On certification to the Superior Court, Appellate Division.
For affirmance -- Chief Justice Wilentz and Justices Schreiber, Handler and O'Hern. For reversal -- Justices Clifford, Pollock and Garibaldi. The opinion of the Court was delivered by Handler, J. Garibaldi, J., dissenting.
Plaintiff, Airwork Service Division (Airwork or taxpayer) is in the business of repairing airplane engines. All repairs are made at Airwork's facilities in New Jersey, and the repaired engines are then returned to customers, generally out of state. Defendant, Director, Division of Taxation (Director) notified Airwork in September 1973 of its intention to assess it for sales tax on services rendered between July 1, 1970 and June 30, 1973, under the New Jersey Sales and Use Tax Act, N.J.S.A. 54:32B-1 to -29 (Act). Airwork filed an appeal of the assessment with the Division of Tax Appeals in 1975, which was later heard by the Tax Court on cross-motions for summary judgment. The Tax Court held the assessment valid, granting the Director partial summary judgment. 2 N.J. Tax. 329 (1981). Airwork appealed and the Appellate Division affirmed. We granted the taxpayer's petition for certification. 93 N.J. 246 (1983).
The question that we first address is whether the underlying transactions are subject to the sales tax under the terms of the Act.
N.J.S.A. 54:32B-3 imposes a sales tax on the sale of tangible personal property and on the performance of certain services. N.J.S.A. 54:32B-2(f). The repair of airplane engines is a service covered by the Act. N.J.S.A. 54:32B-8.35. The taxpayer stresses, however, that while the repair services on these airplanes are rendered in New Jersey, the engines are later returned to out-of-state customers. It is contended that because the sale occurs at the place of delivery, the services
should be deemed to have been sold or completed at the site to which the returned property is delivered. The taxpayer points to provisions of the Act that treat the sale of goods and services equivalently, e.g., N.J.S.A. 54:32B-2(i) (defining "vendor"). Because the Act intends to tax only sales made within New Jersey, the argument continues, the Legislature cannot have intended to tax services performed on goods to be delivered to customers in other states.
This argument is not persuasive. It assuredly does not attain constitutional dimensions. In Evco v. Jones, 409 U.S. 91, 93, 93 S. Ct. 349, 350, 34 L. Ed. 2d 325, 328 (1972), the Court distinguished between a "tax * * * validly imposed on the service performed in the taxing State," and "a tax levied on the gross receipts from the sales of tangible personal property in another State," holding only the latter unconstitutional. Notwithstanding that the Legislature may have treated goods and services similarly for most purposes, it is entirely possible that it recognized the difference between the place where the finished product is delivered and where services upon it are rendered, in terms of subjecting services to taxation in a case such as this. See Fisher-Stevens, Inc. v. Director, Div. of Taxation, 121 N.J. Super. 513 (App.Div.1972), certif. den., 62 N.J. 575 (1973).
The critical issue is whether the Legislature intended to tax services such as those performed by Airwork. In looking first to the statutory language as such, we are struck by the fact that the services performed in New Jersey on goods delivered out of state are not specifically exempted from the application of the Act. N.J.S.A. 54:32B-3(b)(2). We have recently acknowledged, in a somewhat variant context, that such exemptions, if they are present, must be narrowly and strictly construed and, if not clearly applicable, the underlying transaction must be amenable to the tax. See Metpath v. Director, Div. of Taxation, 96 N.J. 147 (1984) (provision of Act exempting from tax all catalysts "that do not become a component part of finished product" is limited to chemicals used to produce tangible
personal property); Tuscan Dairy Farms, Inc. v. Director, Div. of Taxation, 4 N.J. Tax. 92 (1982).
The Tax Court here determined that the Act's failure to include an exemption from the sales tax of services to property delivered out of state was purposeful. 2 N.J. Tax. at 345. Such an exemption was expressly contained in the New York Sales and Compensating Use Tax Laws, § 1101 et seq. (McKinney 1979), which served as a model to the New Jersey Act. "Where the Legislature adopts a new law, using as a source a statute theretofore enacted in another jurisdiction, but omits a provision of the source statute, the omission is construed as being deliberate." 2 N.J. Tax. at 346. Clearly, the rendition of services in conjunction with the delivery of products out of state is not uncommon. E.g., Fisher-Stevens, Inc., supra, 121 N.J. Super. 513. Accordingly, we adopt the Tax Court's conclusion that the Legislature purposefully chose not to exempt these services. See Evco v. Jones, supra, 409 U.S. 91, 93 S. Ct. 349, 34 L. Ed. 2d 325; see also Bank of America v. Webster, 439 F.2d 691 (9th Cir.1971).
