Case Title: Praxair Technology, Inc. v. Director, Division of Taxation

Citation: 

Docket Number: a-91-08

State: new-jersey

Court: New Jersey Supreme Court

Date: 2009-12-15T00:00:00Z

Document:
Praxair Technology, Inc. v. Director, Division of Taxation  SYLLABUS(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). Praxair Technology, Inc. v. Director, Division of Taxation (A-91/92-08)Argued October 26, 2009 -- Decided December 15, 2009RIVERA-SOTO, J., writing for a unanimous Court. The issue in this appeal is whether the New Jersey business activities of an out-of-state taxpayer were subject to New Jersey's Corporation Business Tax Act of 1945, N.J.S.A. 54:10A-1 to -41, for the years 1994-1996, prior to the 1996 addition of an example to an applicable regulation, N.J.A.C. 18:7-1.9. Plaintiff Praxair Technology, Inc. (Praxair) is a Delaware corporation that maintains a principal place of business in Connecticut. Praxair owns patents, trade secrets and technology relating to the equipment to manufacture and the manufacture of industrial gases. Praxair exists only to own and license the use of those patents to its corporate affiliates. Praxair's corporate parent manufactures and sells industrial gases throughout the United States, including New Jersey. From 1994 through 1999, Praxair's corporate parent used Praxair's intellectual property in its manufacturing facilities in New Jersey, and it paid licensing fees to Praxair for that use. During that period, Praxair never filed New Jersey corporate business tax returns or paid any New Jersey corporate business taxes. The Director of the Division of Taxation issued a notice of assessment to Praxair. In 2005, following the completion of the administrative review process, the Director issued a final determination finding Praxair liable for corporate business taxes for 1994-1999, together with interest and late filing penalties, for an aggregate assessment of $2,950,187.59. One of the issues litigated before the Tax Court was the assessment of a corporate business tax for the years 1994-1996 under N.J.S.A. 54:10A-1, in light of the 1996 addition of an example to N.J.A.C. 18:7-1.9. The Tax Court noted that during the relevant time period, N.J.S.A. 54:10A-2 required every foreign corporation to pay an annual franchise tax "for the privilege of doing business" in New Jersey; and N.J.A.C. 18:7-1.9 is a regulation that interprets the meaning of "doing business" under the statute. In 1996, an example was added to the regulation, stating that a foreign corporation that receives fees for licensing trademarks to New Jersey companies for use in New Jersey is subject to the corporation business tax. The court concluded that the statute applied to Praxair, rejected Praxair's claim that the adoption of the regulatory example expanded the Director's taxing powers, and found Praxair liable for the corporation business tax. Praxair appealed. The Appellate Division reversed. Praxair Tech., Inc. v. Dir., Div. of Taxation, 404 N.J. Super. 287 (App. Div. 2008). The panel found that sufficient doubt about whether Praxair's business activities were subject to the corporate business tax had resulted in a perceived need for the explanatory example in the regulation. It thus held that the Tax Court erred in deciding Praxair's pre-1996 tax liability because it had given insufficient regard for the impact of the 1996 changes to the regulation. The Supreme Court granted the Director's petition for certification and Praxair's cross-petition for certification. 199 N.J. 130 (2009).HELD: Praxair's business arrangement with its corporate parent gave rise to liability under the Corporation Business Tax Act, N.J.S.A. 54:10A-2, for the years 1994-1996, before an example was added to the relevant regulation, N.J.A.C. 18:7-1.9.1. The Court's role in statutory interpretation is to determine the Legislature's intent. The Court looks first to the plain language of the statute. The words chosen by the Legislature are read in accordance with their ordinarymeaning, unless the Legislature has used technical terms, or terms of art, which are construed in accordance with those meanings. (pp. 11-12)2. At all relevant times, N.J.S.A. 54:10A-2 provided that foreign corporations shall pay an annual tax for the privilege of "doing business" or "employing or owning capital or property" in New Jersey. Even before the example was added to the regulation, Praxair's business arrangement with its corporate parent gives rise to liability under that statute. Under their business arrangement, Praxair would possess intellectual property, and the parent would license that property from Praxair for a price. From a