ADP Vehicle Registration, Inc. v. Director, Div., of Taxation

TAX COURT OF NEW JERSEY
TAX COURT MANAGEMENT OFFICE P.O. Box 972
(609) 815-2922 TRENTON, NJ 08625-0972
njcourts.gov – select Courts/Tax Court
Corrected Opinion Notice
Date: December 28, 2018
Steven T. Rappoport, Esq
Morrison & Foerster, LLP
Carolyn Lurry-Map, DAG
Office of the Attorney General
From: Lynne E. Allsop
Re: ADP VEHICLE REGISTRATION, INC V. DIRECTOR, DIV. OF TAXATION
Docket number: 014946-2014
The attached corrected opinion replaces the version released on December 11,
2018 The Opinion has been corrected as noted below:
Page 2, line 2 –citation corrected to read N.J.S.A. 54:10A-1 to 32

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF
THE TAX COURT COMMITTEE ON OPINIONS
Corrected 12/28/18 – pg. 2, ln. 2, citation
TAX COURT OF NEW JERSEY
DOCKET NO. 014946-2014
Decided: December 11, 2018
Hollis L. Hyans, admitted pro hac vice, for plaintiff (Morrison &
Foerster, LLP, attorneys; Steven T. Rappoport, on the briefs).
Marlene G. Brown for defendant (Gurbir S. Grewal,
Attorney General of New Jersey, attorney).
NUGENT, J.T.C.
This is the court’s opinion regarding cross-motions for partial summary judgment filed by
the parties on the underlying complaint challenging the corporate business tax (“CBT”) assessed
against plaintiff, ADP Vehicle Registration, Inc. (“Taxpayer” or “ADPVR”), by defendant, the
Director, Division of Taxation (“Taxation”), for tax years ending June 2008 through June 2010.
During the periods under appeal, Taxpayer was a wholly owned subsidiary of New Jersey-based
ADP, Inc. (“ADP”), and claimed to operate as a California holding company that conducted no
business and had no employees. Taxpayer’s sole asset was an 80% general partnership interest in
Computerized Vehicle Registration (“CVR”), a California general partnership operating
nationwide. The only issue before this court is whether Taxpayer maintained a regular place of
business (“RPOB”) outside New Jersey during the years under appeal.
ADP VEHICLE REGISTRATION, INC.,
Plaintiff,
v.
DIRECTOR, DIVISION OF TAXATION,
Defendant.
Approved for Publication
In the New Jersey
Tax Court Reports

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Corporations doing business in New Jersey are subject to CBT pursuant to N.J.S.A.
54:10A-1 to 32. Under the CBT Act, every domestic and foreign corporation,
shall pay an annual franchise tax for each year . . . for the privilege
of having or exercising its corporate franchise in this State, or for
the privilege of deriving receipts from sources within this State, or
for the privilege of engaging in contracts within this State, or for the
privilege of doing business, employing or owning capital or
property, or maintaining an office, in this State.
[N.J.S.A. 54:10A-2.]
If less than 100% of a corporation’s activities and property are in New Jersey, its income
inside and outside of New Jersey may be apportioned under a statutory formula. N.J.S.A. 54:10A-
6. During the years at issue, a corporation that maintained an RPOB outside of New Jersey was
entitled to apportion its income based on a three-factor formula comprising of the corporation’s
payroll, property, and sales inside New Jersey, as compared to its activity nationwide. If a
corporation failed to maintain an RPOB outside the State, 100% of its income would be
apportioned to New Jersey. Ibid. Taxation enacted a regulation to define RPOB. See N.J.A.C.
18:7-7.2. The parties’ interpretation of the regulation forms the core of this dispute.
Here, Taxation contends that if the RPOB of Taxpayer is uncertain, then the court should
find the credit it afforded for taxes paid to other jurisdictions represents a fair and reasonable
allocation of Taxpayer’s activities inside and outside the State. Otherwise, the court should
remand the matter to Taxation for consideration of an alternate form of allocation adjustment
pursuant to N.J.S.A. 54:10A-8 (“Section 8”), under which Taxation is granted statutory discretion
to adjust the allocation factor. Taxation acknowledges that Taxpayer and CVR are engaged in a
unitary business relationship, and thus pursuant to N.J.A.C. 18:7-7.6(h)(1), Taxpayer is deemed to
have an RPOB wherever CVR maintains one.

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Taxpayer contends it has demonstrated an RPOB through CVR’s activities. Because of its
unitary nature with CVR, Taxpayer’s claim derives not from its own business activity but from
that of CVR. Moreover, Taxpayer argues, in the event it fails to meet its burden to prove that CVR
had an RPOB, it is entitled to allocate income on an alternative basis. According to Taxpayer, it
is entitled to apportion income under Section 8, using the three-factor formula, to avoid the
“palpable misapportionment” that results from Taxation’s allocation of 100% of Taxpayer’s
income to this State. Hess Realty Corp. v. Dir., Div. of Taxation, 10 N.J. Tax 63, 81-82 (Tax
1988). In further reliance on Hess, Taxpayer claims Taxation not only has the discretion to act but
“has an obligation to adjust a particular allocation formula if it is unfair in that it does not effect a
fair and proper allocation of the [Taxpayer’s] entire net income . . . reasonably attributable to the
State.” Ibid. (citing F.W. Woolworth Co. v. Dir., Div. of Taxation, 45 N.J. 466, 497 (1965)
(internal quotation marks omitted). In Taxpayer’s view, employment of the three-factor formula
accounts for its proportionate business conducted both inside and outside of New Jersey. Taxation
argues that such relief is entirely discretionary and not obligatory. The parties also differ as to the
procedural mechanism required to trigger Section 8 relief. They presented arguments addressing
Taxpayer’s claim for relief under Section 8 in supplemental briefing to the court.
Taxpayer lastly claims that under the facts presented, Taxation’s application of a tax based
on 100% apportionment to New Jersey with credit for taxes paid to other jurisdictions is
inconsistent with the statutory design and violates the Due Process and Commerce Clauses of the
United States Constitution. Notably, Taxpayer provides a stark illustration of the difference
between CVR’s reported 2% allocation and Taxation’s 100% allocation.
The court concludes Taxpayer has established an RPOB outside of New Jersey through the
maintenance of an RPOB by CVR in California. As such, Taxpayer’s statutory allocation through

