On appeal from the Superior Court, Appellate Division, whose opinion is reported at 201 N.J. Super. 257 (1985).
For affirmance as modified -- Chief Justice Wilentz, and Justices Pollock, Handler and Garibaldi. For affirmance -- Justices Clifford and Stein. For reversal -- Justice Clifford. The opinion of the Court was delivered by Garibaldi, J. Stein, J., dissenting in part. Justice Clifford joins in this opinion. O'Hern, J., dissenting.
The primary issue in this case is whether the autobus excise tax imposed under N.J.S.A. 48:4-20 discriminates against interstate commerce in violation of the commerce clause of the United States Constitution, U.S. Const. art. 1, § 8, cl. 3. If the excise tax is unconstitutional, a secondary issue arises as to whether the plaintiff-respondent, Continental Trailways, Inc. (Continental), has a right to a refund. Both the Tax Court and the Appellate Division held that the excise tax was unconstitutional and ordered a refund. Because this case involves a substantial question arising under the Constitution of the United States, the defendant-appellant, the Director, Division of Motor Vehicles (Director), appealed as a matter of right to this Court.
The autobus excise tax provision, N.J.S.A. 48:4-20, was originally enacted in 1934, L. 1934, c. 68. Its forerunner was enacted in 1927 (L. 1927, c. 184), accompanied by the following statement of purpose:
This bill imposes an excise on the use of highways of the State by motor vehicles used for carrying passengers or property for hire in interstate commerce. The purpose is to compel such vehicles to bear their just share of taxation. At the present time such vehicles pay nothing to the State of New Jersey, except the registration fees provided for under the Motor Vehicle Act, while other vehicles operating wholly within the State are subject to taxation. The right to impose such a tax on such vehicles engaged in interstate commerce has been recently upheld by the Federal courts. [ quoted in Safeway Trails, Inc. v. Furman, 41 N.J. 467, 478 (1964), appeal dismissed, 379 U.S. 14, 85 S. Ct. 144, 13 L. Ed. 2d 84 (1964).]
The purpose of the statute therefore was to require interstate buses to pay for the privilege of using state highways, in effect to compensate the State for their share of the cost of constructing and maintaining the highways and of administering the motor vehicle laws. Safeway Trails, Inc. v. Furman, 41 N.J. 467, 478 (1964).
The version of N.J.S.A. 48:4-20 at issue, as amended by L. 1972, c. 211, § 2, effective December 31, 1972, retains essentially the same purpose. It reads:
Every person owning or operating an autobus which is operated over any highway in this state for the purpose of carrying passengers from a point outside the state to another point outside the state, or from a point outside the state to a point within the state, or from a point within the state to a point outside the state shall pay to the Director of the Division of Motor Vehicles, as an excise for the use of such highway, 1/2 cent for each mile or fraction thereof such autobus shall have been operated over the highways of this state, except that no excise shall be payable for the mileage traversed in regular route passenger service provided under operating authority conferred pursuant to R.S. 48:4-3. (Emphasis added.)
Thus, N.J.S.A. 48:4-20 still exacts an excise tax for each mile of autobus*fn1 (bus) operations on the highways of New Jersey in connection with the interstate transport of passengers. No tax, however, is payable for intrastate mileage traversed in regularly-scheduled passenger service provided under the authority of the Public Utilities Commission (P.U.C.).*fn2
The facts are undisputed. Continental is a major common-carrier providing both interstate and intrastate bus service by means of regular-route-passenger (regular route) operations and charter operations through wholly-owned subsidiaries. During the period in issue, November 1977 to June 1979, Continental's interstate operations were provided under authority conferred by the Interstate Commerce Commission (I.C.C.) and its intrastate operations were provided under authority conferred by the P.U.C. Continental also held P.U.C. approval for the intrastate service it provided in conjunction with I.C.C.-approved interstate routes.
