**-1- NOT FOR PUBLICATION WITHOUT APPROVAL OF**  **THE TAX COURT COMMITTEE ON OPINIONS**

**________________________ _**  **______ :**  **STANISLAUS FOOD PRODUCTS :**  **TAX COURT OF NEW JERSEY COMPANY,**  **: DOCKET NO: 011050** 

**- 2017** 

**: Plaintiff,**  **: :** 

**vs. :**  **: DIRECTOR,**  **: DIVISION OF TAXATION,**  **: :** 

**Defendant. :** 

**_________________________ _**  **_____: Decided:**  **April 22, 2021 Leah Robinson for Plaintiff (Mayer Brown LLP**  **for Plaintiff ,**  **attorney s**  **). Michael J. Duffy**  **for Defendant (Gurbir S . Grewal, Attorney**  **General of New Jersey, attorney**  **).**

**CIMINO, J.T.C.**

I. INTRODUCTION **Congress enacted the Interstate Income Act of 1959, Pub. L.**  **No. 86**

**- 272, 7**  **3**
**Stat. 555 (codified at 15 U**  **.S.C. §§**  **381**

**- 38**  **4 ) (**  **P.L. 86** 

**- 272)**  **to preclude**  **the state s**  **from imposing a net**  **income tax on certain out**

**- of** 

**- state sellers of tangible goods.**  **In New Jersey**  **, this net income tax would be the Corporation Business Tax (CBT).**  **T he** **-2-**

**Director does not dispute that the taxpayer here**  **is a n**  **entity covered by**  **P.L. 86** 

**- 272**  **for the years at issue.**  **While taxpayer is not subject to the CBT, the Director argues that the**  **taxpayer is subject to the Alternative**  **Minimum A ssessment**  **(AMA) (**  **L. 2002,**  **c. 40, §**  **7) ,**  **which , for the time period at issue,**  **imposes either**  **a gross receipts or profits tax exclusively upon**  **P.L. 86** 

**- 272 entities.**  **To be clear, no entities are**  **subject to the AMA except those protected by**  **P.L. 86** 

**- 272.**  **The Director argues that he is merely imposing the AMA and is not forcing any**  **P.L. 86** 

**- 272**  **entity to pay a net income**  **tax, such as the CBT. The taxpayer argues that the AMA is merely an end** 

**- run**  **around P.L.**  **86**

**- 272** 

**. Both parties moved for summary judgment on this issue.**  **On the surface, this matter appears to be an esoteric**  **tax issue involvin g two**  **obscure taxation statutes:**  **one federal and one state. However, wrapped inside is a weighty Constitutional issue.**  **While this court is called upon to particularly**  **decide the interplay between the two statutory provisions**  **, the overriding issue is the competing**  **rol es**  **of the state and federal government s** 
**. A long time ago,**  **New Jersey ratified**  **the United States Constitution and agreed to**  **a method of resolving disputes between the state and federal governments**

**. Facing a trade war amongst the states, a constitutional**  **convention was called in**
**1786 . The convention culminated in the adoption of the United States C**  **onstitution which**  **was ratified by New Jersey on December 18, 1787**

**. The**  **Constitution provided -3-** 

**what has come to be known as the Commerce Clause which g**  **ives Cong**  **ress the**  **ability to determine the parameters for interstate commerce.**  **To prevent the states from undercutting the dictates of**  **Congress ,**  **through competing legislation or otherwise,**  **the Constitution also contain s**  **the Supremacy Clause which**  **provides legislation that is within the realm of Congress supersedes the conflicting will of a**  **state legislature. To give the Supremacy C**  **lause some teeth, the framers of the Constitution explicitly provided**  **that state court judges must adhere to the Supre**  **macy Clause. Here the issue boils down to whether the AMA stands as an obstacle to the**  **accomplishment and execution of the purposes and objectives**  **of P.L.**  **86**

**- 272.**  **While some may argue it is time for Congress to revisit**  **P.L. 86** 

**- 272 on policy grounds, it**  **is not the role of the court to make that policy**  **determination . The court is duty** 

**** **bound to faithfully obey the constitutional framework spelled out by**  **the Supremacy Clause**  **and the Commerce Clause. For the reasons set forth in much greater detail in this op**  **inion, the court determines that the AMA is being imposed contrary to the mandate of**  **P.L. 86** 

**- 272.** 
II. STATEMENT OF FACTS **The taxpayer, Stanislaus Food Products Company, located in Stanislaus County, California, is a canner of tomato products** 

**. The taxpayer’s tomato products** **-4-**

**are shipped**  **to food service independent distributors who in turn sell directly to**
**restaurants. The taxpayer employs**  **a representative who**  **lives in New Jersey. The representative does not have a set office in New Jersey and works from**  **his home**

**. The taxpayer provides a vehicle, phone, computer and samples to the representative.**  **The r epresentative visits restaurateurs**  **and encourages them to compare t heir current**  **sauce to taxpayer’s . The representative provides**  **the restauranteurs**  **with n ames of**  **independent distributor s selling**  **taxpayer’s product. However, the representative h**  **as no responsibility for prices**  **as these are set by the indep endent distributors.**  **The t axpayer**  **make s**  **calls to restaura n**  **teurs to verify that the y have**  **“converted” to the taxpayer’s**  **products. The taxpayer asserts that the calls are**  **necessary since the restaurant eur**  **is purchasing the products from an independent distributor.**  **Initially, the taxpayer maintained an inventory in South Plainfield, New Jersey, but that arrangement ended in June of 2011. For the tax years in question,**  **2012 through 2014, the taxpayer did not maintain an inventory of products in New Jersey.**  **While some of**  **the aforementioned facts would be important in determining whether**  **an entity is protected by P.L.**  **86**

**- 272**  **for years prior to 2012 ,**  **t he Director**  **does not dispute that the taxpayer wa**  **s an entity covered by**  **P.L. 86** 

**- 272 for 2012**  **through 2014. -5-** 

III. PROCEDURAL HISTORY **At the onset, the taxpayer filed its returns and paid the Corporation Business Tax (CBT) based upon its net income. The Director then audited taxpayer’s returns**  **and issued a deficiency assessment. The taxpayer filed amended returns indicating it qualifi**  **ed as a P.L.**  **86**

**- 272 taxpayer, thus exempting it from a net income tax such**  **as the CBT. Agreeing that the taxpayer qualified as a P.L**  **86**

**- 272 entity for 2012**  **through 2014, the Director allowed a refund of the CBT. However, the Director imposed the Alternat**  **ive Minimum Assessment (AMA) gross profits tax and reduced the amount of the refund.**  **The taxpayer appealed to this court challenging the Director’s ability to impose the AMA on a**  **P.L. 86** 

**- 272 entity. The taxpayer moved for partial summary**  **judgment as to this issue. The Director cross**

**- moved for partial summary judgment**  **asserting that it is proper to impose the AMA. Our Supreme Court has indicated tha t**  **summary judgment provides a prompt, business**

**- like and appropriate method of**  **disposing of litigation in whi ch material facts are not in dispute.**  **Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 530 (1995). The Director did not dispute the**  **central material fact in this case, that is, the taxpayer was an entity covered by P.L.** 
**86**

**- 272 from 2012 to 2014. Thus, the court was left with the legal issue of the**  **applicability of the AMA to P.L.**  **86**

**- 272 taxpayers for the years in question.** **-6-**

**After deciding the motions for partial summary judgment in favor of the taxpayer, the Director requested reconsideration. The traditional standard for**  **reconsideration as to final**  **orders requires that the trial judge**  **overlooked some pertinent law or incorrectly assessed some material fact.**  **R. 4:49**  **-2**

**. See**  **also D’Atria**  **v. D’Atria, 242 N.J. Super. 392, 401 (Ch**

**. Div. 1990).**  **This rigorous standard is important to ensure a certain degree of finality in litigation while at the same time**  **providing a safety valve in the event of trial court error. However, the prior decision**  **in this case was not final, but interlocu**  **tory. There**  **are still outstanding issues to be addressed after this reconsideration mot ion is**  **addressed. “Interlocutory orders are always subject to revision in the interests of justice.”**  **Lombardi v. Masso , 207 N.J. 517, 536 (2011). As stated by the ru**  **le governing interlocutory orders, “[a]ny order or form of decision which adjudica**  **tes fewer than all**  **the claims as to all**  **the parties . . . shall be subject to revision at any**  **time before the entry of final judgment in the sound discretion of the court in the**  **interest of justice.” R.**  **4:42**

**- 2.**  **Compare R.**  **4:49**

**- 2.**  **1 As explained in commentary** 

**1 To be clear,**  **R. 4:42** 

**- 2 applies to reconsideration of interlocutory orders;**  **R. 4:49** 

**- 2 applies to reconsideration of final orders. The pertinent part of the rules as to**  **motions for reconsideration are as follows: Interlocutory (R. 4:42** 

**- 2)**  **: In the absence of such dire**  **ction, any order or form of decision which**  **adjudicates fewer than all the claims as to Final (R. 4:49** 

**- 2)**  **: a motion for rehearing or**  **reconsideration seeking to alter or amend a judgment or order shall be** **-7-**

**to our rules of court, “ [a]**  **significant aspect of the interlocutory nature of an order is its amenability to the trial court’s control until entry of final judgment wit**  **hout interposition of considerations appropriate to finality.” Pressler & Verniero,**  **Current N.J. Court Rules**  **, cmt. 3 on R.**  **4:42 -2**  **(20 20**  **). This rule makes sense since “ [t]**  **hat special power afforded to judges over their interlocutory orders derives from th**  **e fact that cases continue to develop after orders have been entered and that judges likewise**  **continue to think about them.” Lombardi**  **, 207 N.J. at 536. “Although the rule is expansive, the power to reconsider an interlocut**  **ory order should be exercised**  **‘ only for good cause shown and in the service of the** 

**all the parties . . . shall be subject to revision at any time before the entry of**  **final judgment in the sound discretion of the court in the interest of justice. To the**  **extent possible, application for reconsideration shall be made to the trial**  **judge who entered the order. [**  **R. 4:42**  **-2 .]**  **served not later than 20 days after**  **service of the judgment or order upon all parties by the party obtaining it. The**  **motion shall state with specificity the basis on which it is made, including a**  **statement of the matters or controlling decisions which counsel believe**  **s the court has overlooked or as to which it**  **has erred, and shall have annexed thereto a copy of the judgment or order**  **sought to be reconsidered and a copy of the court's corresponding written**  **opinion, if any. [R.**  **4:49**

**- 2.]** **-8-**

**ultimate goal of substantial justice. ’**  **” Ibid.**  **, ( quoting**  **Johnson v. Cy k**  **lop Strapping**  **Corp. 220 N.J. Super. 250, 263** 

