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Township of Holmdel v. Director

Decided: December 3, 1992.

TOWNSHIP OF HOLMDEL, A MUNICIPAL CORPORATION OF THE STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT,
v.
DIRECTOR, DIVISION OF TAXATION, DEFENDANT-APPELLANT.



On certification to the Superior Court, Appellate Division, whose opinion is reported at N.J. Super. (1991).

Chief Justice Wilentz and Justices Handler, Pollock and Garibaldi join in this opinion. Justice Stein has filed a separate Concurring opinion in which Justice O'hern joins.

Per Curiam

Per Curiam

The judgment is affirmed, substantially for the reasons expressed in the opinion of the Appellate Division, reported at N.J. Super. (1991).

STEIN, J., Concurring.

Although joining in the Court's affirmance of the judgment below, I am much less confident than was the Appellate Division that the "articulated objective" of the legislation under scrutiny can be discerned simply from an examination of "its very terms. " Township of Holmdel v. Director, Div. of Taxation, 12 N.J. Tax 112, 117 (1991). In this era of spartan State budgets and sagging State revenues, we might at least pause to reveal the vulnerable aspect of Holmdel's claim to nearly $4 million of the State's premium-tax revenue. In the process, the Legislature may be persuaded that the "plain" meaning of L. 1983, c. 390, N.J.S.A. 54:18A-1a(b), is not so plain after all, a Conclusion that could provoke reconsideration of existing or future appropriations authorizing payment of the amounts claimed by Holmdel. See City of Camden v. Byrne, 82 N.J. 133, 150 (1980).

Holmdel's claims against the State emanate from the provisions of the insurance company franchise tax, L. 1952, c. 227, N.J.S.A. 54:16A-1 to -12 (repealed L. 1981, c. 183), pursuant to which domestic insurance companies paid a franchise tax calculated on the basis of premium income primarily to the municipality, and the balance to the county, in which the company's principal office was located. Domestic insurance companies liable for the franchise tax were subject as well to the general premium tax, N.J.S.A. 54:18A-1 and -2, payable directly to the State, at rates essentially equal to the rate of the franchise tax, and the franchise tax was deductible from the premium tax. Accordingly, the pre-1981 statutory scheme was that "foreign" insurance companies, those incorporated in other states but doing business in New Jersey, paid their premium tax to the State and paid no franchise tax. Domestic insurance companies, although subject to the premium tax collected by the State, satisfied their premium-tax liability by paying the franchise tax directly to the municipality and county in which their principal offices were located.

Prudential Property & Casualty Insurance Company (Prupac) was incorporated in New Jersey in 1975, and its principal office, originally located in Woodbridge, was relocated to Holmdel in 1977. Accordingly, Prupac paid the municipal share of its franchise tax directly to Holmdel.

When the Legislature repealed the franchise tax in 1981, L. 1981, c. 183, domestic insurance companies could no longer offset their liability for premium taxes with franchise-tax deductions, and they therefore commenced payment of premium taxes directly to the State. In one respect, however, the repeal was illusory because the statute that repealed the tax provided that the State would continue to pay to the municipalities and counties in which the principal office of domestic insurance companies had been located the same amounts they would have received had the tax remained in force. The apparent purpose of the repealer, according to the Sponsor's Statement and the press release from the Governor's Office when the bill was signed, was to balance the fiscal year 1982 budget by enhancing State revenues from premium taxes payable on March 1st of each year, and postponing until August 1st of the ensuing fiscal year the date for remittance of the equivalent amounts due to municipalities and counties. See Sponsor's Statement to A-3404; Press Release, June 19, 1981, Office of the Governor, accompanying A-3472 and A-3404. Thus, the practical effect of the repealer was merely to interpose the State as a collection agent for the municipalities and counties that previously had collected the franchise tax, authorizing the State's collection of the tax (March 1st) and its remittance to municipalities and counties (August 1st) to straddle two fiscal years. Another consequence of the repealer was to "sunset" the benefits of the franchise tax, limiting the State's payments replacing the franchise tax revenues to only those municipalities and counties in which domestic insurance companies had located their principal offices on or before January 1, 1981. N.J.S.A. 54:18A-1a(a). The statute states explicitly that the annual payments to municipalities and counties are intended "to ensure that no county or municipality will experience a loss of revenue as a result of the repeal of the franchise tax on domestic insurance companies." Ibid.

From 1981 to 1987, Holmdel continued to receive payments directly from the State in amounts equal to what Prupac would have paid Holmdel under the franchise tax. During 1987, however, Prupac sought and received approval from the New Jersey Commissioner of Insurance to surrender its New Jersey domestic certificate of authority for a New Jersey foreign certificate of authority, becoming an Indiana-domiciled insurance company with its principal office in Indiana, and operating in New Jersey through a newly-formed and wholly-owned subsidiary. In 1988 the State made no "in lieu" franchise-tax payment to Holmdel on the basis that had the franchise tax not been repealed, Prupac would not have been subject to the tax as a foreign insurance company. Holmdel maintains that it is entitled to phase-out payments pursuant to L. 1983, c. 390, codified at N.J.S.A. 54:18A-1a(b), which provides:

To ensure that no municipality will experience an abrupt loss of revenue as a result of a domestic insurance company relocating its principal office from the municipality wherein it was established on January 1, 1981, the State Treasurer, upon warrant of the State Comptroller, shall, on or before August 1 of each year, pay to the collector of the municipality from which the principal office was removed, an amount as hereinafter provided:

(1) For the first year after relocation, an amount equal to 80% of the amount the municipality received in the year in which the relocation occurred;

(2) For the second year after relocation, an amount equal to 60% of the amount the municipality received in the year in which the relocation occurred;

(3) For the third year after relocation, an amount equal to 40% of the amount the municipality received in the year in ...


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