Opinion ID: 2381224
Heading Depth: 1
Heading Rank: 4

Heading: Does the Statute Apply to Income from Intangibles Without a Situs in New Jersey?

Text: The taxpayer has contended that it earned no income in New Jersey and is therefore not subject to the tax. It contends that its loans, promissory notes and the interest and proceeds thereon are all intangible personal property and that the taxable situs of such an intangible is the domicile of the creditor. This is the sort of theoretical distinction that has historically encumbered analysis of state taxation. The underpinning of the argument rests on the maxim mobilia sequuntur personam (movables follow the person). Like other maxims, this has been questioned for stat[ing] a rule without disclosing the reasons for it. Mobil, supra, 445 U.S. at 445, 100 S.Ct. at 1235, 63 L.Ed. 2d at 526 (quoting First Bank Stock Corp. v. Minnesota, 301 U.S. 234, 241, 57 S.Ct. 677, 680, 81 L.Ed. 1061, 1065 (1937)). The Court equated the taxation of income from intangibles, not with situs, but with the relation the income bears to benefits and privileges conferred by several States. Mobil, supra, 445 U.S. at 446, 100 S.Ct. at 1236, 63 L.Ed. 2d at 526. We believe that the CIT is related to benefits conferred by the State. It is direct in its reach, speaking, with certain exceptions, of a tax on income derived from sources in New Jersey. N.J.S.A. 54:10E-2. Putting aside traditional concepts relating to intangibles, the real source of Avco Pa.'s income is not a piece of paper, but New Jersey borrowers. In Chemical Realty Corp. v. Taxation Div. Director, 5 N.J. Tax 581, 593-94 (1983), the Tax Court reviewed the history of the CIT and concluded that the Legislature's intent was not to restrict the taxation of intangibles to the place of commercial domicile. In that case, the subsidiary of a New York bank contested application of the CIT to income it derived from real estate financing activities in New Jersey. In the absence of a legislative intent that the mobilia maxim be construed as part of the CIT, interest income received from New Jersey borrowers is derived from sources within New Jersey under the act, and thus is subject to the constitutional reach of the State. Chemical Realty Corp., supra, 5 N.J. Tax at 605; [2] see also CIT Fin. Services, etc. v. Director, Div. of Taxation, 4 N.J. Tax 568, 578 (1982) (surrogate activities of New Jersey affiliates sustain conclusion that a Pennsylvania lender's interest income from New Jersey residents is amenable to New Jersey taxation).