N.J. Bell Tel. Co. v. City of Newark
| Decision Date | 03 August 1937 |
| Docket Number | No. 276.,276. |
| Parties | NEW JERSEY BELL TELEPHONE CO. v. CITY OF NEWARK. |
| Court | New Jersey Supreme Court |
Certiorari proceeding by the New Jersey Bell Telephone Company against the City of Newark to review a judgment of the State Board of Tax Appeals affirming an assessment of the prosecutor's personal property by the Essex County Board of Taxation to which the assessment of the Board of Assessment and Revision of Taxes of the city of Newark had been appealed.
Judgment of the State Board of Tax Appeals affirmed.
Argued May term, 1937, before BODINE, HEHER and PERSKIE, JJ.
Frankland Briggs, Leonard A. Sweney, J. H. Harrison, and Robert F. Darby, all of Newark, for prosecutor. Frank A. Boettner and John A. Matthews, both of Newark, for respondent.
The basic issue upon the return of this writ of certiorari concerns the proper method of determining the true value of the tangible and intangible personalty of the New Jersey Bell Telephone Company for the purposes of taxation under P.L. 1918, c. 236, p. 847, as amended (Comp.St. Supps. § 208—66d(101) et seq.).
The taxing authority for the city of Newark, the board of assessment and revision of taxes, fixed the value of the telephone company's personal property including tangibles and intangibles, for the year 1935, at $24,000,000. On appeal this figure was reduced to $22,265,000 by the Essex county board of taxation, and prosecutor sought a further reduction from the state board of tax appeals so that its property would be valued at $14,612,845. The state board, however, refused any further reduction and entered judgment affirming the assessment made by the Essex county board of taxation. This court granted certiorari.
The parties have stipulated that, exclusive of cash on hand, prosecutor's intangible personalty had a value on the assessing date, October 1, 1934, of $1,393,485, which item was admittedly subject to taxation. It is also stipulated that the total cash on hand amounts to $1,626,024, but prosecutor challenges the right to tax this item alleging that it is entitled to an exemption under P.L. 1933, c. 165, p. 346 (N. J.St.Annual 1933, § 208—66d(203) subd. 19). This is not so. The cash is subject to taxation. Newark v. N.J. State Board of Tax Appeals and Broadbank Corporation, 118 N.J.Law, 131, 191 A. 843. It is, therefore, apparent that at least so far as the intangible personalty is concerned, the county board of taxation committed no error. The assessment of intangibles should include the stipulated sum of $1,393,485, plus the total cash of $1,626,024, making a grand total of assessable intangibles of $3,019,509.
The tangible personalty of the company consisted of a telephone plant located in Newark, including materials and supplies therein located, poles, wires, equipment, conduits, office furniture and fixtures, etc. This property the board apparently valued at $19,245,491. Prosecutor seeks to reduce this figure to $13,219,000 and to that end produced an expert who testified that in his opinion the latter figure was the true value of the tangible property in question. The expert arrived at his conclusion after approaching the problem by three different methods and then combining all three. The first method was through a study of the book cost of the company and the depreciation reserves. The book cost of the company amounted to $24,657,214. From this figure were subtracted two items—(1) $702,863 which represented the cost of paving underground conduits and which was subtracted since it was not considered in the nature of an asset; (2) $720,000 was also deducted as representing unproductive labor due to time lost because of bad weather, holidays, vacations, company schools, and for plant inspection. This left an adjusted book cost of $23,234,351. Working on a basis of 26 per cent. as the proper depreciation, the expert then applied this percentage to the adjusted book costs leaving a total of $17, 193,420. To this figure he added the depreciated value of material and supplies thus getting a total depreciated book cost as adjusted of $18,245,233. The expert found that for the five years ending 1935 the company realized a return of 4.907 per cent. on its depreciated book value. Treating 6 per cent. as a fair return, he found that the return actually realized was 81.8 per cent. of a fair return. He, therefore, took 81.8 per cent. of the total adjusted book cost of $18,245,233 and reached a figure of $14,924,600 as the final result of his first approach to the determination of the true value of the tangible property.
The expert's second approach was more simple. He used tables put out by the state tax commission in 1924 for the purpose of valuing telephone and telegraph companies, using the state's units as far as possible and where there were no available units, the company's depreciated book value was used. By this method the expert arrived at the figure of $14,982,914 as the final result of his second theory by which he determined the true value of the tangible property.
The third method of approach was based on a capitalization of the net earnings of the New Jersey Bell Telephone Company, and an allocation to the city of Newark of a part thereon on the basis of station installation. The result was reached in the following manner: The average earnings of the company for the five-year period from 1931 to 1935 were $7,864,982. These earnings were capitalized at the return rate of 6 per cent. and the resultant capitalization value of $131,083,000 was determined. From this figure was deducted the sum of $935,582 representing the average franchise taxes for the same five-year period. This sum when capitalized at 6 per cent. gives a franchise value of $15,592,000 which when deducted from the aforementioned capitalization value leaves a total of $115,491,000 which represents the capitalized value of the company's tangible fixed property. Of this, 85.95 per cent. is personal property, and thus 85.95 per...
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