Court Opinion

ID: 9857401
Source: CourtListenerOpinion
Date Created: 2023-09-24 14:33:26.600275+00
Date Added: 2024-06-11T09:40:09.527763
License: Public Domain

HANDLER, J.,
concurring.
The Court holds that the Business Retention Act of 1992 (“BRA”) is facially constitutional “because it may reasonably be interpreted as not to create an unconstitutional exemption for real property from taxation that would favor business or industry.” Ante at 524, 696 A.2d at 684. By that holding, the Court acknowledges its duty to construe legislative enactments in such a way as to preserve their constitutionality, if such an interpretation is reasonably possible. See Brown v. City of Newark, 113 N.J. 565, 582, 552 A.2d 125 (1989); NYT Cable TV v. Homestead, at Mansfield, Inc., 111 N.J. 21, 26, 543 A.2d 10 (1988). The Court fashions an interpretation of the BRA that allows it to be applied constitutionally. Indeed, if the BRA were not so construed, it is highly likely that its applications would violate the Constitution’s Uniformity Clause. See In re Kimber Petroleum Corp., 110 N.J. *54469, 539 A.2d 1181, appeal dismissed, 488 U.S. 935, 109 S.Ct. 358, 102 L.Ed.2d 349 (1988).
The Legislature cannot define real and personal property in order to escape the purpose and intendment of the Uniformity Clause. The Court concludes that, in fact, the Legislature has not done so in enacting the BRA. The BRA’s constitutionality is dependent on the fact that the Legislature’s treatment of real property is fully consistent with the basic law of fixtures. That law serves to define the category of personal property that has become real property in the constitutional sense through its affixation to existing real property.
The Uniformity Clause to our Constitution states that:
Property shall be assessed for taxation under general laws and by uniform rules. All real property assessed and taxed locally or by the State for allotment and payment to taxing districts shall be assessed according to the same standard of value, except as otherwise permitted herein and such real property shall be taxed at the general tax rate of the taxing district in which the property is situated, for the use of such taxing district.
[N.J. Const. art. VIII, § 1, ¶ 1(a).]
Personal property that has become real property must be taxed as any other real property — “according to the same standard of value” and at the same tax rate.
“The evil that the [Uniformity Clause] sought to cure was the still-favorable [tax] treatment given to one industry, then the railroad industry.” League of Municipalities v. Kimmelman, 105 N.J. 422, 436, 522 A.2d 430 (1987); see also id. at 427-36, 522 A.2d 430 (detailing the history surrounding the enactment of the Uniformity Clause). In order to prevent any one industry from receiving favorable treatment through the preferential taxation of its real property, the clause forbids the Legislature from granting exemption or preferential tax status to real property. The constitutional stricture applies to all real property, without regard to ownership or use. E.g., Township of West Milford v. Van Decker, 120 N.J. 354, 576 A.2d 881 (1990); Kimmelman, supra, 105 N.J. 422, 522 A.2d 430; Switz v. Kingsley, 37 N.J. 566, 182 A.2d 841 (1962).
*545The clause, however, does not bar the Legislature from according preferential tax treatment by classifying personal property. In Switz, supra, the Court noted that “[t]he mandate for sameness in standard of value and tax rate is limited to real property---[I]t [is] clear the intent was to leave in the Legislature a broad power to classify personal property for either exemption or preferential treatment.” 37 N.J. at 585, 182 A.2d 841; see also General Electric v. City of Passaic, 28 N.J. 499, 510, 147 A.2d 233 (1958) (“[The 1947 Constitution] seemingly contains nothing which would prohibit the Legislature from granting personal property tax exemptions by general legislation so long as there was proper basis and reasonable classification.”). As a result of that dichotomy, the classification of property that straddles the divide between real and personal property becomes critical for purposes of valid taxation.
Prior to the enactment of the BRA, real property subject to the Uniformity Clause was described as all land and improvements thereon, including personal property affixed to real property or an appurtenance thereto, unless:
a. (1) The personal property so affixed can be removed or severed without material injury to the real property;
(2) The personal property so affixed can be removed or severed without material injury to the personal property itself; and
(3) The personal property so affixed is not ordinarily intended to be affixed permanently to real property; or
b. The personal property so affixed is machinery, apparatus, or equipment which is neither functionally essential to a structure the personal property is within or to which the personal property is affixed nor constitutes a structure itself.
[N.J.S.A 54:4-1 (as amended by L. 1986, c. 117, § 1).]
Chapter 117 thus established the so-called “a” test (or “material injury” test) and the “b” test and created a framework for determining when an item of business personal property becomes real property for purposes of taxation.
