Avco Financial Services Consumer Discount Co. v. Director, Division of Taxation

judgment Appellate and the Division reversed propor- to the Tax to test the claim of cause remanded Court tionality.

For reversal and remandment —Chief Justice WILENTZ CLIFFORD, HANDLER, POLLOCK, O’HERN and Justices and GARIBALDI—6.

For affirmance —None. FINANCIAL SERVICES DISCOUNT COMPA- AVCO CONSUMER ONE, INC., PLAINTIFF-APPELLANT, DIRECTOR, NY TAXATION, DIVISION OF DEFENDANT-RESPONDENT.

Argued January 1985 Decided June 1985. argued appellant {Riker, Alvin Weiss cause for Danzig, Hyland, attorneys; briefs). Scherer & Wendy C. Hart on Wheelwright, General, L. Deputy Attorney argued Martin for respondent Kimmelman, cause Attorney I. {Irwin Ciancia, of Jersey, attorney; General New J. Assistant James General, counsel). Attorney opinion the Court was delivered O’HERN, J. appeal presents

This issues similar to those resolved Silent Director, Taxation, 100 Div. N.J. 1 Hoist & Crane Co. v. today. also decided case, Pennsylvania In this company, financial services through parent linked its national with New affiliated offices, protests payment corporate to New of a upon tax apportioned income an share the interest and service income it received from New borrowers. The amounts stake are for 1974 and $1308 $2123 modest— 1975, $150,000 comparison in revenues derived from doing business each during years New of those —but important. agree issues are We with the Director of the Appellate taxpay- Division Taxation and the Division that the er had the New Jersey connection” with sufficient to “minimal sustain a tax relationship that bears a “rational between the

31 to the and the intrastate values of the income attributed State at 8 100 N.J. Crane, supra, enterprise.” Silent Hoist & Taxes, (quoting Corp. v. Mobil Oil Commissioner US. 425, 436-37, 1223, 1231-32, 510, L.Ed.2d (1980)). differing (1)

The considerations this case are that we taxpay do not deal with a contention the Division that the part business,” “unitary er’s income can be reached as of a (2) corporate the tax involved is a income tax rather than a seen, corporate Complete franchise tax. As we have since Transit, Brady, Auto Inc. v. U.S. 97 S.Ct. analysis the constitutional of state L.Ed.2d taxation depends given of interstate commerce not on the label the tax charge being but on the economic effects of the tax. There no commerce, against analysis that the tax discriminates interstate again focus on the nexus or minimal connection of the will State, activity relationship taxed to the and the rational fairly apportioned provided by tax to the services the State.

I. The Tax State (N.J.S.A. -24), Corporation Income Tax Act 54:10E-1 to (A.1973, 170), commonly tier tax referred as second c. (CIT) imposes corporate corporations a direct tax on income deriving income from sources within this state that are not Corporation imposed to the tax under the Business Tax (N.J.S.A. -40). levy, approved Act 54:10A-1 to The new June applicable years ending after is to calendar and fiscal The current rate of tax is of entire December 1973. 7V4% portion Jersey. to New net income such as allocable 54:10E-5. N.J.S.A. tax, history

To understand the we must recall the of state taxation of interstate commerce. Prior to only although components of had a- franchise tax one of its by Hoist, value was measured income. See Silent supra, Complete Transit, 11-12. Until Auto N.J. it thought was exclusively business, direct tax on an interstate phrased solely levy of a on privilege doing terms business in state, constitutionally was forbidden. To meet this consti- objection revenue, tutional and to reach broader sources of Report Committee, V, the New Policy Tax Part “Non-Property Equitable Taxes in Fair and Tax System,” 23, 1972) (February (Cahill Commission) recommended that Jersey do many done, “by New as other adding states had taxes, corporate them, their by substituting franchise for an levied, privilege, income tax not on doing or the of business State, in the but on income derived from sources within the State.” Id. at 20.

The Committee recommended that New retain the corporate (CBT) corporations business franchise tax it applied, adopt which can be and this “second-tier net income recognition good tax” of the fact that “there is a deal of broadening scope” room for of the State’s tax base. Id. at 22. The recognized Committee the recent restraints that Con- gress placed taxing on powers had state under Pub.L. No. 86-272, but, relying on Kingsley, Clairol v. 57 N.J. 199 decided that there was still a range exclusively considerable interstate business within the of a reach direct income tax. Commission, Cahill supra, at 22. The Committee concluded: “[Ejquity demands carrying business on activities in the State exploiting the New market make some contribution maintaining to the governmental operations costs and the * * provided by services *.” State Id. CBT, Like corporation’s the CIT is a tax on the “entire income,” net measured in the first instance its federal taxable income. 54:10E-4. See N.J.S.A. That “entire net in- come” apportioned Jersey by the application three-part on receipts, formula based payroll within and without the State. N.J.S.A. 54:10E-6. To this applied is the rate of allocated income tax N.J.S.A. 774%. 54:10E-5. Act, Corporation Tax connection with Income

