87 P. 102 | Cal. | 1906
Lead Opinion
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *577 Plaintiff, who is the owner of 5,096 shares of the capital stock of the Crocker-Woolworth National Bank, sought by this action to have it adjudged that the assessment and taxation of said shares for the fiscal year ending June 30, 1901, were illegal and void, and to obtain an injunction restraining defendant tax-collector from selling or declaring sold to the state, on account of said taxes, certain real property of plaintiff also assessed to her, and upon which said taxes on the shares of stock constituted a lien (Pol. Code, sec. 3717), or making any certificate of such sale, and for such other relief as might be proper. By the allegations of her complaint, filed June 12, 1901, it appeared that the defendant had advertised said real property for sale on account of said *578 taxes, and would on June 24, 1901, unless restrained, sell said property to the state of California, and enter the words "Sold to the state" on the delinquent assessment-list opposite the tax levied on the property of plaintiff, and execute a certificate of delinquent tax sale for said real property, dated June 24, 1901, to the state, and that five years thereafter he, or his successor in office, would execute a deed of said real property conveying to the state the absolute title to said property. An injunctionpendente lite was asked for, and upon the filing of the complaint such an injunction was issued, restraining defendant from selling or declaring sold said real property to the state of California, from making the entry "Sold to the state" on the delinquent assessment-book opposite the tax levied on plaintiff's property, from making out or executing a certificate of delinquent tax sale to said property, and from in any manner interfering with said property.
Upon the filing of the answer, in which the allegations as to the invalidity of the tax were denied, defendant moved that this injunction pendente lite be dissolved. This motion was denied. This is an appeal by defendant from the order refusing to dissolve such injunction.
The principal question involved on this appeal, and the one principally discussed by counsel, is as to the proper construction of our revenue laws relative to the assessment and taxation of the property of California corporations, which question is of considerable practical importance, in view of the decision of the United States supreme court in the recent case ofSan Francisco National Bank v. Dodge,
The assessment and taxation of plaintiff's shares of stock were made under the supposed authority of the act of 1899 (Stats. 1899, p. 96) amending section 3608 of the Political Code, and adding two new sections to said code, known as sections 3609 and 3610. By these sections, it is required that the stockholders in every national banking association doing business in this state and having its principal place of business herein, "shall be assessed and taxed on the value of their shares of stock therein," the same to be "valued and assessed as is other property for taxation." It is provided that in making such assessment to each stockholder, "there shall be deducted from the value of his shares of stock such sum as is in *579 the same proportion to such value as the total value of its real estate" (the real estate being assessed directly to the banking corporation), "and property exempt by law from taxation bears to the whole value of all the shares of capital stock in said national bank." The statute further provides that in the assessment of said shares "each stockholder shall be allowed all the deductions permitted by law to the holders of moneyed capital in the form of solvent credits," and also declares that the assessment and taxation shall not be at a greater rate than is made or assessed upon other moneyed capital in the hands of individual citizens of this state.
These sections were enacted in an effort of this state to avail itself of the permission of Congress, evidenced by section 5219 of the Revised Statutes of the United States, [U.S. Comp. Stats. 1901, p. 3502], to tax shares of national banking associations to the holders thereof. It is now so well settled as to no longer require the citation of authorities that, under this section, the holders of shares of national banking associations located within a state may be assessed and taxed therefor in such manner as the legislature of such state may provide, subject only to two restrictions, viz.: "That the taxation shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such state, and that the shares of any national banking association owned by nonresidents of any state shall be taxed in the city or town where the bank is located, and not elsewhere."
While there are general allegations in the complaint to the effect that the assessment of plaintiff's shares of stock was not made in the manner prescribed by sections 3609 and 3610 of the Political Code, the specific allegations in support of such general allegations show that the various provisions of those sections were fully complied with, and that if the assessment be invalid, it is so solely because those sections provide a method of assessment and taxation for national bank shares, the effect of which, in its practical execution, is to discriminate in favor of state banks and other state moneyed corporations, and against national banks.
With one exception, all contentions made by learned counsel for plaintiff against the legality of the method thus adopted by the state of California for the taxation of national bank shares, appears to have been already disposed of adversely to him by *580
the supreme court of the United States in the opinion delivered in the case of San Francisco Nat. Bank v. Dodge,
In the Dodge case, however, it was held by the United States supreme court (four of the justices dissenting) that the California law relative to the assessment of the property of corporations, as construed by the California supreme court, does not compel the assessing officers in the valuation of the property of such corporations, to include all those elements of value which are embraced in the assessment of shares of stock in national banks, and that, for this reason, and the additional reason, held to have been shown by the record in that case, that assessors generally in their assessment of state corporations had failed to include all such elements, the law requiring the assessment of national bank shares at their full cash value to the holders thereof is, both by its terms and in its practical execution, a discrimination in favor of other moneyed capital against national banks, forbidden by the act of Congress which authorizes the assessment and taxation of such shares.
