National Auto Dealers Exchange, L.P. V. Director, Division of Taxation

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NOT FOR PUBLICATION WITHOUT APPROVAL OF
THE TAX COURT COMMITTEE ON OPINIONS
NATIONAL AUTO DEALERS
EXCHANGE, L.P.,
Plaintiff,
v.
DIRECTOR, DIVISION OF TAXATION,
Defendant.
TAX COURT OF NEW JERSEY
DOCKET NO. 000028-2014
Decided: February 26, 2018
Marc A. Simonetti for plaintiff (Eversheds Sutherland (US) LLP,
attorneys).
Michael J. Duffy for defendant (Gurbir S. Grewal, Attorney
General of New Jersey, attorney).
ANDRESINI, P.J.T.C.
This constitutes the court’s opinion on plaintiff’s motion for summary judgment. In its
motion, plaintiff, National Auto Dealers Exchange, L.P., (“NADE”), asks the court to declare the
assessment of Corporation Business Tax, N.J.S.A. 54:10A-1 (“CBT”), issued by defendant,
Director, Division of Taxation (the “Division”) against plaintiff, for tax years ended December
31, 2005 through December 23, 2009 (collectively, the “Relevant Period”), invalid under New
Jersey law.
The facts of the case are not in dispute. NADE, an affiliate of Cox Enterprises, Inc., was
a limited partnership organized under the laws of Delaware. NADE operated a wholesale
automotive auction business in New Jersey. During the Relevant Period, the partners in NADE
Approved for Publication
In the New Jersey
Tax Court Reports

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were Georgia Auction Services, Inc. (“Georgia Auction”), as a general partner, and Manheim NJ
Investments, Inc. (“MNJI”), as a limited partner. Georgia Auction and MNJI’s respective rights,
obligations, and interests as partners in NADE were established by a written limited partnership
agreement. Georgia Auction and MNJI were Delaware corporations with principal places of
business in Atlanta, Georgia.
During the Relevant Period, NADE was taxed as a partnership for federal income tax
purposes. For each tax year during the Relevant Period, NADE timely filed a New Jersey
Partnership Return (“NJ-1065”), reporting its partnership income or loss.
NADE obtained Form NJ-1065E, Nonresident Corporate Partner’s Statement of Being
an Exempt Corporation or Maintaining a Regular Place of Business in New Jersey, from Georgia
Auction and MNJI for each of the tax years in the Relevant Period. Correspondingly, NADE
submitted Form NJ-1065Es with each of its NJ-1065s filed during the Relevant Period. In each
Form 1065-E, MNJI checked the box that states “[b]y signing this statement, the nonresident
corporate partner is declaring that it maintains a regular place of business in New Jersey other than
a statutory office.” Subsequently, MNJI timely filed CBT returns and paid the tax on its
distributive share of New Jersey partnership income from NADE. The Division does not contest
the amount of CBT due or the fact that it was fully paid by MNJI.
After the Appellate Division decision in BIS LP, Inc. v. Director, Div. of Taxation, 26 N.J.
Tax 489 (App. Div. 2011),1 MNJI filed a refund claim for the Relevant Period requesting a return
of payments made (except for alternative minimum tax) (“Manheim”).2 In its claim, MNJI
1 In BIS, the court affirmed the New Jersey Tax Court’s holding that the nonresident corporate limited partner was not
in unitary relationship with the general partner and had no constitutional presence in New Jersey to be subject to CBT.
26 N.J. Tax 489.
2 See Manheim NJ Inv. Inc. v. Director, Div. of Taxation, 30 N.J. Tax 18 (Tax 2017) (currently pending before this
court under docket No. 015083-2014).