Legislature Report- passed Corporation Business Activities Act, ing purpose 14A:13-14 to -23. That act’s N.J.S.A. foreign is to the Division of Taxation to obtain data from any enable pertinent an owns or in this which carries on maintains corporation activity property do business State but which has not obtained certificate to authority New to the end that a determination be made as to whether may Jersey, proper subject such is State tax. any corporation Bozzarello, Consumer Discount Co. v. [Associates N.J.Super. (App.Div.1977).] Lott, Pennsylvania American & Trust See also Bank Co. of (1985) 14A:13-20, (N.J.S.A. requiring foreign all N.J. Report, corporations file Activities was a Notice Business banks). foreign apply not intended to that, foreign requires corporation 14A:13~15 N.J.S.A. things, payments persons residing from among receives other state, state, aggregating in this or businesses located this $25,000 here), (as to file a Notice of plaintiff more did than receipt The Report. Legislature Activities viewed Business that a preliminary at least a indication payments of such as foreign income from sources within New corporation derived By tax. Jersey subject corporation to the income and was scrutiny. filing to the report, its Avco became Division’s II. Activities Taxpayer

The and its Discount taxpayer, Financial Consumer Avco Services Pa.), One, (Avco many Inc. is one of subsidiaries Company Services, (Avco) through Inc. linked Avco Finan- Avco Financial (the Management Compa- Company Management cial Services Avco Pa. is a ny) offices nationwide. with over branch are sever- corporation. Among its branch offices Pennsylvania Levittown, border, Philadelphia, Jersey including onal the New Morrisville, Jersey have taken out New residents Easton. life, purchased

consumer loans or credit accident and health and through Pennsylvania credit insurance offices. purchased Avco also Pa. installment contracts from a New Avco, affiliates, Jersey through operates retailer. also Jersey. maintains similar branch offices in New The record any does not disclose whether the borrower have would con- understanding scious Pennsylvania and New branch offices were of different subsidiaries since Avco has a policy permits payments to be on made the loans made Pennsylvania branches at New branches. The loan agreement between a borrower and Avco Parent, Pa. “and/or its Affiliates or A sample Subsidiaries.” promissory stipulated note in payable exhibits was to made * * * Services, parent], Avco Financial Inc. its “and/or [the Mailings or parent affiliates subsidiaries.” from the or the management company existing Jersey to New customers invit- ed the customer to existing refinance extend credit lines. mailings The are encourage warm and the reader to resolve gift, problems, tax and vacation referring generic in terms Services,” “Avco Financial you.” the lender that in “believes addition, Management Company provides general also advertising Jersey radio parent in New for the benefit of the and its affiliates.

Avco personnel Jersey Pa. sends its own into New to service accounts. Some customers were afforded “once or twice monthly visits” to remind borrowers of obligations. their Avco Pa. managers spend estimates that its branch “three to five percent” working of their in Jersey. hours New When loans default, are in Pa. Jersey system Avco uses the New court (about $3,000 enforce per collections year), including wage garnishment and repossession of a few New automo- activities, biles. As result of these Avco Pa. estimates that years interest other income for each of the 1974 and approximately $150,000. 1975 was 14A-.13-15, Pursuant to N.J.S.A. Avco Pa. filed a Notice Report defendant, Director, Business Activities with the Divi- (“Director”), beginning year sion of Taxation for the taxable ending Avco 1973 and 1974.1 Pa. December November during reported payments period that it from received residing Jersey” in in “persons in or business located New $25,000. payments excess Avco Pa. indicated that such were respect by its offices. of notes held out-of-state received liability report. Avco Pa. disclaimed under the CIT its corporate Pa. was for Director asserted Avco liable receipt respect to Pa.’s of income from income taxes with Avco filed Eventually, state.” Avco Pa. tax “sources within this years ending CIT the taxable pursuant returns to the 30, 1975. Each of these 1974 and November November Pa. no income from sources returns indicated that Avco derived Jersey. Pa. an estimate within Avco thereafter submitted New $150,000 Pa. in interest to the Director that Avco received resident for each income from borrowers controversy. years taxable against deficiency tax

