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Foosaner v. Director

Decided: March 22, 1971.

SAMUEL J. FOOSANER, PETITIONER-APPELLANT,
v.
DIRECTOR, DIVISION OF TAXATION, RESPONDENT



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

Hall

This litigation challenges the applicability of the Unincorporated Business Tax Act, N.J.S.A. 54:11B-1 et seq., L. 1966, c. 137, to a practicing attorney at law.

Petitioner practices individually, with his office in Newark. The first return and payment of tax under the act was due April 15, 1968, covering the year 1967 for those on a calendar year basis. He filed a blank return, except to state that the statute was "not applicable" to him, and paid no tax. In an attached memorandum he argued that the legislation was not intended to apply to lawyers and professional fees received in their practice. The Director of the Division of Taxation rejected his contention and ruled that fees for all professional services performed on a self-employed basis, including those rendered by lawyers, are subject to the tax. Petitioner was invited to file a proper return, which he

declined to do.*fn1 Thereafter the Director made an assessment of tax in the amount of $1,000 and filed a certificate of debt therefor in the Superior Court.*fn2

Petitioner then filed a complaint in the Law Division seeking a declaratory judgment that the act is unconstitutional and not applicable to him and requesting the voiding of the certificate of debt. The action was dismissed on motion on the ground that administrative remedies had not been exhausted. A petition of appeal to the Division of Tax Appeals followed, asserting essentially the same contentions. After hearing, the Division affirmed the Director's ruling and further held that, as an administrative agency, it had no power to adjudicate constitutional questions. Petitioner's appeal to the Appellate Division from the consequent judgment, raising the same issues, was certified upon our own motion before argument in that court. R. 2:12-1.

The pertinent language of the statute is of primary importance. The tax is imposed by N.J.S.A. 54:11B-3 "upon every individual or other unincorporated [business]" as "an annual excise tax, measured by the gross receipts of such unincorporated business, and allocated to the State as hereinafter provided at the rate of I/4 of 1%," subject to certain exemptions in case the receipts do not exceed specified minimum amounts.

"Unincorporated business" is defined, for purposes of the act, by N.J.S.A. 54:11B-2(e) as meaning and including "any trade, business, profession or occupation conducted or pracliced for profit in whole or in part within this State by

any individual or other unincorporated entity not subject to the Corporation Business Tax Act (1945) (P.L. 1945, c. 162) or the Financial Business Tax Law (1946) (P.L. 1946, c. 174)" (emphasis supplied), except, inter alia, services performed, other than as a principal, by an individual as an employee, fiduciary, officer or director.

"Gross receipts" are defined, likewise for purposes of the act, N.J.S.A. 54:11B-2(b), to "mean and include all receipts, of whatever kind and in whatever form, derived by an unincorporated business, without any deduction therefrom on account of any item or cost, expense or loss" (emphasis supplied), except the sales price of property returned by customers for refund or credit.*fn3

Historically, the unincorporated business tax came about as a result of the report of the Governor's Committee on Local Property Taxation made in December 1965. The Committee recommended the elimination of the existing tax on business personal property, assessed and collected locally on the same basis as the real property tax. It proposed a replacement tax program, which included an increase in the rate of the net income tax aspect of the corporation business tax, a new gross receipts tax on retail store sales, a new state-assessed business personal property tax and the unincorporated business gross receipts tax with which we are concerned. The Legislature substantially adopted the recommendations, L. 1966, Chapters 133 to 138, without statements of ...


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