161 Va. 718 | Va. | 1933
Lead Opinion
delivered the opinion of the court.
The Commonwealth of Virginia applied for and obtained a writ of error to a judgment of the Circuit Court of the-city of Lynchburg, whereby the defendant in error, the Imperial Coal Sales Company, Incorporated, was exonerated and relieved from the payment of State taxes upon its capital, and upon its income.
There is ho disagreement between the parties as to the fact's involved and they may be stated thus:
The defendant in error, which will hereafter be referred to as the Sales Company, was assessed with a capital tax under section 73 of the Tax Code of Virginia (see Code of 1930, Appendix, p. 2147), for the years 1928,1929 and 1930, aggregating $1,579.69, and an income tax, under section 52 of that Code (see Code 1930, Appendix, p. 2143), for the year 1930, amounting to $158.34. These assessments, upon the application of the Sales Company, were can-celled and set aside by the judgment here under review.
' The'Sales Company is a domestic corporation with its principal office in Lynchburg,. Virginia, but it maintains a branch office in Cincinnati, Ohio. It conducts a sales
The Sales Company does not own, conduct or lease any coal mines and does not mine any coal. None of the coal which is sold is located in Virginia at the time of the sale.
The Sales Company does not own or operate any warehouses or coal storage yards in Virginia. It does not retail any coal, or buy, or own any coal, but only sells the coal for its West Virginia principals in carload lots, f. o. b. mines, for a continuous journey from the point of shipment in West Virginia to the purchasers, who are located in States other than Virginia. The situs of all the coal at the time of sale is outside of Virginia.
The contracts for the sale of- coal are made between the Sales Company and the purchaser, who knows in every instance the principal, and the kind of coal and the mine from which it is to be shipped. In some instances where the coal is sold in great quantities the purchaser requires the principal to approve the contract.
In cases where the coal is not sold by the general manager himself, but sold through the Cincinnati office, the contracts are forwarded to the Lynchburg office for approval, as the Sales Company guarantees the solvency of the purchasers. When the contract of purchase is approved the Lynchburg office sends orders to the mines for the shipment of the coal, directing the kind of equipment to be used and the routing of same. The records of the sales to the various purchasers, the price per ton of the coal and an account with the mines from which the coal is shipped are kept in the Lynchburg office.
Under the contract with the mines the Sales Company is required to pay for all coal shipped during the preced
It was stipulated by counsel for the parties, that the property constituting the basis of the assessment on capital was, on the dates in question, the property of the Sales Company; and the income assessed was income earned by the Sales Company and that the assessments as made are correct if the Sales Company is subject to any capital or income tax whatever, during the years in question.
In the court below and in this court, the Sales Company has contended and does contend that it is not assessable with the taxes here in question because (a) the tax statutes referred to, and which will later be quoted, do not authorize the imposition of the taxes and have no application to it, and (b) if they are applicable to it the assessments are invalid because the said assessments constitute a direct burden upon interstate commerce in violation of article 1, section 8, sub-section 3, of the Constitution of the United States.
The trial court, in its opinion, held that inasmuch as the Sales Company did, exclusively, an interstate business, the taxes imposed, both capital and income, were a burden upon interstate commerce and therefore invalid, and the order and judgment here complained of followed.
We will first advert to the construction of section 52 of the Tax Code, under which the assessment for income was made, to ascertain whether that assessment was authorized by that section. It reads in part as follows: “Every domestic corporation * * * doing business in this
This brings us to the pertinent inquiry of whether or not the Sales Company does business in this State and has income derived therefrom within the purview of the statute.
The answer must be found by adverting to the undisputed facts. They show, beyond doubt, that in substance, the sole business of the Sales Company is that of selling coal, under contracts, in interstate commerce.
It is true, by maintaining the Lynchburg office the Sales Company, in a limited sense, is doing business in Virginia, but that business arises out of, is inseparable from and incidental only to, the principal business of selling coal in interstate commerce. The so-called Virginia business is simply one of the necessary results of the interstate business done, upon which the Virginia business is founded and continues, and without which it could not exist. It is a consequence which follows in the chain of events, all others of which take place outside of Virginia. The business done in the Lynchburg office, severed from the principal business of selling coal in interstate commerce, would be reduced, almost immediately, to nothing. In other words, the real business of the Sales Company is selling coal in interstate commerce, and' not the activities necessary to keep books of accounts, bank accounts and other clerical work, such as is done in the Lynchburg office.
The test as laid down in Dalton Add. Mach. Co. v.
Our conclusion is that the Sales Company does no business in Virginia that “is substantial in its essence” and that “may reasonably he separated from its interstate commerce” and, therefore, authority for the imposition of the income tax in controversy cannot be found in section 52 of the Tax Code, under which the present assessment for income was made. Having reached this conclusion, it becomes unnecessary to pass upon the constitutionality of the income tax.