The Director issued a final assessment years question. respect each of taxable Avco Pa. with receipts from New regarding estimates upon Based Avco Pa.’s plus residents, Director taxes of $1308.99 assessed $2,123.46plus interest for 1975. interest for 1974 and ruled the Director’s appeal, Pa.’s the Tax On Avco Court Tax in this matter violates both imposition of the Income Act the of the United the Process Clause and Commerce Clause Due Constitution, granted Pa.’s claim. 4 and Avco refund States the (1982). Appellate Tax The Division reversed N.J.Tax 349 finding that was Court there New income attributed to a rational between relationship plaintiff’s justify tax to the levied New Jersey imposition the benefits conferred by regulation of the credit market which enables plaintiff’s

here. The internal of the Retail the administration loans; parent accept payments process 1973, 1 Although the Avco December the taxable of Pa. commenced year its 1974 effective Act taxes income received after January Income Tax only date. N.J.S.A. 54.-10E-2. 36 regulates Installment which Sales Act issuance and of transfer the install- ment that from Dean’s of paper plaintiff buys maintenance Appliance; general regulation courts and the of collection that processes permit plaintiff

realize on loans which are in are all default, elements such foundation. (1984).] 512 [193 N.J.Super. 503, granted taxpayer’s petition We for certification. 97 N.J. (1984).

III.

A. Does Apply the Statute to Income Intangibles from Jersey?

Without a Situs New taxpayer has contended that it earned no income and is therefore not to the tax. It contends loans, promissory its proceeds notes and the interest and intangible personal thereon are all property and taxa intangible ble situs such an is the domicile of the creditor. This is the historically sort of theoretical distinction that has analysis underpinning encumbered of state taxation. The argument sequuntur rests on the maxim person- mobilia (movables maxims, am person). follow the Like other this has questioned been “staffing] disclosing rule without Mobil, reasons for it.” supra, 445 US. at at S.Ct. 1235, 63 (quoting L.Ed.2d at 526 Corp. First Bank Stock Minnesota, 234, 241, 677, 680, 301 US. L.Ed. (1937)). equated The Court the taxation of income from situs, intangibles, not with but with the relation the income privileges bears “to benefits and by conferred several States.” Mobil, supra, atUS. 100 S.Ct. at L.Ed.2d 526. We believe that the CIT is related to benefits conferred reach, It speaking, State. is direct with certain exceptions, aof tax on income “derived from sources” in New Jersey. Putting concepts N.J.S.A. 54:10E-2. aside traditional relating intangibles, the real source of Avco Pa.’s income is piece paper, not a but New borrowers. In Chemical Director, Realty Corp. v. Taxation Div. 5 N.J.Tax 593-94

37 history of the CIT and (1983), the Tax Court reviewed restrict the intent was not to Legislature’s that the concluded domicile. intangibles place to the of commercial taxation applica- case, contested subsidiary of a New York bank that financing derived from real estate to income it tion of the CIT intent legislative of a Jersey. In the absence in New activities CIT, part construed as maxim be the mobilia “de- Jersey borrowers is from New income received interest act, and thus Jersey” under the New rived from sources within reach of the State. Chemical the constitutional 605;2 see also CIT Fin. supra, 5 Realty Corp., N.J.Tax Taxation, Director, Services, N.J.Tax v. Div. etc. sustain Jersey affiliates (1982) (surrogate activities of New interest income from Pennsylvania lender’s that a conclusion taxation). to New Jersey residents is amenable B.

Is There a Minimal Connection? Appellate Division that and the agree the Director We with requirement. satisfy made to this showing has been sufficient the issue resolve no litmus test will Concededly, there is precedent. look to available all cases. We can best Hess on National Bellas taxpayer primarily relies 18 L.Ed. Dep’t, 386 87 S.Ct. v. Illinois Rev. U.S. Inc. Maryland, U.S. Bros. Co. v. 2d 505 Miller cases, involv (1954). of those Both 98 L.Ed. almost total lack of taxes, involving “the were seen as ing sales delivery. Nation and the state of the seller contacts” between Equalization, Bd. Geographic al Soc. California (1977). 1386, 1391, 551, 559, 51 L.Ed.2d 97 S.Ct. U.S. link, connec some minimum “some definite But where there is * * * tax,” tion, person it seeks between State and] [the Chemical, minimal connection to insufficient level of the Court found an 2 In process. satisfy due

38 561, 1393, the will met. at nexus be Id. 97 at 51 S.Ct. L.Ed.2d Bros., (quoting supra, 344-45, at 640 Miller 347 at 74 U.S. 538-39, 748). Thus, at 98 at Scripto, S.Ct. L.Ed. v. Inc. 619, Carson, 207, (1960), 362 80 4 U.S. S.Ct. L.Ed.2d 660 local by provide solicitation commission salesmen sufficed to the nexus.

