General Public Loan Corp. v. Director of Division of Taxation

• Decision Date: 26 October 1953
• Docket Number: No. A--22,A--22
• Parties: GENERAL PUBLIC LOAN CORP. v. DIRECTOR OF DIVISION OF TAXATION.
• Court: New Jersey Supreme Court

Page 393

13 N.J. 393

99 A.2d 796

GENERAL PUBLIC LOAN CORP. v. DIRECTOR OF DIVISION OF TAXATION.

No. A--22.

Supreme Court of New Jersey.

Argued Oct. 5, 1953.

Decided Oct. 26, 1953.

Martin J. Kole, Jersey City, argued the cause for the appellant.

Joseph A. Murphy, Asst. Deputy Atty. Gen., argued the cause for the respondent (Theodore D. Parsons, Atty. Gen., attorney; Benjamin M. Taub, Deputy Atty. Gen., of counsel).

The opinion of the court was delivered by

BURLING, J.

General Public Loan Corporation, a New York corporation engaged in the small loan business in New Jersey (hereinafter referred to as General), appeals from a judgment of the Division of Tax Appeals, in the Department of the Treasury, State of New Jersey, dated February 10, 1953, which affirmed an assessment levied against General by the Director of the Division of Taxation under the Financial Business Tax Law (1946), L.1946, c. 174 (N.J.S.A. 54:10B--1 et seq.). The appeal was addressed to the Superior Court, Appellate Division. Prior to hearing there certification was allowed by the Supreme Court on our own motion.

The Financial Business Tax Law (1946) was entitled 'An Act to impose an excise tax upon certain financial businesses.' Included among the businesses subjected to its terms are industrial banks, dealers in commercial paper and acceptances, sales finance, personal finance, small loan and mortgage financing businesses. L.1946, c. 174, sec. 2(b) (now incorporated in N.J.S.A. 54:10B--2(b), it being noted that this section has been amended in other respects by L.1951, c. 131, sec. 1, effective May 31, 1951 after the tax year involved in this appeal, namely 1947). General admittedly is within this category. The appeal involves directly the construction and application of that clause of the act which relates to the determination of the factors upon which the quantum of the tax is calculated, namely L.1946, c. 174, sec. 2(c) (now incorporated verbatim in N.J.S.A. 54:10B--2(c); the amendment by L.1951, c. 131, sec. 1, did not affect this clause), the pertinent portion of which reads as follows:

'(c) 'Net worth' shall mean:

'(1) In the case of a corporation--the aggregate of the values disclosed by the books of the corporation for (1) issued and outstanding capital stock, (2) paid-in or capital surplus, (3) earned surplus and undivided profits, (4) surplus reserves which can reasonably be expected to accrue to holders or owners of equitable shares, excluding reasonable valuation reserves And (5) the amount of all indebtedness owing directly or indirectly to holders of ten per centum (10%) or more of the aggregate outstanding shares of the taxpayer's capital stock of all classes, as of the close of a tax year.' (Emphasis supplied.)

General is a corporation organized and incorporated on December 11, 1933 under the laws of State of New York. It has its principal office at St. Louis, Missouri, but is engaged in the small loan business in New Jersey and other states, including Connecticut, New York, Michigan and Pennsylvania. General had been doing business in New Jersey since December 13, 1940, and was operating under small loan licenses 732, 733, 750, 752, 756, 763, 769, issued by the appropriate department of this State.

General is a wholly-owned subsidiary of the American Investment Company of Illinois (hereinafter referred to as 'American'), a Delaware corporation. At the hearing before the Division of Tax Appeals, General offered proof that American is a publicly owned corporation with 3,500 stockholders and that it has never engaged in the small loan business 'but has deemed it desirable because of the various State laws applicable to small loan licensing to have the small loan operations performed by subsidiary companies.' Although the respondent's objection to this offer of proof was sustained, admission was made before the Division of Tax Appeals by the plaintiff that 'General got its money from American' and 'that American borrowed money from banks or insurance companies.' This admission was verified by the testimony of Mr. Letourneau, who was comptroller of American and assistant treasurer of General, who had previously testified (without objection) that American had 3,500 stockholders in 1947. Mr. Letourneau testified that General's small loan business consisted of 'borrowing money at current rates and lending that money out to needy individuals at higher rates,' that all the monies lent by General in 1947 came from borrowed money and those 'borrowings' were from American and from no other source.