We now proceed to the capital tax. The view we have taken of the capital tax is that in any event it is invalid because it contravenes article 1, section 8, sub-section 3, of the Constitution of the United States, and therefore it becomes unnecessary to pass upon the construction of section 73 of the Tax Code under which the assessment was made. However, it is necessary to refer to the statute which in part is in this language:
“All capital of any trade or business of any person, firm or corporation, except the capital of any trade or business
“Capital as used herein is defined as follows:
“First. The inventory of stock on hand, which shall include all materials for use in the business, whether at the place of business, in storage or elsewhere in the State.
“Second. The excess of all bills and accounts'receivable over bills and accounts payable.
“Third. All money on hand and on deposit.
“Fourth. All other taxable personal property of any kind whatever, including all choses in action, equities, demands and claims, but excluding the property hereinafter specifically mentioned in this section. * * *”
“All capital of any trade or business of any person, firm or corporation” is defined by the statute to mean: First, the inventory, etc.; second, the excess of all bills and accounts receivable over bills and accounts payable; third, all money on hand and on deposit, and, fourth, all other taxable personal property of any kind whatever, etc. The assessment made on the capital of the Sales Company, which appears from the notice of the assessment filed as a part of the record, was based on the money on hand, plus the excess of the bills and accounts receivable over the bills and accounts payable. Nothing was assessed under the “First” and “Fourth” headings of the statute. There was no stock on hand or inventory of any tangible personal property as described in “First” and no property as described under “Fourth.”
It is interesting to note that section 73 of the Tax Code is found under chapter 7 and its title is “Intangible Personal Property,” yet in “First” of section 73, reference is made directly to tangible personal property by the statement “the inventory of stock on hand, which shall include all materials for use in the business,” which necessarily means tangible and not intangible property.
What has been said about doing business in Virginia, in connection with the income tax, applies here and in considering this phase of the case it must be borne in
In passing, it may be well to call attention to section 427 of the Tax Code (see Code of 1930, Appendix, p. 2251), not only for the purpose of showing what property is exempt from an ad valorem and income tax, but for the additional purpose of showing the legislative policy of the State which seems to he in favor of exempting the Sales Company, under the peculiar facts in this case, and other like corporations, doing a similar business, from any capital or income tax. When section 427 is read and considered, along with the other related sections, it unmistakably shows a strong leaning and intent on the part of the law-makers to exclude such corporations as the Sales Company from State tax action. Section 427, in part, is as follows: “No income tax nor ad valorem taxes * * '* shall be imposed upon the * * * capital or other intangible property * * * owned by corporations organized under the laws of this State for any tax year during which such corporations do, or have done, no part of their business within this State * * *.” However, we prefer to i*est the decision of the validity of the capital tax here considered upon the broad proposition that it is invalid because it is a burden upon interstate commerce and forbidden by the Constitution of the United States.
The case of St. Louis & S. W. Ry. Co. v. Nattin, 277 U. S. 157, 48 S. Ct. 438, 72 L. Ed. 830, is not in point. In that case the railway company owned a line of railroad lying partly in Bossier Parish, Louisiana, also all of the stock of the corporate owner of a bridge over Red river in Bossier City. An ad valorem tax was imposed on the railway company upon all of its property within the taxing district to provide the funds to meet certain road bonds. The court held that “Without doubt a local legislative body, when properly authorized, may, lay general ad valorem taxes upon all property within its jurisdiction, including that of common carriers engaged in interstate commerce, without violating the Federal Constitution. That such taxation does not amount to regulation of interstate commerce is settled doctrine.”
In that case no capital or income tax was involved. The corporation was doing business in that jurisdiction and had therein tangible assets upon which the tax could be laid. In the case at bar, the facts are entirely different. There is no tangible property in Virginia upon which the tax can be laid. The assessment was made upon intangible property only, described as capital. In the Nattin Case, an entirely different kind of tax was involved.
In Adams Express Co. v. Ohio State Auditor, 165 U. S. 194, 17 S. Ct. 305, 41 L. Ed. 683, and upon rehearing under the same style, 166 U. S. 185, 17 S. Ct. 604, 607, 41 L. Ed. 976, the express company was a New York corporation, transacting an express business throughout the United States, and its total tangible property was valued at about 84,000,000, while its intangible property was valued at about 812,000,000. The tangible property was spread through the several States and in round figures about
It is obvious that the Express Cases have no bearing upon the case at bar. The Sales Company transacts no business in Virginia and possesses no tangible property here. Another very important distinction is that the tax here imposed was not based on the “unit rule” as was done in the Express Cases. Section 73 of the Tax Code does not authorize any such valuation. In the Express Cases, Ohio, by the Supreme Court decision, was allowed to include the intangible property because there was in those cases a basis or foundation to rest it upon, to-wit, (1) tangible property in that State, and (2) substantial intrastate business done there, both of which are entirely lacking in the case at bar.
