For affirmance and modification -- Chief Justice Weintraub and Justices Jacobs, Francis, Proctor and Schettino. For reversal -- None.
In City of East Orange v. Palmer, 47 N.J. 307 (1966), we held that the acquisition of real property by the State or by the New Jersey Highway Authority did not exempt the property from its liability for municipal taxes for any part of the calendar year in which the acquisition occurred. Upon the issuance of our mandate, the trial court entered a modified order for summary judgment. Both the State, by the State Highway Commissioner and the Treasurer, and the New Jersey Highway Authority appealed to the Appellate Division, which affirmed. We granted certification. 51 N.J. 190 (1968).
The State and the New Jersey Highway Authority object to so much of the judgment as imposes liability for interest upon taxes. The Appellate Division noted that the judgment as originally entered provided for interest, and hence the issue should have been raised on the original appeal. This is so. Nonetheless, the State and a State agency being involved, it is appropriate to accept an issue which is important and which was not in fact argued, doubtless because of concentration upon the larger issue of liability for the principal taxes. In fact, as to the State, the payment will depend upon an appropriation, as we will point out in II below, and the Legislature not being compellable in this regard and our judgment being in that respect merely declaratory, it is fitting that our declaration be modified or withdrawn if it inadvertently suggests a liability which on the merits should not exist. And as to the New Jersey Highway Authority, we note that it signed a stipulation with the City that "if final judgment is entered establishing the validity of the tax lien of the City of East Orange, then the New Jersey Highway Authority shall pay and discharge all said liens with interest as allowed by law," which stipulation could arguably support the thought that the subject of interest
would await a decision as to the tax lien itself. We should not be understood to encourage piecemeal handling of litigation; our policy is strongly the other way. We mention these circumstances because they lend some additional support for our primary conclusion that the public interest requires us to accept the issue at this late stage.
The City relies upon N.J.S.A. 54:4-67, which provides that a municipality may fix the rate of interest for nonpayment of taxes, which rate may not exceed 8% per annum. The State answers that the statute did not contemplate the State as a taxpayer, but rather had in mind the ordinary taxpayer who failed to pay. This is not to say that interest is penal. On the contrary it is basically compensatory, Jersey City v. Zink, 133 N.J.L. 437, 444 (E. & A. 1945), certiorari denied, 326 U.S. 797, 66 S. Ct. 493, 90 L. Ed. 485 (1946), but the rate is designedly such that it will not be worth the taxpayer's while to make the municipality his involuntary banker. Thus interest serves to induce timely payment. The question, then, is whether the Legislature intended such a measure to apply where the failure to make timely payment would ordinarily be due to the failure of the Legislature itself to appropriate money.
In this inquiry, it is not controlling that interest will be imposed against the local collector upon the sum he fails to remit to the county, N.J.S.A. 54:4-76; Ross v. Walton, 63 N.J.L. 435 (Sup. Ct. 1899), affirmed o.b., 67 N.J.L. 688 (E. & A. 1902); Booth v. Parnell, 12 N.J. Misc. 413, 418, 172 A. 50 (Sup. Ct. 1934), for again reason exists to induce municipal corporations to meet their obligations. But the State has always stood apart in such matters, and it is the general rule that a State is not liable for interest unless by statute or contract it has assumed that liability. Annotation, 24 A.L.R. 2 d 928, 934 (1952); Safeway Trails, Inc. v. Furman, 77 N.J. Super. 26 (Law
Div. 1962), affirmed, 41 N.J. 467 (1964). The Legislature has not evidenced an intent that the State pay interest in these circumstances. In another situation, of some persuasive force here, the Legislature affirmatively negated an obligation to pay interest. Thus in subjecting certain State-owned lands to local taxation, the statute expressly said the payment shall be made "without interest." N.J.S.A. 54:4-2.1.
Hence we conclude that the power vested in municipalities, N.J.S.A. 54:4-67, to fix a rate of interest on delinquent taxes should not be read to apply against the State. This does not mean that if the State acquires property upon which local taxes are in arrears and interest thereon has already accrued, the accrued interest will thereupon fall away. The State does not ask for that result. In the past it expressly required the seller to pay the local taxes with interest up to the passage of title. We are dealing only with the question whether interest will continue to accrue against property after the State's acquisition of ...