FERRELLGAS PARTNERS, LP VS. DIRECTOR, DIVISION OF TAXATION (TAX COURT OF NEW JERSEY)

F
                                NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
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                                                        SUPERIOR COURT OF NEW JERSEY
                                                        APPELLATE DIVISION
                                                        DOCKET NO. A-3904-18T1

FERRELLGAS PARTNERS, LP,

          Plaintiff-Appellant,

v.

DIRECTOR, DIVISION OF
TAXATION,

     Defendant-Respondent.
_____________________________

                   Argued December 16, 2020 – Decided January 13, 2021

                   Before Judges Sumners and Geiger.

                   On appeal from the Tax Court of New Jersey, Docket
                   No. 7051-2014.

                   Kyle O. Sollie argued the cause for appellant (Reed
                   Smith LLP and Jonathan E. Maddison (Reed Smith
                   LLP) of the Pennsylvania bar, admitted pro hac vice,
                   attorneys; Jonathan E. Maddison and Kyle O. Sollie, on
                   the briefs).

                   Michael J. Duffy, Deputy Attorney General, argued the
                   cause for respondent (Gurbir S. Grewal, Attorney
                   General, attorney; Melissa H. Raksa, Assistant
            Attorney General, of counsel; Michael J. Duffy, on the
            briefs).

            Vinson & Elkins, LLP, and Clifford Thau, Marisa
            Antos-Fallon, and Bryan Hogg, (Vinson & Elkins,
            LLP) of the New York bar, admitted pro hac vice,
            attorneys for amicus curiae Energy Infrastructure
            Council (George C. Hopkins, Clifford Thau, Marisa
            Antos-Fallon, and Bryan Hogg on the brief).

PER CURIAM

      Plaintiff Ferrellgas Partners, L.P. appeals from December 7, 2018 and

April 1, 2019 Tax Court orders granting partial summary judgment to defendant

Director of the Division of Taxation (Division), upholding the denial of a refund

of the partnership filing fees (PFF) that plaintiff paid for tax years 2009 through

2011. We affirm.

      N.J.S.A. 54A:8-6(b)(2)(A) requires "[e]ach entity classified as a

partnership for federal income tax purposes," that has more than two owners,

"having any income derived from New Jersey sources," to pay "a filing fee of

$150 for each owner with an interest in the entity, up to a maximum of at

$250,000," when filing its informational tax return. Because it had more than

67,000 owners, plaintiff paid the maximum $250,000 PFF for tax years 2009

through 2011.




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      Plaintiff challenges the constitutionality of the PFF, arguing it violates the

Dormant Commerce Clause (DCC) of the United States Constitution because it

is not fairly apportioned and discriminates against interstate commerce, and is

not internally consistent.1 It further contends that the PFF is a tax, not a uniform

regulatory fee, imposed on interstate commerce, that does not satisfy the internal

consistency standard. Plaintiff argues that this court should remand to the Tax

Court to cure these constitutional defects through three-factor apportionment.

      The Statutory and Regulatory Framework

      An entity "classified as a partnership for federal income tax purposes" is

required to file an informational tax return setting forth all items of income and

loss if the entity has "a resident owner" or "any income derived from New Jersey

sources." N.J.S.A. 54A:8-6(b)(1). The return must identify the "name and

address of each partner, member, or other owner of an interest in the entity

however designated."

Ibid. 1

   The Commerce Clause provides: "Congress shall have Power To . . . regulate
Commerce with foreign Nations, and among the several States, and with Indian
tribes." U.S. Const. art. I, § 8, cl. 3. "Although the Constitution does not in
terms limit the power of States to regulate commerce, we have long interpreted
the Commerce Clause as an implicit restraint on state authority, even in the
absence of a conflicting federal statute." United Haulers Ass'n v. Oneida-
Herkimer Solid Waste Mgmt. Auth., 

550 U.S. 330

, 338 (2007). This implied
restraint on state authority to regulate interstate commerce is commonly known
as the Dormant Commerce Clause.
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      The Business Tax Reform Act (BTRA), L. 2002, c. 40, was enacted to

address large and multi-national corporations that earn billions in New Jersey

source income but pay minimal taxes. Sponsor's Statement to A. 2501 51-52

(June 6, 2002). This was accomplished, in part, by "establish[ing] a revenue

stream that captures enforcement and processing costs that New Jersey incurs

from processing the vast network of limited liability companies and

partnerships."

Id. at 52.