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use of the three-factor formula was appropriate, and therefore, the court need not consider the
alternative arguments presented.
Facts
The facts rely on submissions of the parties, including affidavits authored by both ADP
and CVR employees.
I. Taxpayer’s New Jersey CBT Filings and Audit
Taxpayer filed CBT-100 tax returns in New Jersey for the periods ending June 2008
through June 2011 using a three-factor allocation formula.1 On their audit, Taxation identified
four issues in Taxpayer’s tax returns that were subject to dispute: pass-through income, royalty
expense, RPOB, and the allocation factor, though only the finding on RPOB is at issue here.
According to the audit report, “[t]he taxpayer did not maintain an RPOB inside or outside New
Jersey for June 30, 2008 – June 30, 2010. The lease agreement named ADP, Inc. as tenant. In
addition, all employees were in ADP, Inc.’s name.” On that basis, Taxation determined Taxpayer
did not maintain an RPOB and adjusted the allocation factor to 100% for the tax periods ending
June 2008 – June 2010 and assessed additional taxes due, with credit for taxes paid to other
jurisdictions.2 Notably, in the tax period immediately following the audit at issue, and subsequent
to repeal of the RPOB requirement, Taxation applied the three-factor apportionment formula to
Taxpayer’s reported income, and a refund issued. Taxpayer appealed the Final Determination by
timely filing a complaint with this court.
1 Taxpayer acknowledged that in its initial filing it erred by failing to claim an RPOB on Schedule
J, Part I, line (a).
2 In 2008, N.J.S.A. 54:10A-6 was amended to remove the RPOB requirement, effective July 1,
2010. L. 2008, c. 120. Thereby, Taxpayer is not contesting tax year beginning July 1, 2010, and
ending June 30, 2011.

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II. CVR’s Business Operations
During all relevant years, CVR operated a nationwide computerized business that provided
electronic vehicle title and registration services through software developed to achieve its business
model. CVR’s partnership receipts constitute Taxpayer’s sole source of income. CVR filed
partnership tax returns in more than twenty states during the years at issue reporting wages
attributable to at least 200 CVR employees nationwide. The facts reveal CVR had a business
location in El Paso, Texas, which served as a customer service call-center, and a location in
Portland, Oregon, where CVR software developers performed their duties. Not including
California and New Jersey, the record offers sparse details on CVR’s other business locations.
Taxpayer focused largely on the operation of its California office as the basis of its RPOB claim.
Until January 1, 2009, CVR’s California office was located at 12610 Park Plaza, Cerritos,
California. Thereafter, CVR relocated its offices to 7000 Village Drive, Buena Park, California
(collectively “the California office”). Upwards of sixty people worked at the California office full-
time under the control and direction of CVR management, and ultimately reported to the on-site
General Manager, Scott Herbers. CVR’s General Manager and Vice President of Research and
Development were among several members of CVR’s management team at the California office.
The California location also housed the office of the Controller, the contracts administration
department, CVR auditors, and a majority of the research and development team. CVR’s
management team in California made managerial decisions affecting the day-to-day operation of
CVR’s business.
Business operations required CVR to contract with State departments of motor vehicles.
CVR’s contracts with both the New Jersey and Massachusetts motor vehicle agencies were
executed at the California offices, listing CVR’s California address. In its motion papers, Taxpayer

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identifies the location as CVR’s “headquarters,” and the California address appears on the CVR
website. While Taxation admits that CVR conducted business at the California office for the years
under appeal, the characterization of CVR’s California location as its “headquarters” was met with
Taxation’s continuing objection.
According to the tax returns, the majority of CVR’s total nationwide property was located
in California: for 2008, 83.9099%; for 2009, 80.8280%; and for 2010, 85.9946%. Additionally,
more than one third of CVR’s total nationwide payroll was attributable to California: for 2008,
33.9525%; for 2009, 37.2513%; and for 2010, 42.010%. The majority of CVR’s total nationwide
sales were attributable to California: for 2008, 64.5834%; for 2009, 60.6058%; and for 2010,
60.6996%. A review of CVR’s payroll records discloses contrasting figures regarding New Jersey
activity. Six out of CVR’s 210 employees worked in New Jersey in 2008; five out of 202 in 2009;
and, five out of 170 in 2010. As reported on its tax returns, CVR’s presence in New Jersey, as
measured by the average of the three-factor business allocation formula, was limited to
approximately two percent of CVR’s nationwide presence, measured by the same averaged three
factors.3
CVR’s New Jersey employees served as account executives, salespeople, and territory
managers who worked from their own homes or at client locations. During the years under appeal,
CVR had no offices in New Jersey, and did not own or rent any real property in New Jersey.
Additionally, CVR had no tangible personal property in New Jersey with the exception of business
cards, laptop computers, and business telephones. According to one CVR Senior Account
3 CVR’s partnership returns reflect a fiscal year beginning July 1 and ending June 30. Where the
opinion cites to a single tax year it represents the tax year with the corresponding fiscal year end.

