Bradley partner Bruce Ely was quoted in Law360 Tax Authority on a recent U.S. Supreme Court petition from Ferrellgas Partners LP challenging New Jersey’s flat $150 per-partner fee. The fee, which is imposed when partnerships file information returns, highlights inconsistencies among high court rulings that have invalidated some unapportioned charges but permitted others, tax practitioners say.
Ferrellgas paid the maximum New Jersey fee for tax years 2009 through 2011, which is capped at $250,000. The company argued in its petition that if the New Jersey appeals court's opinion stands — the state Supreme Court declined to review the dispute last year — it could be on the hook for $12.5 million in annual fees to file returns if every state adopted a similar imposition.
"That's a clear internal consistency problem,” stated Ely. Under the internal consistency test, a levy is unconstitutional if interstate businesses would pay a higher amount of the charge than an intrastate business if every state enacted the same levy.
Ely said that while he believes Ferrellgas' claim that the fee violates the internal consistency test is its strongest argument, the Court could also build on precedent establishing the differences between a fee and a tax.
Ely said he thinks the proper remedy in the case would be for the justices to remand the dispute so New Jersey courts could hammer out an apportionment method for the fee.
Indeed, New Jersey's Division of Taxation had developed rules to apportion the fee for partnerships without a New Jersey office and nonresident partners without nexus with the Garden State, Ely observed, but the state courts struck them down for exceeding the scope of the statute imposing the fee. Ely said it was telling that the state's regulatory agency felt inclined to apportion the fee at all, which in his view meant that the division may have recognized that the flat, unapportioned structure may have presented constitutional concerns.
"Somebody sensed there was a problem," Ely said. "I'm hoping the court will take this case and give us some certainty about whether something is a fee or a tax and what justifies or requires apportionment in a case like this."
The original article, “Justices Could Clarify Apportionment Standard In NJ Fee Fight,” appeared in Law360 Tax Authority on February 11, 2022.