The BTRA was also intended to "affect[] the tracking

of the income of business organizations, like partnerships, that do not

themselves pay taxes but that distribute income to their owners, the eventual

taxpayers." Assembly Budget Comm. Statement to A. 2501 1 (June 27, 2002).

      To that end, the Legislature considered imposing a filing fee of $150 per

owner on partnerships and entities classified as partnerships for federal income

tax purposes, up to a maximum of $250,000 per tax year. A. 2501 (June 6,

2002). The bill was subsequently amended to "[c]larify that the [PFFs] only

apply only to partnerships that derive income from New Jersey." Assembly

Budget Comm. Statement to A. 2501 13; see also A. 2501 (June 28, 2002). "For

pass-through entities that have income from New Jersey sources and more than

two members, the bill establishes an annual $150 per owner filing fee, capped




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at $250,000 per entity annually." Assembly Budget Comm. Statement to A.

2501 7.

      The Office of Legislative Services estimated that PFF would increase

General Fund revenues by $40-$60 million in fiscal year 2003 and $28-$40

million in fiscal years 2004 and 2005. Legislative Fiscal Estimate to A. 2501 2

(Sept. 13, 2002).

      N.J.S.A. 54A:8-6 was amended to include subsection (b)(2)(A), which

imposes the PFF. It provides:

            Each entity classified as a partnership for federal
            income tax purposes, other than an investment club,
            having any income derived from New Jersey sources,
            including but not limited to a partnership, a limited
            liability partnership, or a limited liability company, that
            has more than two owners shall at the prescribed time
            for making the return required under this subsection
            make a payment of a filing fee of $150 for each owner
            of an interest in the entity, up to a maximum of
            $250,000.

            [N.J.S.A. 54A:8-6(b)(2)(A).]

      The regulations initially proposed by the Division to implement the PFF

included "an apportionment methodology for partnerships . . . liable for the

[PFF] . . . that have partners . . . that never enter New Jersey." 35 N.J.R. 1573(a)

(Apr. 7, 2003). The Division later explained that "only partners or professionals

without nexus would be subject to apportionment." 35 N.J.R. 4310(a) (Sept. 15,

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2003). Accordingly, the regulations provide that the PFF will be apportioned if

a partnership has an office outside New Jersey and nonresident partners with no

nexus to this State. N.J.A.C. 18:35-11.2(b). When applicable, apportionment

is computed in accordance with N.J.A.C. 18:35-11.2(c), which provides:

            The total apportioned partnership fee is equal to the
            sum of:

            1. The number of resident partners multiplied by
            $150.00; plus

            2. The number of nonresident partners with physical
            nexus to New Jersey multiplied by $150.00; plus

            3. The number of nonresident partners without physical
            nexus to New Jersey multiplied by $150.00 and the
            resulting product multiplied by the corporate allocation
            factor of the partnership.

      The Tax Court provided the following examples:

            If a partnership had all resident partners, the fee is $150
            times the number of partners. N.J.A.C. 18:35-11.6, Ex.
            1. If a Connecticut partnership, which had an office in
            Connecticut and New Jersey, and New Jersey source
            income, had 4 partners with no physical nexus to New
            Jersey, and the partnership’s allocation factor was 0.4,
            the fee would apportioned by multiplying 4 x $150 x
            0.4 or $240.

Id., Ex. 2. If

a limited partner of a New
            Jersey partnership was a California limited partnership
            which stored property in the New Jersey partnership’s
            office, had an allocation factor of 10%, and received $1
            million in distribution from the New Jersey partnership,
            then the California limited partner would also be liable,
            as a partnership, for the fee because it has New Jersey

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             source income.

Id., Ex. 3. Assuming

all 15 partners of
             the California limited partnership had no physical
             nexus to New Jersey, the fee would be 15 x $150 x 0.1
             or $225.

      In a Technical Bulletin issued in 2005, the Division explained the amount

of the PFF is "generally determined by the number of K-1s filed by . . . the

partnership, including when a . . . tiered partnership or pass-through entity is

involved."    TB-55 (Apr. 6, 2005).       As to non-resident partners, "[i]f the

partnership has income earned outside New Jersey, the filing fee for non-

resident partners that do not have physical nexus with New Jersey may be

apportioned based on New Jersey source income," determined by applying the

corporate allocation factor.

Id. at 2.

The PFF would not apply to partnerships

that had "all . . . operations and facilities . . . located outside New Jersey."

