Verizon N.J. Inc. v. Borough of Hopewell

• Docket Number: A-2909-18
• Decision Date: 14 June 2023
• Parties: VERIZON NEW JERSEY, INC., Plaintiff-Appellant/ Cross-Respondent, v. BOROUGH OF HOPEWELL, Defendant-Respondent/ Cross-Appellant. STATE OF NEW JERSEY, Intervenor.
• Court: New Jersey Superior Court — Appellate Division

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VERIZON NEW JERSEY, INC., Plaintiff-Appellant/ Cross-Respondent, v. BOROUGH OF HOPEWELL, Defendant-Respondent/ Cross-Appellant.

STATE OF NEW JERSEY, Intervenor.

No. A-2909-18

Superior Court of New Jersey, Appellate Division

June 14, 2023

This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

Argued November 1, 2021

On appeal from the Tax Court of New Jersey, Docket No 012215-2009, whose opinions are reported at 26 N.J. Tax 400 (Tax 2012) and 31 N.J. Tax 49 (Tax 2019).

Peter G. Verniero argued the cause for appellant/ cross-respondent (Sills Cummis & Gross PC, and McCarter & English, LLP, attorneys; Peter G. Verniero and Susan A Feeney, of counsel and on the briefs; Katherine M. Lieb and Farhan Ali, on the briefs).

Joseph C. Tauriello and Gregory B. Pasquale argued the cause for respondent/cross-appellant (Joseph C. Tauriello and Shain Schaffer PC, attorneys; Sarah E. Fitzpatrick, Xiaosong Li, and Gregory B. Pasquale, of counsel and on the briefs; Joseph C. Tauriello, on the briefs).

Michelline Capistrano Foster, Deputy Attorney General, argued the cause for intervenor (Matthew J. Platkin, Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; Michelline Capistrano Foster, on the brief).

Gregory B. Pasquale argued the cause for amicus curiae New Jersey State League of Municipalities (Shain Schaffer PC, attorneys; Joel L. Shain, of counsel and on the brief; Gregory B. Pasquale and Sarah E. Fitzpatrick, on the brief).

Before Judges Accurso, Rose and Enright.

OPINION

ACCURSO, J.A.D.

Verizon New Jersey, Inc., inheritor of New Jersey Bell Telephone Company's local exchange service telephone network, has been locked in a battle with the Borough of Hopewell for more than a decade over whether Verizon has to pay the municipal tax for 2009 on its business personal property in the Borough under N.J.S.A. 54:4-1. In two published decisions, the Tax Court determined: (1) the statute's 51% market-share calculation must be performed annually, and an annual market-share calculation, as applied to Verizon, does not violate the State and federal equal protection guarantees, N.J. Const. art. I, § 1, and U.S. Const. amend. XIV, § 1, the State prohibition of special legislation, N.J. Const. art. IV, § 7, ¶ 9, or the Uniformity Clause, N.J. Const. art. VIII, § 1, ¶ 1(a), Verizon New Jersey, Inc. v. Hopewell Borough, 26 N.J. Tax 400, 414-32 (Tax 2012) (Verizon I), and (2) that Verizon is subject to the tax imposed for tax year 2009 because it provided dial tone and access to 51% of the Hopewell telephone exchange in 2008, Verizon New Jersey, Inc. v. Borough of Hopewell, 31 N.J. Tax 49, 70-76 (Tax 2019) (Verizon II). Finding no flaw in either of the Tax Court's thorough and thoughtful opinions, we affirm.

The Telephone Companies

A little background - both as to the telecommunications industry and New Jersey's approach to taxing it - will make the case easier to understand. Before the break-up of AT&T in 1984, it monopolistically "dominated the national telecommunications industry," controlling "virtually all long-distance telephone service, most local telephone service, and a substantial amount of all telephone equipment manufacturing."^[1] AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 413 (1999) (Breyer, J., concurring in part and dissenting in part). The federal consent decree resolving the government's antitrust action against the company divested it of its local-exchange carriers, the "Baby Bells," "leaving AT&T as a long-distance and equipment company, and limiting the divested carriers to the provision of local telephone service." Verizon Commc'ns, Inc. v. FCC, 535 U.S. 467, 475 (2002)).

The decree had the intended effect of rapidly bringing competition to AT&T from the likes of MCI and Sprint for long-distance service and likewise encouraged competition for telephone equipment. Iowa Utils. Bd., 525 U.S. at 413. "The decree did nothing, however, to increase competition in the persistently monopolistic local markets," Verizon Commc'ns, Inc., 535 U.S. at 475, as each local retail telephone market generally remained "in the hands of a single state-regulated local service supplier, such as NYNEX in New York," Iowa Utils. Bd., 525 U.S. at 414 (Breyer, J.), or New Jersey Bell, Verizon's predecessor, here.^[2] As Justice Souter succinctly put it: "The upshot of the 1984 divestiture . . . was a system of regional service monopolies (variously called 'Regional Bell Operating Companies,' 'Baby Bells,' or 'Incumbent Local Exchange Carriers' (ILECs)), and a separate, competitive market for longdistance service from which the ILECs were excluded." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 549 (2007).

