On appeal from a final judgment of the Tax Court, Docket No. 005682-1995, whose initial opinion is reported at 20 N.J. Tax 338 (2002).
Before Judges Stern, A. A. Rodriguez and Kimmelman.
The opinion of the court was delivered by: Stern, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued telephonically December 10, 2003*fn1
Plaintiff A.H. Robins Co., Inc. ("new Robins" or"Robins II"), successor through merger and bankruptcy reorganization of A.H. Robins Inc. ("old Robins" or"Robins I"), appeals from the Tax Court's order of February 25, 2002, granting summary judgment to defendant, Director of the Division of Taxation, and dismissing plaintiff's claims for the refund of"net operating losses" ("NOLs") that were transferred to plaintiff from the predecessor corporation as part of the bankruptcy reorganization. See A.H. Robins Company, Inc. v. Director, Division of Taxation, 20 N.J. Tax 338 (2002). Plaintiff argues that it is entitled to the NOLs for the period 1989-1994 because (1) it was"created solely to reorganize Robins I and neither changed the Robins I line of business nor brought with it any business of its own," and (2) this was a"single entity bankruptcy reorganization" and, therefore, the Supreme Court's opinion in Richard's Auto City Inc. v. Director, Division of Taxation, 140 N.J. 523 (1995), and its interpretation of the regulation involved in that case, N.J.A.C. 18:7-5.13, do not apply here. Plaintiff also argues that the regulation of state tax law cannot preclude use of the net loss carryover because"the Bankruptcy Court... already determined what had been the central issue in Richard's -- whether New Jersey law would allow the transfer of NOLs from a company merged out of existence to the merger survivor," and ordered that the NOLs be transferred to the new Robins.
In its original brief filed on this appeal, plaintiff specifically argued that Richard's Auto City"did not address a single entity bankruptcy reorganization" and that"N.J.A.C. 18:7-5.13(b) is invalid here," and that"the Tax Court's decision contravenes the Bankruptcy Court's prior plan and order."*fn2 The defendant Director responded by indicating that Richard's Auto City held that the survivor of a corporate merger may not utilize the pre-merger net operating losses of the merged corporation and that the regulation is applicable here notwithstanding the Bankruptcy Court order, that"there is no preemption because there is nothing in the Bankruptcy Code which explicitly or inferentially indicates a Congressional intent to preempt State tax laws after a reorganization has been concluded, nor does the disallowance of the NOLs conflict with the purpose of the Bankruptcy Code."*fn3 Moreover, defendant Director insisted that the Bankruptcy Court expressly declined to pass upon state tax court implications of the merger and left that to the state courts. See In re A.H. Robins Co., Inc., 251 B.R. 312, 321-22 (Bankr. E.D. Va. 2000). In any event, the defendant argued that the reorganization plan, approved by the Bankruptcy Court, did not address state (as opposed to federal) use of the net operating losses and that New Jersey had no obligation to participate in the bankruptcy proceedings in order to challenge a plan which did not purport to affect the impact of NOLs under state law.*fn4
While this appeal was pending, we granted plaintiff's motion to remand the matter to the Tax Court for reconsideration after adoption of the Business Tax Reform Act ("BTRA"), P.L. 2002, c. 40, which was enacted and became effective on July 2, 2002. On the remand, the Tax Court found that the adoption of N.J.S.A. 54:10A-4.5, as part of the BTRA,"merely codifies that which was the applicable law set forth under N.J.S.A. 54:10A-4(k)(6), as specifically described by the Supreme Court in Richard's Auto City... and [as] interpreted in N.J.A.C. 18:7-5.13(b)," and made no change to New Jersey law regarding the carryover of NOLs.
In its remand opinion of May 21, 2003, the Tax Court restated and adhered to its original holding:
This court determined that the appellant (taxpayer) was not entitled to carry over net operating losses (NOL) for the following reasons: 1) nowhere in New Jersey law does it state that NOL carryovers may be utilized when they emanate from a merged corporation; 2) there is nothing in the United States Bankruptcy Code that indicates a Congressional intent to preempt state taxing statutes with regard to post-reorganization income tax liabilities of a non-debtor entity; 3) the case at bar does not fit under the Bankruptcy Code's exemption provided in 11 U.S.C. § 1446(d) that certain transfers made pursuant to a reorganization would be exempt from state taxation; and 4) the Director's regulation, N.J.A.C. 18:7-5.13(b), and the New Jersey Supreme Court's holding in Richard's Auto City Inc. v. Director, Division of Taxation, 140 N.J. 532 (1995), prohibit the carryover of NOL for use by a corporation other than the corporation which incurred the losses.
In the remand opinion, the Tax Court supplemented its original order by additionally holding that, because the new statute, N.J.S.A. 54:10A-4.5, merely"restates existing law," and"is not retroactive," its application is not unconstitutional as applied in this case. For this reason, the court rejected the"due process" and"separation of powers" argument. The court further concluded there was a"rational basis""to codify existing law" and"to limit NOL carryovers" even if the statute is retroactive. The court also concluded the new Act was not"directed at the plaintiff or other similarly situated taxpayers, and, therefore, is not special legislation" or violative of the"separation of powers" doctrine. The Tax Court therefore adhered to its original order granting summary judgment and dismissing the complaint.
In its supplemental brief to us, plaintiff relies on its original arguments and further contends"that the Tax Court erred in failing to hold that: (1) the retroactive enactment of NOL legislation is unconstitutional; (2) the retroactive amendment of the law applicable to this case evidences that prior law did not support defendant's flawed position and (3) plaintiff must be permitted to conduct discovery into the intent of the New Jersey Legislature in adopting retroactive changes to the NOL law."
The plaintiff acknowledges that it cannot prevail if the new BTRA controls, which it says"contains a completely new prohibition on the carryover of NOLs following reorganizations." Plaintiff asserts that section 33 of the BTRA makes section 27 retroactive to affect this case and that"the 18 year retroactivity provision found in section 33 must be excised from the BTRA, and section 27 applied prospectively only." On the premise that the new BTRA is unconstitutional or is otherwise inapplicable, plaintiff asserts that the prior statute, N.J.S.A. 54:10A-4(k)(6)(D), did not prohibit NOL carryovers by a surviving corporation following a merger, and that the regulation, which is still in effect,*fn5 cannot be deemed applicable or dispositive to prevent them here because here, unlike in Richard's Auto City, the plaintiff did not change the business of Robins I which suffered the NOLs. Generally stated, under N.J.S.A. 54:10A-4(k)(6)(D), there could be no NOL carryover when there was a change in more than 50% of the corporate ownership by sale or redemption of stock and"the corporation changes the trade or business giving rise to the loss" or"the corporation was acquired... for the primary purpose of the use of its net operating loss carryover." According to plaintiff, the new statute cannot be applied here, the old statute permitted the NOL carryover, and the regulations cannot be utilized to limit or prevent application of the former statute in effect for the tax years in question.
Chapter 40 of the Laws of 2002, the BTRA, amended the Corporation Business Tax Act ("CBTA"). Section 33 of the BTRA provides that the Act"shall take effect immediately and apply to privilege periods and taxable years beginning on or after January 1, 2002, provided however that section 26 shall apply to privilege periods ending after June 30, 1984." See P.L. 2002, c. 40, § 33; 2002 Session Law Service at 203. While section 33 refers only to section 26 in terms of retroactivity, and not to section 27, which became N.J.S.A. 54:10A-4.5, the parties refer to the legislative history and, in any event, agree that section 27 was made ...