Airwork Service Div., a Div. of Pacific Airmotive Corp. v. Director, Div. of Taxation

Decision Date23 July 1984
PartiesAIRWORK SERVICE DIVISION, A DIVISION OF PACIFIC AIRMOTIVE CORPORATION, a California Corporation, and a subdivision of Purex Corporation Ltd., a California corporation, Plaintiff-Appellant, v. DIRECTOR, DIVISION OF TAXATION, Defendant-Respondent.
CourtNew Jersey Supreme Court

Gerald C. Neary, Morristown, argued the cause for plaintiff-appellant (Pitney, Hardin, Kipp & Szuch, Morristown, attorneys; Gerald C. Neary, Morristown, and Jeri E. Ruscoll, Bloomfield, on the briefs).

Harry Hauschalter, Deputy Atty. Gen., argued the cause for defendant-respondent (Irwin I. Kimmelman, Atty. Gen. of New Jersey, attorney; James J. Ciancia, Asst. Atty. Gen., of counsel).

John W. Boyd, Albuquerque, N.M., a member of the New Mexico bar, argued the cause for amicus curiae Consumer Bureau, Inc. (Pollan & Pollan, Passaic, attorneys; Steven E. Pollan, Passaic, of counsel and on the brief).

Robert A. Goodsell, Roseland, submitted a brief on behalf of amicus curiae American Civil Liberties Union of New Jersey (Irwin, Post & Rosen, Roseland, attorneys).

The opinion of the Court was delivered by


Plaintiff, Airwork Service Division (Airwork or taxpayer) is in the business of repairing airplane engines. All repairs are made at Airwork's facilities in New Jersey, and the repaired engines are then returned to customers, generally out of state. Defendant, Director, Division of Taxation (Director) notified Airwork in September 1973 of its intention to assess it for sales tax on services rendered between July 1, 1970 and June 30, 1973, under the New Jersey Sales and Use Tax Act, N.J.S.A. 54:32B-1 to -29 (Act). Airwork filed an appeal of the assessment with the Division of Tax Appeals in 1975, which was later heard by the Tax Court on cross-motions for summary judgment. The Tax Court held the assessment valid, granting the Director partial summary judgment. 2 N.J.Tax 329 (1981). Airwork appealed and the Appellate Division affirmed, 4 N.J.Tax 532. We granted the taxpayer's petition for certification. 93 N.J. 246, 460 A.2d 656 (1983).


The question that we first address is whether the underlying transactions are subject to the sales tax under the terms of the Act.

N.J.S.A. 54:32B-3 imposes a sales tax on the sale of tangible personal property and on the performance of certain services. N.J.S.A. 54:32B-2(f). The repair of airplane engines is a service covered by the Act. N.J.S.A. 54:32B-8.35. The taxpayer stresses, however, that while the repair services on these airplanes are rendered in New Jersey, the engines are later returned to out-of-state customers. It is contended that because the sale occurs at the place of delivery, the services should be deemed to have been sold or completed at the site to which the returned property is delivered. The taxpayer points to provisions of the Act that treat the sale of goods and services equivalently, e.g., N.J.S.A. 54:32B-2(i) (defining "vendor"). Because the Act intends to tax only sales made within New Jersey, the argument continues, the Legislature cannot have intended to tax services performed on goods to be delivered to customers in other states.

This argument is not persuasive. It assuredly does not attain constitutional dimensions. In Evco v. Jones, 409 U.S. 91, 93, 93 S.Ct. 349, 350, 34 L.Ed.2d 325, 328 (1972), the Court distinguished between a "tax * * * validly imposed on the service performed in the taxing State," and "a tax levied on the gross receipts from the sales of tangible personal property in another State," holding only the latter unconstitutional. Notwithstanding that the Legislature may have treated goods and services similarly for most purposes, it is entirely possible that it recognized the difference between the place where the finished product is delivered and where services upon it are rendered, in terms of subjecting services to taxation in a case such as this. See Fisher-Stevens, Inc. v. Director, Div. of Taxation, 121 N.J.Super. 513, 298 A.2d 77 (App.Div.1972), certif. den., 62 N.J. 575, 303 A.2d 328 (1973).