**- 64 (App. Div. 1987)).**  **The Director here is not merely seeking another bite at the apple**  **2 , but is trying to develop the record in a**  **complex tax case involving two competing tax statutes, one federal and one state with an overlay of constitutional issues.**  **The traditional standard for reconsideration which must be used for**  **final orders (and for good cause may be used for**  **interlocutory orders) is simply inapplicable here. Considering the importance and complexity of the issues raised in this action, the court has good cause to address the**  **refined and expanded arguments of the parties with an e ye towards the ultimate goal**  **of substantial justice.**
IV. LEGAL CONCLUSIONS
A. New Jersey Adopts a Net Income Tax on Corporations **As indicated at the outset, the issue is whether the New Jersey Alternative**  **Minimum Assessment ( AMA**  **) is preempted by**  **P.L. 86** 

**- 272, a federal law.**  **To fully understand**  **the issue ,**  **some background as to taxation of corporations in New Jersey is necessary. In 1945, New Jersey enac**  **ted the C orporation Business Tax**  **(CBT)**

**. L.**  **1945, c.**  **162 (codified as N.J.S.A.**  **54:10A**

**- 1 to**  **-28.) Initially, the tax was only based** 

**2 The apple analogy has been used in**  **D’Atria to indicate that reconsideration**  **“motion practice must come to an end at some point, and if repetitive bites at the apple are allowed, the core will swiftly sour.”**  **D'Atria , 242 N.J. Super. at 401. As**  **stated, both parties work on this motion reflects a refinement of the issues, not merely seeking another bite at the apple.** **-9-**

**on a corporation’s net worth allocated to New Jersey. L.**  **1945 , c.**  **162 , § 5**  **. In 1958, the Act was amended to also tax net income allocable to New Jersey.**  **L. 1958,**  **c. 63.** 
**N.J.S.A. 54:10A**

**- 5(c).**  **The starting point for this tax is a determination of “net income” which includes net income from all sources**  **whether within or outside**  **the**
**state. L.**  **1958 c.**  **63, § 1**  **(k) . N.J.S.A. 54:10A** 

**- 4(k).**  **While the**  **United States Constitution prohibits**  **a state from taxing**  **all income of**  **an out**

**- of** 

**- state corporation without regard to**  **where it has been earned, a state can**  **fairly apportion and tax income allocable to it. Complete Auto**  **Transit, Inc. v. Brady ,**  **430 U.S.**  **274, 2**  **85 (1977)** 

**. Generally speaking, “the factor or**  **factors used in the apportionment**  **formula must actually reflect a reasonable se**  **nse of how inco me is**  **generated.” Container Corp. of Am. v. Franchise Tax Bd., 463 U.S. 159,**  **169 (1983)** 

**. New Jersey has such a formula which has been amended from time to time.**  **See**
**N.J.S.A. 54:10A -6.** 

B. The Supreme Court’s Expansion of Interstate Taxation a nd Congress’ Response **Shortly after the New Jersey Legislature approved a net income tax on**  **corporate businesses in 1958, the United States Supreme Court had the opportunity**  **in 1959 to consider the reach of state** 

**- imposed apportioned**  **net income taxes**  **in North**  **western States Portland Cement**  **Co. v. Minnesota**  **, 358**  **U.S. 450 (1959). As**  **explained by the**  **C ourt, “**  **[t] hese cases concern the constitutionality of state net**  **inco me tax laws levying taxes on that**  **portion of a foreign corporation’s net income -**  **10 -** 

**earned from a nd**  **fairly apportioned to business activities within the taxing S**  **tate when those activities are exclusively in furtherance of interstate commerce.”**  **Id. at**  **4 52. There was no**  **t any question**  **as to th e fairness of any apportionment.**  **Id. at 453** 

**- 54.**  **Rather, the issue was whether these state net i**  **ncome tax statutes violate d**  **the**
**Commerce C lause**  **of the United States Constitution**

**. 3**  **Id. at 452.**  **The Commerce C lause provides “**  **[t] he**  **Congress shall have the P**  **ower . . . to**  **regulate C o**  **mmerce . . . among the several S tates . . .** 

**. ”**  **U.S. Const. a**  **rt. I**  **, §**  **8, c l. 3.** 
**T he United States Supreme Court has recognized that**  **:**

**[t] hese**  **“ few simple words** 

**. . . refl**  **ected a central concern of the Framers that was an immediate reason for**  **calling the Constitutional Convention: the conviction that in order**  **to succeed, the new Union would have to avoid the**  **tendencies toward economic B alkanization that h**  **ad plagued relations among the Colonies and later among the**  **S tates under t**  **he Articles of Confederation. ”**  **[ Comptroller of th**  **e Treasury of Maryland v. Wynne**  **, 135**  **S. Ct. 1787, 1794 (2015 )**  **(quoting Hughes v. Oklahoma**  **, 441 U.S. 322, 325** 

**- 26 (1979))**  **.] In other words**  **, t he impetus for adopting our constitutional system was commerce**  **and trade. Shortly after the**  **signing of the Declaration of Independence in 1776, the**  **Articles of Confederation were adopted in 1777 and came into force in 1781 after ratification by the stat**  **es. 1**  **The Documentary History of the Ratification of the** 

**3 The C**  **ourt also cons idered whether the taxes violated the Due Process Clause** 

**. -**  **11 -** 

**Constitution 73, 86, 135**  **( Merrill Jensen ed** 

**. 1976**  **)**

**. Under the Articles of**  **Confederation, the federal government was powerless to control interstate commerce leaving the states free to discriminate against out** 

**- of** 

**- state sellers. This led to**  **disputes over trade and commerce between the states**  **. A convention was called**  **to be held in**  **Annapolis, Maryland in 1786 with the goal of**  **resolving the disputes. Id.**  **at 181. Not**  **all the states appointed commissio ners to the convention, and even fewer states**  **attended. Id.**  **at 181 -85** 

**. Notably, the New Jersey commissioners attended with an**  **expanded mandate to consider not only a “**  **uniform system in [the states’]**  **commercial regulations,” but also “other important matters.” Id.**  **at 183. While the Annapolis**  **convention was not a success in resolv**  **ing the commerce disputes between**  **the states, the report of the convention suggested that all states follow New Jersey’s**
**l ead and extend the power of their**  **commissioners “to other objects than those of** 
**Commerce.” Id.**  **at 183**

**- 84** 

**. That lead to the Constitutional C**  **onvention of 1787 which resulted in our current**  **federal constitution containing what is commonly**  **referred to as the Commerce Clause.**  **The Commerce C lause has been construed to contain both a power and**  **prohibition. Th e**  **power is reflected in the express or affirmative words of the Constitution which empowers Congress to regulate commerce among several states.**  **On the oth er hand, the prohibition**  **is contained in what is known as the negative or**  **dormant Commerce Clause ,**  **“prohibiting certain state taxation even when Congress -**  **12 -** 

**has failed to legislate on the subject.” 4**  **Comptroller of Treasury , 135 S. Ct. at 1794**  **( quoting**  **Oklahoma Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175, 179 (1995) ).**  **More broadly, “t**  **he dormant Commerce C**  **lause precludes**  **S tates from** 

**‘ discriminating between transactions on the basis of some interstate element.**  **’ ”**  **Ibid**

**. (quoting Boston**  **Stock Exchange v. State Tax Comm’n , 429 U.S. 318, 3**  **32 n. 12**  **(1977)). Thus**  **, embedded in the conceptual framework of the Commerce Clause are**  **two facets, one dormant, and one affirmative, both**  **addressing the concerns of potential overreach by the states**  **tha t existed under the Articles of Confederation** 

**. The dormant**  **C ommerce**  **C lause protects against**  **state discrimination in interstate** 

**commerce**
**. The affirmative Commerce Clause empowers Congress to take action to**  **regulate interstate commerce.**  **A review of the ca se**  **- law reflects that m**  **ost Commerce**
**C lause disputes that find their way to the courts**  **concern discrimination pursuant to**  **the dormant Commerce Clause ,**  **as compared to**  **the affirmative**  **congressional power conferred**  **by the Commerce Clause to regulate interstate commerce.**  **Compare S outh**  **Dakota v. Wayfair**

**Inc. , 138 S. Ct. 2080, 2089** 

**- 90**  **(2018) (dormant Commerce**  **Clause); Comptroller of Treasury**  **, 135 S. Ct. at**  **1794 (2015) (dormant Commerce** 

**4 Even though impliedly referred to as distinct, there is not a dormant Commerce**  **Clause separate and apart from the affirmative Commerce Clause in the Constitutio n.**  **Rather the dormant Commerce Clause reflects a judicial c oncept found in**  **interpreting the actual words of the Commerce Clause. The concept dates back to 1824.**  **See Gibbons v. Ogden**  **, 22 U.S. 1, 209**  **(1824). -**  **13 -** 

**Clause); McBurney v. Young**  **, 569 U.S.**  **221, 234 (2013) (dormant Commerce**  **Clause); Dep’t of Rev. v. Davis**  **, 553 U .S.**  **328, 337 (2008) (dormant Commerce**  **Clause); Am. Trucking Ass’n**  **s v. Mich. PSC, 545 U**  **.S. 429, 433**  **(2005) (dormant**  **Commerce Clause) with**  **Morales v. TWA ,**  **504 U.S. 374, 39 0**  **(1992) (affirmative**  **Commerce Clause) ;**  **Exxon Corp. v. Hunt, 475 U.S. 355, 362 (1986) (affirmative**  **Commerce Clause) ;**  **Aloha Airlines v. Dir. o**  **f Tax’n , 464 U.S. 7, 9** 

**- 10 (1983)**  **(affirmative Commerce Clause)**

**. It is not surprising there are mo**  **re dormant clause cases. An affirmative**  **C ommerce**  **C lause case does not arise unless Congress acts.**  **On the other hand, an action of any one of fifty state legislatures can trigger a dormant**  **C ommerce**  **Clause c**  **hallenge. Prior to the Supreme Court deciding**  **Nor thwestern**  **in 1959, there was some question as to whether an out** 

**- of** 

**- state seller could be taxe**  **d by the state in which the**  **purchaser was located. Northwestern**  **, 3 5**  **8 U.S. at 457** 

**- 58. With “some three**  **hundred full**

**- dress opinions” by the Supreme Court up through 1959 on the topic,**  **there was “need for clearing up the tangled underbrush of past cases.” Ibid.**  **Thus,**
**i n deciding**  **Northwestern on February 24, 1959, the**  **Supreme Co**  **urt held that “net income from the interstate operations of a foreign corporation may be subjected to**  **state taxation provided the levy is not discriminatory and is**  **properly apportioned to local activities within the taxing State forming sufficient nexus**  **to support the same.”**  **Id. at 452.**  **In other words, out**