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Executive employed in New Jersey, her business card displayed the address of the California office
to which she regularly referred her New Jersey customers when they encountered billing or
accounting problems.
CVR’s records reveal it occupied and paid rent for the California office space by a “cross-
charge” to its books. According to Taxpayer, “ADP cross-charged CVR” for California rent due,
and CVR was responsible for the payment of the rent. CVR’s general ledger entries indicate that
CVR recorded rental expenses for the California location for all years at issue. The space was
rented pursuant to a lease and amendment listing ADP as tenant. ADP’s President, James B.
Benson, executed the leases on behalf of ADP. There was no signage identifying CVR at the
California location, either on the outside of the building or in the building’s interior. Lease
documents show plans for a sign to display the ADP logo at the California office. Other entities
within the ADP corporate group also occupied space in the buildings that housed CVR. Despite
the leasing arrangement, Taxpayer maintains that CVR operated separately and distinctly from all
other entities at the California office, and employees of other ADP-related entities played no role
in the conduct of CVR’s business. Taxpayer contends CVR operated as an entity separate and
distinct from ADP due to its ownership structure – 80% owned by Taxpayer, and 20% owned by
Reynolds Vehicle Registration, Inc., an unrelated entity.
Either ADP or the ADP-related entity known as Dealer’s Services group performed some
tasks on CVR’s behalf. Both Taxpayer and CVR were identified as “members of the ADP
corporate group.” Affidavits submitted on Taxpayer’s behalf explained ADP’s role in CVR’s
operations as “stewardship functions common to many large corporate groups.”
“[B]ecause CVR was 80% owned by ADPVR [Taxpayer], a
member of the Automatic Data Processing, Inc. corporate group
(‘ADP Corporate Group’), certain stewardship functions (such as
tax return preparation and the centralized management of the

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corporate facilities function) were performed on ADPVR’s behalf
by other members and/or divisions of the ADP Corporate Group.”
ADP prepared tax returns on behalf of both CVR and Taxpayer and listed only ADP’s
Roseland, New Jersey, address and a New Jersey telephone number on the documents. Taxpayer
explained that Roseland, New Jersey, is the site of ADP’s centralized tax department. ADP follows
a uniform, company-wide practice that the Roseland, New Jersey, address appear on any tax return
prepared by the centralized tax department, regardless of the underlying company’s location.
Taxpayer contends the address is not meant to represent the company’s location, but rather the
location of ADP’s centralized tax department for administrative efficiency to ensure that any
correspondence from State departments of revenue be directed to the tax department responsible
for preparing the returns.
Similarly, with regard to compensation of CVR employees, the ADP payroll records read
“ADP, Inc. – CVR.” As explained by Taxpayer, ADP uses a centralized payroll system that
performs all payroll tax reporting and employee payroll services, for all companies and all
employees within the ADP corporate group. The centralized payroll system issues all employee
paychecks, W-2s, and direct deposits. ADP assigns a company code to each entity allowing the
system “to track and manage the payroll records of each separate entity to ensure that the amount
of wages paid to employees is properly recorded on the separate books and records of each entity.”
Wages recorded on CVR’s partnership tax returns filed with the California Department of Revenue
for tax years ended June 2008 through June 2010 were $4,300,136; $4,632,312; and $4,405,750,
respectively.4
4 In Taxpayer’s payroll records, the wage figures differed slightly: $4,352,939; $4,931,832; and
$4,419,450, respectively.

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CVR, Taxpayer, and ADP share some common corporate officers/directors. Assorted
documents reveal that Gary Butler serves in roles as “Group President” of ADP, Inc., as
“President” of ADPVR (Taxpayer), and as “General Partner” of CVR. In 1992, ADP and CVR
entered into a sales agreement appointing ADP as the non-exclusive sales agent for CVR. In that
role ADP agreed to “market CVR’s services, obtain[s] service agreements, provide software,
provide sales services and train clients.” Gary Butler executed the agreement in New Jersey on
behalf of Taxpayer as general partner of CVR. James Benson executed the California lease in
New Jersey on behalf of ADP as a Director/Executive Officer. ADPVR’s Directors/Officers
Report lists Benson as Director and Vice President/Secretary. Benson also serves as Taxpayer’s
corporate Secretary, and as a General Partner in CVR.5 Nonetheless, the businesses of ADP and
CVR are distinct. While CVR was engaged in the business of providing electronic vehicle
registration services, ADP was engaged in the business of offering payroll services, human
resources software, and tax and compliance services for business, among others.
Taxpayer identified the “centralized management of facilities functions” as one of the
“stewardship functions” provided to CVR by ADP Dealer Services. Dealer Services is as an
unincorporated division of ADP, located in Hoffman Estates, Illinois. Taxpayer emphasized that
any stewardship functions provided by the ADP affiliate did not emanate from New Jersey, but
rather from Illinois. As outlined specifically by Taxpayer in affidavits, employees in the Dealer
Services accounting department maintained CVR’s general ledger in the Oracle computer system.
Analysis
I. Summary Judgment Standard
5 The opinion reflects the titles of the above individuals exactly as identified by the parties in the
motion papers and exhibits, including as to the use of the quotation marks.

