On appeal from the Appellate Division, whose opinion is reported at 160 N.J. Super. 303 (1978).
For affirmance -- Chief Justice Wilentz and Justices Sullivan, Pashman, Clifford, Schreiber, Handler and Pollock. For reversal -- None. The opinion of the Court was delivered by Schreiber, J.
[82 NJ Page 308] Virginia McKenney, Henry Kurz and Peter Shaw filed a complaint in lieu of prerogative writ attacking the constitutionality of N.J.S.A. 54:30A-61 apportioning to municipalities proceeds of a tax imposed on gross receipts of certain public utilities.*fn1 The named defendants are the Governor, State Treasurer, Director of the Division of Taxation, Commissioner of the Department of Community Affairs and the Director of the Division of Local Government Services. Twenty-two municipalities were permitted to intervene, some on behalf of plaintiffs and others on behalf of defendants.
After considering cross-motions for summary judgment, the trial court held the statute constitutional and dismissed the complaint. 147 N.J. Super. 158 (Law Div.1976). The individual plaintiffs, City of Trenton, Township of Lawrence (Mercer County), City of Salem and Borough of Woodbine appealed. The Appellate Division affirmed essentially for the reasons given by the trial court. 160 N.J. Super. 303 (App.Div.1978). Plaintiffs then appealed as of right to this Court. R. 2:2-1(a).
The challenged provision is part of a legislative scheme, N.J.S.A. 54:30A-49 et seq., taxing principally gas, electric and water public utilities. The stated purposes of the Act are "to provide a complete scheme and method for the taxation of [the enumerated classes of public utilities] using or occupying public streets . . . or other public places" and to apportion "certain of such taxes among municipalities upon the fixed standards" set forth. N.J.S.A. 54:30A-49. However, excluded from the taxing plan are land and buildings, N.J.S.A. 54:30A-50(b) and N.J.S.A. 54:30A-52, electric and gas appliances held for resale, and by-products of gas manufacture held for resale. N.J.S.A. 54:30A-52. These excluded items are to be assessed and taxed at local rates in the same manner as other comparable property. On the other hand, these public utility companies are exempt from the corporate income tax, and the sales tax on business machinery. N.J.S.A. 54:30A-51.
There are four separate taxing components in the Act: (1) a tax of generally 5% of a fraction of the utility's gross receipts, the fraction being the ratio of the length of lines or mains in public streets or places excluding service connections to the total length of lines or mains excluding service connections, N.J.S.A. 54:30A-54(a); (2) a tax of 7 1/2% of gross receipts from business "over, on, in, through or from its lines or mains," N.J.S.A. 54:30A-54(b); (3) a tax of generally 0.625% calculated on the same fraction of gross receipts as computed under (1) above,
N.J.S.A. 54:30A-54(c)(1); and (4) a tax of 0.9375% calculated in the same manner as (2) above, N.J.S.A. 54:30A-54(c)(2). Only the distribution of the funds derived from the 7 1/2% gross receipts tax is challenged.*fn2
The proceeds from that tax (item (2) above) are apportioned among municipalities based on the ratio of "scheduled property" of the public utility located within the municipality to the total value of "scheduled property" of the public utility within the State. N.J.S.A. 54:30A-61. "Scheduled property" is by definition limited to specified items, each measurable by a prescribed unit value. N.J.S.A. 54:30A-50(d). In the case of gas companies, it includes gas manufacturing plants, valued at $185 per 1,000 cubic feet of daily manufacturing capacity; gas holders, valued at $80 per 1,000 cubic feet of capacity, and mains, valued at prices depending on size and material. N.J.S.A. 54:30A-58. As for the electric industry scheduled property consists mainly of generating stations, valued at $45 per kilowatt of generating capacity; substations and switching stations, valued at $14 and $5 per kilovolt-ampere of capacity; towers, valued at $2,530 each; poles generally at $27 each; conductors and conduits valued at various per-foot charges depending upon size and material, and street lights at $11 each. N.J.S.A. 54:30A-58. The State Tax Commissioner annually computes and certifies the amount due to each municipality in which scheduled property is located. N.J.S.A. 54:30A-61. The public utility thereafter pays that amount directly to the municipality. N.J.S.A. 54:30A-62.
Plaintiffs persuasively argue that this method of allocation disserves the public interest. Municipalities with small populations, which have a nuclear plant or other generating station within their borders, have been receiving disproportionately
large revenues from the tax on gross receipts derived in large measure from customers in other communities. For example, in 1978 the municipalities involved in this case received dramatically disparate per capita revenues from the gross receipts tax:
and Municipalities of 1978 Gross 1978 Est. Pop- Per Capita
Individual Plaintiffs Receipts (a) ulation (b) Revenue
------------------------ ----------- -------------- ----------
Woodbine Bor. $13,049 2,807 $4.65
Roselle Pk. Bor. 123,831 13,299 9.31
Delaware Tp. 49,179 3,693 13.32
Trenton 1,406,237 96,359 14.59
E. Amwell Tp. 52,486 3,171 16.55
Salem 168,884 7,039 23.99
Lawrence Tp. (Mercer) 625,504 20,923 29.90
Plaintiff Total $2,439,170 ...