Court Opinion

ID: 9713877
Source: CourtListenerOpinion
Date Created: 2023-08-26 05:24:50.236617+00
Date Added: 2024-06-11T18:21:28.886100
License: Public Domain

*163STEIN, J.,
concurring.
I join in the Court’s comprehensive and well-reasoned opinion. I add these observations primarily to address the contention of amid curiae that the lower court’s, and now this Court’s, interpretations of the scope of the receipts portion of the apportionment formula for the New Jersey Corporation Business Tax Act, N.J.S.A. 54:10A-1 to 40, codified at N.J.S.A. 54:10A-6(B), will impose an undue burden on New Jersey manufacturers. Amici supports their argument by referring specifically to the 1995 amendment to N.J.S.A. 54:1-A-6, L. 1995, c. 245, pursuant to which the Legislature determined to double-weight the receipts fraction portion of the apportionment formula in order to benefit New Jersey manufacturers. According to amid, that legislative determination was designed “[to] provide an incentive for investment and employment in New Jersey,” and to “shift[ ] the tax burden to corporations that sell their products in New Jersey and away from corporations that employ people or have capital investment in New Jersey.” Sponsors Statement to Assembly Bill No. 89, at 2-3 (June 15,1995).
Amid also relies on the Assembly Appropriations Committee statement to that bill:
Doubling the weight of the sales factor will decrease the apportioned taxable income of corporations that own property and pay salaries and wages in New Jersey, decrease the apportioned taxable income of corporations that make sales outside of New Jersey and increase the apportioned taxable income of corporations that make sales in New Jersey.
[Assembly Appropriations Committee, Statement to Assembly Bill No. 89, at 1 (June 1, 1995).]
Notwithstanding the Legislature’s salutary purpose in amending N.J.S.A. 54:10A-6 to double-weight the receipts fraction of the allocation formula, the issue posed by this appeal is a unique one, and implicates interpretive issues that cannot be resolved merely on the basis of the legislative intent underlying the 1995 amendment to N.J.S.A. 54:10A-6. As the Tax Court observed: “Plaintiff and defendant acknowledge that neither N.J.S.A. 54:10A-6 nor the Regulations under that statute, N.J.A.C. 18:7-8.1 to -8.17, contem*164plated three-party drop-shipment transactions.” Stryker Corp. v. Director, Div. of Taxation, 18 N.J.Tax 270, 279 (Tax 1999).
Responding to amici’s argument, the Director of the Division of Taxation asserted that if Stryker had used a division rather than a wholly-owned subsidiary to serve as its marketing arm, the sales in question would have been excluded from the numerator of the receipt’s fraction:
Further, it is not the Tax Court’s holding that would stymie legislative action to give New Jersey manufacturers favorable tax treatment, as Stiyker alleges____ Rather, the tax consequences here necessarily follow from Stryker’s business decisions. The Director acknowledges, as he did below, that if Stiyker had itself conducted the sales and marketing functions, rather than having a separate, wholly-owned subsidiary undertake those tasks, Stiyker would have been entitled to exclude from the numerator of its receipts fraction those sales made to what would have been Stryker’s out-of-state customers. As the Courts of this State have long and frequently noted, however, a voluntary business decision is to be given its tax effect in accordance with what actually occurred, rather than with what might have occurred.
Moreover, an unusual feature of the transactions between Stryker and its subsidiary Osteonies was the lack of written invoices to Osteonies for orders it placed. Rather, on a quarterly and annual basis, personnel from Stryker and Osteonies would attempt to calculate the price to be paid by Osteonies for products shipped by Stryker to its customers. That price was to reflect:
1. Reimbursement to Stiyker for direct expenses incurred in manufacturing, warehousing, packaging and shipment of products sold to Osteonies.
2. Reimbursement of a portion of Stryker’s rent, insurance, utilities and maintenance costs at the facility it shared with Osteonies.
3. Reimbursement for administrative services provided by Stryker to Osteonies; and
4. A profit margin for Stiyker.
See Stryker, supra, 18 N.J. Tax at 275.
The Director’s reply brief placed heavy emphasis on Stryker’s unorthodox accounting practices to support the determination to assess a deficiency based on the exclusion from the receipts fraction numerator of the sales to Osteonies:
Thus, while Stryker and the amici have portrayed this action as one with far-reaching consequences, it is not. If there was one single factor which motivated the assessment made against Stryker, it was the lack of written documentation as *165to its sales transactions. Where a taxpayer fails to maintain its records in accordance with sound accounting practices or conducts its business or maintains its records in such manner as to distort its true income or the proportion thereof properly allocable to this State, or whenever any agreement, understanding or arrangement exists between a taxpayer and any other corporation whereby the activity or receipts of the taxpayer are improperly or inaccurately reflected, the Director is clearly authorized to adjust the allocation of entire net income. N.J.S.A. 54.-10A-10.
We do not believe that Stryker’s business practices are generally reflective of those of the membership of the Association and the Chamber. Those practices of Stryker’s include: (1) incorporating Osteonics’ rent payments and Osteonics’ payments for Stryker’s services into the sales price for the products purchased by Osteonics ...; (2) failing to issue and maintain invoices; and (3) the “settling up” of various charges and payments between the two companies but once a year----
Accordingly, I perceive no incompatibility between the Court’s affirmance of the lower courts’ dispositions and the legislative purpose to benefit New Jersey based manufacturers underlying the 1995 amendment to N.J.S.A. 54:10A-6.
As the Court’s opinion emphasizes, ante at 161-62, 773 A.2d at 687-88, our disposition is driven primarily by Stryker’s election to market its goods by means of drop shipments to the out-of-state customers of its New Jersey based subsidiary. In any event, if our interpretation of N.J.S.A. 54:10A-6(B)(6) misperceives the legislative intent, the Legislature is free to enact a clarifying amendment.
For affirmance — Chief Justice PORITZ and Justices STEIN, COLEMAN, LONG and ZAZZALI — 5.
Opposed — None.