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This court finds no need to engage in further fact finding in this matter. Where the material
facts are undisputed the matter is ripe for summary judgment. R. 4:46-2(c). The standard set forth
in Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995), requiring the court “to consider
whether the competent evidential materials presented, when viewed in the light most favorable to
the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed
issue in favor of the non-moving party” has been met and the matter is ripe for summary judgment.
II. Regular Place of Business
Under the relevant statute, multi-state taxpayers that maintained an RPOB, other than a
statutory office, were entitled to apportion to New Jersey pursuant to statutory allocation formulas,
portions of their net-worth and net-income tax bases for the purposes of computing their
corporation business tax liability to the State. N.J.S.A 54:10A-6. Generally, “[t]he formula
apportionment method apportions a corporation’s income between the taxing jurisdiction and the
rest of the world,” through use of “a three-factor formula that weighs a multi-state corporate
taxpayer’s property, payroll and sales, a recognizably common, and constitutionally unremarkable,
general approach.” Whirlpool Properties, Inc. v. Dir., Div. of Taxation, 208 N.J. 141, 150 (2011)
(internal citation omitted). “Each of the three factors in the so-called three-ply formula is
expressed as a fraction” with the numerator consisting of “the taxpayer’s New Jersey property,
receipts, and payroll, and the denominator of which is the taxpayer’s total property, receipts, and
payroll generated by the operations of the entire enterprise.” Metromedia, Inc., v. Dir., Div. of
Taxation, 97 N.J. 313, 323 (1984). The “three fractions are then averaged, and the combined
fraction . . . is then applied to the corporation’s entire net worth and net income to determine the
percentage of net worth and net income properly attributable, and thus taxable, to New Jersey.”

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Reuben H. Donnelley v. Dir., Div. of Taxation, 128 N.J. 218, 224 (1992).6 Prior to repeal of the
RPOB requirement, the statute mandated that “in the case of a taxpayer that does not maintain a
regular place of business outside this state, other than a statutory office, the allocation factor shall
be 100%.” N.J.S.A. 54:10A-6.
In an effort to apply the “regular place of business” statutory requirement, Taxation enacted
a regulation to define the term. N.J.A.C. 18:7-7.2. With each court challenge to Taxation’s
application of the regulation, the taxpayers’ efforts to establish an RPOB failed; however, guiding
parameters emerged as the case law developed. In amending the regulation in 1985, Taxation
added four factors preceded by the language “[t]he following will assist in the determination of
what is a regular place of business.” N.J.A.C. 18:7-7.2(a). Under the amendment, the definition
of RPOB remained the same. The regulation, as amended in 1985, reads in pertinent part as
follows:
Regular place of business; definition
(a) A regular place of business is any bona fide office (other than a statutory office), factory,
warehouse, or other space of the taxpayer which is regularly maintained, occupied and used
by the taxpayer in carrying on its business and in which one or more regular employees are
in attendance. The following will assist in the determination of what is a regular place of
business.
1. Bona fide office: An office in which an employee in attendance performs
significant duties related to the business of the taxpayer. A token office, space of
the taxpayer or any place where an employee does not actually perform significant
duties constituting part of taxpayer's business does not constitute a regular place of
business.
2. Space of the taxpayer: The taxpayer must be directly responsible for the expenses
incurred in maintaining the regular place of business and must either own or rent
the facility in its own name and not through a related person or entity. The regular
place of business should be identifiable as belonging to the taxpayer by, for
example, reflecting the taxpayer’s name on the exterior and interior of the building
and being listed in the taxpayer’s name in a telephone book.
6 As the Court in Donnelley explained, the Legislature eliminated tax on net worth for tax periods
beginning after June 30, 1986 through a phase-out repeal, pursuant to L. 1982, c. 55. Reuben H.
Donnelley, 128 N.J. at 223.

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3. Regularly maintained, occupied and used by the taxpayer in carrying on its
business: The taxpayer must regularly maintain, occupy and use the premises by
employing one or more regular employees who are in attendance during normal
working hours. Premises are not regularly maintained, occupied and used in the
event employees are in attendance only on a part time basis and, in their absence,
telephone messages are received by an answering service or recording device.
4. Regular employee: A regular employee must be under the control and direction
of the taxpayer in transacting the taxpayer’s business and/or performing work on
behalf of the taxpayer. The officers of the taxpayer are generally deemed to be
regular employees of the taxpayer while independent contractors and members of
the taxpayer’s board of directors are not regular employees of the taxpayer. The
method or procedure by which a taxpayer reports the compensation paid to an
individual (such as a W-2 form) shall not be conclusive as to whether the individual
is a regular employee (see N.J.A.C. 18:7-8.14.) . . . .
When analyzing Taxation’s actions, the court must recognize the well-settled principle that
Taxation’s determinations are presumed valid. Atlantic City Transp. Co. v. Dir., Div. of Taxation,
12 N.J. 130 (1953); Campo Jersey, Inc. v. Dir., Div. of Taxation, 390 N.J. Super. 366 (App. Div.
2007); L&L Oil Service, Inc. v. Dir., Div. of Taxation, 340 N.J. Super. 173 (App. Div. 2001).
“New Jersey courts generally defer to the interpretation that an agency gives to a statute [when]
that agency is charged with [enforcement].” Koch v. Dir., Div. of Taxation, 157 N.J. 1, 8 (1999)
(internal citation omitted). However, “the final word on statutory interpretation is for the courts.”
Glukowsky v. Equity One, Inc., 180 N.J. 49, 66 (2004) (citation and internal quotation marks
omitted.)
Taxation argues that Taxpayer has failed to overcome the presumption of correctness that
attaches to the assessment. In measuring CVR’s activities against the RPOB language, Taxation
adopts a strict interpretation of the regulation and argues Taxpayer must meet all four RPOB
factors listed above, but has not done so, for the reasons that follow. Per Taxation, Taxpayer must
be directly responsible for the expenses in maintaining the premises, and rent or own the premises
in its own name, with signs identifying the space as Taxpayer’s on the building interior and/or
exterior. Instead, Taxation points out, ADP rents, pays for, and holds out CVR’s California

