(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for
the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please
note that, in the interests of brevity, portions of any opinion may not have been summarized).
Argued February 19, 1997 -- Decided July 21, 1997
O'Hern, J., writing for a majority of the Court.
This appeal presents a facial challenge to the constitutionality of the Business Retention Act of 1992
(BRA). L. 1992, c. 24, §§ 1 to 7). The claim is that the BRA creates an unconstitutional exemption of real
property from taxation that would favor business or industry.
The case concerns assessments of the General Motors' automobile assembly plants made by the
City of Linden for the years 1983, 1984, and 1985 tax years. GM appealed the assessments. The Appellate
Division remanded the case in light of the opinion of Ford Motor Company v. Edison,
127 N.J. 290 (1992),
and for consideration whether the BRA applied to the case. GM's remaining tax appeals through the 1992
tax year were consolidated on remand.
In an unreported opinion, the Tax Court held the BRA to be unconstitutional. The Appellate
Division reversed the Tax Court and concluded that the BRA was constitutional.
239 N.J. Super. 99 (App.
Div. 1996). The court reasoned that the Legislature can classify personal property and concluded that its
goal through the BRA to accord the definition of fixtures the most restrictive scope consistent with the
fundamental distinction between real and personal property did not violate the State Constitution. The
Court granted Linden's motion for leave to appeal.
HELD: The BRA is facially constitutional because it may reasonably be interpreted in a manner that does
not create an unconstitutional exemption for real property from taxation that would favor business or
industry.
1. The Uniformity Clause of the New Jersey Constitution places limits on the Legislature's ability to classify
real property for purposes of taxation. In 1966, the Legislature passed the Business Personal Property Tax
Act, which excluded from taxation at the local level business personal property and substituted a system of
taxation at the State level. In applying this Act, courts used common-law definitions of real and personal
property, sometimes arriving at inconsistent results. The Legislature responded by amending the Act to
define the real property subject to local taxation. L. 1986, c. 117. This amendment defined taxable real
property to include personal property “affixed” to the real property, subject to certain exceptions. The
legislative history indicates that Chapter 117 was a reaction to case law that the Governor and Legislature
believed threatened municipalities with the loss of tax ratables. There followed a shift toward including
business personal property as taxable real property in court decisions. The Legislature responded with the
BRA, which clarified that machinery and equipment that was not a structure and that did not have as a
primary purpose enabling a structure to shelter persons or property (the “b” test), was not real property
subject to local taxation. (pp. 4-13)
2. As with all legislation, the BRA is presumed to be constitutional. A taxing statute is not facially unconstitutional if it operates constitutionally in some instances. The Legislature, however, cannot avoid the constitutional restriction by simply defining as personal property that which is real property. Despite several evolutions in its attempt to draw the lines between realty and personalty, the Court is satisfied that the Legislature intended the BRA to be faithful to the common-law recognition that there are certain forms of personal property so affixed to real property as to be considered a part thereof. The Court interprets the BRA such that the refinement excluding machinery and equipment from local taxation under the “b” test
was not intended to override the separate, more traditional “a” test when the “a” test would result in
property being taxed as real property. (pp. 13-23)
3. The decision does not foreclose future as applied challenges to the BRA. Cases may arise in which the
constitutional distinction attempted to be drawn by the BRA may be crossed. (p. 23)
JUSTICE HANDLER, concurring, emphasizes that the constitutional understanding of real property
remains informed by the traditional law of fixtures, and that the Legislature cannot impermissibly alter the
law of fixtures in order to bypass the Uniformity Clause.
JUSTICES POLLOCK, GARIBALDI, STEIN and COLEMAN join in JUSTICE O'HERN's
opinion. JUSTICE HANDLER has filed a separate concurring opinion. CHIEF JUSTICE PORITZ did
not participate.
SUPREME COURT OF NEW JERSEY
A-
106 September Term 1996
GENERAL MOTORS CORPORATION,
Plaintiff-Respondent,
v.
CITY OF LINDEN,
Defendant-Appellant.
Argued February 19, 1997 -- Decided July 21, 1997
On appeal from the Superior Court, Appellate
Division, whose opinion is reported at 293
N.J. Super. 99 (1996).
Saul A. Wolfe argued the cause for appellant
(Skoloff & Wolfe, attorneys; Mr. Wolfe,
Robert F. Giancaterino and Elizabeth D.
Abramson, of counsel and on the briefs).
Seth I. Davenport argued the cause for
respondent (Garippa & Davenport, attorneys;
Mr. Davenport, John E. Garippa and Philip J.
Giannuario, of counsel; Mr. Davenport, Mr.
Garippa, Mr. Giannuario and Kenneth R. Kosco,
on the briefs).
Demetrice R. Miles, Assistant Corporation
Counsel, argued the cause for intervenor-respondent City of Newark (Michelle Holler-Gregory, Corporation Counsel, attorney).
Gail L. Menyuk, Deputy Attorney General,
argued the cause for intervenor-respondent
State of New Jersey (Peter Verniero, Attorney
General of New Jersey; attorney Joseph L.
Yannotti, Assistant Attorney General, of
counsel).
Donald F. Miceli argued the cause for intervenor-respondent NBCP Urban Renewal Partnership (Carella, Byrne, Bain, Gilfillan,
Cecchi, Stewart & Olstein, attorneys; Mr.
Miceli and Richard K. Matanle, II, of counsel
and on the brief).
John B. Hall argued the cause for amici
curiae New Jersey Chamber of Commerce, New
Jersey Business and Industry Association,
Chemical Industry Council, Independent Energy
Producers of New Jersey, Association of
Graphic Communication, Commerce and Industry
Association of New Jersey, New Jersey
Laborers'- Employers' Cooperation and
Education Trust, National Association of
Industrial and Office Properties, New Jersey
Chapter and International Brotherhood of
Electric Workers, Local Union No. 675
(McManimon & Scotland, attorneys; Mr. Hall
and Peter Dickson, on the briefs).
