Jayne, Stanton and Hall. The opinion of the court was delivered by Jayne, S.j.a.d.
[31 NJSuper Page 445] The present appeal occasions our review of the validity of a 1952 franchise tax assessment placed upon the appellant, a corporation of this State, in
the administrative pursuance of the terms of the Corporation Business Tax Act (1945). L. 1945, c. 162, p. 563, et seq.; (R.S. 54:10 A -1, et seq.). The assessment was affirmed by the Division of Tax Appeals.
Admittedly, the appellant is a subject taxpayer embraced within the orbit of the statute. Indeed, no disagreement regarding the relevant facts is perceptible in the record. The basic factual circumstance is that the appellant in its tax return for the calendar year ending December 31, 1951 disclosed among its corporate assets the ownership of $400,091 of United States government bonds. The respondent included those bonds in the calculation of the net worth of the corporation upon which the amount of the annual tax was determined. R.S. 54:10 A -4(d). The appellant paid the tax of $458.41 under protest.
The remonstrance of the appellant is that the act is unconstitutional in that the tax artfully disguised in the costume of a corporation franchise tax is in naked reality a personal property tax designed unlawfully to envelop within the circumference of state taxation the bonds and other obligations of the United States. Vide , 31 U.S.C.A. § 742. Counsel for the appellant also argumentatively contends that the assessment impairs the obligations of contract between the taxpayer and the United States Government and constitutes a denial to the taxpayer of due process of law and of the equal protection of the law.
It is significant initially to observe that the act exacts "an annual franchise tax * * * 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." R.S. 54:10 A -2. Secondly, it is acknowledged in the present proceeding that the government bonds evidence the investment of the appellant from the capital and surplus accounts of the corporation.
And then subdivision (d) of section 4 of the act may be scrutinized:
"(d) '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 taxpayer's 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 make 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."
It is not supposed that the power of a state to impose a tax or excise fee upon a corporation for the privilege of exercising the corporate franchise within its boundaries is any longer questionable. Standard Underground Cable Co. v. Attorney-General , 46 N.J. Eq. 270 (E. & A. 1889). Justice Garrison characterized a franchise tax as "a poll tax levied upon domestic corporations for the right to be." Lumberville Delaware Bridge Co. v. State Board of Assessors , 55 N.J.L. 529, 537 (Sup. Ct. 1893).
And so it is beyond debate that the appellant was exercising a privilege which is an object of lawful taxation. Such is taken to be admitted by counsel of the appellant, but it is argued that despite the title of the act of 1945 and the express declarations therein to the contrary, the tax thereby originated is upon the intangible personal property of the corporation and not for its franchise privileges. The argument has a logical thinness but a nimbleness of advocacy.
The inspiration promoting that point of view seems to have arisen principally from the presence in the act of the following provision:
"* * * 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 ...