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Lane Distributors Inc. v. Tilton

Decided: June 18, 1951.


On appeal from an order of the Cigarette Tax Bureau of the Department of the Treasury.

For reversal -- Chief Justice Vanderbilt, and Justices Case, Heher, Oliphant, Wachenfeld, Burling and Ackerson. For affirmance -- None. The opinion of the court was delivered by Oliphant, J. Heher, J., concurring in result.


This appeal presents the question of the constitutionality of the Cigarette Tax Act, P.L. 1948, c. 65, as amended by P.L. 1950, c. 134, R.S. 54:40 A -1, et seq., and the Unfair Cigarette Sales Act, P.L. 1948, c. 188, as amended by P.L. 1950, c. 135, R.S. 56:7-1, et seq.

It comes here from a determination of the Cigarette Tax Bureau of the Department of the Treasury which denied the plaintiff's application for a renewal of his wholesale dealer's cigarette license for the license year 1950-51, and while the appeal was pending before the Appellate Division of the Superior Court it was certified here on our own motion.

The plaintiff is a New Jersey corporation whose total outstanding capital stock consisting of nine shares is owned by the James Drug Stores, Inc., also a New Jersey corporation. We will refer to the plaintiff as Lane and the James Drug Stores, Inc., as James. This latter corporation, while organized under the general corporation laws, is essentially a cooperative whose stockholders are principally small independent druggists duly licensed under the Cigarette Tax Act, who have banded together to secure the advantages of buying in quantity so as to be better able to compete with large firms and chain stores. Where lawful to do so it purchased merchandise and resold it to its stockholder members at slightly above cost. Any net profits earned by Lane, if and when declared in the form of dividends, would be paid to James, its sole stockholder. Prior to the enactment of the Cigarette Tax Act and the Unfair Cigarette Sales Act, James handled the sale of cigarettes to its stockholders in the same manner as other merchandise.

On September 14, 1948, James procured a wholesale dealer's license which expired June 30, 1949, but did not secure a renewal for the year 1949-50. Instead it organized the plaintiff corporation which applied for and received a wholesale dealer's license for that year and during which it sold approximately $300,000 worth of cigarettes, all to the stockholders of James. These sales were made at prices fixed by the Unfair Cigarette Sales Act and the profits of Lane were paid to James in the form of dividends, but these moneys were not distributed by James to its stockholders as rebates in the same proportion as the profits realized by James on sales it made to its stockholders. However, these dividends, insofar as they found their way into profits of James would be available for capital improvements, etc., or dividends. It is apparent that however handled on the books of James they redounded directly or indirectly to the benefit of the stockholders. While Lane has stated its willingness to sell cigarettes to any and all retailers whether or not they are stockholders of James, the fact is that during the license year 1949-50 it made no sales to others than the stockholders of James.

On June 14, 1950, Lane applied to the Cigarette Tax Bureau for a renewal of its wholesale dealer's license and tendered the statutory fee. The application was denied on the grounds that since James owned all of Lane's stock and since all of Lane's customers were stockholders of James, those customers would receive, directly or indirectly, rebates, discounts or kickbacks on their purchases of cigarettes in violation of the provisions of the Unfair Cigarette Sales Act and that Lane failed to meet the statutory definition of a wholesaler as set forth in the Cigarette Tax Act. A wholesaler is there defined as

"d. 'Wholesale dealer' means any person in this State, other than a distributor, as defined herein, and other than a buying pool, as defined herein, who acquires cigarettes, at least seventy-five per centum (75%) of which are for purposes of resale to retail dealers in this State, for purposes of resale only, not connected with said wholesale

dealer by reason of any business connection or otherwise and who maintains an established place of business where cigarettes and related merchandise are sold at wholesale to persons licensed under this act, and where at all times a substantial stock of cigarettes and related merchandise is available to all retail dealers for resale."

The argument of the appellant is two-fold, (1) that it meets the definition and qualification of a wholesaler as provided in the Cigarette Tax Act; and (2) that both acts, the Cigarette Tax Act and the Unfair Cigarette Sales Act are unconstitutional under the Federal Constitution in that they constitute an unreasonable restraint upon interstate commerce and are in conflict with federal legislation relating thereto; and that they deprive it of its property without due process of law, deny it the equal protection of the law, and that the acts are unconstitutional under the New Jersey Constitution in that they unlawfully delegate legislative power to an administrative agency and are special legislation having been enacted without the required notice.

On the basis of the stipulated facts in the record it is clear that the Bureau is justified in its determination that Lane did not meet the statutory definition and qualifications of a wholesale dealer as set forth in the Cigarette Tax Act for a number of reasons. It did not make at least 75% of its sales to retail dealers not connected with it "by reason of any business connection or otherwise"; it sold only cigarettes and had no substantial stock of related merchandise available for resale; and, it was a buying pool defined in the act as "any combination, corporation, association, affiliation or group of retail dealers operating jointly in the purchase, sale, exchange, or barter of cigarettes, the profits from which accrue directly or indirectly to such retail dealers." R.S. 54:40 A -2 S.

It is obvious that James itself was not eligible for a wholesale dealer's license and it follows that the mere creation by it of another corporation, wholly owned by it, as a device to circumvent the provisions of the act would not operate to establish eligibility.