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maintains that it did not have nexus with New Jersey for CBT purposes, and was therefore entitled
to a refund of CBT paid. After denying the refunds in 2011, the Division, by final determination
dated August 1, 2014, affirmed the denials. MNJI then filed its complaint with this court on
October 22, 2014.
The Division also audited NADE and issued a Notice of Assessment Related to Final Audit
Determination dated August 28, 2012, assessing additional CBT on MNJI’s distributive share of
NADE’s entire income for each of the tax years during the Relevant Period and citing to N.J.S.A.
54:10A-15.11 to support this assessment. NADE timely protested the assessment. On October 8,
2013, the Division issued a final determination, upholding its assessment which totaled
$11,826,595.70 (CBT, penalty, and interest). NADE appealed the final determination by filing a
complaint with this court on January 3, 2014.
In the present motion, NADE alleges that the Division lacks statutory authority to assess
CBT against NADE because, as a limited partnership, which is a pass-through entity, it is not
subject to CBT. Rather, its only obligation is to withhold and remit CBT on behalf of a nonresident
corporate limited partner, if that partner does not consent to taxation by New Jersey. See N.J.S.A.
54:10A-15-7. Here, since MNJI had, in accordance with N.J.A.C. 18-7-17.8, provided NADE
Form NJ-1065Es for the Relevant Period that NADE filed with its respective NJ-1065s, NADE
contends it has satisfied its CBT obligation. It also notes that the CBT assessments for 2005 and
2006 are barred by the statute of limitations under N.J.S.A. 54:49-6(b).
The Division concedes that the statute of limitations bars the 2005-2006 assessments, but
argues that, under N.J.S.A. 54-10A-4(h), 5(h), and -15.11, it is permitted to assess a deficiency
against NADE for 2007-2009. This is because, the Division contends, by filing a refund claim,
MNJI has “effectively revoked” its Form NJ-1065Es, thus triggering a violation of NADE’s

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withholding obligation. The Division further asserts that it is statutorily permitted to assess a
deficiency against NADE as a protective measure to preserve New Jersey tax revenues and
prevent the government from relitigating the issue of nexus if MNJI prevails in its refund claim
asserted in Manheim.
In its reply, NADE reasserts that the Division lacks statutory authority to assess a
deficiency against NADE and argues that even if MNJI’s refund claim were to be viewed as a
revocation of its Forms NJ-1065E, the issue of nexus would nevertheless have to be litigated in
NADE’s pending complaint due to the Constitutional limits on a State’s power to tax.
During oral argument, the Division maintained that under N.J.S.A. 54:10A-4(h), -5(h), and
-15.11 it was allowed to assess NADE the CBT to be remitted on behalf of the partner, regardless
of whether Form NJ-1065E was filed. NADE countered that a partnership is a pass-through,
nontaxable entity, and that the reference to N.J.S.A. 54:10A-15.11 in N.J.S.A. 54:10A-5(h) did not
abrogate the provision of N.J.S.A. 54:10A-15.7, which allows the nonresident corporate limited
partner to submit an exemption form, thus relieving the partnership of the duty to remit tax on
behalf of that partner. NADE stated that once a partnership has submitted Form NJ-1065E with
its return, it is relieved of the duty to remit tax. Moreover, NADE stated the Division had no
recourse against the partnership, but instead is required to pursue the individual nonresident
corporate limited partner that consented to New Jersey taxation by providing NADE with Form
NJ-1065E.
Conclusions of Law
Summary judgment should be granted where “the pleadings, depositions, answers to
interrogatories and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact challenged and that the moving party is entitled to a judgment

5
or order as a matter of law.” R. 4:46-2. In Brill v. Guardian Life Ins. Co., 142 N.J. 520, 523
(1995), our Supreme Court established the standard for summary judgment as follows:
[W]hen deciding a motion for summary judgment 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.
[Id. at 523.]
A court should not hesitate to grant summary judgment if “one party must prevail as a matter of
law.” Id. at 540.
In the present case, the parties do not allege that any genuine issue of material fact exists
and instead disagree about the legal consequenses of the undisputed facts under the CBT Act.3
Statutory interpretation is considered a question of law because it involves examination of legal
issues. State in Interest of K.O., 217 N.J. 83, 91 (2014). Therefore, this motion for summary
judgment is ripe for consideration.
I. The 2005-2006 Assessments Are Voided As Barred by the Statute of Limitations.
The parties agree that tax years 2005 and 2006 are barred by the statute of limitations, a
position supported by the facts of the case and New Jersey law.4 Therefore, the assessments for
those years are voided.
II. The Division Lacks Statutory Authority to Impose a Deficiency Assessment on NADE for
Years 2007-2009 because NADE has Satisfied its Withholding Obligation by Filing
MNJI’s Form NJ-1065Es with NADE’s NJ-1065s.
3 N.J.S.A. 54:10A-1 to -41.
4 N.J.S.A. 54:49-6(b).