The opinion of the Court was delivered by
O'HERN, J.
In this case, we review again the ebb and flow of
legislative and judicial efforts to distinguish between real and
personal property for purposes of taxation. We last reviewed
that distinction in R.C. Maxwell Company v. Galloway Township,
145 N.J. 547 (1996). This appeal presents a facial challenge to
the constitutionality of the Business Retention Act of 1992
(BRA). L. 1992, c. 24, §§ 1 to 7. We find that the statute is
facially constitutional because it may reasonably be interpreted
as not to create an unconstitutional exemption for real property
from taxation that would favor business or industry. It is,
rather, as the BRA's sponsors stated, an effort to "provide[]
refinements in the definitions of real and personal property" for
purposes of determining whether certain forms of property are
subject to taxation. Sponsor's Statement to S. 332 (205th N.J.
Leg., lst Sess. 1992).
The case concerns assessments of General Motors' automobile assembly plants made by the City of Linden for the 1983, 1984, and 1985 tax years. General Motors (GM) appealed the assessments on the basis that the Tax Court had incorrectly assessed the property as special purpose property rather than general purpose property. The Appellate Division remanded the case to the Tax Court for consideration in light of our opinion in Ford Motor Company v. Edison, 127 N.J. 290 (1992), and for consideration of whether the BRA applied to the case. 13 N.J. Tax 324 (1993). GM's remaining tax appeals, through the 1992 tax year, were consolidated on remand.
In an unreported opinion, the Tax Court held the BRA to be unconstitutional. Linden appealed to the Appellate Division, which reversed the Tax Court and concluded that the BRA was constitutional. 293 N.J. Super. 99 (App. Div. 1996). The court held that "because the subject of [the BRA] is not real property, as to which the Uniformity Clause applies, but rather personal property," the proper test was whether the BRA's classifications were reasonable. Id. at 104. The court reasoned that the Legislature can classify personal property and concluded that its goal through the BRA "to accord the definition of fixtures the
most restrictive scope consistent with . . . the fundamental
distinction between real and personal property" did not violate
the State Constitution. Id. at 107. Linden sought leave to
appeal.
The Senate and General Assembly passed concurrent
resolutions requesting the Court to expedite its consideration of
the constitutionality of the appeal. Senate Committee Substitute
for State Concurrent Resolution No. 57 (March 7, 1996). We
granted leave to appeal. We permitted the State, the City of
Newark, the New Jersey Chamber of Commerce, and NBCP Urban
Renewal to intervene and to file briefs as amici curiae.
There are two benchmarks for our decision. One is that the Legislature has broad discretion "in the classification of personal property for exemption or preferential treatment." Switz v. Kingsley, 37 N.J. 566, 586 (1962). The Legislature is free to tax personal property in any way so long as the classifications are reasonable and the property is assessed under general laws and by uniform rules. The other is that the Uniformity Clause of the New Jersey Constitution places limits on the Legislature's ability to classify real property for purposes of taxation. The Uniformity Clause requires that all real property be "assessed and taxed . . . according to the same standard of value . . . [and] at the general tax rate of the
taxing district in which the property is situated." N.J. Const.,
art. VIII, § 1, ¶ 1(a). The clause has been described as a
compromise that barred discriminatory burdens on real property
taxation, in order to protect the tax revenues of municipalities.
New Jersey State League of Municipalities v. Kimmelman,
105 N.J. 422, 433 (1987).
Historically, both real and personal property were subject
to local taxation. In 1966, however, the Legislature passed the
Business Personal Property Tax Act. N.J.S.A. 54:11A-1 to -21
(repealed). That Act excluded from taxation at the local level
business personal property and substituted a system of taxation
at the state level. The Act defined business personal property
as "tangible goods and chattels used or held for use in any
business" but did not include "goods and chattels so affixed to
real property as to become part thereof and not to be severable
or removable without material injury thereto." N.J.S.A. 54:11A-2(b)(2) (repealed). Such business personal property, except when
"so affixed," was excluded from local taxation. Items so
affixed, or "fixtures," were subject to local taxation as real
property.See footnote 1
In Bayonne City v. Port Jersey Corporation,
79 N.J. 367
(1979), this Court interpreted N.J.S.A. 54:11A-2(b)(2) in the
context of three extremely large, movable cranes. The Bayonne
Court adopted a "material injury" test to determine whether the
items were business personal property. The Court interpreted the
exclusion from the definition of business personal property in
N.J.S.A. 54:11A-2(b)(2) to refer to "only those chattels the
removal of which will do irreparable or serious physical injury
or damage" to the property. Bayonne, supra, 79 N.J. at 378.
Bayonne rejected the so-called "institutional doctrine," which
focused on whether the removal of a fixture would prevent the
realty from being used for its original intended purpose.See footnote 2 Id.
at 376. See also H.J. Bradley, Inc. v. Tax Div.,
4 N.J. Tax 213,
219-20 (1982) (discussing institutional doctrine and its
rejection).
Cases following Bayonne questioned the extent of its
holding. Some cases gave the "material injury" test sweeping
effect, and exempted from taxation many items (such as radiators,
toilets, and sinks) previously taxed as real property because
they could be removed from the realty without irreparable or
serious injury. Other Tax Court decisions, however, applied both
the Bayonne "material injury" test and a traditional "fixtures"
test, to find certain items to be real property. Several cases
interpreted the "without material injury thereto" language of
N.J.S.A. 54:11A-2(b)(2) as exempting items from local taxation
when their removal would cause material injury neither to the
real property nor the personal property itself. See, e.g.,
Lawrence Assoc. v. Lawrence Township,
5 N.J. Tax 481, 511-12
(1983).
