Court Opinion

ID: 9862860
Source: CourtListenerOpinion
Date Created: 2023-09-25 02:21:06.350998+00
Date Added: 2024-06-11T11:36:33.584103
License: Public Domain

CLIFFORD, J.,
dissenting.
Today the Court holds that a foreign corporation that does not maintain an office in New Jersey; does not employ officers, *43employees, agents, or representatives with offices here; does not own or lease any real or tangible personal property in this state; and does not list itself in any New Jersey telephone directory is nonetheless subject to state taxation. So different from the majority’s is my understanding of the stipulated record, my reading of the pertinent authorities, and my sense of justification for imposition of the corporate income tax that I register a dissent. On the facts before us there is not a sufficient nexus on which to support the tax.
Avco argues that in every instance in which a tax has been constitutionally imposed, the Supreme Court has found some physical presence, i.e., some purposeful and deliberate resort by the nondomiciliary corporation to the taxing state’s laws and services. Although not always written precisely in those terms, the pertinent decisions plainly favor Avco’s position that a sustained, definite presence on the part of the taxpayer — not to be found in the instant case — is required.
In Northwestern States Portland Cement Co. v. Minnesota, 358 US. 450, 79 S.Ct. 357, 3 L.Ed.2d 421 (1959), a foreign corporation whose plant was located in Mason City, Iowa, made nearly 50 percent of its entire sales in Minnesota, the taxing jurisdiction. The corporation also maintained in Minnesota an office consisting of a secretary, three salesmen, and a district director. Id. at 454, 79 S.Ct. at 360, 3 L.Ed.2d at 425. Not surprisingly, the Court upheld the tax liability of the corporation, stating:
The taxes imposed are levied only on that portion of the taxpayer’s net income which arises from its activities within the taxing State. These activities form a sufficient nexus between such a tax and transactions within a state for which the tax is an exaction. It strains reality to say, in terms of our decisions, that * * * the corporation[] here was not sufficiently involved in local events to forge some definite link, some minimum connection sufficient to satisfy due process requirements.
[Id. at 464, 79 S. Ct. at 365, 3 L.Ed.2d at 431 (emphasis added).]
Likewise, in Standard Pressed Steel Co. v. Washington Revenue Dep’t, 419 U.S. 560, 95 S.Ct. 706, 42 L.Ed.2d 719 (1975), the Court sustained a tax against a nondomiciliary *44corporation that had some physical presence within the taxing jurisdiction. In Standard Pressed Steel, a Pennsylvania manufacturer sold fasteners and other parts to the Boeing Company in Seattle, Washington. In order to facilitate consultation with Boeing regarding its anticipated needs and requirements, the manufacturer stationed in Washington an employee who was paid a salary and who operated out of his home. The employee was assisted by a group of the manufacturer’s engineers who visited Seattle about three days every six weeks, or at least 24 days a year. Id. at 561, 95 S.Ct. at 708, 42 L.Ed.2d at 722. In upholding tax liability, the Court stressed that the manufacturer’s employee, with a full-time position within the state, “made possible the realization and continuance of valuable contractual relations between [the manufacturer] and Boeing.” Id. at 562, 95 S.Ct. at 708, 42 L.Ed.2d at 722.
In Scripto, Inc. v. Carson, 362 U.S. 207, 80 S.Ct. 619, 4 L.Ed.2d 660 (1960), the Court was faced with a somewhat different problem, namely, the application of a so-called “use” tax. Briefly stated, this form of levy imposes on a corporation responsibility for the collection of a tax on certain goods or products. Not as direct as the income tax, a tax on use is nonetheless governed by the same constitutional standards that apply to a tax on income, requiring some minimal connection between the taxpayer’s activity and the taxing state. In Scrip-to, a foreign corporation maintained ten brokers within the taxing jurisdiction for the purpose of soliciting sales. Each of the wholesalers was under the contractual employ of the corporation, and each was a resident of the taxing state. In upholding the tax against the corporation, the Court stressed that the brokers or salesmen were conducting “continuous local solicitation” in the taxing jurisdiction. That circumstance, coupled with the nondiscriminatory nature of the tax, was sufficient to sustain it. Id. at 211, 80 S.Ct. at 621, 4 L.Ed.2d at 663, 664.
The majority somehow concludes that Avco’s overall affairs in New Jersey amount to a “substantial physical presence,” and, more specifically, that its collection activity evidences a *45“vigorous, systematic and persistent effort” to exploit the New Jersey market. Ante at 38. No such thing. Recall that the record before us amounts to a Rule 8:8-l(b) stipulation of facts — no room for creative interpretation here, no margin for massaging. Return with me, then, to the lamp, and re-read the stipulation. It takes little study to uncover that which, is plainly so: there is no continuous solicitation by Avco in New Jersey, nor are there any physical plants or offices here. Quite to the contrary, Avco operates offices exclusively in Pennsylvania and is not authorized to do business in any other state. It has no offices in New Jersey nor does it have officers, employees, agents, or representatives whose offices are located here. Avco neither owns nor leases any real or tangible personal property in New Jersey, nor is it listed in any New Jersey telephone directories.
