On appeal from the Superior Court, Appellate Division, whose opinion is reported at 159 N.J. Super. 596 (1978).
For affirmance -- Chief Justice Hughes and Justices Mountain, Sullivan, Pashman, Clifford, Schreiber and Handler. For reversal -- None. The opinion of the court was delivered by Schreiber, J.
Questioned in this case is the constitutionality of the retroactive effect of the State's capital gains tax, known as the Tax on Capital Gains and Other Unearned Income Act, N.J.S.A. 54:8B-1 et seq., which was enacted on August 4, 1975 and applied to capital gains received on or after January 1, 1975.*fn1 After the Director of the Division of Taxation held that plaintiff's capital gains transaction on January 8, 1975 resulted in a taxable event as contemplated by the act, the plaintiff taxpayer appealed to the Appellate Division, which affirmed. 159 N.J. Super. 596 (1978). The matter is before us by virtue of plaintiff's appeal pursuant to R. 2:2-1(a).
Because plaintiff appealed from the Director's decision directly to the Appellate Division rather than to the Division of Tax Appeals, the record consists only of plaintiff's affidavit, correspondence between plaintiff's counsel and the Director, copies of plaintiff's tax returns, and a recitation of what occurred at an informal conference between the parties. At that meeting plaintiff was advised that the facts should be developed in a formal hearing before the Division of Tax Appeals. We agree. However, irrespective of that deficiency, we are satisfied on the record herein that the Director's determination should be affirmed. A summary of the factual picture emerging from the record follows.
Plaintiff moved from New York to Fort Lee in November 1974. On January 8, 1975 he sold certain securities, realizing capital gains of $11,879,000. He claims that the move
from New York in November 1974 and the sale of the stock on January 8, 1975 were made in specific reliance upon the nonexistence of a New Jersey capital gains tax. At the time of the sale, however, there were pending in the Legislature Assembly Bills 1305 (introduced March 18, 1974), 1883 (introduced July 8, 1974), and 1949 (introduced July 15, 1974), each of which would have imposed a tax on gains resulting from the sale or exchange of capital assets occurring after December 31, 1974.
The genesis of the Tax on Capital Gains and Other Unearned Income Act may be found in Assembly Bill 3556 (1975). The bill was introduced in the General Assembly on July 16, 1975, passed in the Assembly on July 18, 1975 and passed in the Senate with some amendments on July 21, 1975. The Assembly agreed to the amendments on July 25, 1975 and the Governor approved the measure on August 4, 1975. The act provided it was to "take effect immediately and shall be applicable with respect to unearned income earned, received or constructively accrued or credited to the taxpayer on or after January 1, 1975." L. 1975, c. 172, § 25.
Plaintiff contends that the retroactive effect of the statute as applied to him is unconstitutional, arguing that when an individual voluntarily enters into a transaction relying on the nontaxability of the event, a subsequently adopted statute cannot constitutionally create tax consequences where none previously existed. He further claims that he had no awareness of the real possibility of such or similar legislation.
Plaintiff maintains that under the United States Supreme Court decisions when a new tax is levied, any retroactivity is impermissible if the circumstances which resulted in the taxable event were voluntarily created by the taxpayer. We do not agree with this broad proposition. Our analysis of the leading Supreme Court opinions, beginning with Stockdale v. Atlantic Ins. Co., 87 U.S. (20 Wall.) 323, 22 L. Ed. 348 (1874), indicates that retroactive provisions of income tax statutes have invariably been held to be consistent with the
due process clauses in the Fifth and Fourteenth Amendments of the United States Constitution.
In Stockdale v. Atlantic Ins. Co., supra, Congress had enacted a law in 1870 which imposed a tax on dividends declared by corporations, the tax to be paid by the corporations. Earnings accrued in 1869 were subjected to the tax. In response ...