In terms of analysis, constitutional the question turns taxpayer on how the has come into the state to work the here, minimum, market. We think at a that: (1) presence the employees of Avco Pa.’s in the State to collect their overdue accounts vigorous, systematic evidenced a persistent effort, by physical aided a substantial presence, exploit to Clairol, market. Kings- See Inc. v. ley, (App.Div.), aff’d, 109 22 N.J.Super. 57 199 N.J. dismissed for question, want a substantial federal 402 U.S. 902, 1377, (1971); 91 28 S.Ct. L.Ed.2d 643 Tuition Plan Newof Hampshire Director, Div. (1982); Taxation 4 N.J.Tax 470

(2) the use the taxpayer of its affiliate offices in New payments possible to receive “made realization continuance of valuable contractual relations” between Avco Pa. and its New borrowers. Standard Steel Pressed Revenue, 562, Washington Dep’t v.Co. 419 95 U.S. 706, 708, (1975); and 42 S.Ct. L.Ed.2d 722 (3) ongoing Jersey’s process use of New courts and obligations enforce its demonstrates that the taxpayer’s activi- enjoyed protection ties and services for which the State is something entitled return. See Geographic, National supra, at U.S. at L.Ed.2d at 640.3 course, recognize reasonably 3 0f we that activities related foreclosure mortgage Jersey realty foreign of a on New do not bank to the New Jersey Corporation Business Tax Act because of such activities. American Lott, (citing Op.Atty.Gen. (April N.J. No. Co. v. Bank & Trust 1961) 110). foreign corporation But when a "has access to courts to [state] dissent, emphasize, as taxpayer chooses to does Jersey, taxpayer not maintain an office in New does here, representa resident or lease or have nor own present, it any Had of those factors been would be tives. Corporation Business paying higher rates due under the * “ * * privilege having exercising or Tax Act for the State, privilege doing for the corporate franchise this or business, owning capital property, or maintain employing or office, ing an in this State.” 54:10A-2. N.J.S.A. requires of these factors that us to precisely

It is the absence CIT, reach of the for their absence explore the constitutional dispositive of the issue. always has not been was held to be shown when the out-of-state sales were The nexus requisite working taxing arranged agents Felt & State, in the the seller’s local by (1939); Gallagher, 83 L.Ed. 62, 376, 306 U.S. 59 S.Ct. 488 v. Tarrant Co. Trading 322 U.S. 64 S.Ct. 88 L.Ed. Comm’n, 335, 1028, Co. v. Tax General (1944), outlets and in cases of maintenance in the State of local retail store 1309 & Co., [312 out-of-state v. Roebuck Sears, supra mail-order sellers. Nelson Montgomery (1941)]; 312 Ward, Nelson v. 359, US. 61 85 888 586, S.Ct. L.Ed. (1941). 362 Carson, Inc. v. U.S. 373, U.S. 61 S.Ct. L.Ed. 897 593, Scripto, 85 in 4 the basis was found the 80 S.Ct. L.Ed.2d 660 207, 619, necessary jobbers, Georgia-based “10 or ‘sales- wholesalers, case of a that had company forwarding conducting in the man’ continuous local solicitation Florida and goods,” resulting from to Atlanta for of the ordered orders that State shipment although maintaining 4 L.Ed.2d no or 619, 660, at 80 S.Ct. id., office having regular no Florida, business in place full-time of there, employees Geographic, 430 at 97 S. Ct. at 51 L.Ed. 556-57, U.S. [.National supra, added).] (emphasis 2d at 637 rights growing state, that access out of its transactions" in may enforce any sustaining jurisdiction the state’s be considered as of the minimal contacts part Borgward foreign Court, Carl F. W. G.M.B.H. v. over the Superior corporation. (1958); see v. National Aero 72, 78, Cal.2d 330 P.2d 793 also 51 Pope (1963) financing (systematic 889 Co., Finance 33 CalRptr. Cal.App.26. program and resort to aid entrance to aircraft enhanced by repossess physical state); Homeland, contacts with of state courts demonstrate minimum Staley (E.D.N.C.1974) (that foreign seller could use Inc., "freely F.Supp. obligations” related to mobile home North Carolina law to enforce its purchas- sustaining jurisdiction foreign-state over es is a factor to be considered in seller). recalling dissent us for these Scripto, chides words of Geographic. are which reaffirmed National It calls atten- wholesalers, salesmen, jobbers tion to the number of who However, significance Scripto were active Florida. of in the of persons, lies not number those but in fact They was an employee Scripto. only part none devoted Scripto supra, their time to at Scripto, sales. U.S. then, at L.Ed.2d 664. Even without in-state offices, employees, without full-time resident the Court found the “minimum connections” be more than sufficient. absent,