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The Division argues that the CBT Act permits its assessments against NADE and points to
the following language in portions of sections of the CBT Act –
(h) “Taxpayer” shall mean any corporation, and any partnership
required, or consenting, to report or to pay taxes, interest or penalties
under this act. “Taxpayer” shall not include a partnership that is
listed on a United States national stock exchange.
[N.J.S.A. 54:10A-4(h).]
(g) Provided however, that for privilege periods beginning on or
after January 1, 2001 but before January 1, 2002 the franchise tax
annually assessed to and paid by a taxpayer:
. . . (2) that is a limited partnership or foreign limited partnership
classified as a partnership for federal income tax purposes shall be
the amount determined pursuant to the provisions of section 4 of
P.L.2001, c.136 (C.54:10A-15.7).
(h) Provided however, that for privilege periods beginning on or
after January 1, 2002 the franchise tax annually assessed to and paid
by a taxpayer that is a partnership shall be the amount determined
pursuant to the provisions of section 12 of P.L.2002, c.40
(C.54:10A-15.11).
[N.J.S.A. 54:10A-5(g), (h).]
In connection with these provisions, the Division makes several arguments. First, it argues that
because N.J.S.A. 54:10A-4(h) and -5(h) refer to a partnership as “taxpayer,” the partnership is a
taxable entity for purposes of the CBT Act, and liable for CBT. This “taxpayer,” the Division
argues, is required to remit payments on behalf of a nonresident corporate limited partner
regardless of any actions undertaken by that partner.
Second, the Division argues that N.J.S.A. 54:10A-5 (h) operates to prevent the application
of N.J.S.A. 54:10A-15.7 to tax returns for the tax periods after January 1, 2002; therefore, the
provision allowing the nonresident corporate limited partner to submit an exemption form is not
effective for returns for tax years beginning after January 1, 2002. The Division states that for tax
years beginning after January 1, 2002, it can pursue the partnership to collect the nonresident

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corporate limited partner’s share of tax, if that partner files a refund claim, because N.J.S.A.
54:10A-15.11 does not contain a provision allowing the foreign corporate limited partner to submit
an exemption form.
Third, the Division maintains that Form NJ-1065E exists only for the internal use of the
partnership and has no bearing on the partnership’s duty to remit payments on behalf of the
nonresident corporate limited partner. The Division admits that MNJI’s change of position was a
result of BIS, 26 N.J. Tax 489, which effectively changed the law regarding nexus between a
nonresident corporate limited partner and New Jersey. But, the Division claims, N.J.S.A. 54:10A-
15.11 requires the partnership to retroactively remit the payment for the years in which the partner
initially claimed to have maintained a regular place of business in New Jersey, filed a New Jersey
tax return, paid CBT in full, and later filed a refund claim, as in the present case. In essence, the
Division suggests that New Jersey law permits the Division to assess CBT on both the partnership
and the nonresident corporate limited partner when that partner files an amended return claiming
a refund of CBT. The Division alleges that the “alternative assessment” protects the State’s duty
to collect and retain CBT on New Jersey sourced income and prevents the Division from
relitigating the issue of nexus raised in Manheim if MNJI were to prevail in its refund claim.5
The Division’s first argument has no support in New Jersey Law. In general, New Jersey
does not tax partnerships. A partnership is a pass-through entity, and any tax on income received
from the partnership by the partner is calculated and paid through the partner’s individual (i.e.
personal) gross income return. N.J.S.A. 54A:2-2. The CBT Act was enacted in 1945 imposing
an annual franchise tax on corporations for the privilege of doing business in New Jersey. It
5 The Division stated that the assessment against NADE was an “alternative assessment” that would only become
collectible from NADE should the Division lose in the Manheim litigation, since the assessments would be voluntarily
dismissed if the Division prevailed therein.

