Handler, Meanor and Kole. The opinion of the court was delivered by Handler, J.A.D.
[129 NJSuper Page 21] Petitioner Motor Finance Corporation paid its New Jersey corporation business tax for the years 1962 to 1967, inclusive, and then filed a timely claim for refunds pursuant to N.J.S.A. 54:49-14. The bases for the refund claims were: (1) liability was computed by including in the net worth the excess of market value of marketable securities over the book value thereof; (2) in determining that excess, the anticipated capital gains tax attributable thereto was not recognized, and (3) in determining the mean market value of such securities, no recognition was given to "blockage" resulting from the extent of petitioner's holdings of said securities. The Director of the Division of Taxation denied the refund claims. Petitioner then appealed
to the Division of Tax Appeals which determined that the Director was entitled to revalue marketable securities to reflect market values but that such valuation must recognize related future tax liabilities and the "blockage" effect on the market value of the securities.
The Director filed a notice of appeal contesting the determination as to the method for computing fair market value of petitioner's securities. Petitioner cross-appealed, challenging the judgment that the Director had the power to value marketable securities according to their listed market values rather than book value.
We treat first the issue of whether the Director of the Division of Taxation has the power to revalue marketable securities by disregarding the cost or book value thereof and utilizing instead their listed stock market prices. The language of the Corporation Business Tax Act, N.J.S.A. 54:10A-1 et seq., is the primary reference point. The critical provision is N.J.S.A. 54:10A-4(d), viz :
"Net worth" shall mean the aggregate of the values disclosed by the books of the corporation. * * *
If in the opinion of the commissioner [ i.e., Director], the corporation's books do not disclose fair valuations the commissioner may make a reasonable determination of the net worth which, in his opinion, would reflect the fair value of the assets * * * carried on the books of the corporation, in accordance with sound accounting principles, and such determination shall be used as net worth for the purpose of this act. [Emphasis supplied]
It has often been underscored that the tax imposed via the Corporation Business Tax Act is not an ad valorem property tax or a disguise for a tax upon underlying assets. United States Steel Corp. v. Director of Div. of Tax., 38 N.J. 533 (1962); Werner Machine Co. v. Director of Div. of Tax., 17 N.J. 121 (1954), aff'd 350 U.S. 813, 76 S. Ct. 46, 100 L. Ed. 729 (1955). It "is an excise (privilege) impost rather than a property tax." F.W. Woolworth Co. v. Director of Div. of Tax., 45 N.J. 466, 473 (1965). While the "excise tax may gather the hue of a property tax * * * it is
the franchise to do local business that is being valued rather than any specific piece of property devoted to it." Household Finance Corp. v. Director of Div. of Tax., 36 N.J. 353, 358, app. dism. 371 U.S. 13, 83 S. Ct. 41, 9 L. Ed. 2d 49 (1962) (construing the analogous Financial Business Tax Law, N.J.S.A. 54:10B-1 et seq.).
Subject to standards of accounting, the Director has the statutory authority to revalue the various components of net worth in order to reach fair value. F.W. Woolworth Co. v. Director of Div. of Tax., supra 45 N.J. at 473. The Director is not bound by a company's bookkeeping; he may conclude that corporate books do not disclose the fair valuation of the elements of net worth under accounting principles which are sound for purposes of the tax statute. United States Steel Corp. v. Director of Div. of Tax., supra, 38 N.J. at 541. R. H. Macy & Co. Inc. v. Director of Div. of Tax., 77 N.J. Super. 155, 164 (App. Div 1962), aff'd 41 N.J. 3 (1963).
In Brookchester Inc. v. Director of Div. of Tax., 113 N.J. Super. 570 (App. Div.), cert. den. 58 N.J. 392 (1971), the court upheld the Director's revaluation of certain real estate assets which had been carried on the taxpayer's books at depreciated cost. The values used by the Director were the unpaid balances of the mortgages on the properties. The court noted that such mortgage balances exceeded depreciated costs and were therefore an "indicia of minimum fair values" and were required by sound accounting to be disclosed on the books of the taxpayer. The revaluation of these underlying assets in this manner was itself "sound and administratively feasible." Id. 113 N.J. Super. at 575.
In the present matter it is rather clear that the book values or costs of petitioner's marketable securities, while in accordance with conventional or orthodox accounting practices, do not approximate fair value. Thus, to the limited end of evaluating corporate net worth for the ...