For affirmance -- Chief Justice Weintraub, and Justices Burling, Jacobs, Francis, Proctor, Hall and Schettino. For reversal -- None. The opinion of the court was delivered by Proctor, J.
The single question presented by this case is whether the petitioner Morris & Essex Investment Co., Inc., a New Jersey corporation engaged solely in lending money on the security of second mortgage liens on real estate, is taxable under the Financial Business Tax Law. L. 1946, c. 174, N.J.S.A. 54:10 B -1 et seq. The Director of the Division of Taxation determined that it was so taxable, and the Division of Tax Appeals affirmed. The petitioner's appeal to the Appellate Division was certified here on our own motion before consideration there.
The Financial Business Tax Law imposes on "every person, copartnership, association and corporation doing a financial business in this State" an annual excise tax measured by net worth. L. 1946, c. 174, § 3, N.J.S.A. 54:10 B -3. The petitioner contends it is not in fact doing a financial business within the meaning of the act. The taxing authorities assert that it is, and also argue that in the act the Legislature set out a list of enterprises and activities which it deemed to be "doing a financial business"; that it included the petitioner in that list, and that it therefore foreclosed a factual examination at this time into the question whether the petitioner is in fact doing a financial business. The present controversy therefore focuses on the act's definition of "financial business," which states:
"For the purposes of this act, unless the context otherwise requires:
(b) 'Financial business' shall mean all business enterprise which is (1) in substantial competition with the business of national banks and which (2) employs moneyed capital with the object of making profit by its use as money, through discounting and negotiating
promissory notes, drafts, bills of exchange and other evidences of debt; buying and selling exchange; making of or dealing in secured or unsecured loans and discounts; dealing in securities and shares of corporate stock by purchasing and selling such securities and stock without recourse, solely upon the order and for the account of customers; or investing and reinvesting in marketable obligations evidencing indebtedness of any person, copartnership, association or corporation in the form of bonds, notes or debentures commonly known as investment securities; or dealing in or underwriting obligations of the United States, any State or any political subdivision thereof, or of a corporate instrumentality of any of them. This shall include, without limitation of the foregoing, businesses commonly known as industrial banks, dealers in commercial paper and acceptances, sales finance, personal finance, small loan and mortgage financing businesses, as well as any other enterprise employing moneyed capital coming into competition with the business of national banks; provided, that the holding of bonds, notes, or other evidences of indebtedness by individual persons not employed or engaged in the banking or investment business and representing merely personal investments not made in competition with the business of national banks, shall not be deemed financial business. Nor shall 'financial business' include national banks, production credit associations organized under the Farm Credit Act of 1933, stock and mutual insurance companies duly authorized to transact business in this State, security brokers or dealers or investment companies or bankers not employing moneyed capital coming into competition with the business of national banks, or any of the following entities organized under the laws of this State: credit unions, savings banks, savings and loan and building and loan associations, pawnbrokers, and State banks and trust companies." L. 1946, c. 174, § 2, N.J.S.A. 54:10 B -2.
It is apparent that the basic class of enterprises within the definition, and, as such, subject to the tax, are those employing moneyed capital for profit, in specified ways, in substantial competition with the business of national banks. A short background of history is necessary for a full understanding of the statutory classification.
Since 1866 the New Jersey statutes have provided for taxation of the common capital stock of national banks, and of banks organized under the laws of this State. L. 1866, p. 1078, § 16. Since 1899 there has been a similar tax on trust companies organized under the laws of this State. L. 1899, p. 450, § 29. Mechanics' National Bank of Trenton
v. Baker, 65 N.J.L. 113 (Sup. Ct. 1900), affirmed Id. 549 (E. & A. 1901). National and state banks and trust companies are now taxed under R.S. 54:9-1 et seq. Prior to 1945, stock or other evidence of ownership in other financial businesses was taxed to its owner under the general ad valorem property tax. R.S. 54:4-1. In 1945, however, the Legislature amended the tax law to exempt intangible personal property from the general tax. L. 1945, c. 163, R.S. 54:4-1 as amended. As a result, while the stock of national and state banks and trust companies remained taxable as before, interest in other financial businesses, being intangible personalty, went untaxed. Incorporated financial businesses, other than those included in the Bank Stock Act, were taxed under the Corporation Business Tax Law, but at a rate substantially below that imposed by the Bank Stock Act. L. 1945, c. 162, N.J.S.A. 54:10 A -1 et seq. Unincorporated financial enterprises escaped taxation entirely, except under the general property tax, from which the bulk of their assets was exempt. R.S. 54:4-1 as amended by L. 1945, c. 163.
A serious threat to the validity of the Bank Stock Act, and to the one million dollars in annual revenues it produced, grew out of the new exemption of intangibles. The threat was posed by a federal statute that limited the permissible scope of state taxation of the shares of national banks. 12 U.S.C.A. § 548.
National banks are not merely private businesses, but rather are agencies of the United States, created by it to promote its fiscal policies, and financed by private capital. Hence the national banks and their shares are taxable by the states only with the consent of Congress, and then only in accordance with such restrictions as Congress may place. First National Bank of Guthrie Center v. Anderson, 269 U.S. 341, 46 S. Ct. 135, 70 L. Ed. 295 (1926). The federal law ...