"Until the 1990's, local phone service was thought to be a natural monopoly," Iowa Utils. Bd., 525 U.S. at 371, owing to the high costs of entry to an aspiring competitor in a local retail telephone market. "The physical incarnation of such a market, a 'local exchange,' is a network connecting terminals like telephones, faxes, and modems to other terminals within a geographical area like a city." Verizon Commc'ns, 535 U.S. at 489.

The incumbent local carrier either built or, more likely, inherited "the local loops (wires connecting telephones to switches), the switches (equipment directing calls to their destinations), and the transport trunks (wires carrying calls between switches) that constitute a local exchange network," Iowa Utils. Bd., 525 U.S. at 371, which the Supreme Court once likened to "a transportation network for communications signals, radiating like a root system from a 'central office' (or several offices for larger areas) to individual telephones, faxes, and the like," Verizon Commc'ns, 535 U.S. at 490.

"A newcomer could not compete with the incumbent carrier to provide local service without coming close to replicating the incumbent's entire existing network, the most costly and difficult part of which would be laying down the 'last mile' of feeder wire, the local loop," connecting "the thousands (or millions) of terminal points in individual houses and businesses" to the aspiring competitor's new network. Ibid.

Enter Congress, which passed the Telecommunications Act of 1996, aimed at eliminating "the monopolies enjoyed by the inheritors of AT&T's local franchises" by requiring those incumbent local exchange carriers to share their networks with new competitors, id. at 476, called, aptly enough, competitive local exchange carriers or CLECs. Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (codified in separate sections within 15 U.S.C., 18 U.S.C., and 47 U.S.C.). See 47 U.S.C. §§ 251-53, 271.

The 1996 Telecommunications Act permitted a new requesting carrier to gain access to an incumbent's network by purchasing "local telephone services at wholesale rates for resale to end users," Iowa Utils. Bd., 525 U.S. at 371, by leasing elements of the incumbent's network "'on an unbundled basis' - i.e., a la carte -" making "it easier for a competitor to create its own network without having to build every element from scratch," and by interconnecting its own facilities with the incumbent's network, thus ensuring "customers on a competitor's network can call customers on the incumbent's network, and vice versa," Talk Am., Inc. v. Mich. Bell Tel. Co., 564 U.S. 50, 54 (2011).

The 1996 Telecommunications Act "fundamentally restructure[d] local telephone markets," Iowa Utils. Bd., 525 U.S. at 371, and new competition ushered in new systems and technologies, including voice-over-internet protocol (VoIP), which allowed large commercial customers to use telephone numbers connected over a network internet cable rather than dial tone and access lines, transforming modes of service, Verizon II, 31 N.J. Tax at 59 & n.7. Deregulation also changed New Jersey's approach to taxing telecommunication companies.

Taxation of the Telephone Companies

In the years before the breakup of AT&T, telephone and telegraph companies in New Jersey were subject to Chapter 4 of the Franchise and Gross Receipts Tax, N.J.S.A. 54:30A-16 to -29 repealed by L.1997, c. 162, § 77 (eff. Jan. 1, 1998), a comprehensive annual franchise and excise tax imposed on the gross receipts of public utilities "using or occupying public streets, highways, roads and other public places," N.J.S.A. 54:30A-18. In 1945, when the Legislature passed the Corporation Business Tax Act, N.J.S.A. 54:10A-1 to -40, requiring domestic and foreign corporations not otherwise exempt to pay an annual state franchise tax "in lieu of all other State, county or local taxation" on intangible business personal property, N.J.S.A. 54:10A-2, it expressly exempted all corporations subject to the Franchise and Gross Receipts Tax's Chapter 4, N.J.S.A. 54:10A-3(a) (excluding from the CBT those corporations subject to a tax assessed on the basis of gross receipts).

And in 1966, when the Legislature adopted the Business Personal Property Tax Act, L. 1966, c. 136 §§ 1-21 (codified as N.J.S.A. 54:11A-1 to -21), repealed by L. 1993, c. 174, § 1, ending the taxation of business personal property at the local level, it expressly excluded the "goods and chattels used or held for use in business by any . . . corporation subject to taxation under chapter 4 of the laws of 1940 [the Franchise and Gross Receipts Tax's Chapter 4], as amended." L. 1966, c. 136, § 2(b)(5). Verizon I, 26 N.J. Tax at 410-12 (explaining the events leading up to the law's passage). The Legislature also simultaneously amended the local property tax law, N.J.S.A. 54:4-1, to provide that personal...