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Salorio v. Glaser

Decided: March 26, 1980.

JOHN SALORIO, ROBERT COE AND JOHN D. MCGARR, JR., PLAINTIFFS-APPELLANTS,
v.
SIDNEY GLASER, DIRECTOR OF THE DIVISION OF TAXATION, DEPARTMENT OF THE TREASURY OF THE STATE OF NEW JERSEY, DEFENDANT-RESPONDENT



On certification to the Superior Court, Chancery Division.

For vacation and remandment -- Chief Justice Wilentz and Justices Sullivan, Pashman, Clifford and Schreiber. For affirmance -- None. The opinion of the Court was delivered by Pashman, J.

Pashman

I

This case presents for review the constitutionality of the Emergency Transportation Tax (ETT) Act, N.J.S.A. 54:8A-1 et seq.

Plaintiffs,*fn1 three New York residents who commute or have commuted from their homes in New York to work in New Jersey, claim that since the ETT is paid solely by New York residents, it impermissibly discriminates against them in violation of the Privileges and Immunities and Equal Protection Clauses of the Federal Constitution. U.S.Const., Art. IV, § 2, cl. 1; Amend. XIV, § 1. The State argues that imposition of the tax is justified by the existence of a "transportation emergency."

Plaintiffs filed suit in the Superior Court, Chancery Division, on June 8, 1977, seeking declaratory and injunctive relief from imposition of the tax. They also demanded damages in the amount of all monies paid to New Jersey pursuant to the ETT.*fn2

The taxpayers and the State filed cross motions for summary judgment. On plaintiffs' motion, the court agreed to hear the matter as a summary proceeding without oral testimony pursuant to R. 4:67. Taking issue with plaintiffs' contention that the tax statute was facially unconstitutional under Austin v. New Hampshire, 420 U.S. 656, 95 S. Ct. 1191, 43 L. Ed. 2d 530 (1975), the State requested an opportunity to develop and introduce

evidence that a "transportation emergency" justified the disparate treatment of non-residents. The parties took depositions of the plaintiffs and various State officials. The State also submitted documentary material regarding a 1962 taxation accord between New York and New Jersey (hereinafter the Accord).

In a letter opinion, the trial court declared the tax constitutional. According to the court, the sole issue presented by the plaintiffs under the Privileges and Immunities Clause was "whether or not the Austin case is dispositive of [the validity of] the legislation." Finding that a transportation crisis did in fact exist, and comparing the total tax liabilities of New Jersey residents to that imposed by New Jersey on commuters from New York, the court concluded that the criterion of "substantial equality" enunciated in Austin was satisfied. See 420 U.S. at 665, 95 S. Ct. at 1197, 43 L. Ed. 2d at 537. The court further held that even if there were no distinctions between the present case and Austin based on the states' justifications for their respective taxes, the 1962 Accord was sufficient to validate New Jersey's taxation scheme.

Addressing plaintiffs' claim under the Equal Protection Clause, the court noted that in economic matters a statute need only bear some rational relation to a legitimate governmental objective. In the area of tax policy, the Legislature enjoys particularly broad discretion. Having found a proper governmental purpose, the court sustained the tax. The court did not determine whether the Act was unconstitutionally applied by reason of misappropriation of ETT receipts. Noting that the Act itself "contains the internal safeguards" to insure that tax monies would be spent exclusively to alleviate the State's "transportation emergency," the court remanded plaintiffs to the remedies provided by the statutory scheme. It accordingly entered judgment in favor of the State.

Plaintiffs appealed from the judgment of the trial court. While the appeal was pending unheard in the Appellate Division, plaintiffs filed a motion for direct certification pursuant to

R. 2:12-2. This Court granted plaintiffs' motion 81 N.J. 269 (1979). We now vacate the trial court judgment and remand the matter for proceedings consistent with this opinion.

II

Standing

An initial question arises as to plaintiffs' standing to bring this action. The record discloses that each of the plaintiffs either has paid or continues to pay emergency transportation taxes to New Jersey.*fn3 However, since New York grants its residents a credit for income taxes paid to other states, any reduction in tax liability to New Jersey will result in an equal increase in tax liability to New York. See infra at 497-498. Thus plaintiffs would not gain financially from a judgment in their favor. Emphasizing this apparent lack of economic harm and the fact that the State of New York is financing the present litigation, the State argues that plaintiffs do not have sufficient interest in the case and that New York is the "real party in interest."

