Commonwealth v. National Biscuit Company, Appellant.
Supreme Court of Pennsylvania
November 11, 1957
reargument refused January 2, 1958.
390 Pa. 642
Under these circumstances, it is clear that any contention that appellants should be allowed an appeal nunc pro tunc because of lack of notice to them, in the face of the clear statutory prohibition against taking an appeal beyond the thirty-day period, must perforce fail.
Because of our determination that appellants in this case are clearly barred by the statute, it is unnecessary to consider their argument that estoppel ought not to bar their action.
Order affirmed.
Commonwealth v. National Biscuit Company, Appellant.
reargument refused January 2, 1958.
Roy J. Keefer, with him Leslie M. Swope, Charles J. Biddle, Hull, Leiby & Metzger and Drinker, Biddle & Reath, for appellant.
OPINION BY MR. JUSTICE CHIDSEY, November 11, 1957:
This appeal by National Biscuit Company questions the amount of State tax imposed on it for the year 1952 under the
Appellant was incorporated in New Jersey, has its principal office in New York City and is duly registered to do business in Pennsylvania where during the tax year in question it engaged in its business of the manufacture and sale of bakery products. Following the filing of its franchise tax report for said year and in conformity therewith, the tax payable by appellant was settled by the fiscal officers of the Commonwealth in the amount of $58,321.60. A petition for resettlement was refused. Appellant paid the tax but filed a petition for review with the Board of Finance and Revenue which was denied and the tax settlement sustained. On appeal, the Dauphin County Court (four judges sitting) upheld the action of the tax authorities and entered judgment nisi in favor of the Commonwealth and against appellant in the said amount of $58,321.60 (to be marked satisfied upon payment of costs). After consideration of exceptions filed, the court entered a final judgment affirming its judgment nisi. This appeal followed.
Appellant‘s contentions will be better understood by a preliminary reference to the tax legislation involved. Prior to the enactment of the Franchise Tax Act of 1935, both domestic and foreign corporations were subject to the
In accordance with the formula and as required thereunder for the determination and application of the allocation fractions necessary for the computation of the tax, the taxing departments in appraising appellant‘s entire capital stock included all of the defendant‘s tangible and intangible assets as listed in the balance sheet contained in its Franchise Tax Report for 1952, excepting its investment in shares of stock of subsidiary companies operating in foreign countries which, together with the income derived therefrom, was excluded; this exclusion is not in issue. Claiming that the tax in question is a property tax and therefore extraterritorial assets of the corporation may not be included in arriving at the taxable valuation, appellant asserts that the formula or method applicable under the
Appellant contends that the tax as computed and imposed on it offends various provisions of the State and Federal Constitutions. The contention rests upon the premise or assumption that the Franchise Tax Act of 1935 imposed a property tax. In cases decided by this Court following the passage of the
In Commonwealth v. Columbia Gas and Electric Corporation, supra, in which the constitutionality of the
“Among the standards used for distinguishing a franchise tax from a property tax has been the method adopted for laying them and fixing the amount. . . . The determination of the value of the franchise under the amendatory Act may bring into consideration property situated within the Commonwealth, and give to it
“Under the 1935 Act, the underlying element in the ascertainment of the value of the franchise is the value of the entire capital stock of each foreign corporation. We referred to this in Arrott‘s Estate, 322 Pa. 367, as being the base. The attempt to determine what part of the value of this base should be the taxable value called for by the Act is to ascertain with approximate correctness the equivalence of that value which the legislature deemed the franchise or right to do business in this State to have.” (Emphasis supplied).
In Commonwealth v. Ford Motor Company, supra (appeal dismissed 324 U. S. 827), at p. 240 et seq. we said: “. . . This Act imposes a franchise or excise tax upon foreign corporations as distinguished from a property or ad valorem tax. Prior to 1935, foreign corporations doing business here were required to pay a capital stock tax, which, as a property tax, proved unsatisfactory and produced unfair results. As we stated in Arrott‘s Estate, 322 Pa. 367, 372, 185 A. 697, the
“In the Columbia Gas and Electric Corp. case, supra, we held that the tax, not being a property tax, but a tax upon the privilege of engaging in business in this Commonwealth, should be measured by a valuation reflecting capital so used as to affect the value of the Pennsylvania franchise, rather than a valuation reflecting merely aggregate capitalization. . . .” (Emphasis supplied).