When the differences remained unresolved, the Legislature
responded. In 1986, it amended N.J.S.A. 54:11A-2(b)(2) and
N.J.S.A. 54:4-1, which defined property subject to taxation. See
L. 1986, c. 117. Specifically, Chapter 117 amended N.J.S.A.
54:4-1 and defined taxable real property to include personal
property "affixed" to the real property, unless
a. (1) The personal property so affixed
can be removed or severed without
material injury to the real
property;
(2) The personal property so affixed
can be removed or severed without
material injury to the personal
property itself; and
(3) The personal property so affixed is
not ordinarily intended to be
affixed permanently to real
property;
or
b. The personal property so affixed is
machinery, apparatus, or equipment which is
neither functionally essential to a structure
the personal property is within or to which
the personal property is affixed nor
constitutes a structure itself.See footnote 3
Chapter 117 further amended N.J.S.A. 54:11A-2 to exclude from the
definition of business personal property goods and chattels
taxable as real property pursuant to the amended N.J.S.A. 54:4-1.
Chapter 117 deleted the former N.J.S.A. 54:11A-2(b)(2). It added
N.J.S.A. 54:4-1.12 to define storage tanks of more than 30,000
gallons as real property.
The statements that accompanied Chapter 117 and the
Governor's objections and recommendations to the Senate explained
that the Legislature was reacting to post-Bayonne case law. Both
the Governor and Legislature believed that municipalities were
facing an immediate revenue deficit from the loss of tax
ratables. Items traditionally thought to be taxed as real
property were being exempted from taxation because almost any
property affixed to realty could be removed without irreparable
or serious injury. The Governor's objections and recommendations
for amendment, which related only to aspects of the bill that
dealt with taxation of storage tanks, stated in part: "This bill
is a response to certain recent court decisions that may result
in the exemption from local property taxation of certain
industrial property that has long been taxed locally."
Governor's Reconsideration and Recommendation Statement to Senate
Bill No. 1858 at 1 (Sept. 5, 1986). See, e.g., Stem Bros., Inc.
v. Alexandria Township,
6 N.J. Tax 537 (1984) (finding large
storage tanks business personal property). The Assembly
statement attached to the floor amendment observed:
The statutory test will clarify that personal
property, once fixed to real property,
becomes taxable as real property if the
personal property is of a type or class which
ordinarily remains with the real property for
the period of its useful life. Thus, items
such as toilets, sinks, water fountains and
built-in lighting fixtures will be taxed as
real property.
However, machinery, apparatus and
equipment used in business, even if affixed
to real property, will not be subject to
local property taxation under the definition
because that property is not functionally
essential to a structure or is not a type or
class of property which is ordinarily
intended to be affixed permanently to real
property. Basically, such property is
ordinarily moved when a business relocates,
is frequently bought and sold separate from
the real property and would not ordinarily be
included in a deed of sale for the real
property. The test excludes such property
from real property taxation.
[Assembly Appropriations Committee, Statement
to Assembly Bill No. 2251 (June 23, 1986).]
Chapter 117, therefore, established the a and b tests and created a framework for determining when an item of business personal property becomes real property for purposes of taxation. It has been described as establishing a presumption that "personal property affixed" is real property unless excluded under the
subsections. Freehold Township v. Javin Partnership,
15 N.J. Tax 88, 94-95 (1995).
However, in interpreting Chapter 117, a number of cases
created a distinction between "special purpose" and "general
purpose" property. See Texas Eastern Trans. Corp. v. Division of
Taxation,
11 N.J. Tax 198 (1990). Special purpose property has
unique physical design, special construction materials, or layout
that restricts its utility to the use for which it was built.
Id. at 209 n.2. In Texas Eastern, the court concluded that
regulations of the Division of Taxation, which were meant to
clarify the terms "structure," "material injury," and "machinery,
apparatus or equipment" in Chapter 117, were not reasonably
related to special purpose property. Id. at 209-10. Texas
Eastern was viewed as having restored the institutional doctrine
because the decision stated that if real estate is special
purpose property, "the operation of the structure and the
operation of the business conducted therein merge." Id. at 211.
The court had reasoned that the Legislature's intent in enacting
Chapter 117 was to broaden the meaning of real property and
narrow that of personal property. Ibid.
In response to Texas Eastern's understanding of Chapter 117,
the pendulum began to shift toward including business personal
property as taxable real property. The Legislature expressed
concern with three decisions referred to in our opinion in R.C.
Maxwell, supra, 145 N.J. at 563. See American Hydro Power
Partners v. Clifton,
11 N.J. Tax 12 (1990) (holding hydroelectric
power machinery real property), aff'd in part,
12 N.J. Tax 264
(App. Div. 1991); Badische Corp. v. Town of Kearny,
11 N.J. Tax 395 (1990) (holding batch ester plant machinery real property);
Texas Eastern, supra,
11 N.J. Tax 198 (holding natural gas plant
machinery real property).
The BRA was the Legislature's response. The BRA sought more
broadly to exclude personal property used or held for use in
business from local real property taxes. The BRA amended the
subsection b machinery, apparatus, or equipment exemption to its
current form. R.C. Maxwell, supra, 145 N.J. at 562. The BRA
modified the b test of Chapter 117 by defining as real property
all business personal property affixed unless the personal
property affixed
is machinery, apparatus, or equipment used or
held for use in business and is neither a
structure nor machinery, apparatus or
equipment the primary purpose of which is to
enable a structure to support, shelter,
contain, enclose or house persons or
property. For purposes of this subsection,
real property shall include pipe racks, and
piping and electrical wiring up to the point
of connections with the machinery, apparatus,
or equipment of a production process as
defined in this section.
