New Jersey Bell Telephone Co v. State Board of Taxes and Assessment of New Jersey

• Decision Date: 06 January 1930
• Docket Number: No. 254,254
• Citation: 74 L.Ed. 463,50 S.Ct. 111,280 U.S. 338
• Parties: NEW JERSEY BELL TELEPHONE CO. v. STATE BOARD OF TAXES AND ASSESSMENT OF NEW JERSEY
• Court: U.S. Supreme Court

280 U.S. 338

50 S.Ct. 111

74 L.Ed. 463

NEW JERSEY BELL TELEPHONE CO.

v STATE BOARD OF TAXES AND ASSESSMENT OF NEW JERSEY.

No. 254.

Argued Nov. 25, 1929.

Decided Jan. 6, 1930.

Messrs. Thomas G. Haight, of Jersey City, N. J., and Frankland Briggs, of Newark, N. J., for appellant.

[Argument of Counsel from pages 338-340 intentionally omitted] Messrs. Duane E. Minard, of Newark, N. J., and William A. Stevens, of Red Bank, N. J., for appellee.

[Argument of Counsel from pages 340-342 intentionally omitted] Mr. Justice BUTLER delivered the opinion of the Court.

In 1928 appellee made an assessment against the appellant under a law of New Jersey known as the Voorhees Franchise Tax Act. Appellant caused the assessment by writ of certiorari to be brought to the Supreme Court of the State, and there insisted that as construed the statute is repugnant to the commerce clause. That court held the law valid, sustained the tax, and dismissed the writ. (N. J. Sup.) 143 A. 841. And its judgment was affirmed in the Court of Errors and Appeals, 146 A. 915.

As stated in its title, the act is one 'for the taxation of all the property and franchises of persons, copartnerships, associations or corporations (hereinafter referred to as taxpayers) using or occupying public streets, highways, roads or other public places * * *' (hereinafter referred to as streets).¹ Section 1 (P. L. 1900, p. 502, as amended by P. L. 1917, p. 43, § 2) provides that 'all the property, real and personal, and franchises of' taxpayers who have the right to use or occupy streets shall be valued, assessed and taxed as provided in the act. Section 2 (P. L. 1900, p. 502) directs that the respective assessors 'shall each year ascertain the value of such property located in, upon or under any public street, * * * in each taxing district, and the value of the property not so located; when so ascertained, all such property shall be assessed and taxed at local rates, as now provided by law. * * *' And section 3 (P. L. 1900, p. 502, as amended by P. L. 1918, p. 907, § 1) requires the valuation of all property located in streets to be reported by districts to county boards and by them to appellee.

Section 4 (as amended by P. L. 1927, p. 567, § 1) provides that all such taxpayers shall return each year to appellee a statement showing the gross receipts of their business in the state for the calendar year next preceding, and that 'the franchise tax of such person, copartnership, association or corporation for business so done in this State' shall be upon such proportion of gross receipts as the length of the line or mains in the streets bears to the length of the whole line or mains. Section 5 (P. L. 1900, p. 503, as amended by P. L. 1917, p. 44, § 4) prescribes the rate. It was 2 per cent. prior to the amendment of 1917, but that act increased it to 3 per cent. for 1918 to 4 per cent. for 1919 and to 5 per cent. for 1920 and each year thereafter.

Section 6, as amended by P. L. 1927, p. 569, § 2, requires appellee to apportion the franchise tax among the taxing districts on the basis of the locally assessed value of the taxpayer's property in the streets in each district to the total value of all its property so located. The amounts so apportioned are collected as are other taxes. Section 7 (P. L. 1900, p. 504) enacts that money paid to a tax district pursuant to contract shall be considered a payment on account of the franchise tax imposed by the act, and section 8 (P. L. 1900, p. 502, as amended by P. L. 1902, p. 476) declares that the franchise tax shall be in lieu of all other franchise taxes assessed against such taxpayers and their property.

Appellant is a corporation organized under the laws of New Jersey and has long carried on a telephone business there. All its lines and property are within that state. October 1, 1927, it succeeded to the property and business in that state of the New York Telephone Company. A supplementary act approved March 27, 1928, required that company's gross receipts in New Jersey in 1927 to be included for the calculation of the franchise tax assessed against appellant. P. L. 1928, p. 223. Each company furnished intrastate telephone service in New Jersey, and also had large receipts for transmission of messages, passing over its lines in that state and other companies' connecting lines, between places in New Jer- sey and places in other states and countries. The service so rendered in New Jersey in respect of such interstate and foreign commerce is for brevity called interstate business. Appellant's telephone plant in New Jersey included large amounts of real and personal property which was assessed and taxed locally. The average of the local rates in 1918 was 3.877 per cent. ² The record does not disclose the assessed value of appellant's property.