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imposes CBT on corporations, not partnerships, by providing that “[e]very domestic or foreign
corporation which is not hereinafter exempted shall pay an annual franchise tax for each year,
as hereinafter provided.” N.J.S.A. 54:10A-2. A corporation is defined as:
any corporation, joint-stock company or association and any
business conducted by a trustee or trustees wherein interest or
ownership is evidenced by a certificate of interest or ownership or
similar written instrument, any other entity classified as a
corporation for federal income tax purposes, and any state or
federally chartered building and loan association or savings and loan
association.
[N.J.S.A. 54:10A-4(c).]
Notably, partnerships are not included in this definition. The only exceptions to the general rule
are N.J.S.A. 54-10A-15.7(b) and N.J.S.A. 54:10A-15.11, which require a limited partnership to
withhold and remit CBT for each nonresident corporate limited partner. Comporting with the
general principle of nontaxability of partnership entities, the CBT Act provides that CBT
remitted by the partnership on behalf of such nonresident corporate limited partner is not
attributable to the partnership, but instead: “[s]hall be credited to the partnership accounts of its
nonresident partners in proportion to each nonresident partner’s share of allocated entire net
income . . . [and] shall be deemed to have been paid by the respective partner in respect of the
privilege period or taxable year of the partner.” N.J.S.A. 54:10A-15.11(b).
A well-settled canon of judicial interpretation of statutory provisions is to view an individual
provision as a part of a larger body of the whole statute. Kucana v. Holder, 558 U.S. 233, 245
(2010) (“[i]n reading a statute we must not look merely to a particular clause, but consider in
connection with it the whole statute”). Moreover, it is “a cardinal principle of statutory
construction that ‘a statute ought, upon the whole, to be so construed that, if it can be prevented,
no clause, sentence, or word shall be superfluous, void, or insignificant.’” TRW Inc. v. Andrews,

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534 U.S. 19, 31 (2001) (quoting Duncan v. Walker, 533 U.S. 167, 174 (2001)). The application
of these principles to the provisions of the CBT Act, which the Division relies upon, leads the court
to conclude that the corporate partner, not the partnership, is the entity subject to CBT. This
conclusion is further supported by the Division’s own regulation which states, “the amount of tax
paid by a partnership pursuant to N.J.A.C. 18:7-17.5 shall be credited to accounts of its nonresident
partners in proportion to each nonresident partner's share of allocated entire net income.” N.J.A.C.
18:7-17.6(a).
In sum, the text of the CBT Act and the Division’s regulations clearly show that the Division
is mistaken in its belief that a partnership, by virtue of having a nonresident corporate partner,
becomes a taxable entity. As seen from the language in N.J.S.A. 54:10A-2, -4(c), -15.7, and -
15.11, the taxable entity is still the corporate partner, and the partnership has no independent tax
liability of its own.
This brings the court to the Division’s second argument: that N.J.S.A. 54:10A-15.11 cancels
out the provisions of N.J.S.A. 54:10A-15.7 because N.J.S.A. 54:10A-5(h) requires the partnership
to look to the former to determine the amount of CBT due to be remitted. This contention puts the
cart before the horse. As discussed above, the entire body of New Jersey law and the CBT Act
indicate that the taxable entity is the nonresident corporate partner, and thus the duty to remit tax
must depend on whether or not the underlying corporate partner entity is taxable at all. This is
why N.J.S.A. 54:10A-15.7(a) allows the partner to provide the partnership with a form that states
the partner is exempt from New Jersey taxation or maintains a place of business in New Jersey.
Contrary to the Division’s assertion, N.J.S.A. 54:10A-15.7 does not only apply to tax years
beginning on January 1, 2001 and ending before January 1, 2002, as it was enacted in 2001,