In Commonwealth v. Quaker Oats Company, supra (appeal dismissed Id.), we said at p. 260: “. . . the tax is imposed upon the privilege of doing business here, measured by capital stock. . . .”
In Commonwealth v. Monessen Amusement Company, Inc., supra, the court below had held that the value of shares in a domestic corporation owned by a foreign corporation must be deducted in fixing the valuation of the foreign corporation for franchise tax purposes. In reversing the court below, this Court said at p. 122: “. . . Appellee‘s contention in the present case and the decision of the court below are both rested on the false assumption that the franchise tax, in some way, is a tax upon the property of the corporation which is used as a measure for the tax. . . .
“As we stated in Commonwealth v. Ford Motor Company, supra, the franchise tax is not a tax upon the property of the corporation, but upon the doing of business in this Commonwealth. . . .” (Emphasis the Court‘s).
In Commonwealth v. American Gas Company, 352 Pa. 113, 117 (1945), 42 A. 2d 161, we said: “. . . The former capital stock tax upon foreign corporations was a property tax which could only be imposed upon corporations having property subject to the jurisdiction of the taxing authorities. The franchise tax, however, is
In Commonwealth v. Eaglis Corporation, 354 Pa. 493 (1946), 47 A. 2d 661, we stated, p. 499, that the inclusion of intangibles as well as tangibles in the valuation of capital stock “. . . does not make the franchise tax a property tax. It is an excise upon a foreign corporation‘s privilege of doing business within the State: . . . The capital stock value is but a factor in the legislatively prescribed formula for determining the value of the privilege.”
In referring to the Columbia Gas and Electric Corporation, Ford Motor Company, Quaker Oats Company and Monessen Amusement Company cases, appellant expressly concedes that these cases held that the franchise tax is an excise tax upon foreign corporations for the privilege of doing business in Pennsylvania. In its brief it states: “In these cases, the question, inter alia, of whether or not the franchise tax was an excise or a property tax was at issue and in each case the Court held that the franchise tax was an excise tax and that property such as United States securities and other intangible, as well as tangible, property located outside of the State could be constitutionally included in the tax base for the reason that there was no direct tax thereon.”
In an effort to overcome the decisive effect of our rulings in the above cited cases, appellant points to language employed in some later cases which referred to the franchise tax as a property tax. These cases, Federal Drug Company v. Pittsburgh et al., 358 Pa. 454 (1948), 57 A. 2d 849; Murray et ux. v. Philadelphia et al., 364 Pa. 157 (1950), 71 A. 2d 280, and National Biscuit Co. v. Philadelphia, 374 Pa. 604 (1953), 98 A. 2d 182; were concerned with the validity of certain city
After considering five of the cases which we have above reviewed unequivocally holding the tax in question to be an excise tax, and the three cases relied on by appellant as holding the contrary, President Judge RICHARDS, specially presiding, speaking for the unanimous court below, pertinently said: “The latter three cases mentioned above did not expressly overrule the first five referred to. The latter three were not contests between the State and its taxpayers. Interpretation and application of the franchise tax act were not directly involved. We know of no case in which the Supreme Court has deviated from its declaration that the franchise tax is a tax on foreign corporations for the privilege of doing business in Pennsylvania. . . . No matter what terminology has been employed as to the nature of the tax, or what adjectives have been used to describe it, the reported cases between the Common-
In determining whether a tax duplicates another tax and results in double taxation prohibited to local taxing authorities, the operation or incidence of the two taxes is controlling as against mere differences in terminology from time to time employed in describing taxes in various cases. The incidence of a tax embraces the subject matter thereof and, more important, the measure of the tax, i.e., the base or yardstick by which the tax is applied. If these elements inherent in every tax are kept in mind, the incidence of the two taxes may or may not be duplicative. Thus analyzed and viewed in determining whether double taxation has occurred, the decisions upon which appellant relies are readily reconcilable with the cases holding the corporate franchise tax to be an excise tax. The subject matter of the latter is the privilege of doing business in Pennsylvania and the measure is the value of the capital stock related to the exercise of the State franchise conferred on it. In Federal Drug Company v. Pittsburgh, 358 Pa. 454, supra, relied on by appellant, not only the measure but the subject matter of the mercantile license tax imposed by the challenged Pittsburgh ordinances differed from the State franchise tax. The distinctions were plainly set forth in the opinion of the Court. In disposing of the contention that the city tax duplicated the State franchise Act in violation of the prohibition of the so-called Tax Anything Act,1 we said at p. 457:
In National Biscuit Co. v. Philadelphia, 374 Pa. 604, supra, relied upon by appellant, the City of Philadelphia had similarly imposed a mercantile license tax on the “gross volume of business” transacted by persons engaged in manufacturing, professions, occupations, trades, vocations and commercial activities in the City. As in the Federal Drug Company case, the Philadelphia mercantile tax differed widely both as to subject matter and measure from the State franchise tax, and accordingly was not duplicative of the latter. The reasoning and principles established in upholding the Pittsburgh mercantile tax in the Federal Drug Company case were equally applicable and decisive of the validity of the Philadelphia mercantile tax. It was therefore unnecessary in the National Biscuit Co. case
In the Murray case, decided in 1950, the Philadelphia ordinance imposing a net income tax was attacked. It was held invalid as violative of the
Arrott‘s Estate and the Union Trust Company case were cited in support of the above quoted statement in Murray. No reference was made to later cases where the franchise tax was directly attacked and it was ruled that the franchise tax is not the equivalent of the capital stock tax. Arrott‘s Estate, decided in 1936, had ruled that, for the purpose of the exemption from personal property taxation of shares of stock on which capital stock tax had been paid, the franchise tax was the equivalent of the capital stock tax. The Union Trust Company case, decided in 1942, merely extended the rule in Arrott‘s Estate by extending the exemption for personal property taxation to shares of stock on which a tax on bank shares had been paid. In Commonwealth v. Monessen Amusement Company, Inc., 352 Pa. 120, supra, decided in 1945, nine years after the decision in Arrott‘s Estate, and where we were directly construing the rights of a State taxpayer under the
Conversely, in Commonwealth v. Shenango Furnace Company, 362 Pa. 491, 493, 67 A. 2d 113 (1949), we denied to a domestic corporation an exemption from capital stock tax for the ownership of stock of a foreign corporation which was subject to the payment of franchise tax, saying: “As in the Monessen case, supra, the appellant bottoms its argument on the decision in Arrott‘s Estate, 322 Pa. 367, 185 A. 697, where a certain equivalence between the capital stock tax on domestic corporations and the franchise tax on foreign corporations was recognized. What the appellant overlooks, however, is that the equivalence, so noted, was of importance in Arrott‘s Estate to the construction of the express exemption provisions of the
The Monessen and Shenango cases clearly demonstrate the line of cleavage between the decisions of this Court dealing directly with State corporation taxes, and those involving local taxes, and nullify the effect of the statement in Murray regarding the equivalence of the franchise tax and the capital stock tax, or at least limit the scope of the language there employed
It should be readily apparent that the considerations before a court when confronted by an attack upon a local tax as violative of the
Appellant makes the additional contention that, whatever our ruling may be on the main issue presented, at least the United States securities owned by appellant should not be included in the tax computation because of the general immunity which such securities enjoy from State and local taxation.3 This contention is not new; it was raised and rejected in the Ford and Quaker Oats cases, supra. In the Ford case, 350 Pa. 236, supra, Mr. Justice ALLEN STEARNE in dismissing the contention that there was discrimination in our tax laws against foreign corporations in favor of domestic corporations because of certain exemptions enjoyed by the latter in the computation of the capital stock tax, said at p. 250: “. . . In this contention there is apparent again appellant‘s studied confusion of the essential dif-
The United States Supreme Court has consistently ruled that a State may constitutionally levy an excise tax on corporations for the privilege of doing business, and measure the tax by the property or net income of the corporation, including tax exempt United States securities or the income derived therefrom: Provident Institution v. Massachusetts, 6 U. S. (6 Wall.) 611 (1868); Society for Savings v. Coite, 6 U. S. (6 Wall.) 594 (1868); Hamilton Company v. Massachusetts, 6 U. S. (6 Wall.) 632 (1868); Home Insurance Company v. New York State, 134 U. S. 594 (1890); Tradesmens National Bank of Oklahoma City v. Oklahoma Tax Commission, 309 U. S. 560 (1940); Educational Films Corporation of America v. Ward, Attorney General of New York et al., 282 U. S. 379 (1931); Werner Machine Co., Inc. v. Director of Division of Taxation, Department of the Treasury, of New Jersey, 350 U. S. 492 (1956).