Ibid. The Technical Bulletin

also stated that "[i]ncome cannot be allocated outside

New Jersey (all income is New Jersey source income) if the partnership has no

place of business outside New Jersey."

Ibid. The Tax Court’s

Findings of Fact

      Plaintiff is a publicly traded limited partnership incorporated in Delaware

that is headquartered and commercially domiciled in Kansas.              Partnership

interests in plaintiff were regularly traded on the New York Stock Exchange.

Plaintiff's "general partner is Ferrellgas Inc., a wholly owned subsidiary of

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Ferrell Companies, Inc." According to its New Jersey partnership returns (N.J.-

1065), plaintiff's "limited partners are (1) the public 'shareholders,' (2) Ferrell

Companies, Inc., (3) Ferrell Companies, Inc., dba Ferrell Propane, Inc., and (4)

Jef Capital Management, Inc."

      In tax year 2009, plaintiff had 67,019 partners, of whom 2542 were

residents or partners with nexus to New Jersey. In tax year 2010, plaintiff had

66,835 partners, of whom 2423 were residents or partners with nexus to New

Jersey. In tax year 2011, plaintiff had 82,047 partners, of whom 2927 were

residents or partners with nexus to New Jersey.

      Plaintiff is the 99% sole limited partner in an affiliated Delaware limited

partnership, Ferrellgas, LP (the Operating Partnership). In turn, Ferrellgas Inc.

is the Operating Partnership's 1% general partner. Plaintiff facilitates

investments by the investing public in the Operating Partnership. The Operating

Partnership distributes propane tanks nationwide under the label "Blue Rhino."

Plaintiff has a storage facility in New Jersey. Three other locations handle

service and delivery calls.

      For tax years 2009 through 2011, plaintiff reported the following as

allocable to New Jersey:

            (1) property (real and intangible) valued at
            $11,499,191; receipts of $20,380,367; payroll of

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            $3,434,904, and a total apportionment of 1.1680% for
            tax year 2009; (2) property (real and intangible) valued
            at $11,418,129; receipts of $19,077,148; payroll of
            $3,229,104; and a total apportionment of 1.0550% for
            tax year 2010; and, (3) property (real and intangible)
            valued at $11,510,505; receipts of $21,519,209; payroll
            of $2,887,867; and a total apportionment of 1.0161%
            for tax year 2011.

This was the same allocation factor used by the Operating Partnership. Plaintiff

also reported New Jersey sourced net partnership income of $942,513 in tax year

2009; $597,413 in 2010; and $190,966 in 2011.

      The distributive share of New Jersey source partnership income from the

Operating Partnership was $1,208,149; $898,503; and $477,459, respectively,

for tax years 2009 to 2011. These were offset with plaintiff's ordinary losses

from trade or business for each tax year. The court noted that the reported

distributive share of New Jersey source partnership income differed from that

reported on the K-1 forms issued to plaintiff by the Operating Partnership in tax

years 2009 to 2011.

      Plaintiff paid the maximum $250,000 PFF in tax years 2009 to 2011. It

then sought a full refund of the PFF it had paid in those years, claiming its

distributive share of partnership income from the Operating partnership was not

reportable income. Plaintiff filed amended NJ-1065s that eliminated the New

Jersey source income it had previously reported.

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      The Division denied plaintiff's refund claims, determining that "pursuant

to N.J.A.C. 18:35-1.3(d)(6), a tiered partnership must 'take into account its

distributive share of partnership income' and cannot thereafter 'reallocate' it."

Because the Operating Partnership had allocated income to New Jersey, plaintiff

could not reallocate it.

      Plaintiff filed a complaint against the Director and moved for partial

summary judgment, contending the PFF is a tax that violated the DCC under

three of the four criteria enumerated in Complete Auto Transit, Inc. v. Brady,

430 U.S. 274

(1977), because the PFF: (1) discriminated against interstate

commerce; (2) was not fairly apportioned; and (3) was not fairly related to the

services provided by the Division. In support of its claims, plaintiff provided

the following data obtained from the New Jersey Department of Treasury:

             (1) The New Jersey source income reported by all
             partnerships for tax years 2009-2011 was
             $26,400,624,146;        $42,211,064,190;    and
             $11,679,724,687 respectively.

             (2) The partnership filing fees received from all entities
             in tax years 2009-2011 totaled $44,703,658;
             $47,109,396; and $47,461,768 respectively.