plain language standpoint, the Tax Court reached the sensible conclusion: the use of intangible property for income-producing purposes in New Jersey renders that property's owner subject to taxation either as one who is "doing business" or "employing or owning capital or property" in New Jersey. (pp. 12-14)3. The same result obtained if N.J.A.C. 18:7-1.9 is examined even before the 1996 example was added. That regulation broadly defined "doing business" as "all activities which occupy the time or labor of men for profit." The regulation further defined considerations in determining whether an activity constituted "doing business," as well as those activities that would not constitute "doing business." Applying those non-exclusive factors leads to the conclusion that Praxair was "doing business" in New Jersey sufficient to render its activities liable for New Jersey's corporation business tax. Praxair's intellectual property was brought to and put into continuous income-producing use in Jersey. (pp. 14-16)4. The Court rejects the argument that Praxair's business arrangement with its corporate parent became subject to the corporate business tax only after the Director adopted a regulatory example that clearly mirrored Praxair's arrangement. That argument is premised on an incorrect assumption that tax liability can somehow flow from a regulatory change. Although the Legislature may delegate its exclusive taxing power, the proposition that the taxing power can be expanded by the Executive Branch via the adoption of regulations is erroneous. The Director's exercise of his regulatory powers is circumscribed by the taxing authority conferred by the Legislature. (pp. 17-18) The judgment of the Appellate Division is REVERSED; the judgment of the Tax Court imposing liability on plaintiff under Section 2 of the Corporation Business Tax Act, N.J.S.A. 54:10A-2, for the years 1994 to and including 1996 is REINSTATED; and the matter is REMANDED to the Appellate Division for plenary consideration of plaintiff's challenges to the imposition of the late filing penalty and the post-tax amnesty penalties under N.J.S.A. 54:49-4 and N.J.S.A. 54:53-18(b), respectively. CHIEF JUSTICE RABNER and JUSTICES LONG, LaVECCHIA, ALBIN, WALLACE and HOENS join in JUSTICE RIVERA-SOTO's opinion. -2- SUPREME COURT OF NEW JERSEY A-91/ 92 September Term 2008PRAXAIR TECHNOLOGY, INC., a Delaware Corporation, Plaintiff-Respondent and Cross-Appellant, v.DIRECTOR, DIVISION OF TAXATION, Defendant-Appellant and Cross-Respondent. Argued October 26, 2009 ­ Decided December 15, 2009 On certification to the Superior Court, Appellate Division, whose opinion is reported at 404 N.J. Super. 287 (2008). Marlene G. Brown, Senior Deputy Attorney General, argued the cause for appellant and cross-respondent (Anne Milgram, Attorney General of New Jersey, attorney; Lewis A. Scheindlin, Assistant Attorney General, of counsel). Paul H. Frankel argued the cause for respondent and cross-appellant (Morrison & Foerster, attorneys; Mr. Frankel and Mitchell A. Newmark, on the briefs). JUSTICE RIVERA-SOTO delivered the opinion of the Court. This appeal presents a narrow question: whether, in thecircumstances presented, an out-of-state taxpayer is liable forNew Jersey's corporate business tax for the years 1994-1996.The Director of the Division of Taxation asserted, and the TaxCourt agreed, that the taxpayer's business activities weresubject to New Jersey's Corporation Business Tax Act of 1945,N.J.S.A. 54:10A-1 to -41, and that the 1996 addition of anexample to the applicable regulation effected no change in taxpolicy or obligations. Conceding its business activitiesclearly were subject to New Jersey's corporate business taxafter the example was included in the governing regulations in1996, the taxpayer nevertheless maintained, and the AppellateDivision concurred, that the addition of that example expandedthe reach of New Jersey's corporate business tax and, hence, thetaxpayer "cannot be bound by the broader impact [of the tax]before the scope of the tax was clarified by the change [to theregulation]." Praxair Tech., Inc. v. Dir., Div. of Taxation,404 N.J. Super. 