Opinion ID: 2381232
Heading Depth: 1
Heading Rank: 5

Heading: The Taxpayer and Its Operations

Text: Silent Hoist and Crane Co., Inc. is a New York corporation having its principal place of business and its manufacturing plant in Brooklyn, New York. It owns two parcels of commercial property in New Jersey, one in Clifton and one in Bloomfield. It originally intended to move its plant to Clifton but abandoned the idea. Silent Hoist obtained a certificate of authority and qualified to transact business in New Jersey under N.J.S.A. 14A:13-3 during the relevant years. None of its real estate tenants were related to the manufacturing operation. Its sales to customers in New Jersey for the relevant years in comparison to total sales and services as shown on its books of account were: 1971 1972 1973 1974 New Jersey 436,566 986,862 998,740 706,410 Total 5,104,500 5,472,660 6,672,307 6,111,811 [5] When it filed its New Jersey CBT returns for the period, it reported no income from sales but reported only the income and expenses related to its New Jersey real estate operations. [6] Upon audit, the Division of Taxation, noted that the taxpayer had failed to report its entire net income, equated with taxable income, and consequently increased Silent Hoist's net income to include its sales income and the income from its investments. (As noted, New Jersey only includes 50% of dividends received from other corporations.) [7] The taxpayer appealed the assessment to the Tax Court. The trial developed the following facts. Silent Hoist is a privately held corporation. Its president, Eric Wunsch, is its principal manager. He exercises effective control over all areas of the company's operations. Its mode of operation was to seek out potential customers in New Jersey and elsewhere. The company's employees would visit potential customers to survey their needs. They would advise the customer of a possible solution to the material handling problems and suggest the superior quality of the Silent Hoist product. If the customer's interest grew, design conferences would follow either in Brooklyn, New Jersey, or at a location having a similar piece of plaintiff's machinery. Following the design phase, the machinery would usually be fabricated in Brooklyn or, in some cases, in Connecticut, and be delivered to New Jersey. The company's sales representatives were themselves engineers and would follow up if one of the machines malfunctioned. The representatives would show the customer's personnel how to deal with problems, and on occasion themselves remove pieces of the machine and ship them back to the plant for repairs. The company's service department performed warranty repairs, trained customer personnel, and reviewed technical problems with the customers. Wunsch described himself as the general manager whose duty it was to keep the business functioning and working profitably. He supervised and directed all of the company's activities. He made the real estate and investment decisions, and he was involved in the design of the machinery and its sales, advertising and long-range planning. The taxpayer had one bank account that covered all of its activities. All receipts went into and most expenses were paid out of that account. There was a single chart of accounts for the business with no separate accounts for manufacturing, sales, real estate or securities investment. The central issue before the Tax Court was whether this was a unitary business. That court believed that existing Supreme Court precedent required that it hold for the taxpayer, that its investment, real estate, and sales businesses were distinct and could not be taxed under a unitary business/formula apportionment system. It entered judgment in favor of the taxpayer. 5 N.J. Tax 242 (1983). At the time of the Tax Court decision, ASARCO was the last Supreme Court pronouncement. As seen in Part I(A.) hereof, supra, (slip op. at 7), the Supreme Court has since modified its holding in ASARCO. The Appellate Division affirmed on the basis of the Tax Court opinion. 6 N.J. Tax 348 (1984). We granted the State's petition for certification. 97 N.J. 650 (1984).