Werner Machine Co. v. Director of Div. of Taxation, Dept. of Treasury, of N. J.

PETITIONER: Werner Machine Co.
RESPONDENT: Director of Div. of Taxation, Dept. of Treasury, of N. J.
LOCATION:

DOCKET NO.: 63
DECIDED BY: Warren Court (1955-1956)
LOWER COURT:

ARGUED: Mar 05, 1956 / Mar 06, 1956
DECIDED: Mar 26, 1956

Facts of the case

Question

Media for Werner Machine Co. v. Director of Div. of Taxation, Dept. of Treasury, of N. J.

Audio Transcription for Oral Argument - March 05, 1956 in Werner Machine Co. v. Director of Div. of Taxation, Dept. of Treasury, of N. J.

Audio Transcription for Oral Argument - March 06, 1956 in Werner Machine Co. v. Director of Div. of Taxation, Dept. of Treasury, of N. J.

Earl Warren:

Number 63, Werner Machine Company versus Director of Division of Taxation, Department of Treasury, State of New Jersey.

Mr. Goodwin, you may proceed.

Charles Goodwin, Jr.:

May it please the Court.

I would like to reserve about 10 minutes for rebuttal if I may.

Earl Warren:

You may.

Charles Goodwin, Jr.:

First, this morning I would like to emphasize the two alternatives each mentioned yesterday on which the appellant rests his case.

In the first place, it is the position of the appellant here that this tax now before this Court is a property tax.

The legislative history preceding the enactment of this Act, the report on which it is based and particularly within the Act itself, the alternative taxes upon which the tax may be computed based upon gross assets rather than net worth indicate very strongly that this is in fact a property tax.

Our alternative argument is based upon the practical operation and effect test, which was recently reaffirmed by this Court in the New Jersey Realty case in the following language.

It matters not whether the tax is as appellant -- appellee contends an indirect or excised levy on net worth measured by corporate, capital and surplus or is, as appellant urges, a tax on personal property based on evaluation gauged by capital and surplus.

Our inquiry is narrowed to whether in practical operation in effect, the tax is in part upon federal bonds.

We can only conclude that the tax authorized by Section 54-422 whether levied against capital and surplus less liabilities or against entire net worth is imposed on such securities regardless of the accounting label employed in describing it.

Sherman Minton:

Suppose New Jersey had just levied -- assumed franchise tax in so many dollars.

That's invalid, would it?

Charles Goodwin, Jr.:

I think perfectly valid.

Sherman Minton:

The fact that it happened to own government and securities, would that have change (Voice Overlap) --

Charles Goodwin, Jr.:

Not at all, they do have such a tax which we're not complaining about.

There are alternative minimum taxes with a flat rate.

I think it's only when the government --

Sherman Minton:

(Voice Overlap) --

Charles Goodwin, Jr.:

-- bonds enter into the basis of computation that we run into this burden on the borrowing power.

Sherman Minton:

The fact that this dollar tax is measured by the total net worth, will the corporation makes the differences?

Charles Goodwin, Jr.:

Very strongly.

I think it's most significant that this Court has never upheld any tax measured by net worth against the contention that such a tax has reached federal obligations.

Section 9 of -- of the particular taxing act here under consideration also points directly toward the property nature of this tax.

Section 9 allows a corporate taxpayer subject to the tax, a deduction in respect of stock of subsidiaries owned if those subsidiaries or the subsidiary pays a New Jersey tax.

This deduction recognizes that the imposition of a tax measured in part by a corporation already taxed would be double taxation.

And this double taxation aspect is specifically pointed out in the 1947 report of the New Jersey Commission on state tax policy.

The same or a similar situation was presented to this Court in Schuylkill Trust case reported in 296 U.S.

In that case, Pennsylvania imposed a tax on shareholders of banks.