The Court emphasizes Avco’s so-called “distinctive contacts” with New Jersey, which appear by the majority’s own analysis to be little more than random visits by collectors to New Jersey borrowers and the occasional use of in-state offices and of our courts to facilitate payments. Ante at 39. The Tax Court considered each of these factors and found it to be clearly de minimis and therefore an insufficient basis on which to sustain a tax. 4 N.J. Tax at 357. I agree. The record indicates that somewhere around one-half percent of Avco’s total outstanding loans to New Jersey borrowers were collected through the use of our courts, and that Avco’s managers spent about three to five percent of their working time in the state. These contacts, as “distinctive” as they might be, do not amount to a “substantial physical presence” by any reasonable definition of that term.
The situation before us is a far cry from the legitimate example of a “substantial physical presence” found in Roadway Express, Inc. v. Director, Div. of Taxation, 50 N.J. 471 (1967). There, a Delaware trucking corporation maintained two terminals in New Jersey, one in Kearny and the other in Bound Brook. The terminals were part of the company’s interstate *46network, servicing an estimated 100 trucks a week. Additionally, more than 60 vehicles were regularly parked in Kearny and registered, licensed, and inspected in the state. Id. at 478. In sustaining a franchise tax against the corporation, this Court emphasized the “physical nature” of the Kearny terminal and the company’s “very substantial” activities in New Jersey. Id. at 479. It is important to note, however, that the Kearny facility was comprised of a two-story office building, a one-story loading dock, and a one-story service garage. Employed in this facility were three management representatives, six dispatchers, three supervisors, 55 dock employees, an office manager, a claim supervisor, 48 clerical workers, six garage employees, and a sales manager in charge of five salesmen. Id. at 479-80. With respect to other activities, the Court found that the company’s vehicles used over two and a half million miles of New Jersey roadway, and the corporation itself derived over $5,000,000 from operations in this State. Id. at 479. The activities of the taxpayer in the instant case do not approach the activities demonstrated in Roadway Express.
Another illustration of a “vigorous, systematic and persistent effort” to exploit the New Jersey market is found in Tuition Plan of New Hampshire v. Taxation Div., Director, 4 N.J.Tax 470 (Tax Ct.1982). There, a foreign corporation was in the business of making educational loans and derived its income wholly from the interest that it charged to its borrowers. Significantly, although it did not maintain an office here, the company made use of its district managers from other areas whose respective districts included New Jersey. It was the job of these district managers to drum up business in New Jersey on behalf of the plaintiff corporation. As the court concluded:
Plaintiff, through its district managers, engaged in a systematic, regular program of on-site solicitation and exploitation of the New Jersey market. Plaintiffs representatives paid regular visits to New Jersey educational institutions; they were physically present in this State at least 54 times during each of the years 1974 and 1975 and at least 59 times during each of the years 1976 and 1977. One of plaintiffs district managers assigned to New Jersey estimated that he spent as much as 20% of his time in this State. The recurring visits of *47two district managers to New Jersey "made possible the realization and continuance of valuable contractual relations” between plaintiff and the targeted New Jersey schools. Standard Pressed Steel Co. v. Washington Dep’t. of Revenue, 419 U.S. 560, 95 S.Ct. 706, 42 L.Ed.2d 719 (1975). lid. at 479.]
By contrast, no one in the employ of Aveo is charged with carrying out such a program of solicitation in New Jersey.
Indeed, Avco’s activities in New Jersey differ only slightly in degree from the level of the taxpayer’s activity in Miller Bros. Co. v. Maryland, 347 U.S. 340, 74 S.Ct. 535, 98 L.Ed. 744 (1954). There, the State of Maryland sought to levy a use tax against a merchandising corporation that sold products directly to customers at its store in Wilmington, Delaware. Nearby residents of Maryland would travel to the store and buy items, some of which were delivered to their homes by the corporation’s own truck. In addition to making these deliveries, the corporation mailed circulars to former customers, including customers in Maryland, and it also did some general advertising that reached into the taxing state. Id. at 342-43, 74 S.Ct. at 537-38, 98 L.Ed.2d at 747. Despite the foregoing activities the Supreme Court concluded that there was an insufficient nexus on which to sustain a tax.
Finally, in National Bellas Hess Inc. v. Department of Revenue of Illinois, 386 U.S. 753, 87 S.Ct. 1389, 18 L.Ed.2d 505 (1967), the State of Illinois sought to levy a use tax against a mail order house that had its principal place of business in North Kansas City, Missouri. The corporation did not maintain any office in Illinois, did not have any agent or salesman in the state, did not own any tangible property in the taxing jurisdiction, and did not advertise its merchandise in newspapers or by radio or television. The company’s only contacts with its Illinois customers were via the mail or common carrier. Id. at 754-55, 87 S.Ct. at 1389-90, 18 L.Ed.2d at 507. Relying in part on Miller, the Court had little difficulty in invalidating the tax.
