King, Shebell and Baime. The opinion of the court was delivered by Baime, J.A.D. Shebell, J.A.D., dissenting.
This appeal presents a question of first impression. N.J.S.A. 13:1E-138 imposes three new taxes on the disposal of solid waste at sanitary landfills. Exempt from taxation are the "waste products resulting from the operation of a resource recovery facility." N.J.S.A. 13:1E-138 a, b and c. Although there are various types of resource recovery facilities, see N.J.S.A. 13:1E-137v, we are concerned here with an incinerator that reduces solid waste to ash residue by combustion, thereby producing energy. At issue is whether solid waste materials, other than those resulting from the combustion process, fall within the statutory exemption. We hold that only those materials which are subjected to and produced by the actual incineration process are exempt from the new taxes. Stated generally, solid wastes which bypass a resource recovery facility and are not treated do not constitute "waste products resulting from the operation of a resource recovery facility" and are thus not exempt.
The facts are not in dispute and are largely a matter of public record. The Pollution Control Financing Authority of Warren County (PCFA), a body corporate and politic created under the New Jersey Pollution Control Financing Law, N.J.S.A. 40:37C-1 to 40:37C-18, was instrumental in constructing New Jersey's first resource recovery facility. The facility will receive and incinerate acceptable, combustible, non-hazardous municipal waste for energy production. In addition, a sanitary landfill is presently under construction in Warren County. When completed, this landfill will receive the ash residue produced by the combustion of solid waste at the resource recovery facility. The landfill will also receive other materials which are not incinerated at the facility because they are bypassed or are unsuitable for burning. These facilities will serve Warren
County and, pursuant to an inter-district agreement, will also accept some wastes from Hunterdon County.
By letter dated May 5, 1987, counsel for the PCFA asked the New Jersey Department of Environmental Protection (NJDEP) for a determination concerning the applicability of the new taxes to Warren County's sanitary landfill. In the letter, counsel noted that there are situations in which solid wastes will not be accepted for incineration at the resource recovery facility, but instead will be disposed of at the landfill. Several categories of waste fall within this classification. First, it is anticipated that waste will be generated in excess of the capacity of the resource recovery facility and these materials will not be subject to the combustion process. Similarly, there will be periods in which the incinerator is not operational due to repairs or maintenance and, in this event, wastes will be disposed of at the landfill. Further, certain "non-processible" wastes not suitable for burning will be bypassed and will be directed to the landfill. The PCFA asserted that such wastes, those not produced by incineration, as well as the ash residue resulting from the combustion process, should not be subject to taxation.
On July 15, 1987 the NJDEP responded by letter. The NJDEP determined that only wastes produced by the incineration process, ash residue, fall within the purview of the exemption provided by N.J.S.A. 13:1E-138 a, b and c. Those materials which bypass the incinerator, either (1) because they exceed the facility's capacity, (2) are received when the facility is not operational or (3) are of a kind which, by their nature, are not subject to the combustion process, were declared subject to taxation.
Following its receipt of the NJDEP's opinion letter, the PCFA filed a complaint in the Superior Court, Law Division, seeking a declaratory judgment. Thereafter, Hunterdon County and the Hunterdon County Utilities Authority (Hunterdon) were permitted to intervene. The case was then transferred to the Appellate Division. R. 1:13-4.
The PCFA seeks a reversal of the NJDEP's determination on the basis that (1) only the Director of the Division of Taxation had jurisdiction to resolve questions relating to the applicability of the statutory exemption, (2) the NJDEP's action constituted de facto rule-making in violation of the Administrative Procedure Act (N.J.S.A. 52:14B-1 to 52:14B-15), and (3) under the statute, all materials and wastes received by a sanitary landfill from a resource recovery facility are excepted from the three taxes. Hunterdon joins in the PCFA's substantive argument that the exemption applies to wastes bypassed from the incineration process as well as ash residue.
Before considering the arguments advanced, a brief description of the operative statutory scheme is necessary for a full understanding of the issues presented. The legislation creating the new taxes supplements the Solid Waste Management Act (N.J.S.A. 13:1E-1 to 13:1E-198). In its findings, the Legislature acknowledged that "New Jersey must move away from its current reliance on landfilling as the principal method of solid waste disposal" and adopt new and efficient "waste reduction, recycling and energy recovery technologies." N.J.S.A. 13:1E-136. "Decreasing the waste flow to landfills, whether by means of predisposal methods such as source separation and recycling or through high technology conversion" was thus said to be "in the energy, environmental, and economic interests" of the State. Ibid.
In furtherance of this objective, and in keeping with similar efforts in other states, the Legislature developed a "two-pronged" strategy for managing solid waste disposal designed to encourage a transition from a traditional and virtually exclusive reliance on landfilling to the increased use of advanced resource recovery incinerators and facilities. Statement of the Senate Energy and ...