             (3) The salaries paid to all employees of the Division of
             Revenue who worked on processing [Gross Income
             Tax] returns for [fiscal years] 2009-2011 totaled
             $22,933,753; $18,373,397; and $20,101,294.


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            (4) In each tax year 2009-2011, Taxation processed the
            following number of NJ-1065s: 168,628; 175,517; and
            182,745. For each of those tax years, the total returns
            filed (for all types of income taxes) were about 4.7 to
            4.9 million.

            (5) All amounts collected as the filing fee were
            deposited into the General Fund, as part of the
            [Corporate Business Tax], a category in the General
            Fund.

      While plaintiff did not challenge the validity of the regulations, it claimed

they did not cure the partnership levy through apportionment. Plaintiff asserted

the Division could cure the DCC violation by apportioning the $250,000

maximum fee. The Tax Court concluded "[t]here was no fee apportionment for

[plaintiff] because the number of its domestic or in-[s]tate partners caused the

fee to reach the $250,000 cap."

      The Division cross-moved for partial summary judgment, arguing the PFF

"is a regulatory fee intended to defray administrative costs" associated with

"processing, examining, and auditing" plaintiff's partner and partnership returns,

and thereby valid under Am. Trucking Ass'ns v. Mich. Pub. Serv. Comm'n, 

545 U.S. 429

(2005) (ATA-Michigan). The Division asserted "the court need only

examine whether the amount [of the PFF] is excessive when the benefits to a

taxpayer are compared to the State's interests under Pike v. Bruce Church, Inc.,

397 U.S. 137

(1970)." The Division maintained the PFF was not excessive since

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the fee equates to less than $4 per partner. Alternatively, the Division argued

that "even if the PFF is deemed a tax, it still does not violate the DCC because

it is": (1) "fairly apportioned under its regulations"; (2) non-discriminatory

since it applies to any partnership; and (3) co-relative to the services provided

by the State (since plaintiff maintained storage facilities in New Jersey and was

able to do business here). The Division noted that applying the apportionment

sought by plaintiff would reduce the fee to less than $1 per partner, an

unreasonable result.

      The Tax Court employed the following test for determining the

constitutionality of a state-imposed levy under the DCC:

            (1) If a statute discriminates facially or in practical
            effect, it is invalid. The challenger has the burden to
            prove discrimination either way. If discrimination is
            proven, the State must then justify the statute vis-à-vis
            the local benefits, and lack of nondiscriminatory
            alternatives. This is the "less stringent" test, albeit still
            a heightened scrutiny.

            (2) Generally, a tax is subject to a stricter test, i.e., it
            must also be internally consistent, and thus, must be
            fairly apportioned. The challenger has the burden to
            prove the lack of apportionment. The State must then
            justify the statute as being nondiscriminatory, or that it
            cannot achieve a more "accurately apportioned fee." A
            State need not provide both a credit for, and an
            apportionment of, the challenged tax.



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           (3) If a statute or regulation is not discriminatory
           facially or in practical effect, then the statute may need
           to be examined under the burden-benefit balancing test
           if the excessiveness of the fee burdens interstate
           commerce. It would appear that the same initial burden
           of proof is on the challenger to prove discrimination,
           and then the excessiveness of the burden on interstate
           commerce when compared to the governmental benefit,
           after which the burden will shift to the State in proving
           the opposite.

           (4) The label of the levy is irrelevant to decide
           whether State law or regulation discriminates against
           interstate commerce.

           (5) The DCC protection applies to residents and non-
           residents.

           (6) For purposes of the DCC analysis, flat fees are
           sometimes treated as taxes, thus subject to the four-part
           test of Complete Auto, but sometimes not, especially if
           the levy is found to be non-discriminatory and applies
           only to intrastate transactions.

     The court first addressed whether interstate commerce was burdened by

the PFF. Recognizing that the Operating Partnership was the entity engaged in

nation-wide propane sales, and had not joined in challenging the PFF, the Tax

Court found:

           [Plaintiff]'s activity . . . is its investment in its affiliate
           directly or indirectly, which in turn facilitates (in part
           or otherwise) the earning of income by the Operating
           Partnership. Stated differently, the "commerce" being
           impacted is [plaintiff]'s provision of capital, and its
           facilitation of the provision of capital by residents and

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            nonresidents, to the Operating Partnership, directly or
            indirectly, which investment enables [plaintiff] to earn
            income from the Operating Partnership, thus, to earn
            New Jersey source income. Such commerce could be
            interstate because [plaintiff] is a foreign partnership as
            are some of its partners, thus, capital contributions from
            such partners, when infused into the Operating
            Partnership, and used in the latter’s activities which are
            both in and out-of-State, can implicate interstate
            commerce.