**- of** 

**- state entities could be taxed for income derived** **- 14**  **-**

**within a state. Wh**  **ile not mentioning the dormant Commerce Clause by name, it is readily apparent that the Supreme Court was indeed proceeding under t**  **he dormant**
**Commerce C lause.**  **Northwestern resulted in an uproar in the business community.**  **See generally State Taxation on Interstate Commerce** 

**- 1959: Hearing before the**  **S. Select Comm.**  **on Small Bus., 86**  **th Cong**  **., Part 1 (April 8, 1959), Part 2 (May 1, 1959), Part 3 (June**  **19, 1959) (Hearing)** 

**. The business community indicated that the limits set by the**  **Supreme Court were unclear and lead to uncertainty. H**  **.R. Rept** 

**. No.**  **86**

**- 936**  **, 2**  **(1959)**

**. C**  **oncerns were also**  **raised as**  **to the perceived tremendous difficulty of**  **complying with a multitude of**  **existing state and local**  **tax laws.**  **Ibid. Congress**  **sprung into action with public hearings starting on April 8, 1959 . These hearings** 

**were not only**  **scheduled for Washington D.C., but also Boston,**  **Massachusetts ,**  **Newark, New Jersey and New York, New York. See**  **Hearing**

**. 5**  **Less than seven months later, on September 1**  **4, 1959, P.L.**  **86**

**- 272**  **, which**  **limited the scope of interstate commerce that would be subject to**  **a net income tax**  **, became law** 

**. In pa**  **rticular, P.L.**  **86**

**- 272 provides for**  **“ minimum standards**  **” which**  **disallow a state**  **net income tax on interstate co mmerce if the only**  **in**

**- state activity**  **is**

**5 The hearings in Newark, New Jersey and New York, New York were cancelled**  **due to an “important [S**  **enate ]**  **vote”. Hearing**  **Part 3 -F**  **orward. Howe**  **ver, witnesses submitted written statements.**  **Hearing Part 3** 

**. -**  **15 -** 

**the solicita tion of orders**  **of tangible personal property which are approved or**  **rejected out**

**- of** 

**- state.**  **15 U.S.C.**  **§ 381(a)** 

**. 6**  **Moreover, the statute defines net income tax as “any tax imposed on, or measured by, net income.” 15 U.S.C.**  **§ 383.**  **It is without question that**  **New Jersey’s CBT is a tax measured by net income.**  **Arm a**  **da**

**6 The full text follows:** 

**Minimum standards. No State, or political subdivision thereof, shall have power to impose, for any taxable year**  **ending after the date of the enactment of this Act [enacted**  **Sept. 14, 1959], a net income tax on the income derived within such State by any person from interstate commerce**  **if the only business activities within such State by or on behalf of such person during such taxable year are either,**  **or both, of the following:**  **(1) the solicitation of orders by such person,**  **or his representative, in such State for sales of tangible personal property, which**  **orders are sent outside the State for approval or rejection, and, if approved, are**  **filled by shipment or delivery from a point**  **outside the State; and (2)**  **the solicitation of orders by such person, or his representative, in such State in the**  **name of or for the benefit of a prospective customer of such person, if orders by such**  **customer to such person to enable su ch**  **customer to fill orders resulting from such solicitation are orders described in**  **paragraph (1). [15**  **U.S.C. § 381(a).]** **- 16**  **-**

**Hess v. Dir., Div. of Tax’n, 107 N.J. 304, 334 (1987). See**  **also N.J.S.A. 54:10A** 

**** **5( c)** 

**. “Congress has broad authority under the [Commerce] Clause.” Nat’l Fed’n**  **of Indep. Bus. v**  **. Sebelius , 567 U.S. 519, 549 (20**  **12 ).**  **“‘ [T]he**  **power of Congress over interstate commerce is not confined to the regulation of commerce among t**  **he**
**states ,’**  **but extends to activities that ‘**  **have a**  **substantial effect on interstate**

**commerce. ’**  **” Ibid.**  **(citing United States v. Darby, 312 U.S. 100, 118** 

**- 19 (1**  **941)). The affirmative words of the Commerce Clause give Congress plenary power t**  **o regulate commerce through enactments such as**  **P.L. 86** 

**- 272 so long as a rational**  **basis exists for Congress to conclude that the activities being impacted substantially affect**  **interstate commerce. Gonzales v. Raich**  **, 545 U.S. 1, 22, 29 (2005) (rational basis and plenary power);**  **U nited States**  **v. Lopez, 514 U.S. 549, 553 (1995) (commerce power to be exercised to utmost extent).**  **The United States Supreme Court has explained that th e r**  **ational basis expressed by Congress for the**  **“minimum standards” of**  **P.L. 86** 

**- 272**  **was to provide clarity to the perceived uncertainty arising from the Supreme Court’s decision**  **in Northwestern** 

**. Heublein, Inc. v. South Carolina**  **Tax Comm’n , 409 U.S. 275,**  **279**

**- 280 (1972). “By establishing such a**  **limit, [i.e. minimum standards ,]**  **Congress did, of course,**  **implicitly determine that the State’s interest in taxing business activities below that limit was weaker than the national interest in promot**  **ing an open -**  **17 -** 

**economy.” Id.**  **at 280. The rationale recognizes the concerns of the business**  **community as to**  **the uncertainty in**  **dealing with multiple taxing regimes. 7** 

**7 One notable objection to the legislation was raised by Rep**  **resentative Wright**  **Patman, then chair of the House Small Business Commit tee. In what appears from**  **the record to be a heated floor debate, Patman complained “[ P.L.**  **86**

**- 272] would**  **enable the interstate companies to avoid paying their share of such taxes”. 105 Cong. Rec. 1**  **7772 (1959);**  **See also Id.**  **at 1 7769** 

**- 17776**  **. Patman also co mplained the**  **legislation was rushed without any committee hearings in the House of Representatives.**  **Id. at 1**  **7772 . He had further concern that “[**  **P.L. 86** 

**- 272] will be a**  **great harm and a disadvantage to hometown merchants.” Id.**  **at 17771. With P.L.**  **86**

**- 272,**  **Patman argued that “the hometown merchants that they must continue to assume all this burden, and the people**  **on the outside of the State doing business in**  **that community in competition with the local merchants will not have to pay any part of the taxes, a**  **lthough that person has taken part of the local merchant’s business and the Supreme Court said he should pay a part of the profits to the local community**  **just like the hometown merchant pays.” Ibid.**  **Echoes of this debate would be heard many years later w**  **hen New Jersey set about adopting the Alternative Minimum Assessment.**  **Wright Patman served in Congress for nearly fifty years. He was Chair of the Small Business Committee for twelve years and was later named chair of the**  **powerful House Banking Committee. His most notable accomplishment was the**  **Robinson**

**- Patman Act which resulted in the Federal Trade Commission bringing an**  **antitrust action against A&P, then the largest grocery store chain in the United States with 14,800 stores nationwide. Great Atl. & Pa**  **c. Te a**  **Co. v. Fed. Trade Comm’n, 106 F.2d 667 (3d Cir. 1939)** 

**. S**  **ee generally**  **N ancy Beck Young,**  **Wright Patman (2000). The**  **Robinson**

**- Patman**  **Act was also the basis for the Federal Trade Commission to decide in 1943 that**  **seventy**

**- five**  **members of the Cement Institute including Northwestern States Portland Cement Company, the plaintiff in the**  **Northwestern decision**  **, were engaged in price fixing. 37**  **F.T.C. 87, 9 9**  **, 134,**  **259 (1943) (**  **rev ’d by Aetna Portland Cement Co. v. Fed. Trade Comm’n**  **, 157 F** 

**. 2d 533**  **(7 th**  **Cir. 1946), rev’d by**  **F ed. Trade Comm’n**  **v. Cement Inst. , 333 U.S. 683 (1948)**  **)**

**. Whether this influenced Representative Patman’s debate comments is un**  **known. Concerns similar to those of Representative Patman were raised in the Senate**  **as well. S. Rep. No. 86** 

**- 658**  **, at 12, 14 (1959) (minority and individual views). -**  **18 -** 

**P.L. 86** 

**- 272**  **was considered a temporar**  **y solution to address the perceived**  **pressing concerns of Northwestern** 

**. Id.**  **at 281. C**  **omprehensive legislation was to follow careful study by a congressional committee.**  **Ibid. Needless to say, the law**  **was never amended. Finally, it is important to remembe**  **r that the**  **“minimum standard s**  **” set forth in** 
**P.L. 86** 

**- 272**  **only appl**  **y to a net income tax, as opposed to a gross receipts or gross**  **profits tax. Moreover, the “minimum standard s**  **” only appl y**  **to sales of tangible**  **personal property, as opposed to intangible personal property or services. 8** 

C. The Regulation of Commerce by Congress **Both parties in this case have spent some time arguing over whether the AMA**  **is discriminatory against interstate commerce. That is not surprising considering the**  **vast majo rity of decisions deal with the dormant Commerce Clause.**  **However, the court is**  **not de aling with a situation in**  **which Congress has not spoken ,**  **th ereby**  **raising the nondiscriminatory mandate of the dormant Commerce Clause**

**. “Judicial**  **review of state taxes under the [**  **dormant ]**  **Interstate Commerce Clause is intended to**  **ensure that States do not disrupt or burden interstate commerce when Congress’**

**8 The original Senate bill applied to tangible personal property.**  **S. 2524**  **, 86th Cong. (1959). The House bill applied to all transactions.**  **H.R.J. Res. 450**  **, 86th Cong. (1959). After initial passage, the conference decided to keep the tangible person**  **al prop**  **erty limitation. The House acceded to this change. H.R. Rep. No. 86** 

**- 1103**  **, at 4 (1959) (reprinted in 105 Cong. Rec.**  **17770 (1959)). The rationale for or against this decision is unknown.** **- 19**  **-**

**power remai ns**  **unexercised . . . .” Merrion v. Jicarilla Apache Tribe**  **, 455 U.S. 130,**  **154 (1982). Rather, Congress has exercised**  **its powers under the Commerce C lause**  **and enacted**  **P.L. 86** 

**- 272**  **to set certain minimum standards below which a state cannot impose net income**  **taxation. Once Congress acts, courts are not free to**  **review state taxes under the dormant Commerce Clause since it is Congress, and not the courts, that**  **has struck the**  **b alance that it deems appropriate.**  **9 Ibid.**  **Broadly speaking, the power of Congress to supersede state tax laws as a rational part of an interstate regulatory regime has been affirmed on a number of**  **occasions. See e.g. CSX Transp. Inc. v. Ga. State Bd.**  **o f Equalization**  **, 552 U.S. 9,**
**20**

**- 22 (2007) (fe**  **deral statute regulates**  **states ’**  **imposition of taxes on railroads**  **) ;**  **Exxon Corp. v. Hunt , 475 U.S. 355, 376 (1986) (federal environmental statute**  **preempts New Jersey’s ability to impose certain taxes); Aloha Airlines v. Dir. of**
**Tax’n , 464 U.S. 7, 14** 