In considering then not what but what is present, we with find distinctive contacts State precedent taxpayer not found invokes. Unlike Hess, mail depart order house Bellas National or the Brothers, ment store in Miller this seller financial services taxing customers, has entered the state to dun has used affiliated in-state drop payments, offices customers to has used New agencies, credit service and has invoked the process State’s to enforce its Surely contracts. the New only borrowers did not consider themselves visited with presence” “slightest when Avco Pa. knocked on their doors to Surely its money. Jersey taxpayers collect are New enti something return tled to for the benefits that State upon foreign conferred lender.4 subject 4 Wenote áddition that certain of Avco Pa.’s loan activities are Inc., regulation Aldens, Jersey. (App.Div. N.I.Super. in New Turner v. 1981) (state protection consumers have of Retail Installment Sales Act no deals). foreign matter from where seller When state business are activities scheme, regulatory conducted under a state the state confers a benefit for may Co., Merin, something which it ask in return. Ins. Evanston Inc. v. (D.N.J.1984) ("Notwithstanding F.Supp. [National Bellas Hess hold ing present taxpayer’s only not that minimal link is when a connection with power customers is common carrier or state does mail] a have the impose liability virtually any tax on if it a seller has other contact with the Sarokin, J., 1306, citing Scripto Geographic). state.” id. at and National that, applying We therefore principles believe that Supreme down, Court has laid it is well within the “realm of permissible judgment” to conclude that there are sufficient taxpayer minimum contacts justi between the and the State to fy imposition of the tax.

C. Relationship Is There a Rational Between the Tax and the Instate Values? rationality relationship springs almost forth from

the arithmetic in liability this case. The test is whether the tax appropriate proportion is “out of all to the business transact Sons, ed.” Hans Rees’ Inc. v. State North Carolina ex rel. Maxwell, 123, 135, 385, 389, 283 U.S. 51 S.Ct. 75 L.Ed. Hoist, at 10. supra, 100 N.J. cited in Silent case, In this application three-part as a result of of the formula, only appropriate portion a distinct of Avco Pa.’s in come was to tax. Its entire net income inwas excess of $5,000,000 years. for each of the As a result taxable formula, $20,000 less than of that was attributed to New $150,000 Jersey, although approximately per year was derived from New borrowers. The taxes assessed for 1974 and $5,225,745 $5,867,326, 1975 on the entire net incomes of respectively, appears were The formula $1308 $2123. job developed Hoist, have done “the it was to do.” Silent context, supra, In at 10. amounts to levy N.J. Jersey gross, disproportion less than on the 1974 not New 1% considering managers spend ate factor the fact that branch 3 to Jersey. light of their time in of the activities of the 5% taxpayer in New to realize and continue these contractu relations, figures al we cannot conclude these are out of all appropriate proportion. taxpayer

Nor is the Constitution offended because the $20,000 may have included some or all of allocated in 42 Pennsylvania

income in Each states its returns. of the cannot police guarantee others the activities of the that some in overlap may not occur. “Taxation one state is not an against immunization taxation other states.” West Publish 705, 710, 861, 864, ing McColgan, 27 166 P.2d Co. v. Cal.2d aff’d, (1946)(citations 328 U.S. S.Ct. L.Ed. 1603 omitted); Bair, 267, 276-79, Mfg. see Moorman Co. v. 437 U.S. 2346-47, (1978); 57 L.Ed.2d 206-09 S.Ct. State Aldrich, 174, 181, Tax Comm’n Utah U.S. 1358,1370 1008, 1011, (1942). Many joined 86 L.Ed. states have Compact the Multistate Tax to eliminate or minimize that potential. analysis,

In the a put last wise commentator has the limits of power simple taxing state in the context of whether the State decency” asserting “has taxing exceeded bounds of its power. Powell, quoted Hellerstein, Professor Thomas Reed “State An Taxation Under the Clause: Commerce Historical Perspective,” (1976). Vand.L.Rev. given homogeneous identity

We are satisfied that of Avco parent management Pa. with company, its its own direct penetration of the New consumer finance market work, through follow-up employment customer of its offices, affiliates as collection and its recurrent protection recourse Jersey’s that New courts afford it as creditor, its activities establish connection with the State “slightest presence” suggested which far exceeds the by the dissent. the fair Given allocation income that New sought, has these decency bounds of constitutional have been met required and disclose the “minimum contacts” “ration- relationship” necessary al to sustain the tax. judgment Appellate Division is affirmed.

