In Verizon New Jersey, Inc. v. Borough of Hopewell (A-22-23/088421) (Decided July 25, 2024), the Supreme Court of New Jersey upheld an Appellate Division decision holding “that ‘local telephone exchange’ as used in N.J.S.A. 54:4-1 means a local telephone network within a defined geographical area as depicted on Verizon’s tariff exchange maps.” The Court’s per curium decision resolved a long-standing suit between Verizon New Jersey and the Borough of Hopewell over unpaid municipal taxes.
Facts of Verizon New Jersey, Inc. v. Borough of Hopewell
The sole issue in the case was the meaning of the phrase “Local Telephone Exchange” (LTE) in N.J.S.A. 54:4-1. Under that statute, the personal and real property of a local exchange telephone company is defined as “a telecommunications carrier providing dial tone and access to 51% of a local telephone exchange.” As the Appellate Division noted in its decision, N.J.S.A. 54:4-1 does not define “local telephone exchange” or provide a means for calculating 51% of it.
In August 2008, plaintiff Verizon New Jersey, Inc. notified the Borough of Hopewell that it would not be filing a return for the 2009 tax year because it no longer provided dial tone or access to at least 51% of the LTE within the Borough. Verizon based its position on the then-recent assignment of 10,000 new phone numbers served by AT&T to the Hopewell rate center. According to Verizon, in light of those new phone numbers, it no longer provided dial tone and access to 51% of the phone numbers associated with the Hopewell rate center.
In response, Hopewell took the position that the Hopewell LTE was defined by geographic boundaries rather than assignment to the rate center. Because the phone numbers were physically based in Pennington, outside of Hopewell, Verizon remained the provider for at least 51% of the Borough’s LTE.
Considering their arguments and the legislative history of N.J.S.A. 54:4-1, the Tax Court adopted a definition of the LTE “based on . . . geographic boundaries.” The court elaborated that “the term ‘local telephone exchange’ is a common and historical concept in the telecommunications industry. It is a geographically defined area serviced by a physical construct that functions as the building block for service delivery . . . .” The Tax Court further concluded the fact “[t]hat the business personal property being taxed is physically located within the boundaries of the exchange . . . demonstrates a geographic component to the definition of” an LTE.
The Appellate Division affirmed. The court was “convinced by the centrality of the local exchanges to the structure of the telephone industry . . . , as well as by the testimony of the experts in this case, that when the Legislature added the qualifier ‘local exchange’ to ‘telephone companies’ . . . [when it amended N.J.S.A. 54:4-1] in 1989, it intended the phrase ‘local telephone exchange’ to be understood as a specified geographical area, the territorial boundaries of which were as depicted on exchange maps on file.” The Appellate Division was “also convinced that understanding is the most sensible when considering how New Jersey’s 209 local exchanges were built and developed.”
NJ Supreme Court’s Decision in Verizon New Jersey, Inc. v. Borough of Hopewell
The New Jersey Supreme Court affirmed. In a per curium opinion, the Court concurred concurs with the Appellate Division “that ‘local telephone exchange’ as used in N.J.S.A. 54:4-1 means a local telephone network within a defined geographical area as depicted on Verizon’s tariff exchange maps.”
In reaching its decision, the New Jersey Supreme Court noted that contrary to Verizon’s assertions, the written evidence from the relevant time period, including Verizon’s own documents, points only toward a geographical definition of a “local telephone exchange.”
“We conclude that the Legislature understood a ‘local telephone exchange’ to mean a geographic area depicted in Verizon’s tariff maps, both when it first adopted the term in 1989 and when it amended the relevant clause of N.J.S.A. 54:4-1 in 1997.”
The New Jersey Supreme Court rejected Verizon’s claim that it always understood a “local telephone exchange” to be defined not geographically, but by the set of NPA-NXX codes associated with a particular rate center. “Verizon now claims that it always understood a ‘local telephone exchange’ to be defined not geographically, but by the set of NPA-NXX codes associated with a particular rate center,” the Court wrote. “But the record contains no evidence that Verizon shared that view with the legislature either in 1989 or in 1997, or that the legislature adopted such a view.”
The New Jersey Supreme Court also dismissed Verizon’s argument that the Appellate Division’s decision “subject[s] Verizon and other [incumbent local exchange carriers] to an outdated tax assessment method, divorced from current practices within the telecommunications industry.”
“That may be true. But this Court is constrained to interpret the statutory text before it; we may neither update nor amend the text to better fit current technological realities,” the Court wrote. The New Jersey Supreme Court further advised that if the New Jersey Legislature agrees with Verizon that the current tax assessment method is out of date, “it is of course free to amend the statute.”