287, 294 (App. Div. 2008). We reject the notion that the scope of a taxing statutesomehow can be expanded by the adoption of or amendment to aregulation, a cornerstone of the taxpayer's and the AppellateDivision's reasoning. Viewing the taxpayer's corporate businesstax obligations, as we must, through the prism of the dulyadopted taxing legislation, we conclude that the taxpayer's1994-1996 business activities within New Jersey were subject toNew Jersey's corporate business tax. -2- I. The relevant facts are not contested. Plaintiff PraxairTechnology, Inc. -- formerly known as Union Carbide IndustrialGases Technology Corp. -- is a Delaware corporation thatmaintains its principal place of business in Connecticut. It isengaged in the business of owning certain intellectual property,in the form of patents, trade secrets and technology. Thatproperty relates both to the equipment for the manufacture aswell as to the manufacturing and use of several industrialgases, including oxygen, nitrogen, argon, helium, carbonmonoxide, and hydrogen. Plaintiff does not manufacture any ofthose gases; it exists only to own those patents and to licensetheir use to its corporate affiliates. Plaintiff is a subsidiary of Praxair, Inc. -- formerlyknown as Union Carbide Industrial Gases, Inc. -- a companyengaged in the business of manufacturing and selling certainindustrial gases throughout the United States, including NewJersey. In 1989, plaintiff and its parent corporation enteredinto a non-exclusive technology license agreement, therebyallowing the parent to manufacture gases using plaintiff'sintellectual property for a fee. Thereafter, and specificallyduring the period from 1994 to and including 1999, plaintiff'sparent used plaintiff's intellectual property in itsmanufacturing facilities in New Jersey, and paid licensing fees -3-to plaintiff therefor. Although, during that 1994-1999 period,plaintiff's parent duly filed its New Jersey corporate businesstax returns and paid its New Jersey corporate business taxes,plaintiff never filed New Jersey corporate business tax returnsor paid any New Jersey corporate business tax during thatperiod. In 2002, the Director of the Division of Taxation issued anotice of assessment to plaintiff. The notice explained thatplaintiff was liable for New Jersey's corporate business tax foreach of the 1994-to-1999 years, together with interest and latefiling penalties, aggregating $2,184,602.86. In 2005, after theadministrative review process was completed, the Director issueda final determination that affirmed the initial notice ofassessment and imposed additional interest and penalties, for anaggregate assessment of $2,950,187.59. Plaintiff filed a complaint before the Tax Court and, oncethe issues were joined, the parties filed cross-motions forsummary judgment. Agreeing that plaintiff's underlyingobligation to pay New Jersey's corporate business tax wasgoverned by Lanco, Inc. v. Director, Division of Taxation, 188 N.J. 380 (2006), cert. denied, 551 U.S. 1131, 127 S. Ct. 2974,168 L. Ed. 2d 702 (2007), the parties -- as noted in the TaxCourt's letter opinion -- nevertheless litigated three issues:"(1) [t]he assessment of a corporate business tax for the audit -4-years 1994-1996 under N.J.S.A. 54:10A-1, after the addition ofan example in 1996 to N.J.A.C. 18:7-1.9; (2) the assessment of alate filing penalty; and (3) the assessment of a post-amnesty 1 penalty." In respect of the first issue, the Tax Court noted thatN.J.S.A. 54:10A-2 provides the taxing authority applicable toplaintiff. During the time periods relevant here, that statuteprovided: Every domestic or foreign corporation which is not hereinafter exempted shall pay an annual franchise tax for the year 1946 and each year thereafter, as hereinafter provided, 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. And such franchise tax shall be in lieu of all other State, county or local taxation upon or measured by intangible personal property used in business by1 In addition to the imposition of interest on the tax due and not paid, the Tax Court upheld the imposition of a 25% late filing penalty, under N.J.S.A. 54:49-4, as well as a post-tax amnesty 5% penalty, as separately authorized by N.J.S.A. 54:53- 18(b). Based on its determination that plaintiff was not liable for the corporate business tax during the 1994-1996 tax years, the Appellate Division did not address the propriety of the imposition of either penalty. Instead, it remanded the case "so that the Tax Court may decide, in the circumstances, which, if any, penalties should be assessed and, if so, calculate what their amounts should be." Praxair Tech., Inc., supra, 404 N.J. Super. at 295. In light of our determination in respect of plaintiff's corporate business tax liability for the 1994-1996 tax years, we remand plaintiff's challenges to the imposition of the late filing and post-tax amnesty penalties to the Appellate Division for its plenary consideration of those questions. -5- corporations liable to taxation under this act[.] [N.J.S.A. 54:10A-2 (emphasis supplied).]2The Tax Court explained that "N.J.A.C. 18:7-1.9 . . .constitutes the regulation that interprets the meaning of `doingbusiness' under N.J.S.A. 54:10A-2." The court highlighted that,2 N.J.S.A. 54:10A-2 was amended in 2002; it now reads as follows: Every domestic or foreign corporation which is not hereinafter exempted shall pay an annual franchise tax for each year, as hereinafter provided, for the privilege of having or exercising its corporate franchise in this State, or for the privilege of deriving receipts from sources within this State, or for the privilege of engaging in contacts within this State, or for the privilege of doing business, employing or owning capital or property, or maintaining an office, in this State. And such franchise tax shall be in lieu of all other State, county or local taxation upon or measured by intangible personal property used in business by corporations liable to taxation under this act. [L. 2002, c. 40 § 1, eff. July 2, 2002 (added language underscored; deletions omitted).]The 2002 amendments to N.J.S.A. 54:10A-2 do not expand the reach of and are consistent with the earlier version of the Corporation Business Tax Act. Both versions command the same conclusion: the tax avoidance scheme adopted by plaintiff here -- whereby a subsidiary/licensor licenses intellectual property to a parent/licensee for use in New Jersey -- plainly results in New Jersey corporate business tax liability to both the parent licensee and the subsidiary/licensor. -6-prior to the 1996 addition of an example to that regulation, theregulation affirmatively provided that (a) The term "doing business" is used in a comprehensive sense and includes all activities which occupy the time or labor of men for profit. 1. Regardless of the nature of its activities, every corporation organized for profit and carrying out any of the purposes of its organization within the State shall be deemed to be "doing business" for the purposes of this Act. 2. In determining whether a corporation is "doing business", it is immaterial whether its activities result in a profit or a loss. (b) Whether a foreign corporation is doing business in New Jersey is determined by the facts in each case. Consideration is given to such factors as: 1. The nature and extent of the activities of the corporation in New Jersey; 2. The location of its offices and other places of business; 3. The continuity, frequency and regularity of the activities of the corporation in New Jersey; 4. The employment in New Jersey of agents, officers and employees; 5. The location of the actual seat of management or control of the corporation. [N.J.A.C. 18:7-1.9(a) and (b).] -7-It recounted that, in 1996, an example was added to thatregulation, immediately following subsection (b). That examplestated as follows: Example Foreign corporation R holds trademarks that were assigned to it by its parent corporation. R receives fees as a result of licensing those trademarks to certain New Jersey companies for use in New Jersey. R is subject to the corporation business tax on its apportioned income as a result of its trademark licensing activities. [N.J.A.C. 18:7-1.9, as amended effective Nov. 4, 1996.] Applying a plain language analysis to N.J.S.A. 54:10A-2,the Tax Court concluded that it "clearly applies to [plaintiff]without the assistance of the regulation." It rejected outrightplaintiff's claim that the 1996 adoption of the foregoingexample somehow expanded the Director's taxing powers, and foundplaintiff subject to New Jersey's corporation business tax forthe years in question. Plaintiff concedes that its businessactivities in New Jersey plainly were subject to the corporatebusiness tax after the example was added to the regulation.33 By a later addendum to its letter opinion, the Tax Court noted that [i]n its determination that the plaintiff was subject to the assessment of a corporate business tax for the audit years in question, the court's finding was grounded upon the fact that the plaintiff, -8- Conceding that it was obligated to pay New Jersey'scorporate business tax for any period after that example wasadded, but rejecting any obligation to pay that tax for anyperiod prior to the addition of that example, plaintiffappealed. The Appellate Division reversed. Praxair Tech.,Inc., supra, 404 N.J. Super. at 295. According to the AppellateDivision, Lanco, supra, stands for the proposition that "theState may tax income generated in the State by intangibleproperty, even where the assessed corporation, itself, lacks a Id. at 291.4 physical presence in the State." It explained,however, that "[t]his rule does not dispose of the narrower,focal issue in this case, however: whether the State, in under N.J.S.A. 54:10A-2, was "doing business" in the state, in that the applicable statutory language, i.e.