Mitchell Medoff v. Director, Division of Taxation

TAX COURT OF NEW JERSEY
TAX COURT MANAGEMENT OFFICE P.O. Box 972
(609) 815-2922 TRENTON, NJ 08625-0972
Corrected Opinion Notice
Date: March 8, 2019
David S. Neufeld and Jeremy S. Cole, Esqs.
Flaster Greenberg, PC
Ramanjit K. Chawal, DAG
Office of the Attorney General
From: Lynne E. Allsop
Re: MITCHELL MEDOFF V. DIRECTOR, DIVISION OF TAXATION
Docket number: 09867-2018
The attached corrected opinion replaces the version released on March 1, 2019
The Opinion has been corrected as noted below:
Page 7, line 8 citation corrected to read “25 N.J. Tax 555, 571 (App. Div. 2010).
Page 11, line 2 citation corrected to read “N.J.S.A. 54A:9-8(a).
njcourts.gov – select Courts/Tax Court

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NOT FOR PUBLICATION WITHOUT APPROVAL OF
THE TAX COURT COMMITTEE ON OPINIONS
Corrected 3/8/19- pgs. 7 and 11 citations
_______________________________
:
MITCHELL MEDOFF, : TAX COURT OF NEW JERSEY
: DOCKET NO: 009867-2018
Plaintiff, :
:
vs. :
:
DIRECTOR, :
DIVISION OF TAXATION, :
:
Defendant. :
_______________________________:
Decided: March 1, 2019
David S. Neufeld and Jeremy S. Cole for plaintiff (Flaster Greenberg
P.C., attorneys).
Ramanjit K. Chawla for defendant (Gurbir S. Grewal, Attorney
General of New Jersey, attorney).
CIMINO, J.T.C.
I. INTRODUCTION
Plaintiff taxpayer, Mitchell Medoff, filed a complaint demanding a refund on
his New Jersey gross income tax paid for tax years 2009 through 2012. Taxpayer
claims that defendant, Director, Division of Taxation (“Director”), acted inequitably
and with manifest unfairness and injustice by denying taxpayer’s request for a refund
Approved for Publication
In the New Jersey
Tax Court Reports

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on the basis of untimeliness. Taxpayer submitted a motion for summary judgment.
The Director responded with his own cross-motion for summary judgment.
Taxpayer argues that the Director is equitably estopped from enforcing the
statute of limitations because taxpayer detrimentally relied on the Director’s
interpretation of a 2009 amendment to N.J.S.A. 54A:6-11 imposing gross income
tax on lottery winnings in excess of $10,000, and that by enforcing the statute of
limitations, the Director inflicts a manifest injustice on taxpayer. Taxpayer contends
that he had no reason to know that he was not required to pay income tax on his
lottery winnings for tax years 2009 through 2012 until after the statute of limitations
on those years had already run, and that the Director thus creates a manifest injustice.
If taxpayer succeeds and his motion is granted, the Director would have to grant
taxpayer’s refund claims for the years in question.
The Director argues that taxpayer did not file his refund claims in a timely
manner, and that no exception applies. The Director maintains that he acted fairly
and forthrightly with taxpayer, and that taxpayer’s failure, whether knowingly or
unknowingly, to file his refund claims in a timely manner precludes his recovery of
potential refund amounts. If the Director succeeds and his cross-motion is granted,
he would retain the funds paid by taxpayer for the years in question.
For the reasons set forth below, taxpayer’s motion for summary judgment is
denied, and the Director’s cross-motion for summary judgment is granted.

