McGeehan, Colie and Eastwood. The opinion of the court was delivered by Eastwood, J.A.D.
This appeal questions the validity of an assessment made by the Commissioner of Taxation under R.S. 54:10A-1 et seq. (prior to 1947 amendment referred to hereinafter), known as the Corporation Business Tax Act, affirmed by the Division of Tax Appeals.
The pertinent portions of the Corporation Business Tax Act are:
R.S. 54:10A-2: "Every domestic or foreign corporation which is not hereinafter exempted shall pay an annual franchise tax for the year one thousand nine hundred and forty-six and each year thereafter, as hereinafter provided, for the privilege of having or exercising its corporate franchise in this state, or for the privilege of doing business, employing or owning capital or property, or maintaining an office, in this state. And such franchise tax shall be in lieu of all other state, county or local taxation upon or measured by intangible personal property used in business by corporations liable to taxation under this act."
R.S. 54:10A-4: "'Net worth' shall mean the aggregate of the values disclosed by the books of the corporation for (1) issued and outstanding capital stock, (2) paid-in or capital surplus, (3) earned surplus and undivided profits, (4) surplus reserves which can reasonably be expected to accrue to holders or owners of equitable shares, not including reasonable valuation reserves, such as reserves for depreciation or obsolescence or depletion, and (5) the amount of all indebtedness owing directly or indirectly to holders of ten per centum (10%) or more of the aggregate outstanding shares of the taxpayers' capital stock of all classes, as of the close of a calendar or fiscal year. However, if in the opinion of the commissioner, the corporation's books do not disclose fair valuations the commissioner may require any additional information which may be necessary for a reasonable determination of the net worth which, in his opinion, would reflect the fair value of the assets carried on the books of the corporation, in accordance with sound accounting principles, and such determination shall be used as net worth for the purpose of this act."
Under the facts as stipulated by the parties, the entire outstanding stock of Werner Machine Company, Inc., appellant, and Werner and Company was owned by one stockholder, Werner P. Rose. Among the liabilities appearing on the balance sheet of Werner Machine Company, Inc., was $50,000 principal and $1,301 interest, indebtedness due Werner and Company. This indebtedness appeared on the balance sheet
of Werner and Company as an asset and a franchise tax was paid by that company, computed on the basis of the corporate net worth under the aforementioned statute. Acting under the authority of the applicable statute, the Commissioner of Taxation included the aforementioned indebtedness in the net worth of the Werner Machine Company, Inc., as defined by R.S. 54:10A-4.
The following indebtedness also appeared as liabilities on the balance sheet of Werner Machine Company, Inc., viz.: Estate of Paul Rose (estate of deceased father of sole stockholder, Werner P. Rose), $86,060; Eunice H. Rose (wife) Trustee for Paul Frederick Rose (son), $28,630; Eunice H. Rose (wife), Trustee for Barbara Ann Rose (daughter), $28,630; Margaret R. Kuhn (sister), $13,500; Annalee R. Gessinger (sister), $13,500. Because all of the foregoing trustees, cestuis que trust and individual creditors, although not stockholders, were relatives of the controlling stockholder, Werner P. Rose, the Director determined that they were members of his immediate family and, therefore, these items of indebtedness were properly includible in the net worth of the appellant corporation as a basis for taxation, whereupon he made an additional assessment of $171.56.
Appellant contends that the Legislature set up an unjust and unequal system of taxation, lacking in uniformity; that the tax is a denial to taxpayers of equal protection of the law; that it bears unevenly upon taxpayers of the same class and amounts to triple taxation; that it is an assault upon the estate and trust entity; that the Commissioner exceeded his authority and that the words "immediate family" were misinterpreted by the Commissioner to be included within the statutory provision relating to indebtedness owing indirectly to shareholders owning ten per centum (10%) or more of the corporate stock.
Respondent argues that the indebtedness in question was owing directly or indirectly to holders of ten per centum (10%) or more of the aggregate outstanding shares of the taxpayer's capital stock of all classes and as such is includible in net worth under R.S. 54:10A-4 supra; that the criterion
for determining the includibility in the basis for franchise taxation is the statement of financial affairs by the corporation at the close of its fiscal year and whether such a debt is due or owing at that time is a matter exclusively within the corporate control; that the Act in question imposes a franchise tax or license fee for doing business within this State and is not within Article IV, Section ...