GE Solid State v. Dir., Tax. Div.GE Solid State v. Dir., Tax. Div.
- Reporters:
- ,
- Before:
- Coleman J.H., Stern, Keefe
Plaintiff, GE Solid State, Inc. (GE), appeals from a decision of the Tax Court which affirmed that portion of a determination of the Director of the Division of Taxation assessing a use tax deficiency of $61,599 for the taxation audit period of July 1, 1981 through June 30, 1984. GE paid the use tax assessment under protest, $40,026 of the sum paid is attributable to a use tax imposed on GE‘s predecessor, the Solid State Division of RCA, purchase of machinery and equipment used to make photomasks. The remaining $21,573 is attributable to a use tax imposed on plaintiff‘s predecessor‘s purchase of photoplates used by plaintiff as reticles and printmasters in its photomask operation to make other photomasks. This machinery and equipment were used by plaintiff‘s predecessor in its high technolоgy manufacturing of integrated circuits or “chips.” The process is as complicated as it sounds and it has been
This appeal involves an interpretation of certain provisions of the Sales and Use Tax Act (Act),
GE contended below and again on this appeal that the machinery and equipment in question are exempt from a use tax pursuant to
The Tax Court rejected GE‘s arguments and concluded that in light of the legislative history of the manufacturing exemptiоn and the long standing administrative regulations, the Director‘s interpretation of the exemption was correct. Both the Director and the Tax Court concluded that subsection 8.13a exemption applies only to machinery used directly in the production or manufacturing of personal property that was for sale to an ultimate consumer, at which point a sales tax would be collected.
They relied in part upon N.J.A.C. 18:24-4.2 which defined “machinery, apparatus or equipment” and “manufacturing or processing” as follows:
`Machinery, apparatus or equipment’ means any complex, mechanical, electrical or electronic device, mechanism or instrument which is adapted to the accomplishment of a production process, and which is designed to be used, and is used, in manufacturing, converting, processing, fabricating, assembling, or refining tangible personal property for sale. `Manufаcturing or processing’ means the performance of an operation or series of operations, the object of which is to place items of tangible personal property in a form, composition, or character different from that in which they were acquired. The сhange in form, composition, or character must be a substantial change, and it must result in a transformation of property into a different or substantially more usable product. [Ibid. emphasis added].
They also relied upon
N.J.A.C. 18:24-4.4(b), which provides that,
Production is limited to those operations commencing with the introduction of raw materials into a systematic series of manufacturing, processing, assembling, or refining operations, and ceases when the product is in the form in which it will be sold to the ultimate consumer. ... [Ibid. emphasis added],
and N.J.A.C. 18:24-4.4(c), which provides that,
Machinery, apparatus, or equipment is considered to be directly used in production only when it is used to initiate, sustain or terminate the transformation of raw materials into finished products.... [Ibid.]
The foregoing regulations were adopted by the Division of Taxation in 1969 construing the manufacturing exemption as it existed after the exemption was first enacted in 1966. These regulations were readopted in 1977 with virtually no change following the Legislature‘s reenactment of the exemption by L. 1977, c. 18.
Basеd on the application of these regulations, neither the photomasks nor the photoplates used to make reticles and printmasters to make photomasks were used directly in manufacturing because they were not sold directly to consumers. Rather, they were used to manufacture the integrated circuits which were sold to consumers on which sales taxes were collected. The judge concluded that the subsection 8.13a. exemption requires that the machinery be used “directly” and “primarily” in the production process and since it was not used “directly,” he need not decide whether it was used “primarily.”
We now affirm the judgment of the Tax Court substantially for the reasons stated by Judge Andrew in his
Affirmed.
STERN, J.A.D. (concurring).
[s]ales of machinery, apparatus or equipment for use or consumption directly and primarily in the production of tangible personal property by manufacturing, processing, assembling or refining.
On its face, this statute provides an exemption from taxation of sales (and purchases) of items “directly and primarily” used in the production of “tangible personal property.” It does not include a requirement that the “tangible personal propеrty” be manufactured or produced “for sale.”
[w]hen the Legislature, in fact, reenacted the exemption provision it employed the identical language of the former exemption provision. Thus, it must be presumed that it agreed with, and adopted, the interpretation of that language by the very agency charged with its administration. [GE Solid State v. Dir., Div. of Tax., 11 N.J. Tax 320, 333 (Tax Ct. 1990)].
The Tax Court determined that
[i]n light of the legislative history of the manufacturing exemption, the Director‘s interpretive regulations, i.e. those that predatеd the reenacted exemption and those that followed, the Director‘s long standing practice with which the Legislature has not interfered and the common understanding of the exemption provision, I find the Director‘s construction manifestly reasonable, and accordingly, must prevail. Id. at 335-36.
Accordingly, the Tax Court and my colleagues conclude that “[i]n order for the manufacturing exemption to apply, the tangible personal property being produced must be `for sale.‘” Id. at 336.
As developed in the Tax Court opinion, id. at 331-333,
To survive, industrial plants located in New Jersey must compete with American industries located in many states which exempt or provide preferentiаl treatment for investment in production facilities....