The taxpayer, however, points to historical circumstance to support its contention. The Act was passed in 1966 to be effective July 1 of that year. On June 28, 1966 the Sales and Use Tax Bureau of the Division of Taxation issued a press release, containing questions and answers about the Act, that was published on July 11, 1966, in a commercial tax news service -- Report 162 of the Commerce Clearing House New Jersey Tax Reports. The press release included the following statement:
Charges for repairs where the articles upon which the work is performed are delivered, upon completion, pursuant to contract, to a purchaser outside the State for use outside the State are exempt from the sales tax.
Airwork claims that this published statement is equated with an official policy adopted by the Division of Taxation. Nevertheless, the issue of the taxability of services performed for out-of-state customers was being actively litigated. It was -- or should have been -- well known to similarly situated taxpayers
that the Division of Taxation was vigorously taking the position that such services were taxable. The issue was finally resolved in 1972 by the decision of the Appellate Division in Fisher-Stevens, Inc., supra, 121 N.J. Super. 513, affirming the 1971 determination of the Division of Tax Appeals, Docket S.T. 109, which held that a company providing direct mailing services in New Jersey with materials sent chiefly to addresses in other states on behalf of out-of-state customers was subject to the sales tax for the services performed in New Jersey.
The taxpayer further notes that following the enactment of the statute, the Legislature failed to object to the Division's "position," ostensibly appearing in the 1966 press release. Airwork draws the conclusion that the Division's policy therefore met with legislative approval and conformed to the Legislature's intent. In general, the legislative attitude towards enacted legislation is a marginal tool of interpretation, even under the most propitious circumstances. 2A Sutherland, Statutory Construction § 48.06 (4th ed. 1972). The generally limited usefulness of coupling administrative practice with legislative inaction to extrapolate legislative intent is further reduced when the agency attitude itself is unofficial and equivocal. As the Division points out, the earlier press release was never officially approved or even authenticated as an official pronouncement. Further, to the extent there were any officially endorsed statements on this subject matter, these were set forth in the general instructions accompanying the official tax returns. The instructions did not authorize or permit the exclusion of services performed on goods delivered outside New Jersey. Moreover, following its successful litigation of the issue in 1972, the Division affirmatively sought to dispel the possible confusion generated by the earlier press release by specifically stating, in two separate issues of State Tax News, a bi-monthly newsletter published by the Division itself, that the sales tax did apply to repair services performed in New Jersey, regardless of where the repaired property was to be delivered.
We note that courts have acknowledged that "the practical administrative construction of a statute over a period of years without interference by the Legislature is evidence of its conformity with the legislative intent and should be given great weight by the courts." Automatic Merchandising Council v. Glaser, 127 N.J. Super. 413, 420 (App.Div.1974) (interpreting Sales and Use Tax Act); see Malone v. Fender, 80 N.J. 129 (1979). Nevertheless, the court will consider this factor only when it is not satisfied that the Legislature's intent cannot otherwise be determined by a critical examination of the purposes, policies, and language of the enactment. When such circumstances point strongly to the imputation of a particular legislative intent, they may not be outweighed or overcome simply by a countervailing administrative practice. See Fedders Corp. v. Director, Div. of Taxation, 96 N.J. 376 (1984) (language, purpose, and policy of "indebtedness" clause in New Jersey Corporation Business Tax Act evidenced legislative intent to exclude bona fide debt owed to affiliated corporation, notwithstanding contrary administrative interpretation that was itself confirmed by administrative rule and longstanding, uniform agency practice); Mobay Corp. v. Director, Div. of Taxation, 96 N.J. 407 (1984) (same).
We conclude, therefore, that the Act authorizes the imposition of a sales tax on the performance of services rendered in the state on goods to be delivered to customers outside the State.
The Division made no attempt to collect taxes on taxpayer's repair work during the early years of the sales tax, despite its having audited plaintiff's books during the summer of 1967. Because the taxpayer assertedly relied on the Division's previous position, it argues that the tax assessment against it is improper.
This argument is analogous to one based on principles of equitable estoppel. In New Jersey Turnpike Auth. v. Washington Tp., 137 N.J. Super. 543, 552 (App.Div.1975), aff'd o.b., 73 N.J. 180 (1977), the court remarked that "the application of principles of estoppel [is] particularly inappropriate where the collection of taxes by a public body is involved, except in unusual circumstances." See also Bayonne v. Murphy & Perrett Co., 7 N.J. 298 (1951) (taxing authority is not bound or estopped by unauthorized acts of its officers). In Skulski v. Nolan, 68 N.J. 179, 198 (1975), this Court recognized that "the concept of estoppel is not applied as readily against the public as against private persons." Id.; see Zigmont v. Bd. of Trustees, Teachers' Pension & Annuity Fund, 91 N.J. 580 (1983). The issue thus becomes whether the circumstances of this case warrant the unusual remedy of estopping the government from collecting taxes because the taxpayer has assertedly relied on earlier statements by the taxing authority.
