New Jersey Realty Title Ins Co v. Division of Tax Appeals In Department of Taxation and Finance of New Jersey

Citation70 S.Ct. 413,94 L.Ed. 439,338 U.S. 665
Decision Date06 February 1950
Docket NumberNo. 147,147
PartiesNEW JERSEY REALTY TITLE INS. CO. v. DIVISION OF TAX APPEALS IN DEPARTMENT OF TAXATION AND FINANCE OF NEW JERSEY etal
CourtUnited States Supreme Court

Mr. Walter Gordon Merritt, New York City, for appellant.

Mr. Vincent J. Casale, Newark, N.J., for appellees.

Mr. Justice CLARK delivered the opinion of the Court.

A taxing district of New Jersey has levied against the intangible personal property of a domestic corporation an assessment for the taxable year 1945 in the amount of 15 per cent of the taxpayer's paid-up capital and surplus, computed without deducting the principal amount of certain United States bonds and accrued interest thereon. This appeal challenges the validity of the assessment and of the tax statute under which it was levied, on the ground of conflict with Art. I, § 8 of the Federal Constitution, by which Congress is authorized 'To borrow Money on the credit of the United States,' and with § 3701 of the Revised Statutes (1875), 31 U.S.C. § 742, 31 U.S.C.A. § 742, which generally exempts interest-bearing obligations of the United States from state and local taxation.

The assessment in question was levied under § 54:4—22 of the Revised Statutes of New Jersey (1937), as amended by Laws of 1938, c. 245, N.J.S.A.1 N.J.Rev.Stat.Cum.Supp., Laws of 1938, 1939, 1940, § 54:4—22. That section provided as follows:

'Every stock insurance company organized under the laws of this State, other than a life insurance company, shall be assessed and taxed in the taxing district where its office is situated, upon the full amount or value of its property (exclusive of real estate and tangible personal property, which shall be separately assessed and taxed where the same is located, and exclusive of all shares of stock owned by such insurance company and exclusive of nontaxable property and of property exempt from taxation), deducting from such amount or value all debts and liabilities certain and definite as to obligation and amount, and the full amount of all reserves for taxes, and such proportion of the reserves for unearned premiums, losses and other liabilities as the full amount or value of its taxable intangible property bears to the full amount or value of all its intangible property; provided, however, the assessment against the intangible personal property of any stock insurance company subject to the provisions of this section shall in no event be less than fifteen per centum of the sum of the paid-up capital and the surplus in excess of the total of all liabilities of such company, as the same are stated in the annual statement of such company for the calendar year next proceding the date of such assessment and filed with the Department of Banking and Insurance of the State of New Jersey, after deducting from such total of capi- tal and surplus the amount of all tax assessments against any and all real estate, title to which stands in the name of such company.

'The capital stock in any such company shall not be regarded for the purposes of this act (section) as a liability and no part of the amount thereof shall be deducted, and the person or persons or corporations holding the capital stock of such company shall not be assessed or taxed therefor. No franchise tax shall be imposed upon any insurance company included in this section.' (Italics added.)2

A corporation subject to this section was taxable at the rate of the local taxing district.

Appellant is New Jersey Realty Title Insurance Company, a stock insurance company of New Jersey with its office in the City and taxing district of Newark, County of Essex, New Jersey. For the year 1945 the City of Newark levied an assessment of $75,700 on appellant's intangible personal property and collected from it a tax of $3,906.12 computed thereon.

Appellant had filed a return3 based on its balance sheet at the close of business September 30, 1944, showing total assets of $774,972.98, the entirety of which was declared to be intangibles. In calculating its 'total taxable intangibles' appellant deducted the following from its total assets: United States Treasury Bonds of the face amount of $450,000; accrued interest thereon in the amount of $1,682.25; and other nontaxable or exempt property valued at $318,771.95. The aggregate amount of the property thus excluded was $770,454.20. The remainder, $4,518.78, was entered on the return as the total taxable intangibles. From this amount appellant deducted: $25,756.63 as 'debts and liabilities certain'; $28,175.46 as 'reserves for taxes'; and $758.13 as 'proportion of loss and premium.' There is no disagreement with these computations. As observed by the highest court below, these deductions 'left no balance of assessable property subject to tax.'