            [(citations omitted).]

The court found that "simply because [plaintiff] may be . . . involved in interstate

commerce does not mean that the DCC is automatically implicated, and without

more, render a levy, regardless of whether it is labeled a fee or a tax,"

unconstitutional.

      The court then focused on whether the PFF "discriminates against

[plaintiff]'s investment activity by improperly favoring investment activity . . .

in a local business, operation, or activity, to the disadvantage of that same

investment activity in an out-of-State business, operation or activity."           It

concluded that the Legislature "wanted to track New Jersey sourced income

earned or derived by partnerships engaged in business (as opposed to small

investment clubs), since partnerships are not themselves taxed, and instead pass-

through the income earned/derived to partners, who/which are taxed."



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      The court determined "that the activity or transaction for which the fee is

imposed is based on the governmental activity of processing/reviewing returns,"

thereby "regulating partnerships by tracking their New Jersey source income."

This "regulation or governmental activity [was] a purely intrastate activity and

is not commerce, let alone interstate commerce."

      The court noted that "the Legislature's primary concern was to ensure that

the pass-through New Jersey-derived income by large pass-through entities be

captured," creating an "urgent need" to track "such income, which then required

a review of these entities' informational returns and its members' tax returns."

Hence, "the Legislature used the filing fee as a mechanism to pay such costs."

The court reiterated that "the fee is imposed only if the partnership derives New

Jersey source income." Considering these circumstances, the court held that the

PFF "does not implicate the DCC under ATA-Michigan even if it is imposed on

an interstate commerce participant, such as [plaintiff]," and granted partial

summary judgment to the Division.

      The court next addressed whether the PFF facially discriminated against

plaintiff or its activity. It found N.J.S.A. 54A:8-6(b)(2)(A) "provides no 'home'

based advantage, that is, one which favors local over foreign partnerships." The

court explained that "the PFF is not imposed based on the location of the


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partnership, or the nature/scope of its particular business activity." Instead, "the

PFF is imposed if the partnership has New Jersey source income to be reported

on an NJ-1065."        Thus, "New Jersey is not exercising any economic

protectionism by unduly favoring in-State activities or transactions over those

same activities or transactions conducted interstate." The court found that "[t]he

PFF does not bar any pass-through entity from earning income/loss outside New

Jersey, nor does it incentivize or promote local business over out-of-State

business. To the contrary, domestic partnerships pay the same PFF, and are

subject to the same $250,000 cap as non-domestic partnerships." Therefore,

N.J.S.A. 54A:8-6(b)(2)(A) "is facially neutral and regulates even-handedly."

      The court also considered whether the PFF had a disparate impact on

investment activity, resulting in an impermissible burden on interstate

commerce by making out-of-state entities or businesses "pay more than their fair

share of a State-imposed levy or by making it so expensive, disproportionately

for them," to engage in business in New Jersey. The court found it did not,

concluding that "[o]ut-of-[s]tate partnerships earning New Jersey source

income/loss are not paying any more than an in-[s]tate partnership" with the

same income level "since each will pay the same PFF and the same cap amount

(if each had more than 1,667 partners)."


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      The court explained that the "DCC 'does not seek to relieve those engaged

in interstate commerce from their just share of state tax burden even though it

increases the cost of doing business.'" (Quoting 

ATA-Michigan, 545 U.S. at 438

.) It noted that the PFF paid by plaintiff is "extremely low (if the $250,000

cap is divided by the number of partners), as compared to a smaller partnership."

Thus, "the effect on interstate commerce would be minimal or only incidental."

      The court further found plaintiff did not provide "any proof that its

interstate commerce is unduly burdened." It rejected plaintiff's "resort to the

mechanical application of the hypothetical math under the internal consistency

component of Complete Auto, [as] a substitute for its burden of proving, at least

prima facie, that the PFF results in a disparate impact on its interstate investment

activity."

      The court distinguished both Am. Trucking Ass'ns v. Scheiner, 

483 U.S. 266

(1987) and Am. Trucking Ass'ns v. State, 

180 N.J. 377

(2004) (ATA-NJ),

where the plaintiffs presented proof of disparate impact. It noted that in ATA-

Michigan, the Supreme Court upheld a "flat $100 fee imposed only upon

intrastate transactions," finding it non-discriminatory since it taxed "only purely

local activity" and not transactions that took place outside the 

State. 545 U.S. at 434

, 437. The Court reached this conclusion even if all States charged similar


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fees, resulting in the trucker paying much higher aggregate fees , since those

higher fees were imposed "only because it engages in local business in all those

States."