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II. STATEMENT OF FACTS
Taxpayer won the New Jersey lottery in 1993 in the gross amount of about
$7.5 million. At the time, New Jersey did not tax lottery winnings. Taxpayer
received annual annuity payments of about $371,000 until 2012.
On June 29, 2009, sixteen years after taxpayer won the lottery, the Legislature
amended N.J.S.A. 54A:6-11, making lottery winnings from prizes in excess of
$10,000 taxable. L. 2009, c. 69, § 3. The amendment was to “take effect
immediately and apply to taxable years beginning on or after January 1, 2009.” Id.
at § 5. From 2009 to 2012, taxpayer paid gross income tax on the remaining annuity
payments from his 1993 lottery prize.
Meanwhile, in 2011, three complaints were filed against the Director in this
court by others who had won the lottery prior to the 2009 enactment. Milligan v.
Dir., Div. of Tax’n, 29 N.J. Tax 381 (Tax 2016), Leger v. Dir., Div. of Tax’n, 29
N.J. Tax 354 (Tax 2016), Harrington v. Dir., Div. of Tax’n, 29 N.J. Tax 370 (Tax
2016). On September 26, 2016, the court in Milligan, Leger, and Harrington
determined that the square corners doctrine barred the Director from collecting
income tax on lottery winnings from prizes won prior to the enactment of the law
because taxpayers who participated in and won those lotteries understood that their

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winnings would be tax-free. Milligan, 29 N.J. Tax at 406-07, Leger, 29 N.J. Tax at
355-56, Harrington, 29 N.J. Tax at 379-81.1
Here, taxpayer filed and paid his 2009, 2010, 2011, and 2012 New Jersey
gross income tax returns in a timely manner.2 As such, per the three-year deadline
in N.J.S.A. 54A:9-8(a), the last day for him to file a claim for a refund of
overpayment was April 15 of 2013, 2014, 2015, and 2016, respectively.3 Taxpayer
filed an amended gross income tax return for all four tax years on April 5, 2017,
seeking a refund.
1 The Milligan court concluded by holding:
[it is] the judiciary’s obligation to apply legal precedents
that limit the ability of the other branches of government
to use their considerable powers in ways that trespass on
the State’s obligations to deal fairly with members of the
public with whom it has entered financial arrangements.
That obligation is violated when the State seeks to tax
lottery winning[s] from prizes awarded prior to January 1,
2009, where all participants in the financial transaction
that resulted in the award of the lottery prize understood
that the winnings would not be subject to State income tax.
[Id. at 407-08.]
2 Returns are to be filed by April 15 of the following year for a taxpayer utilizing
the calendar accounting year. N.J.S.A. 54A:8-1(a).
3 For purposes of the refund section, taxes paid and returns filed early are deemed
paid and filed, correspondingly, on April 15 for a calendar year taxpayer. N.J.S.A.
54A:9-8(h), (g).

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On April 2, 2018, the Director denied taxpayer’s request for a refund of
claimed overpayments for tax years 2009 through 2012. Taxpayer filed his
complaint with this court on June 27, 2018.
III. CONCLUSIONS OF LAW
This case comes before the court on cross-motions for summary judgment.
The New Jersey Supreme Court has held that summary judgment provides “a
prompt, businesslike and inexpensive method of disposing of any cause which a
discriminating search of the merits in the pleadings, depositions and admissions on
file, together with the affidavits submitted on the motion clearly shows not to present
any genuine issue of material fact requiring disposition at trial.” Brill v. Guardian
Life Ins. Co. of Am., 142 N.J. 520, 530 (1995).
Here, the parties do not dispute any material facts, including that taxpayer’s
amended gross income tax returns seeking refunds for years 2009 through 2012 were
filed untimely, making the matter ripe for summary judgment. See N.J.S.A. 54A:9-
8(a) (taxpayer has three years from date of filing to seek refund). The only remaining
issue and potential ground for taxpayer’s relief is whether the Director is estopped
from denying taxpayer’s refund based on equitable considerations.
The New Jersey Supreme Court has ruled that “[s]trict adherence to statutory
time limitations is essential in tax matters, borne of the exigencies of taxation and