It is claimed that the decision of the supreme court in the Dodge case effectually determines for all time the question as to the validity or invalidity of our existing statute relative to the assessment of national bank shares. But we do not so understand the majority opinion in that case, or the effect of the decision rendered. It, doubtless, effectually disposed of the assessments involved in that case. Its decision to the effect that our statute relative to the assessment of national bank shares cannot be enforced, so long as our laws relative to the assessment of state corporations are construed by this court not to require the assessing officers to include in the assessment of such corporations all of those elements of value which are embraced in an assessment of national bank shares, so as to *582
produce equality of taxation as respects national banks, is also undoubtedly a decision upon a federal question, binding upon us. It may also be conceded that upon a showing in any case of such facts as were held to be shown by the record in the Dodge case, as to the practical application of the law relative to state corporations by assessors generally, we would be compelled to follow the decision in the Dodge case, and hold the assessment complained of void. But throughout the opinion in that case, the supreme court recognized the rule repeatedly declared by it to the effect that in the interpretation of the constitution and statutes of a state, the construction placed upon them by the court of last resort of such state is conclusive and binding upon the supreme court of the United States and all federal courts (see Smiley v. Kansas,
Addressing ourselves to this question: —
The portion of the majority opinion in the Dodge case last quoted recognizes that a state is at liberty to adopt a method for the assessment of state corporations, under which all those elements of value which are embraced in an assessment of the shares of stock would be required to be included in an assessment of the property of the corporation to the corporation. Such was the method upheld by the supreme court of the United States in the Adams Express Company cases (Adams Express Co. v. Ohio StateAuditor,
Unless we are now prepared to repudiate the doctrine of the case of People ex rel. Burke v. Badlam,
Section 1 of article XIII of the constitution adopted in 1879, was, so far as is material in this connection, as follows: "All property in the state, not exempt under the laws of the United States, shall be taxed in proportion to its value, to be ascertained as provided by law. The word `property,' as used in this article and section, is hereby declared to include moneys, credits, bonds, stocks, dues, franchises, and all other matters and things, real, personal and mixed, capable of private ownership." No amendment of this portion of the section has ever been made. The section, as originally adopted, contained a proviso exempting growing crops, property used exclusively for public schools, and such as may belong to the United States, this state, or to any county or municipal corporation within *584
this state. The section has been amended to include among the exemptions property used for free public libraries and free museums. Other sections have been added exempting certain property, such as buildings used solely for religious worship, state, county and municipal corporation bonds, personal property of a householder to the extent of one hundred dollars, and fruit and nut bearing trees under the age of four years and grapevines under the age of three years, none of which changes is material to the question here under consideration, except in so far as such changes emphasize the fact that it has always been recognized that nothing capable of private ownership can be exempted from taxation, unless it be specifically declared to be exempt by constitutional provision. There has never been any question as to the effect of this mandatory provision of our constitution. The definition of property required to be taxed inproportion to its value was so sweeping and comprehensive that it has uniformly been held that it included everything capable of private ownership, and that the provision placed it beyond the power of the legislature to exempt from taxation either totally or partially anything capable of private ownership, not exempted by the constitution itself. This, of course, is so clear as to property specifically mentioned in the provision, such as bonds, stocks, franchises, etc., as to require no argument. As said inMackey v. San Francisco,
The taxation of all property not specifically exempted, including shares of stock, was thus required by constitutional provision. The only thing left for the legislative department to do was to provide a method for the ascertainment of the value of the property to be taxed. To this extent, the constitutional provision was not self-executing. (McHenry v. Downer,
We thus had in 1880, as we have ever since had, a mandatory constitutional provision, specifically requiring the assessment and taxation of shares of stock, and the assessment, under the statutory rule applicable to all property, then adopted and ever since in force, was to be at the "full cash value," or "market value," as those terms have already been defined. It has several times been said, although it is so self-evident as not to require statement, that an assessment of the shares of stock as required by the constitution would necessarily include an assessment of every element entering into and giving value *586 to the shares. For the purposes of taxation, all such elements, tangible and intangible, were, by the constitution, in effect declared to be property subject to taxation. As we have seen, the legislation of 1880 was entirely consistent with this constitutional provision.
By the act of March 7, 1881, (see amendments to codes, 1881, p. 56,) certain changes were made by the legislature. Section 3607, providing that all property not exempt must be taxed, was amended by the addition of a proviso to the effect that nothing in the code should be construed to require or permit double taxation, the provisions of section 3627 and 3640 as to the assessment of shares of stock directly were eliminated, and section 3608 was added. The last-named section was as follows: "Shares of stock in corporations possess no intrinsic value over and above the actual value of the property of the corporation which they stand for and represent, and the assessment and taxation of such shares and also of the corporate property would be double taxation. Therefore all property belonging to corporations shall be assessed and taxed, but no assessment shall be made of shares of stock, nor shall any holder thereof be taxed therefor." This section has been amended only once, — viz. in 1899, — and then simply by excepting from its operation national banking associations.