For several years prior to June 1979, Continental filed monthly business-excise-tax returns with the Director for payment of the excise tax imposed under N.J.S.A. 48:4-20. In those reports, Continental computed its tax on the basis of the total
number of miles traversed in New Jersey. It did not exempt from its calculation the New Jersey miles traversed in regular route service under the authority of the P.U.C. In November 1979, when Continental realized that it had not excluded this exempt mileage, it filed a claim for refund. The Division of Motor Vehicles (D.M.V.) advised Continental that no refund was permitted, but that its overpayment could be used to offset future taxes in the three months following the end of the applicable tax month. Continental then filed a complaint with the Tax Court on June 9, 1980, seeking a refund of $55,392.64.
During the period for which the refund claim was made, Safeway Trails, Inc., one of plaintiff's wholly-owned subsidiaries, operated seven interstate routes into, through, and out of New Jersey. For each of the routes Safeway Trails, Inc. held I.C.C. operating authority for the interstate service as well as P.U.C. approval for the intrastate service. Hence, Continental held the necessary P.U.C. authority whenever it provided bus passenger service strictly between points within New Jersey. However, whenever the bus passenger service related to the transport of passengers only between points outside this State and points within New Jersey, or only between points outside this State and included no service to New Jersey points, Continental held only I.C.C. approval.
Continental concedes that its charter miles*fn3 are taxable. The Director concedes that scheduled intrastate miles for which there is P.U.C. authority either (i) point-to-point in New Jersey as an exclusively intrastate trip, or (ii) point-to-point in New Jersey as part of an interstate trip are not taxable. The conflict between the parties specifically concerns the tax to be
imposed under N.J.S.A. 48:4-20 on interstate miles, for which there is I.C.C. authority either (1) from a point in New Jersey to a point outside New Jersey or vice versa, or (ii) from one point outside New Jersey to another point outside New Jersey, with mileage traversed in New Jersey by going through the state. D.M.V. alleges that such mileage is taxable. Continental contends that taxing such mileage is an unconstitutional burden on interstate commerce.*fn4
The Tax Court held that the excise tax imposed by N.J.S.A. 48:4-20 on interstate miles, in the absence of a "complementary" tax on intrastate miles, unconstitutionally discriminated against interstate commerce in violation of the commerce clause, and was therefore void. It also ordered the D.M.V. to repay "all bus excise taxes paid from November 1977 to June 1979, except . . . taxes on charter bus miles." The Appellate Division affirmed the Tax Court's determination that the statute unconstitutionally burdened interstate commerce, but vacated the order to refund the taxes with interest. Retaining jurisdiction, it remanded the case to the Tax Court so that the parties could agree on the method and terms of a credit for the overpaid taxes. When the parties advised the Tax Court that a credit was impractical, the Tax Court ordered D.M.V. to pay the refund, together with interest. The Appellate Division affirmed the order, 201 N.J. Super. 257. We affirm the judgment of the Appellate Division insofar as it holds that N.J.S.A. 48:4-20 unconstitutionally discriminates against interstate commerce, but reverse insofar as it orders a refund.
In 1964, we held the earlier version of the excise tax*fn5 on interstate bus service to be constitutional because there was a complementary tax on intrastate service. Safeway Trails, Inc. v. Furman, 41 N.J. 467 (1964).
In Safeway, the plaintiff-bus company also argued that the excise tax on mileage traveled by interstate buses unlawfully burdened interstate commerce. However, as part of the then-existent statutory scheme intrastate carriers were also taxed for the use of the highways. The Legislature had enacted N.J.S.A. 48:4-14, which imposed a "3% of gross receipts . . . monthly franchise tax for revenues for the use of streets" upon intrastate operators. In the absence of proof that the interstate excise tax resulted in a heavier financial burden than the intrastate excise tax, we held the latter tax did not discriminate against interstate commerce.*fn6 The Court concluded that a tax
levied on interstate commerce is not discriminatory, merely because the tax differs in form, or adopts a different measure of assessment, from that imposed on intrastate carriers. Id. at 489.
In 1972, however, the complementary gross receipts tax imposed on intrastate carriers under N.J.S.A. 48:4-14 was repealed, effective December 31, 1972, L. 1972, c. 211, § 6. As part of the legislation, N.J.S.A. 48:4-14 was amended to its present form to exempt "mileage traversed in regular route passenger service provided under operating authority conferred pursuant to R.S. 48:4-3" and to delete reference to the gross receipts tax. L. 1972, c. 211, § 2. The entire legislative package was introduced in Senate Bill No. 1151. The purpose of the legislation, as set forth in the Statement to Senate Bill 1151, was as follows:
The purpose of this bill is to assist bus companies which provide regular route bus service to New Jersey residents.