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the administration of [] government.” F.M.C. Stores Co. v. Borough of Morris
Plains, 100 N.J. 418, 424 (1985). However, the F.M.C. Stores Co. court also stated
that government officials act solely in the public interest and that in dealing with the
public, the government must turn square corners. Id. at 426. The square corners
doctrine provides that:
statutory provisions governing substantive standards and
procedures for taxation, including the administrative
review process, are premised on the concept that
government will act scrupulously, correctly, efficiently,
and honestly. It is to be assumed that the [taxing authority]
will exercise its governmental responsibilities in the field
of taxation conscientiously, in good faith and without
ulterior motives.
[Id. at 427.]
However, “[e]very man is supposed to know the law, and if he voluntarily
makes a payment which the law would not compel him to make, he cannot
afterwards assign his ignorance of the law as a reason why the state should furnish
him with legal remedies to recover it back. Ignorance or mistake of law by one who
voluntarily pays a tax illegally assessed furnishes no ground of recovery.” In re New
Jersey State Bd. of Dentistry, 84 N.J. 582, 588 (1980). This is because “[p]ublic
policy discourages suits for the refund of taxes erroneously paid or illegally
collected.” Continental Trailways, Inc. v. Dir., Div. of Motor Vehicles, 102 N.J.
526, 548 (1986). Government budgets are prepared on an annual cash basis and
governments are entitled to presume that tax statutes are valid. See ibid.

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“[I]n the absence of statutory authority, taxes voluntarily, although
erroneously, paid even under an unconstitutional statute cannot be refunded.” Ibid.
The statutory authority here provides for a three-year deadline to claim a refund.
N.J.S.A. 54A:9-8(a). Taxpayer did not meet the deadline. “Plaintiff is charged with
knowledge of the law and cannot now defeat the imposition of statutory deadlines
by pleading lack of knowledge or awareness.” Peoples Exp. Co., Inc. v. Dir., Div.
of Tax’n, 10 N.J. Tax 417, 434 (Tax 1989). See also Trump Plaza Associates v.
Dir., Div. of Tax’n, 25 N.J. Tax 555, 571 (App. Div. 2010).
Taxpayer argues that he detrimentally relied on the Director’s initial
interpretation of N.J.S.A. 54A:6-11, and that he had no way to know that he was not
required to pay his tax until the court’s 2016 rulings. Taxpayer goes on to argue that
he was not ignorant of the law and that ignorance was not an excuse for his untimely
filing.
It appears that taxpayer was fully aware of the Legislature’s 2009 amendment
to N.J.S.A. 54A:6-11 and the Director’s interpretation of the statute from that year
forward. Taxpayer had the opportunity to challenge the Director’s interpretation of
N.J.S.A. 54A:6-11 at any point after he submitted his 2009 and later years’ tax
returns. Like the Milligan, Leger, and Harrington plaintiffs, taxpayer could have
raised the square corners doctrine, or any other objection he might have found

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appropriate, as an argument against the Director’s interpretation. Moreover, he
could have simply joined himself in the Milligan, Leger, or Harrington cases.
Because taxpayer did not submit a timely amended tax return, and because
there is no evidence to suggest that the Director did not act scrupulously, correctly,
efficiently, or honestly in his dealings with taxpayer (i.e., violate the square corners
doctrine) as to filing for a refund, the court will deny taxpayer’s motion for summary
judgment and will grant the Director’s cross-motion for summary judgment. There
is no claim in this case that the Director ever prevented the taxpayer from filing an
amended return and seeking a refund. It must be emphasized that the successful
plaintiffs in Milligan, Leger, and Harrington timely filed amended returns claiming
refunds.
Although the Director must act “correctly” under the square corners doctrine,
this does not extend to the situation in which the tax or assessment is found invalid
after the tax has been paid. Such a result would gut statutory provisions setting a
limitations period for seeking refunds, as well as ignore the ruling of the New Jersey
Supreme Court recognizing that even taxes found to be unconstitutional cannot be
refunded outside of established statutory procedures. Continental Trailways, 102
N.J. at 548. Even in F.M.C. Stores Co., in which the New Jersey Supreme Court
first announced the square corners doctrine, the Court recognized that strict
adherence to time limitations established by statute is essential. Id., 100 N.J. at 424.