Appellant contends that the United States Supreme Court held otherwise in New Jersey Realty Title Insurance Co. v. Division of Tax Appeals of New Jersey et al., 338 U. S. 665. This is clearly a misinterpretation of the ruling. In that case a local tax assessment was held to be invalid because it was a tax on United States securities. The United States Supreme Court distin-
In the Werner Machine Co. case, 350 U. S. 492, supra, the Supreme Court held that the tax imposed by the State of New Jersey measured by the corporation‘s “net worth” was a tax on the corporate franchise which did not discriminate against Federal obligations and was valid despite the inclusion of Federal bonds in the determination of net worth. The appellant in that case made the same argument as appellant is making in the case before us. In sustaining the New Jersey tax the Court said at p. 494: “. . . And since this is a tax on the corporate franchise, it is valid despite the inclusion of federal bonds in the determination of net worth. This Court has consistently upheld franchise taxes measured by a yardstick which includes tax-exempt income or property, even though a part of the economic impact of the tax may be said to bear indirectly upon such income or property. [Citing cases]. . . . New Jersey Realty Title Ins. Co. v. Division of Tax Appeals, 338 U. S. 665, on which appellant relies, is distinguishable, in that it did not involve a franchise tax, but rath-
Equally untenable is appellant‘s argument that in some way it has been deprived of due process. In Standard Oil Company of Indiana v. State of Missouri on the Information of Hadley, Attorney General, Succeeded by Major, 224 U. S. 270, 287, the Court said: “The 14th Amendment guarantees that the defendant shall be given that character of notice and opportunity to be heard which is essential to due process of law. When that has been done, the requirements of the Constitution are met, and it is not for this court to determine whether there has been an erroneous construction of statute or common law. . . .” The Commonwealth‘s Constitution requires no more.
Appellant claims that if the franchise tax settlement against it is upheld, such decision will be so contrary to the decision in National Biscuit Co. v. Philadelphia, supra, involving the same taxpayer, that it will amount to arbitrary judicial action and thus constitute a denial of due process. It is sufficient answer that, as we have pointed out, the decision in National Biscuit Co. v. Philadelphia is not inconsistent but, on the principles stated in the Federal Drug Company case, entirely reconcilable with our rulings in cases challenging the franchise tax. Even if appellant‘s untenable assumption were adopted that the two decisions are irreconcilable and that National Biscuit Co. v. Philadelphia must be considered a holding that the franchise tax is a property tax, that would not prevent this Court from presently ruling otherwise. As stated in Patterson v. Colorado ex rel. The Attorney General of the State of Colorado, 205 U. S. 454, 461: “. . . There is no constitutional right to have all general propositions of law once adopted remain unchanged. . . . in general, the decision of a court upon a question of law, however
As first stated, however, we consider all of our decisions in cases involving statutory prohibition of double taxation entirely reconcilable with our many decisions declaring the franchise tax constitutionally unassailable. And we are satisfied that it was properly applied by the taxing authorities in the present case. The franchise tax has been so applied since its inception more than twenty years ago as an excise tax for the privilege of doing business in Pennsylvania in accord with our many decisions upholding the formula under which the tax due is ascertained and no sufficient reason has been advanced for changing our firm rulings.
Judgment affirmed.