CLIFFORD, J., dissenting. Today foreign corporation the Court holds that does Jersey; employ officers, not an maintain office New does not

43 employees, here; agents, representatives with offices does any personal not own or tangible lease real or in this state; any Jersey telephone and does not list itself in directory is nonetheless to state So taxation. different majority’s my understanding from the stipulated of the record, my reading pertinent authorities, of my the and sense of justification imposition corporate of the income tax that I register a dissent. On the before facts us there is not a sufficient on which support nexus to the tax. argues

Avco in every in which instance a tax has been constitutionally imposed, Supreme the Court has found some i.e., physical presence, purposeful some and deliberate resort the nondomiciliary corporation taxing the to state’s laws and Although always terms, services. not precisely written in those pertinent plainly position decisions favor Avco’s that a sustained, presence part taxpayer definite on the of the to—not be required. found in the instant case—is

In Minnesota, Northwestern States Portland Cement v.Co. 450, 357, (1959), 358 foreign US. 79 S.Ct. 3 L.Ed.2d 421 a corporation Iowa, plant City, whose was located Mason made nearly percent Minnesota, taxing its entire sales jurisdiction. corporation also maintained in Minnesota an salesmen, office consisting secretary, a a district three and director. 425. Id. at S.Ct. at L.Ed.2d at Not surprisingly, upheld liability corpora- the Court tax tion, stating:

The taxes are levied on that net income only portion imposed taxpayer’s taxing which its arises from activities within the State. These activities form a sufficient nexus between such a tax transactions within state for which a It our strains in terms the tax is an exaction. reality say, decisions, * * * here was not involved in local corporation[] sufficiently forge events some definite some minimum connection sufficient link, due satisfy process requirements. (emphasis added).] [Id. 79 S. Ct. at 3 L.Ed.2d at Likewise, in Washington Standard Steel Co. v. Pressed Dep’t, Revenue U.S. 95 S.Ct. L.Ed.2d 719 against nondomiciliary Court sustained a tax taxing physical presence had some within corporation that Steel, Pennsylvania manu jurisdiction. Pressed Standard Boeing Company parts to the facturer sold fasteners and other Seattle, with Washington. In order to facilitate consultation requirements, Boeing regarding anticipated needs employee Washington an who was manufacturer stationed employee his home. The salary operated out of paid a and who engineers manufacturer’s who by group a of the was assisted weeks, every or at least 24 days three six visited Seattle about 561, 708, In at 42 L.Ed.2d at 722. days year. a Id. at 95 S.Ct. the manufactur liability, the Court stressed that upholding tax state, “made position full-time within the employee, er’s with a of valuable contractual possible the realization and continuance Boeing.” at and Id. relations between [the manufacturer] 708, 42 at 722. at L.Ed.2d S.Ct. Carson, 4 L.Ed. Scripto, In 362 U.S. S.Ct. Inc. a somewhat different the Court was faced with 2d 660 of a so-called “use” tax. problem, namely, application corporation stated, levy imposes on a Briefly this form of goods tax on certain responsibility for the collection of a tax, on use is direct as the income a tax products. Not as constitutional standards that governed by the same nonetheless income, requiring minimal connection apply to tax on some a taxing Scrip- In taxpayer’s activity and the state. between the to, ten brokers within the foreign corporation maintained soliciting Each of jurisdiction purpose for the sales. taxing corpo employ contractual was under the wholesalers ration, taxing uphold a resident of the state. and each was that the against corporation, the Court stressed ing the tax conducting “continuous local solicita were brokers or salesmen circumstance, coupled taxing jurisdiction. in That tion” tax, to nondiscriminatory nature of the was sufficient with the at 664. it. at at L.Ed.2d sustain Id. that Avco’s overall affairs majority somehow concludes Jersey physical presence,” in New amount to a “substantial and, specifically, activity its collection evidences a more “vigorous, systematic persistent to exploit effort” the New Jersey market. thing. Ante 38. No such Recall that the 8:8-l(b) record before us Rule stipulation amounts here, interpretation margin facts—no room for creative no me, then, massaging. lamp, Return with to the and re-read the which, stipulation. It study takes little to uncover that is plainly so: by there is no continuous solicitation Avco New Jersey, any plants nor physical Quite are there or offices here. contrary, operates to the exclusively Pennsylva- Avco offices nia any and is not authorized to do business in other state. It has no officers, offices New nor does it employ- have ees, agents, or representatives whose offices are located here. any Avco tangible neither owns nor leases real or personal Jersey, any in New nor it listed telephone directories. emphasizes