It requires no argument to show that this section was in absolute defiance of the constitutional provision expressly requiring shares of stock to be taxed in proportion to their value, if its legal effect was to relieve from taxation a single element that entered into and gave value to the shares of stock. As we have seen, the effect of the constitutional provision was to render all of such elements for the purposes of taxation, property required to be taxed in proportion to their value. This legislation could be sustained as a valid exercise of legislative power only upon the theory that, under our laws, all of these elements constituted, for the purposes of taxation, property "belonging to the corporation," which must be included in the assessment of the property of the corporation.
Upon this theory, section 3608 was upheld by this court in the case of People ex rel. Burke v. Badlam,
As we have seen, section 3608 could be upheld as a constitutional enactment only on the theory that under it and other existing statutory provisions, everything entering into and giving value to the shares of stock was "property belonging to the corporation" to be included in the assessment of the property of the corporation. What we have said as to Burke v. Badlam shows that section 3608 was therein held to be valid upon this ground. That case has always been recognized as involving the question as to the constitutionality of that section and as decisive thereon. (See Spring Valley W.W. v. Schottler,
Burke v. Badlam,
In the later case of Spring Valley Water Works v. Schottler,
There is certainly nothing in the opinion in Bank of California
v. San Francisco,
It was said by the dissenting justices in the Dodge case, speaking of the construction placed by this court upon our statutes in this regard: "Obviously, that court construes them as including within the corporate property the aggregate value of all the shares of stock, and that, while they forbid the assessment and taxation of shares of stock in a state corporation, they require that all the value represented by those shares of stock be assessed and taxed against the corporation; *591 so that, when you ascertain the value of a single share of stock, and multiply that by the number of shares in the corporation, you have the value of the corporate property subject to taxation." This appears to us to be the necessary result of our decisions upon this question. Such a construction does not, of course, require the assessment as intangible property of the value of such tangible property as is exempt from taxation under the laws of the United States and this state.
It is urged that many elements entering into and helping to fix the market value of stock, which would be included in an assessment of the shares themselves, such as good-will, dividend- or profit-earning power, etc., could not be assessed by the assessing officers as property of the corporation, and if they could be so assessed, there is nothing in our law requiring the assessor to so value those things that the entire valuation of the property of the state corporation will equal the market value of the shares. If this be true, it must follow, as we have already shown, that section 3608 of the Political Code, prohibiting any assessment of shares of stock, is unconstitutional. That a system of taxation may be adopted by a state under which all those elements may be included as property of the corporation in the assessment against the corporation was, as we have seen, held by the United States supreme court in several cases. (See cases cited, supra, and recognized both in the Davenport case, and in the majority and minority opinions in the Dodge case.) This conclusion necessarily follows the undisputed doctrine that a state may assess and tax at their full cash value shares of stock in corporations. That our statutes, as construed by this court, positively command the assessment of all such elements in such a manner as to make the aggregate value of the corporate property measure up in amount to the aggregate market value of the shares, appears very clear to us. Those statutes expressly require that all property belonging to corporations shall be assessed and taxed at its "full cash value," defined to be the amount at which the property will be taken in payment of a just debt due from a solvent debtor, and this positive injunction is as applicable to the intangible property of a corporation, such as its corporate franchise, which admittedly must be assessed and taxed, as it is to the tangible *592
property, such as real estate. As was said by Mr. Justice Brewer, in the dissenting opinion in the Dodge case, "But it is said there is no specific command to include in the property of a state corporation the good-will, dividend-earning power, and the like, and that they are necessarily included in the selling value of the stock of any corporation. It is true, these items are not in terms mentioned, but neither are desks and furniture. The language is general, so general that it includes everything, not excepting good-will, dividend-earning power and the like, for they are `capable of private ownership.' They belong to the corporation. There is no goodwill in a share of stock over and above the good-will which belongs to the corporation, and, if the corporation sells and conveys all that it possesses `capable of private ownership' it sells and conveys its good-will, and there is nothing left of good-will or anything else belonging to the stockholders. This is so plain that he who runs may read." The statutes expressly requiring the assessment of all the property, both tangible and intangible, to be at its full cash value, it is obvious that there is but one method by which the cash value of the intangible property can be ascertained, a method ordinarily much more certain and accurate in its results than any method that can be devised for the ascertainment of the value of real estate and many articles of personal property. It is settled law in this state that a proper method for ascertaining the value of the franchise of a corporation is by deducting from the aggregate market value of its shares the value of its tangible property, and taking the difference as the value of the franchise. (See SanJose Gas Co. v. January,
Whether or not in the case of a banking corporation which possesses no other franchise than its corporate franchise, the whole of its intangible property may be considered "franchise" and be assessed eo nomine, as seems to be clearly intimated by the cases we have cited, is not absolutely necessary to a determination of the question under discussion. This was also true of the case of Bank of California v. San Francisco, where the decision of such question was expressly withheld. (
Another question presented upon this appeal is as to the propriety of the remedy by injunction. We are satisfied that no injunction pendente lite restraining such acts upon the *594 part of the tax-collector as were specified in the injunction, should have been issued, and that the motion to dissolve this injunction should have been granted.