The gross receipts of both companies from business in New Jersey in 1927 was $40,280,332.95. Each received from its interstate business in that state between 23 and 24 per cent. of its total. The New York Telephone Company had 10,829 miles of line in New Jersey, of which 5,516 were in streets. And the appellant, after the acquisition of the property of the other company, had 15,203 miles, of which 8,403 were in streets. The franchise tax assessed in 1928, calculated as required by the act, amounted to $1,058,997.85. Appellant paid so much of the tax as was based on its intrastate earnings. The controversy in this case concerns only the 5 per cent. of gross receipts derived from interstate commerce.

The Court of Errors and Appeals rested its decision on the reasons given by the Supreme Court. The latter declared itself bound to follow a former decision (Phillipsburg R. R. Co. v. State Bd. of Assessors, 82 N. J. Law, 49, 81 A. 1121) which, construing a like statute taxing street railways, held that the tax was not levied on gross receipts or business, but was 'merely an excise tax,' measured in part by gross earnings, on its franchise to exist as a corporation and its franchise to occupy the streets, and that it was not repugnant to the commerce clause. Dealing with the tax here involved, the court held it is a tax on property, 'earnings being taken merely as a measure of the value of the franchise of the prosecutor.' Appellant contends that the exaction is a license tax levied directly on gross receipts from interstate as well as intrastate commerce in addition to ad valorem taxes upon its real and personal property, and that therefore the act is repugnant to the commerce clause.

Appellee insists that the franchise is intangible property which includes power of eminent domain, right to occupy the streets, going concern value, and the benefit of the state policy to have a regulated monopoly. It alludes to article 4, § 7, par. 12, of the state Constitution: 'Property shall be assessed for taxes under general laws, and by uniform rules, according to its true value'; and argues that, by using gross receipts as a measure of value of the property right, a uniform system of taxation at a true value is attained; that the franchise tax is not upon business, commerce, or gross receipts as such.

It is elementary that a state may tax property used to carry on interstate commerce. But, as the Constitution vests exclusively in the Congress power to regulate interstate and foreign commerce, a state may not tax, burden, or interfere with such commerce or tax as such gross earnings derived therefrom or impose a license fee or other burden upon the occupation or the privilege of carrying on such commerce, whatever may be the instrumentalities or means employed to that end. Pullman Co. v. Richardson, 261 U. S. 330, 338, 43 S. Ct. 366, 368, 67 L. Ed. 682, and cases cited. Sprout v. South Bend, 277 U. S. 165, 171, 48 S. Ct. 502, 72 L. Ed. 833, 62 A. L. R. 45. This tax cannot be sustained if it is not upon the property but is in fact a tax upon appellant's gross receipts from interstate and foreign commerce or a license fee to be computed thereon.

The language of the act and the decisions of the courts of the state are to be given consideration in determining the actual operation and effect of the tax. But neither is necessarily decisive, for, whatever the terms used by the Legislature to impose the tax or by the courts in reference to it, the law cannot be sustained if it operates to burden or regulate interstate business. Galveston, Harrisburg, etc., Ry. Co. v. Texas, 210 U. S. 217, 227, 28 S. Ct. 638, 52 L. Ed. 1031; Quaker City Cab Co. v. Pennsylvania, 277 U. S. 389, 401, 48 S. Ct. 553, 72 L. Ed. 927; Macallen Co. v. Massachusetts, 279 U. S. 620, 625, 49 S. Ct. 432, 73 L. Ed. 874.

The franchise tax upon gross earnings does not purport to be, and is not claimed as, a charge or rental for the use of property belonging to the state or any of its subdivisions. Indeed, the appellee insists, and rightly so, that the right to construct, maintain, and use mains and lines in streets is property owned by appellant; and it argues that the percentage of gross earnings exacted is a tax on that property right. Clearly the state, when passing the act making the assessment, acted, not as a proprietor demanding compensation for the use of its property, but as sovereign imposing a tax for the support of government. Cf. St. Louis v. Western Union Telegraph Co., 148 U. S. 92, 97, 13 S. Ct. 485, 37 L. Ed. 380.

In the title and throughout the act the distinction is made between the tax on property and the franchise tax on gross receipts. The levying provision (section 5) defines the exaction as a 'franchise tax upon the annual gross receipts' and elsewhere in the act it is referred to briefly as 'franchise tax.' All real and personal property is required to be taxed by districts at local rates according to value; the franchise tax is a percentage of gross receipts; and it is declared to be in lieu, not of any property tax, but of all other franchise taxes.

And, as under the state Constitution property is...