CONCURRING OPINION BY MR. JUSTICE BELL:
I write this opinion with great reluctance, but fairness to the appellant compels me to do so. I am in complete disagreement with some parts of the majority opinion, its attempted distinctions of prior decisions of this Court, and its failure to overrule the latest decision of this Court, viz., National Biscuit Company v. Philadelphia, 374 Pa. 604, 98 A. 2d 182 (1953). In that case, where the basic issue was, as in the present case, whether the (State) Foreign Corporation Franchise Tax Act of May 16, 1935, P. L. 184, 72 PS 1871, imposed a franchise tax or a property tax, this Court held that said Act imposed a property tax; and therefore the so-called Philadelphia Mercantile License Tax, since it was an excise or franchise tax, was not a duplication of the State Foreign Corporation Franchise
“. . . as to the payments made to the Commonwealth of capital stock taxes, corporate net income taxes, foreign corporation franchise taxes,* and taxes on net earnings or income, it need merely be pointed out that all those taxes have been held, many times, to be property taxes. In an opinion by Mr. Justice LINN, who cited many previous authorities so holding, the capital stock tax was again declared in Murray v. Philadelphia, 364 Pa. 157, 166, 71 A. 2d 280, 284, to be a tax on the property of the corporation, and so likewise (following Blauner‘s Inc. v. Philadelphia, 330 Pa. 342, 198 A. 889, and Philadelphia v. Samuels, 338 Pa. 321, 12 A. 2d 79) the corporate net income tax (p. 169, A. p. 286), the franchise tax (p. 170 A. p. 286), and (following Kelley v. Kalodner, 320 Pa. 180, 187, 181 A. 598, 601) a tax on net earnings or income (p. 175, A. p. 289). On the other hand, the authorities are equally numerous to the effect that a mercantile license tax is not a tax on property or income, but an excise [or franchise]** tax upon the privilege of transacting business measured by the gross volume of business annually transacted: Knisely v. Cotterel, 196 Pa. 614, 46 A. 861; Commonwealth v. Harrisburg Light & Power Co., 284 Pa. 175, 130 A. 412;
* With Justices ALLEN M. STEARNE, BELL and MUSMANNO dissenting.
** Italics and brackets throughout, ours.
The present majority opinion says: “Appellant contends that the tax as computed and imposed on it offends various provisions of the State and Federal Constitutions. The contention rests upon the premise or assumption that the Franchise Tax Act of 1935 imposed a property tax. In cases decided by this Court following the passage of the Act of 1935 we unequivocally and repeatedly held that the franchise tax imposed by it is not a property tax but, as its name implies, a tax levied for the privilege of doing business in the Commonwealth, and its constitutionality was upheld: Commonwealth v. Columbia Gas and Electric Corporation, supra (1939); Commonwealth v. Ford Motor Company, supra (1944); Commonwealth v. Quaker Oats Company, 350 Pa. 253 (1944), 38 A. 2d 325; Commonwealth v. Monessen Amusement Company, Inc., 352 Pa. 120 (1945), 42 A. 2d 158.” This statement flies in the teeth of the more recent opinions and decisions of this Court which as above demonstrated held expressly, squarely and specifically to the contrary.
The present majority opinion attempts to distinguish the earlier cases from the recent cases which hold clearly, directly and exactly to the contrary, on
How this Court can one moment say that a tax imposed by a certain State Act is a property tax, and the next moment say that it is a franchise tax, or vice versa, is to me incomprehensible;* how this Court can
* See footnote to my dissenting opinion in National Biscuit Company v. Philadelphia, 374 Pa., supra (page 637): “The distinction or line of demarcation between a privilege tax, an excise tax and a property tax, which in the last analysis must be determined by the incidents and the nature and legal effect of the Act rather than by the name by which it is described, is so nebulous, flexible and fluctuating, that the decisions on this point throughout the
I would hold that the franchise tax which is imposed by the State by the
Mr. Justice MUSMANNO and Mr. Justice BENJAMIN R. JONES join in this concurring opinion.
entire country are ofttimes vacillating, confused and contradictory. See: 53 C.J.S., Licenses, pp. 457-461.”