Mead Johnson & Co. v. Borough of South Plainfield

• Decision Date: 26 June 1967
• Docket Number: No. A--360,A--360
• Citation: 231 A.2d 816,95 N.J.Super. 455
• Parties: MEAD JOHNSON AND COMPANY, Plaintiff-Appellant, v. BOROUGH OF SOUTH PLAINFIELD, Defendant-Respondent, and Division of Tax Appeals, in the Department of the Treasury, State of New Jersey, Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 455

95 N.J.Super. 455

231 A.2d 816

MEAD JOHNSON AND COMPANY, Plaintiff-Appellant, v. BOROUGH OF SOUTH PLAINFIELD, Defendant-Respondent and Division of Tax Appeals, in the Department of the Treasury State of New Jersey, Respondent.

No. A--360.

Superior Court of New Jersey Appellate Division.

Argued June 12, 1967.

Decided June 26, 1967.

Richard M. Goldman, Newark, for appellant (Stein, Bliablias & Goldman, Newark, attorneys).

Harman R. Clark, Jr., Dunellen, for respondent, Borough of South Plainfield.

Arthur J. Sills, Atty. Gen., for respondent, Division of Tax Appeals, filed a statement in lieu of brief (Elias Abelson, Deputy Atty. Gen., of counsel).

Before Judges GOLDMANN, KILKENNY and COLLESTER.

The opinion of the court was delivered by

KILKENNY, J.A.D.

Mead Johnson and Company, a corporation of the State of Indiana, hereinafter 'Mead Johnson,' appeals from two judgments of the State Division of Tax Appeals. The first affirms an omitted tax assessment of $300,000 for 1964 made by the Borough of South Plainfield on personal property of Mead Johnson stored in a warehouse in that borough. The second affirms a tax assessment (not omitted) of $33,309 for 1965 on Mead Johnson's goods similarly stored in the same warehouse. Both judgments denied Mead Johnson's claims that the merchandise was stored in a public warehouse and was, therefore, exempt from taxation under R.S. 54:4--3.20, N.J.S.A.

R.S. 54:4--3.20, N.J.S.A., provides:

'All personal property stored in a warehouse of any person, copartnership or corporation engaged in the business of storing goods for hire shall be exempt from taxation under this chapter.'

The statute was enacted 'to place our public warehouses on an equal competitive footing with those of our neighboring states where no personal property taxes were imposed.' General Electric Co. v. City of Passaic, 28 N.J. 499, 505, 147 A.2d 233, 236, (1958). Its constitutionality has been sustained and it has been applied in many reported decisions. Ibid. The warehouse exemption, originally adopted in 1925, 'was based on the legislative policy to further the common good by encouraging the development of New Jersey's warehouse industry'. Id. at p. 509, 147 A.2d at p. 238. It was anticipated that 'any loss of taxes in the State of New Jersey would be more than offset by the increase of taxable property of New Jersey warehousemen resulting from their growth.' Ibid.

There is no issue herein as to the storage of Mead Johnson's goods in the particular warehouse at 3605 Park Avenue, corner of Oak Tree Road, during the periods involved, or as to the value of the personal property, which consists essentially of medically prescribed food articles. As the Division properly observed, the sole question for decision is whether or not under all of the circumstances the personal property was stored in a warehouse within the meaning of the statutory exemption. The Division concluded that as between Mead Johnson and the operator of the warehouse, Oak Tree Distributors, Inc., the latter was not acting as a 'warehouseman.' It determined that 'this warehouse is operated principally for the private convenience of Mead Johnson.' On that finding, the tax exemption was denied.

Mead Johnson owned this warehouse and operated it through its own employees and for its own purposes until 1961 when, in furtherance of a change in company policy discontinuing its own warehouse operations throughout the country, it sold this warehouse in a Bona fide sale for $275,000 to Nat Singer. Singer had stored products of Mead Johnson for many years prior thereto in his public warehouse in the Bronx, New York. Title was taken in the name of S. F. Investors, Inc., a New Jersey corporation organized by Singer and composed of members of his family and his New York attorney. The 'S' and 'F' in the corporate name represent the initials of Singer's children, Shirley and Fred. The deal involved a payment of 10% In cash and a 15-year purchase money mortgage for the balance, with interest at 4 1/4% And annual amortization of 4%.