Are the acts constitutional? We are met preliminarily by the contention of the State that Lane cannot challenge the constitutionality of the Unfair Cigarette Sales Act, which has no provision for the issuance of licenses, until it shows it is entitled to a license under the Cigarette Tax Act; that one who suffers no injury by the operation of a statute cannot complain that that statute is unconstitutional. Carroll v. Socony-Vacuum Oil Co., 136 Conn. 491, 68 A. 2 d 299, (Sup. Ct. of Errors 1949); Hatch v. Reardon, 204 U.S. 152, 160, 27 S. Ct. 188, 51 L. Ed. 415 (1907); Collins v. State of Texas, 223 U.S. 288, 295, 32 S. Ct. 286, 56 L. Ed. 439 (1912); Plymouth Coal Co. v. Commonwealth of Pennsylvania, 232 U.S. 531, 34 S. Ct. 359, 58 L. Ed. 713 (1914); 1 Willoughby, Constitutional Law (2 d ed.), p. 19, § 13. But the Cigarette Tax Act and the Unfair Cigarette Sales Act are in pari materia. They are part of the same statutory scheme. They became effective on the same date in 1948, the amendments to each act became effective on the same date in 1950 and they give definite evidence of the interdependence one on the other and the interrelation of one with the other. Section 15 of the Unfair Cigarette Sales Act provides among other things that the Director of the Division of Taxation may suspend or revoke any license issued under the provisions of the Cigarette Tax Act, and the rules and regulations of the Director promulgated thereunder, or for the failure of the licensee to comply with any provisions of the Unfair Cigarette Sales Act, or any rule or regulations, adopted thereunder. As a matter of fact, the refusal to renew plaintiff's license as a wholesale cigarette dealer was grounded in part on an alleged violation of provisions of the Unfair Cigarette Sales Act. It is apparent that Lane's inability to obtain a wholesale license under the Tax Act subjected it to a disadvantageous position under the Unfair Sales Act; it is adversely affected by both and the constitutional questions posed must be resolved as to both acts.

Two of the appellant's arguments may be summarily disposed of. First it contends that the acts are an undue

restraint upon interstate commerce in a field over which Congress has exercised its plenary interstate commerce jurisdiction, Title 15, U.S.C. § 13 a, et seq., which specifically provides that cooperative associations may, despite the rebate prohibition of the Federal Fair Trade Laws, return to their members "the whole or any part of the net earnings or surplus resulting from its trading operations, in proportion to their purchases or sales, from, to or through the Association."

On the facts of this case neither Lane nor James is engaged in interstate commerce, their sole connection therewith being the sale of nationally branded products which have previously been in interstate commerce. What plaintiff does is to purchase cigarettes, store them at its place of business and then resell them to licensed retail dealers located within this State. Its business is purely an intrastate activity. The federal legislation was designed to preclude the individual states from licensing and regulating the interstate dealers in such products, be they cooperatives or not. A state statute requiring a license for the purely local business of selling cigarettes, irrespective of the source of the goods sold, does not impose a burden upon interstate commerce which the Federal Constitution interdicts. Caskey Baking Co. v. Commonwealth, 313 U.S. 117, 61 S. Ct. 881, 85 L. Ed. 1223 (1941).

Secondly, as to the contention that the Tax Act is special legislation and therefore invalid under the State Constitution, Art. IV, sec. VII, pars. 7, 8 and 9 (8). This is general legislation though directed to the taxation and regulation of the sale of a specific product and even though in its operation it may as a matter of fact act to the benefit of some and to the detriment of others. The act is a general law imposing a tax on the sale of cigarettes, and for the purpose of licensing it classifies dealers into different categories. The Legislature may classify licensees based upon their method of doing business, just so persons similarly circumstanced are treated alike and receive equal protection. Liggett Co. v. Lee, 288 U.S. 517, 53 S. Ct. 481, 77 L. Ed.

929 (1933); Singer Sewing Machine v. Brickel, 233 U.S. 304, 34 S. Ct. 493, 58 L. Ed. 974 (1914); Schwartz v. Essex County Bd. of Taxation, 129 N.J.L. 129 (Sup. Ct. 1949). In Ring, et al., v. North Arlington, 136 N.J.L. 494 (Sup. Ct. 1948), affirmed 1 N.J. 24 (1948), appeal dismissed 335 U.S. 889, 69 S. Ct. 250, 93 L. Ed. 427 (1948), it was held that the state has a wide discretion as to classification of businesses and occupations for revenue and regulation and that the constitutional requirement is satisfied if the legislation is reasonably related to the object of the legislation, and further that there may be a reasonable classification of the objects of the legislation or of the persons whom it affects; and in State v. Garden State Racing Assn., 136 N.J.L. 173 (E. & A. 1947), the former Court of Errors and Appeals held that there is no express constitutional prohibition against the power of the Legislature to classify objects of legislation.

Considering first the Cigarette Tax Act, it is beyond question that the State can levy an excise tax on any commodity and can levy a license tax against persons engaged in any business. Such taxes are imposed under the power to raise revenue, not under the police power.

The taxes in question are levied specifically on the sale of and the business of selling cigarettes. They are not levied against "related merchandise" and a qualification as to "related merchandise" is fictitious and arbitrary because it cannot affect the amount of the excise tax or the license tax. The act does not define the phrase "related merchandise," if it is susceptible of precise definition, which we doubt, but leaves the decision as to its applicability to the pure ...

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