In holding in favor of the Director, the Appellate Division, whose decision the majority now affirms, stated that the trial *48court, although using the correct standards, had “failed to appreciate the minimum showing that a taxing district such as New Jersey would have to make as to the activities that would provide a basis for income taxation.” 193 N.J.Super. at 507. The court emphasized that the internal regulation of the credit market and the regulation of certain commercial items, such as installment paper, could all be used as a basis for taxation. Id. at 512.
In underscoring the adequacy, for taxing purposes, of a “minimum” showing, the Appellate Division apparently overlooked the Supreme Court’s decision in National Geographic v. California Bd. of Equalization, 430 U.S. 551, 97 S. Ct. 1386, 51 L.Ed.2d 631 (1977). Although the majority does not ignore the case, it does maul it a bit by applying its principle to the facts before us. In National Geographic the State of California sought to levy a use tax on a nondomiciliary corporation that maintained two offices within the taxing jurisdiction. In sustaining the tax, the California Supreme Court suggested that “the slightest presence within such taxing state” could form the basis of taxation. Id. at 556, 97 S.Ct. at 1390, 51 L.Ed.2d at 637. Although the United States Supreme Court affirmed the taxpayer’s liability, the Court was careful to state:
Our affirmance of the California Supreme Court is not to be understood as implying agreement with that court’s “slightest presence” standard of constitutional nexus. [The taxpayer’s] maintenance of two offices in the State and solicitation by employees assigned to those offices of advertising copy in the range of $1 million annually * * * establish a much more substantial presence that the expression “slightest presence” connotes.

[Id.]

Thus, the Court relied on the physical location of the taxpayers’ two offices as a basis for sustaining the tax.
The majority’s labored reference to National Geographic and Scripto, Inc. v. Carson, supra, 362 U.S. 207, 80 S.Ct. 619, 4 L.Ed.2d 660, attests to the difficult position in which those cases put the Court — sort of a fronte praecipitium a tergo lupi (roughly, between a rock and a hard place). Surely they lend no support for the majority’s astonishing position that in *49the absence of such factors as an in-state office, in-state representatives, in-state property holdings, or, at the very least, in-state solicitation, a taxpayer may nevertheless be subject to taxation. The Supreme Court’s reliance, in National Geographic, on Scripto, makes the point, unmistakably: even though the taxpayer in Scripto had no office or place of business or property or regular full-time employees in Florida, it nevertheless was subject to Florida tax because of its other activities there, namely, (1) maintenance of ten wholesalers, jobbers, or salesmen (2) continuously soliciting orders in Florida and (3) forwarding those orders from Florida to the taxpayer’s home base in Georgia for (4) shipment back to Florida — quite a different picture from that painted by this Court. Focusing on Scripto’s ten “wholesalers, salesmen, and jobbers who were active in Florida,” ante at 40, the majority dismisses their numbers as unimportant but attaches surpassing significance to the fact that even though “none was an employee” of the taxpayer, the foreign corporation was nevertheless subject to tax.
Come now. The contractual relationship between Scripto and its salesmen in Florida is a matter of complete indifference to the holding of the case. It is what that horde of salesmen did that counts. The critical point, again, is that Scripto maintained in Florida its resident brokers who descended, much as a swarm of locusts, on prospective customers for the purpose of actively engaging in “attracting, soliciting and obtaining” business. 362 US. at 209, 80 S.Ct. at 621, 4 L.Ed.2d at 663. The test, as the Supreme Court sensibly observed, is “simply the nature and extent of the activities of the [taxpayer]” in the taxing state, id. at 211-12, 80 S.Ct. at 622, 4 L.Ed.2d at 664, rather than who performed those activities on behalf of the taxpayer. And Scripto’s activities, as I have endeavored to demonstrate, bear little resemblance to Avco’s. The two cases illustrate the difference between a “substantial presence” and “the slightest presence” — a difference significant enough to call for the tax in one instance and not the other.
*50Contrary to the majority’s suggestion, I have drawn attention to Scripto again not in the spirit of chiding, see ante at 40 so much as of depression, even sheer, miserable frustration, that the Court and I can ascribe to the simple language of that case such diametrically different meanings. Clearly, the five in the majority are wrong, or I am. The numbers favor them, so I must leave it with the careful reader of these opinions and of the authorities on which we rely.
It is my view that the tax against Avco ought to be invalidated. At best, the taxpayer maintains only the “slightest presence” in New Jersey, a standard of constitutional nexus specifically and emphatically rejected by the Supreme Court but nevertheless adopted today by this Court. I would therefore reverse the judgment of the Appellate Division and reinstate the judgment of the trial court.
For affirmance — Chief Justice WILENTZ, and Justices HANDLER, POLLOCK and O’HERN — 4.
For reversal — Justice CLIFFORD — 1.