At a Glance...

On November 16, 2017, the Tax Court of New Jersey issued a ruling in Spirit Halloween Superstores, Inc. v. Director, Division of Taxation,1 concerning the sourcing of sales of tangible personal property for sales tax purposes. The ruling also provides guidance on the evidentiary standards for obtaining a sales tax refund.

The Tax Court of New Jersey's decision in Spirit Halloween Superstores serves as an important reminder to taxpayers that evidence, such as affidavits, submitted to the court in support of a claim must meet the court's evidentiary standards or it will be disregarded.

On a brighter note, the decision confirms that a sale is not necessarily a sale sourced to New Jersey for sales tax purposes just because the invoice has a New Jersey "ship-to" address and title transfers to the purchaser in New Jersey at the location of a common carrier.


The case involved a New Jersey-based retailer that operated more than 1,100 retail stores across the United States, including 119 stores in New Jersey (the "Taxpayer"). The Taxpayer purchased signage and printed materials from a New Jersey-based vendor. According to the Taxpayer, the purchased items were for retail stores across the United States, but all of the invoices listed the Taxpayer's New Jersey headquarters as the shipping address. The vendor charged New Jersey tax on all of the purchases and the Taxpayer filed a refund claim with the New Jersey Division of Taxation, seeking relief for tax paid on items shipped outside the state. The Division denied the claims and the Taxpayer appealed to the Tax Court.

In addition to the sourcing claim, the Taxpayer sought a refund of tax paid on certain purchases of software and updates. The parties are still evaluating those issues, however, so the court was not asked to rule on the software purchases. (Most purchases of business software and related services are not subject to New Jersey sales tax. For more information about New Jersey software-related issues, please click here to view our recent webinar.)

Taxpayer Failed to Meet Evidentiary Standard

The Taxpayer filed a motion for summary judgement in which it asked the Tax Court to order the requested refund. In support of its motion, Taxpayer submitted:

  • A letter from the vendor stating that the "ship to" address on the invoices did not represent the actual destination of the items sold; rather, FedEx typically picked up the items for delivery to Taxpayer's in-state and out-of-state retail locations. Although the letter was signed by the vendor's Vice-President of Finance and printed on the vendor's letterhead, it was unauthenticated and uncertified.
  • An affidavit from the Taxpayer's senior manager attesting that the purchased items were shipped directly to Taxpayer's retail locations. The affidavit further provided that the proportion of items shipped to New Jersey corresponded with the percentage of taxpayer's retail stores located in New Jersey.

The court found this evidence to be neither credible nor reliable. With respect to the letter from the vendor, the court rejected it as unauthenticated hearsay. The court similarly rejected the Taxpayer's affidavit, noting that it referenced documents that were not attached to the affidavit or otherwise submitted to the court. As a result, the court denied the Taxpayer's motion and the requested refund.

The Tax Court's decision serves as a warning to taxpayers not to rely on unauthenticated documents. Although letters from employees or vendors may be persuasive on audit, that type of evidence may be insufficient when submitted as part of an appeal. Even if a taxpayer submits an affidavit, it is likely to be disregarded unless the attested facts are put into context (for example, by attaching the underlying documents or business records).

Sourcing Sales of Tangible Personal Property

The Division filed its own motion for summary judgment seeking to have Taxpayer's claim dismissed. The Division argued that the ultimate destination of the purchased items to out-of-state locations was irrelevant. According to the Division, title to the items passed to Taxpayer when the vendor delivered the items to FedEx in New Jersey. As a result, the Division argued that it was proper to impose New Jersey sales tax on all of Taxpayer's purchases.

The court concluded that delivery to FedEx in New Jersey did not necessarily mean that New Jersey sales tax was due on the transactions. Although the Division's position may have been supported by prior law,2 the Division never addressed the statutory sourcing provisions that New Jersey adopted in 2005 to conform to the Streamlined Sales and Use Tax Agreement.3 Accordingly, the court denied the Division's motion.

In our view, delivery to a shipping company such as FedEx does not determine sourcing for New Jersey sales tax purposes. Rather, in a situation like the one in Spirit Halloween, a taxpayer is subject to New Jersey sales tax only to the extent that the tangible personal property is delivered to the taxpayer itself in New Jersey.


1. Docket No. 012526-2015.

2. See Media Graphics, Inc. v. Director, Division of Taxation, 8 N.J. Tax 321 (N.J. Super. Ct. App. Div. 1986).

3. Codified as N.J.S.A. 54:32B-3.1.

This article is presented for informational purposes only and is not intended to constitute legal advice.