Matthews, Seidman and Horn. The opinion of the court was delivered by Horn, J.A.D. Matthews, P.J.A.D. (dissenting).
The Director of the Division of Taxation appeals from a judgment of the Division of Tax Appeals reversing the denial of a claim for refund filed by Hoeganaes Corporation with respect to its liability under the New Jersey Corporation Business Tax Act, N.J.S.A. 54:10A-1 et seq. , for the years 1967 to 1970, inclusive.
That statute imposes a franchise tax upon every domestic and foreign corporation
The impost is a tax for the privilege of conducting the aforementioned activities in this State and is not a levy on the underlying assets or income. Werner Machine Co. v. Director of Div. of Taxation , 17 N.J. 121 (1954), aff'd 350 U.S. 492, 76 S. Ct. 534, 100 L. Ed. 634 (1956).
The tax is computed by adding together prescribed percentages of a net-worth tax base, which constitutes essentially the stockholders' book equity, and a net-income tax base, which prima facie reflects taxable income reported to the Federal Government with certain exceptions not here pertinent. Multi-state taxpayers who maintain "a regular place of business" outside New Jersey other than a statutory office are entitled to apportion to New Jersey, pursuant to statutory allocation formulas, portions of their net-worth and net-income tax bases for purposes of computing their corporation business tax liability to the State. If the taxpayer does not maintain a regular place of business outside of this State other than a statutory office, it receives no credit on the tax. N.J.S.A. 54:10A-6.
The Director of the Division of Taxation, pursuant to his regulatory authority contained in N.J.S.A. 54:10A-27, promulgated the following regulation dealing with the allocation provisions, which defines the term "regular place of business" within the context of N.J.S.A. 54:10A-6:
A regular place of business is any bona fide office (other than a statutory office), factory, warehouse, or other space of the taxpayer which is regularly maintained, occupied and used by the taxpayer in carrying on its business and in which one or more regular employees are in attendance. [ N.J.A.C. 18:7-7.2(a)]
Hoeganaes does not question the validity of this regulation and thus the sole question is whether that corporation maintained a regular place of business within the meaning of the foregoing regulation.
The judge of the Division of Tax Appeals held that Hoeganaes maintained regular places of business outside of New Jersey, pursuant to N.J.S.A. 54:10A-6 and N.J.A.C. 18:7-7.2(a), thus sustaining a claim for refund filed by that corporation with respect to its liability under the Corporation Business Tax Act for the years 1967 to 1970, inclusive. We reverse the Division and uphold the denial by the Director of a claim for refund by the taxpayer. Accordingly, we
hold that Hoeganaes did not qualify for an allocation under the statute or regulation because it did not maintain a regular place of business outside this State.
Hoeganaes is a manufacturer of powdered metals and maintains its principal office and factory in Riverton, New Jersey. Its market is nationwide. In 1970 sales were made in 40 states as well as in foreign countries. Total U.S. sales were approximately $12,000,000, of which $186,000 were in New Jersey. Sales of more than $500,000 were made in each of the States of Connecticut, Illinois, Michigan, Ohio and Pennsylvania. For many years the corporation has maintained sales engineers in Pennsylvania, Illinois, Connecticut, Ohio, New York and, more recently, Michigan. These engineers are strategically located to service customers' complaints, receive orders and assist in the solution of customers' manufacturing problems. The company also employs sales representatives to cover secondary marketing districts who are not on the company payroll. The necessity for the company's representatives in the primary marketing fields to be highly knowledgeable about the use and development of their own products is because powder metallurgy is a technique of somewhat recent origin and in many applications is still under development.
The sales engineers are technically trained and some are graduate engineers. They are full-time employees, are paid from the home office and are included in all employee benefit plans. There is no dispute that they are regular employees. The company requires that they have available space in their homes from which they can conduct their business. Each one of the engineers has an office equipped with at least one desk, a dictating machine, a file cabinet, a typewriter, and a technical library, in addition to the necessary office supplies. These are all supplied at company expense, if required.
The engineers' contacts with customers whom they service are established through their home locations. The telephone listings in some instances ...