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locations as ADP sites; the leases list ADP as tenant; the California office displays only ADP’s
name and logo; and Taxpayer makes no reference to who paid the telephone, office furnishings,
or other related expenses. In addition, Taxation contends, regular CVR employees did not staff
the California office, and ADP paid all employees.7
Taxpayer argues both the legislative history and the language of the RPOB regulation
should be read to mean that not each definitional aspect of the four factors need be met, suggesting
they are not “non-exclusive but merely illustrative.” In other words, in enacting the regulation,
the agency sought to capture the basic factors developed in the case law, “focused on an inclusive,
multi-factor analysis that weighed all available factors” rather than create an exhaustive list of
absolute requirements.
In considering the arguments, it is important to examine prior case law where the court
considered the RPOB statutory requirement. The appellate court first considered the regulation in
Hoeganaes Corp. v. Dir., Div. of Taxation, 145 N.J. Super. 352 (App. Div. 1976). There, the
taxpayer was a New Jersey specialty manufacturer with its principal office in New Jersey. The
taxpayer operated its business through a full-time sales force of employee engineers strategically
located in six other States that produced the highest volume of sales. The taxpayer required that
each sales engineer worked from an office established at the engineer’s home in those other States.
In addition to sales efforts, the employees provided technical trouble-shooting advice and on-site
customer service. The sales engineers spent the majority of their time at customer locations, and
an answering machine handled telephone calls in their absence. There was no staff at the home
7 The court finds no merit in Taxation’s additional contention that because Taxpayer never
disputed Taxation’s authority to promulgate the regulation, its challenge to Taxation’s application
of the regulation is unsustainable.

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office sites, no regular business hours were established, and the home offices lacked any signage
to identify them as the location of the taxpayer’s business. The taxpayer’s principal office site in
New Jersey provided nearly all support services to the sales force, including basic administrative
tasks such as typing sales reports, receipt of sales orders, and necessary guidance for response to
customer concerns.
The Division of Tax Appeals agreed with the taxpayer that it had an RPOB since the home-
site employees were acting as the taxpayer’s agents outside the State. The Appellate Division
reversed the holding in favor of the taxpayer in an opinion marked by a dissent. The court noted
Taxation had adopted the following policy: “in applying the regulatory definition of a ‘regular
place of business’ . . . an office must be owned or rented by the taxpayer . . . [and] taxpayer further
must regularly occupy the premises by employing one or more regular employees who are in
attendance during normal working hours.” Id. at 358. The court’s majority found the out-of-state
“[sales] ‘offices’ [were] maintained by the sales engineers for their own convenience, without any
‘office hours’ except those when they actually feel like using them.” Id. at 360. The fact that the
sales people used the space “in connection with their employment” was insufficient to establish
that the locations were “regularly maintained and occupied and used by” the taxpayer. Ibid. The
court interpreted the term “maintain” an office to mean “to ‘bear the expense of’ the subject, i.e.,
pay rent.” Id. at 359.
In Rocappi, Inc. v. Dir., Div. of Taxation, 3 N.J. Tax 311 (Tax 1981), the Tax Court reached
the same outcome. There, the taxpayer’s parent company maintained the sales office. The
taxpayer paid no rent but instead “reimbursed” the parent each time the taxpayer made a successful
sale to cover the cost of office space and other sales-related expenses absorbed by the parent.
Building exteriors, directories, and doors reflected only the parent’s name. The office phone

15
numbers were in the parent’s name as well. Sales representatives did not keep regular hours and
there were no employees in regular attendance at the premises. The court denied the taxpayer’s
claim that the out-of-state offices constituted an RPOB.
Years later, faced with similar circumstances, the Tax Court in N.J. Natural Gas v. Dir.,
Div. of Taxation, 24 N.J. Tax 59 (Tax 2008) found that the taxpayer had not established an RPOB,
consistent with the holding in Hoeganaes. The court denied the taxpayer’s claim because the out-
of-state employees worked from their homes and conducted no business at the taxpayer’s real
property locations.
The court once more found an RPOB lacking in Shelter Development Corp. v. Dir., Div.
of Taxation, 6 N.J. Tax 547 (Tax 1984). Shelter Development owned a commercial rental property
in New Jersey. For the years at issue, its income consisted of rent and the proceeds from the sale
of this property. Shelter Development, a subsidiary of Kenrich Corporation, used the address and
phone number of an office located in New York, rented by Kenrich, on all of its company
correspondence, and stored it books and records at the New York location. The negotiation,
collection and deposit of rents, tenant complaints, and building maintenance issues were conducted
from the New York location. All of the work was performed by individuals employed full-time
by Kenrich-related corporations, not by Shelter Development or its employees, though the
taxpayer paid to reimburse the cost for services performed on its behalf. Kenrich leased and paid
for the New York office rent at no expense to Shelter Development. Though Shelter Development
listed its name at the New York location, the court held that where the taxpayer paid no rent for
out-of-state office leased by the taxpayer’s parent, in which the employees were primarily the
employees of the parent corporation, it did not maintain an RPOB. See also Hess Realty Corp.,
10 N.J. Tax 63 (out-of-state gas stations owned by the taxpayer and leased to parent did not

