New Jersey Tax Court Approves Alternative Path for Seeking Tax Clarity

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Labor Ready’s recent case reminds taxpayers that there is no need to wait for a lengthy audit or assessment before heading to court.

The New Jersey Tax Court recently affirmed a vendor’s right and ability to seek court resolution of a tax dispute even before an audit occurs or an assessment is issued. The taxpayer, Labor Ready Northeast, Inc., (represented by McDermott) was informally notified that the New Jersey Division of Taxation considered its temporary staff services to be subject to sales tax under some circumstances. The taxpayer considered the statutory list of taxable services to be exclusive and, because that list does not include temporary staff services, it believed that its services were not taxable. Instead of waiting for the Division to audit (which could have started at any time or never), and instead of potentially over-collecting from customers, Labor Ready filed a complaint in the Tax Court under the Uniform Declaratory Judgments Act (UDJA). N.J.S.A. § 2A:16-50 et. seq. The UDJA allows a taxpayer to go to court “to settle and afford relief from uncertainty and insecurity with respect to rights, status and other legal relations” even in the absence of an assessment or final determination. See N.J.S.A. § 2A:16-51. A taxpayer may bring a declaratory action under the statute if there is a justiciable controversy (i.e., a real dispute between the parties) and there are no adequate or appropriate alternative administrative remedies.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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