**- 15 (1983**  **) ( C**  **ongress may prohibit state gross receipts tax on airlines);**  **Ariz. Pub. Serv. Co. v. Snead , 441 U.S. 141, 150 (1979) (within power of** 
**C ongress to select reasonable method to eliminate the interference of state tax);**  **Delaware Cnty. v. Fed. Hous.**  **Fin. Age ncy**  **, 747 F .3**  **d 215, 223**

**- 28 (3d Cir. 2014)**  **( New Jersey and Pennsylvania**  **cannot impose transfer tax on properties sold by federal agency).** 

**9 “[I]t matters not that the courts would invalidate the state tax**  **or regulation under the [dormant] Commerce Clause in the absence of congressional action.”**  **Ibid. -**  **20 -** 

**Congress is not constrained by the C ommerce**  **Clause to only limiting the power of the states.**  **Congress can also empower the states to enact provisions that allow states to**  **treat in**

**- state and out** 

**- of** 

**- state businesses differently.**  **In the**  **McCarren**
**F erguson Act, Congress delegated to the states the ability to regulate the insura**  **nce industry.**  **15 U.S.C. §§ 1011, 1012**  **. As such,**  **the Supreme Court has held that a tax**  **imposed by a state**  **only on out**

**- of** 

**- state insurers is allowed per the Commerce Clause.**  **Prudential Ins. Co. v.**  **Be njamin**  **, 328 U.S. 408 , 434** 

**- 36**  **(1 946). However, such a tax**  **may face a challenge from insurers**  **on equal protection grounds**

**. Metro. Life In**  **s**
**. Co. v.**  **Ward , 470 U.S. 869,**  **880. (198**  **5). Nevertheless**  **, if Congress so chooses,**  **its power to regulate interstate commerce is broad.**  **10**

**10 Despite the broad reach of the Commerce Clause, an action of Congress could**  **still be in tension with due process or equal protection as guaranteed by the Fifth Amendment, or rights reserved to the states under the Tenth Amendment.**  **See Sec’y.**  **of Ag ric**  **. v . Cent** 

**. Roig Refining Co.**  **, 338 U.S. 604, 616 (1950) (Fifth Amendment Due Clause Process trumps Commerce Clause). See also**  **, U**  **nited States v. Stoeco**  **Homes, Inc. , 498 F.2d 597, 611 (3d Cir. 1974). The Fifth Amendment which applies**  **to the federal government does not have explicit equal protection language l ike the**  **Fourteenth Amendment which applies to the states. Bolling v. Sharpe , 347 U.S. 497,**  **498**

**- 99 (1954).**  **E qual protection is implied by the Fifth Amendment.**  **Ibid. ,**  **United States v. Armstrong**  **, 517 U.S. 456, 464**

**- 65 (1996). Parenthetically, as to any E**  **qual Protection**  **argument, f**

**or economic statu t**  **es such as those regarding taxation, only a**  **rational basis has to be shown to sustain**  **a statute on Equal Protection grounds.**  **See Chamber**  **of Commerce v. State**  **, 89 N.J. 131, 158 (1982)**

**. A due process challenge could arise as to a Commerce Clause enactment if**  **Congress extended the jurisdictional reach or nexus of a state to reach taxpayers that**  **should not otherwise be taxed. Here, P.L.**  **86**

**- 272 does the opposite in that it reduces**  **the reach of the states to impose taxation. Moreover, the Fifth Amendment Due Process Clause protects persons, and “cannot, by any reasonable mo**  **de of interpretation, be expanded to encompass the States of the Union, and to our** **- 21**  **-**

**When Congress has spoken, and there is tension with a state enactment, the**  **Supremacy Clause provides the vehicle for resolving this tension. The Supremacy**  **Clause of the Constitution provides “[t]his**  **Constitution, and the Laws of the United States which shall be made in P**  **ursuance ther eof . . . shall be**  **the supreme Law of the Land; and the Judges in every State shall be bound thereby, any**  **Thing in the Constitution**  **or Laws of any State to the Contrary no**  **twithstanding.” 11**  **U.S. Const. ,** 

**a rt.**  **VI , c**  **l. 2. The Supremacy Clause is not a**  **source of rights . Instead**  **, it simply** 

**knowledge this has never been done by any court.” S**  **outh Carolina v. Katzenbach**  **, 383 U.S. 301, 323** 

**- 24 (1966).**  **Pennsylvania v. Riley , 84 F** 

**. 3d 125, 130 n.2 (3d Cir.**  **1996). The broad reach of the Commerce Clause can also be in tension with the Tenth**  **Amendment which reserves to the states powers not delegated to the federal government.**  **Compare Lopez**  **, 514 U.S. at**  **5 66** 

**- 67**  **(C ongress does not have plenary**  **police power to ban guns in school zone**  **) with**  **United States v. Tucker , 90 F.3d 1135**  **, 1139** 

**- 41**  **(6 th**  **Cir. 1996) (upholding drug ban in school zone since impacts commerce). The exact contours of any tension with Due Process, Equal Protection**  **or the Tenth Amendment need not be de cided since neither party challenges the**  **constitutionality of P.L.**  **86**

**- 272.**  **P rior challenges to**  **P.L. 86** 

**- 272 on constitutional grounds have been rejected.**  **Int. Shoe Co. v. Cocreham , 164 So. 2d 314 (La.**  **1 964),**  **cert. den ied**  **, Mouton v. Int.**  **Shoe Co. ,**  **37 9**  **U.S. 902**  **(challenge to P.L.**  **86**

**- 272 raised by state collector along with**  **amici curiae of attorneys general of 19 states.) Smith Kline & French Laboratories**  **v. State Tax Comm’n, 403 P.2d 375 (Or. 1965) (challenge to**  **P.L. 86** 

**- 272 raised by**  **tax commission along wit h amici curiae of attorneys general of 12 states); State ex**  **rel. Ciba Pharmaceutical Prod. v. State Tax Comm’n, 382 S.W.2d 645 (Mo**  **nt . 1964)**  **(challenge to P.L.**  **86**

**- 272 raised by state tax commission along with amici curiae of**  **3 other states); Nat’l Private Truck Council v. Comm ’r**  **, 688 N.E.2d 936 (Mass. 1997).** 

**11 In addition, “all . . . judicial Officers . . . of the several States, shall be bound by**  **Oath or Affirmation, to support this Constitution.” U.S. Const. art.**  **VI , cl. 3.** **- 22**  **-**

**provides a rule of decision for courts to follow**  **when federal and state law are in conflict** 

**. Ar** 

**mstrong v. Exceptional Child Ctr .,**  **Inc. ,**  **575 U.S. 324**

**- 25**  **(2015). As such, the issue is whether federal law preempts a state law enactment.**  **English v. General Electric**  **Co. ,**  **496 U.S.**  **72, 78 (1990). The first step is whether the federal law is a valid exercise of power, or is**  **instead a po wer reserved to the states** 

**. It is not disputed that**  **Congress properly**  **implemented P.L.**  **86**

**- 272 pursuant to the Commerce Clause.**  **Moreover, Congress**  **had a rational basis for the law. Heublein**  **, 409 U.S. at 279**

**- 280.**  **Thus, t here is not**  **any challenge in this case that**  **Congress c ould not act** 

**. The second step is “**  **[w] hether**  **a state law stands as an obstacle to the accomplishment of a federal objective,**  **[and] requires a court to consider ‘the**  **relationship between state and federal laws as they are interpreted and applied, no**  **t merely as they**  **are written.’” R.F. v. Abbott Labs**

**. , 162 N.J. 596, 618 (2000**  **) (quoting**  **Jones v. Rath Packing Co. , 430 U.S. 519, 526**  **(1977)) . “Determining whether**  **federal law preempts state law is a fact**

**- sensitive endeavor**  **, based on a court’s review of**  **fragments of statutory language, random statements in the legislative history, and the d**  **egree of detail of**  **the federal regulation**

**. However, preemption**  **‘ is not to be**  **lightly presumed. ’**  **” Id.**  **at 619 (quoting Turner v. First Union Nat’l Bank**  **, 162 N.J. 75, 87 (1999)) (citation omitted).** **- 23**  **-**

**Preemption can occur in three circumstances referred to as express**  **, conflict** 

**or field preemption. With express preemption, Congress explicitly indicates t**  **hrough statutory language what type of state law the enactment**  **is attempting to preempt. English**  **, 496 U.S. at 7**  **8- 79.**  **Conflict preemption applies when it is impossible for a**  **party to comply with both s tate and federal requirements**  **, or**  **where state law stands as an obstacle to the accomplishment and execution of the full purposes and**  **objectives of Congress. Id.**  **at 7 9. Finally, field preemption occurs when federal law**  **occupies and regulates**  **a field so**  **comprehensively that it has left no room for supplementary state legislation.**  **Ibid. See also**  **, R.J. Reynolds**  **Tobacco Co. v. Durham County**  **, 479**  **U.S. 130, 140**  **(1986)**

**. The preemption categories are not**  **rigidly distinct. R.F.**  **, 162 N.J. at**  **618.**
**W hen a state law is subject to preemption, it is displaced by federal law.** 
**Turner , 162 N.J. at 88. The state law still exists but becomes unenforceable and**  **suspended. Constantino v. Borough of Berlin**  **, 348 N.J. Super**

**. 327, 332 (App. Div.**  **2002). It is nullified to the extent of the conflict with federal law. Turner**  **, 162 N.J. at 88. If the federal law is repealed or sunsets, the preempted state law is reinstated**  **or revived without further action of the Legislature. Constantino**  **, 348 N.J. Super. at**
**332**

**. The New Jersey courts have displaced a number of state provisions that have**  **been found to be preempted by federal law. See**  **, e.g. ,**  **Turner 16**  **2 N.J.**  **at 93**

**- 94 (state**  **limit on mortgage closing fees preempted by federal banking regulations) ;**  **Chamber -**  **24 -** 

**of Commerce v. State, 89 N.J. 131 (1982) (National Labor Relations Act pre**  **empts New Jersey Strikebreakers Act).** 
**T he court**  **need s**  **to first**  **examine whether the provisions of P.L.**  **86**

**- 272**  **constitute an explicit**  **, and thus**  **express ,**  **preemption of the AMA. Alternat**  **iv ely, the**  **court needs to examine whether there is a conflict preemption in that the AMA**  **stands as an obstacle to the accomplishment and execution of the full purposes and**  **objectives of Congress. Finally,**  **field preemption is plainly inapplicable because**
**Con gress has not comprehensively regulated the field of taxation**  **of interstate**  **business. The court ,**  **having already addressed the history of P.L.**  **86**