The Court Avco’s so-called “distinctive contacts” Jersey, appear analysis with New by majority’s which own be little more than random visits collectors to New borrowers and occasional use in-state offices of our payments. courts facilitate Ante at 39. The Tax Court considered of it clearly each these factors and found to be de minimis and an therefore insufficient basis on which to sustain tax. 4 agree. a Tax at 357. I The N.J. record indicates that percent somewhere around one-half of outstanding Avco’s total Jersey loans to through New borrowers were collected the use courts, managers of our and spent that Avco’s about three to percent contacts, five of in working their time state. These be, they might as “distinctive” as do not amount to a “substan- physical presence” by any tial reasonable definition that term. cry legitimate situation before us is a far from the

example physical presence” of a Roadway “substantial found in Express, Director, Taxation, (1967). Inc. Div. 50 N.J. 471 There, trucking a Delaware corporation maintained termi- two Kearny nals in Jersey, New one in and the other in Bound part Brook. The company’s terminals were of the interstate network, servicing trucks a Additional- an estimated 100 week. regularly parked Kearny in ly, than 60 vehicles were and more licensed, inspected in registered, the state. Id. at 478. sustaining against corporation, a franchise tax this Court Kearny emphasized “physical nature” of the terminal and in company’s “very Jersey. substantial” activities New Id. note, however, Kearny important at 479. It is that two-story building, office facility comprised of a a one-sto- was dock, garage. in ry loading one-story Employed and a service facility management representatives, six dis- this were three employees, patchers, supervisors, three 55 dock an office man- workers, ager, supervisor, garage 48 clerical six em- a claim ployees, manager charge in of five salesmen. Id. at and sales activities, respect 479-80. With to other the Court found company’s used over two and a half million miles of vehicles Jersey corporation over roadway, and the itself derived $5,000,000 operations from in this State. Id. at 479. The approach taxpayer activities of the the instant case do not Express. in Roadway the activities demonstrated “vigorous, systematic persistent Another illustration of a exploit Jersey effort” to the New market is found Tuition Div., Director, 4 Hampshire Plan New v. Taxation N.J.Tax There, (Tax Ct.1982). foreign corporation was making educational loans and derived its income business charged it to its wholly from the interest borrowers. here, Significantly, although it did not maintain an office managers other areas company made use of its district from job respective Jersey. included New It was the whose districts managers up of these district to drum business New plaintiff corporation. on As the court concluded: behalf regular through managers, engaged its district in a Plaintiff, systematic, program of on-site solicitation and of the New market. exploitation regular Plaintiffs visits to New educational institu- representatives paid during in this at least 54 times each of were State tions; they physically present during the and 1974 and 1975 and at least 59 times each of 1976 years years managers assigned 1977. One of district to New estimated plaintiffs Jersey recurring that he as much of his time in this State. The visits of as spent 20%

47 managers two district to New "made the realization possible target continuance of valuable contractual relations” between and the plaintiff Washington ed New Standard Pressed Steel Co. schools. Dep’t. of (1975). Revenue, U.S. S.Ct. 42 L.Ed.2d 719 419 95 at 479.] lid. By contrast, one employ no in the of charged Aveo is with carrying out a program such of in Jersey. solicitation New

Indeed, in only Avco’s activities slightly differ in degree from level taxpayer’s activity in Miller Bros. Maryland, Co. v. 74 U.S. S.Ct. 98 L.Ed. (1954). There, sought of Maryland levy State to a tax use against a merchandising corporation products directly sold to customers Wilmington, at its store in Nearby Delaware. of Maryland items, residents buy would travel the store and some of which were delivered their by homes the corpora tion’s own truck. In making deliveries, addition to these corporation customers, mailed circulars to former including Maryland, in general customers it advertising and also did some 342-43, that reached taxing into the state. Id. at at S.Ct. 537-38, 98 at Despite foregoing L.Ed.2d 747. activities the Supreme Court concluded that there anwas insufficient nexus on which to a sustain tax. in Finally, National Bellas Hess v. Department Inc. Illinois,

Revenue 386 U.S. L.Ed.2d (1967), the sought levy State Illinois against use tax mail principal place order house that had its in business City, North Kansas corporation Missouri. The did not maintain any Illinois, office in any agent did not have or salesman in the state, tangible not any taxing did own in the jurisdic tion, did newspapers not advertise its merchandise or radio or television. company’s only contacts with Illi nois customers were via mail common carrier. Id. 754-55, 1389-90, Relying part S.Ct. at 18 L.Ed.2d at 507. Miller, difficulty on the Court little invalidating had the tax. holding Director, Division, Appellate favor of the whose majority affirms, decision the now stated that trial standards,

court, although using the correct had “failed to showing taxing as appreciate the minimum that a district such to the that Jersey would have to make as activities would N.J.Super. at 507. provide a for income taxation.” 193 basis regulation of the credit emphasized The court that the internal items, regulation certain commercial such as market and the of as a for taxation. Id. paper, installment could all be used basis at 512. taxing purposes, underscoring adequacy,

