222 Mass. 51 | Mass. | 1915
This is a petition under St. 1909, c. .490, Part III, § 70, for the recovery of the amount of an excise alleged to have been excessive, which was levied upon a domestic business corporation under §§41 and 43 of Part III of the tax act, St. 1909, c. 490, as amended by St. 1914, c. 198, § 6.
Vermont has the power to tax all the shares of corporations organized under its laws, whether owned by its residents or by those of other States or countries. This expressly was decided in Corry v. Mayor & City Council of Baltimore, 196 U. S. 466, and in St. Albans v. National Car Co. 57 Vt. 68. The principle was applied in Tappan v. Merchants’ National Bank, 19 Wall. 490. It was recognized in Greves v. Shaw, 173 Mass. 205, 208, Kingsbury v. Chapin, 196 Mass. 533, 535, and Kennedy v. Hodges, 215 Mass. 112, 114.
It may be urged on the one side that the nature and the incidents of the shares of stock are fixed by the law by which the corporation is created; that the provisions of that law are limitations upon the essential characteristics of shares and follow them wherever they may go; and that if the situs of the shares for purpose of taxation is declared by that law to be in the State of its domicil, that is an inherent restriction which everywhere must be recognized as an incident of the property represented by the shares; that this provision as to situs for tax purposes is contractual in substance and may be invoked by the owner in exoneration of liability as much as others which are obligatory are resorted to by creditors to establish a liability, Converse v. Ayer, 197 Mass. 443, 453, Whitman v. Oxford National Bank, 176 U. S. 559; that by virtue of the Vermont statute this stock is divested of its taxable character as intangible property and clothed with an immovable garment of tangibility located in Vermont alone, and hence, that these shares stand on the same footing as merchandise and other tactile personal effects which cannot be taxed to their owner in a jurisdiction other than that in which they permanently are placed. Delaware, Lackawanna &
Weighty as are the suggestions which have been noted above, we are of opinion that the constitutionality of the statute requiring the taxation of shares like these in question must be sustained. The fundamental ground is that the power to tax all property within its jurisdiction is a necessary attribute of sovereignty, and that there is a certain quality of property in these shares attaching to the person of the owner and hence taxable at his domicil.
There is a necessary element of property in shares in corporations which, although intangible, attaches to and follows the person of the owner, and is inseparable from it. Such shares are personal property and not real estate. They are subject to succession according to the law of the domicil of the owner. As was said in Hawley v. Malden, 232 U. S. 1, at page 9, “It is well settled that the property of the shareholders in their respective shares is distinct from the corporate property, franchises and capital stock,” and further at page 12, that shares of stock are "in the nature of contract rights or choses in action. Morawetz on Cor
Certificates of stock in a corporation have other of the characteristics of property. They may be converted like corporeal personal property. Jarvis v. Rogers, 15 Mass. 389. Hagar v. Norton, 188 Mass. 47, 50. McAllister v. Kuhn, 96 U. S. 87. They are the subject of larceny and embezzlement. O’Herron v. Gray, 168 Mass. 573, 575. They may be hypothecated, pledged and replevied. Kennedy v. Hodges, 215 Mass. 112, 115; They may be made by statute subject to attachment and garnishment. Puget Sound National Bank of Everett v. Mather, 60 Minn. 362. Title passes by their delivery and assignment or endorsement. Sargent v. Essex Marine Railway, 9 Pick. 201. Sargent v. Franklin Ins. Co. 8 Pick. 90, 95. Boston Music Hall Association v. Cory, 129 Mass. 435. Certificates of stock are not in every respect the equivalent of the shares in the corporation which they
If the domiciliary State of the corporation has the right to establish the situs of its shares of stock for purposes of taxation, on principle it would seem that that power may be exercised to declare an entire exemption from taxation and to collect revenue in some other way from the corporation. If the power exists in the State creating the corporation to establish the situs of its shares of stock for the purpose of taxation, and is exercised, it must be absolute and no other State can inquire into the character or extent of that taxation in an effort to tax its own citizen who is a stockholder in such corporation. It hardly seems possible that the Fourteenth Amendment to the federal constitution can have such an effect.
The theory of taxation is that it is money exacted from the subject in return for the protection afforded by established government. It is the duty of governments to protect persons and property. These rights of the Massachusetts owner of shares of stock in the Vermont corporation pertain to his residence here and receive the protection of our laws. To that extent the shareholder resident here receives for the taxation imposed a return in governmental protection for the property rights incident to his ownership.
These are incidents of property which necessarily follow the person of the owner of shares in foreign corporations, even though the shares may be taxed at the foreign domicil of the corporation. For these purposes the situs of corporate shares follows the domicil of the owner. This is the general rule. There appears to us to be no ground for the establishment of an exception to that general rule in the instant case. Bristol v. Washington County, 177 U. S. 133. Ayer & Lord Tie Co. v. Kentucky, 202 U. S. 409. Southern Pacific Co. v. Kentucky, 222 U. S. 63, 69. Darnell v. Indiana, 226 U. S. 390. Frothingham v. Shaw, 175 Mass. 59. Welch v. Boston, 221 Mass. 155. On this ground, if not on others also, Selliger v. Kentucky, 213 U. S. 200, is distinguishable.
