On appeal from the Supreme Court, whose opinion is reported in 132 N.J.L. 40.
For the prosecutor-respondent, Ralph E. Lum (Chester W. Fairlee, of counsel).
For the defendants-appellants, Walter D. Van Riper, Attorney-General (Benjamin C. Van Tine, Deputy Attorney-General, of counsel).
For the intervenors, Delaware, Lackawanna and Western Railroad Company and Lehigh Valley Railroad Company, Maximilian M. Stallman and Edward A. Markley.
The opinion of the court was delivered by
OLIPHANT, J. This is an appeal from a rule entered by the Supreme Court on certiorari, setting aside a judgment of the State Board of Tax Appeals which confirmed the franchise excise tax assessment made by the State Tax Commissioner against property of the respondent for the year 1943.
A rule was entered in the Supreme Court permitting the Delaware, Lackawanna and Western Railroad Company and the Lehigh Valley Railroad Company to intervene as amici curice, to participate in the argument and to file briefs.
The tax levied on railroad property had been for years continuously in litigation and large amounts of these taxes were in default. In 1941 a new method of taxing such property was enacted, Pamph. L. 1941, ch. 291. This act was amended the following year by Pamph. L. 1942, ch. 169 (R.S. 54:29A-1, et seq.). These laws in substance, provide a combination property tax and franchise excise tax computed in a given year on the basis of the net operating income of a railroad system for the preceding calendar year. As to the year 1941 the laws were held unconstitutional by the Supreme
Court in Jersey City v. Board of Tax Appeals et al., 133 N.J.L. 202, but constitutional as regards assessments made for 1942 and thereafter.
The new system was devised to provide some measure of tax relief for the railroads in poor earning years while providing for a greater return to the state in times of high earnings. That the new method does result in substantial reductions under certain conditions is brought out strikingly in Jersey City v. State Board, supra. With the result in that case, which is presently on appeal, we are not immediately concerned.
By the law under consideration a rate of three per centum is levied on all property used for railroad purposes and an annual excise tax is also levied for the railroads' privilege of exercising their respective franchise.
The pertinent part of the statute under which the assessment of the franchise tax in question was made, Pamph. L. 1942, ch. 169, § 14, provides:
"For the purpose of this section, net railway operating income shall be computed as total railway operating revenues from all sources, including any revenue whatever derived directly or indirectly from property which is used for railroad purposes, less costs of railroad maintenance, operation and depreciation, railway tax accruals, uncollectible railway revenues, rentals (both debits and credits) for equipment leased for less than one year or interchanged, and joint facility rents (both debits and credits), and the amount remaining shall constitute the net railway operating income hereinafter mentioned. Deductions from operating revenues for depreciation, additions and betterments, and compensation for personal services shall be subject to regulation by the commissioner, as to reasonableness of amount and appropriateness of accounting distribution. Depreciation charges shall in no instance, however, exceed the amount claimed by the railroad for depreciation in its report or ...