In the for Appellate apparently showing, “minimum” the Division over- Supreme Geographic looked the Court’s decision National 1386, 51 Equalization, 430 U.S. 97 S. Ct. Bd. California (1977). ignore Although majority does not the L.Ed.2d 631 case, principle by applying maul it a to the facts it does bit Geographic us. In the State of California before National nondomiciliary corporation that sought levy a use tax on a taxing jurisdiction. within the sus- maintained two offices tax, suggested taining Supreme Court California slightest presence taxing within such state” could form “the at at 51 L.Ed.2d the basis of taxation. Id. Supreme affirmed the Although 637. the United States Court taxpayer’s liability, the was careful to state: Court as Court is not to be understood Our affirmance the California Supreme implying agreement “slightest of constitu- with that court’s standard presence” maintenance of two offices in the State and

tional nexus. [The taxpayer’s] assigned advertising in the to those offices of solicitation by employees copy ** * range much of million establish a more substantial presence annually $1 “slightest connotes. presence” expression [Id.] Thus, physical taxpayers’ the Court relied on the location of sustaining the tax. two offices as a basis Geographic majority’s labored reference National Carson, supra, Inc. v. 80 S.Ct. Scripto, U.S. position in which those 4 L.Ed. 2d attests to difficult put praecipitium tergo of a cases Court—sort fronte Surely they (roughly, place). a rock and a hard lupi between astonishing position that in support majority’s lend no for the office, absence such factors as an repre- in-state in-state sentatives, or, in-state holdings, very least, at the solicitation, in-state a taxpayer may nevertheless be reliance, Supreme taxation. The Court’s in National Geo- Scripto, graphic, on point, unmistakably: makes the even the though taxpayer Scripto in place had no or office of business or regular employees Florida, full-time it subject nevertheless was to Florida tax because of its other there, namely, (1) activities of wholesalers, maintenance ten jobbers, (2) or salesmen continuously soliciting orders Florida (3) forwarding and those from taxpayer’s orders Florida to the Georgia (4) home base in shipment for quite back to Florida — picture different from painted by that Focusing this Court. on Scripto’s “wholesalers, salesmen, ten jobbers and who were Florida,” majority active ante at the dismisses their unimportant numbers as surpassing significance but attaches though to the fact that even employee” “none was an taxpayer, foreign corporation the was nevertheless tax. relationship

Come now. The Scripto contractual between and complete its salesmen in Florida is a matter of indifference to holding the of the case. It is what that horde of salesmen did that counts. point, again, Scripto The critical is maintained descended, in Florida its resident brokers who much as a swarm locusts, prospective of on the purpose actively customers for of engaging in “attracting, soliciting obtaining” business. at test, US. 80 S.Ct. at at The L.Ed.2d 663. as Supreme observed, the sensibly “simply Court the nature and state, extent of the [taxpayer]” taxing activities the id. 211-12, at 4 L.Ed.2d at rather than who performed those taxpayer. activities on behalf And activities, Scripto’s demonstrate, as I have endeavored to bear little resemblance Avco’s. The two cases illustrate the presence” difference slightest between “substantial and “the presence” enough difference significant to call the tax in —a one instance and not the other. I drawn attention suggestion, have

Contrary majority’s to the chiding, at 40 so see ante spirit of not in the again Scripto frustration, sheer, miserable depression, even much as of that case simple language of to the and I can ascribe the Court Clearly, the five in the meanings. diametrically different such them, so I favor wrong, or I am. numbers majority are opinions of these careful reader leave it with the must rely. on which we the authorities ought to be invalidat- against Avco my that the tax It is view “slightest pres- best, only maintains taxpayer At ed. specifi- nexus Jersey, of constitutional in New a standard ence” Supreme Court but emphatically rejected cally and I therefore adopted today by this Court. would nevertheless Division and reinstate Appellate judgment reverse judgment of the trial court. WILENTZ, and Justices Justice For affirmance —Chief HANDLER, and O’HERN—4. POLLOCK CLIFFORD—1.

For reversal —Justice YACAVINO, AN THE ROBERT C. IN MATTER OF AT LAW. ATTORNEY July Argued May 1985. 1985 Decided

Case Details

Case Name: Avco Financial Services Consumer Discount Co. v. Director, Division of Taxation

Court Name: Supreme Court of New Jersey

Date Published: Jun 26, 1985

Citation: 494 A.2d 788

Court Abbreviation: N.J.