The Sales Company relies upon the principles announced in Ozark Pipe Line Corp. v. Monier, 266 U. S. 555, 45 S. Ct. 184, 185, 69 L. Ed. 439. There the corporation was incorporated under the laws of Maryland and had a pipe line running through the State of Missouri, through which it transported oil in interstate commerce. It had its principal office in Missouri, kept its books and bank accounts there; paid its employees in the State from its office, engaged therein labor to conduct its pumping plants to accelerate the passage of oil and owned and operated automobiles and trucks in connection with its business. It neither received nor delivered any oil in Missouri. That State undertook to assess a tax, styled a franchise tax, under a statute which provided the means of ascertaining the tax. It required every corporation not organized under the laws of Missouri, but engaged in business therein, to pay an annual franchise tax equal to one-tenth of one per cent of the par value of its capital stock and surplus employed ino business in the State. For the purpose of the tax the corporation is deemed to have employed in the State “that proportion of its entire capital stock and surplus that its property and assets in this State bear to all its property and assets wherever located.” The cor
“* * * It long has been settled that a State cannot lay a tax on interstate commerce in any form, whether on the transportation of subjects of commerce, the receipts derived therefrom, or the occupation or business of carrying it on. Leloup v. Mobile, 127 U. S. 640, 648, 8 S. Ct. 1380, 32 L. Ed. 311, 314 [2 Inters. Com. Rep. 134]; Kansas City, Ft. S. & M. R. Co. v. Botkin, 240 U. S. 227, 231, 36 S. Ct. 261, 60 L. Ed. 617, 618, and cases cited. Plainly, the operation of appellant’s pipe line is interstate commerce, and beyond the power of State taxation. Eureka Pipe Line Co. v. Hallanan, 257 U. S. 265, 272, 42 S. Ct. 101, 66 L. Ed. 227, 231; United Fuel Gas Co. v. Hallanan, 257 U. S. 277, 42 S. Ct. 105, 66 L. Ed. 234. But the contention in justification of the tax is that appellant is also engaged in doing local business, the basis of such contention being the facts concerning its ownership and use of property other than the pipe line, and its various acts and activities within the State hereinbefore recited; and, further, that the purposes for which it is incorporated, as declared in its articles, comprehend other activities than that of transporting petroleum; namely, the acquisition and operation of telegraph and telephone lines, dealing in and transporting merchandise, etc.
“An extended review of the decisions of this court dealing with this phase of the subject is not necessary. All proceed from the same principles, but range themselves on one side or the other of the line, as the facts do or do not demonstrate that the tax, as a practical matter, constitutes a burden upon interstate commerce. The facts upon which these former decisions rest, therefore, must be borne in mind in applying them to other and alleged similar cases. If the business taxed is in fact separate
“ ‘Wherever a separation in fact exists between transportation service wholly within the State and that between the States, a like separation may be recognized between the control of the State and that of the nation. Osborne v. Florida, 164 U. S. 650 [17 S. Ct. 214, 41 L. Ed. 586]; Pullman Co. v. Adams, 189 U. S. 420 [23 S. Ct. 494, 47 L. Ed. 877].’ On the other hand, in Norfolk & W. R. Co. v. Pennsylvania, 136 U. S. 114, 120, 10 S. Ct. 958, 960 (34 L. Ed. 394, 397 [3 Inters. Com. Rep. 178]), a Pennsylvania tax of similar character, sought to be imposed upon a Virginia railroad corporation, was held bad.”
That case in several respects is similar to the case at bar. There, the corporation maintained its principal office in Missouri. It conducted its financial transactions there; engaged and paid from its office a large force of employees; conducted auxiliary pumping stations in the State and owned and operated trucks and automobiles in its business, but it actually received and delivered no oil in the State, though its pipe line ran through it. Another point of similarity is in the nature and character of the tax sought to be imposed. It is true, the tax was called a franchise tax, but in reality it was a property tax, for it was arrived at by taking from the corporation a percentage of its capital and surplus employed in business in the State, and to determine what capital and surplus was so employed, it fixed as the method, “that proportion of its entire capital stock and surplus that its property and assets in this State bear to all its property and assets wherever located.” So it is seen, that while the tax was called a franchise tax, it was, in reality, a property tax. It has been repeatedly held that it is the character of the tax and not the name given it that governs in cases of this kind.