The legislative statement explained:
[T]he bill amends subsection b. of R.S. 54:4-1 to specify that items of machinery, apparatus or equipment used in the conduct of a business are defined as personal property regardless of the class or type of real property to which such items may be affixed. Such items are defined as locally taxable real property only if they constitute a
structure, as defined in the bill, or are
primarily used to enable a structure to
support, shelter, contain, enclose or house
persons or property.
[Senate Budget and Appropriations Committee,
Statement to Senate Bill No. 332 (February
24, 1992).]
In a new section, the Legislature defined "machinery,
apparatus or equipment" as "any machine, device, mechanism,
instrument, tool, tank or item of tangible personal property used
or held for use in business." N.J.S.A. 54:4-1.15.
In R.C. Maxwell, we said that "the broader exclusion from
local taxation [in the BRA] was an essential element to the
Legislature's goal of reaffirming its policy to exclude
`machinery, apparatus and equipment used or held for use in
business from local taxation.'" 145 N.J. at 562. Applying the
principle of ejusdem generis, Maxwell construed "[any] item of
tangible personal property used or held for use in business" to
mean those items similar to "machinery, apparatus, or equipment"
used in manufacturing operations. Id. at 565-66.
With the BRA, the Legislature continued to clarify its
intent to distinguish between property integrated with the
business, and property integrated with the realty upon which the
business is located. The Governor's Statement to the Senate
concerning the BRA confirms this understanding. The Statement
declares that the BRA was intended to restore Chapter 117's
distinction between business machinery that participates in the
business, and business machinery that accommodates the business.
The former was business personal property, the latter taxable as
real property. Governor's Reconsideration and Recommendation
Statement to Senate Bill No. 332 at 2 (June 1, 1992). An example
given of the distinction was of an air conditioning unit that
dries the paint of new cars as they leave the assembly area and
one that cools an office suite.
Of necessity, in the context of a facial challenge, we cannot fill in all the details but must sketch the outline of the law with a broad brush. As with all legislation, the BRA proceeds with a presumption of constitutionality. In re C.V.S. Pharm., 116 N.J. 490 (1989), cert. denied, 493 U.S. 1045, 110 S. Ct. 841, 107 L. Ed.2d 836 (1990); Hills Dev. Corp. v. Township of Bernards, 103 N.J. 1 (1986). The Court will invalidate a statute only if it is clearly repugnant to the Constitution. Newark Superior Officers Ass'n v. City of Newark, 98 N.J. 212 (1985); Paul Kimball Hosp., Inc. v. Brick Township Hosp., 86 N.J. 429 (1981). A taxing statute is not facially unconstitutional if it operates constitutionally in some instances. J.L. Muscarelle, Inc. v. Saddle Brook Township, 14 N.J. Tax 453, 473 (1995) (Hamill, J.T.C., concurring).
Linden disputes the characterization of this appeal, pointing to facts developed in the record that allegedly support
its argument. These facts, however, are formally not part of our
appeal and we thus do not consider them.
To argue, as the proponents of the BRA do, that the Act does no more than classify personal property assumes the answer to the question of what is real property. If every accession to land were viewed in its original state, the Legislature could as easily provide that the bricks and mortar that go into the making of an industrial plant should be classified as personal property. The reasoning of the BRA's proponents would have provided a simple answer to the problem posed by Kimmelman, supra, 105 N.J. 422. The Legislature might have stated that newly-constructed dwellings that remain unoccupied should be classified as exempt business personal property. Of course, the Legislature did not and would not do such a thing because there is a common assumption that some accessions of personal property to land are indisputably real property.
Because the Legislature does not have unbounded power to determine when property shall be considered realty or personalty, we therefore must ask what is real property or, more specifically, what would the framers of the 1947 Constitution have understood real property to be.
Our review of the subject is not intended to be a treatise on the law of real property (we have a sense that we are
tiptoeing in a legal mine field), but is intended only to help us
in the facial analysis of the BRA. The distinction between real
and personal property has its roots in the Roman law of accessio
and comes to the United States through the intermediary of
centuries of English property law. See 5 American Law of
Property § 19.1 (A. Casner ed. 1952). A concise expression of
the probable understanding of the concept of real property in
1947 is contained in Handler v. Horns,
2 N.J. 18 (1949). Several
members of that Court had participated in the Constitutional
Convention of 1947. See Lyn-Anna Properties, Ltd. v. Harborview
Dev. Corp.,
145 N.J. 313, 323 (1996). They wrote:
It is an ancient maxim, which in the
language of antiquity is expressed quicquid
plantatur solo, solo cedit, that whatsoever
is fixed to the realty is thereby made a part
of the realty to which it adheres, and
partakes of all of its incidents and
properties . . . . But through the advancing
years that old maxim has given way to
numerous exceptions.
One significant exception to the ancient maxim concerned
articles of trade or business ("trade fixtures") annexed to
property by a tenant. That exception was rooted in reasons of
policy (to encourage trade and industry) and reasons of logic
(the tenant's motive in placing the articles on the property was
presumably for the tenant's own benefit and not that of the
landlord). 2 N.J. at 24.
New Jersey courts long had applied a three-part test to
determine when chattels become fixtures. This test was first set
forth by a New Jersey court in Brearley v. Cox,
24 N.J.L. 287
(Sup. Ct. 1854). That Court held that
the true criterion of a fixture is the united
application of the following requisites: (1)
actual annexation to the realty, or something
appurtenant thereto; (2) application to the
use or purpose to which that part of the
realty with which it is connected is
appropriated; and (3) the intention to . . .
make a permanent accession to the freehold.