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Plaintiff relies on Toys “R” Us, Inc. v. Dir., Div. of Tax’n, 300 N.J. Super.
163 (App. Div. 1997), where the Appellate Division reversed a finding of summary
judgment for the Director when the taxpayer untimely filed a claim for a refund. Id.
at 173. There, the taxpayer claimed that the Director assessed and taxed its product
after issuing an official publication stating that the product was not taxable. Id. at
164-68. The Appellate Division in its conclusion stated that the “grounds for an
estoppel or equitable relief may be present in this case. The taxpayer should have
an opportunity to establish those grounds.” Id. at 173.
Here, the court can clearly discern that there are no grounds for an estoppel or
equitable relief claim. In Toys “R” Us, the issue was whether the Director assessed
a tax on the taxpayer after it had already published an interpretation of the relevant
statute stating that the goods at issue were not taxable. The Milligan, Leger, and
Harrington tax court decisions, striking down the tax at issue, were issued on
September 26, 2016, well after taxpayer filed his subject income tax returns and after
the statute of limitations on all the subject years had run. Had the Director insisted
upon payment after issuance of the court’s decisions in Milligan, Leger, and
Harrington, this case would more closely parallel Toys “R” Us. Yet, the simple truth
here is that the Director did not act unfairly in assessing taxpayer because of the
pending litigation in Milligan, Leger, and Harrington. Although litigation began in
the other cases in 2011, the Director is under no obligation to presume an

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unfavorable outcome of those cases, to in any way warn taxpayers of pending
litigation, or to disclaim taxes paid under statutes or interpretations that are
challenged by other taxpayers.
Taxpayer also makes broad allegations of manifest injustice, an equitable
remedy applied in tax matters when legislation is applied retroactively. For example,
in Oberhand v. Dir., Div. of Tax’n, 193 N.J. 558 (2008), the estate tax was amended
to apply retroactively to those who died up to six months prior to enactment. Id. at
564. The Court found it was manifestly unjust to apply this tax to decedents who
were unable to make changes in their estate planning (since they had already died)
to avoid the full effects of the statutory change. Id. at 574. In Leger, the taxpayer
won the lottery and proceeded to pay off debts, buy out a business partner, purchase
an investment property, give cash to siblings and donations to his church. Id., 29
N.J. Tax at 358. Of the $3.5 million in winnings which was paid in a lump sum,
only $300,000 remained. Id. With the legislation enacted to retroactively tax lottery
winnings, the remaining $300,000 went primarily to taxes. Id. at 360. The court
found that to be manifestly unjust since taxpayer was not aware the tax was coming
so that he may have rearranged his financial affairs differently. Id. at 367-68. While
manifest injustice invalidated the underlying tax assessment, Leger appealed the law
timely.

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Here, the issue is not so much whether the underlying tax is manifestly unjust,
but rather, whether the three-year statute of limitations set forth at N.J.S.A. 54A:9-
8(a) is. The statute of limitations provision has been effect since 1976. L. 1976, c.
47, § 54A:9-8(a). Thus, the taxpayer is hard pressed to argue that it was not possible
for him to be aware of the three-year limitation when he paid the tax each year.
While manifest injustice may have formed a basis to invalidate portions of the
underlying lottery tax statute, it does not serve as a basis to eviscerate the statute of
limitations provision.
Finally, taxpayer has contentions about the voluntariness of his payments to
the Director. The Director alludes to the payment of tax being a “business decision,”
whereas taxpayer, while not going so far as to say taxes are a form of coercion,
claims that tax payments are not truly voluntary when faced with penalties and
accrued interest in the event of nonpayment. Although case law has generally
described our tax system as one of voluntary payments, the court need not dive into
the fine details of the system because it suffices to say that no matter the willingness
of taxpayer’s payments, he did not voluntarily timely object to his payments in a
way that similarly situated taxpayers did.4
4 In Leger, Milligan, and Harrington the taxpayers filed an initial gross income tax
return and paid the tax to avoid penalties and interest. Almost immediately
thereafter, those taxpayers filed amended returns seeking a refund. Certainly,
taxpayer here could have done the same, or at least filed an amended return within
three years.

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IV. CONCLUSION
For the foregoing reasons, taxpayer’s motion for summary judgment is
denied, and the Director’s cross-motion for summary judgment is granted.