On Appeal from the Superior Court, Appellate Division, whose opinion is reported at 205 N.J. Super. 251 (1985).
For modification and affirmance -- Justices Pollock, Garibaldi and Stein. Opposed -- Justices Clifford and Handler. The opinion of the Court was delivered by Garibaldi, J. Wilentz, C.J., concurring and dissenting. Handler, J., dissenting.
[108 NJ Page 278] The sole issue in this case is whether the Corporation Business Activities Reporting Act (the Reporting Act), N.J.S.A. 14A:13-14 to -23, violates the commerce clause, U.S. Const.
art. I, para. 8, cl. 3, or the supremacy clause, U.S. Const. art. VI, para. 2.
Plaintiff, First Family Mortgage Corporation of Florida, a Florida Corporation whose principal place of business is in Illinois, violated the Reporting Act by failing to file a Notice of Business Activities Report (Activities Report) as required by N.J.S.A. 14A:13-15. Failure to file a timely Activities Report bars a foreign corporation from maintaining any action or proceeding in any state or federal court in New Jersey to enforce any cause of action accruing during an accounting period in which the corporation failed to file an Activities Report. N.J.S.A. 14A:13-20b. Pursuant to N.J.S.A. 14A:13-20b, the trial court dismissed plaintiff's mortgage foreclosure suit. The Appellate Division affirmed. 205 N.J. Super. 251 (1985). We granted plaintiff's motion for leave to appeal, 103 N.J. 507 (1986).
We now sustain the constitutionality of N.J.S.A. 14A:13-20 and hold that the State can require a foreign corporation to file an Activities Report and can withhold access to courts until the corporation complies. However, once a foreign corporation files an Activities Report and meets the requirements of N.J.S.A. 14A:13-20c(2), the commerce clause requires that the corporation be allowed to pursue any cause of action existing at the time of the filing (or accruing during that accounting period) regardless of when it arose.
Plaintiff invests in and services mortgages guaranteed by the Veteran's Administration and Farmer's Home Administration, and acts as a servicing custodian for Government National Mortgage Association (GNMA) loans. Plaintiff does not have a certificate of authority to do business in this state, does not file a New Jersey corporation business tax return or a New Jersey corporation income tax return, and has no officers, employees, or representatives in New Jersey. While plaintiff does not
originate any loans in New Jersey, it does own loans secured by New Jersey real estate. Such loans provide plaintiff with more than $25,000 per year in interest income.
On July 24, 1980, plaintiff acquired fifty-four GNMA home mortgages secured by New Jersey real estate from Midstate Mortgage and Service Company, an Illinois corporation. Defendants, Mrs. and Mr. Linda A. Durham, were the mortgagors on one of these mortgages. On January 1, 1983, defendants defaulted on their monthly payment to plaintiff. Plaintiff's representatives communicated with defendants by mail and telephone in an attempt to collect on the delinquent account. When these efforts failed, plaintiff instituted a mortgage foreclosure action in the Chancery Division.
The trial court dismissed plaintiff's action because plaintiff had failed to comply with the Reporting Act. The court based its ruling on Associates Consumer Discount Co. v. Bozzarello, 149 N.J. Super. 358 (App.Div.1977), which upheld the constitutionality of the Act. Nonetheless, the court opined that the Reporting Act, as applied to plaintiff, violated the commerce clause. This view was based upon the court's interpretation of Allenberg Cotton Co., Inc. v. Pittman, 419 U.S. 20, 95 S. Ct. 260, 42 L. Ed. 2d 195 (1974), and related Supreme Court decisions holding that a state cannot require a foreign corporation engaged solely in interstate commerce to obtain a license to do business within that state.
The Appellate Division affirmed, distinguishing this case from the licensing cases on the ground that the Reporting Act, unlike the typical licensing statute, "does not expose foreign corporations engaged solely in interstate commerce to lawsuits in this state. It merely requires that foreign corporations receiving substantial annual payments from New Jersey residents file information that will enable New Jersey to determine whether they are exempt from taxation." 205 N.J. Super. at 255. The court also rejected plaintiff's argument that the Reporting Act violates the supremacy clause by undermining
the policy of the National Housing Act: "The slight inconvenience of filing the notice [Activities Report] will not destroy the market for GNMA mortgages on homes in New Jersey and in other states having a similar requirement."*fn1 Id.
N.J.S.A. 14A:13-15 provides in pertinent part:
Every foreign corporation which during any calendar or fiscal accounting year ending after December 31, 1973, carried on any activity or owned or maintained any property in this State, unless specifically exempted under section 3 of this act, shall be required to file a notice of business activities report, as hereinafter provided.
