This is an action in lieu of prerogative writs for the review of judgments of the defendant Morris County Tax Board, entered against the plaintiff under chapter 177, Laws of 1949 (N.J.S.A. 54:4-2.3 et seq.), in which the Board affirmed assessments for the tax years 1957 and 1958 under the Omitted Property Assessment Act, N.J.S.A. 54:4-63.12 et seq. The United States of America, the owner of the lands, buildings, plant and facilities involved in this matter, was allowed to intervene and it has filed a joint brief with the plaintiff. There is no factual dispute. Agreed statements of fact are found in the stipulation on file and in the pretrial order. There was brief testimony on behalf of the plaintiff which was not challenged.
As of November 21, 1952 a contract was entered into between the United States of America, through the Department of the Navy, and Reaction Motors, Inc., pursuant to the provisions of the Armed Services Procurement Act of 1947, 10 U.S.C.A., secs. 2301-2314. Over 50 pages in length, it has been designated "Contract NOa 1199." It provides, among other things, for the acquisition of land in the Township of Denville, the erection of buildings thereon, and the installation of machinery and tools therein. The entire cost was paid by the Government. After completion Reaction Motors, Inc. operated the plant for the development and manufacture of rocket and jet engines and fuels required for use therewith. This continued until May 1, 1958, when Reaction Motors, Inc. merged into plaintiff corporation, and the latter has since continued in possession and operation of the premises.
A later agreement was entered into, as of July 30, 1958, between the United States of America and the plaintiff for
the operation of the plant. It is referred to as "Agreement for Use of Facilities NOa 5943," and its terms are substantially similar to those contained in the agreement above mentioned. The buildings were specially designed for the unique use to which they were put.
Under the contracts the plaintiff and its predecessor were required to use the facilities exclusively for the performance of work for the Government or its suppliers. The facilities could not be used for the performance of any other work without prior approval of the proper governmental authorities and on terms to be arranged with them. As a matter of fact, during the time with which we are concerned, the facilities were never used except for the performance of work for the Government or its suppliers. During the year 1957, 99.2% of the work in the plant, expressed in terms of sales, was done under prime contracts with the Government. In the year 1958, the comparable figure was 99.7%. The balance of the work in each year was performed for certain prime contractors of the Defense Department.
No rent was paid nor required to be paid for the possession and use of the buildings and facilities. The plaintiff and its predecessor had the right to occupy the premises and use the facilities solely at the will of the Government and under its supervision and control.
Section 1 of chapter 177 (N.J.S.A. 54:4-2.3) reads as follows:
"When real estate exempt from taxation is leased to another whose property is not exempt, and the leasing of which does not make the real estate taxable, the leasehold estate and the appurtenances shall be listed as the property of the lessee thereof, or his assignee, and assessed as real estate."
Section 6 of the statute (N.J.S.A. 54:4-2.8) provides that the taxes shall be a lien upon the leasehold estate, and that the lessee or his assignee shall be personally liable therefor. It should be emphasized that the statute speaks
of a lease of real estate and the assessment of taxes upon the leasehold estate as real estate.
The State of Michigan in 1953 adopted a somewhat similar statute. In 1958 the United States Supreme Court passed on several cases which arose thereunder, and two of these are in point here -- United States v. Detroit , 355 U.S. 466, 78 S. Ct. 474, 2 L. Ed. 2 d 424; and United States v. Township of Muskegon , 355 U.S. 484, 78 S. Ct. 483, 2 L. Ed. 2 d 436. In Detroit a portion of an industrial plant owned by the United States was leased to Borg-Warner Corporation wherein it carried on its regular business for profit. A tax was levied against the lessee as though it were the owner of the Government realty. It was held that the tax, although measured by the value of the property owned by the Federal Government and used by the lessee, did not violate the constitutional immunity of the United States from state taxation, and further, that the state enactment was not discriminatory nor discriminatorily applied. It should be noted that here there was an outright lease and the lessee was free to utilize the leased premises in connection with its ordinary operations; and it is not without significance that the court in its opinion referred to the tax as a use tax.
In Muskegon the tax was levied upon Continental Motors Corporation, which possessed and used Government-owned lands, buildings and equipment. The court there made this observation:
"There are only two factual differences between this case and No. 26 [United States v. Detroit]. First, Continental is not using the property under a formal lease but under a 'permit'; second, Continental is using the property in the performance of its contracts with the Government. We do not believe that either fact compels a different result."
The agreement between the Government and Continental Corporation is somewhat similar to the agreement in our case. However, there is a very substantial difference between
our statute and that of Michigan, Pub. Acts 1953, Act No. 189. The latter provides in part as follows:
"Sec. 1. When any real property which for any reason is exempt from taxation is leased, loaned or otherwise made available to and used by a private individual, association or corporation in connection with a business conducted for profit * * * shall be subject to taxation in the same amount and to the same extent as ...