“Almost on time” Doesn’t Count For Tax Refund – Tax Court Orders Town to Pay Interest

by: Richard De Angelis
2 Apr 2020

There is a saying that “early is on time, on time is late and late is unacceptable.” While that is not true in all instances, the New Jersey Tax Court recently found that the payment of a tax refund owed as a result of Judgment issued pursuant to a settlement agreement two days beyond the deadline set forth in that agreement was, well, unacceptable.

In this case the taxpayer agreed to waive statutory interest on the tax refund owed, provided the town made the payment no later than June 1, 2019. A waiver of interest is certainly common in tax appeal settlements. A typical agreement requires the tax refund to be paid within the 60-day window for payment. However, some municipalities seek additional time to pay refunds as they try to better manage their budgets. In this case, the February 21, 2019 settlement agreement provided for the waiver of interest if the town paid the refund upon the approval of its 2019 fiscal year budget but set a firm deadline of no later than June 1, 2019.

The Tax Court issued the Judgment on February 22.  In April, the taxpayer inquired as to the status of the refund twice, including once appearing in person to speak with the Town Administrator. He followed up again with a call in mid-May and another visit to town hall on May 31, but the refund was not ready and he was advised that he “would not be receiving the refund check any time soon.”

The town failed to pay the refund to plaintiff by June 1. The taxpayer again appeared at town hall on June 3 and was provided a purchase order certifying that the “bill is correct in all its particulars.” Through counsel, the taxpayer requested the town calculate and pay interest. The town mailed a check in the amount of the refund of $108,382.11, which did not include interest. The taxpayer did not sign the purchase order or deposit the check. The taxpayer filed its motion to compel the payment of interest.

The Tax Court granted the motion, ruling that the town failed to comply with the terms of the settlement agreement and therefore owed plaintiff the full refund amount plus statutory interest. In this regard, the court cited the long-settled principle that “[a] settlement agreement between parties to a lawsuit is a contract” and held that the terms of the agreement were explicit.

The town argued, among other things, that the court should apply the equitable doctrine of substantial compliance “to avoid harsh consequences that flow from technically inadequate actions that nonetheless meet a statute’s underlying purpose.” The court rejected this argument finding that “court[s] cannot relieve municipalities from hard bargains[.]”

As to the argument by the town that since June 1 was a Saturday, it had until June 3 to pay, the court found that the settlement agreement was not a court order, but again, an enforceable agreement between the parties.

Thus, in addition to the $108,383 refund, the town’s “almost” timely payment will cost about another $66,500 in interest. Now that is unacceptable, and should prove to be a warning to local finance officials, not mention municipal legal counsel.

A copy of the Tax Court opinion in Dickerson v. Town of Dover, which has been approved for publication, may be found here.

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