The agreement of sale between Mead Johnson and Singer provided that for a period of one year commencing May 1 1961 Singer would furnish Mead Johnson with all warehousing and distribution services for its products at such location, including as incidental thereto other necessary and connected services, such as mailing and invoicing services which it might require. Singer was to charge for all services and Mead Johnson was to pay therefor 'cost, plus 5% Thereof.' It was further agreed that similar services would be furnished for a further period of two years commencing on May 1, 1962 'at your cost, plus 5%.' The agreement also provided that 'at any time during the said two year period either party may terminate such arraignment upon giving to the other party ninety days' written notice of such termination.'

Singer formed another New Jersey corporation, Oak Tree Distributors, Inc., hereinafter 'Oak Tree,' similarly composed of members of his family and his New York attorney, to operate the warehouse as a tenant of the title owner, S. F. Investors, Inc. 'Oak Tree' in this corporation's name was derived from the fact that the warehouse was at the corner of Oak Tree Road. There was no inter-corporate relationship between Mead Johnson and any of Singer's corporations. Neither had any stock or financial interest in the other. Except for the purchase money mortgage and its rights of storage under the agreement of April 26, 1961--limited to the periods specified therein--Mead Johnson had no rights in any of Singer's corporations or to store its goods in the South Plainfield warehouse. Its continued presence there to the present time on the same terms is at will only and terminable at any time by either party.

Mead Johnson occupies about 90% Of the space in this warehouse. Oak Tree has about a dozen other well-known customers who store their goods in the remaining space. There is no actual separation of space as between Mead Johnson and the other customers. As goods come in from any customer they are stored in whatever space is then available. The operation is that of a modern distribution warehouse, as contrasted with the old dead-storage type. The products and goods of the storers come in by carrier in large shipments and frequently move out in smaller quantities.

When Oak Tree took over the operation of this warehouse it engaged as its employees many of the personnel previously on the Mead Johnson payroll. It did so in order to avoid any problems with the labor union and to satisfy its own need for trained help. Full control of the warehouse operation, however, has been and is in the Singer corporations. Only Oak Tree employees perform the required services at the warehouse. No Mead Johnson employee functions there. At the beginning Oak Tree rented the office equipment which Mead Johnson had at the warehouse, until it subsequently acquired it by purchase. The only link Mead Johnson has with the warehouse, beyond the storage of its products there and its orders from time to time for release thereof, is a telephone listed in its name. Only Oak Tree employees answer this phone. Its principal use is for emergency orders from hospitals and doctors for Mead Johnson products. It was testified that this is not an unusual service in distribution warehouses.

The services rendered by Oak Tree for Mead Johnson are equally available to its other customers. While Mead Johnson is its principal customer, Nat Singer testified that he is constantly soliciting other customers by 'belonging to and attending different clubs and meetings and trade functions, getting around meeting people and seeing people, golf outings, trophies, so on.' The storage charges to Mead Johnson are calculated by taking the total operating expenses, deducting therefrom 60% Of the income from other storers, and adding to the balance 5%. By this method Mead Johnson pays for its storage and related services a sum comparable to the rate per hundredweight charged to Oak Tree's other customers and generally by warehouses in northern New Jersey. This cost-plus method of paying for storage is similarly employed by Mead Johnson in its dealings with other public warehousemen.

Oak Tree issues warehouse receipts to most of its other customers, but it follows a different method with Mead Johnson. It uses as a warehouse receipt 'a photostated bill of lading which is already signed by the carrier.' As Singer explained it, Mead Johnson sends to the warehouse a form or notice of 'inbound' merchandise in advance of delivery. When the goods arrive, the truckman brings his bill of lading to the office. The inbound notice is compared to the bill of lading and, if everything checks out, the carrier is assigned a door or loading dock. The merchandise is unloaded on pallets and placed in storage. The warehouseman then signs the bill of lading, noting any exceptions. The signed bill of lading is used 'in lieu of a warehouse receipt.' This same procedure is followed in the case of some of Oak Tree's other customers.

Gene A. McDowell, the only other witness besides Singer, testified as distribution manager of Mead Johnson that the bill of lading consigning the merchandise to Mead Johnson in care of the public warehouse was a self-protective measure to avoid any question that title to the merchandise had passed out of the company. By the warehouseman's receipting for the merchandise, 'he has accepted the liability as applicable to the bailee-bailor situation,' according to McDowell. At least, that was the intended relationship between Mead Johnson and Oak Tree. He corroborated that the rates charged by Oak Tree...