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survived multiple amendments to the CBT Act, and was never repealed.6 N.J.S.A. 54:10A-15.11
was enacted in 2002 as a part of Business Tax Reform Act (“BTRA”) in attempt to close a number
of CBT loopholes, but the Legislature chose not to change or repeal N.J.S.A. 54:10A-15.7 neither
at the time of enactment of N.J.S.A. 54:10A-15.11 nor thereafter.7 Accordingly, the court must
assume that the Legislature intended it that way. See State v. Buckner, 223 N.J. 1, 14 (2015) (“case
law has steadfastly held to ‘the principle that every possible presumption favors the validity of an
act of the Legislature’”) (quoting N.J. Sports & Exposition Auth. v. Mc Crane, 61 N.J. 1, 8 (1972));
State v. Trump Hotels & Casino Resorts, 160 N.J. 505, 526 (1999) ("a legislative act will not be
declared void unless its repugnancy to the Constitution is clear beyond a reasonable doubt")
(quoting Harvey v. Bd. of Chosen Freeholders, 30 N.J. 381, 388 (1959)). This conclusion is further
supported by the Division’s own regulation, which states that filing Form NJ-1065E with the
partnership tax return establishes that the partnership is not required to pay tax on a nonresident
corporate limited partner’s behalf. N.J.A.C. 18:7-17.8(a). This regulation, which is still in effect,
was enacted under the authority of BTRA in 2003 and last amended in 2017 (years after BIS, 26
N.J. Tax 489).8 Further, each year to date, the Division includes Form NJ-1065E with its NJ-1065
New Jersey Partnership Tax Return package. In sum, the law and the Division’s actions speak
conclusively that N.J.S.A. 54:10A-15.7(a) applies to all tax years following its enactment in 2001,
and allows the partner to relieve the partnership of the duty to remit tax on its behalf by providing
the partnership with a Form NJ-1065E.9
6 L. 2001, c. 136, § 4 (eff. June 29, 2001).
7 L. 2002, c. 40, § 12, (eff. July 2, 2002); amended by L. 2003, c. 256, § 1 (eff. Jan. 14, 2004); L. 2005, c. 288, § 1
(eff. Jan. 9, 2006); L. 2014, c. 13, § 2 (eff. June 30, 2014).
8 “The amendments and new rules set forth herein are intended to supply guidance to taxpayers and interested members
of the public and to assist them in meeting their responsibilities under the BTRA.” 35 N.J.R. 1573(a) (Feb. 27, 2003).
9 Legislative history also supports this conclusion. The statement to the introduced bill provided: “a limited liability
company, foreign limited liability company, limited partnership or foreign limited partnership . . . that is classified as
a partnership for federal tax purposes . . . that properly complies with the requirement to obtain consents from its

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The Division’s argument that Form NJ-1065E is of no use to the Division in examining the
partnership tax return is also not supported by the Division’s actions. As mentioned above, Form
NJ-1065E is a part of NJ-1065 Partnership Tax Return package created by the Division in
accordance with N.J.A.C. 18:7-17.8(a). It operates as a notice from the nonresident corporate
partner that it maintains a regular place of business in New Jersey (listing that place of business)
and is taxable by New Jersey (“By signing this statement, the partner is declaring that it maintains
a regular place of business in New Jersey other than a statutory office and is subject to the New
Jersey Corporation Business Tax in accordance with NJSA 54:10-1, et seq. . . . [f]failure to list at
least one place of business will result in the partnership entity remitting a payment of tax on your
share of New Jersey income.”). This form effectively relieves the limited partnership from the
obligation to remit taxes on the limited corporate partner’s behalf. N.J.A.C. 18-7-17.8. This, of
course, makes sense because both N.J.S.A. 54:10A-15.7 and 15.11 only require the limited
partnership to remit a payment on behalf of nonresident limited corporate partner. Nonresident
corporate partner is defined as “a partner that is not an individual, an estate or a trust . . . that is not
a corporation exempt from tax . . . and that does not maintain a regular place of business in this
State other than a statutory office.” N.J.S.A. 54:10A-15.11. By providing the partnership with
Form NJ-1065E, the nonresident corporate limited partner consents to taxation by New Jersey and
ceases to be a nonresident for the purposes of N.J.S.A. 54:10A-15.11 because it claims to have a
regular place of business in New Jersey. Simply put, when the nonresident corporate partner
consents to New Jersey taxation under N.J.S.A. 54:10A-15.7(a), the Division cannot require the
partnership to follow N.J.S.A. 54:10A-15.11.
corporate owners and that pays the taxes of any of its corporate owners that do not consent to New Jersey taxation . .
. is relieved of any other obligations under the corporation business tax.” A. Commerce, Tourism, Gaming and
Military and Veterans’ Affairs Comm. Statement to A. 3045 (June 4, 2001).