16
constitute RPOB outside New Jersey, nor did the taxpayer’s New York “headquarters” leased and
controlled by parent, for which the taxpayer paid no rent and where the taxpayer failed to maintain
employees in regular attendance.)
Resolution of the issue presented requires that this court interpret and apply Taxation’s
regulation. In interpreting a regulation, courts abide by the same rules that govern statutory
construction. Hoeganaes, 145 N.J. Super. at 359. “The paramount goal of all statutory
construction is to give effect to the Legislature’s intent.” Cosmair, Inc. v. Dir., Div. of Taxation,
109 N.J. 562, 570 (1988). “As a general rule of statutory construction, we look first to the language
of the statute. If the statute is clear and unambiguous on its face and admits of only one
interpretation, we need delve no deeper than [its] literal terms to divine the Legislature’s intent.”
State v. Butler, 89 N.J. 220, 226 (1982). “Absent a legislative intent to the contrary, [statutory]
language is to be given its ordinary meaning.” GE Solid State v. Dir., Div. of Taxation, 132 N.J.
298, 307 (1993). “The duty of [Taxation], and this court, is to give meaning to the wording of the
statute and, where the words used are unambiguous, apply its plain meaning in the absence of a
legislative intent to the contrary.” Sutkowski v. Dir., Div. of Taxation, 312 N.J. Super. 465, 475
(App. Div. 1998); see also Koch , 157 N.J. at 7.
As noted, the RPOB regulation first defines what an RPOB is. After the definition, the
regulation (as amended in 1985) reads, “[t]he following will assist in the determination of what is
a regular place of business.” The four factors then follow. Each of the four factors explain certain
specific terms used in the definitional portion of the regulation, including, “Bona fide office;”
“Space of the taxpayer;” “Regularly maintained, occupied and used by the taxpayer in carrying on
its business;” and “Regular employee.” There is no directive in the regulation to require each
phrase or term in the explanatory factors. Based on a reading of the regulation’s plain language

17
the court finds Taxpayer’s interpretation of the regulation to be more persuasive. The plain
language of the regulation supports Taxpayer’s argument that the regulation did not intend the
listed factors to be absolute. Webster’s Dictionary defines the word “assist” as “to aid.” Webster’s
II New College Dictionary 68 (1999). By its language, the regulation directs that the factors will
“assist” or serve to guide the court in its analysis of whether a taxpayer’s business activities and
manner of operation equates with an RPOB. The four factors more properly read as characteristics
of an RPOB rather than exclusive factors that must be met.
Giving due regard to the legislative history of the regulation, Taxation amended the
regulation in order to “capture the basic factors developed in the case law and give them precise
meaning.” 17 N.J.R. 476(b) (February 19, 1985). Promulgation of the amendment was in response
to the case law where the court examined the issues of employee home offices as a means of
satisfying the RPOB test, with home sales offices neither controlled by the taxpayer nor staffed by
regular employees in attendance. It is an objective standard: do the activities at the premises lead
the reasonable person to believe the location is an RPOB. Hoeganaes, 145 N.J. Super. at 362
(application of the regulation depends upon an analysis of relevant factors when “[v]iewed
objectively” to characterize a location as a “regular place of business.”).
The Legislature intended to permit an entity able to establish the existence of an RPOB to
allocate income away from the State. Courts are cautioned against applying the law in a manner
that thwarts the intent of the Legislature. Taxation’s interpretation would result in the denial of a
taxpayer’s claim where strict compliance is unmet, yet an objective view of the facts reveal that
the taxpayer operates a bona fide office outside of the State, as here.
This result finds further support in the case law. In N.J. Natural Gas, the court restated:
The ascertainment of whether the taxpayer maintains an office
outside of the state to which gross receipts may be assigned depends

18
entirely upon the circumstances. There are many factors that might
constitute the maintenance of an office for the purpose of allocation.
But what might be sufficient in one case would be inadequate in
another; it is usually the combination of factors that add up to the
necessary requirement. In other words the essentials may differ with
the type of business, the type of agency or employment contract
involved or the manner in which the taxpayer conducts its business.
[24 N.J. Tax at 78 (quoting Hoeganaes, 145 N.J. Super. at 361).]8
Also of note is the dissenting opinion in Hoeganaes that criticized the majority’s strict
interpretation of the RPOB regulation, suggesting a taxpayer could meet the regulation’s objective
without strict adherence to the words contained therein. 145 N.J. Super. at 362. The nature of the
office does not determine whether an RPOB exists, the dissent reasoned. The dissent implied that
the majority should have focused on the tasks performed by the engineers, rather than the fact that
the employees worked from their homes and not from separate rented offices, i.e., form over
substance should not control. For example, if the taxpayer performed those very same activities
using the very same employees, but “by renting a room in an office building at each location and
8 After that statement, the Hoeganaes majority cited to the following factors as relevant to the
issue of regular place of business:
(1) Name of taxpayer in telephone directory, on building directory
if there is one, on door leading to entrance of office or otherwise
displayed on the office exterior.
(2) Stationery and calling cards showing office address.
(3) Storage of inventories or display samples at location in question.
(4) A written or oral lease for the space involved and the direct or
indirect payment of rent.
(5) A written or oral agreement for the maintenance of an office by
the agent or agency on behalf of the taxpayer.
[145 N.J. Super. at 361-62, citing Commonwealth v. Hellertown
Mfg. Co., 264 A.2d 382, 387 (Pa. 1970).]
Hoeganaes noted that these factors were listed by the Pennsylvania Supreme Court in Hellertown.
The Hellertown Court took the factors from a treatise that listed the factors as a checklist and did
not adopt them but looked to them as guidance or “assistance in supplying proof” of an RPOB,
and actually disagreed with some of them. See 264 A.2d at 387-388. Notably, not all factors from
the treatise appear in the RPOB regulation at issue.

