Thiokol Chemical Corp. v. Morris County Bd. of Taxation, A--27

• Decision Date: 20 January 1964
• Docket Number: No. A--27,A--27
• Citation: 41 N.J. 405,197 A.2d 176
• Parties: THIOKOL CHEMICAL CORPORATION, a corporation, etc., Plaintiff-Respondent, v. MORRIS COUNTY BOARD OF TAXATION, Township of Denville, et al., Defendants-Appellants. United States of America, Intervenor Plaintiff-Respondent.
• Court: New Jersey Supreme Court

Page 405

41 N.J. 405

197 A.2d 176

THIOKOL CHEMICAL CORPORATION, a corporation, etc Plaintiff-Respondent, v. MORRIS COUNTY BOARD OF TAXATION, Township of Denville, et al., Defendants-Appellants United States of America, Intervenor Plaintiff-Respondent.

No. A--27.

Supreme Court of New Jersey.

Argued Nov. 4, 6, 1963.

Decided Jan. 20, 1964.

Alan B. Handler, Deputy Atty. Gen., of New Jersey, for defendant-appellant Morris County Bd. of Taxation (Arthur J. Sills, Atty. Gen., of New Jersey, attorney).

Warren E. Dunn, Denville, for defendants-appellants Township of Denville and J. Elmer Vanderhoof, Tax Collector Etc. (Dunn & Ambrose, Denville, attorneys).

Marshall Crowley, Newark, for plaintiff-respondent Thiokol Chemical Corp. (Toner, Crowley, Woelper & Vanderbilt, Newark, attorneys).

George F. Lynch, Washington, D.C., for intervenor plaintiff-respondent United States (David M. Satz, Jr., U.S. Atty., and Robert W. Carroll, Asst. U.S. Atty., Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, I. Henry Kutz, Washington, D.C., attorneys).

The opinion of the court was delivered by

FRANCIS, J.

This appeal involves the validity of assessments imposed under the Leasehold Taxing Act, L.1949, c. 177, N.J.S.A. 54:4--2.3 et seq., by the Township of Denville on plaintiff, Thiokol Chemical Corporation, and on Reaction Motors, Inc. which had merged into Thiokol. The Superior Court, Law Division vacated the assessments, 76 N.J.Super. 232, 184 A.2d 75 (Law Div.1962), and review of the judgments was sought in the Appellate Division. We certified the appeal on our own motion before it was argued there.

In the tax years involved in this litigation, the United States owned certain land and buildings and equipment therein located on Ford Road, Township of Denville, Morris County, New Jersey. In 1957 and until May 1, 1958 Reaction Motors, Inc. (Reaction), a New Jersey corporation, used the buildings and equipment in the performance of contracts with the Department of the Navy. On May 1, 1958 Reaction merged into plaintiff Thiokol Chemical Corporation (Thiokol), a Delaware corporation which succeeded to and continued the operation under the Navy contracts. On July 30, 1958 Thiokol and the United States (more particularly, the Department of the Navy) executed new agreements in essentially the same terms and for the same type defense work. Since that time Thiokol has used the buildings and equipment in the fulfillment of its government contracts.

Reaction was an engineering and research company in the field of liquid propellants, high pressure gas generators, rocket engines and other military end-use devices employing practical applications of special fuel combustion and reaction principles. Prior to 1946 it had been conducting various development programs in the field for the Armed Services. In 1946 it moved into the Navy Air Rocket Test Station at Lake Denmark, New Jersey in order to meet expanding demands of the Navy for its services. Prior to 1946 the annual volume of its business was less than $1,000,000. By the end of 1951 the volume had increased to $4,637,000. In 1949 Reaction moved the administrative and manufacturing operation a few miles away to a plant at Rockaway, New Jersey. The engineering and research divisions were left at the Navy Test Station by agreement with the Navy. These divisions continued to operate in makeshift fashion in five separated buildings which had served formerly as Marine barracks. In 1952 the program had expanded to such an extent that the facilities were deemed inadequate to cope with the Navy requirements. At this time Reaction had no private commercial contracts.

In April 1952, after discussion with representatives of the Navy, Reaction formally requested the government to provide new facilities, buildings and equipment off, but in reasonable proximity to, the Navy Station which would permit integration of its manufacturing and research and development activities. The request contemplated removal of all operations from the Station except the test facilities which would remain there following considerable enlargement of the structures used in connection with testing. After investigation, the Navy Department found the existing facilities inadequate to handle its projected program and agreed to provide the necessary land, buildings, laboratories and shops, as well as machine tools and equipment, at a total estimated cost of $3,195,000 for the use of Reaction in the performance of the government contracts.