Activities or property maintenance in this State which require corporations to file this report are:
e. receiving payments from persons residing in this State, or businesses located in this State, aggregating in excess of $25,000 regardless of any other connections with this State;
Every foreign corporation subject to the Reporting Act must file an Activities Report with the Director of the Division of Taxation of the State of New Jersey, on or before the fifteenth day of the fourth month after the close of the corporation's calendar or fiscal accounting year. N.J.S.A. 14A:13-18a. Pursuant to N.J.S.A. 14A:13-16b, a foreign corporation is not required to file, if it has received either a certificate of authority to do business in this state or has filed a timely tax return under the Corporation Business Tax Act, N.J.S.A. 54:10A-1 to -40, or the Corporation Income Tax Act, N.J.S.A. 54:10E-1 to -24 (the Second Tier Income Tax).*fn2
N.J.S.A. 14A:13-20a and b set forth sanctions for a foreign corporation's failure to file an Activities Report:
a. No foreign corporation carrying on any activity or owning or maintaining any property in this State which has not obtained a certificate of authority to do business in this State and disclaims liability for the corporation business tax and the corporation income tax shall maintain any action or proceeding in any State or Federal court in New Jersey, until such corporation shall have filed a timely notice of business activities report.
b. The failure of a foreign corporation to file a timely report shall prevent the use of the courts in this State for all contracts executed and all causes of action that arose at any time prior to the end of the last accounting period for which the corporation failed to file a required timely report.
However, a court may excuse a corporation's failure to file an Activities Report
where the court finds the corporation has sustained the burden of establishing that
(1) the failure to file a timely report was done in ignorance of the requirement to file, such ignorance was reasonable in all circumstances;
(2) all taxes, interest and civil penalties due the State for all periods have been paid, or provided for by adequate security or bond approved by the director, before the suit may proceed. [ N.J.S.A. 14A:13-20c.]
The Reporting Act was recommended in the Report of the New Jersey Tax Policy Committee, Vol. V, at 32-34 (Report) submitted to Governor William T. Cahill on February 23, 1972. The Report recommended that New Jersey do as many other states had done, "by adding to their corporate franchise taxes, or by substituting for them, an income tax levied, not on the privilege, or the doing of business in the State, but on income derived from sources within the State." Id. at 20. It explained that "equity demands business carrying on activities in the State and exploiting the New Jersey market make some contribution to the costs of maintaining governmental operations and the services provided by the State. . . ." Id. at 22. The Report
recommended the enactment of a "second tier" income tax to impose a tax on foreign corporations neither qualified nor doing business within the state in the traditional franchise tax sense (who do not maintain an office or employ or own property or capital in the state), but who, nevertheless, derive income from sources in the state and have an adequate due process nexus with New Jersey to give the state jurisdiction to tax.*fn3 The Tax Policy Committee recognized that for the Second Tier Income Tax to be effective, the state had to be able to locate those foreign corporations that would be subject to the new proposed tax:
[I]t is important, in order to safeguard the State's revenues and reduce unfair taxfree competition with businesses that pay taxes to this State, that the Legislature adopt a more effective technique for discovering foreign corporations that may be taxable, but that are now paying no taxes, and would otherwise escape the broadened jurisdiction of the proposed second tier tax. To seek to accomplish that objective, we propose that a statutory provision be adopted requiring certain non-qualified foreign corporations to file with the Division of Taxation a Notice of Business Activities. [ Report, supra, at 33].
Moreover, the Report specifically stated the reason for N.J.S.A. 14A:13-15e:
It would also appear desirable, in order to establish a simple, objective quantitative test for the filing of the Notice to require any foreign corporation that receives payments from persons residing in the State, or business located in the State, aggregating a minimum dollar amount to be designated by the statute, to file the Notice, regardless of any other connections with the State. [ Report, supra, at 34].