Id. at 438.

      The Tax Court rejected the assertion "that any levy payable by an

interstate commerce participant is automatically suspect unless apportioned."

Rather, the focus "is whether a levy discriminates facially or practically." To

that end, the internal consistency test "was formulated to insure that 100% of

income earned by a taxpayer in a business operating in multi-states is divided

among the [s]tates in which the income is earned, so that the total tax paid by

the multi-state business is equal to the tax on 100% of income." Accordingly,

multi-state income tax is not implicated by the PFF.

      The court was "not persuaded that simply because the PFF is deposited

into the general funds, it is a flat tax that must be apportioned pursuant to

Complete Auto. Both fees and taxes raise revenues, just as they both impose a

cost on a business."

      The court recognized that if Scheiner applies, "an unapportioned levy

must be internally consistent," citing 

ATA-NJ, 180 N.J. at 397

. Here, N.J.S.A.

54A:8-6(b)(2) "imposes the PFF for a purely intrastate reason." "Therefore,

Scheiner would not automatically apply."


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      The court further explained that since the statute "is neutral facially, and

there is no proof of any disparate impact or undue burden on [plaintiff's]

investment activity due to the PFF," the court is neither required to apply the

internal or external consistency tests, nor determine "whether the PFF amount

is fairly related to the services provided by the State."

      Based on these findings, the court denied plaintiff's motion for partial

summary judgment.       Therefore, "it [did] not address the validity of [the

Division's] regulations which permit an apportionment of the PFF."

      The court also concluded that it did not need to a determine if Pike applied.

Even if Pike did apply, plaintiff had not established that the PFF imposes an

excessive burden on interstate commerce. 2

      On the other hand, the Division did not provide any independent

information to show that the fee of $150 per partner or $250,000 cap is not

excessive. While it contended that salary totals did not reflect the cost of

employee benefits, the Division provided no supporting data. "Since neither



2
   Plaintiff provided data showing that the revenues raised by the PFF were
roughly double the $19 million in salaries paid by the Division. The court noted
this equated to a modest $4 per-partner fee ($19 million in salaries ÷ 4.7 million
returns = $4 per return), which did not prove that the PFF was an excessive
burden on plaintiff's investment activity. Moreover, government costs were not
clearly limited to salaries.
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[plaintiff] nor [the Division] provided any data, evidence or other proof on why

the PFF fails or passes the Pike balancing [test], should that test even apply

here," the court found it would be inappropriate to grant summary judgment to

either party on this issue.

      Based on these findings, the court determined that "N.J.S.A. 54A:8-

6(b)(2) does not implicate or violate the DCC because it imposes the PFF to

defray the costs of a purely intrastate governmental activity, which is to review

partnership and partner returns, in order to track whether New Jersey sourced

income/loss was reported to New Jersey."         "[B]ecause the PFF does not

implicate the DCC," the court granted partial summary judgment to the Division.

      Following the Tax Court's decision, plaintiff withdrew any remaining

claims and requested that final judgment be entered. On April 1, 2019, the court

issued an order entering final judgement upholding the denial of the PFF refund.

This appeal followed.

      Plaintiff raises the following points for our consideration:

             POINT I

             THE LEVY VIOLATES THE COMMERCE CLAUSE
             OF THE UNITED STATES CONSTITUTION.

             A. The Levy Is Not Fairly Apportioned—In Fact, It Is
             Not Apportioned At All.


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B. The Levy Discriminates Against Interstate
Commerce. This Is Proved By The Fact That The Levy
Is Not "Internally Consistent"—A Standard Developed
By The United States Supreme Court To Test For
Discrimination.

POINT II

THE NEW JERSEY TAX COURT AVOIDED THESE
CONSTITUTIONAL TESTS BY CONCLUDING
THAT THE PARTNERSHIP LEVY IS A WHOLLY
IN-STATE REGULATORY FEE THAT DOES NOT
"IMPLICATE" INTERSTATE COMMERCE. THE
TAX COURT ERRED.

