Werner MacHine Co. v. Director of Division of TaxationWerner MacHine Co. v. Director of Division of Taxation
This is аn appeal in a proceeding brought to review a determination of the Division of Tax Appeals, in the Department of the Treasury, State of New Jersey. The taxpayer, Werner Machinе Company, Inc., a corporation organized and existing under the laws of the State of New Jersey (hereinafter referred to as Werner) appealed to the Division of Tax Appeals frоm an assessment of state franchise tax of $458.41 levied by the Director of the Division of Taxation against Werner for the year 1952. The Division of Tax Appeals affirmed the assessment and dismissed the appеal. On Werner‘s appeal from the judgment of the Division of Tax Appeals, in lieu of prerogative writ, R.R. 4:88-8, the Superior Court, Appellate Division, affirmed. Werner Machine Co. v. Director of Div. of Taxation, 31 N.J. Super. 444 (1954). Werner appealed the judgment of affirmance under
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The questions involved on the present appeal include whether the Corporation Business Tax Act (1945), L. 1945, c. 162, p. 563 et seq.,
The Federal Constitution and laws made in pursuance thereof are the supreme law of the land.
“Except as otherwise provided by law, all stocks, bonds, Treasury notes, and other obligations of the United States, shall be exempt from taxation by or under Statе or municipal or local authority.”
Comparable legislation has existed since 1863, when Congress declared that United States legal tender notes, as well as bonds and other securities, should be exempt from state taxation. See 12 Stat. 710 (1863). Compare 12 Stat. 345, 346 (1862); 13 Stat. 13, c. 17 (1864); 13 Stat. 218, c. 172 (1864); 13 Stat. 425, c. 22 (1865); 13 Stat. 468, 469, *125
It had been held by the United States Supreme Court that
“Want of authority in the States to tax the securities of the United States issued in the exercise of the admitted power of Congress to borrow money on the credit of thе United States is * * * certain although there is no express provision in the Constitution to that effect.” Hamilton Mfg. Co. v. Massachusetts, 6 Wall. 632, 73 U.S. 632, 18 L.Ed. 904, 907 (1868).
Cf. People of New York ex rel. Bank of Commerce v. Com‘rs of Taxes for N.Y. City and County, 2 Black, 620, 67 U.S. 620, 17 L.Ed. 451, 454-456 (1863); Weston v. City Council of Charleston, 2 Pet. 449, 27 U.S. 449, 7 L.Ed. 481 (1829); Newark City Bank v. Assessor, 30 N.J.L. 13, 17-18 (Sup. Ct. 1862). The decisions of the Unitеd States Supreme Court are binding upon the states. Pennekamp v. State of Florida, 328 U.S. 331, 335, 66 S.Ct. 1029, 90 L.Ed. 1295, 1297 (1945). Cf. Lionel Corp. v. Grayson-Robinson Stores, 15 N.J. 191, 198 (1954), appeal dismissed 75 S.Ct. 87 (1954).