The case at bar closely resembles Bonaparte v. Tax Court,
It has been held that the State having jurisdiction over the debtor has the constitutional power to assert and maintain for itself a situs of the debt for purposes of taxation and levy a tax thereon against the creditor domiciled in another State. This was decided as to debts secured by mortgage upon real estate in Savings & Loan Society v. Multnomah County, 169 U. S. 421. It was decided as to unsecured credits, whether expressed by notes or existing as bald accounts current, in Liverpool & London & Globe Ins. Co. v. Assessors for the Parish of Orleans, 221 U. S. 346. Bonaparte v. Tax Court upheld the power of the State having jurisdiction of the creditor owning the debt to tax him at his domicil upon the maxim mobilia sequuntur personam, despite the express tax or exemption from taxation by the State having jurisdiction where the debt was created and the debtor domiciled,
It is manifest from the adjudications by the United States Supreme Court mentioned above that under some circumstances the same property may be taxed to the same person in different jurisdictions without violating any right secured by the federal constitution. Put in other words, these decisions appear to mean that property may have a situs in two different jurisdictions for taxation purposes when the nature of the property seems to require or permit it. There may be a difference between bonds and shares of stock as to capacity for independent situs. Blackstone v. Miller, 188 U. S. 189, 206. Selliger v. Kentucky, 213 U. S. 200, 204. But there appears to be no ground for distinction between shares of stock and accounts current so far as concerns the issues here involved. This principle governs the case at bar. It shows that Corry v. Mayor & City Council of Baltimore, 196 U. S. 466, is not inconsistent with this result, but that it bears the same relation to the present case as does Liverpool & London & Globe Ins. Co. v. Assessors for the Parish of Orleans to Bonaparte v. Tax Court. As was said in Kidd v. Alabama, 188 U. S. 730, at page 732, by Mr. Justice Holmes, as to taxation between sister States, “it would be a great advantage to the country and to the individual States if principles of taxation could be agreed upon which did not conflict with each other, and a common scheme could be adopted by which taxation of substantially the same property in two jurisdictions could be avoided. But the Constitution of the United States does not go so far.”
There is an analogy so far as concerns situs between the case at bar and the numerous cases holding that residence of the owner is sufficient ground for the imposition of a succession or inheritance tax upon various kinds of intangible property. Frothingham v. Shaw, 175 Mass. 59. Buck v. Beach, 206 U. S. 392. Wheeler v. New York, 233 U. S. 434.
Whether it would be wise to make exemptions in cases like the present is not a judicial but a legislative question. Knight v. Boston, 159 Mass. 551.
It follows from what has been said that the shares of stock are not “property situated in another State and subject to taxation therein.” The context in which these words occur in our tax law and its other general provisions demonstrate that these words refer to the kind of property which, if owned by an individual and situated and taxed in another State, would be exempt from taxation here, such as real estate, and "merchandise, machinery and animals.” St. 1909, c. 516, § 1. Union Refrigerator Transit Co. v. Kentucky, 199 U. S. 194. There are substantial, although intangible, elements of property in shares of stock in a corporation which attach to the owner resident in this Commonwealth.
The general statement in the decisions of many courts and of text writers is to the effect that shares of stock in foreign corporations may be assessed to the owner at the place of his domicil irrespective of taxes which may have been imposed on the corporation itself, even in respect of its capital stock. Greenleaf v. Board of Review, 184 Ill. 226, 228. State v. Nelson, 107 Minn. 319, 322. Appeal Tax Court v. Gill, 50 Md. 377, 396. Allen v. Commonwealth, 98 Va. 80, 84. State v. Bentley, 3 Zabr. 532, 542. 27 Am. & Eng. Encyc. of Law, (2d ed.) 928, 929. 37 Cyc. 821, 864, 865.
Our decision upon this branch of the case is supported by direct adjudications upon the same point in Dyer v. Osborne, 11 R. I. 321, Worth v. Commissioners of Ashe County, 90 N. C. 409, Appeal Tax Court v. Patterson, 50 Md. 354, 373, Judy v. Beckwith, 137 Iowa, 24, 33, Seward v. Rising Sun, 79 Ind. 351, 353, 354, Bacon v. State Tax Commissioners, 126 Mich. 22, 29, 30, Central of Georgia Railway v. Wright, 166 Fed. Rep. 153, 159, appeal dismissed, 215 U. S. 617. See 1 Cooley on Taxation, (3d ed.) 389. Although in some of these opinions the question of the power of the domiciliary State of the corporation to appropriate to itself an exclusive taxation situs of the shares of stock was not much discussed, the decisions are clear to the
The conclusion is, in the opinion of a majority of the court, that as matter of constitutional power the Legislature can impose a property tax upon the shares of stock in a Vermont corporation owned by a natural person resident in this Commonwealth. The exercise of such power does not conflict with constitutional guarantees for equal protection of the laws, full faith and credit to the public acts of other States, nor is it a deprivation of property without due process of law. Of course it does not impair the obligation of any contract, because it is to be inferred that our tax law was in effect long before the acquisition of the stock by the petitioner.
