Matthews, Seidman and Horn. Horn, J.A.D. (concurring).
Petitioner New Jersey Bell Telephone Company appeals from a determination of the Division of Tax Appeals holding that revenues received by it for non-recurring charges for service connections, installations, moves and changes of all types and kinds of telephone facilities are subject to the New Jersey Sales and Use Tax, N.J.S.A. 54:32B-1 et seq.
The Director cross-appeals from a determination of the Division which holds revenues received by petitioner for audio and video transmission services are not subject to the act.
N.J.S.A. 54:32B-3 imposes a sales tax upon:
(a) The receipts from every retail sale of tangible personal property, except as otherwise provided in this act.
(b) The receipts from every sale, except for resale, of the following services:
(2) Installing tangible personal property, or maintaining, servicing, repairing tangible personal property not held for sale in the regular course of business * * *.
N.J.S.A. 54:32B-8, which contains 32 categories of exemptions, provides, in pertinent part:
Receipts from the following shall be exempt from the tax on retail sales imposed under subsection (a) of section 3 and the use tax imposed under section 6:
(g) Sales of gas, water, steam, fuel, electricity, telephone or telegraph services delivered to consumers through mains, lines, pipe, or in containers or bulk;
The Director determined that (1) since telephone instruments or facilities are "tangible personal property" within the meaning of § 2(g), receipts for installation charges are taxable pursuant to § 3(b)(2); (2) such receipts proposed to be taxed under § 3(b)(2) are not exempted by § 8(g) because the exemptions listed therein are only applicable in instances where the tax has been imposed under § 3(a); (3) since receipts from audio and video transmissions constitute the leasing of tangible personal property, they are taxable under § 3(a), and (4) such receipts do not constitute the sale of general telephone services within the meaning of § 8(g).
The Division of Tax Appeals affirmed the Director's determination as to nonrecurring installation charges but reversed his decision as to audio and video transmission signals, finding that these transmissions are exempt as they clearly come within the meaning of "telephone services" contained in § 8(g). In this regard he pointed out that the Director erred in viewing these transmissions since a leasing or licensing arrangement to use petitioner's equipment as they are clearly in the nature of a service to its customers, and the Legislature, probably being aware of the fact that telephone companies are presently in the business of providing many communication services, must have used the words "telephone services" in § 8(g) with the intention of including "communication services" provided by them as of the date of the act.
Petitioner argues that the tax appeals judge erred in ruling that the nonrecurring installation charges are taxable
pursuant to § 3(b)(2), emphasizing that such charges are exempt since they constitute an integral part of "telephone services" within the meaning of § 8(g). It claims that such a construction of the act is supported by (a) the answers to a series of questions provided by the Sales Tax Bureau in its pamphlet, "What New Jersey Sales Tax Means To You," which suggest that the Legislature intended to exempt "telephone services" without limitation; (b) there is no logical basis for distinguishing initial access to the telephone exchange network from the rest of telephone service; (c) since labor costs for the installation of equipment represent only a small portion of the cost for a service connection, and merely constitute a method by which petitioner recovers a portion of the total cost for providing the service, such charges are not installation charges per se but should be considered as part of the general cost for telephone service, and (d) a majority of out-of-state legislatures have treated service connection charges as an integral part of "telephone services."
Nonrecurring charges are billed to customers as a result of service order activity. This activity involves the service connection, move or change of a subscriber's basic service. Nonrecurring charges also come into play when customers add, move or change supplemental services such as extensions, premium telephones or custom calling services in the residential market, and extensions, key telephone equipment, switchboards, special toll services or channel services in the business market. Thus, there are service connection, move and change charges which normally apply to basic services and installation charges which cover order activity for supplemental and premium services.
The vast majority of service order work involves the connection of new service for customers. Customers also ask for the movement of service, change and substitution of service, additions to service and, ultimately, the disconnection of their service. The connection work is the majority of the orders.
Petitioner provides telecommunications services to customers who subscribe to the ability to communicate as contrasted with buying a product. In order to provide the service, certain instrumentalities must be installed at customers' premises. Since customers have different communications needs, the nature of each such installation tends to differ and the aggregate price to each customer is dependent upon the service arrangement for which he subscribes, but these instrumentalities are provided only in connection with a charge for the service and service arrangement and there is no sale of these instrumentalities in the ordinary sense; there is no transfer of title. Instead, the equipment is a New Jersey Bell asset through which the service is furnished and, while there may be some relationship between the aggregate rates for the arrangement and its costs, there is no cost-rate relationship as regards the nonrecurring, recurring or usage price aspect.