The initial inquiry, therefore, is whether the Corporation Business Tax Act (1945), L. 1945, c. 162, p. 563 et seq.,
A franchise tax is a type of еxcise tax, namely a form of taxation not laid directly upon persons or property. *126
In the statute under review the tax is imposed upon the corporation “for the privilege of having or exercising its corporate franchise in this State, or for the privilege of doing business, employing or owning capital or property, or maintaining an office, in this State * * *.” Sec. 2,
Turning to the second question involved, we are of the opinion that in the respects challenged the Corporation Business Tax Act (1945), supra, is a valid franchise tax and that the federal bonds are properly included in the calculations of net worth under L. 1945, c. 162, sec. 5, as amended by L. 1947, c. 50, sec. 2; L. 1948, c. 459, sec. 2. Cf. L. 1953, c. 236, sec. 1,
The tax is imposed upon the corporation for the privilege of exercise by the corporation of corporate powers in this *127
Propеrty taxation and excise taxation have been said to be distinct and easily distinguishable. Hamilton Mfg. Co. v. Massachusetts, supra, (6 Wall. 632, 18 L.Ed. at p. 907). And it was early settled that the privileges and franchises of a private corporation are legitimate subjеcts of state taxaction. Id. (6 Wall. 632, 18 L.Ed. at page 906). The United States Supreme Court held in the Hamilton Mfg. Co. case, supra, that the franchise taxing power of the state “is wholly unaffected by the fact that corporation or individual has or has not made investments in Federal securities.” Id. (6 Wall. 632, 18 L.Ed. at page 906). Cf. Society for Savings v. Coite, 6 Wall. 594 (73 U.S. 594, 18 L.Ed. 897 (1868); Home Ins. Co. of New York v. State of New York, 134 U.S. 594, 10 S.Ct. 593, 33 L.Ed. 1025, 1031-1032 (1890). Compare the decisions of the United States Supreme Court holding valid statutes calling for inclusion of the value of United States bonds, owned by a decedent, in measuring an inheritance tax. Plummer v. Coler, 178 U.S. 115, 20 S.Ct. 829, 44 L.Ed. 998 (1900); Blodgett v. Silberman, 277 U.S. 1, 48 S.Ct. 410, 72 L.Ed. 749 (1928). The foregoing prinсiples relative to franchise taxation were reiterated in Tradesmens National Bank of Oklahoma City v. Oklahoma Tax Commission, 309 U.S. 560, 564, 60 S.Ct. 688, 691, 84 L.Ed. 947, 950 (1940), in which the United States Supreme Court held that:
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Werner argued that the decision of the United States Supreme Court in New Jersey Realty Title Ins. Co. v. Division of Tax Appeals, 338 U.S. 665, 70 S.Ct. 413, 94 L.Ed. 439 (1950), reversing the decision of this court, 1 N.J. 496 (1949), is applicable and dispositive in the present matter. The United States Supreme Court in the New Jersey Realty Title Ins. Co. case, supra, did not overrule Tradesmens National Bank of Oklahoma City v. Oklahoma Tax Commission, supra, nor thе earlier decisions of the United States Supreme Court which expressed the same construction of the Federal Constitution and laws, namely that a state has power to enact a tax, such аs a franchise tax, measured by net assets or net income including tax exempt federal securities or their income, including Society for Savings v. Coite; Hamilton Mfg. Co. v. Massachusetts and Home Ins. Co. of New York v. State of New York, supra. It is these decisions that are controlling here. In the New Jersey Realty Title Ins. Co. case, supra, this court had held that the tax under the statute therein involved, R.S. 54:4-22, was not a franchisе tax but was a tax upon the net worth of the company (1 N.J. at page 502). The United States Supreme Court held that tax to be a levy that was imposed upon the property of corporations as contradistinguished from a tax on their privileges or franchises. (338 U.S. at page 674, 70 S.Ct. at page 418, 94 L.Ed. at page 446). The statute involved in the present appeal is distinguishable from R.S. 54:4-22, supra.
Werner contended that the State is forbidden to do indirectly that which it may not do directly. We аgree that constitutional limitations may not be set at naught by indirection by the Legislature. See McCutcheon v. State Building Authority, 13 N.J. 46, 57-58 (1953). Cf. Newark City Bank v. Assessor, supra. The philosophy is not applicable *129
Finally, Werner argued that the taxing statute in question is not a franchise tax aсt because it provides that the tax levied is in lieu of other taxes upon intangible personal property. L. 1945, c. 162, sec. 2;
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For the reasons expressed in this opinion the judgment of the Superior Court, Appellate Division, is affirmed.
For affirmance — Chief Justice VANDERBILT, and Justices HEHER, OLIPHANT, WACHENFELD, BURLING, JACOBS and BRENNAN — 7.
For reversal — None.