19
by hiring a telephone answerer to be present therein for an eight-hour day at minimal expense,”
Taxation would have accepted that the taxpayer established an RPOB. Id. at 363.
In sum, this court disagrees with Taxation’s interpretation of the regulation, and finds that
it does not contain a list of absolute requirements. Instead, the regulation provides factors to assist
the court to determine whether a taxpayer’s purported RPOB constitutes a bona fide office as
defined by the regulation. The court will next measure CVR’s activities to determine whether they
comport with an objective finding that Taxpayer established an RPOB.
As its primary focus, Taxation contends that Taxpayer has failed to establish an RPOB
since it lacks employees, and does not lease or rent the premises. To constitute an RPOB, “one or
more regular employees” must “regularly maintain, occupy and use” the premises “during normal
working hours” while “under the control and direction of the taxpayer in transacting the taxpayer’s
business and/or performing work on behalf of the taxpayer.” N.J.A.C. 18:7-7.2 (a)(3) to (4).
Taxation initially adopted inconsistent positions in this matter apparently designed to
justify the tax on the California-based Taxpayer resulting in a conflated argument as to the “regular
employee” factor. For example, Taxation acknowledges the unitary nature of CVR and Taxpayer,
and agrees that Taxpayer meets with the RPOB regulation provided it establishes that CVR
maintains an RPOB, yet it urges the court to find that Taxpayer has no regular employees at the
California offices. This court rejects that position. The court’s analysis of the “regular employee”
factor of N.J.A.C. 18:7-7.2(a) will focus on the employees of CVR.
Taxation posits that ADP pays the CVR “employees,” and all employees of ADP member
groups. Those facts should convince the court that the individuals working at the California offices
were ADP employees, and that CVR had no regular employees there. Taxation points to a sample
W-2 form that lists the names of both ADP Inc. and CVR in the employer information section.

20
Taxation argues that because CVR did not directly pay the employees, they do not meet the
definition of “regular employee” under N.J.A.C. 18:7-7.2(a)(4).
The court finds that CVR’s method of employee remuneration recorded in the payroll
records and on the W-2 as “ADP, Inc. – CVR” does not control the outcome. Taxation’s argument
contradicts the RPOB regulations. As per N.J.A.C. 18:7-7.2(a)(4), “[t]he method or procedure by
which a taxpayer reports the compensation paid to an individual (such as a W-2 form) shall not be
conclusive as to whether the individual is a regular employee.” In that section of the regulation,
the language references N.J.A.C. 18:7-8.14, titled “Definition of officers and employees,” which
reads in pertinent part:
Generally, the relationship of employer and employee exists when
the taxpayer has the right to control and direct the individual not
only as to the result to be accomplished by him or her but also as to
the means by which such result is to be accomplished. If the
relationship of employer and employee exists, the designation or
description of the relationship, and the measure, method or
designation of the compensation, are immaterial.
[N.J.A.C. 18:7-8.14(b).]
The record contains ample proof to identify the employees as regular CVR employees who
“regularly maintain, use, and occupy” CVR’s California offices. The affidavit of CVR General
Manager, Scott Herbers, is unrefuted. In the affidavit, Herbers explains that CVR had over sixty
employees in regular attendance at the California office managed day-to-day by supervisors on
site, including the general manager and the vice president of development and research. The court
finds significant business operations were performed at the California office, including: research
and development functions, the core of the company’s business; contracts administration; and, the
work of the company’s internal auditors, all “under the control and direction of the taxpayer,” as
explicated by factor four of the RPOB regulation, and in the regulation that defines “employee.”

21
Moreover, were the court to accept Taxation’s argument, the section of CVR’s California
partnership returns where substantial wages are reported, would otherwise remain unexplained.
Indeed, proof that the wages paid were reallocated or attributed to ADP by the California
department of revenue is absent from the record.
In further support of the argument, Taxation relies on River Systems, Inc. v. Dir., Div. of
Taxation, 19 N.J. Tax 599 (Tax 2001), aff’d, 358 N.J. Super. 287 (App. Div. 2003), and equates
CVR’s employees with those of that taxpayer. The taxpayer, New Jersey-based River Systems,
utilized employees paid by a related company working from office space in a New York building
owned by a second related company, in the sale of its products. River Systems reimbursed the
companies for employee payroll expenses based upon relative sales and contributed to payment of
the building expenses. This court finds River Systems is distinguishable and does not provide
guidance under the facts presented.
Taxation next posits that Taxpayer’s claim should be denied since ADP is the tenant on the
lease and the rent is paid indirectly through a cross-charge to CVR’s books, contrary to the
regulation’s language that the taxpayer “must be directly responsible” for maintaining the premises
and “must own or rent” the space in its own name. N.J.A.C. 18:7-7.2 (a)(2). Taxation also argues
that because ADP’s name appears on the lease it provides proof that ADP asserts “operation,
management and control” over CVR from New Jersey.
Taxpayer argues that the “space of the taxpayer” is just one of four factors used in the
determination of whether an office constitutes an RPOB and the ability of the Taxpayer to comply
with a strict reading of that factor should not dictate the outcome. It argues nonetheless that it
meets this factor. Taxpayer concludes that the cross-charge is proof that CVR is financially
responsible for the rent. Taxpayer further posits that paying the rent through a cross-charge to its