Feder v. Van Winkle,
53 N.J. Eq. 370 (E. & A. 1895), established
the institutional doctrine later disapproved in Bayonne. The
Feder Court interpreted the Brearley test and concluded that
"[t]he intention must exist to incorporate the chattels with the
real estate for the uses to which the real estate is
appropriated, and there must be the presence of such facts [that
rebut] the inference that it is intended to be a temporary
annexation." Id. at 373. Feder also held that each case must be
determined according to its particular facts and circumstances.
Id. at 372.
Fahmie v. Nyman,
70 N.J. Super. 313 (App. Div. 1961),
observed, however, that Feder had emphasized the presence of the
element of intention that "impel[led] the conclusion that the
chattels . . . [were] permanently essential" to the structure and
so were real property. Id. at 318. Fahmie thus found that the
institutional doctrine of Feder did not apply under its facts
because the chattels were easily removable from the building (a
butcher shop), and the "empty store would have been entirely
suitable to the operation of any number of retail business
enterprises." Id. at 321. Fahmie recognized a distinction
between business property "essential" to the realty, and business
property readily removable that did not damage the realty for
future purchasers.
The institutional doctrine reached its apogee during the
nineteen-thirties, first in the areas of relations between debtor
and creditor and later in those between landlord and tenant.
See, e.g., Smyth Sales Corp. v. Norfolk B. & L. Ass'n,
116 N.J.L. 293 (E. & A. 1936). The doctrine has been described as a
"humanitarian gesture" on the part of New Jersey to ameliorate
the rigors of harsh economic periods. See 2 Grant Gilmore,
Security Interests in Personal Property § 28.6 (1965).
The three-part Brearley test was essentially a restatement
of the prevailing American common-law fixtures test, composed of
the elements of affixation, adaptation, and intention. See
generally Alphonse M. Squillante, The Law of Fixtures: Common
Law and the Uniform Commercial Code,
15 Hofstra L. Rev. 191
(1987). Teaff v. Hewitt,
1 Ohio St. 511 (1853), remains the
leading case. Teaff noted that different understandings of the
law of fixtures had arisen in the case of business property.
"The business of manufacturing . . . is a pursuit personal in its
character and not strictly subservient to real estate, or
essential to the enjoyment of the freehold." Id. at 535. The
court reasoned that real and personal property could be united
for some business purpose without each losing their particular
character. Ibid. Teaff distinguishes between chattels devoted
to the business conducted on the premises from fixtures devoted
primarily to the realty itself.
The institutional doctrine, in contrast, molded the last two
elements (adaptation and intention) in light of the economic
understanding of the time. Squillante, supra,
15 Hofstra L. Rev.
at 204. Its effect was to integrate the business personal
property into the use of the realty and to treat them as a single
economic unit ("the institution"). Hall v. Luby Corp.,
232 N.J.
Super. 337, 346 (Law Div. 1989).
Despite several evolutions in its attempt to draw the lines
between realty and personalty, we are satisfied that the
Legislature has intended to be faithful to the common-law
recognition that there are certain forms of personal property so
affixed to real property as to be considered a part thereof. It
enacted Chapter 117 and, later, the BRA to give verbal form to
its understanding.
Although the syntax of the statute suggests an intent to grant an exemption for real property used in business, we believe the Legislature did not intend that the b test override the a test in circumstances in which affixed personal property would otherwise be taxable as real property under the a test. That is
to say, the a and b tests do not present entirely separate
hurdles to surmount before an item of personal property is
taxable as real property. Chapter 117 attempted to describe two
classes of personal property that, although affixed, do not
become real property for purposes of real property taxation.
There is first a general class of affixed personal property,
with characteristics of severability without material injury (to
either itself or the realty) and the absence of an intention that
it remain part of the realty. A second, more specific class of
personal property consists of affixed personal property that is
"machinery, apparatus, or equipment" used or held for use in
business. The characteristics of this class may overlap the
elements of severability and absence of an intention that it
remain part of the realty that are found in the a test.
The legislative reasoning contained in the Assembly
Committee Statement sustains the conclusion that the b test was
not designed to override the a test for the benefit of business
interests. Items like the air conditioner on the production
floor that would constitute "machinery, apparatus, or equipment"
under Maxwell generally would also pass the material injury and
intent parts of the a test. The converse is also true. The
Statement noted that business personal property is ordinarily
moved upon relocation of the business, is bought and sold
separately, and not ordinarily included in the deed of sale of
the property. A draft proposed by the Division of Taxation
stated that if such items can also be removed without material
injury to themselves or to the real property, they are not
subject to taxation as real property.
The one constant in the evolution of the legislation has
been the intent that property traditionally taxed as real
property should remain so. As originally introduced, S. 1858,
the Senate bill that became Chapter 117, covered only the
taxation of 10,000 gallon tanks (later increased to 30,000). A
Senate Committee amendment to S. 1858 proposed the
restoration of the traditional three-part fixtures test, which
was to become the a test. However, later amendments replaced the
traditional language of affixation, adaptation, and intent with a
modified fixtures test. The statement that accompanied the
amended test was as follows: "[the bill] adopts a version of the
`material injury' test as a means of determining whether or not
personal property shall be taxed as real property." Assembly
Appropriations Committee, Statement to Assembly Bill No. 2251
(May 22, 1986). Despite the fact that the Legislature deleted
from Chapter 117 the familiar common-law language, the concepts
that it employed are similar and related. Materiality of injury,
for example, had long been a measure of affixation. Squillante,
supra,
15 Hofstra L. Rev. at 204-05. The b test was added as a
floor amendment. The statement included with the b test noted
that the amendments "establish a new test which broadens that
court definition" of real property.See footnote 4 Although perhaps
inartfully done, the legislative drafting suggests that Chapter
117 was intended to insure against the resurrection of the
institutional doctrine and to restore intent as an element in
determining when affixed personal property becomes real property.