Thereafter, pursuant to a contract entered into on November 21, 1952 between the United States and Reaction, the government acquired by condemnation a 52.70 acre parcel of land in Denville Township. (11.07 acres thereof were sold to Thiokol on which, at its own expense, an administration building was constructed. Thiokol has always paid taxes on this property. It is not involved in the present proceeding.) On the remaining 41 acres the buildings and structures which gave rise to the assessments under attack were constructed wholly at the expense of the United States. Machine equipment and tools were transferred from the old buildings on the Naval Test Station. They and some newly-acquired equipment and tools were installed in the new plant. The purchases and installation were at government expense. Ownership of the land, plant and equipment was in the United States and remained so throughout the 1957 and 1958 tax years. In furtherance of the Navy program and pursuant to the contract, the government also constructed certain buildings and additions and furnished equipment at the test sites on the Naval Air Rocket Test Station at Lake Denmark. Upon completion of the plant on Ford Road in Denville Township and the additional test facilities at the Test Station, they were made available for Reaction's use in the performance of its Navy contracts. Thereafter, including the tax years in question, these government-owned facilities were used by Reaction, and, following the merger, by Thiokol, exclusively in the performance of Department of Defense contracts or orders, or of subcontracts for private corporations which were prime contractors with the United States. More particularly, in 1957 and 1958 respectively, 99.2% And 99.7% Of the work (expressed in percentage of sales) was performed by Reaction and Thiokol as prime contractors with the United States. The remaining .8% And .3% Arose from subcontracts with other government prime contractors.

The nature of the relationship between the United States and Reaction with respect to the use of the government-owned plant and facilities in Denville is at the root of the problem in the matter before us. Consequently, some particularization of the November 1952 contract is required. On July 30, 1958, after the Reaction-Thiokol merger, a new agreement between the United States and Thiokol was made covering the same subject. Its essence is substantially the same as the earlier one and does not require any separate treatment for present purposes.

The contract does not employ such words as 'rental' or 'lease' of the premises to Reaction. It speaks solely in terms of use of the facilities and of permission to use them. The stipulation is that 'no charge will be made by the Government for the use of the Facilities' providing Reaction uses them exclusively for the performance of contracts or orders for the government or its suppliers. Departure from the exclusive use was entirely in the control of the Navy representative. Authorization for some private business could be granted or withheld by him. If granted, Reaction would be required to pay to the government a use charge in an amount to be agreed upon. In addition, the authorization would be subject to instructions regarding priority of the Armed Services contracts. As has been indicated, neither Reaction nor Thiokol engaged in any nongovernment work during the life of the use contract.

Moreover, under the agreement, Reaction could not acquire, install, relocate or rehabilitate any equipment in the plant without written approval of the Naval Inspector to be given only after he decided that such activity would carry out the purposes of the facilities program. Purchase of equipment from an outside source was prohibited if a similar item was known by the contractor to be available from the government reserves. Nonseverable equipment, as defined in the Armed Services Procurement Regulations, could not be installed in the plant, nor could the contractor, without consent of the Naval Inspector, substitute items of equipment for those specified in the agreement.

The agreement obliged Reaction to protect, maintain and repair the facilities 'in accordance with the requirements of their function as a part of the Naval Industrial Reserve, and as the Government may from time to time require and direct.' However, if the Bureau of Aeronautics decided that items of equipment were obsolete or no longer useful in performing the government work, the duty to maintain ceased although with the written consent of the Naval Inspector, they could be adapted by the contractor to current needs.

Reaction agreed further that representatives of the government would have the right of inspection of the plant, equipment, work in progress and all records pertaining to use of the facilities and contract performance. In this connection the testimony reveals that the government maintained a 'fully staffed' office of about 10 persons on the premises to look after its interests in the products and equipment. They were roving inspectors who moved constantly about the plant. The degree of control was such that the contractor could not move a piece of equipment from one part of the plant to another without consent. All of the equipment was under continual inspection; it was called 'preventive maintenance.' In addition, if an inspector saw an unfamiliar piece of material in a machine, he would make immediate inquiry to...