The Legislature adopted the Tax Policy Committee's recommendations and enacted the Reporting Act, in conjunction with the Corporation Income Tax Act (the Income Tax), making both Acts effective on June 7, 1973. As part of the Reporting Act, the Legislature adopted N.J.S.A. 14A:13-15e, viewing the receipt of at least $25,000 per year "as at least a preliminary
indication that a foreign corporation derived income from sources within New Jersey and was subject to the corporation income tax." Avco Fin. Servs. Consumer Discount Co. One, Inc. v. Director, Div. of Taxation, 100 N.J. 27, 32 (1985).*fn4
The commerce clause of the United States Constitution, although phrased as an affirmative grant of power to Congress to regulate foreign and interstate commerce, is "a self-executing limitation on the power of the States to enact laws imposing substantial burdens on such commerce." South-Central Timber Dev., Inc. v. Wunnicke, 467 U.S. 82, 87, 104 S. Ct. 2237, 2240, 81 L. Ed. 2d 71, 76 (1984). This limitation, however, is not absolute. States "retain authority under their general police powers to regulate matters of 'legitimate local concern,' even though interstate commerce may be affected." Lewis v. BT Inv. Managers, Inc., 447 U.S. 27, 36, 100 S. Ct. 2009, 2015, 64 L. Ed. 2d 702, 711 (1980).
In general, a "[s]tate regulation affecting commerce will be upheld if (a) the regulation is rationally related to a legitimate state end, and (b) the regulatory burden imposed on interstate commerce, and any discrimination against it, are outweighed by the state interest in enforcing the regulation." L. Tribe, American Constitutional Law § 6-5 at 326 (1978). As stated by the Court in Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S. Ct. 844, 847, 25 L. Ed. 2d 174, 178 (1970):
Where the statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. Huron Cement Co. v. Detroit, 362 U.S. 440, 443 [80 S. Ct. 813, 816, 4 L. Ed. 2d 852 (1960)]. If a legitimate local purpose is found, then the question becomes one of degree. And the extent of the
burden that will be tolerated will of course depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities. [citation omitted]
Notwithstanding this general rule, a statute will be held per se invalid if its sole purpose is economic protectionism: "where simple economic protectionism is effected by state legislation, a virtual per se rule of invalidity has been erected." Philadelphia v. New Jersey, 437 U.S. 617, 624, 98 S. Ct. 2531, 2535, 57 L. Ed. 2d 475, 481 (1978). The purpose of the Reporting Act is to achieve a substantial and legitimate state interest, not to encourage simple economic protectionism of local businesses at the expense of interstate commerce. The history of the Act conclusively establishes that it was enacted to
enable the Division of Taxation to obtain pertinent data from any foreign corporation which carries on an activity or runs or maintains property in this State but which has not obtained a certificate of authority to do business in New Jersey, to the end that a proper determination may be made as to whether such corporation is subject to any State tax. [ Avco Fin. Servs. Consumer Discount Co. One, Inc. v. Director, Div. of Taxation, supra, 100 N.J. at 33 (quoting Associates Consumer Discount Co. v. Bozzarello, supra, 149 N.J. Super. at 362).]*fn5
Plaintiff contends that the Supreme Court has created a second exception to the balancing rule in a series of decisions that invalidated state statutes that imposed licensing requirements on foreign corporations engaged solely in interstate commerce.*fn6 Plaintiff argues that the Reporting Act is an
unconstitutional "forced licensure" statute despite the clear evidence that the goal of the Reporting Act is merely to provide information that will help the state collect the Corporate Income Tax.
It is true that the Supreme Court has held that forced licensure statutes violate the Commerce Clause. See Allenberg Cotton Co. v. Pittman, supra, 419 U.S. 20, 95 S. Ct. 260, 42 L. Ed. 2d 195 (statute withheld access to courts from foreign corporations doing business within the state without certificates of authority); Dahnke-Walker Milling Co. v. Bondurant, 257 U.S. 282, 291, 293, 42 S. Ct. 106, 108, 109, 66 L. Ed. 239, 244, 245 (1921) (a state cannot by statute "impose burdensome conditions" on interstate commerce; a "corporation of one state may go into another, without obtaining the leave or license of the latter, for all the legitimate purposes of such commerce"); Sioux Remedy Co. v. Cope, 235 U.S. 197, 35 S. Ct. 57, 59 L. Ed. 193 (1914) (statute withheld access to courts from foreign corporations doing business in the state until it filed its Articles of Incorporation with the state and appointed a resident upon whom service of process could be served); International Textbook Co. v. Pigg, 217 U.S. 91, 30 S. Ct. 481, 54 L. Ed. 678 (1910) (state could not require foreign corporation to file a "complete detailed statement of the condition of such corporation" including information about its officers, directors, managers, assets, liabilities, and capital stock).
Nonetheless, a close analysis of those forced licensure cases discloses that in each of the cases the Court found that the qualification statute imposed unreasonable conditions on the foreign corporation's right to sue in a state court. As we stated in ...