On appeal from the former Supreme Court.
For reversal -- Chief Justice Vanderbilt, and Justices Case, Burling and Ackerson. For affirmance -- Justice Oliphant. The opinion of the court was delivered by Case, J. Oliphant, J. (Dissenting.)
The appeal is from a judgment in the former Supreme Court which affirmed a judgment in the Division of Tax Appeals exempting from taxation certain land, with the buildings thereon, owned by the City of Newark and leased to the C-O Two Fire Equipment Company.
The premises consist of a factory site of 8.58 acres, owned by the City of Newark, upon which is a modern factory building erected by and at the cost of the tenant, C-O Two Fire Equipment Company, and in active operation by the tenant for its own commercial purposes. On the Newark tax duplicate the personal property is assessed for the purposes of taxation against the C-O Two Fire Equipment Company at $250,000; and the land is given an assessment value of $42,900 and the building of $250,000. Although the land and the building are thus given assessment values, they are carried in the name of the City of Newark as owner and are not taxed.
On August 13, 1941, the City of Newark entered into a lease agreement between itself as landlord and the C-O Two Fire Equipment Company as tenant for the lands in question for a term of fifty years commencing October 1, 1941, at an annual rental of $5,000. There was an option to the tenant to purchase the city's fee at any time during the term of the lease at the price of $10,000 per acre ($85,000 in the whole). The tenant agreed to erect at its own cost the factory building mentioned above according to its own plans and specifications, which building was to become forthwith the property of the landlord, as a part of the demised premises. The tenant was burdened with the making of all repairs and of making such changes as might become necessary in order to comply with governmental or bureaucratic requirements. The tenant was bound to carry adequate fire insurance and to pay the premiums thereon. In case of a partial fire loss all the insurance money remaining after payment for repairs was to become the property of the tenant, and if there should be a fire loss involving more than fifty per cent. destruction the tenant might, at its option, terminate the lease and receive the insurance
moneys in the proportion of one-fiftieth of such moneys for each year then remaining of the term of the lease. The city agreed not to exercise its right of eminent domain. In the event of condemnation by other authority the tenant was to be entitled to the full amount of the condemnation award for the building. The city agreed to pay or satisfy all taxes then a lien upon the lands or which during the term of the lease might become a lien or charge upon the lands or upon the buildings or improvements to be placed thereon. The instrument did not differ materially from the usual long term lease made between a private owner and a private tenant.
The books of the C-O Two Fire Equipment Company carried the building as a fixed asset of the corporation as of December 1, 1942, at $441,542.63.
Pursuant to the provisions of R.S. 54:3-21 prosecutor-appellant, a citizen and taxpayer of the City of Newark, petitioned the Essex County Board of Taxation to assess the premises for 1943 taxes. That board decided that it lacked jurisdiction. On appeal, the State Board of Tax Appeals held that the county board had jurisdiction (a conclusion with which we concur) but nevertheless dismissed the appeal upon the ground that the property was either properly excluded from taxation or, under the provision of R.S. 54:4-3.3, was exempted from taxation. On certiorari the former Supreme Court affirmed, 137 N.J.L. 384.
While the lease is not before us for review as to its validity or for interpretation as to the rights or obligations of the parties inter sese, it is an exhibit in the case and is evidential of the intent of the parties and of the status of the property with respect to taxability. Looking through the words to the essence of the agreement, we conclude that the lease anticipated complete depreciation and obsolescence of the building at the end of the fifty-year term and a pro-rated amortization of the building costs over the period of the lease with intermediate recognition of rights on the part of the tenant comparable to those of an owner. The option given to the tenant to purchase the land and buildings at any time during the term of the lease for the value of the land is an indication
that the parties believed the beneficial ownership of the building was in the tenant. Otherwise the acceptance of the option by the tenant to purchase would result in a gift to it by the city of a building worth actually $441,542.63, with a taxation value of $250,000 at assessment levels, as of the tax year now in dispute, to be amortized downward with the passing of the years. There was also a clause which barred the city, at the termination of the lease, from leasing to another tenant without first offering to lease to the present tenant on terms equally favorable.
The use was exclusively private and commercial; there was neither vestige of a present public use nor prospect of a future public use within the term of the lease. The building was entered on the tax duplicate as an exempt asset with an assessed value of something more than half of the capitalized figure on the company's books; and the land was carried, likewise as exempt, at precisely one-half of the proffered sale price. The lease provides that "any building or buildings erected on the demised premises shall be and become, upon erection, the property of the Landlord, and a part of the freehold estate of the Landlord, and shall be added to and be a part of the demised premises." But such a provision may not be isolated from the rest of the agreement and made a conclusive barrier against taxation. Counterbalanced by other provisions which put the incidents of ownership of the buildings in the tenant, it will not serve to create a tax immunity on the theory that the buildings are owned, in a tax sense, by the city. The lease also provided, as we have noted, that the city would pay taxes upon improvements to be erected by the tenant. An undertaking by the city to pay taxes does not, obviously, carry tax exemption to a structure otherwise taxable, and does not relieve the assessor from the duty to make an assessment ...