On appeal from the Tax Court of New Jersey, whose opinion is reported at 11 N.J. Tax 433 (Tax Ct. 1991).
O'Brien, Havey and Conley.
Plaintiff New Jersey State Bar Association (NJSBA) appeals from a judgment entered in the Tax Court upholding § 67 of the Fair Automobile Insurance Reform Act of 1990 (FAIR Act),*fn1 L. 1990, c. 8 (N.J.S.A. 17:33B-62). Section 67 imposes an annual fee of $100 payable by "each person licensed to practice law in this State who has engaged in the practice of law for at least one year." NJSBA argues that § 67 is violative of the equal protection and due process clauses on its face and as applied, and constitutes special legislation contrary to the constitutions of New Jersey and the United States. It also challenges the provision as constituting an unlawful legislative intrusion into the Supreme Court's exclusive jurisdiction to regulate the practice of law. Respondents cross-appeal, arguing that the Tax Court erred in defining which attorneys are exempt from the § 67 assessment.
In a comprehensive opinion, New Jersey State Bar Ass'n v. Berman, 11 N.J. Tax. 433 (Tax Ct.1991), Judge Lasser sustained the § 67 "tax," finding that it did not violate equal protection or due process guarantees, nor did it violate the separation of powers by infringing upon the Supreme Court's jurisdiction to govern the state courts and state bar. However, the Judge rejected the Division of Taxation's application of R. 1:28-2 (defining which attorneys are subject to the Client's Security Fund (CSF) assessment) as the standard in determining who is within the attorney class subject to the § 67 tax. Judge Lasser found that the phrases "privilege of practicing certain professions" in § 2h(4) of the FAIR Act, and "each person licensed to practice law in this State" in § 67, taken together, "indicate a legislative intent that the § 67 tax should be paid by all persons holding active licenses who have the privilege of pursuing legal or judicial professions in New Jersey." 11 N.J. Tax. at 444. From this all-inclusive category, the Judge exempted persons
who have not practiced law for at least one year, holders of inactive licenses (those completely retired from the practice of law and those on full-time active duty with the armed forces, VISTA or the Peace Corps) and those ineligible to practice in New Jersey for failure to pay the CSF fee. Id. at 445.
We affirm the judgment insofar as it upholds the constitutionality of § 67. However, we modify the judgment as it defines which attorneys are subject to the § 67 tax, and which are exempt.
The thrust of NJBA's equal protection and due process contention is that there is no rational relationship between the purpose of the § 67 tax and the class sought to be taxed. Its argument, made before the Tax Court and again before us, is that the assessment is both underinclusive and overinclusive in its reach when the purpose of the act, to tax those who have benefited from the Joint Underwriting Association (JUA) system, is considered. It asserts that the tax is underinclusive because other professions and businesses who "benefited" from the automobile insurance system are not taxed, and overinclusive because those attorneys who did not "benefit" from the automobile insurance are taxed. In support of its basic assumption that the purpose of § 67 was to tax those whose benefited from the automobile insurance system, the NJSBA cites the declared findings of the Legislature in sections 2c. and 2d., which provide in pertinent part:
c. As various legislative or executive initiatives were taken in pursuit of this public purpose, the insurance industry itself, and the businesses and professions that provide goods and services to those involved in motor vehicle accidents, were at the same time altering the way in which they conducted their businesses to respond to a changing business and regulatory climate to ensure that they continued to benefit.
d. It has become increasingly obvious to the Legislature and the public that, as a result, one of the principal goals of this common purpose has not been attained: economy. [ N.J.S.A. 17:33B-2.]