A. Contrary To The Tax Court's Conclusion, The
Partnership Levy Was A Revenue-Raising Measure,
Not A Regulatory Fee.

     1. The Partnership Levy Was Intended To Raise
     Revenue.

     2. The Record Shows That The Partnership Levy
     Was Not Intended To Function, And Did Not
     Actually Function, As A "Regulatory Fee."

     (a) The Record Shows That The Partnership Levy
     Is Not A Uniform Charge For Return
     Processing—Whether Computed "Per Owner" Or
     Otherwise.

     i. The Evidence Is Clear That The Levy Is Not A
     Uniform Charge For Return Processing.

     ii. This Lack Of Uniformity Contrasts With
     Other Regulatory Fees That Have Been Sustained
     Because They Are, In Fact, Uniform Charges For
     Government Services.

                                                       A-3904-18T1
                       21
     (b) The Record Shows That The Partnership
     Levy Does Not Correlate In Any Way With
     Agency Costs To Process Returns. In Fact, No
     Effort Was Ever Made To Do So Because The
     Levy Is Simply A Revenue-Raising Measure.

     3. Since The Partnership Levy Is A Revenue-
     Raising Measure Imposed On Interstate
     Commerce, The Tax Court's Reliance On [ATA-
     Michigan] Was Misplaced.

     4. With Respect To The Internal Consistency
     Standard For Discrimination, The Tax Court
     Erred In Suggesting That The Taxpayer Must
     Show Actual Discrimination.

B. A Taxpayer Has The Initial Burden Of Showing
Discrimination Through Lack Of Internal Consistency.
If That Burden Is Met, The Supreme Court Of New
Jersey Has Held That The State Then Has The Burden
Of Proving That A Levy Is A Uniform Regulatory Fee.
The Tax Court Acknowledged The State Did Not Meet
That Burden In This Case, But Nonetheless Found In
Favor Of The State.

POINT III

THIS COURT SHOULD REMAND TO THE TAX
COURT FOR THAT COURT TO CURE THE
PARTNERSHIP      LEVY      THROUGH
APPORTIONMENT.

A. The Tax Court Has The Authority To Order
Apportionment To Cure A Constitutional Defect.




                                                       A-3904-18T1
                        22
            B. There Are Two Reasonable Methods Of
            Apportionment To Fix The Problems With The
            Partnership Levy.

                  1. This Court Should Remand To The Tax Court
                  To Apply Three-Factor Apportionment. Three-
                  Factor Apportionment Is The Standard Method
                  Of Apportionment And Is Supported By The
                  Record In This Case.

                  2. In The Alternative, This Court Should Remand
                  To The Tax Court To Apply Apportionment
                  Based On The Percentage Of Partners With New
                  Jersey Nexus.      This Method Resolves The
                  Constitutional Issues And Is Consistent With The
                  Tax Court's Finding Regarding The Nature Of
                  The Partnership Levy As A Tax On Capital-
                  Gathering.

            C. Apportionment Preserves Most Of The Revenue
            From The Partnership Levy.

            D. Methods That Do Not Fix The Apportionment
            Problems.

                  1. The Partnership Levy Is Not Saved By Merely
                  Imposing The Partnership Levy Only With
                  Respect To Partners With New Jersey Nexus.

                  2. The Partnership Levy Is Not Saved By
                  Applying An Apportionment Percentage To The
                  Per-Partner Tax Rate.

     We begin by recognizing several well-established principles. "A taxpayer

challenging the Director's determination bears the burden of proof." UPSCO v.



                                                                      A-3904-18T1
                                     23
Dir., Div. of Taxation, 

430 N.J. Super. 1

, 8 (App. Div. 2013) (citing Atl. City

Transp. Co. v. Dir., Div. of Taxation, 

12 N.J. 130

, 146 (1953)).

      Statutes are presumed to be constitutional. State v. Lagares, 

127 N.J. 20

,

31-32 (1992). "This presumption of validity is particularly strong in the realm

of economic legislation 'adjusting the benefits and burdens of economic life.'"

N.J. Ass'n of Health Plans v. Farmer, 

342 N.J. Super. 536

, 551 (Ch. Div. 2000)

(quoting Usery v. Turner Elkhorn Mining Co., 

428 U.S. 1

, 15 (1976)). In

addition, we "defer to the interpretation of the agency charged with the statute's

enforcement, and the Director's interpretation will prevail 'as long as it is not

plainly unreasonable.'" Campo Jersey, Inc. v. Dir., Div. of Taxation, 390 N.J.