The critical issue is whether the Legislature intended to tax services such as those performed by Airwork. In looking first to the statutory language as such, we are struck by the fact that the services performed in New Jersey on goods delivered out of state are not specifically exempted from the application of the Act. N.J.S.A. 54:32B-3(b)(2). We have recently acknowledged, in a somewhat variant context, that such exemptions, if they are present, must be narrowly and strictly construed and, if not clearly applicable, the underlying transaction must be amenable to the tax. See Metpath v. Director, Div. of Taxation, 96 N.J. 147, 474 A.2d 1065 (1984) (provision of Act exempting from tax all catalysts "that do not become a component part of finished product" is limited to chemicals used to produce tangible personal property); Tuscan Dairy Farms, Inc. v. Director, Div. of Taxation, 4 N.J.Tax 92 (1982).

The Tax Court here determined that the Act's failure to include an exemption from the sales tax of services to property delivered out of state was purposeful. 2 N.J.Tax at 345. Such an exemption was expressly contained in the New York Sales and Compensating Use Tax Laws, § 1101 et seq. (McKinney 1979), which served as a model to the New Jersey Act. "Where the Legislature adopts a new law, using as a source a statute theretofore enacted in another jurisdiction, but omits a provision of the source statute, the omission is construed as being deliberate." 2 N.J.Tax at 346. Clearly, the rendition of services in conjunction with the delivery of products out of state is not uncommon. E.g., Fisher-Stevens, Inc., supra, 121 N.J.Super. 513, 298 A.2d 77. Accordingly, we adopt the Tax Court's conclusion that the Legislature purposefully chose not to exempt these services. See Evco v. Jones, supra, 409 U.S. 91, 93 S.Ct. 349, 34 L.Ed.2d 325; see also Bank of America v. Webster, 439 F.2d 691 (9th Cir.1971).

The taxpayer, however, points to historical circumstance to support its contention. The Act was passed in 1966 to be effective July 1 of that year. On June 28, 1966 the Sales and Use Tax Bureau of the Division of Taxation issued a press release, containing questions and answers about the Act, that was published on July 11, 1966, in a commercial tax news service--Report 162 of the Commerce Clearing House New Jersey Tax Reports. The press release included the following statement:

Charges for repairs where the articles upon which the work is performed are delivered, upon completion, pursuant to contract, to a purchaser outside the State for use outside the State are exempt from the sales tax.

Airwork claims that this published statement is equated with an official policy adopted by the Division of Taxation. Nevertheless, the issue of the taxability of services performed for out-of-state customers was being actively litigated. It was--or should have been--well known to similarly situated taxpayers that the Division of Taxation was vigorously taking the position that such services were taxable. The issue was finally resolved in 1972 by the decision of the Appellate Division in Fisher-Stevens, Inc., supra, 121 N.J.Super. 513, 298 A.2d 77, affirming the 1971 determination of the Division of Tax Appeals, Docket S.T. 109, which held that a company providing direct mailing services in New Jersey with materials sent chiefly to addresses in other states on behalf of out-of-state customers was subject to the sales tax for the services performed in New Jersey.

The taxpayer further notes that following the enactment of the statute, the Legislature failed to object to the Division's "position," ostensibly appearing in the 1966 press release. Airwork draws the conclusion that the Division's policy therefore met with legislative approval and conformed to the Legislature's intent. In general, the legislative attitude towards enacted legislation is a marginal tool of interpretation, even under the most propitious circumstances. 2A Sutherland, Statutory Construction § 48.06 (4 ed. 1972). The generally limited usefulness of coupling administrative practice with legislative inaction to extrapolate legislative intent is further reduced when the agency attitude itself is unofficial and equivocal. As the Division points out, the earlier press release was never officially approved or even authenticated as an official pronouncement. Further, to the extent there were any officially endorsed statements on this subject matter, these were set forth in the general instructions accompanying the official tax returns. The instructions did not authorize or permit the exclusion of services performed on goods delivered outside New Jersey. Moreover, following its successful litigation of the issue in 1972, the Division affirmatively sought to dispel the possible confusion generated by the earlier press release by specifically stating, in two separate issues of State Tax News, a bi-monthly newsletter published by the Division itself, that the sales tax did apply to repair services performed in New Jersey, regardless of where the repaired property was to be delivered.

We note that courts have acknowledged that "the practical administrative construction of a statute over a period of years without interference by the Legislature is evidence of its conformity with the legislative intent and should be given great weight by the courts." Automatic Merchandising Council v. Glaser, 127 N.J.Super. 413, 420, 317 A.2d 734 (App.Div.1974) (interpreting Sales and Use Tax Act); see Malone v. Fender, 80 N.J. 129, 402 A.2d 240 (1979). Nevertheless, the court will consider this factor only when it is not satisfied that the Legislature's intent cannot otherwise be determined by a critical examination of the purposes, policies, and language of the enactment. When such circumstances point strongly to the imputation of a particular ...

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