New Jersey industry‘s investment in new machinery is not rewarded with a credit but penalized with a tax which, necessarily, increases the sales price of manufactured goods and decreases the ability of New Jersey‘s industries to compete successfully in thе market place. No state wishing to encourage the growth of its industrial base and the expansion of job opportunities can afford such an obstacle to investment. [Report of the New Jersey Tax Policy Commission (1972) at 73].
Thus, there is support for the view that the Legislature may have endeavored to copy Pennsylvania‘s then existing manufacturing exemption which exempted the acquisition of tangible personal property “whether for sale or use by the manufacturer.” See 72 Conn. Gen. Stat. § 3403-2(c) quoted and discussed in Commonwealth v. Olan Mills, Inc. of Ohio, 456 Pa. 78, 317 A.2d 592, 594-595 (1974). Compare St. Joe Resources Co. v. State Tax Com‘n, 132 A.D.2d 98, 522 N.Y.S.2d 252, 255-256 (3 Dept. 1987) (Yesawich, J. dissenting), rev‘d on dissent, 72 N.Y.2d 943, 533 N.Y.S.2d 51, 529 N.E.2d 419 (Ct.App. 1988). See also N.J. Bell Tel. v. Director, Div. of Taxation, 152 N.J. Super. 442, 450, 378 A.2d 38 (App.Div. 1977) (Horn, J.A.D. concurring); Hoffman-LaRoche v. Taxation, Div. Director, 5 N.J. Tax 154, 171 n. 8 (Tax Ct. 1983), rev‘d o.g. 192 N.J. Super. 552, 471 A.2d 786 (App.Div. 1983) (our Sales and Use Tax Act modeled on New York law). And, note, Metpath, Inc. v. Taxation Div., Director, 96 N.J. 147, 151, 474 A.2d 1065 (1984).
However, even when our Legislature adopts the express language of a statute of another state, it does not necessarily adopt its interpretation, see State v. Ramseur, 106 N.J. 123, 203-204, 524 A.2d 188 (1987); compare Todd Shipyard Corp. v. Weehawken, 45 N.J. 336, 343, 212 A.2d 364 (1965), and the record here contains no direct proof that the Legislature was aware of, or actually intended to adopt, the regulations promulgated by the Director undеr the statute before its repeal.
But we examine the statutory meaning in 1992, and not 1977 or even 1982. And we do so after thе adoption of administrative regulations in 1977, see N.J.A.C. 18:24-4.1 et seq., -4.2, -4.4(b), and the filing of the so-called 1988 “SLERP Report” (see GE Solid State v. Dir., Div. of Tax., supra, 11 N.J. Tax at 334-335) on which no action was taken by the Legislature. Further, and as significantly, we review this case almost fifteen fiscal years after the relevant regulations were adopted and during which the Legislature relied upon projеctions from Sales and Use Tax receipts and on Sales and Use Tax revenues, as reported by the Department of the Treasury, in considering and adopting State budgets. See
As the Tax Court stated
[i]t is a well-settled principle that an administrative construction of a statute with which the Legislature has not interfered over an extended period of time is proof that the administrative interpretation conforms with legislative intent and thus, is accorded great wеight. [11 N.J. Tax at 334].
In so stating, Judge Andrew cited our Supreme Court‘s opinion in Body-Rite Repair Co. v. Taxation Div. Director, 178 N.J. Super. 263, 428 A.2d 940 (App.Div. 1981), rev‘d 89 N.J. 540, 545-546, 446 A.2d 515 (1982), where a majority of the Court noted “[t]he long-standing practical administrative construction ... and legislative acquiescence in that construction argue persuasively for the Director‘s interpretation.” Id. at 545, 446 A.2d 515. There the Court upheld the “uniform аdministrative interpretation since 1967” of an exemption under the same Act and reversed our holding granting the exemption. See Body-Rite Repair Co. v. Taxation Div. Director, supra, 178 N.J. Super. at 265, 428 A.2d 940.
Body-Rite dealt with interpretation of a statute based on general principles of statutory construction, legislative history and the impact of post-enactment regulations. In Body-Rite thеre were no prior regulations, statutory repealer or reenactment, and the longstanding post-enactment regulations, adopted approximately fifteen years before the Supreme Court opinion, was significant.
I find the post-enactment factors equally significant with respect to this case involving another exemption under the same Act. Particularly because of the impact of taxing measures and the Legislature‘s reliance upon the role and position of the Department of the Treasury as to projections and revenues, and the fiscal impаct of a judicial decision affecting that policy, cf. Salorio v. Glaser, 93 N.J. 447, 461 A.2d 1100 (1983),2 I concur in the court‘s interpretation of
The majority‘s position gains support from the pre-enactment history, and in the circumstances there appears no facial reason not to add that factor to support the holding. However, while it is not for the Judiciary to decide our tax policy or its wisdom, I believe that the pre-enactment legislative history between 1970 and 1977 can be read to endorse a policy, later reiterated