**- 272, now**  **turns**
**to the history of the AMA.** 

D. T he Enactment of the AMA **Exactly five months after the attacks on New York and Washington on**  **September 11, 2001 , then Governor McGreevey addresse**  **d a joint session of the**  **Legislature. In his address, he indicated “[o]ur economy, battered by the heinous**  **attack of September 11, is still in the grips of a**  **national recession. Tax revenues are declining.**  **” Governor James**  **E. McGreevey, Bu**  **dget Address to the Joint Session of the Legislature**  **(Feb. 11, 2002). He indicated a thr**  **ee billion**  **dollar shortfall for the**  **then current**  **fiscal year**  **and a six billion dollar shortfall for the succeeding**  **fiscal**
**year. Ibid.**  **Six weeks later, the Governor again addresse d**  **the Legislature. This time he focused on the Corporation Business Tax as a means to address the shortfall.** **- 25**  **-**

**Governor James E.**  **McGreevey, Budget Address to the Joint Session of the Legislature**  **(Mar. 26, 2002). He noted that the CBT once accounted for fifteen percent of all state revenues.**  **Ibid. However**  **, by 2002**  **, the CBT acc**  **ounted for about five percent of state revenue**  **s**
**. See also**  **Budget, Fiscal Year 2002** 

**- 2003**  **C-4; Off. of**  **Legis. Services Tax and Revenue Outlook**  **12 (Ap r**  **. 2002) (CBT in 1982 accounted for 15% of state revenues, in 2002 declined to 6.6%, with projected decline to about**  **4% in fiscal year 2003). The Governor promised “to restore the integrity of the**  **corporate income tax by eliminating the loopholes and gimmicks that have allowed**  **companies to shirk their responsibilities. ”**  **McGreevey Budget Address (March 26,**  **2002).**
**T he budget submitted by the Governor recognized that the “CBT also fails to**  **reach many companies that have no physical presence in New Jersey ,**  **bu t send their**  **sales forces into New Jersey’s lucrative market. Those companies are able to entirely avoid New Jersey corporate taxes** 

**. ”**  **Budget, Fiscal Year 2002** 

**- 2003**  **C- 5.**  **Part of the plan to address the issue was an alternative minimum assessment “based**

**n ot just on corporate profits . . . .”**  **Ibid. It was not until May 20, 2002 that a bill emerged which contained the AMA.** 
**S. 1556 (2002). However, the AMA was not proposed as a permanent measure.**  **The AMA was planned to sunset in 2006 except for**  **P.L. 86** 

**- 272 entities.**  **Id. at §**  **7. The -**  **26 -** 

**AMA was part of the larger and far** 

**- reaching Business Tax Reform Act**  **(BRTA)**

**. The sponsors of the bill were concerned that**  **:**

**these companies are able to take advantage**  **of the state’s lucrative market, extensive infrastructure, and geographic**  **prominence, while paying no corporate taxes to New Jersey. If some companies**  **exploit loopholes and avoid**  **paying t heir fair share then the corporate citizens who pay**  **their fair share are put at a competitive economic disadvantage with companies that evade or exploit the**  **system**

**. [**  **Sponsor’s Statement**  **to S. 1**  **556 52**  **(2002) (Senate**  **Sponsor’s Statement) ;**  **Sponsor’s Statement**  **to A.2501 51**  **(2002) (Assembly Sponsor’s Statement)**  **(emphasis added).]** 
**T he purpose of t**  **he Business Tax Reform Act was to provid**  **e sweeping**  **changes “intended to reform New Jersey’s system of taxation of corporations and other business entities, thr**  **ough revision of the corporation business tax and other changes of law.”**  **A. Budget Comm.**  **Statement to A. 2501**  **1 (June 27, 2002). S.**  **Budget and Appropriation s**  **Comm. Statement to S.**  **1556 1**  **(June 27, 2002) (**  **collectively referred to as Committee Statements)** 

**. The bill sought to “increase**  **equity among business taxpayers and close[ ] numerous loopholes that allow many**  **profitable companies to reduce their taxable New Jersey income.” Ibid** 

**. As**  **explained by the Com mittee:** 

**[t]he AMA also assures a fair measure of support for state services from firms that**  **exploit the State’s marketplace**  **, but are exempt from a tax like the CBT pursuant to [**  **P.L. 86** 

**- 272]. This reform will effectively capture**  **the value of -**  **27 -**  **the activities in New Jersey of out** 

**- of** 

**- state companies that**  **currently pay no corporate income taxes in New Jersey. [**  **Committee Statement s**  **at 5 (emphasis added).] The corporation business tax was**  **generally 9.0% of the net income allocated**  **to the State. 12**  **, 13**  **N.J.S.A. 54:10A**

**- 5. The AMA consisted of a tax not on net income,**  **but on either gross profits in excess of $1,000,000, or gross receipts in excess of $2,000,000.**  **14 L.**  **2002, c.**  **40, § 7(b).**  **The rate increases progressively from 0.25% up to 0.8% for gross**  **profits and from 0.125% up to 0.4% for gross receipts. Ibid.**  **The law provided for two similar ,**  **yet signif icantly distinct**  **, implementation phases**  **for the**  **AMA**

**. The first phase**  **was in effect from 2002 through part of 2006.**
**L. 2002,**  **c. 40, §**  **7(b), (c). N.J.S.A. 54:10A** 

**- 5a(b), (c)**  **(repealed 2018)**

**. It**  **provided that**  **all taxpayers, both in**

**- state and out**  **-of- state,**  **would be required to pay the greater** 

**12 Parenthetically, up until 2008,**  **if a corporation only had in** 

**- state business**  **locatio ns, 100% of its**  **income would be allocated to New Jersey** 

**. L.**  **2008, c.**  **120, § 2. N.J.S.A. 54:10A** 

**- 6.** 

**13 A corporation can elect to be a Subchapter**  **S corporation in which the income passes through the corporation and is instead taxed as gross income tax**  **to the**  **shareholders. Subchapter S corporations must be certain closely held corporations of**  **100 or fewer shareholders.**  **26 U.S.C. § 1361. Subchapter S Corporations are not subject to the AMA.**  **L. 2002,**  **c. 40, §**  **5. N.J.A.C. 18:7**

**- 18.3(a)(1). T**  **his decision f**  **ocuses upon Subchapter**  **C corporations, the type of taxpayer in this decision.** 

**14 The taxpayer was to elect for the first tax period whether to apply the gross profit**  **or gross receipt computation. The election would be effective for the next f our tax**  **peri ods.**  **L. 2002**  **, c.**  **40 , §**  **7(c). N.J.S.A. 54:10A**

**- 5a(c)**  **(repealed 2018)**

**. -**  **28 -** 

**of either**  **the CBT or the**  **AMA**

**. Ibid.**  **15 Since a**  **P.L. 86** 

**- 272 taxpayer is not subject**  **to a net income tax such as the CBT, the**  **P.L. 86** 

**- 272 taxpayer would**  **still be subject**  **to the AMA** 

**. In other words, all corporate taxpayers would be subject to the greater**  **of the AMA or CBT. The court need not pass upon whether this initial**  **implementation of the**  **AMA can be sustained**  **since the tax years at issue occur**  **during the second pha se of the**  **AMA implementation**  **described below**

**. T**  **he second phase provided that for**  **“taxpayers exempt from corporation net income tax pursuant to [**  **P.L. 86** 

**- 272**  **,] assessment**  **[of the**  **AMA ]**  **shall continue**  **to be computed** 

**. . . .**  **” L.**  **2002, c.**  **40 , §**  **7(e)**

**. N.J.S.A.**  **54:10A**

**- 5a**  **(e) (repealed 2018). However, a**  **P.L. 86** 

**- 272**  **corporation “that has filed a consent . . . to the jurisdict ion**  **of this State to impose and**  **the dut y of the taxpayer to pay the**  **[CBT ] . . . shall have**  **an alternative minimum assessment . . . of $0.00**  **.” I**  **bi d.**  **Stated plainly, the only entities paying AMA would be**  **P.L. 86** 

**- 272 taxpayer**  **s . However**  **, if a taxpayer protected by**  **P.L. 86** 

**- 272**  **consents to CBT**  **taxati on, it will no**  **t be subject to the AMA.**  **In other words, a P.L.**  **86**

**- 272 taxpayer would be subject to the lesser of the AMA or** 
**CBT. 16** 

**15 P.L.**  **86**

**- 272**  **minimum standards rose the permissible**  **qualitative floor upon which**  **there could be net**  **income taxation. However, it did not raise the floor as to other forms of**  **taxation such as a gross profits or gross receipts tax** 

**.**
**16 The AMA was repealed on July 1, 2018 and**  **the repeal applies to tax years**  **beginning on or after January 1, 2018. L. 2018, c. 48, § §**  **32, 33. -**  **29 -**  E. The AMA is Subject to Preemption **In light of the foregoing, the court must examine whether the AMA**  **is preempte**  **d through the Supremacy Clause in that**  **it runs afoul of Congress’ Commerce Clause powers**  **to regulate interstate commerce through**  **P.L 86** 

**- 272**  **. In other words, the issue boils down to**  **wh ether the AMA stands as an obstacle to the**  **accomplishment and execution of the purposes and objectives of P.L.**  **86**

**- 272.** 
**P.L. 86** 

**- 272**  **in plain terms indicates that “**  **[n ]o S**  **tate . . . shall have power to impose . . . a net income tax” on certain “sales**  **of tangible personal property**

**. . . .”** 
**15 U.S.C.**  **§ 381(a)**  **. F or the tax years 2012 throug**  **h 2014, the Director recognized that since**  **the taxpayer did not house or store inventory**  **in New Jersey , P.L.**  **86**

**- 272**  **status was applicable. With the finding of P.L.**  **86**

**- 272 status, the Director**  **determined that CBT was not assessable and issued a refund. Nevertheless, the**  **Director insisted upon the**  **taxpayer paying the AM A and reduced the CBT refund.**  **The second phase of the AMA**  **impleme ntation**  **at issue here represents a**  **n effort**  **to avoid the express prohibition of a net income tax on P.L.**  **86**

**- 272**  **taxpayers. The court looks to the statutory language, the**  **l egislative history, and the details of**  **the federal law. R.F.**  **, 162 N.J. at 619** 

**. T**  **he plain language of the second phase plainly reveals that the law only applies to**  **P.L. 86** 

**- 272 entities.**  **The second phase plainly**  **provided that for “taxpayers exempt from corporation net income tax pursuant to [**  **P.L. 86** 

**- 272,] assessment [of the AMA] shall**  **continue to be computed -**  **30 -** 

**. . . .” L.**  **2002, c.**  **40, § 7(e). N.J.S.A. 54:10A**

**- 5a(e)**  **(repealed 2018) . To be clear, the**  **AMA is imposed upon no other group of taxpayers except those which enjoy a P.L.** 
**86**

