This case involves cross-motions for summary judgment and arises under the New Jersey Gross Income Tax Act. At issue is the calculation of the credit for tax paid to another state or political subdivision of such state under N.J.S.A. 54A:4-1 for the year 1977.
During 1977 taxpayer George P. Jenkins was a resident of New Jersey and was employed in the City of New York. As such, he was subject to New Jersey gross income tax, New York State personal income tax and New York City earnings tax. In 1977 taxpayer paid a tax of $33,784 to the State of New York and a tax of $1,080 to the City of New York.
Taxpayer reported 1977 New Jersey gross income of $447,552 and New Jersey tax liability of $10,988. Taxpayer claimed a credit of $7,174 on the New Jersey return for income tax paid to New York State and New York City. Taxpayer arrived at this figure by separately calculating the credit for income tax paid to New York State and income tax paid to New York City, and claiming the total of the two as credit against New Jersey gross income tax. N.J.S.A. 54A:4-1(b) limits the credit to that proportion of the New Jersey tax that the our-of-state income bears to the New Jersey income. Thus, the credit for New York State tax was computed by taxpayer as follows:
$248,191 (New York State income subject to tax) / $447,552 (New Jersey gross income) X $10,988 (New Jersey tax) = $6,094 (New York State tax credit)
A similar calculation by taxpayer to determine the credit for New York City tax resulted in a credit of $1,080, the calculated credit exceeding the actual New York City tax paid. By adding the two figures taxpayer arrived at a total tax credit of $7,174 ($6,094 $1,080).
The Director contends that taxpayer is entitled to only one credit and may not combine a credit for the New York State tax with a credit for the New York City tax. The Director argues that the maximum allowable credit under the statute cannot exceed $6,151.*fn1 The amount of tax liability at issue is thus $1,023 ($7,174 minus $6,151).
Taxpayer argues that the statutory language, which allows a credit for income tax paid to "another state or political subdivision of such state," means that credit must be allowed for tax paid both to New York State and New York City.
N.J.S.A. 54A:4-1 provides in pertinent part:
(a) A resident taxpayer shall be allowed a credit against the tax otherwise due under this act for the amount of any income tax or wage tax imposed for the taxable year by another state of the United States or political subdivision of such state, or by the District of Columbia, with respect to income which is also subject to tax under this act.
(b) The credit provided under this section shall not exceed the proportion of the tax otherwise due under this act that the amount of the taxpayer's income subject to tax by the other jurisdiction bears to his entire New Jersey income. [Emphasis supplied]
Taxpayer argues that the word "or" in N.J.S.A. 54A:4-1(a) in the phrase "by another state of the United States or political subdivision of such state" is conjunctive, not disjunctive. Taxpayer contends that the word "or" can be used interchangeably with "and," if consistent with legislative intent, citing in support Red Bank Ed. Ass'n v. Red Bank High Bd. of Ed., 151 N.J. Super. 435, 376 A.2d 1325 (App.Div.1977).
N.J.S.A. 54A:4-1 is interpreted in N.J.A.C. 18:35-1.12. Section 1.12 gives an example of the maximum tax credit allowable for tax paid to another jurisdiction. In this example a New Jersey resident who pays both New York City and New York State tax on his New York source income is only entitled to a credit for tax paid to New York State. Taxpayer argues that the example is inconsistent with legislative intent and thus invalid.
Taxpayer also contends that the Director's denial of the resident credit for the amount of New York City earnings tax paid constitutes invidious discrimination, in violation of the Equal Protection Clause of the Fourteenth Amendment of the United States Constitution and Art. I, par. 1, of the New Jersey Constitution. Additionally, taxpayer claims that under N.J.S.A. 54:8A-119 he has no obligation to pay New Jersey gross income tax because ...