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Roadway Express Inc. v. Director

Decided: December 18, 1967.


For affirmance -- Chief Justice Weintraub and Justices Jacobs, Francis, Proctor, Hall, Schettino and Haneman. For reversal -- None. The opinion of the court was delivered by Hall, J.


[50 NJ Page 473] The question on these consolidated appeals is whether New Jersey may constitutionally impose its corporation business tax, N.J.S.A. 54:10A-1, et seq., upon

motor freight trucking companies conducting an exclusively interstate business in the state, involving, however, substantial local activities and property. Appellants (taxpayers) contend that the case is on all fours with Spector Motor Service, Inc. v. O'Connor, 340 U.S. 602, 71 S. Ct. 508, 95 L. Ed. 573 (1951), which held that a state franchise tax for the privilege of doing business within the state could not be applied to such an enterprise by reason of the commerce clause of the United States Constitution, Art. I, Sec. 8, cl. 3. Respondent (Director) urges that the levy is valid as to the taxpayers because the basis of our tax is vitally different from that in the Connecticut statute involved in Spector and, in any event, subsequent decisions of the United States Supreme Court indicate a less rigid view of the constitutional propriety of subjecting interstate businesses, by means of state taxes of the type of New Jersey's corporation business levy, to their fair share of the costs of state government, in view of the protection and benefits they receive therefrom.

It goes without saying that we fully recognize we are bound by the holdings of the United States Supreme Court as to federal limitations on state taxation of interstate business in the absence of Congressional action. But that court over the years has varied considerably in its approaches in this field. As Mr. Justice Frankfurter commented in Freeman v. Hewit, 329 U.S. 249, 251-252, 67 S. Ct. 274, 276, 91 L. Ed. 265, 271 (1946):

"The power of the States to tax and the limitations upon that power imposed by the Commerce Clause have necessitated a long, continuous process of judicial adjustment. The need for such adjustment is inherent in a federal government like ours, where the same transaction has aspects that may concern the interests and involve the authority of both the central government and the constituent States.

" The history of this problem is spread over hundreds of volumes of our Reports. To attempt to harmonize all that has been said in the past would neither clarify what has gone before nor guide the future. Suffice it to say that especially in this field opinions must be read

in the setting of the particular cases and as the product of preoccupation with their special facts."

Professor Hellerstein in his survey of the court's changing approaches contained in State and Local Taxation, Cases and Materials (2 nd Ed. 1961), 158-168, puts it this way:

"The present posture of the Court is characteristic of its entire history in dealing with Commerce Clause tax issues -- the great issues involved reflect sharp differences in approach among the Justices, the leading cases are decided by slim majorities over strong dissent, and both the rationale and holdings are fluid and dynamic, with one decade's minority becoming the next decade's majority, only to be displaced in another decade by a new majority." (At p. 164).

Our obligation is therefore that so well expressed by Judge Learned Hand in his dissenting opinion on an earlier phase of Spector in the Court of Appeals for the Second Circuit:

"* * * I conceive that the measure of [a lower court's] duty is to divine, as best it can, what would be the event of an appeal [to the United States Supreme Court] in the case before it." (Spector Motor Service, Inc. v. Walsh, 139 F.2d 809, 823 (1944)).

The taxes involved are for the years 1946 to 1960, inclusive. The case is here for the second time with respect to appellant Roadway Express, Inc. (Roadway). It first sought to challenge constitutional applicability by an action in lieu of prerogative writ and for a declaratory judgment. This court affirmed the dismissal of the suit for failure to exhaust administrative remedies through appeal to the Division of Tax Appeals (Division). Roadway Express, Inc. v. Kingsley, 37 N.J. 136 (1962). Justice Jacobs pointed out that the nature of the challenge called "for careful examination of the true nature of the tax * * * and the detailed facts relating to the properties and activities of [Roadway] within New Jersey", dictating the taking of evidence and the making of factual findings and legal determinations in the first instance by "the administrative officials

designated by the Legislature for that purpose". (37 N.J., at p. 140).

