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Delaware v. Division of Tax Appeals

Decided: March 25, 1949.

DELAWARE, LACKAWANNA AND WESTERN RAILROAD COMPANY, APPELLANT,
v.
DIVISION OF TAX APPEALS, AND ANOTHER, RESPONDENTS. WALTER P. GARDINER, TRUSTEE OF THE PROPERTY OF THE CENTRAL RAILROAD COMPANY OF NEW JERSEY, APPELLANT, V. DIVISION OF TAX APPEALS, AND ANOTHER, RESPONDENTS



Jacobs, Eastwood and Bigelow. The opinion of the court was delivered by Bigelow, J.A.D.

Bigelow

These are appeals from judgments of the Division of Tax Appeals sustaining excise taxes imposed on the appellants for the years 1942 to 1946 inclusive. We will speak of one appellant as the "Lackawanna" and the other as the "Central". The taxes were levied pursuant to the Railway Tax Law of 1941, P.L. 1941, Ch. 291, Article III , as amended in minor details by P.L. 1942, Ch. 169; R.S. 54:29 A -13 et seq. The controversy turns on the amount of railway operating income as defined in section 14, which we quote, directing attention especially to the terms "railway tax accruals", and "joint facility rents"

"For the purpose of this article, 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, depreciation and amortization, 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). 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."

Let us first consider the excise tax assessed against the Lackawanna for 1942. At the time the statute was approved, July 22, 1941, the Railroad Company was indebted to the State in the sum of $7,236,147 for property taxes assessed but unpaid for the years 1934 to 1940. Of this amount, only $1,240,886 appeared on the Company's books. Upon passage of the tax

statute, the Company entered in its books as a liability, under account 770, entitled Other Deferred Liabilities, the balance of these taxes, $5,995,261, but at the same time entered the same amount as an asset in account 727, Other Unadjusted Debits. Thus the Company's surplus account was not affected. The Company also began, as of May, 1941, transferring the tax debt from accounts 770 and 727 to income account 532, Railway Tax Accruals, at the rate of $100,000 a month, as a deduction from current income. During 1941, the Company thus charged operating income on account of the delinquent taxes, $800,000, in addition to taxes for the current year of $2,042,174. The Company's net railway operating income for 1941, as shown on its books of account and reported to the Interstate Commerce Commission, was $800,000 less than it would have been if the full amount of the taxes for 1934 to 1940 had been entered in Railway Tax Accruals from year to year as the taxes became payable, or if the Other Deferred Liability item of $5,995,261, written up in 1941, had been taken from surplus and not offset by a nominal asset.

The New Jersey Tax Commissioner assessed against the Company a franchise tax of $882,362 for 1942, based on the operating income for 1941, as shown in the Company's report to the Interstate Commerce Commission. But four years later, acting under the power granted by sections 25 and 27, the Commissioner reassessed the tax, increasing it by $223,359. He reached this increase by disallowing the item of $800,000 delinquent taxes as a deduction from operating income for 1941. The Company objects to this action of the Commissioner asserting a right, under the Railway Tax Law, to deduct the old tax debt from 1941 income.

As an aid in the construction of the Railroad Tax Law, counsel call to our attention the report of the Joint Legislative Committee that drafted the statute. The question thus arises whether we should give consideration to the report.

Chancellor Zabriskie, in Keyport Steamboat Co. v. Farmers Transportation Co. , 18 N.J. Eq. 13, at 24 (1866), said that the intention of the draftsmen of an act, if not properly expressed in the act, has nothing to do with its construction. [2 NJSuper Page 98] "If the legislator who enacted the law should afterward be the judge who expounds it, his own intention which he had not skill to express, ought not to govern." This principle has been held to exclude consideration of the statement submitted with a bill by the individual member who introduces it, setting forth the objects proposed to be accomplished by its enactment. Raymond v. Teaneck , 118 N.J.L. 109 (E. & A. 1936); Flagg v. Johansen , 124 N.J.L. 456 (Sup. Ct. 1940). But see Winne v. Cassale , 100 N.J.L. 291 (E. & A. 1924). The legislative history of a statute, as disclosed by the journals of the Senate and House of Assembly, may be on a different level. The journals cannot be used indeed to prove that the statute deposited with the Secretary of State was never actually adopted, or was passed in different form. Pangborn v. Young , 32 N.J.L. 29 (Sup. Ct. 1866); State v. Underground Cable Co. , 18 A. 580 (Bird, V.C.); affd. sub nom. Standard Underground Cable Co. v. Attorney General , 46 N.J. Eq. 270 (1889). And it has been said that such legislative history cannot be resorted to in aid of construction, but even when so saying, our courts have felt reassured when the history confirmed their interpretation of the law. In re Murphy , 23 N.J.L. 180 (Sup. Ct. 1851); Attorney General v. Cady , 84 N.J.L. 54 (Sup. Ct. 1913); In re Hudson County , 106 N.J.L. 62 (E. & A. 1929). See also dictum in Sooy ads. State , 38 N.J.L. 324 (Sup. Ct. 1876). On the other hand, our courts on occasion have frankly accepted as an aid to interpretation of a statute, the amendments to the bill which were adopted before final enactment of the measure. Mason v. Cranberry , 68 N.J.L. 149 (Sup. Ct. 1902); Maul v. Martin , 116 N.J. Eq. 479 (Buchanan, V.C. , 1934); State Board v. Richman , 117 N.J. Eq. 296 (Sooy, V.C. , 1934). And Vice Chancellor Emery, in Koch v. Koch , 79 N.J. Eq. 24 (1911), construing the divorce act, had resort to a special message of the governor, the report of commissioners from which the statute was partly drawn, and the minutes of the Assembly. From this review of our authorities, it appears to us doubtful whether or not the report of the Joint Committee on Railroad Taxation may properly be considered by us.

My colleagues, Judge Jacobs and Judge Eastwood, are satisfied that, if the authorities permit, we should avail ourselves of whatever help we can get from the report. They are impressed with the desirability of employing every aid to an accurate ascertainment of the legislative will. The decisions of the Federal courts and the courts of most of our sister states support their position. On the other side, I am persuaded that there are valid reasons for rejecting such material as the report of the Joint Legislative Committee and for holding that the meaning of a statute should be derived exclusively from the statute itself, read in the light of the pre-existing law, other statutes in pari materia and the situation that led to the enactment. The more we depart from that rule and resort to the proceedings of the legislature leading to the enactment, the more inaccessible the law becomes, even to lawyers. See remarks of Justice R. H. Jackson before the American Law Institute, printed in 34 A.B.A.J. 535 (1948). Since every one is presumed to know the law and is expected to obey it, basic public policy requires that the means of knowing the law should be widespread. In any event, my colleagues and I have reached the same conclusion with regard to the meaning of the Railway Tax Law.

In order to understand the formula contained in the Railway Tax Law for determining the amount of the excise tax, we must start with the uniform system of accounts for railroads which was developed under authority of Congress by the Interstate Commerce Commission many years ago, and still remains in effect, although it has been amended by the Commission from time to time. The New Jersey Public Utility Commission, pursuant to R.S. 48:2-16, has prescribed the same accounting system. All railroads in New Jersey and substantially all in the nation, for many years have kept their books in accordance with the system set forth in the regulations of the Interstate Commerce Commission.

When our Legislature in 1941 made "net railway operating income" the basis of the calculation of the excise tax, it meant an income derived by including such items and deducting such other ...


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