A number of cases in other jurisdictions have refused to allow an estoppel against a taxing authority. E.g., Crane Co. v. Arizona State Tax Comm'n, 63 Ariz. 426, 163 P. 2d 656 (1945), overruled on other grounds sub nom. Duhame v. State Tax Comm'n, 65 Ariz. 268, 179 P. 2d 252 (1947); Market Street Ry. Co. v. California State Bd. of Equalization, 137 Cal.App. 2d 87, 290 P. 2d 20 (Dist.Ct.App.1955); La Societe Francaise v. California Employment Comm., 56 Cal.App. 2d 534, 133 P. 2d 47 (Dist.Ct.App.1943). The application of this equitable doctrine is extremely fact-sensitive. The Division stresses that Airwork has not demonstrated actual or reasonable reliance on any definitive official conduct on the part of the Division. As noted, no express exemption is provided by the Act itself. The press release, published in a private, commercial tax news service, was not shown to be an official statement or pronouncement. In addition, according to the Division, that release contained inaccuracies and outdated information, suggesting a lack of reliability. See Iowa Movers & Warehousemen's Ass'n v. Briggs, 237 N.W. 2d 759 (Iowa 1976) (taxing authority
not estopped from imposing tax contrary to past enforcement policy when taxpayer failed to prove actual reliance); see also Dixon v. United States, 381 U.S. 68, 72-73, 85 S. Ct. 1301, 1304-1305, 14 L. Ed. 2d 223, 227 (1965) (Commissioner may retroactively correct mistakes of law in application of tax laws to particular transactions, even where taxpayer may have relied to his detriment on past practice). Also, the Division, in active litigation, asserted the taxability of such transactions. Fisher-Stevens, Inc., supra, 121 N.J. Super. 513. Moreover, the official instructions accompanying the sales tax returns did not mention or recognize any exemption for services provided out-of-state customers.
Both Airwork and amicus Consumer Bureau, Inc., rely on cases from other jurisdictions in which courts have not permitted taxing authorities to change or modify their position. However, many of these cases involve the power to apply new regulations retroactively, see, e.g., Illinois Bell Tel. Co. v. Allphin, 95 Ill.App. 3d 115, 50 Ill.Dec. 739, 419 N.E. 2d 1188 (1981); Appeal of Denman, 120 N.H. 568, 419 A.2d 1084 (1980); Department of Revenue v. Family Hosp., Inc., 105 Wis. 2d 250, 313 N.W. 2d 828 (1982); Hercules Powder Co. v. State Bd. of Equalization, 66 Wyo. 268, 208 P. 2d 1096 (1949), reh'g denied, 66 Wyo. 309, 210 P. 2d 824 (1948). The instant case appears to involve the converse situation, namely, the application of the controverted tax to cover previous tax years is in accord with the enabling tax statute, consistent state fiscal concerns, and legislative policy.
The Legislature presumably has been long aware of the issues implicated in the taxability of services performed for out-of-state customers. In 1974, the Legislature passed A. 1628, designed to exempt from taxation repair work on tangible property delivered to out-of-state customers. This bill was vetoed by the Governor, whose veto message explained:
I strongly believe that such an amendment would represent a substantial and excellent step forward in reforming the present business tax structure that now plagues the economy of this State. However, I cannot overlook the fact that
enactment of such an amendment may result in the loss of approximately $5 million in tax revenue for the State. During this time of fiscal crisis, it would be irresponsible for me to allow such an amendment to become law without having the ability to recoup the loss through another revenue raising device.
A similar bill was finally enacted in 1977. L. 1977, c. 54, N.J.S.A. 54:32B-3(b)(5) (as amended). The committee statements accompanying both bills reflect legislative disapproval of a tax on such services, as it would impose hardship on New Jersey businesses, some of which may have relied on the Division's earlier failure to impose the tax. It is more significant, however, that in enacting L. 1977, c. 54, the Legislature itself did not choose to apply the statutory exemption retroactively. Further, the Governor's veto in 1974 of previous legislation reinforces the policy that a retroactive recognition of the exemption for such services would be contrary to public policy.
Other states have announced a per se rule against estopping the government from collecting taxes. See, e.g., State v. Maddox Tractor & Equip. Co., 260 Ala. 136, 69 So. 2d 426 (1953); Claiborne Sales Co., Inc. v. Collector of Revenue, 233 La. 1061, 99 So. 2d 345 (1957); Henderson v. Gill, 229 N.C. 313, 49 S.E. 2d 754 (1948) (in collection of sales tax, error of an administrator should not serve to redistribute tax burden as imposed by the Legislature). We conclude, under the circumstances of this case, that when a sales tax statute specifically provides for the taxation of particular transactions and does not explicitly provide for the tax exemption of such transactions, estoppel should not generally be available to a subject taxpayer. The strong public and governmental interest in the collection of the ...