[,] "doing business," and its implementing 18:7- regulation, particularly N.J.A.C. 1.9(a) and (b), were in existence and full force and effect not only prior to the 1996 example being added to the regulation, but the statutory language of "doing business" (and its implementing regulation) was not the subject of the 2002 statutory amendment and predated that amendment.The outcome of this case is unaffected by that addendum. 4 More specifically, Lanco, supra, 188 N.J. at 383, upheld the determination of the Appellate Division that "the physical presence requirement applicable to use and sales taxes is not applicable to income tax and that the New Jersey [Corporation Business] Tax may be constitutionally applied to income derived by plaintiff from licensing fees attributable to New Jersey." Lanco, Inc. v. Dir., Div. of Taxation, 379 N.J. Super. 562, 573 (App. Div. 2005). -9-implementing its power to tax, did so in a sustainable way."Ibid. The panel concluded that "sufficient doubt about theclarity of [the Director's] conclusion [that plaintiff'sbusiness activities were subject to the corporate business tax]existed to engender the perceived need for the explanatoryexample appended to the regulation in November 1996 and the Id. at specific terms added to the statute as of July 2, 2002."293. It thus held that "the Tax Court erred in deciding thequestion of plaintiff's tax liability for pre-1996 businessactivities" because it had given "insufficient regard for theimpact of the 1996 changes to the regulation that applied[.]"Id. at 294. The Appellate Division reasoned that "there can beno clearer indication of the pre-1996 understanding thatprevailed in the subject matter area than the perceived need toadd the clarifying example to N.J.A.C. 18:7-1.9(b), theregulation that governed." Ibid. The Director filed a petition for certification andplaintiff filed a cross-petition for certification. We grantedboth petitions. Praxair Tech., Inc. v. Dir., Div. of Taxation,199 N.J. 130 (2009). For the reasons that follow, we reversethe judgment of the Appellate Division, reinstate the judgmentof the Tax Court, and remand the case to the Appellate Divisionfor consideration of plaintiff's claims concerning the -10-imposition of the late filing penalty and the post-tax amnestypenalty. II. According to plaintiff, the 1996 addition of an example tothe regulation, N.J.A.C. 18:7-1.9(b) -- which precisely mirroredthe tax avoidance relationship plaintiff and its corporateparent intentionally had developed -- constituted a change intaxing policy that broadened the scope of the corporate businesstax under N.J.S.A. 54:10A-2. Citing Metromedia, Inc. v.Director, Division of Taxation, 97 N.J. 313 (1984), plaintiffcontends that the 1996 addition of the example to the regulationonly may be applied prospectively and, hence, it was not subjectto the corporate business tax during the years 1994 to 1996,inclusive. In contrast, it is the position of the Director thatthe 1996 addition of an example to the regulation effected nochange in policy, but merely clarified existing law. TheDirector argues that the type of business arrangement createdbetween plaintiff and its corporate parent always has beenwithin the reach of Section 2 of the Corporation Business TaxAct, N.J.S.A. 54:10A-2. III. Our primary duty in reviewing a legislative enactment isfree of doubt. We recently expressed that "[t]he role of theCourt in statutory interpretation `is to determine and -11-effectuate the Legislature's intent.'" Marino v. Marino, 200 N.J. 315, 329 (2009) (quoting Bosland v. Warnock Dodge, Inc.,197 N.J. 543, 553 (2009)). "[I]n performing this task, `we lookfirst to the plain language of the statute, seeking furtherguidance only to the extent that the Legislature's intent cannot Ibid. (quoting be derived from the words that it has chosen.'"Pizzullo v. N.J. Mfrs. Ins. Co., 196 N.J. 251, 264 (2008))."[W]e begin by reading the words chosen by the Legislature inaccordance with their ordinary meaning, unless the Legislaturehas used technical terms, or terms of art, which are construed`in accordance with those meanings[.]'" Ibid. (internalcitation omitted) (quoting In re Lead Paint Litig., 191 N.J. 405, 430 (2007) (citing N.J.S.A. 1:1-1)). Our review is notunbounded, as "[w]e will not `rewrite a plainly-writtenenactment of the Legislature [or] presume that the Legislatureintended something other than that expressed by way of the plain Ibid. (quoting O'Connell v. State, 171 N.J. 484, language.'"488 (2002) (second alteration in original)). It is only "if theplain language of a statute is not clear or if it is susceptibleto more than one possible