Thereafter the Director, in August 1962, made formal determinations of the taxes asserted to be due as to both taxpayers, who took appeals therefrom to the Division. (We are advised all the taxes so levied were paid under protest). That agency made full findings and conclusions in December 1965, holding the tax validly applicable to the taxpayers and affirming the Director's determinations. The taxpayers' appeals to the Appellate Division, R.R. 4:88-8(a), were certified on our own motion prior to argument there. R.R. 1:10-1.

The basic provision of the New Jersey corporation business tax, adopted by L. 1945, c. 162, reads as follows:

" Every domestic or foreign corporation which is not hereinafter exempted shall pay an annual franchise tax for the year one thousand nine hundred and forty-six and each year thereafter, as hereinafter provided, 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. 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 taxation under this act. * * *" (N.J.S.A. 54:10A-2). (Emphasis added).

The measure of the tax is allocated net worth (stockholders' book equity) plus, since L. 1958, c. 63, allocated net income (related to taxable income as reported to the federal government, with certain exceptions not here pertinent). N.J.S.A. 54:10A-4(d) and (k) and 5. Allocation in the case of multi-state activities, to determine the amount properly attributable to New Jersey, is computed, in the case of net worth, by application of the greater of either an assets allocation formula or a three-factor (Massachusetts) business allocation formula, and in the case of net income, by use of the business allocation formula. N.J.S.A. 54:10A-5 and 6. The amount of the tax is fixed by applying specified percentages to the allocated figures. As to net

worth, the quite nominal rate is, subject to certain minima, 2 mills per dollar on the first $100,000,000 (increased from 8/10 of a mill by L. 1954, c. 88), 4/10 of a mill on the second $100,000,000, 3/10 of a mill on the third $100,000,000 and 2/10 of a mill on all amounts in excess thereof. As to net income, the rate is a flat 1 3/4%.*fn1 N.J.S.A. 54:10A-5 and 6. See United States Steel Corporation v. Director, Division of Taxation, 38 N.J. 533, pp. 539-540 (1962); F.W. Woolworth Co. v. Director of Division of Taxation, 45 N.J. 466, 473-475 pp. (1965).

It should be noted that the taxpayers do not contend that the tax here is discriminatory against interstate businesses or that it is an undue burden on interstate commerce. They do not challenge the allocation formulas as unfair as applied to an interstate business like theirs and do not suggest the result of the New Jersey tax is multiple taxation elsewhere. Indeed, they do not at all attack the amount of the taxes determined by the Director.

Turning to the detailed facts of the activities and properties of these taxpayers as developed before the Division, Roadway is a Delaware corporation, having its home office in Akron, Ohio. It succeeded to the business of an Ohio corporation of the same name in 1954. It is engaged in motor carriage of general commodities as a common carrier over a large section of the country, pursuant to certificates of convenience and necessity issued by the Interstate Commerce Commission. It has never been authorized, or made application to be authorized, by New Jersey to do business in this state. Conversely, there is nothing to show New Jersey has ever attempted to compel it to obtain such authority or sought to exclude it from carrying on its business here.*fn2

Roadway's operations in New Jersey have generally been of the same type during the years involved, although they have steadily expanded in size. Since the evidence below dealt mostly with the picture in 1960, our references will be to that year unless otherwise noted. In that year it maintained two terminals in the state serving the New York-New Jersey metropolitan area. The principal one was in Kearny (which in 1959 had replaced a generally similar facility in Hoboken), with a subsidiary one in Bound Brook (since moved to another location). It owned and operated two types of trucking vehicles. One was over-the-road tractor-trailers carrying truckload lots of goods to and from its New Jersey terminals from and to its terminals in other states, as well as, in some instances, direct delivery or pick-up at the customer's place of business. About 100 of these vehicles came into the Kearny terminal in an average week. They were "domiciled" elsewhere and not registered or licensed by New Jersey. The other type was the so-called city fleet of straight trucks, tractors and trailers, more than 60 in number, which were kept at Kearny and registered, licensed and inspected in New Jersey.

The city fleet vehicles picked up freight at a customer's place of business in New Jersey and other parts of the metropolitan area and brought it to the Kearny terminal, where it was unloaded on the dock and then reloaded on an over-the-road unit for shipment out of the state. An inbound shipment was handled in reverse order. The Bound Brook terminal had no dock facilities and freight to and from that depot usually moved in over-the-road truckload trucks, with less than truckload shipments being ...

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