Opinion ID: 2381224
Heading Depth: 1
Heading Rank: 2

Heading: The Taxpayer and its Activities

Text: The taxpayer, Avco Financial Services Consumer Discount Company One, Inc. (Avco Pa.), is one of many subsidiaries of Avco Financial Services, Inc. (Avco) linked through Avco Financial Services Management Company (the Management Company) with over 900 branch offices nationwide. Avco Pa. is a Pennsylvania corporation. Among its branch offices are several on the New Jersey border, including Philadelphia, Levittown, Morrisville, and Easton. New Jersey residents have taken out consumer loans or purchased credit life, accident and health and credit property insurance through the Pennsylvania offices. Avco Pa. also purchased installment contracts from a New Jersey retailer. Avco, through its affiliates, also operates and maintains similar branch offices in New Jersey. The record does not disclose whether the borrower would have any conscious understanding that the Pennsylvania and New Jersey branch offices were of different subsidiaries since Avco has a policy that permits payments to be made on the loans made by the Pennsylvania branches at the New Jersey branches. The loan agreement is between a New Jersey borrower and Avco Pa. and/or its Parent, Affiliates or Subsidiaries. A sample promissory note in the stipulated exhibits was made payable to Avco Financial Services, Inc. [the parent], and/or    its affiliates or subsidiaries. Mailings from the parent or the management company to existing New Jersey customers invited the customer to refinance or extend existing credit lines. The mailings are warm and encourage the reader to resolve gift, tax and vacation problems, referring in generic terms to Avco Financial Services, the lender that believes in you. In addition, the Management Company also provides general radio advertising in New Jersey for the benefit of the parent and its affiliates. Avco Pa. sends its own personnel into New Jersey to service accounts. Some customers were afforded once or twice monthly visits to remind borrowers of their obligations. Avco Pa. estimates that its branch managers spend three to five percent of their working hours in New Jersey. When loans are in default, Avco Pa. uses the New Jersey court system to enforce collections (about $3,000 per year), including wage garnishment and repossession of a few New Jersey automobiles. As a result of these activities, Avco Pa. estimates that its interest and other income for each of the years 1974 and 1975 was approximately $150,000. Pursuant to N.J.S.A. 14A:13-15, Avco Pa. filed a Notice of Business Activities Report with the defendant, Director, Division of Taxation (Director), for the taxable year beginning December 1, 1973 and ending November 30, 1974. [1] Avco Pa. reported that it received payments during the period from persons residing in or business located in New Jersey in excess of $25,000. Avco Pa. indicated that such payments were received in respect of notes held by its out-of-state offices. Avco Pa. disclaimed liability under the CIT in its report. The Director asserted that Avco Pa. was liable for corporate income taxes with respect to Avco Pa.'s receipt of income from sources within this state. Eventually, Avco Pa. filed tax returns pursuant to the CIT for the taxable years ending November 30, 1974 and November 30, 1975. Each of these returns indicated that Avco Pa. derived no income from sources within New Jersey. Avco Pa. thereafter submitted an estimate to the Director that Avco Pa. received $150,000 in interest income from New Jersey resident borrowers for each of the taxable years in controversy. The Director issued a final tax deficiency assessment against Avco Pa. with respect to each of the taxable years in question. Based upon Avco Pa.'s estimates regarding receipts from New Jersey residents, the Director assessed taxes of $1308.99 plus interest for 1974 and $2,123.46 plus interest for 1975. On Avco Pa.'s appeal, the Tax Court ruled that the Director's imposition of the Income Tax Act in this matter violates both the Due Process Clause and the Commerce Clause of the United States Constitution, and granted Avco Pa.'s refund claim. 4 N.J. Tax 349 (1982). The Appellate Division reversed the Tax Court finding that there was a rational relationship between plaintiff's income attributed to New Jersey and the benefits conferred by New Jersey to justify the imposition of the tax levied here. The internal regulation of the credit market which enables plaintiff's parent to accept payments and process loans; the administration of the Retail Installment Sales Act which regulates the issuance and transfer of the installment paper that plaintiff buys from Dean's Appliance; the maintenance of the courts and the general regulation of collection processes that permit plaintiff to realize on loans which are in default, are all elements of such a foundation. [193 N.J. Super. 503, 512 (1984).] We granted the taxpayer's petition for certification. 97 N.J. 624 (1984).