General filed its 1948 financial business tax return (based on net worth December 31, 1947). This disclosed an indebtedness of General of $8,040,724. The return also included the information that General's New Jersey gross income was $233,354 during 1947, and that for the same period General's total gross income (both within and without New Jersey) was $2,181,477. The New Jersey allocation percentage derived from these New Jersey and total gross income figures was .106972, which General applied to its net worth (stated by its own calculation). The resultant figure of $310,925.67 was used as the basis for tax computation, resulting in a tax of $2,331.94. In reporting its net worth General reported 'proportionate debt to' American at $2,156,522 and showed the balance of its indebtedness to be owing to creditors other than American. The Director of the Division of Taxation reviewed this return, determined that the entire indebtedness of $8,040,724 was owed to American, General's sole stockholder, and by reason thereof the Director adjusted the net worth calculation under N.J.S.A. 54:10B--2(c)(5), supra, and levied a deficiency assessment against General in the amount of $4,720.84 with interest. This was paid by General on January 13, 1950, under protest. On October 24, 1950 the protest was denied. General on October 15, 1951 appealed to the Division of Tax Appeals, which on February 10, 1953 dismissed the appeal. General received the judgment on February 13, 1953, and on March 23, 1953 appealed to the Superior Court, Appellate Division. As hereinbefore stated, before hearing there the appeal was certified on our own motion.

The general questions involved in this appeal include substantially the following:

(a) Was General indebted to its sole stockholder, American, within the terms of the Financial Business Tax Law (1946), specifically N.J.S.A. 54:10B--2(c)(5) supra?

(b) Is the Financial Business Tax Law (1946) constitutional?

(c) Did the Division of Tax Appeals erroneously deny General's proffer of evidence of the method of doing business adopted by General and American, and of the reasons therefor?

I

General contends that N.J.S.A. 54:10B--2(c)(5) (quoted in full, Ante) is inapplicable to it for the reason that it does not 'owe' American, but that American is a mere 'conduit' and General actually is indebted to independent commercial establishments.

In connection with this contention General asserts that the statute should be so construed as to effectuate its general purpose and intent. Statutory language is to be construed with the context of the whole statute, its purposes, and the manner in which the words in question were employed, and to be given the generally accepted meaning unless the contrary intent is clear. R.S. 1:1--1, N.J.S.A. This is a settled rule of statutory construction. For example, see Grogan v. DeSapio, 11 N.J. 308, 323, 94 A.2d 316 (1953). Where there is no ambiguity no judicial construction is necessary. The clause of the statute adverted to is not ambiguous and contains no language admitting of a construction such as is sought by General. Upon the facts of this case General clearly comes within the strict application of the statutory definition of net worth.

In support of its contention that clause (5) of N.J.S.A. 54:10B--2(c), supra, has no application to it, General asserts that the determination of 'net worth' must be made 'in accordance with sound accounting principles,' L.1946, c. 174, sec. 5 (N.J.S.A. 54:10B--5). Section 5 of the statute relates to the mechanics of calculation by the Director. It has no bearing upon the substantive classifications expressed elsewhere in the act.

General further contends that although the actual facts place it squarely within N.J.S.A. 54:10B--2(c)(5), supra, it should be relieved therefrom because in reality General effects its borrowing from others, 'using' American merely as an agent, this corporate structure having been adopted merely to facilitate the business of the companies and compliance with the small loan laws in various states. Even in the absence of the proofs offered by General but excluded by the Division of Tax Appeals on objection by the respondent, there is adequate evidence to show the fact of the existence of this business practice in this case. However, the argument based thereon is in effect a contention that the corporate veil should be pierced to enable General to obtain a tax advantage which is denied it by its own voluntary act in subscribing to a course of business conduct designed to enable it (or its parent) to comply with statutes concerning the small loan business. There was no offer of proof that this corporate structure or business conduct was illegal or fraudulent. It is settled in this State that a corporation holds its property to its own use and not the use of the stockholders, and unless a fraudulent purpose is disclosed there is no justification for attacking the corporate structure. Frank v. Frank's Inc., 9 N.J. 218, 223--224, 87 A.2d 724 (1952). We find no merit in General's contention that a different philosophy should be applied in matters of corporation excise taxation.

II

General contends that the Financial Business Tax Law (1946) is unconstitutional. There are two separate theories advanced in this respect: (1) that N.J.S.A. 54:10B--2(c)(5) as applied deprives General of equal protection of the law under both...