[M]any of these companies have suffered serious financial losses in the past few years. The potential for loss has forced these companies to apply for rate increases and curtailment of present services.
Mindful that increased rates and curtailment of service will only worsen the financial picture for regular route bus companies because it will force bus patrons to seek other transportation, this bill revises and repeals parts of the statutory law to reduce the taxes and other fees which these companies pay, thereby relieving part of the financial burden of these public transportation oriented companies.
Through this bill, the Legislature removed the complementary tax on intrastate commerce, thereby providing an indirect subsidy to intrastate carriers, in an attempt to ameliorate their serious financial plight in 1972.*fn7 No complementary tax has
been reimposed on the operation of buses in intrastate commerce since then. To recapitulate, we therefore have the following tax treatment of interstate and intrastate mileage:
1. The bus excise tax is not imposed upon bus operators who provide regular-route service under P.U.C. authority point-to-point in New Jersey as an exclusively intrastate trip. Nor is the tax imposed upon interstate operators, whether they be domestic or out-of-state, for any mileage traversed point-to-point within New Jersey, as part of an interstate trip.
2. The excise tax, however, is imposed upon both domestic and out-of-state interstate bus operators for all other mileage traversed within New Jersey. This is mileage traversed solely in trips involving one point in New Jersey, to a point outside of New Jersey, or involving a point outside New Jersey to another point outside New Jersey by traveling through this state. For example, if an interstate operator has an interstate run from Philadelphia to New Jersey four times a day, the operator is subject to the tax for all the traversed New Jersey miles. However, if two of these four trips include new stops in Trenton and Jersey City at which P.U.C. has authorized that passengers be picked up and discharged within New Jersey, then the corresponding miles are exempt from the tax.*fn8
A state tax is not per se invalid because it burdens interstate commerce. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279, 97 S. Ct. 1076, 51 L. Ed. 2d 326 (1977). A state may impose a reasonable tax upon interstate carriers that use its highways so long as that tax does not discriminate against interstate commerce. Capital Greyhound Lines v. Brice, 339 U.S. 542, 70 S. Ct. 806, 94 L. Ed. 1053 (1950); Safeway Trails, Inc. v. Furman, 41 N.J. 467 (1964).
In Complete Auto Transit, Inc., the United States Supreme Court set forth a four-part test to measure the validity of a tax against a commerce clause challenge. The Court concluded that a state tax per se does not unconstitutionally burden interstate commerce if: (1) there is a sufficient nexus with the taxing state; (2) the tax is fairly apportioned to local activities and does not result in multiple burdens being placed on the taxpayer; (3) the tax does not discriminate against interstate commerce; and (4) the tax is fairly related to the services and benefits provided by the taxing state to the taxpayer.
The excise tax meets requirements one, two, and four, and they are not at issue.*fn9 The primary issue in this case is number
three: whether the taxing scheme discriminates against Continental and similar interstate bus companies in violation of the commerce clause.*fn10
The commerce clause, of its own force, protects free trade among the states. Armco Inc. v. Hardesty, 467 U.S. 638, , 104 S. Ct. 2620, 2622, 81 L. Ed. 2d 540, 545 (1984); Boston Stock Exch. v. State Tax Comm'n, 429 U.S. 318, 328, 97 S. Ct. 599, 606, 50 L. Ed. 2d 514, 523 (1977); Freeman v. Hewit, 329 U.S. 249, 252, 67 S. Ct. 274, 276, 91 L. Ed. 265, 271-72 (1946). One aspect of this protection is that a state "may not discriminate between transactions on the basis of some interstate element." Boston Stock Exch., 429 U.S. at 332 n. 12, 97 S. Ct. at 608 n. 12, 50 L. Ed. 2d at 526 n. 12. A tax does not discriminate against interstate commerce if it does not favor local interests to the disadvantage of interstate business.*fn11 See
id.; Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 458, 79 S. Ct. 357, 362, 3 ...