We acknowledge that the legislative history is extensive and in
places convoluted, but we are confident that the Legislature will
clarify its meaning if we have misread it.
Lawmakers and jurists perceive abstract concepts in concrete terms. In attempting to draw the line at which business personal property serves the business or the property itself, the Legislature has used the model of the production line. Electrical wire embedded in the floor would be classified as real property. Once the wire reaches the line itself, it is classified as business personal property. N.J.S.A. 54:4-1b. Of course, the assembly line model may be an imprecise analog in the modern business setting. The California Supreme Court recently had to apply the concepts of real and personal property to electronic data processing equipment. Crocker Nat'l Bank v. San Francisco, 782 P.2d 278 (1990). The California court recognized
that the legal problem confronting it was to develop a "workable
rule" that would enable the tax assessor to operate most
efficiently. Id. at 280. We envision the BRA as attempting to
develop workable rules that will enable taxpayers and tax
assessors to operate most efficiently.
The Court inquired of the parties at oral argument about
examples of how the statute might adversely affect the tax base
of municipalities. The parties were able to offer no concrete
examples that convinced us that the statute would be applied in
an unconstitutional manner. Reference to the decision in Emmis
Broadcasting Corporation v. East Rutherford,
14 N.J. Tax 524
(1995), aff'd,
16 N.J. Tax 29 (App. Div.), certif. denied,
147 N.J. 263 (1996), which held three radio broadcast towers to be
business personal property, is a poor predicate for finding
facial invalidity. That case was decided before Maxwell
interpreted "machinery, apparatus, or equipment" and involved a
special category of telecommunication property.
Although the Legislature has provided for a phasing-in of
the statute in circumstances in which property previously taxed
as real property would be reclassified as personal property, we
were informed at oral argument that there have been no recorded
incidents to that effect. The phase-in provision provides that
if a taxpayer is entitled to an assessment reduction because the
assessor was taxing as real property machinery, apparatus, or
equipment excluded from taxation by the BRA, the municipality
shall be entitled to assess and tax the property as personal
property in decreasing amounts over five years. N.J.S.A. 54:4-1.16.
We find that the BRA is facially constitutional. It
represents an effort by the Legislature to define a class of
business personal property that would not have been considered
real property under the common-law understanding of real property
at the time of the 1947 Constitution. As Justice Holmes has
said, words are the skin of ideas; the a and b tests of the BRA
were meant to put skin on the complex ideas of property. See
Towne v. Eisner,
245 U.S. 418, 425,
38 S. Ct. 158, 159,
62 L. Ed. 372, 376 (1918).
Although the difficulty posed by the issues requires caution
on our part in considering a facial challenge to the BRA, our
decision does not foreclose future as applied challenges. The
Legislature has attempted to devise workable rules for the
assessment and taxation of property. Cases may arise, however,
in which the constitutional distinction attempted to be drawn by
the BRA may be crossed. We doubt that will occur. As we
explained in Maxwell the phrase "machinery, apparatus, or
equipment" does not have boundless meaning. The words must be
construed consistently with the legislative intent in adopting
the BRA. R.C. Maxwell, supra, 145 N.J. at 565-66. Determining
the status for taxation of specific items is best left to the
expertise of the assessment community and the Tax Court.
In view of the disposition we make, we do not decide the
issue of the retroactive application of the BRA for the pre-1992
tax years. To determine whether a statute is to be given
retroactive effect, this Court has applied a two-part test. In
re D.C.,
146 N.J. 31, 50 (1996). The first part determines
whether the Legislature meant to give the statute retroactive
application, and the second part questions whether retroactive
application would result in either a "manifest injustice" or an
unconstitutional interference with "vested rights." Ibid.
(citing Phillips v. Curiale,
128 N.J. 608, 617 (1992)). It is
clear that the Legislature intended to give the BRA retroactive
effect. We cannot find in this facial challenge that the BRA
substantially changed the existing law of taxation of real
property so as to result in a "manifest injustice" or an
interference with "vested rights."
Although the attack in this case is upon the Business Retention Act of 1992, the basic framework for the taxation of the "machinery, apparatus or equipment" of business was established by Chapter 117 of the Laws of 1986. Governor Kean and the leaders of the Legislature envisioned that law as a benefit to municipalities, restoring the inroads on their tax base that had resulted from application of the one-dimensional "material injury" test of Bayonne. Chapter 117 was designed to insure that property that had "long been taxed locally" continued to be so taxed. The BRA of 1992 had a single purpose -- to
reverse the holding that Chapter 117 did not apply in the case of
special purpose property. The BRA was intended, as Governor
Florio's statement on signing explained, to "clearly express[]
the Legislature's intent in 1986," and is consistent with long-standing State policy. Subsequent interpretation of the BRA
should be guided by those principles.
We affirm the judgment of the Appellate Division upholding
the facial constitutionality of the BRA.
JUSTICES POLLOCK, GARIBALDI, STEIN and COLEMAN join in
JUSTICE O'HERN's opinion. JUSTICE HANDLER has filed a separate
concurring opinion. CHIEF JUSTICE PORITZ did not participate.
A schematic of the concepts used by the Legislature over
time to draw the line between real and personal property is as
follows:
1966
No definition of
real property
Definition of
business personal
property as
“tangible goods and
chattels” used in
business, but
excluding “goods and
chattels so affixed
to real property as
to become part
thereof and not to
be severable or
removable without
material injury
thereto.” N.J.S.A.
54:11A-2 (repealed).
1986
c. 117
Definition of real
property
.
Land
.
Improvements
thereon
.