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Notably, the statute does not impose additional obligations on the limited partnership and
does not require it to police the limited partner’s future refund claims or change of position
regarding New Jersey taxation. The Division claims that MNJI’s refund claim had “effectively
revoked” its consent to taxation by New Jersey. To supports this contention, the Division points
out that the statute and the regulation are silent regarding the obligations of the partnership when
the partner later changes its position and files a refund claim stating that it does not maintain a
regular place of business in New Jersey. The Division overlooks the fact that these are the actions
of the partner, not the partnership. Extending the Division’s reasoning, any refund claim filed by
a partner “effectively revokes” forms filed with the original partnership return and subjects the
partnership to liability.10 This would be wholly illogical. The doctrine of implied revocation has
limited use as an equitable remedy in the fields of estate, trust, and gift law, and is applied when a
later instrument executed by a decedent, inconsistent with the original executed instrument, is
viewed as a revocation of the earlier version.11 The main reason for the existence of this remedy
is the unavailability of the testator, and the ambiguity of the testator’s final wishes resulting from
his or her inconsistent actions.
Here, NADE (still functioning at the time of its audit) was the entity that filed with the
Division the original Forms NJ-1065E. NADE has not filed an amended return for any years of
the Relevant Period. Thus, each year NADE submitted a partnership tax return clearly stating that
it is to be relieved of the duty to withhold and remit CBT for MNJI and has not submitted any later
documents indicating a change of these intentions. There is simply no legal basis to find that Form
10 While the Division’s argument may have some credence had MNJI not filed a CBT return and not paid New Jersey
taxes, this is not the case here.
11 Implied revocation may also occur by operation of law (for example, a revocation of provisions of a will naming
the former spouse as a beneficiary following a divorce under N.J.S.A. 3B:3-14), but in this case there is no statute
(and the Division could not point to any) that states that a partner’s filing of a refund claim operates as a revocation
of Form NJ-1065E filed with the partnership return.

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NJ-1065Es filed with NADE’s partnership tax returns were “effectively revoked” by MNJI filing
a refund claim. Moreover, to allow the Division to issue an assessment against the partnership
every time a nonresident corporate limited partner files a refund claim goes against the provision
of N.J.S.A. 54:10A-15.7(b), which requires the partnership to remit CBT only on behalf of
nonconsenting partners. As NADE rightly points out, the partnership’s only obligation is either to
remit the CBT or collect the partner’s consent via Form NJ-1065E, and any one of these actions
effectively relieves the partnership from the duty to do anything further with regard to CBT on
nonresident corporate limited partner’s share of New Jersey income. Beyond this, the issue of
deficiency and refund is between the Division and the partner that submitted the Form NJ-1095E.
The court finds that NADE fully satisfied its obligation under the CBT Act by submitting
Form NJ-1065Es with the partnership returns at issue. Thus, it cannot be required to do anything
else. As a result, the Division lacks statutory authority to impose an assessment on NADE for
CBT on MNJI’s share of NADE’s partnership income.
Finally, the Division’s claim that assessing a deficiency against NADE will protect New
Jersey tax revenue and prevent the Division from relitigating the issue of nexus, should MNJI
prevail in its litigation seeking refunds, is also incorrect. Even assuming that the refund claim
operated as a revocation of MNJI’s Form NJ-1065Es, the withholding obligation of the partnership
does not exist in a vacuum and is limited to the nonconsenting partner’s share because, as discussed
above, partnerships are not taxable per se. Accordingly, the state cannot assess a deficiency against
the partnership for not remitting the tax on behalf of the nonconsenting partner when no such tax
is due. New Jersey law does not allow taxation in violation of the United States Constitution or
federal statutes. N.J.S.A. 54:10A-2. Therefore, the issue of nexus between the nonresident
corporate partner and New Jersey is potentially at issue regardless of whether the assessment is

14
against the partnership or the partner. Whether there is sufficient nexus between MNJI and New
Jersey for purposes of imposing CBT on MNJI is an issue that should be and presently is being
litigated between MNJI and the Division in the Manheim litigation. It is not a basis for imposing
a CBT assessment on NADE.
Conclusion.
For all the reasons above, the court holds that Division lacks statutory authority to assess a
deficiency against NADE for the years 2005-2009, and those assessments are invalid as a matter
of law. NADE’s motion for summary judgment is granted in its entirety.