In a one-paragraph ruling, the justices expressed agreement with a September 2019 Appellate Division decision in the case. The Appellate Division said that both before and after the legislature's 2011 revisions to the insurance tax statute, Johnson & Johnson was required to pay an insurance premium tax based only on risks local to New Jersey, rather than on the entire U.S. premium.

The Appellate Division ruling, in turn, reversed a decision of the Tax Court of New Jersey finding that the legislature, which overhauled the tax code for insurance companies in 2011, intended to continue to allow the state to assess taxes on captive insurance companies for risks throughout the United States.

Chief Justice Stuart Rabner and Justices Barry Albin, Faustino Fernandez-Vina, Lee Solomon and Fabiana Pierre-Louis affirmed the Appellate Division. Justice Anne Patterson did not participate. Justice Jaynee LaVecchia, in a dissent, agreed with the Tax Court that Johnson & Johnson should pay taxes on its entire U.S. risk.

Johnson & Johnson obtains insurance though Middlesex Assurance, a wholly owned subsidiary that sells insurance exclusively to Johnson & Johnson. In such companies, which are known as "nonadmitted" and considered to be part of the self-procured market, the insured, rather than the agent, is obligated to pay taxes on premiums.

In 2011, Congress adopted the Nonadmitted and Reinsurance Reform Act, which provides that when nonadmitted insurance covers multistate risks, no state other than the home state of the insured can collect taxes for nonadmitted insurance.

That prompted the New Jersey legislature to add a provision to its insurance tax code saying that "If a surplus lines policy covers risks or exposures in this state and other states, where this state is the home state, the tax payable pursuant to this section shall be based on the total United States premium for the applicable policy." The rest of the statute was unchanged, including its requirements that every holder of self-procured insurance report when it procures or continues coverage "upon a subject of insurance resident, located or to be performed within this state, other than insurance procured through a surplus lines agent pursuant to the surplus lines law of this state," and pay a 5% IPT for such coverage.

The Appellate Division found that the plain language of the newly added clause in the statute applies only to surplus lines coverage, but not the self-procured market. The panel also said that ambiguity in the legislative amendment should be resolved in favor of the taxpayer.

LaVecchia, in her dissent, argued that the only conceivable purpose for including the new clause in the statute was to impose nationwide premium taxation on home-state insureds with self-procured coverage. The amendment's structure and legislative history demonstrate the Legislature's intent to capture the revenue in question, so the default rule resolving ambiguity in favor of the taxpayer is inapplicable, LaVecchia said.

Princeton attorney Margaret Wilson, of Wilson Law Group, who represented Johnson & Johnson, referred a reporter's question to the company, which did not return a call. The state was represented by Deputy Attorney General William Puskas Jr. A spokesman for the Attorney General's Office, Lee Moore, declined to comment.