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R.C. Maxwell Co. v. Galloway Tp.

July 30, 1996

THE R.C. MAXWELL COMPANY, A NEW JERSEY CORPORATION, TENANT, AND SCOLA, INC., OWNER, PLAINTIFFS-APPELLANTS,
v.
GALLOWAY TOWNSHIP, DEFENDANT-RESPONDENT, AND DIRECTOR, DIVISION OF TAXATION, INTERVENOR-RESPONDENT.



On certification to the Superior Court, Appellate Division.

The opinion of the Court was delivered by Handler, J. Justices Pollock, O'hern, Garibaldi, Stein and Coleman join in Justice HANDLER's opinion.

The opinion of the court was delivered by: Handler

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

THE R.C. MAXWELL COMPANY, ET AL. V. GALLOWAY TOWNSHIP, ET AL. (A-69-95)

Argued February 26, 1996 -- Decided July 30, 1996

HANDLER, J., writing for a unanimous Court.

The R.C. Maxwell Company (Maxwell) is a New Jersey corporation that has conducted outdoor advertising since 1894. It currently owns about 900 outdoor advertising displays, most of which are located in Atlantic and Mercer counties. Four Maxwell-owned wooden billboards are on land owned by Scola, Inc., in Galloway Township, Atlantic County, New Jersey. Maxwell leases the property for the express purpose of erecting its billboards.

Maxwell's billboards are comprised primarily of wood with some metal components, such as bolts and nails. They use the A-frame construction methodology. Maxwell regularly repairs or replaces billboard parts that either are damaged by the elements or become rotted. Maxwell contends that if a billboard location is lost, it is able to disassemble the billboard and salvage a high percentage of its wooden parts for reuse at another site.

On November 25, 1991, the Attorney General issued an advisory opinion on behalf of the Director, Division of Taxation (Director), that billboards were taxable as real property under N.J.S.A. 54:4-1. In 1992, Galloway Township made an omitted assessment for real property taxes owed by Scola, Inc. for the Maxwell billboards that were erected on its property. After reassessing the billboards as taxable real property, Scola's taxable land assessment was increased by $3700. Maxwell and Scola (taxpayers) challenged the assessment before the Atlantic County Board of Taxation (Board), which upheld Galloway Township's omitted assessment.

The taxpayers appealed the Board's judgment to the Tax Court. The Outdoor Advertising Association of New Jersey appeared as amicus curiae and the Director intervened.

According to the taxpayers, billboards are personal property that is exempt from taxation as real property. N.J.S.A. 54:4-1(a) (subsection (a)) classifies improvements "consisting of personal property" that are "affixed to the real property" as "within real property" and, therefore, taxable. The taxpayers argue that under this statutory framework, billboards should be classified not as improvements to realty but as personal property because: 1) they can be removed without material injury to either the real property to which they are affixed or the billboard itself; and 2) they are ordinarily not intended to be affixed permanently to real property. The taxpayers also claim that the billboards qualify under the statute's "machinery, apparatus, or equipment" exception, N.J.S.A. 54:4-1(b) (subsection (b)), because the billboards are apparatuses used in the outdoor advertising business that neither support, shelter, contain, enclose, nor house people or property.

The Tax Court granted summary judgment to Galloway Township, holding that the billboards were taxable as real property. The Appellate Division affirmed the Tax Court's decision. The Supreme Court granted the taxpayers' petition for certification.

HELD:

Wooden billboards are not taxable as real property because they fall under the tax exemption of N.J.S.A. 54:4-1(a).

1. Only affixed personal property, not improvements, can avoid being taxed by satisfying with the requirements of subsections (a) and (b) of N.J.S.A. 54:4-1. The Legislature intended a restrictive definition of the term "improvements" when it created the distinction between the terms "improvement" and "personal property affixed to real property." The statute makes sense only when "improvement" is construed as an addition to land that is obviously, unmistakably, and inherently permanent. So defined, billboards do not fall in the category of "improvements" to real property. (pp. 6-9)

2. Because billboards are considered personal property affixed to real property, they may qualify for the real estate exception in subsection (a), if the taxpayer can prove that the affixed personal property: 1) can be removed without material injury to the real property; 2) can be removed without material injury to the personal property itself; and 3) is not ordinarily intended to be affixed permanently to the real property. The first requirement is satisfied because billboards can be removed without materially injuring the real property. (pp. 9-10)

3. Material injury has been defined as physical damage to the personal property sufficient to destroy its utility. A billboard's utility is not destroyed when it is removed. Approximately 80% of the billboard's support structure is salvageable on removal, and the advertising face is not damaged by removal and is normally completely reusable. Moreover, Maxwell's wooden billboards are not "irreparably" damaged in removal because certain support beams are not salvageable or disassembly is required. Thus, within the meaning and intendment of the statute, Maxwell's wooden billboards may be removed without material injury. (pp. 10-13)