meaning or interpretation, [that]courts may look to extrinsic secondary sources to serve as theirguide[.]" Ibid. (citations omitted). The obvious point of departure, then, must be the statuteitself. At all relevant times, N.J.S.A. 54:10A-2 provided that -12-"[e]very domestic or foreign corporation . . . shall pay anannual franchise tax . . . for the privilege of doing business,[or] employing or owning capital or property . . . in thisState." Thus, in the first instance, the question becomeswhether, even before the regulation was changed to add theexample that plaintiff concedes governs its business,plaintiff's business arrangement with its corporate parent givesrise to liability under Section 2 of the Corporation BusinessTax Act, N.J.S.A. 54:10A-2. We respond to that question in theaffirmative. The Tax Court concluded that "the statute itself . . .expose[s plaintiff] to taxation." That conclusion isunassailable. Here, plaintiff entered into a businessarrangement with its corporate parent whereby plaintiff wouldpossess the intellectual property essential to its corporateparent's business operations, and the parent would license thoseintangibles from its own subsidiary for a price. Clearly, thatarrangement was designed to minimize taxes wherever thecorporate parent operated: it generated a deduction from thecorporate parent's income for the sums the parent paid to thesubsidiary as license fees, all the while either sheltering fromtaxation or procuring more favorable tax treatment to thesubsidiary's income in the nature of license fees. The TaxCourt reasoned that, in this instance, form would not trump -13-substance, concluding that the use of intangible property forincome-producing purposes in New Jersey renders that property'sowner subject to taxation either as one who is "doing business,[or] employing or owning capital or property . . . in thisState." N.J.S.A. 54:10A-2. From a straightforward plainlanguage standpoint, no other conclusion is sensible. A like result obtains if the relevant regulation isexamined even before the 1996 addition of the example. Thatregulation defined, in broad strokes, what "doing business" inNew Jersey would consist of for purposes of the corporationbusiness tax, that is, "all activities which occupy the time or N.J.A.C. 18:7-1.9(a). Based on labor of men for profit[.]"that mandate, and following the procedures outlined in theAdministrative Procedure Act, N.J.S.A. 52:14B-1 to -15, theDirector adopted N.J.A.C. 18:7-1.9. The regulation furtherdefined relevant, but not exclusive considerations indetermining whether an activity constituted "doing business,"N.J.A.C. 18:7-1.9(b), as well as, conversely, those activitiesthat would not constitute "doing business." See N.J.A.C. 18:7-1.9(c) (setting forth four instances where conduct would not beconsidered "doing business" for corporate business taxpurposes); N.J.A.C. 18:7-1.9(d) (limiting reach of corporationbusiness tax to qualifying business engaged in "solicitation oforders for sales of its tangible personal property"); N.J.A.C. -14-18:7-1.9(e) (limiting corporation business tax liability tocertain independent contractors). An application of the non-exclusive factors to beconsidered in determining whether an entity is "doing business"in New Jersey, as codified in N.J.A.C. 18:7-1.9(b), leads in astraight, unbroken line to the conclusion that plaintiff was"doing business" in New Jersey sufficient to render itsactivities liable for New Jersey's corporation business tax. Nodoubt, the nature and extent of plaintiff's activities in NewJersey were obvious: plaintiff licensed its intellectualproperty for use in the manufacture and sale of products in NewJersey and elsewhere. It thus was plaintiff's property that wasbrought to and put into income-producing use in New Jersey.Further, those activities in New Jersey were continuous,frequent and regular. Although plaintiff maintained no officesin New Jersey, it employed no employees or representatives inNew Jersey and its principal place of business was locatedoutside of New Jersey,5 those absences do not overcome the5 In this context, we place less value on these factors -- as codified in N.J.A.C. 18:7-1.9(b)(2), (b)(4) and (b)(5) -- because their relevance relates directly to the physical nexus or physical presence test, one which we have eschewed in respect of the imposition of income taxes, as opposed to sales or use taxes. See Lanco, supra, 188 N.J. at 383 (holding that Director "constitutionally may apply the Corporation Business Tax notwithstanding a taxpayer's lack of physical presence in New Jersey"). -15-irrefutable import of plaintiff's activities: that plaintiffwas deriving