**- 272 exemption.**  **The extensive legislative statement by the**  **Assembly Budget Committee , as**  **well as the Senate Budget and Appropriations Committee, is illuminating as**  **to the sentiment towards**  **P.L. 86** 

**- 272 entities. The Committees wanted to “effectively**  **capture” P.L.**  **86**

**- 272 entities that “exploit the State’s marketpl**  **ace ,**  **but are exempt from a tax like the CBT.”**  **Committee Statements at 5 (emphasis added).**  **The Committee**  **s’ use of the**  **phrase “effectively capture**  **” is especially telling**  **of the effort to get around**  **P.L. 86** 

**- 272** 

**. It is further**  **explain ed**  **that “[t]**  **o avoid any claim of**  **discriminatory treatment ,”**  **P.L. 86** 

**- 272 taxpayers can consent to the lower CBT.**  **I d.** 
**at 6. Any**  **claim the AMA does not specifically target**  **P.L. 86** 

**- 272 taxpayers**  **simply ignores both the plain reading of the statute as well as the legislative history.**  **While the bill sponsors’ complaints that outside corporations “**  **evade or exploit the system” may**  **certainly be laudable, there is not any serious dispute that these**  **corporations were merely acting under the parameters for tax ation**  **established by Congress.**  **See Senate Sponsor’s Statement**  **at 52 and Assembly Sponsor’s**
**Statement at 51.**  **Perhaps ,**  **more accurately ,**  **the concern of the Legislature is that Congress created a sc**  **heme that allowed out**

**- of** 

**- state corporations to**  **“ evade or**  **exploit the system. ”**  **The corporations were merely exercising the legal standing -**  **31 -** 

**conferred by Congress. To now take th e**  **benefit of that standing away, strikes specifically at the heart of**  **P.L. 86** 

**- 27**  **2 and generally at the power of Congress to regulate interstate commerce.** 
**C ourts are guided in their**  **preemption analysis by the rule that the purpose of**  **Congress is the ultimate touchstone in every preemption case. Treasurer of N.J. v.**  **U.S. Dept. of Treas., 684 F .3d**  **382, 406**

**- 07 (3d**  **Cir. 2012). Congress expressed and determined that**  **no net income tax**  **would apply to P.L.**  **86**

**- 272 taxpayers.**  **While New Jersey is free to disagree with federal policy**  **, under preemption principles it**  **may not create an insurmountable obstacle to the accomplishment and execution of the full purposes and objectives of Congress.**  **Hous . Auth. & Urb. Rede**  **velopment Agency v. Spratley, 327 N.J. Super. 246, 255 (App. Div. 1999).**  **As stated, the law provides that the P.L.**  **86**

**- 272 taxpayer can pay the lesser of**  **the CBT or the AMA. For a taxpayer in which the AMA**  **is greater than the CBT ,**  **the AMA**  **clearly operates**  **as an end**

**- run**  **around P.L.**  **86**

**- 272, in that it coerces**  **a taxpayer**  **to consent and pay the CB**  **T which is measured by**  **net income**

**. Thus, when**  **the AMA is greater than the CBT, the AMA becomes a tax measured by net income since the taxpayer would be paying the CBT. “[A] tax on sleeping measured by th**  **e number of pairs of shoes you have in your closet is a tax on shoes.”**  **Hunt**

**- Wesson**  **, Inc.**  **v. Franchis e Tax Bd.**  **, 528 U.S. 458, 464 (2000) (**  **quoting Trinova Corp. v. Mich** 

**. Dept. of Treasury**  **, 498 U.S. 358, 374 (1991))**

**. Likewise, an alleged tax on gross** **- 32**  **-**

**income which is ultimately and actually measured by net income is within the scope of tax defined by**  **P.L. 86** 

**- 272.**  **W ith**  **the AMA greater than the CBT, this either**  **constitutes grounds for express preemption since the AMA targets P.L.**  **86**

**- 272**  **entities ,**  **or conflict preemption since the AMA stands as an obstacle to Congress exempt**  **ing P.L** 

**. 86** 

**- 272 entities from net**  **income taxation, albeit indirectly.**
**I f the**  **AMA is lower, the**  **P.L. 86** 

**- 272**  **taxpa yer does not have to pay the**  **CBT that is being assessed**  **against a similarly situated taxpayer not protected by**  **P.L. 86** 

**- 272**  **exemption. Instead**  **, the**  **P.L. 86** 

**- 272 entity would pay the AMA. It is**  **upon this ground that it seems that the Director claims that the statute should not be subject to**  **express preemption. Even if correct**  **, there is still the issue of conflict preemption, which precludes the law of a state legislature wh**  **en it “**  **stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”**  **English ,**  **496 U.S.**  **at 79 (**  **quoting Hines v. Davidowitz**  **, 312 U.S. 52, 67 (1941))**

**. I**  **n enacting**  **P.L. 86** 

**- 272**  **, Congress indicated that there shall be**  **no net**  **income tax ,**  **not merely**  **a reduction which is collected in the form of the AMA as a stand**

**- in for**  **New Jersey’s net income tax,**  **the CBT . Obviously, if Congress were to allow**  **P.L. 86** 

**- 272**  **businesses to be taxed on**  **net income at a l**  **ower amount , that would have been**  **explicitly specified in the enactment.**  **Regardless of w hether**  **the amount assessed is above or below the CBT, the**  **AMA is inextr icably linked to the CBT. For a**  **P.L. 86** 

**- 272 entity, a consideration of** **- 33**  **-**

**the CBT is always necessary to determine the amount of tax to be**  **paid, regardless of whether**  **the tax ultimately paid**  **is the AMA or CBT** 

**. 17**  **Stated slightly differently, “the AMA is**  **a pa**  **rt of the CBT and ‘**  **the Legislature imposed it to be used in calculating liability for corporation business taxes.**  **’” State ex rel. Campagna v. Post**  **Integrations, Inc. ,**  **451 N.J. Super. 276, 281 (App. Div. 2017) (quoting Equip** 

**. Leasing & Fin.**  **Ass’n v. Dir., Div. of Tax’n, 24 N.J. Tax 527, 529 (Tax 2009)).**  **“ The** 
**purpose [of the AMA**  **is ]**  **the generation of additional revenue from corporations tha t,**  **in the Legislature’s view, [are] not paying their fair share of the tax burden.”**  **Equip. Leasing & Fin.**  **, 2 4 N.J. Tax at 536.**  **See also Committee Statement**  **s at**  **5. By only subjecting**  **P.L. 86** 

**- 272 entities to the AMA**  **, while**  **other entities are** 
**not ,**  **the Legislature relegates the AMA to nothing more than a**  **de**

**- facto**  **CBT , albeit**  **at a potentially lower rate in cases**  **where the AMA is lower**

**. While t**  **he Director vigorously argues that the**  **AMA is not a net income tax, but is technically**  **a gros s**  **receipts or gross profits tax, the tax exclusively applies only to P.L.**  **86**

**- 272**  **taxp ayers**  **, and even more exclusively applies**  **only to those**  **P.L. 86** 

**- 272**  **taxpayers that did not consent to net income taxation**  **in the form of the**  **CBT. The Legislature**  **cannot create a special tax, whether it be a gross receipts, gross profits or s ome other** 

**17 Linking the AMA to the CBT is not necessarily an issue in all instances. The**  **court here is only addressing the second phase of the AMA in which only P.L.**  **86**

**- 272 entities were subject to the AMA. The court is not considering the propriety of**  **any linkage with the CBT**  **when a tax such as the AMA does not specifically target P.L.**  **86**

**- 272 entities.** **- 34**  **-**

**tax, t**  **hat only applies to entities protected by**  **P.L. 86** 

**- 272**  **in a transparent attempt to garner lost net income tax.**  **“[T]axation is a practical matter . . . .”**  **In re Estate of**
**L ichtenstein**  **, 52 N.J. 553 , 569**  **(1968). From a practical perspective, t he AMA stands**  **as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.**  **To summarize, w hether**  **a state levy that exclusively targets P.L.**  **86**

**- 272**  **entities is denominated as a tax, user fee, penalty or otherwise, and whether it is the**  **same, more, or less than the net income tax imposed pursuant to the CBT is irrelevant.**  **“[ C]**  **onstitutional analysis of state taxation of interstate commerce depends not on**  **the label give**  **n the tax b**  **ut on the**  **economic effects of the tax. ”**  **Avco Fin**  **. Serv s**  **. Consumer Disc. Co. One v. Dir., Div. of Tax’n, 100 N.J. 27, 31 (1985).**  **“The label appended to the**  **tax is not conclusive.” Armada Hess**  **, 107 N.J. at 334.**  **“The manner in which the state legislature has described and categorized**  **[ a tax**  **] cannot mask the fact that the purpose and effect of the provision are to impose a**  **levy” contrary to the dictates of Congress.**  **Aloha Airlines , 464 U.S.**  **7, 13** 

**- 14**  **(1983)**

**. See also**  **Avis Budget Gr**

**p. Inc**  **. v. City of Newark, 427 N.J. Super. 326, 339 (App. Div. 2012) (quoting**  **Aloha Airlines ).**  **The fact remains that the AMA in this case solely**  **and exclusively targets and**  **“effectively capture[s]” P.L.**  **86**

**- 272 entities which Congress has determined are**  **exempt from net income taxation. Committee Statement**  **s at 5** 

**. Moreover, in** **- 35**  **-**

**adopting regulations applicable to the AMA, the Director commented that the second phase of the AMA at issue here applied to “taxp**  **ayers that otherwise would have claimed protection of**  **[ P.L.**  **86**

**- 272**  **]. ”**  **35 N.J.R.**  **1573(a) (**  **Apr. 7, 2003).** 
**T here is a presumption against preemption that must be overcome** 

**. See**  **, Treasurer of N.J.**  **, 684 F.3d at 407. Moreover, since taxation is a traditional**  **state power, the scope of federal supremacy cannot be beyond what Congress clearly**  **mandated. Delaware Cnty**  **., 747 F.3d**  **at 225** 

**- 26 (citing**  **Dep't of Rev. of Or. v. ACF Indus., Inc., 510 U.S. 332, 345 (1994)**  **). T**  **he presumption against preemption is**

**overcome since the**  **clear purpose of Congress in**  **enacting P.L.**  **86**

**- 272 is effectively**  **thwarted by the Legislature in enacting the AMA** 

**. As such, the AMA is subject to**  **preemption. This might be a different case if the**  **AMA was truly a minimum assessme**  **nt that applied to all entities**  **regardless of P.L.**  **86**

**- 272**  **status. In such case, the Director could argue that he is**  **not trying to collect a tax only from taxpayers which are otherwise exempt from net income tax, but is collecting a minimum amount from all**  **taxpayers**

