On appeal from Department of the Treasury, Division of Tax Appeals.
For affirmance -- Chief Justice Vanderbilt, and Justices Heher, Oliphant, Wachenfeld, Burling, Jacobs and Brennan. For reversal -- None. The opinion of the court was delivered by Burling, J.
[13 NJ Page 396] General Public Loan Corporation, a New York corporation engaged in the small loan business in New
Jersey (hereinafter referred to as General), appeals from a judgment of the Division of Tax Appeals, in the Department of the Treasury, State of New Jersey, dated February 10, 1953, which affirmed an assessment levied against General by the Director of the Division of Taxation under the Financial Business Tax Law (1946), L. 1946, c. 174 (N.J.S.A. 54:10 B -1 et seq.). The appeal was addressed to the Superior Court, Appellate Division. Prior to hearing there certification was allowed by the Supreme Court on our own motion.
The Financial Business Tax Law (1946) was entitled "An act to impose an excise tax upon certain financial businesses." Included among the businesses subjected to its terms are industrial banks, dealers in commercial paper and acceptances, sales finance, personal finance, small loan and mortgage financing businesses. L. 1946, c. 174, sec. 2(b) (now incorporated in N.J.S.A. 54:10 B -2 b), it being noted that this section has been amended in other respects by L. 1951, c. 131, sec. 1, effective May 31, 1951 after the tax year involved in this appeal, namely 1947). General admittedly is within this category. The appeal involves directly the construction and application of that clause of the act which relates to the determination of the factors upon which the quantum of the tax is calculated, namely L. 1946, c. 174, sec. 2 (c) (now incorporated verbatim in N.J.S.A. 54:10 B -2 (c); the amendment by L. 1951, c. 131, sec. 1, did not affect this clause), the pertinent portion of which reads as follows:
"(c) 'Net worth' shall mean:
(1) In the case of a corporation -- 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, excluding reasonable valuation reserves 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 taxpayer's capital stock of all classes, as of the close of a tax year." (Emphasis supplied.)
General is a corporation organized and incorporated on December 11, 1933 under the laws of State of New York. It has its principal office at St. Louis, Missouri, but is engaged in the small loan business in New Jersey and other states, including Connecticut, New York, Michigan and Pennsylvania. General had been doing business in New Jersey since December 13, 1940, and was operating under small loan licenses 732, 733, 750, 752, 756, 763, 769, issued by the appropriate department of this State.
General is a wholly-owned subsidiary of the American Investment Company of Illinois (hereinafter referred to as "American"), a Delaware Corporation. At the hearing before the Division of Tax Appeals, General offered proof that American is a publicly-owned corporation with 3,500 stockholders and that it has never engaged in the small loan business "but has deemed it desirable because of the various State laws applicable to small loan licensing to have the small loan operations performed by subsidiary companies." Although the respondent's objection to this offer of proof was sustained, admission was made before the Division of Tax Appeals by the plaintiff that "General got its money from American" and "that American borrowed money from banks or insurance companies." This admission was verified by the testimony of Mr. Letourneau, who was comptroller of American and assistant treasurer of General, who had previously testified (without objection) that American had 3,500 stockholders in 1947. Mr. Letourneau testified that General's small loan business consisted of "borrowing money at current rates and lending that money out to needy individuals at higher rates," that all the monies lent by General in 1947 came from borrowed money and those "borrowings" were from American and from no other source.
General filed its 1948 financial business tax return (based on net worth December 31, 1947). This disclosed an indebtedness of General of $8,040,724. The return also included the information that General's New Jersey gross income was $233,354 during 1947, and that for the same period General's total gross income (both within and without
New Jersey) was $2,181,477. The New Jersey allocation percentage derived from these New Jersey and total gross income figures was .106972, which General applied to its net worth (stated by its own calculation). The resultant figure of $310,925.67 was used as the basis for tax computation, resulting in a tax of $2,331.94. In reporting its net worth General reported "proportionate debt to" American at $2,156,522 and showed the balance of its indebtedness to be owing to creditors other than American. The Director of the Division of Taxation reviewed this return, determined that the entire indebtedness of $8,040,724 was owed to American, General's sole stockholder, and by reason thereof the Director adjusted the net worth calculation under N.J.S.A. 54:10 B -2 (c) (5), supra, and levied a deficiency assessment against General in the amount of $4,720.84 with interest. This was paid by General on January 13, 1950, under protest. On October 24, 1950 the protest was denied. General on October 15, 1951 appealed to the Division of Tax Appeals, ...