income directly from New Jersey-based activities.6 Finally, even plaintiff concedes that, once the examplethat snugly fits plaintiff's circumstances was added to theregulation in 1996, all doubt as to plaintiff's liability forthe New Jersey corporation business tax was removed. Thatexample unequivocally provides that the owner of intellectualproperty who receives fees for the use of that property in NewJersey "is subject to the corporation business tax on itsapportioned income as a result of its [intellectual property] N.J.A.C. 18:7-1.9(b). In sum, no matter licensing activities."where along the temporal continuum the tax is applied -- eitherunder the statute alone, under the regulation before the 1996addition of an example, or after the example was added -- thelogical and inescapable conclusion remains that plaintiff'sactivities in New Jersey were subject to taxation under theCorporation Business Tax Act, N.J.S.A. 54:10A-1 to -5b.6 It goes without staying that "a regulation promulgated by the Director must be upheld unless the taxpayer can demonstrate that the regulation is arbitrary, capricious, unduly onerous or otherwise unreasonable[,]" and that "[o]nly a regulation that is out of harmony with the statute will be invalidated by the court as exceeding delegated authority to interpret the law." Vassilidze v. Dir., Div. of Taxation, 24 N.J. Tax 278, 289 (Tax 2008) (citations and internal quotation marks omitted). By the same token, "[a] regulation within the fair contemplation of the delegation of the enabling legislation will be upheld." Ibid. (citations and internal quotation marks omitted). -16- In so concluding, we reject out of hand plaintiff's claimthat its business arrangement with its corporate parent becamesubject to the corporation business tax only after the Directoradopted a regulatory example that clearly mirrored plaintiff'sarrangement. That argument is premised on a fallacy, anunspoken but nonetheless incorrect assumption that tax liabilitysomehow can flow from a regulatory change. That assumptionflies in the face of the exclusive constitutional authorization See N.J. Const. art. to the Legislature of the power to tax.IV, § VI, ¶ 1 ("All bills for raising revenue shall originate inthe General Assembly; but the Senate may propose or concur withamendments, as on other bills."). Although the Legislature maydelegate its exclusive taxing power "to political subdivisionsto defray local costs and expenses," Warren County Cmty. Coll.v. Warren County Bd. of Chosen Freeholders, 176 N.J. 432, 443(2003), the proposition that the taxing power can be expanded bythe Executive Branch via the adoption of regulations is simplyerroneous. The Director's exercise of his regulatory powers iscircumscribed by the taxing authority in fact conferred by theLegislature. That said, the legislative intent behind theCorporation Business Tax Act is for the Director to give the tax See Roadway its broadest reach constitutionally permissible.Express, Inc. v. Dir., Div. of Taxation, 50 N.J. 471, 483(1967). The Director's implementation of that legislative -17-directive does not lie dormant unless and until a preciseregulatory example is adopted pursuant to the AdministrativeProcedure Act. Rather, it is the words of the statute thatcontrol the Director's actions in enforcing the statute againstthis taxpayer and that define whether this taxpayer compliedwith the clear import of the Corporation Business Tax Act'swords. IV. The judgment of the Appellate Division is reversed, and thejudgment of the Tax Court imposing liability on plaintiff underSection 2 of the Corporation Business Tax Act, N.J.S.A. 54:10A-2, for the years 1994 to and including 1996 is reinstated. Thematter is remanded to the Appellate Division for plenaryconsideration of plaintiff's challenges to the imposition of thelate filing and post-tax amnesty penalties under N.J.S.A. 54:49-4 and N.J.S.A. 54:53-18(b), respectively. We do not retainjurisdiction. CHIEF JUSTICE RABNER and JUSTICES LONG, LaVECCHIA, ALBIN, WALLACE, and HOENS join in JUSTICE RIVERA-SOTO's opinion. -18- SUPREME COURT OF NEW JERSEYNO. A-91/92 SEPTEMBER TERM 2008ON CERTIFICATION TO Appellate Division, Superior CourtPRAXAIR TECHNOLOGY, INC., a Delaware Corporation, Plaintiff-Respondent and Cross-Appellant, v.DIRECTOR, DIVISION OF TAXATION, Defendant-Appellant And Cross-Respondent.DECIDED December 15, 2009 Chief Justice Rabner PRESIDING OPINION BY Justice Rivera-Soto CONCURRING/DISSENTING OPINIONS BY DISSENTING OPINION BY REVERSE/ CHECKLIST REINSTATE/ REMAND CHIEF JUSTICE X RABNER X JUSTICE LONG X JUSTICE LaVECCHIA X JUSTICE ALBIN X JUSTICE WALLACE X JUSTICE RIVERA-SOTO X JUSTICE HOENS TOTALS 7