiffs is obvious and clearly to their detriment.
In weighing the public policy of the State in retroactive application of the Amendment against the detriment that plaintiffs would suffer, we conclude that it would be harsh and unfair to apply the Amendment retroactively. Simply stated, plaintiffs’ reasonable reliance on the prior law outweighs the public’s interest in retroactive application of the Amendments. We are satisfied the Tax Court properly concluded that it would be manifestly unjust to apply the Amendment retroactively to the estates.
Y.
We affirm in part, and reverse in part, the judgment of the Appellate Division. We remand the matter to the Tax Court for further proceedings consistent with the views expressed herein.

 This is a simplified version of the trust provision. The actual formula provides that the Marital Trust was to receive an amount denominated as the “marital amount” in the Will and defined as property having a value exceeding the sum of: (1) "the maximum amount, if any that can pass pursuant to this Will free of federal estate tax ... after taking into account ... any credit against that tax allowable to my estate (except that the credit for state death taxes under Section 2011 of the [Internal Revenue] Code shall be taken into account only to the extent that state death taxes ... are not increased thereby),” (2) specific bequests, and (3) deductible debts and administration expenses. Any amount in excess of the marital amount was to be distributed to the Family Trust.