Personal
property
affixed to the
real property
unless
a. (1) The personal
property so affixed
can be removed or
severed without
material injury to
the real property;
(2) The
personal property so
affixed can be
removed or severed
without material
injury to the
personal property
itself; and
(3) The
personal property so
affixed is not
ordinarily intended
to be affixed
permanently to real
property; or
b. The personal
property so affixed
is machinery,
apparatus, or
equipment which is
neither functionally
essential to a
structure the
personal property is
within or to which
the personal
property is affixed
nor constitutes a
structure itself.
N.J.S.A. 54:4-1.
Same definition of
business personal
property, but
excluding goods and
chattels defined by
N.J.S.A. 54:4-1 as
“real property.”
N.J.S.A. 54:11A-2.
1992
BRA
Same definition of
real property.
Refined definitions
of “machinery,
apparatus, or
equipment” as that
“used or held for
use in business and
is neither a
structure nor
machinery, apparatus
or equipment the
primary purpose of
which is to enable a
structure to
support, shelter,
contain, enclose or
house persons or
property.”
N.J.S.A. 54:4-1.
Expanded definition
of "machinery,
apparatus or
equipment" in new
section.
N.J.S.A. 54:4-1.15.
Same definition of
business personal
property
(BPPT was repealed
in 1993).
SUPREME COURT OF NEW JERSEY
A-
106 September Term 1996
GENERAL MOTORS CORPORATION,
Plaintiff-Respondent,
v.
CITY OF LINDEN,
Defendant-Appellant.
HANDLER, J., concurring.
The Court holds that the Business Retention Act of 1992 ("BRA") is facially constitutional "because it may reasonably be interpreted as not to create an unconstitutional exemption for real property from taxation that would favor business or industry." Ante at __ (slip op at 2). By that holding, the Court acknowledges its duty to construe legislative enactments in such a way as to preserve their constitutionality, if such an interpretation is reasonably possible. See Brown v. City of Newark, 113 N.J. 565, 582 (1989); NYT Cable TV v. Homestead at Mansfield, Inc., 111 N.J. 21, 26 (1988). The Court fashions an interpretation of the BRA that allows it to be applied constitutionally. Indeed, if the BRA were not so construed, it is highly likely that its applications would violate the Constitution's Uniformity Clause. See In re Kimber Petroleum
Corp.,
110 N.J. 69, appeal dismissed,
488 U.S. 935,
109 S. Ct. 358,
102 L. Ed.2d 349 (1988).
The Legislature cannot define real and personal property in
order to escape the purpose and intendment of the Uniformity
Clause. The Court concludes that, in fact, the Legislature has
not done so in enacting the BRA. The BRA's constitutionality is
dependent on the fact that the Legislature's treatment of real
property is fully consistent with the basic law of fixtures.
That law serves to define the category of personal property that
has become real property in the constitutional sense through its
affixation to existing real property.
The Uniformity Clause to our Constitution states that:
Property shall be assessed for taxation under
general laws and by uniform rules. All real
property assessed and taxed locally or by the
State for allotment and payment to taxing
districts shall be assessed according to the
same standard of value, except as otherwise
permitted herein and such real property shall
be taxed at the general tax rate of the
taxing district in which the property is
situated, for the use of such taxing
district.
Personal property that has become real property must be taxed as any other real property -- "according to the same standard of value" and at the same tax rate
"The evil that the [Uniformity Clause] sought to cure was the still-favorable [tax] treatment given to one industry, then the railroad industry." League of Municipalities v. Kimmelman, 105 N.J. 422, 436 (1987); see also id. at 427-36 (detailing the
history surrounding the enactment of the Uniformity Clause). In
order to prevent any one industry from receiving favorable
treatment through the preferential taxation of its real property,
the clause forbids the Legislature from granting exemption or
preferential tax status to real property. The constitutional
stricture applies to all real property, without regard to
ownership or use. E.g., Township of West Milford v. Van Decker,
120 N.J. 354 (1990); Kimmelman, supra,
105 N.J. 422; Switz v.
Kingsley,
7 N.J. 566 (1962).
The clause, however, does not bar the Legislature from
according preferential tax treatment by classifying personal
property. In Switz, supra, the Court noted that "[t]he mandate
for sameness in standard of value and tax rate is limited to real
property. . . . [I]t [is] clear the intent was to leave in the
Legislature a broad power to classify personal property for
either exemption or preferential treatment." 37 N.J. at 585; see
also General Electric v. City of Passaic,
28 N.J. 499, 510 (1958)
("[The 1947 Constitution] seemingly contains nothing which would
prohibit the Legislature from granting personal property tax
exemptions by general legislation so long as there was proper
basis and reasonable classification."). As a result of that
dichotomy, the classification of property that straddles the
divide between real and personal property becomes critical for
purposes of valid taxation.
Prior to the enactment of the BRA, real property subject to
the Uniformity Clause was described as all land and improvements
thereon, including personal property affixed to real property or
an appurtenance thereto, unless:
a. (1) The personal property so affixed can
be removed or severed without material injury
to the real property;
(2) The personal property so affixed can
be removed or severed without material injury
to the personal property itself; and
(3) The personal property so affixed is
not ordinarily intended to be affixed
permanently to real property; or
b. The personal property so affixed is
machinery, apparatus, or equipment which is
neither functionally essential to a structure
the personal property is within or to which
the personal property is affixed nor
constitutes a structure itself.
[N.J.S.A. 54:4-1 (as amended by L.
1986, c. 117, § 1).]
Chapter 117 thus established the so-called "a" test (or "material
injury" test) and the "b" test and created a framework for
determining when an item of business personal property becomes
real property for purposes of taxation.