The principles of the Missouri case are applicable to the case at bar, and we think they show that the tax . sought to be imposed upon the Sales Company is a burden upon interstate commerce and invalid.
Another case relied upon by the Sales Company is Alpha Portland Cement Co. v. Mass., 268 U. S. 203, 45 S. Ct. 477, 69 L. Ed. 916, 44 A. L. R. 1219. In that case, Massachusetts assessed the Cement Company with what was termed an excise tax. By reference to the footnote appended to the opinion in the case, the statute, under which the tax was imposed, will be found, and from it is seen that the tax was on income and corporate excess employed within the State. The Cement Company was a New Jersey corporation, maintaining an office in Boston, Massachusetts, which was in charge of a district sales manager, with a clerk, where its business activities in connection with the receipt of orders and shipments of goods for the New England States were conducted. The general office of the corporation was in Easton, Pennsylvania. The court held that the tax was invalid, quoting with approval this language from the case of St. Louis S. W. R. Co. v. Arkansas, 235 U. S. 350, 35 S. Ct. 99, 103, 59 L. Ed. 265:
“ ‘So far as the commerce clause is concerned, it seems to us that the principles upon whose application the present decision must depend are those set forth in
In that case, the maintenance of the Boston office and work done there were not sufficient foundations on which to base the State tax.
See, also, the principles announced in Cheney Brothers Co., et al. v. Mass., 246 U. S. 147, 38 S. Ct. 295, 62 L. Ed. 632, and the cases there referred to.
In the case of Commonwealth v. Castner, Curran & Bullitt, 138 Va. 81, 121 S. E. 894, 900, this court was dealing with the validity of a license tax which had been imposed upon the company. No property tax was involved. The facts in that case are almost identical with the facts in the case at bar. The most notable difference is that the company was a foreign corporation. It was a coal sales agency dealing exclusively in selling coal from the West Virginia mines to purchasers in States other than Virginia, in interstate commerce. This court held that the
From the principles gathered from the case it seems clear that a corporation engaged in interstate commerce may be taxed by a State on (1) its real estate and tangible personal property situated in the taxing State, and (2) upon its intangible personal property, if in the taxing State it does intrastate business or has any appreciable real or tangible property. But if it has no real or tangible property and does no intrastate business in the taxing State, it cannot be taxed by that State.
Many other cases may be found in which State taxation in relation to interstate commerce is discussed, but we deem it unnecessary to prolong the discussion. After a consideration of those we have examined, we are of opinion that where a capital tax under section 73 of the Tax Code is sought to be imposed upon a person, firm or corporation, which is doing no intrastate business, but is doing solely an interstate business, and has no appreciable real or tangible personal property in this State, the tax is invalid because it is a burden upon interstate commerce and contravenes article 1, section 8, sub-section 3, of the Constitution of the United States.
Having held that the pertinent section of the Tax Code (section 52) did not authorize the assessment of an in
Affirmed.
Dissenting Opinion
dissenting in part:
I concur in the conclusion of the court that imperial Coal Sales Company, Incorporated, is not subject to the income tax assessed against it.
I dissent from the conclusion of the court in so far as it holds that the assessment of a State property tax upon the intangible personal property of a natural person or a domestic corporation is invalid merely because he or it uses such property in carrying on an interstate business. Upon principle, I think, such a holding is unsound, and stretches the compass, operation and effect of the interstate commerce clause of the Constitution of the United States far beyond its reasonable intendment. I do not understand that the Supreme Court of the United States has yet gone so far, and I am reluctant to believe that it will go so far. It is true that it has exercised an ingenuity in stretching the compass of this clause which in some instances rivals the ingenuity shown by Queen Dido in stretching the compass of her ox hide; and it may be that this court is correct in its surmise that the Supreme Court of the United States will hold that the mere fact that intangible personal property is used in carrying on interstate business wholly exempts it from any State property tax. As to this I do not essay to prophecy; but until it does so hold, pointedly and unequivocally, I think, this court should adhere to principle and not so hold.
Section 427 of the Tax Code, I think, has no application to a case such as this. It is intended to cover cases in which the person or corporation does not within the State do any business, not cases in which the person or corpora
Rehearing
Upon Rehearing, Richmond, January 11,1934.
This case was argued before this court at its November, 1932, term and on January 12,1933, an opinion was handed down affirming the order of the lower court.
Upon the petition of the Commonwealth, a rehearing was granted and the case reargued. Upon mature consideration of the questions involved upon the rehearing, we are constrained to adhere to our former opinion, and the judgment of the Circuit Court is therefore affirmed.
Affirmed.
Epes and Hudgins, JJ., dissenting.