22
books might be “indirect,” but contends the case law supports such a view. Taxpayer emphasizes
the phrase used by the Hoeganaes court allowing “the direct or indirect payment of rent,” which
language was later repeated by the court in N.J. Natural Gas. 24 N.J. Tax at 73 (citation omitted).
While there was no evidence produced by Taxpayer to dispute the fact that ADP leased the
premises in its name, this court concludes that is not fatal to Taxpayer’s claim. Prior cases where
the court examined the leasing/rent requirement, and denied relief to the taxpayers, are
distinguishable since in each the taxpayers occupied the premises free of any financial
responsibility for rent. Unlike those cases, the record before this court contains convincing
evidence to the contrary. CVR’s general ledgers for all months during the years at issue reflect a
rental expense for a facility located in Cerritos for June 30, 2008 through December 2008, and for
Buena Park for each month from January 2009 through June 30, 2010. While ADP is the tenant
on the lease, the court concludes that the property was “maintained” by CVR since CVR was
financially responsible for payment of the rent.
Taxation alleges further support for denial of Taxpayer’s claim because there was no sign
identifying Taxpayer’s business on either the inside or the outside of the California office (“the
regular place of business should be identifiable as belonging to the taxpayer.” N.J.A.C. 18:7-7.2
(a)(2).). Taxpayer acknowledges as much, and suggests that in listing the California premises as
its headquarters on the website and on business cards, it did hold out the office as its own.
Moreover, it contends signage is unnecessary since CVR operates an on-line business with no need
for a sign to direct a customer to its physical location.
Although neither Taxpayer’s nor CVR’s name appeared on the exterior or interior of the
building, the court finds that CVR’s offices were identifiable as belonging to CVR through its
website, employee business cards, department of motor vehicle contracts, and the nature of CVR’s

23
business itself. CVR’s website listed the California offices as its headquarters and CVR’s New
Jersey employees had business cards reflecting CVR’s California office address. The nature of
the services performed by CVR was the development of software to allow online registration with
departments of motor vehicles. According to Taxpayer, CVR conducted business via telephone,
email or other electronic means, such as CVR’s website. Therefore, it is reasonable for the court
to infer that CVR’s customers were unlikely to visit the offices and that there would be no practical
reason to identify the buildings as the location of CVR’s business.
Moreover, the language of the regulation illustrates that Taxation was less concerned with
how the location was identified (“the location ‘should’ have a sign . . . .”) and more concerned that
the location was the actual site of a taxpayer’s business. While there was no physical signage to
indicate that CVR occupied the premises, the court concludes the intent of the regulation has been
met where the facts sufficiently establish that CVR conducted its business at the California site,
through CVR’s employees.
While Taxation’s focus is based on the audit results that identified “ADP, Inc. – CVR”
employees as belonging to ADP, and concluded that only ADP’s name appeared on the California
lease, Taxation’s argument in the motion papers was still more expansive. For example, Taxation
urges that this court consider that common officers and directors overlap the three organizations
who operate, manage and control CVR from New Jersey, including: leasing the premises, paying
the California employees, and operating a common system of tax preparation. Taxpayer kept its
corporate books and records in New Jersey, and all of its tax returns, which list only a New Jersey
telephone number, were prepared in New Jersey. Taxation contends only New Jersey addresses
appear on all documents of record. Taxation submits that CVR did not maintain an RPOB since
the proofs reveal that ADP operates, manages and controls all CVR out-of-state activities and

24
locations from this State. As such, Taxation argues that Taxpayer and CVR have an indisputable
nexus with New Jersey, and Taxpayer does not meet the RPOB requirement. Taxation concludes,
“New Jersey was, in greatest measure, [Taxpayer’s] place of business” and that New Jersey
“breathed life” into Taxpayer and “New Jersey is the state that most contributed to Taxpayer’s
income.”
In its approach, Taxation adopts a broad construction of nexus between New Jersey and
the California-based Taxpayer. However, this court’s determination does not depend upon the
concept of nexus. Taxation further argues the court must abide by the regulation without adding
or subtracting from its language, yet seeks to expand the factors by its argument. Moreover,
Taxation’s conclusion excludes consideration of the fact that CVR employees perform significant
duties that constitute its business operations at the California office, supported by the website,
business cards, and contracts that list the CVR California office address as its place of business.
Inter-affiliate services and agreements do not detract from the court’s finding that CVR, and thus
Taxpayer, had an RPOB in California.
The regulation defines “bona fide office” as “an office in which an employee in attendance
performs significant duties related to the business of the taxpayer.” N.J.A.C. 18:7-7.2 (a)(1). On
the contrary, a “token office” is a space of the taxpayer or any place where an employee does not
actually perform significant duties constituting part of the taxpayer's business, and does not
constitute an RPOB. By the language of the regulation, Taxation sought to avoid a taxpayer’s
reliance on a home office; on a token office space, such as space intended for business activity
primarily by someone other than the taxpayer; or on space designated for another’s use and used
only incidentally by the taxpayer.

25
Objectively viewing the facts, if the court were to deny Taxpayer’s claim because ADP
leased the space or because of the rent cross-charged to CVR’s books, the court would
simultaneously be required to deny the existence of compelling facts that show CVR does fulfill
the objective of the regulation. Taxpayer provided sufficient evidence that sixty full-time workers
regularly occupied and conducted business, under the supervision and management of senior staff,
engaged in deciding company policy at the California office, sufficiently identified as CVR’s
office and for which CVR paid rent.
Conclusion
This court finds CVR’s California office constitutes an RPOB, which entitles ADPVR to
apportion its income under N.J.S.A. 54:10A-6. Having found an RPOB exists, the court need not
address the argument whether Taxpayer is entitled to relief under Section 8 or that 100%
apportionment of its income to New Jersey violates the Due Process Clause and Commerce Clause.
An Order shall enter denying Taxation’s motion for partial summary judgment and
granting Taxpayer’s motion for partial summary judgment.