Under our reading of the act we perceive a clear intention by the Legislature to exclude and exempt from taxation all revenues for "telephone services," which include those related to service connections, moves and changes.
The Sales Tax Act was designed so as to levy a tax upon all sales of tangible personal property unless otherwise exempted (§ 3(a)), and to levy tax only upon the sale of those services expressly enumerated as being subject to taxation (§ 3d(b)). Thus, if the Legislature intended to tax telephone service, it would have expressly included them within taxable services under section 3(b). Conversely, had the Legislature intended to exclude telephone services from tax liability, it merely would have had to omit them entirely. The Legislature did not subject telephone services to the sales tax, nor did it tax any other communication services.
In addition to exclusion by omission, the Legislature expressly exempted "telephone services" under § 8(g), quoted above and certain sales of communication equipment under § 8(m)(3):
Sales of telephone lines, cables, central office equipment or station apparatus, or other machinery, equipment or apparatus, or comparable telegraph equipment, for use directly and primarily in receiving at destination or initiating, transmitting and switching telephone or telegraph communication.
We believe that the Legislature adopted this statutory pattern so as to insure that "telephone services " in their broadest sense would be exempt from sales taxation. The expressed exemptions were added to guard against the possibility that those generalized services which were specifically subjected to tax would not be erroneously taxed against the telephone consumer.
While there is a dearth of legislative history behind the enactment of the sales tax, we deem it significant that the same Legislature that enacted the sales tax also enacted a reformation of the business personal property tax (L. 1966, c. 138, § 1) which eliminated the tax on personal property except that property "used in the business of telephone, telegraph and messenger systems, companies, corporations or associations subject to tax under Chapter 4, laws of 1940, as amended." Pursuant to N.J.S.A. 54:4-2.47 and 48 petitioner continues to pay taxes on the book value of its personal property to each municipality in which such property is located. We think that these two legislative acts, the product of the same Legislature, read in pari materia , demonstrate that the legislative intent was to avoid duplicative taxation on the consumer of telephone service.
The Division of Tax Appeals, in upholding the taxability of the nonrecurring service charges, relied on the rule of statutory construction which holds that an exemption claimed under taxation statutes must be construed strictly against him claiming the exemption, see e.g., Congregation B'Nai Yisroel v. Millburn Tp. , 35 N.J. Super. 67, 72 (App. Div. 1955), and that the burden of proving tax-exempt status is on the taxpayer. Bloomfield v. Academy of Medicine of N.J. , 47 N.J. 358 (1966); Princeton Univ. Press v. Princeton Borough , 35 N.J. 209 (1961). However viable
this rule, it does not require the courts to destroy the fair intendment of the statutory language. Congregation B'Nai Yisroel , above, 35 N.J. Super. at 72. In addition, as was pointed out by our Supreme Court in Kingsley v. Hawthorne Fabrics, Inc. , 41 N.J. 521 (1964):
An administrative agency may not under the guise of interpretation extend a statute to include persons not intended, nor may it give the statute any greater effect than its language allows. See Adams v. Atlantic County , 137 N.J.L. 648, 652 (E. & A. 1948); City of Camden v. Local Government Board , 127 N.J.L. 175 (Sup. Ct. 1941); 1 Davis, Administrative Law §§ 5.05, 5.06 (1958). These principles are particularly compelling with respect to the interpretation of tax statutes. As was said in Gould v. Gould , 245 U.S. 151, 153, 38 S. Ct. 53, 62 L. Ed. 211, 213 (1917):
"In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt they are construed most strongly against the government, and in favor of the citizen." [at 528-529]
The Director argues that the tax appeals judge erred in viewing audio and video transmissions, which are one-way transmissions, as part of general "telephone services" which are two-way transmissions. It is suggested that such an interpretation necessitates a finding that "telephone services" includes activities such as closed circuit television signals.
Petitioner provides audio and video transmission services which essentially provide for the electrical transmission of information from one location to another location; that is, petitioner accepts a signal at point A and delivers it to point B. This signal in most audio and video cases is delivered to petitioner electrically, whereas in many cases of basic exchange services, petitioner provides a telephone instrument to convert the voice into a signal and back again.
In cases of customer-owned PBX's, customer-owned station equipment and privately owned telephones petitioner does not always provide such an instrument and frequently
the signal is accepted from the customer in electrical form and is delivered to him in electrical form. The transmission link is the same.
The customer actually does the transmission and reception; that is, in a telephone he talks into the telephone and ...