**. For example, a flat minimum tax, separate and apart from the AMA, was**  **in effect prior to 2006 and applie**  **d to all corporations regardless of income. 18** 

**18 For 2006 forward, the minimum tax was no longer flat per se, but stepped. For a**  **corporation that is not a n**  **S Corporation the tax was either $500, $750, $1,000, $1,500 or $2,000 depending on the amount of gross receipts. N.J.S.A. 54:10A** 

**- 5(e).**  **The validity of this tax is not at issue here. -**  **36 -** 

**N.J.S.A. 54:10A**

**- 5(e). This court has previously determined that such a tax did not**  **run afoul of P.L.**  **86**

**- 272 since it was not based upon income.**  **Home Impressions, Inc. v. Dir., Div. of Tax’n,**  **21 N.J. Tax 448, 461** 

**- 62 (Tax 2004);**  **AccuZIP , Inc. v.**  **Dir., Div. of Tax’n , 25 N.J. Tax 158, 181, 185 (Tax 2009).**  **T he**  **minimum tax applied**  **to all entities regardless of P.L.**  **86**

**- 272 status. At that time, the court was not called**  **upon to determine whether a tax that specifically and exclusively targeted P.L.**  **86**

**- 272 entities was permissible.** 
**T he first phase of implementation of the AMA in effect fr**  **om 2002 to June 30,**  **2006 applied to entities regardless of**  **P.L. 86** 

**- 272 status.**  **As to this first phase, the Business Tax**  **Study Commission**  **19 noted**  **in its June 29, 2004 final report that “[t]he**  **AMA has become the**  **lightning rod of criticism regard ing**  **New Jersey’s tax policy and the changes made by the BTRA.**  **. . . The AMA is perceived as an unfair and**  **burdensome tax by both in**

**- state and out** 

**- of** 

**- state corporations.” N.J. Corp. Bus. Tax**  **Study Comm’n, Final Report 20 (June 29, 2004)** 

**. In the**  **environment of such outcry**  **, the Legislature did not take any steps to reinstate a broad** 

**- based AMA**  **when it sunset**  **on June 30, 2006.**
**A s to the second phase of the AMA which only targets**  **P.L. 86** 

**- 272 entities,**  **the Commission found “that subjecting only those out**

**- of** 

**- state corporations to the** 

**19 As part of the Business Tax Reform Act, the Legislature established a**  **Corporation Business Tax Study Commission.**  **L. 2002**  **, c.**  **40, § 31. -**  **37 -** 

**AMA is unfair” and noted that “commentators have argued that the sunse tting of the**  **AMA only for regular CBT taxpayers and not for taxpayers that are protected fro m**  **a net income based tax by P.L.**  **86**

**- 272 violates the Commerce Clause** 

**. . . .”**  **Id. at**  **22. The Commission declined to wade into the**  **precise issue now before the Court.**  **Ibid. However, the Commission, by a majority vote, “recommend[ed] that the AMA**  **rates, as applied to companies that are protected f ro**  **m a tax based on or measured by income under**  **P.L. 86** 

**- 272, be set at zero for tax years beginning on or after July 1,** 
**2006.” Ibid.**  **In other words, with the sunset as to regular taxpayers on June 30, 2006,**  **the Commission recommended that the AMA would not apply to any**  **taxpayers. This may also be a d**  **ifferent case if the taxation of P.L.**  **86**

**- 272 entities under**  **the AMA is merely incidental and had**  **some basis separate and apart from capturing tax revenues from**  **P.L. 86** 

**- 272 entities. For example,**  **if the Legislature did not base the imposition of a gross profits or gross receipts tax upon**  **P.L. 86** 

**- 272**  **status, but rather impos**  **ed the tax**  **based upon some other classification**  **( e.g.**  **, all makers of**  **tomato sauce) with the result of sweeping in P.L.**  **86**

**- 272**  **entities. The court need**  **not resolve this issue at this time. Instead, the plain language of the**  **legislation indicated the target criteria was**  **P.L. 86** 

**- 272**  **status, and to drive the point home the**  **legislative history indicates**  **that the AMA “**  **effectively capture [s]”**  **P.L. 86** 

**- 272**  **entities that do not pay net income tax under the CBT**

**. Committee Statements**  **at 5. -**  **38 -** 

**Overall, based upon the foregoing, the AMA is preempted by P.L.**  **86**

**- 272.** 
F. The Director’s Arguments as to Salerno **The Director further a rg**  **ues that the AMA**  **should survive in some way because it**  **meets the facial constitutionality test articulated in United States v. Salerno**  **, 481 U.S. 739 (1987). Under this test of constitutionality, “the challenger must establish**  **that no set of circumstances exists under which the [a]**  **ct [in question] would be valid.”**  **Id. at 745. The Director’s argument fails on both factual and legal grounds.**  **The Director sets forth what it alleges**  **are four factual**  **examples where the tax does not impair**  **P.L. 86** 

**- 272**  **. The first two examples are when the tax is zero because the taxpayer’s**  **gross profits are below one million dollars or its gross receipts are**  **below two million dollars. Thus**  **, the Director argues that the tax can stay in place,**  **so long as there is not**  **a tax. The third argument is that the tax is zero if the P.L.**  **86**

**- 272**  **taxpayer consents to pay the CBT on net income. However,**  **as explained in greater length above, this coercion**  **stands as a clear obstacle t o the will**  **of Congress**

**. The Director’s fourth argument is that even if the taxpayer pays**  **AMA in year one**  **, it can seek credit in outly**  **ing years if subject to the CBT**  **in the outlying years because** 
**P.L**

**. 86** 

**- 272**  **protection is lost**  **. What this example ignores is the fact that in year one**  **the taxpayer is out**

**- of** 

**- pocket for**  **money paid and the time** 

**- value thereof with**  **out**

**some definite guarantee**  **of obtaining a credit in outlying years. All four arguments are disingenuous** 

**. -**  **39 -** 

**Moreover, there is a fundamental legal problem in the Director’s attempt to apply**  **Salerno to a Supremacy Clause preemption case. The Director**  **conflates constitutional challenges on grounds such as the Due Process Clause**  **or dormant Commerce Clause**  **with what is in essence a form of choice**

**- of** 

**- law**  **determination under**  **the Supremacy Clause. For this analysis**  **, both P.L.**  **86**

**- 272 and the AMA are**  **accepted as otherwise**  **constitutional. In other words, both are considered to satisfy the Due Process and**  **dormant Commerce Clause**  **for purposes of Supremacy Clause analysis**  **. The c**  **ourt must merely decide which law, P.L.**  **86**

**- 272 or the AMA**  **, is**  **controlling. It must be remembered that the Supremacy Clause is not a right in and of**  **itself, but rather provides a rule of de cision for deciding these federal** 

**- state conflicts.**  **Armstrong ,**  **575 U.S. at 324**

**- 25** 

**. Preemption**  **does not mean the state law is forever**  **invalid. Rather, it is displaced**  **so long as the federal law is on the books. Constantino**  **, 348 N.J. Super. at**  **332. If th**  **e federal law is repealed, the state law would no longer be preempted.**  **Ibid.**
**Moreo ver**  **, d isplacement does not necessarily mean the state law is totally**  **without force and effect , only that it does not apply where the federal law**  **applies**

**. For example,**  **in Chamber**  **, the Court determined that the National Labor Relations Act preempted the New Jersey Strikebreakers Act in certain instances.**  **Chamber , 89** 
**N.J. at 163. The Court did not**  **invalidate the act, but rather limited its application to -**  **40 -** 

**employees not covered by the National Labor Relations Act such as agricultural, supervisory and governmental employees.**  **I d.**  **at 153, 163. While this faintly**  **sounds like**  **Salerno , it is not. Salerno has to do with outright constitutional invalidity. The**  **court has not determined the AMA to be invalid outright. Rather, the AMA is displaced while**  **P.L. 86** 

**- 272 is on the books.**  **T he court is unaware of any situation**  **where the second phase of the AMA taking effect in 2006 would not be displaced since it exclusively applies to**  **P.L. 86** 

**- 272 entities. Resultantly,**  **P.L. 86** 

**- 272**  **displaces the second phase of the AMA which exclusively targets P.L.**  **86**

**- 272**  **entities. Grounds**  **such as preemption must be considered pr ior to outright**  **constitutional invalidity**

**. Once preemption is found, the**  **C ourt need not reach the**  **issue of outright constitutional invalidity**

**. Ariz. Pub. Serv.**  **, 441 U.S. at 146 (finding preemption, the Court “do[es] not reach substantive constitutional issues.**  **”) ;**  **Townsend v. S**  **wank , 404 U.S. 282, 285, 291 (1971) (finding preemption, the Court**  **need not reach constitutional equal protection issue); Auto** 

**. Club of N.Y., Inc. v.**  **Dykstra , 520 F.3d 210, 212 (2d Cir. 2008)**  **(finding “preempt[ion] we need not reach**  **the constitutional issues raised by the parties**

**. ”)**  **With t he AMA**  **displaced by applying the decisional framework of the**  **Supremacy Clause, the court never has to reach the issue of whether the AMA is unconstitutional under the**  **dormant Commer**  **ce Clause ,**  **Due Process Clause or Equal** **- 41**  **-**

**Protection Clause**

**. Thus, the Director’s urging to apply**  **Salerno as was done**  **previously in Whirlpool**  **is inapposite since Whirlpool**  **was a dormant Commerce Clause case, not the implementation of the Supremacy Clause to**  **resolve competing Congressional and Legislative action.**  **Whirlpool Properties, Inc. v. Dir., Div. of** 
**Tax’n , 208 N.J. 141, 150, 165 (20**  **11 ).**  **Parenthetically, the New Jersey Supreme**  **Court also noted as to Salerno**  **that “questions have arisen as to its continued validity” and “there exists a measure of uncertainty over the use of**  **Salerno as the de facto**  **standard for facial challenges to the constitutionality of a statute.” 20**  **Whirlpool , 208** 
**N.J. at 175, 176. In any**  **event, this court need not jump into the murky waters of whether**  **Salerno is of continued validity.**  **Notably, t he**  **United States Court of Appeals for the Third Circuit rejected the**  **Salerno test in preemption c**  **ases in which the government “conjure**  **[s] up just one**  **hypothetical factual scenario in which implementation of the state law would not directly interfere with**  **federal law.”**  **Lo zano v. City of Hazelton**  **, 724 F**

**. 3d 297, 313**  **n. 22 ( 3d**  **Cir. 2013). The factual scenarios conjured up by the Director in t his case**  **aptly demonstrate the concern expressed by the Third Circuit in**  **Lo zano** 
**. The issue resolved by the court is not whether a state statute, the AMA, is**  **outright un constitutional. Rather, the issue is whether the AMA is**  **preempted by**