Despite the fact that plaintiffs' total tax obligation may remain unchanged, we conclude that they have standing to challenge the constitutionality of the ETT. It is important to recognize that New Jersey State courts are not bound by the "case or controversy" requirement governing federal courts, U.S.Const., Art. III, § 2. See Crescent Park Tenants Ass'n v.

Realty Eq. Corp. of N.Y., 58 N.J. 98, 107-108 (1971). Our State Constitution contains no analogous provision limiting the subject-matter jurisdiction of the Superior Court. See N.J.Const. (1947), Art. VI, § 3, par. 2. This Court remains free to fashion its own law of standing consistent with notions of substantial justice and sound judicial administration. We therefore find it unnecessary to consider whether federal standing requirements have been met.*fn4

We have consistently held that in cases of great public interest, any "slight additional private interest" will be sufficient to afford standing. New Jersey State Chamber of Commerce v. New Jersey Election Law Enforcement Comm'n, 82 N.J. 57, 68-69 (1980); Home Builders League of South Jersey, Inc. v. Tp. of Berlin, 81 N.J. 127, 132 (1979); Terwilliger v. Graceland Memorial Park Ass'n, 35 N.J. 259, 268 (1961), aff'g 59 N.J. Super. 205, 215 (Ch.Div.1960); Elizabeth Federal Savings & Loan Ass'n v. Howell, 24 N.J. 488, 499 (1957); Al Walker Inc. v. Bor. of Stanhope, 23 N.J. 657, 660-666 (1957); Driscoll v. Burlington-Bristol Bridge Co., 8 N.J. 433, 476 (1952), cert. den., 344 U.S. 838, 73 S. Ct. 25, 97 L. Ed. 652 (1952); cf. Hudson-Bergen County Retail Liquor Stores Ass'n v. Bd. of Comm'rs of Hoboken, 135 N.J.L. 502 (E & A 1947). A sufficient private interest exists in this case. If successful, plaintiffs would enjoy the benefit derived from the use of any funds recovered from the State of New Jersey prior to the time such monies may have to be remitted to New York. As New York residents, they would also share in the possible beneficial effect that a resulting

increase in tax revenue to New York might have on future New York tax rates.*fn5

As the trial court noted, the United States Supreme Court has rejected the State's theory that New York and not the plaintiffs is the "real party in interest." In Pennsylvania v. New Jersey, 426 U.S. 660, 96 S. Ct. 2333, 49 L. Ed. 2d 124 (1976), Pennsylvania alleged that this State's Transportation Benefits Tax, N.J.S.A. 54:8A-58 et seq.,*fn6 was unconstitutional under the Privileges and Immunities Clause of Article IV and the Equal Protection Clause of the Fourteenth Amendment.*fn7 Finding no justiciable

controversy, the United States Supreme Court denied Pennsylvania's motion for leave to file an original complaint. The Court held that the only direct injury to the plaintiff states resulted from decisions by their legislatures to extend tax credit for income taxes paid by their residents to the defendant states. Without resolving Pennsylvania's claims that the Transportation Benefits Tax Act violated the Privileges and Immunities and Equal Protection Clauses, the Court responded:

The short answer to these contentions is that both Clauses protect people, not States. [426 U.S. at 665, 96 S. Ct. at 2335, 49 L. Ed. 2d at 129]

New York similarly attempted to challenge the ETT in an original action in the United States Supreme Court, New York v. New Jersey, 429 U.S. 810, 97 S. Ct. 48, 50 L. Ed. 2d 70 (1976) but the Court denied its motion for leave to file an original complaint, citing Pennsylvania v. New Jersey, supra. New York, therefore, cannot be the real party in interest in this case; its role in financing the litigation is irrelevant to plaintiffs' standing to bring suit.

We conclude that as a matter of New Jersey law, the interests asserted by plaintiffs are personal to them and justiciable in the present suit.*fn8

