On appeal from the Division of Tax Appeals, Department of the Treasury of the State of New Jersey.
For affirmance -- Chief Justice Vanderbilt, and Justices Case, Oliphant, Wachenfeld, Burling and Ackerson. For reversal -- None. The opinion of the court was delivered by Oliphant, J.
This is a railroad tax case which involves essentially the construction of R.S. 54:29 A -2.
The appeals, which were taken to the Superior Court, Appellate Division, and certified here on our own motion, are from judgments of the Division of Tax Appeals, Department of the Treasury, which affirmed the franchise tax assessments against the Central Railroad of New Jersey made by the Director of the Division of Taxation for the tax years 1948, 1949 and 1950. The assessments were made pursuant to the provisions of the Railroad Tax Law of 1948, L. 1941, c. 291, as amended by L. 1942, c. 169, and further amended by L. 1948, c. 40, R.S. 54:29 A -1 et seq.
As was pointed out in Norton v. State Board of Tax Appeals, 134 N.J.L. 57 (E. & A. 1946), and again in Delaware, Lackawanna & Western Railroad Co. v. Division
of Tax Appeals, 3 N.J. 27 (1949), the tax levied on railroad property had for years been continuously in litigation and such litigation still continues.
Previous to 1941 there was a straight property tax on Class I and Class III railroad property the proceeds of which are applied to uses of the State. That tax was computed upon the entire assessed valuation of such property at the average rate of taxation in the State for such year. (R.S. 54:24-2.) The average rate was upheld in Central Railroad Co. of New Jersey v. State Tax Department, 112 N.J.L. 5 (E. & A. 1933), certiorari denied 293 U.S. 568 (1934), 55 S. Ct. 79, 79 L. Ed. 667. In 1941 a new method of taxing such property was enacted, L. 1941, c. 291, amended in 1942 by L. 1942, c. 169, which in substance provided for a combination property and franchise tax computed in a given year on the basis of the net operating income of a railroad system for the preceding calendar year.
By the Constitution of 1947 it is provided that all real property assessed and taxed for allotment and payment to local taxing districts shall be taxed at the general tax rate of the taxing district in which the property is situate, Art. VIII, Sec. I, par. 1. It therefore became necessary to amend the Railroad Tax Law to provide for a straight property tax at the local rate upon Class II railroad property. This entailed a substantial increase in such taxes and the Legislature amended the Railroad Tax Law to provide drastic reductions in Class I (main stem) and Class III (tangible personal property) railroad property and in the franchise tax, L. 1948, c. 40; R.S. 54:29 A -23. This resulted in average total tax assessments for the years in question on Class I and Class III property of $452,541.34 and franchise taxes of $301,073.67. For those years the assessed value of that property averaged $42,144,192 and the percentage of the total combination property and franchise tax to property valuations for such years averaged 1.788 per cent.
The appellant seeks by these appeals to have its franchise tax assessments reduced to the statutory minimum of $4,000.
In short it seeks to limit its combination property and franchise tax assessments to substantially the amounts assessed on its Class I and Class III property for the years in question.
If this appellant should be required to pay only the statutory minimum franchise tax of $4,000 per annum then the total average assessment for the years in question would constitute only 1.07 per cent of its Class I and Class III property.
It must be remembered that the new method provided by the Legislature for taxing railroad property used in transportation service in this State was designed to give some measure of relief to the railroad companies in poor earning years and it gives the State an additional return in good earning years. Delaware, Lackawanna & Western Railroad Co. v. Division of Tax Appeals, supra. The record here shows conclusively that the years in question included "good earning years" under the formula devised in 1941.
As pointed out above, the Class I and Class III property of appellant under the straight property tax law would have been subject to tax at the average rate of taxation. For the year 1948 this would have been 5.90 per cent, for 1949 -- 6.139 per cent, and for 1950 -- 6.201 per cent. At such rates the tax would have been as follows, for 1948 -- $2,583,939, for 1949 -- $2,528,554, for 1950 -- $2,556,746.
It is quite obvious that the combined property and franchise tax as levied was but a fraction of the tax that would have been levied under the old straight property tax law upon Class I and Class III property. Since the record discloses a clear legislative intent to prevent the use of accounting practices which would allow further unintended deductions and since legislation must be accorded a rational interpretation consistent with its manifest purpose, Grobart v. Grobart, 5 N.J. 161 (1950), a construction should not be adopted that would lead to such further drastic reduction unless it can be shown the words of the statute clearly so require or the application of the recognized rules of construction leads to no other conclusion. Not only can this not be shown but, on the contrary, the language of the statute and
the rules of statutory construction leads us to the conclusion that the Legislature never intended the construction urged here by the appellant.
We reaffirm what was said in the Norton and Delaware, Lackawanna & Western cases. The Railroad Tax Law of 1948 constitutes a new method of taxing property located in New Jersey and used in the furnishing of transportation service in this State. The law provides a combination property and franchise tax computed in a given year on the basis of the net operating income of a railroad system for the preceding calendar year. The justification for the tax is the presence in the State of Class I and Class III property of great value, which is essential to system operations. As a measure of the amount which must be paid in tax upon such property used on system operation, the Legislature has fixed a very low ...