This action was instituted by the Port of New York Authority (hereinafter port authority) for a declaratory judgment that certain lands and buildings leased by the City of Newark (hereinafter city) to the port authority in the Port Newark area are exempt from local taxation. The city did not ally itself with the position of the port authority, but joined as a party plaintiff for the purpose of achieving a determinative resolution of the issue by judicial declaration.
The particular focus of this litigation is the action of the Essex County Board of Taxation in the form of a resolution dated January 1967 removing the properties in question from the exempt rolls and directing the city to include them in the tax lists for the tax year of 1967.
The Essex County Board of Taxation contends that the properties and their use are not such as to warrant tax exempt status and that the county's share of the city's taxes should be increased accordingly.
All the other municipalities of the County of Essex have intervened in the action by permission of the court in view of their financial interest in the controversy, contending that the properties should be assessable for taxation and that the exemption from taxation would increase their tax burden to the county.
Although the issues before the court involve only the determination of taxability for the year 1967, it is important to note the history of the relationship between the city and port authority and their involvement in this tax controversy in past years.
Plans for the development of a marine terminal on Newark Bay date back to the beginning of this century, with study commission reports and legislation leading to public ownership and operation of marine terminals. L. 1911, c. 161; New Jersey Harbor Commission, Fourth Preliminary Report (1914) p. 184-188; L. 1916, c. 162; R.S. 40:179-58 et seq.; L. 1917, c. 127; R.S. 40:179-46 et seq.; L. 1920, c. 176, R.S. 40:179-34 et seq.
Pursuant to the authority of the foregoing legislation, the City of Newark developed the marine terminal complex in the Port Newark area, covering approximately 700 acres, including the leasing of docks, lands and buildings to private concerns.
In the interim, New Jersey and New York entered into an interstate compact pursuant to Congressional authority, establishing the Port of New York District and creating the Port of New York Authority as the bi-state agency for the purpose of developing the port district. N.J.S.A. 32:1-2 et seq.
In 1945, the City of Newark requested the port authority to undertake a study of all matters relating to Port Newark and Newark Airport for the purpose of considering the possibility of the port authority undertaking the management and administration. As a result of such a study legislation was adopted in 1947 authorizing the cooperation between the port authority and municipalities in the development of marine terminals. N.J.S.A. 32:1-35.28 et seq. Parallel legislation was adopted in the State of New York. N.Y. UNCONSOL. LAWS, § 6671 et seq. (McKinney 1948). Under this legislation, municipalities were empowered "to consent to the use by the port authority of any marine terminal owned by such municipality * * * [and] to grant, convey, lease or otherwise transfer to the port authority any such marine terminal or real or personal property upon such terms as may be determined by the port authority and such municipality." N.J.S.A. 32:1-35.31. In addition, every municipality was also authorized "to vest in the Port Authority
the control, operation, maintenance * * * of any marine terminal now owned by such municipality." Id.
Instead of conveying the marine terminal properties to the port authority or retaining the port authority as a managing agent of the marine terminal within the ambit of the foregoing legislative authorization, the city entered into a lease agreement with the port authority on October 22, 1947 demising certain premises for a term of 50 years for marine and air terminal purposes. Under this lease, which carried a basic rental of $128,000 per year, the port authority assumed all the existing leases theretofore made by the city, and was authorized to sublet parts of the demised premises for the stated marine and air terminal purposes. Since entering into possession, the port authority has sublet most of the properties involved in the leasehold to private concerns, and that is the factual pattern which existed on October 1, 1966, the key assessment date for the tax year of 1967.
In 1960, the city concluded that certain of the demised premises were not being used for air and marine terminal purposes and should be subject to ordinary taxation. It therefore applied to the Essex County Board of Taxation to list these properties on the tax rolls as omitted assessments. The same approach applied to the tax years of 1961, 1962, 1963, 1964 and 1965. The Essex County Board determined that the property should be assessed with the port authority listed as "Owner".
This determination inspired appeals to the appellate division and suits in the law and chancery divisions of the Superior Court, which became so "snarled procedurally" that the Supreme Court finally took jurisdiction of all aspects of the complex litigation and remanded the matter to the law division to hear de novo all the issues involved in the entire controversy. Port of New York Authority v. Essex County Board of Taxation, 46 N.J. 51 (1965).
Subsequent to the remand and pending the trial in the law division, the city and the port authority effected a settlement of their differences involving the tax years from 1960
to 1965 inclusive by entering into the "Ninth Supplemental Agreement with Respect to the Newark Marine and Air Terminals," dated December 14, 1966. As part of the settlement agreement, the annual rental was increased from $128,000 to $1,000,000, with a provision for additional rental using a formula based upon a computation of the net revenue of the port authority.
Among other provisions relating to advance payments and retroactive rent for 1966, the agreement provided:
"In the event the City or the Port Authority, or both, under any law that may hereafter be enacted or applied, shall be or become subject to and liable for payment to the county in which the demised premises are located of any taxes, assessments or governmental levies or imposts upon or against the demised premises or upon any part or parts thereof then, as between the City and the Port Authority, the Port Authority shall pay the same and such payment by the Port Authority shall be included in the operation and maintenance expense."
It was also stipulated that all litigation pending between the parties would be dismissed with prejudice and that the city would designate on its tax records that all the properties involved in the leasehold are tax exempt.
The agreement went into effect, the prior litigation was dismissed, and the City marked the properties exempt on its tax roles. On a review of the assessments of the city for the taxable year 1967, the Essex County Board of Taxation set aside the exemption and directed that the city restore the demised properties to its tax rolls. The city complied with this directive and thereafter the present suit was brought for declaratory judgment relating to the taxability of the affected properties for the year of 1967. The determination of the taxability of the property in the context of this litigation is a mixed question of law and fact, involving the exploration and delineation of the controlling legal guidelines and the application of those guidelines to the specific properties according to their function and use. It is therefore advisable to discuss first the legal principles which must be applied to the factual patterns revealed by the evidence.
Preliminarily, the court will dispose of the contention made by the defendants that the port authority does not have the standing to bring this action. It is urged that the authority is not the owner of the properties involved and that the tax assessment ordered by the Essex County Board of Taxation is against the ownership interest of the city and not the leasehold interest of the port authority as authorized by N.J.S.A. 54:4-2.3; and that as a consequence the port authority has no right to relief. Although the Authority is not the owner of the properties involved, it has a substantial financial stake in the taxability of the properties through its obligations under the lease with the city; and as a result has the requisite standing to seek declaratory relief. N.J.S. 2 A:16-56. See Port of New York Authority v. Essex County Board of Taxation, 46 N.J. 51, 53 (1965); Bergen County v. Port of New York Authority, 32 N.J. 303, 307 (1960).
Any discussion of the taxability of property in the State of New Jersey must commence with the basic legislative mandate that "all property, real and personal, within the jurisdiction of this state not expressly exempted from taxation * * * shall be subject to taxation." N.J.S.A. 54:4-1. The fundamental question therefore is whether or not the properties in question are expressly exempt from taxation.
Initially, it is clear that the legislature has not granted a specific exemption from local property taxation for property owned or used by the port authority as a marine terminal by any of the provisions of the 1947 enabling legislation. (N.J.S.A. 32:1-35.28 et seq.).
The port authority however points to the provisions of N.J.S.A. 32:1-144 as a basis for tax exemption:
"To the end that * * * cities * * * in the Port of New York District, may not suffer undue loss of taxes and assessments by reason of the acquisition and ownership of property therein by the Port of New York Authority * * * the port authority is hereby ...