Super. 366, 380 (App. Div. 2007) (quoting Koch v. Dir., Div. of Taxation, 

157 N.J. 1

, 8 (1999)). Where the issue is strictly legal, we afford no deference to the

Director's statutory interpretations and review de novo. Amer. Fire & Cas. Co.

v. Dir., Div. of Taxation, 

189 N.J. 65

, 79 (2006).

      In turn, "[o]ur review of a decision by the Tax Court is limited." 

UPSCO, 430 N.J. Super. at 7

(citing Est. of Taylor v. Dir., Div. of Taxation, 422 N.J.

Super. 336, 341 (App. Div. 2011)). "We recognize the expertise of the Tax Court

in this 'specialized and complex area.'" Advance Hous., Inc. v. Twp. of Teaneck,

215 N.J. 549

, 566 (2013) (quoting Metromedia, Inc. v. Dir., Div. of Taxation, 97


                                                                           A-3904-18T1
                                       

24 N.J. 313

, 327 (1984)). "The Tax Court judge's [factual] findings will not be

disturbed unless we conclude they are arbitrary or lack substantial evidential

support in the record." 

UPSCO, 430 N.J. Super. at 7

-8 (citing Yilmaz, Inc. v.

Dir., Div. of Taxation, 

390 N.J. Super. 435

, 443 (App. Div. 2007)). "Although

the Tax Court's factual findings 'are entitled to deference because of that court's

expertise in the field,' we need not defer to its interpretation of a statute or legal

principles." Advance 

Hous., 215 N.J. at 566

(quoting Waksal v. Dir., Div. of

Taxation, 

215 N.J. 224

, 231 (2013)).

      We review the Division's motion for partial summary judgment using the

same standard applied by the Tax Court—"whether, after reviewing 'the

competent evidential materials submitted by the parties' in the light most

favorable to [plaintiff], 'there are genuine issues of material fact and, if not,

whether the moving party is entitled to a judgment or order as a matter of law.'"

Grande v. Saint Clare's Health Sys., 

230 N.J. 1

, 23-24 (2017) (quoting Bhagat v.

Bhagat, 

217 N.J. 22

, 38 (2014)). Because we review the Tax Court's grant of

partial summary judgment to the Division, we conduct a de novo review. 

Waksal, 215 N.J. at 231-32

.

      Applying those principles, we affirm substantially for the reasons

expressed by Tax Court Judge Mala Sundar in her well-reasoned and


                                                                              A-3904-18T1
                                         25
comprehensive forty-one-page December 7, 2018 opinion. We add the following

comments.

      The Tax Court rejected the premise "that any levy, whether a fee or a tax,

is automatically or per se unconstitutional under the DCC solely because it is a

flat amount and the payor of the levy is involved in interstate commerce." We

concur. Rather, the court must determine whether the levy discriminates against

the identified interstate commerce by imposing an impermissibly disparate

impact or excessive burden.

      Plaintiff did not present a prima facie case of disparate impact or other

form of discrimination violative of the DCC.      On the contrary, the record

demonstrates that the PFF funds the cost of the Division's processing and

reviewing partnership and partner returns filed in New Jersey to track their New

Jersey source income, which is a purely intrastate activity.     Consequently,

N.J.S.A. 54A:8-6(b)(2) does not implicate or violate the DCC, even though

plaintiff is involved in interstate commerce.

      N.J.S.A. 54A:8-6(b)(2) is facially neutral. Therefore, absent disparate

impact or undue burden on plaintiff's investment activity, the court was not

required to apply the internal or external consistency tests or to determine

whether the PFF amount is fairly related to the services provided by the State.


                                                                        A-3904-18T1
                                      26
Plaintiff failed to present a prima facie case that the statute discriminates

against, or imposes an excessive burden on, interstate commerce. Nor did it

demonstrate that the PFF was not fairly related to the Division's processing and

review of partnership and partner returns.

      Our careful review of the record reveals that material facts are not disputed,

and when viewed in the light most favorable to plaintiff, the Division was entitled

to partial summary judgment as a matter of law. See R. 4:46-2(c). Judge Sundar's

findings are fully supported by substantial credible evidence in the record. Her

legal conclusions are sound and consistent with applicable law. Accordingly, we

discern no basis to disturb the partial summary judgment granted to the Division.

      To the extent we have not specifically addressed any of defendant's

remaining arguments, we conclude they lack sufficient merit to warrant

discussion in a written opinion. R. 2:11-3(e)(1)(E).

      Affirmed.




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                                        27

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