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Werner Machine Co. v. Director of Division of Taxation

Decided: December 20, 1954.

WERNER MACHINE COMPANY, INC., PETITIONER-APPELLANT,
v.
DIRECTOR OF DIVISION OF TAXATION, DEPARTMENT OF THE TREASURY, STATE OF NEW JERSEY, DEFENDANT-RESPONDENT



On appeal from Superior Court, Appellate Division, whose opinion is reported in 31 N.J. Super. 444.

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.

Burling

[17 NJ Page 123] This is an appeal in a proceeding brought to review a determination of the Division of Tax Appeals, in the Department of the Treasury, State of New Jersey. The taxpayer, Werner Machine Company, Inc., a corporation organized and existing under the laws of the State of New Jersey (hereinafter referred to as Werner) appealed to the Division of Tax Appeals from an assessment of state franchise tax of $458.41 levied by the Director of the Division of Taxation against Werner for the year 1952. The Division of Tax Appeals affirmed the assessment and dismissed the appeal. On Werner's appeal from the judgment of the Division of Tax Appeals, in lieu of prerogative writ, R.R. 4:88-8, the Superior Court, Appellate Division, affirmed. Werner Machine Co. v. Director of Div. of Taxation, 31 N.J. Super. 444 (1954). Werner appealed the judgment of affirmance under N.J. Const. 1947, Art. VI, Sec. V, par. 1, clause (a). Cf. R.R. 1:2-1(a).

The facts are not disputed. Werner filed its 1952 corporation franchise tax return based on the calendar year ending December 31, 1951, under the Corporation Business Tax Act (1945), L. 1945, c. 162, p. 563 et seq., N.J.S.A. 54:10 A -1 et seq. The return disclosed ownership by Werner of $400,091 in United States Government bonds. These bonds were included in Werner's calculation of net worth, upon which the amount of the annual franchise tax was determined. N.J.S.A. 54:10 A -4(d). Werner paid the tax under protest and appealed.

The questions involved on the present appeal include whether the Corporation Business Tax Act (1945), L. 1945, c. 162, p. 563 et seq., N.J.S.A. 54:10 A -1 et seq., supra, imposes a franchise tax and whether the State has violated those provisions of the Constitution of the United States which vest in Congress the power to borrow money on the credit of the United States, Art. I, Sec. 8, clause 2, and to enact laws necessary and proper therefor, Art. I, Sec. 8, clause 18; and which deny the states the right to pass any law impairing the obligation of contract, Art. I, Sec. 10, clause 1.

The Federal Constitution and laws made in pursuance thereof are the supreme law of the land. U.S. Const., Art. VI, par. 2. And the Congress of the United States, under the powers hereinbefore adverted to, U.S. Const., Art. I, Sec. 8, clauses 2 and 18, has enacted a law that (R.S. § 3701; 31 U.S.C.A. § 742):

"Except as otherwise provided by law, all stocks, bonds, Treasury notes, and other obligations of the United States, shall be exempt from taxation by or under State or municipal or local authority."

Comparable legislation has existed since 1863, when Congress declared that United States legal tender notes, as well as bonds and other securities, should be exempt from state taxation. See 12 Stat. 710 (1863). Compare 12 Stat. 345, 346 (1862); 13 Stat. 13, c. 17 (1864); 13 Stat. 218, c. 172 (1864); 13 Stat. 425, c. 22 (1865); 13 Stat. 468, 469,

c. 77 (1865); and 16 Stat. 272, c. 256 (1870). Cf. Smith v. Davis, 323 U.S. 111, 65 S. Ct. 157, 89 L. Ed. 107, 112 (1944).

It had been held by the United States Supreme Court that

"Want of authority in the States to tax the securities of the United States issued in the exercise of the admitted power of Congress to borrow money on the credit of the United States is * * * certain although there is no express provision in the Constitution to that effect." Hamilton Mfg. Co. v. Massachusetts, 6 Wall. 632, 73 U.S. 632, 18 L. Ed. 904, 907 (1868).

Cf. People of New York ex rel. Bank of Commerce v. Com'rs of Taxes for N.Y. City and County, 2 Black, 620, 67 U.S. 620, 17 L. Ed. 451, 454-456 (1863); Weston v. City Council of Charleston, 2 Pet. 449, 27 U.S. 449, 7 L. Ed. 481 (1829); Newark City Bank v. Assessor, 30 N.J.L. 13, 17-18 (Sup. Ct. 1862). The decisions of the United States Supreme Court are binding upon the states. Pennekamp v. State of Florida, 328 U.S. 331, 335, 66 S. Ct. 1029, 90 L. Ed. 1295, ...


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