The petitioner contends that its bond of a Vermont corporation is not comprehended within “ securities which if owned by a natural person resident in this Commonwealth would be liable to taxation,” as these words are used in § 43, cl. 2. Its argument is that such a bond is a debt due to it and that if owned by a natural person resident here who owed money in excess of the value of the bond, as the petitioner does, then such natural person would not be taxed for it. Hale v County Commissioners, 137 Mass. 111. This argument is fallacious. These words in the statute were not intended to establish the same standard of taxation for a corporation as for an individual. The reference to securities which would be taxable if owned by a natural person is merely for the purpose of determining the taxable character of the securities. Farr Alpaca Co. v. Commonwealth, 212 Mass. 156, 162. If the securities possess that taxable character, then they are to be taken into account. The debts owed by the petitioner are all considered in determining the fair market value of its shares, provided it makes proper return of them. It is not en
“Securities” is a word of sufficiently broad import to include a bond like that in question. It was said in Boston Railroad Holding Co. v. Commonwealth, 215 Mass. 493, that “in its ordinary acceptation the word ‘ securities ’ includes bonds . . . and other evidences of indebtedness.” There is nothing in any part of the tax law to show that it was used in this section in a narrow or constricted sense.
In this respect also no error is shown in the action of the tax commissioner in the determination of the excise tax upon the petitioner.
Petition dismissed with costs.
The case was argued at the bar in November, 1914, before Rugg, C. J., Braley, De Courcy, & Crosby, JJ., and afterwards was submitted on briefs to all the justices.
The case was heard by Sheldon, J., upon the amended pleadings, the facts agreed on by counsel and the petitioner’s requests for rulings. He refused all the requests of the petitioner and ordered that the petition be dismissed, and at the request of the parties reported the case for determination by the full court.
“Section 41. The tax commissioner shall ascertain from the returns or otherwise the true market value of the shares of each corporation subject to the requirements of the preceding section, and shall estimate therefrom the fair cash value of all of said shares constituting its capital stock on the preceding first day of April, which, unless by the charter of a corporation a different method of ascertaining such value is provided, shall, for the purposes of this part, be taken as the true value of its corporate franchise. Erom such value there shall be deducted:
“ Third, In case of a domestic business corporation, the value of the works, structures, real estate, machinery, poles, underground conduits, wires and pipes owned by it within the Commonwealth subject to local taxation, and of securities which if owned by a natural person resident in this Commonwealth would not be liable to taxation; also the value of its property situated in another State or country and subject to taxation therein. There shall not be deducted the value of securities which if owned by a natural person resident in this Commonwealth would be liable to taxation, nor shall there be deducted the value of any shares of stock of the corporation itself owned directly or indirectly by it or for its benefit; and the tax commissioner in deter
"Section 43. [Clause 1.] Every corporation subject to the provisions of section forty shall annually pay a tax upon its corporate franchise, after making the deductions provided for in section forty-one, at a rate equal to the average of the annual rates for three years preceding that in which such assessment is laid, . . . [Clause 2.] but the said tax upon the value of the corporate franchise of a domestic business corporation, after making the deductions provided for in section forty-one, shall not exceed a tax levied at-the rate aforesaid upon an amount, less said deductions, twenty per cent in excess of the value, as found by the tax commissioner, of the works, structures, real estate, machinery, poles, underground conduits, wires and pipes, and merchandise, and of securities which if owned by a natural person resident in this Commonwealth would be liable to taxation; and [Clause 3.] the total amount of the tax to be paid by such corporation in any year upon its property locally taxed in this Commonwealth and upon the value of its corporate franchise shall amount to not less than one tenth of one per cent of the market value of its capital stock at the time of said assessment as found by the tax commissioner.”
“Extracts from chapter 30: Public Statutes of Vermont.
“Sec. 515. Listed how. Shares of stock in corporations, except railroad corporations, shall be set in the list like other personal estate to the owner thereof, in the town where he resides, if he resides in the State, otherwise in the town where the corporation issuing such stock has its principal place of business.
“Sec. 516. Tax on non-resident’s stock. Taxes assessed on such stock of non-residents shall be paid by the corporation, and it shall hold such stock
. “Sec. 496. Property. The following property shall be exempt from taxation: . . .
“III. Shares of stock in a corporation situated in another State, when all the stock of such corporation is taxed in such State to the holders, whether residing within or without such State, or when the corporation is taxed in such State for all its stock.”