On appeal from final judgment of Tax Court of New Jersey, 5 N.J. Tax 232 (Tax Ct. 1982).
Ard, Morton I. Greenberg and Trautwein. The opinion of the court was delivered by Ard, P.J.A.D.
This is a tax case involving the New Jersey Corporation Business Tax Act, N.J.S.A. 54:10A-1 et seq. Specifically, we are called upon to interpret N.J.S.A. 54:10A-6 and 8 and the administrative code definitions and regulations implementing these sections.
The factual complex is not in dispute. The S.M.Z. Corporation (S.M.Z.) is incorporated under the laws of New Jersey and maintains a statutory place of business in New Jersey. It is a real estate holding company, and all of its property and income is located in New Jersey with the exception of a gasoline station located in the State of New York and, the subject of this controversy, an improved commercial property located on Route 7, Brookfield, Connecticut. S.M.Z. leases the Connecticut property on a net basis, except for property taxes, to Texaco for use as a gasoline station.
On August 31, 1978, defendant, Director, Division of Taxation (director), assessed additional corporation business taxes against S.M.Z. for the years 1973 to 1976. The director determined that S.M.Z. is not authorized to compute its New Jersey Corporation business tax, N.J.S.A. 54:10A-1 et seq., by taking into consideration the Connecticut property and apportioning its income and net worth. S.M.Z. paid the franchise tax under protest and sought refund by filing a timely petition of appeal with the Division of Tax Appeals. The matter was transferred to the tax court pursuant to N.J.S.A. 2A:3A-26. The tax court, in a reported case, upheld the assessment imposed by the director and dismissed S.M.Z.'s complaint. Subsequent to the entry of judgment below, the director filed a motion for an order modifying
the trial judge's opinion in which S.M.Z. joined. The motion was denied by letter opinion dated January 5, 1983.
The matter was submitted below on an agreed set of facts. The parties stipulated the following:
1. Plaintiff is a New Jersey corporation.
2. It maintains a statutory place of business in New Jersey and owns commercial rental property on Route 7, Brookfield, Connecticut, which it leases on a net basis to Texaco for use as a gasoline station.
3. Plaintiff has no regular employees working outside New Jersey, neither does it maintain, occupy or use its Connecticut place of business. Plaintiff has no regular employees working inside New Jersey.
4. All of the plaintiff's property and income is located and generated in New Jersey and Connecticut (with the exception of a small gas station similarly leased on a net basis in the State of New York). Plaintiff is not seeking to allocate with respect to the New York station.
5. S.M.Z. is taxed as an out-of-state corporation by the State of Connecticut under its Corporation Business Tax. Plaintiff on or about January 26, 1981 paid its Connecticut taxes for years 1973 through 1980. Plaintiff contends that during that period and until those taxes were paid, said due and unpaid taxes constituted a lien on its Connecticut property.
6. The Division does not permit plaintiff to allocate because it does not maintain, occupy and use a regular place of business outside New Jersey within the meaning of N.J.S.A. 54:10A-6 as set forth in the assessment letter.
7. The Director, Division of Taxation has held that the adjustment of the allocation factor of N.J.S.A. 54:10A-6 pursuant to N.J.S.A. 54:10A-8 is not justified in this case.
8. If plaintiff is permitted to allocate under New Jersey law, the parties will attempt to arrive at agreed computations pursuant to R. 8:9-3.
9. True copies of plaintiff's 1973 through 1980 Connecticut tax returns are attached hereto.
10. True copies of plaintiff's 1973 through 1976 New Jersey tax returns are attached hereto.
The tax court held that since plaintiff, S.M.Z., does not maintain "a regular place of business" as defined N.J.A.C. 18:7-7.2(a), it does not have an allocation factor pursuant to N.J.S.A. 54:10A-6. S.M.Z. Corp. v. Taxation Div. Director, 5 N.J. Tax. 232, 237-238 (Tax Ct.1982). Thus, since S.M.Z. does not have an allocation factor under Section 6, the director has no authority to make an adjustment under N.J.S.A. 54:10A-8. Id. at 238. Accordingly, the judge of the tax court upheld defendant's assessment and dismissed S.M.Z.'s complaint. A judgment
to that effect was entered on November 4, 1982. Subsequent to the entry of the aforementioned judgment, the case took a unique twist. After the director had secured a ruling in his favor on all points, he filed a motion for reconsideration. S.M.Z. joined in that motion. The gravamen of the motion was as follows:
The Director denied S.M.Z.'s request for a Section 8 adjustment below, and continues to believe that this case is inappropriate for a Section 8 adjustment. However, because of a misunderstanding between this office and the Division [of Taxation], defendant argued that plaintiff was not entitled to a Section 8 adjustment, not on the particular facts of this case, but rather on the theory that plaintiff was not entitled to a Section 8 adjustment because Section 8 was not available to a taxpayer unless that taxpayer had the right to allocate under Section 6 of the Act. This argument was advanced in error and the Director believes the argument was incorrect. It is this portion of the Court's opinion that the Director wishes modified for the reasons set forth below. [Footnote omitted.]
In effect, the director sought reconsideration of that portion of the determination below which held that Section 8 was not available to a taxpayer unless that taxpayer had the right to allocate under Section 6 of the act. Apparently the Attorney General, through a misunderstanding, initially argued what he thought was the director's position. After the tax court opinion was rendered, the director communicated with the Attorney General and advised him that the director's position was not as presented to the court below. It is the director's present position, as argued on the motion for reconsideration, that S.M.Z. was not entitled to a Section 8 adjustment on the particular facts of this case. However, the director sought recognition that he has the authority to make a Section 8 adjustment even when 100% of a taxpayer's income and net worth is allocated to New Jersey under Section 6.
As indicated, the tax court, in a letter opinion, denied the motion for reconsideration and held, ". . . that there shall be no allocation to a company that does not have a regular place of business outside the State of New Jersey." This appeal followed. S.M.Z. argues that the determination below was in error in holding that S.M.Z. does not maintain a regular place of
business in Connecticut; in concluding that the subject franchise tax imposed upon a corporation organized under the laws of New Jersey, even though that tax is in part measured by property held, and by income generated in another state, does not violate the due process and equal protection clause of the Fourteenth Amendment and the commerce clause, and in failing to recognize that this case may well be appropriate for a Section 8 adjustment.
The New Jersey Corporation Business Tax Act, N.J.S.A. 54:10A-1 et seq., imposes a tax on:
Every domestic or foreign corporation which is not hereinafter exempted . . ., for the privilege of having or exercising its corporate franchise in this State, or for the privilege of doing business, employing or owning capital or property, or maintaining an office, in this State. . . . [ N.J.S.A. 54:10A-2.]
In other words, the tax may be imposed upon a corporation incorporated under the law of this State for the mere possession of the privilege of having its corporate franchise. N.J.A.C. 18:7-1.6(a)(1), 1.7 and 2.1. Accord Hoeganaes Corp. v. ...