III

The Statutory Scheme

The enactment of the ETT in 1961, L. 1961, c. 32, was preceded by extensive studies and hearings on the transportation problems [82 NJ Page 494] facing the New Jersey-New York metropolitan area. See Report of the Project Director of the Metropolitan Rapid Transit Commission (1957) (hereafter Metropolitan Transit Commission Survey); Public Hearings on Assembly Bills No. 16 & 115 and Senate Bill No. 50 before New Jersey Legislature Assembly Committee on Federal & Interstate Relations and Assembly Committee on Highways, Transportation & Public Utilities (November 24 & December 3, 1958); Joint Report of the New Jersey Legislature Assembly Committee on Highway, Transportation & Public Utilities and the Committee on Federal and Interstate Relations on A-16, A-115 and S-50 (1958); Report on Rapid Transit for the New York-New Jersey Metropolitan Area (1958) (hereafter Metropolitan Rapid Transit Report); N.J. State Highway Dep't., Div. of Railroad Transportation, A Proposal Towards Solving New Jersey's Transportation Problem (1959); N.J. Governor, 1954 (Meyner), Memorandum -- Proposed Commuter Benefit Tax (May 2, 1960) (hereafter Governor's Memorandum); Public Hearing before New Jersey Legislature Assembly Appropriations Committee on Assembly Bill No. 65, Emergency Transportation Tax Act (May 20, 1960) (hereafter Hearing on Assembly Bill No. 65). These inquiries focused mainly on the impact of peak-hour transportation demands generated by interstate commuters.*fn9 See, e.g., Governor's Memorandum, supra at 1; Hearing on Assembly Bill No. 65, supra at 1, 8; Metropolitan Rapid Transit Report, supra at 14. Efforts to ease New Jersey's burden culminated in the passage of Chapter 32 of the Laws of 1961.*fn10 The statute authorized a

tax on the income derived by New Jersey residents from sources in another "critical area state" and on the income of residents of another "critical area state" derived from sources within this State. The statute defined "critical area state" to mean

this State and such other State bordering thereon within which there exists part of an area, another part of which is in this State, and within which area there is, as of January 1 of any year, a critical transportation problem in respect to the transportation of persons and property interstate. [ L. 1961, c. 32, § 5(a), N.J.S.A. 54:8A-5(a)]

This authority would be invoked during any year in which the State Highway Commissioner certified the existence of a "critical transportation problem." L. 1961, c. 32, § 5(c), N.J.S.A. 54:8A-5(c). Such a certification would entail a finding that

there is such number of daily commuters between [the] States as to create a severe peak-load demand requiring facilities and services, by any means or mode of transportation far in excess of those needed for normal travel outside of usual commuter hours * * *. L. 1961, c. 32, § 5(b), N.J.S.A. 54:8A-5(b)]

According to a legislative presumption,

whenever the aggregate number of [interstate commuters] * * * exceeds 100,000, that fact reasonably indicates that a critical transportation problem exists. [ Id. ]

Pursuant to section 5(c) of the act, N.J.S.A. 54:8A-5(c), the State Highway Commissioner certified to the State Treasurer on June 27, 1961, that a critical transportation problem existed in

an area partly in New Jersey and partly in New York and that the states of New York and New Jersey were therefore "critical area states" within the meaning of section 5. 1961 Certification of the New Jersey State Highway Commissioner (hereafter "1961 Certification") at 21.

As enacted, the ETT contained a credit provision which would have released New York residents from imposition of the tax by virtue of then existing New York law. The credit allowed out-of-state residents to deduct payments under their home state's income tax from their ETT liability if their home state granted a reciprocal privilege to New Jersey residents. See L. 1961, c. 32, § 16, N.J.S.A. 54:8A-16(A). At the time the ETT act became law, New York permitted such a reciprocal tax credit. See 1960 N.Y.Sess.Laws, Ch. 563, N.Y.Tax Law § 640 (repealed). Because ETT and New York Personal Income Tax rates were identical, see infra at 498-499, the operation of both states' credit provisions would have allowed commuters from either state to avoid paying any income tax to the states where they worked. Thus when originally enacted, the ETT fell exclusively on New Jersey residents earning income in New York, the number of which was far greater than the number of New York residents earning income in New Jersey. See 1961 Certification, supra, at 7. It is apparent from the hearings held before passage that New York's reciprocal credit had been taken into account in devising the emergency transportation tax. Indeed, the tax was described as having been anticipated by New York since its enactment in 1919 of an income tax with a reciprocal credit provision. See 1919 N.Y.Sess.Laws, Ch. 627, § 363. It was characterized as simply diverting New Jersey residents' money back to New Jersey.*fn11

New York's response to this potential loss of revenue was a prompt repeal of the credit it granted to non-residents taxed by their home states, and the amendment of its tax law to allow credit only to its own residents paying taxes to other jurisdictions. 1962 N.Y.Sess.Laws, Ch. 2, repealing N.Y.Tax Law § 640 and amending § 620.*fn12 This change in New York law prevented New Jersey commuters from deducting ETT payments from their New York income tax liability and had the effect of subjecting New York residents to the ETT. At the time, however, no credit provision existed which would have released New Jersey residents from their ETT liability. See L. 1961, c. 32, § 16; L.1961, c. 129, § 9. As a result, New Jersey residents were ...


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