Court Opinion

ID: 9700333
Source: CourtListenerOpinion
Date Created: 2023-08-25 21:21:45.357593+00
Date Added: 2024-06-11T13:08:38.327890
License: Public Domain

PER CURIAM.
Brunswick Corporation challenges the authority of the Director of the Division of Taxation (Director) to adopt a regula*109tion, N.J.AC. 18:7—8.5(b), that adjusts the manner of calculating franchise taxes under the New Jersey Corporation Business Tax Act (CBTA). The CBTA assesses a franchise tax on all corporations doing business in New Jersey according to a business allocation factor that measures a corporation’s business activity in the State. That factor consists of three elements: real and tangible personal property, receipts, and payroll. N.J.S.A 54:10A-6(A).
The regulation at issue adjusts the property, factor by including leased property in the calculation. N.J.S.A 54:10A-6(A) (section 6(A)) defines the property factor as “[t]he average value of the taxpayer’s real and tangible personal property within the State during the period covered by its report divided by the average value of all the taxpayer’s real and tangible personal property wherever situated during such period____” Before 1986, the year in which the Director promulgated N.J.AC. 18:7-8.5(b), the Director had interpreted section 6(A) as including only property that was owned.
The Tax Court sustained the Director’s authority to adopt the regulation, 11 N.J.Tax 530 (1990), and the Appellate Division affirmed substantially for the reasons stated by the Tax Court, 13 N.J.Tax 136 (1993). We granted Brunswick’s petition for certification, 134 N.J. 476, 634 A.2d 523 (1993), and likewise affirm substantially for those reasons.
In light of the dissent, we add the following comments. As the dissent acknowledges, post at 113, 638 A.2d at 808, administrative regulations are presumptively valid. GE Solid State v. Director, Div. of Taxation, 132 N.J. 298, 306, 625 A.2d 468 (1993). Contrary to the dissent, post at 113, 638 A.2d at 808, the Legislature has vested the Director with broad authority to adjust the property factor.
The Director’s authority to define that factor derives from two sections of the CBTA: N.J.S.A 54:10A-8 (section 8) and N.J.S.A. 54:10A-27 (section 27). Section 8 provides:
*110If it shall appear to the [Director] that an allocation factor determined pursuant to section 6 does not properly reflect the activity, business, receipts, capital, entire net worth or entire net income of a taxpayer reasonably attributable to the State, he may adjust it by:
(a) excluding one or more of the factors therein;
(b) including one or more other factors, such as expenses, purchases, contract values (minus subcontract values);
(c) excluding one or more assets in computing entire net worth; or
(d) excluding one or more assets in computing an allocation percentage; or
(e) applying any other similar or different method calculated to effect a fair and proper allocation of the entire net income and the entire net worth reasonably attributable to the State.
Section 27 provides: “[t]he [Director] shall prescribe and issue such rules and regulations, hot inconsistent herewith, for the interpretation and application of the provisions of this act, as he may deem necessary.”
Through sections 8 and 27, the Legislature has painted with a broad brush, obviously intending that the Director would fill in the details through regulations. See, e.g., Reuben H. Donnelley Corp. v. Director, Div. of Taxation, 128 N.J. 218, 224, 607 A.2d 1281 (1992) (stating Director has broad authority to adjust business allocation factor to reflect more accurately taxpayer’s New Jersey business activities); F.W. Woolworth v. Director, Div. of Taxation, 45 N.J. 466, 498, 213 A.2d 1 (1965) (“The various permissible means of adjustment specified by section 8 are broad indeed, demonstrating a wide view of the authority.”); International Paper Co. v. Director, Div. of Taxation, 11 N.J.Tax 147, 166 (Tax 1990) (stating Director authorized to adjust allocation factors “ ‘to avoid perceived unfairness or inequity in the application of apportionment formulas’ ”) (quoting Hess Realty Corp. v. Director, Div. of Taxation, 10 N.J.Tax 63, 81 (Tax 1988)); Shelter Dev. Corp. v. Director, Div. of Taxation, 6 N.J.Tax 547, 553 (Tax 1984) (“The broad language employed in § 6 demonstrates that the Legislature did not wish to deal with the details of this provision, but instead left to the Director the task of establishing the definitional framework with which to implement allocation.”). The Director’s authority extends to adopting a regulation that changes a prior administrative interpretation. Metromedia v. Director, Div. of *111Taxation, 97 N.J. 313, 327, 478 A.2d 742 (1984) (approving Director’s novel interpretation of receipts fraction by using audience share of out-of-state television and radio stations broadcasting in New Jersey).
Although the dissent contends that the property factor includes only owned property, section 6(A) is not so limited. Missing from the description of property included within the section is the word “owned.” Hence, the words of the statute permit an interpretation that includes leased property. Brunswick acknowledges that modern commercial practice includes extensive leasing of property and that it earns income on the warehouses and bowling centers that it leases in New Jersey. The Director could properly conclude that a lessee such as Brunswick, like an owner, should pay its fair share of the cost of public benefits and services that it uses to generate profits. With changes in economic conditions, such as the increasing popularity of property leasing, the Director needs the authority to adapt the Division’s regulations to assess more accurately the income of a lessee that is reasonably attributable to the State.
Our dissenting colleagues note with approval that “[t]he overwhelming majority of states have specifically amended their corporation business-tax laws through their legislatures to include leased property in the property allocation formula.” Post at 118, 638 A.2d at 811. The difference between the majority and the dissent therefore is not whether New Jersey may include leased property in that formula. We differ on the narrower question whether the Legislature has cloaked the Director with sufficient authority to adopt a regulation that includes such property in the formula. If, of course, the Director has misperceived that authority, the Legislature may override the regulation by appropriate legislation. See In re Adoption of Regulations Governing State Health Plan, 135 N.J. 24, 637 A.2d 1246 (1994) (holding Legislature may override regulations concerning effect of State Health Plan).
The judgment of the Appellate Division is affirmed.