**20 The Court raised these issues again in In re Contest of November 8, 2011 General**  **Election , 210 N.J. 29, 46 (2012). However,**  **Contest , like**  **Whirlpool , did not involve**  **preemption issues. -**  **42 -** 

**P.L. 86** 

**- 272.**  **Th e Supremacy Clause in the**  **C onstitution provides the framework for**  **the decision, but does**  **not render the AMA forever invalid**  **, but**  **merely ineffective while**  **P.L. 86** 

**- 272**  **remains on the books. Salerno**  **is simply inapplicable since a direct**  **constitutional challe**  **nge as to validity**  **ha s**  **not been reached.**

G. The AMA Cannot be Considered a C ompensatory Tax
**In a last** 

**- ditch**  **effort to save the AMA**  **from preemption, the Director argues that the**  **AMA is a compe**  **nsatory tax. A compensatory tax has been applied in**  **dormant Commerce Clause cases**  **, that is, cases in which Congress has not spoken.**  **The dormant Commerce Clause “denies the Stat es the power**  **unjustifiably to**  **discriminate against or burden the interstate flow of articles of commerce.” Or.**  **Waste Sys., Inc. v. Dep’t of Envtl. Qualtiy of Or., 511 U.S. 93, 98 (1994). However,**  **“[i] nterstate commerce may be made to ‘pay its way’” even if the law discriminates**  **against interstate commerce. Id.**  **at 102 (quoting**  **Complete Auto Transit, 430 U.S.**
**at 281)** 

**. “It was not the purpose of the**  **commerce c lause to relieve those engaged in**  **interstate commerce from their just share of state tax burden [s]**  **.” Id.**  **at 102 (quoting**  **Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 254 (1938))**  **. A compensatory tax “is merely a specific way of justifying a facially discriminatory**  **tax as achieving a legitimate local purpose that cannot be achieved through nondiscriminatory means.”**  **Ibid**

**. “Under that doctrine, a facially discriminatory tax**  **that imposes on interstate commerce the rough equivalent of an identifi able and** **- 43**  **-**

**‘substantially similar’ tax on intrastate commerce does not offend the negative**  **[dormant] Commerce Clause**  **.” 21**  **Id. at 102** 

**- 103**  **(quoting Maryland v. Louisiana**  **, 451 U.S. 725, 758** 

**- 59 (1981))** 

**. Simply stated, the compensatory tax doctrine**  **has been applied by the courts**  **to situations in which Congress has not spoken and the**  **negative or dormant** 
**Commerce C lause**  **is primarily controlling** 

**. Without an act of Congress, it is “the**  **Court, and not Congres**  **s, that is limiting the lawful prerogative**  **s of the S tates.”**  **Wayfair , 138 S. Ct.**  **at 2097 . I**  **n this case ,**  **Congress has spoken through enactment**  **of P.L.**  **86**

**- 272**  **and has indicated that a net income tax cannot be applied to the out** 

**** **of**

**- state sellers of**  **tangible products that meet certain criteria. Regardless of the merits, a**  **state legislature cannot enact a “compensatory”**  **measure which undercuts Congress’ mandate. A compensatory measure here would**  **be tantamount to invalidating the efficacy of the Congressional provision. Cou rts**  **are not the final arbiter as to the Commerce Clause**  **when Congress has spoken**

**. See** 

**21 For example, in Henneford v. Silas Mason Co., 300 U.S. 577 (1937), the State of**  **Washington had a sales tax on in**

**- state sales.**  **Id. at 579. Likewise, Washington also**  **had a use or compensatory tax on items purchased out**

**- of** 

**- state, but used in** 

**- state.**  **Id. at 579** 

**- 80. However, if sales tax was paid to a**  **nother jurisdiction, the compensatory or use tax would be reduced by the sales tax paid.**  **Id. at 580.**  **The taxpayers in Henneford**  **argued that the compensatory or use tax only applied to products brought in from out** 

**- of** 

**- state and therefore discriminated again**  **st interstate commerce.**  **Id. at 581. In rejecting this argument, the Court indicated that**  **“the stranger from afar is subject to no greater burden s**  **as a consequence of ownership than the dweller within the gates.”**  **Id. at 584.** **- 44**  **-**

**Merrion , 455 U.S. at 154** 

**- 55.**  **There are exceptions, of course, such**  **as where the**  **federal law at issue is at odds with**  **due p rocess, equal protection or**  **Tenth Amendment**  **rights**

**. 22**  **However, the**  **re is not a challeng**  **e to the validity of**  **P.L. 86** 

**- 272. Since Congress has spoken, the AMA cannot be construed as an attempt to**  **“compensate” under the dormant Commerce Clause. Rather, the AMA is an attempt**
**to eviscerate**  **the properly expressed will of Congress enacted pursuant to the affirmative**  **words of the Co**  **mmerce Clause. As pointed out by the taxpayer in this case, to argue**  **that the AMA**  **compensates for the CBT**  **is to recognize**  **that the AMA**  **stands as an obstacle to the congressional mandate of**  **P.L. 86** 

**- 272**  **. The Legislature’s attempt to “compensate” in this cas**  **e is nothing more than an effort to ignore P.L.**  **86**

**- 272** 

**. Congress has spoken and indicated what it wants done as to net income**  **taxation of certain in terstate businesses.**  **This is not a case where the State imposed**

**a gross receipts or gross profits tax upon all businesses** 

**. Rather, New Jersey decided**  **to impose the AMA**  **only upon entities protected**  **by P.L.**  **86**

**- 272** 

**. Even if th**  **e AMA**  **is somehow arguably “compensatory” in the literal sense of the word, it stands as a clear obstacle to the will of Congress exer**  **cised pursuant to the Commerce C lause**  **and imposed upon the State by the Supremacy Clause . Thus, the**  **AMA does not fit** 

**22 S**  **ee supra**  **at n.**  **10**

**. -**  **45 -** 

**within the compensatory tax framework as enunciated by the U nited**  **S tates**  **Supreme**
**Court.**
H. Summary of Legal Conclusions **In large part, the Constitution governs the relationship between state and federal governments. In ratifying the Constitution a long time ago**  **in 1787, New Jersey agreed that when there is a conflict between state and federal provisions**  **affecting commerce, the federal provisio ns prevail.**  **23 The framers of the**  **Constitution, having the insight that issues such as the one now facing the court would find their way into state courts, included a provision in the Supremacy Clause**  **that specifically commanded the judges of state courts to obey the w ill of Congress,**  **regardless of any contrary state law. U.S. Const. art.**  **VI , cl. 2. The courts play a**  **significant role in assuring the supremacy of federal law. Armstrong**  **, 575 U.S. at** 
**326 . For once a case or controversy comes before the court,**  **judges are bound by federal law despite state law provisions to the contrary** 

**. Ibid.**  **The court is not merely a legislative agent blindly implementing the will of the Legislature.**  **See ,**  **e.g. ,**  **In re 1984 General Election for Office of Council , 203**  **N.J. Super . 563, 577**  **( Law**  **Div. 1985) (rejecting concept of a court sitting as**

**23 To be exact, the people of New Jersey indirectly ratified the Constitution through**  **elected delegates on December 18, 1787. 3**  **The Documentary History of the Ratification of the Constitution**  **162 -86**  **. (Merrill Jensen ed. 1978). -**  **46 -** 

**legislative agent in election contests**  **). The court has a sworn obligation to uphold both the state and federal constitutions.**  **See , e.g.**  **, U.S. Const.**  **art. VI**  **, cl. 3. This**  **court is acutel y aware of this role in determining legislative intent and does not take**  **this responsibility lightly. The legislative history does express the frustration of the Legisl**  **ature in ensuring**  **everyone pay s**  **their fair share. Equip. Leasing & Finan.**  **, 24 N.J. Ta x at**  **536. See also**  **Committee Statement s**  **at 5. There was concern that**  **P.L . 86** 

**- 272**  **entities “exploit the State’s marketplace” and reform was needed to “effectively capture” their activities.**  **Ibid**

**. The sponsor of the bill wanted to s**  **t op**  **P.L. 86** 

**- 272**  **entities from “evad [**  **ing ]**  **and exploit [**  **ing ]**  **the system. ”**  **Senate Sponsor’s Stateme**  **nt**
**at 52**  **and Assembly**  **Sponsors’ Statement at**  **51 (2002)**

**. The goal was to “provide[]**  **a level playing field for all businesses, large and small, that invest in New Jersey, employ our citizens and do business here.”**  **Ibid. While attempts to tax everyone**  **fairly is certainly a laudable purpose, the second phase of the AMA obliterates the protections of**  **P.L. 86** 

**- 272 and is thereby contrary to supremacy of Congressional**  **action as required by the Constitution. D espite the inequ**  **ities, either real or perceived, of**  **P.L. 86** 

**- 272, the Legislature is not free to ignore the will of Congress**  **and neither is this court**

**. P.L.**  **86**

**- 272 was adopted as a temporary measure many generations ago.**  **After some sixty years of inaction, it may or may**  **not be time for Congress to take** **- 47**  **-**

**another look at this provision ,**  **especially with the shift in the economy from a manufacturing (**  **i.e. tangible**  **goods )**  **economy to a service economy.**
**W hile it is certainly arguable whether**  **P.L. 86** 

**- 272 is unfair, that cannot**  **be the point of any ruling. That is a quarrel for the Legislature to have with Congress. The**  **fairness of P.L.**  **86**

**- 272 is a policy debate which cannot be resolved by the courts.**  **Comm. To Recall Robert Menendez from the Office of U.S. Senator v. Wel ls**  **, 204 N.J. 79, 128 (2009). On one hand, the Legislature is seeking a “fair measure of**  **support for State services [from P.L.**  **86**

**- 272 entities].”**  **Committee Statement s**  **at 5. On the other hand, Congress had a rational basis in wanting to provide clarity in how** 

**en tities involved in interstate commerce would be taxed.**  **Heublein , 409 U.S. at**  **279**

**- 280. “It is not for [the court] to say whether the means chosen by Congress represent**  **the wisest choice. It is sufficient that Congress was not irrational. .**

**. .”**  **F ed. Ene**  **rgy Regul. Comm’n v. Mississippi, 456 U.S. 742, 758 (1982). In light of the Supremacy**  **Clause, this court is not free to impose its own vision of fairness, or that of the Legislature, upon the will of Congress exercising its powers pursuant to th**  **e Commerce**  **Clause. Courts are the final arbiter under the Commerce Clause when Congress has not acted.**  **See Merrion**  **, 455 U.S. at 154**

**- 55. Here, Congress has acted.** **- 48**  **-**

V. CONCLUSION **For the foregoing reasons, the Director ’**  **s motion for reconsideration of the**
**court ’**  **s entry of partial**  **summary judgment in favor of the taxpayer and denial of the Director’s motion for**  **partial summary judgment is denied.**