The taxing district therefore assessed appellant's property under the proviso in § 54:4—22 which directed an assessment of not less than 15 per cent of 'the sum of the paid-up capital and the surplus in excess of the total of all liabilities' of appellant as shown by its annual statement for the preceding calendar year filed with the state department of banking and insurance. The manner of computation of the assessment is not explicit in the record. Moreover, the opinion of the highest court of New Jersey is subject to several interpretations as to the proper method of computing the assessment. The court stated that the assessment 'may not be less in amount than 15 percent of the paid-up capital and surplus as defined by the statute.' (64 A.2d 341, 344). (Italics added.) If by the phrase 'as defined by the statute,' the court referred to the language of the proviso in § 54:4—22, 'paid-up capital and the surplus in excess of the total of all liabilities' (italics added), it would seem necessary to deduct liabilities from capital and surplus in determining the basis for the 15 per cent computation. The basis of computation would then be $496,999.70,4 and the 15 per cent sum, $74,549.95. The court subsequently stated that 'The assessment may equal or exceed 15 percent of the paid-up capital and surplus, and does not necessarily have to be precisely the same, but * * * can not be less in amount than 15 percent of the paid-up capital and surplus.' Such references to 'paid-up capital and surplus,' together with the court's characterization of the tax as laid on net worth, suggest that the assessment is computed against appellant's net worth of $547,462.93. On this basis, however, the 15 per cent sum would have been not less than $82,119.43, and the present assessment of less amount would not satisfy the court's interpretation of the statute as requiring a levy of not less than 15 per cent. For our disposition of this case, however, it is unnecessary to choose between these conflicting interpretations of the opinion of the court below.

Clearly the State of New Jersey has negatived any purpose to authorize a tax assessment against the appellant's United States bonds. The court below conceded that the securities involved were, at the time of the assessment, exempt from state, municipal or local taxation. It is equally clear, however, that in the computation of the assessment the face value of appellant's government bonds, together with the interest thereon, was in fact included. 5

Contending that § 54:4—22 as thus applied contravenes paramount federal provisions, appellant sought cancellation of the assessment of appeal to the Division of Tax Appeals in the Department of Taxation and Finance of New Jersey. The Division's opinion recommending dismissal referred to the proceeding as 'a personal property appeal.' Its order of dismissal was reversed by the former New Jersey Supreme Court on writ of certiorari. 137 N.J.L. 444, 60 A.2d 265. That court viewed the levy as an ad valorem tax on personalty; after concluding that the tax would be valid only if the bonds and interest were excluded from the computation, the court construed the tax statute as requiring such exclusion. This ruling was reversed by the Supreme Court of New Jersey as established under the present Constitution of the State. 1 N.J. 496, 64 A.2d 341. The highest court of the state declared that the assessment was 'against the intangible property' but 'concluded that the tax levied * * * is not an ad valorem tax or property tax but rather is a * * * tax upon the net worth of the company.' It held that such a tax, having been imposed without discrimination, was constitutionally permissible. From this decision the present appeal was taken. We noted probable jurisdiction, 28 U.S.C. § 1257(2), 28 U.S.C.A. § 1257(2).

The assessment must fall as in conflict with § 3701 of the Revised Statutes, providing that 'All stocks, bonds, Treasury notes, and other obligations of the United States, shall be exempt from taxation by or under State or municipal or local authority.'

If we consider the assessment as a 15 per cent levy either against capital and surplus less liabilities or against entire net worth, we take as guides to our application of § 3701 the decisions of this Court on the related constitutional question of immunity in Bank of Commerce v. New York City, 1863, 2 Black 620, 17 L.Ed. 451, and the Bank Tax Case, 1865, 2 Wall. 200, 17 L.Ed. 793, which considered assessments under state taxing provisions not substantially distinguishable from New Jersey's § 54:4—22 as thus applied. The Bank of Commerce case involved an assessment levied upon the actual value of the capital stock, less the value of real estate, of a corporate taxpayer which had invested in United States securities all of its assets other than its realty. In holding the tax invalid as an interference with the federal borrowing power, the Court rejected the contention that the assessment should be sustained as a levy upon corporate capital represented by federal securities. In the Bank Tax Case this Court considered assessments levied against 'the amount of * * * capital stock paid in or...

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