3. On the record in this case, wooden billboards are not ordinarily intended to be affixed permanently to the land. Outward appearances, physical facts, and the custom and usage of the trade are relevant considerations determining whether billboards are or are not intended to be affixed permanently to the real estate. The ultimate determination depends on an objective view of what the ordinary intent was for installing the billboards. Although the actual history of the billboards suggest that they might have been intended to be affixed permanently, the trial court failed to consider the course of billboard industry practice. That course demonstrates that the ordinary intent of the billboards is not to have them permanently affixed to the land. Billboard owners typically do not own land on which their displays are constructed; billboard leases are generally short-term ones; wooden billboards are regularly constructed without a concrete foundation; and billboards often relocate on short notice due to State land condemnation and landlords' decisions not to renew leases. In addition, the application of the three-part test of Division of Taxation regulation, N.J.A.C. 18:12-10.1, clearly demonstrates that billboards are not ordinarily intended to be affixed permanently to the land. (pp. 13-17)

4. Wooden billboards satisfy the three requirements of the subsection (a) exemption. The focus here is on traditional wooden billboards. The Court does not determine whether steel and concrete billboards can be removed without being materially injured or were not ordinarily intended to be affixed permanently to the real estate. (p. 17)

5. The lower courts also determined that billboards were not taxable because they did not fall under the subsection (b) exception in which the taxpayer must prove that the billboard: 1) qualifies as "machinery, apparatus, or equipment," 2) is used or held for use in business, and 3) is not a "structure." Because outdoor advertising is neither a manufacturing nor telecommunication activity, it cannot be inferred that the Legislature intended the Business Retention Act of 1992 to cover billboards. In addition, billboards do not qualify as machinery, apparatus or equipment and they are clearly structures. Thus, the subsection (b) exception does not apply. (pp. 17-24)

Judgment of the Appellate Division is REVERSED.

JUSTICES POLLOCK, O'HERN, GARIBALDI, STEIN and COLEMAN join in JUSTICE HANDLER's opinion.

The opinion of the Court was delivered by

HANDLER, J.

I

The R.C. Maxwell Company ("Maxwell") is a New Jersey corporation that has conducted outdoor advertising since 1894. It currently owns about 900 outdoor advertising displays, most of which are in Atlantic and Mercer counties.

Four Maxwell-owned wooden billboards are on land owned by Scola, Inc., in Galloway Township, Atlantic County, New Jersey. Maxwell leases the property for the express purpose of erecting its billboards.

Maxwell's billboards have traditionally been taxed by the State as business personal property pursuant to the Business Personal Property Act (the "BPP"), N.J.S.A. 54:11A-1 to -21, which was repealed in 1993. Maxwell also pays licensing and permit fees to the State pursuant to the Outdoor Advertising Act, N.J.S.A. 54:40-50 to -73 (repealed in 1992) and more recently the Roadside Sign Control and Outdoor Advertising Act, N.J.S.A. 27:5-5 to -26 (replacing N.J.S.A. 54:40-50 to -73).

On November 25, 1991, the Attorney General issued an advisory opinion on behalf of the Director, Division of Taxation, that billboards were taxable as real property under N.J.S.A. 54:4-1. Galloway Township proceeded, in 1992, to make an omitted assessment for real property taxes owed by Scola, Inc., for the Maxwell billboards that were erected on its property. The original assessment for Scola's plot, identified as Block 1204.01, Lot 7.02, was $86,700. After re-assessing the billboards as taxable real property, the assessment of taxable land value increased to $90,400. Maxwell and Scola ("plaintiffs" or "taxpayers") challenged the assessment before the Atlantic County Board of Taxation ("Board"), but the Board upheld Galloway Township's omitted assessment.

Plaintiff appealed the Board's judgment to the Tax Court. The Outdoor Advertising Association of New Jersey appeared as amicus curiae and the Director, Division of Taxation, intervened.

The Tax Court granted summary judgment to Galloway Township, holding that the billboards were taxable as real property. 13 N.J. Tax 519 (1993). The Appellate Division affirmed the Tax Court decision. 15 N.J. Tax 187 (1995). We granted the taxpayers' petition for certification. 142 N.J. 456 (1995).

II

The taxpayers contend that billboards are personal property that is exempt from taxation as real property. Subsection (a) of N.J.S.A. 54:4-1 classifies improvements "consisting of personal property" that are "affixed to the real property" as "within real property" and therefore taxable.

The taxpayers argue that under this statutory framework, billboards should be classified not as improvements to realty but only as personal property because (1) they can be removed without material injury to either the real property to which they are affixed or to the billboard itself, and (2) they are ordinarily not intended to be affixed permanently to real property. 13 N.J. Tax at 526. The plaintiffs also argue that the billboards qualify under the statute's "machinery, apparatus, or equipment" exception, subsection (b) of N.J.S.A. 54:4-1, because the billboards are apparatuses used in the outdoor advertising business that neither ...


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