The origins of this statutory test are rooted in the early common law of fixtures. E.g., Brearley v. Cox, 24 N.J.L. 287 (Sup.Ct.1854). Thus, as pointed out by the Court, items of personal property, including business personal property, when *546they are “ ‘so affixed to real property as to become part thereof and not to be severable or removable without material injury thereto’ ” are “ ‘fixtures’ ” and “subject to local taxation as real property.” Ante at 527, 696 A.2d at 685 (quoting N.J.S.A 54:11A-2(b)(2) (repealed) and citing Lehmann v. Keller, 454 Pa.Super. 42, 684 A.2d 618, 621 (1996) (defining a fixture as “an item of property that ‘has been so annexed to the realty that it is regarded as part and parcel of the land.’ ”)). A fixture has the attributes of both realty and personalty — it stands on the boundary dividing property into “things personal [and] ... things real.” Teaff v. Hewitt, 1 Ohio St. 511, 527 (Ohio 1853); cf. R.C. Maxwell Co. v. Galloway Twp., 145 N.J. 547, 554-56, 679 A.2d 141 (1996) (distinguishing between “improvements” and “personal property” affixed to real property).
If an item is transformed into a fixture, it is denoted real property for taxation purposes and is thus subject to the Uniformity Clause. It must be taxed according to the same standard of value and at the same rate as all other real property; it cannot be given different preferential treatment. If an item remains personalty, the item is not subject to the clause, and thus can be accorded favorable tax treatment under our constitutional scheme.
The BRA is an attempt to redefine real property. Although the statute left intact the two-part test, it modified the b test by defining as real property all business personal property affixed unless the personal properly so affixed
is machinery, apparatus, or equipment used or held for use in business and is neither a structure nor machinery, apparatus or equipment the primary purpose of which is to enable a structure to support, shelter, contain, enclose or house persons or property. For purposes of this subsection, real property shall include pipe racks, and piping and electrical wiring up to the point of connections with the machinery, apparatus, or equipment of a production process as defined in this section.
[N.J.S.A 54:4-1b.]
That modification of the b test was enacted as part of the BRA in an effort to lessen the burdens on industry by providing business machinery, equipment, and apparatus with a greater opportunity to be classified as personal property and thus more *547lenient tax treatment. R.C. Maxwell, supra, 145 N.J. at 562, 679 A.2d 141. The Legislature found and declared
that since 1979 New Jersey has lost a major share of its manufacturing jobs and manufacturing plants and this trend has persisted throughout periods of economic recovery and periods of recession____ The Legislature, therefore, declares that it is the policy of the State, through this act [the BRA], to refine the definitions of real and personal property in order to reaffirm the broad exclusion from local property taxes of business personal property used or held for use in business.
[N.J.S.A 54:4-1.14.]
The modification of the b test thus was intended to enlarge the class of business personal property not subject to uniform taxation applicable to other real property, thereby supporting and stimulating industrial growth.
Yet, however laudatory the goals of the BRA, the Legislature cannot ignore constitutional limits that constrain the meaning of personal property for tax purposes. If the Legislature were afforded a broad discretion unbounded by constitutional limits to define items as either fixtures (realty) or personalty, it could simply define all property it sought to treat favorably as personal property. See ante at 533, 696 A.2d at 688 (“If every accession to land were viewed in its original state, the Legislature could as easily provide that the brick and mortar that go into the making of an industrial plant should be classified as personal property.”). Such a result would nullify the Uniformity Clause. Insistence that the Uniformity Clause be interpreted and applied strictly and consistently expresses its constitutional intendment and is evident by those cases in which legislative programs, certainly worthy in their goals, have run afoul of the clause’s categorical bar on the disuniform treatment of real property. See Van Decker, supra, 120 N.J. 354, 576 A.2d 881 (invalidating local practice of reassessing value of real property only when property was sold); Szoitz, supra, 37 N.J. 566, 182 A.2d 841 (invalidating provision that provided preferential tax treatment to farmland in order to encourage the maintenance of open space).
The constitutional understanding of real property remains informed by the traditional law of fixtures. The fundamental issue presented by this litigation, therefore, is whether the Legislature *548has impermissibly altered the law of fixtures in order to bypass the Uniformity Clause. In other words, we must determine whether the modified b test has the effect of narrowing the definition of real property and creating a new class of personal property. Because the law of fixtures provides the basic meaning that underlies the constitutional understanding of real property, the BRA would be invalid if it attempted to reconfigure the basic law of fixtures.
The BRA, as found by the Court, requires all property to pass the a test (or material-injury test) before being accorded personal-property status. The BRA does not, therefore, constitute an automatic unconstitutional recasting of the basic definition of property. Ante at 536, 696 A.2d at 690 (“Although the syntax of the statute suggests an intent to grant an exemption for real property used in business, we believe the Legislature did not intend that the b test override the a test in circumstances in which affixed personal property would otherwise be taxable as real property under the a test.”). By reaffirming the traditional constitutional floor of the material-injury test, the Court reaffirms our consistent interpretation of the Uniformity Clause as a strict limit on legislative power that does not allow for legislative redefinition of “real property.”
Cmcurring in result — Justice HANDLER — 1.
For affirmance — Justices HANDLER POLLOCK, O’HERN, GARIBALDI, STEIN and COLEMAN — 6.