The origins of this statutory test are rooted in the early
common law of fixtures. E.g., Brearley v. Cox, 24 N.J.L. 287
(Sup. Ct. 1854). Thus, as pointed out by the Court, items of
personal property, including business personal property, when
they are "'so affixed to real property as to become part thereof
and not to be severable or removable without material injury
thereto'" are "'fixtures'" and "subject to local taxation as real
property." Ante at __ (slip op. at 5) (quoting N.J.S.A. 54:11A-2(b)(2) (repealed) and citing Lehmann v. Kelly,
684 A.2d 18, 621
(Pa. Super. Ct. 1996) (defining a fixture as "an item of property
that 'has been so annexed to the realty that it is regarded as
part and parcel of the land.'")). A fixture has the attributes
of both realty and personalty -- it stands on the boundary
dividing property into "things personal [and] . . . things real."
Teaff v. Hewitt,
1 Ohio St. 511, 527 (Ohio 1853); cf. R.C.
Maxwell Co. v. Galloway Twp.,
145 N.J. 547, 554-56 (1996)
(distinguishing between "improvements" and "personal property"
affixed to real property).
If an item is transformed into a fixture, it is denoted real
property for taxation purposes and is thus subject to the
Uniformity Clause. It must be taxed according to the same
standard of value and at the same rate as all other real
property; it cannot be given different preferential treatment.
If an item remains personalty, the item is not subject to the
clause, and thus can be accorded favorable tax treatment under
our constitutional scheme.
The BRA is an attempt to redefine real property. Although
the statute left intact the two-part test, it modified the b test
by defining as real property all business personal property
affixed unless the personal property so affixed
is machinery, apparatus, or equipment used or
held for use in business and is neither a
structure nor machinery, apparatus or
equipment the primary purpose of which is to
enable a structure to support, shelter,
contain, enclose or house persons or
property. For purposes of this subsection,
real property shall include pipe racks, and
piping and electrical wiring up to the point
of connections with the machinery, apparatus,
or equipment of a production process as
defined in this section.
That modification of the b test was enacted as part of the BRA in an effort to lessen the burdens on industry by providing business machinery, equipment, and apparatus with a greater opportunity to be classified as personal property and thus more lenient tax treatment. R.C. Maxwell, supra, 145 N.J. at 562. The Legislature found and declared
that since 1979 New Jersey has lost a major share of its manufacturing jobs and manufacturing plants and this trend has persisted throughout periods of economic recovery and periods of recession. . . . The Legislature, therefore, declares that it is the policy of the State, through this act [the BRA], to refine the definitions of real and personal property in order to reaffirm the broad exclusion from local property taxes of business personal property used or held for use in business.
The modification of the b test thus was intended to enlarge the class of business personal property not subject to uniform taxation applicable to other real property, thereby supporting and stimulating industrial growth.
Yet, however laudatory the goals of the BRA, the Legislature cannot ignore constitutional limits that constrain the meaning of personal property for tax purposes. If the Legislature were afforded a broad discretion unbounded by constitutional limits to define items as either fixtures (realty) or personalty, it could simply define all property it sought to treat favorably as
personal property. See ante at __ (slip op. at 14) ("If every
accession to land were viewed in its original state, the
Legislature could as easily provide that the brick and mortar
that go into the making of an industrial plant should be
classified as personal property."). Such a result would nullify
the Uniformity Clause. Insistence that the Uniformity Clause be
interpreted and applied strictly and consistently expresses its
constitutional intendment and is evident by those cases in which
legislative programs, certainly worthy in their goals, have run
afoul of the clause's categorical bar on the disuniform treatment
of real property. See Van Decker, supra,
120 N.J. 354
(invalidating local practice of reassessing value of real
property only when property was sold); Switz, supra,
37 N.J. 566
(invalidating provision that provided preferential tax treatment
to farmland in order to encourage the maintenance of open space).
The constitutional understanding of real property remains
informed by the traditional law of fixtures. The fundamental
issue presented by this litigation, therefore, is whether the
Legislature has impermissibly altered the law of fixtures in
order to bypass the Uniformity Clause. In other words, we must
determine whether the modified b test has the effect of narrowing
the definition of real property and creating a new class of
personal property. Because the law of fixtures provides the
basic meaning that underlies the constitutional understanding of
real property, the BRA would be invalid if it attempted to
reconfigure the basic law of fixtures.
The BRA, as found by the Court, requires all property to pass the a test (or material-injury test) before being accorded personal-property status. The BRA does not, therefore, constitute an automatic unconstitutional recasting of the basic definition of property. Ante at __ (slip op at 18) ("Although the syntax of the statute suggests an intent to grant an exemption for real property used in business, we believe the Legislature did not intend that the b test override the a test in circumstances in which affixed personal property would otherwise be taxable as real property under the a test."). By reaffirming the traditional constitutional floor of the material-injury test, the Court reaffirms our consistent interpretation of the Uniformity Clause as a strict limit on legislative power that does not allow for legislative redefinition of "real property."
NO. A-106 SEPTEMBER TERM 1996
ON APPEAL FROM Appellate Division, Superior Court
ON CERTIFICATION TO
GENERAL MOTORS CORPORATION,
Plaintiff-Respondent,
v.
CITY OF LINDEN,
Defendant-Appellant.
DECIDED July 21, 1997
Justice Handler PRESIDING
OPINION BY Justice O'Hern
CONCURRING OPINION BY Justice Handler
DISSENTING OPINION BY
Footnote: 1 Generally, a fixture is an item of property that "has been so annexed to the realty that it is regarded as part and parcel of the land." Lehmann v. Keller, 684 A.2d 618, 621 (Pa. Super. Ct. 1996). Footnote: 2 Bayonne relied on the adoption of the Uniform Commercial Code in 1961 to support its holding that the institutional doctrine had been rejected. UCC &#