The principal goals of the FAIR Act were "to reduce insurance costs for most New Jersey drivers, to depopulate the
[Joint Underwriting Association (JUA)] by switching insureds to the voluntary market, and to create a funding mechanism to pay off the JUA debt." State Farm Mut. Auto. Ins. Co. v. State of N.J., 124 N.J. 32, 42, 590 A.2d 191 (1991); see also In re Farmers' Mutual Fire Assur. Assoc. of N.J., 256 N.J. Super. 607, 610, 607 A.2d 1019 (App.Div.1992). The JUA debt was to be paid off through a variety of funding sources, including surcharges for motor vehicle violations, additional assessments and surtaxes on insurers, increased vehicle registration fees, surcharges on automobile insurance premiums and assessment of fees on attorneys, physicians, chiropractors, physical therapists and automobile body repair facilities. State Farm Mut. Auto. Ins. Co., 124 N.J. at 43, 590 A.2d 191; see §§ 63 through 68 (N.J.S.A. 17:33B-58 to -63); § 74 (N.J.S.A. 17:30A-8a(9) and -8a(10)), and § 76 (N.J.S.A. 17:33B-49). Further, the FAIR Act declares that it is in the public interest to provide "through assessments . . . temporary assessments for the privilege of practicing certain professions and occupations . . . for the funding of the debts and obligations of the [JUA]." N.J.S.A. 17:33B-2h(4). See also Assembly Appropriations Committee Statement to Assembly Bill No. 1 (L. 1990, c. 8). ("The bill provides for a variety of revenues to enable the State to liquidate the estimated $3.0 billion debt of the JUA"). Indeed, we have recently stated that "the purpose of imposing assessments [under the FAIR Act] is to raise revenue to pay the accumulated debts and obligations of the JUA." In re American Reliance Ins. Co., 251 N.J. Super. 541, 553, 598 A.2d 1219 (App.Div.1991) (finding no equal protection violation in assessing property and casualty insurance companies under the Act); see also State Farm Mut. Auto. Ins. Co., 124 N.J. at 43-44, 590 A.2d 191. One of the sources of revenue is the $100 assessment against lawyers under § 67.
With that evident governmental objective in mind, Judge Lasser rejected NJSBA's argument that the subject class consisted of those who "benefited" by providing services to those involved in motor vehicle accidents. 11 N.J. Tax. at 442. The
Judge found that those provisions of the FAIR Act which concerned funding the JUA deficit
select a broad variety of funding sources -- insurance companies, motor vehicle owners, bad drivers, attorneys, physicians, podiatrists, chiropractors, physical therapists and auto body repair facilities. These funding sources are the classes. There is no single class consisting of all those who benefit from the automobile insurance system, as NJSBA contends. [ Id. at 443.]
We agree. Legislation cannot be invalidated merely by offering evidence that the Legislature was mistaken in its classification. Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 464, 101 S. Ct. 715, 724, 66 L. Ed. 2d 659, 669, reh. denied 450 U.S. 1027, 101 S. Ct. 1735, 68 L. Ed. 2d 222 (1981). "Imperfect classifications that are part of a reasonable legislative scheme do not violate the equal protection clause." Murphy v. Allstate Insurance Company, 252 N.J. Super. 280, 286, 599 A.2d 916 (App.Div.1991). As Judge Lasser noted, the class is actually several classes which serve as funding sources for the elimination of the JUA debt. 11 N.J. Tax. at 442-43. Therefore, the central question is whether there was a rational relationship between the class and the governmental objective.
Since no fundamental right or suspect class is implicated here, the federal equal protection analysis employs the rational-basis standard. Drew Assocs. of NJ, LP v. Travisano, 122 N.J. 249, 258, 584 A.2d 807 (1991); Brown v. City of Newark, 113 N.J. 565, 573, 552 A.2d 125 (1989). Thus, the challenged classification will ordinarily survive an equal protection attack if it is "rationally related to a legitimate governmental purpose." Kadrmas v. Dickinson Public Schools, 487 U.S. 450, 458, 108 S. Ct. 2481, 2487, 101 L. Ed. 2d 399, 409 (1988); American Fire & Cas. Co. v. New Jersey Dep't of Ins., 256 N.J. Super. 423, 428, 607 A.2d 196 (App.Div.1992). That standard demands that the legislative act be "devoid of unreasonableness and arbitrariness and that means selected for fulfillment of policy bear a 'real and substantial ...