It is well settled by the decisions in this state that the equitable remedy by injunction will not be granted to restrain proceedings of the officers on whom is devolved the duty of enforcing the tax laws, merely because the tax sought to be enforced is illegal. To justify the exercise of such a remedy, it must appear that the same is necessary to protect the rights of the property-owner and that he has no adequate remedy at law. In the matter of granting such relief, therefore, a court of equity will go no further than is necessary to protect the rights of the property-owner, and will not to any greater extent impede the officers of the state in the performance of their duties. This general matter has several times been under consideration by this court, notably in the cases of Savings and Loan Society v.Austin,
Under that rule, no act on the part of officers required by the law to be performed in the execution of the revenue measures will be stayed by injunction, unless that act is of such a nature, and will have such an effect, as to irreparably injure the property-owner, or, as said in the case above cited and quoted from, "where the property is real estate, throw a cloud upon the title of the complainant."
It is obvious that a general allegation that such an act will cast a cloud upon the title of the complainant, and will be to her great and irreparable injury is insufficient to justify such relief, where the laws of the state show clearly that no such effect can be produced.
We have already stated the acts specifically prohibited by the temporary injunction here involved. It is very clear that, under our law, none of these acts could have the effect heretofore stated. It may be conceded that the execution of a deed of said property by the tax-collector to the state of California, which deed, by express provision of the Political Code, would purport to convey the absolute title, and be primary evidence as to certain matters affecting the regularity of the proceedings and conclusive evidence as to other of said matters (secs. 3786, 3787), would constitute a cloud upon the title, within the rule enunciated in a long line of cases (see Maskey v. Lackmann,
Under our present system, the only cloud upon the title of *596
the taxpayer created prior to the execution of such a deed to the state, is such cloud as arises from the fact that the tax is a lien upon his property in favor of the state, attaching as of the first Monday in March (the date of assessment), and continuing until the taxes are paid or the property sold for the payment of the tax. (Pol. Code, secs. 3716, 3717, 3718.) The effect of this lien is in no degree practically added to by anything required to be done by the tax-collector prior to the execution of the deed. To comply with the laws of the state looking to the enforcement of unpaid taxes, the tax-collector is required to make publication of the entire delinquent list within a certain period, together with a notice that at a stated time, the property upon which the lien of the state exists will, by operation of law, be sold to the state, and at the time stated, to declare all such property, as to which the taxes have not been paid, sold to the state, to make an entry accordingly upon the delinquent list, and to make out and file of record a certificate of such sale. (Pol. Code, secs. 3764 to 3778.) The only practical effect of a compliance with these provisions, in addition to preserving the rights of the state in the matter of such taxes as are ultimately found to be valid, is to start running the period of five years within which redemption can be effected and at the expiration of which a deed may be issued to the state. During this period, the legal title to the property continues in the taxpayer, subject to the lien in favor of the state created bythe assessment and levy. Neither the certificate of sale (seeClarke v. Mead,
The order denying the motion to dissolve the injunction is reversed.
*597Shaw, J., Sloss, J., Lorigan, J., and Beatty, C.J., concurred.
McFarland, J., dissented.
Concurrence Opinion
I concur in the judgment, and generally in the reasoning and principles announced in the prevailing opinion. Something more, however, remains to be said upon the question, and no better time for its saying presents itself than is offered by the present case. Concededly it is of the highest importance to the commonwealth that the tax system should be uniform and just and that no one person or class of persons should be exempt from the payment of a tax the collection of which is enforced against others. Per contra, that no one person or class of persons should be compelled to pay a tax which is not enforced against others. The fault of our system in this regard — a fault of which the taxpayer may justly be heard to complain — is not in the assessment of intangible property represented by the difference between the market value of the stock and the value of the tangible property, but it is in calling this difference the value of the "franchise" and taxing it as franchise. A franchise is simply a special privilege granted by the state directly or through one of its mandatories. When that privilege is the privilege of being a corporation, when the franchise granted is simply the franchise to be a corporation, that franchise can have no greater value than what it has cost the incorporators to obtain it and what it would cost other incorporators to obtain the identical privilege. Since in this state these franchises are open to all upon the same conditions, that cost is the mere expense of filing papers and procuring clerks' certificates, say ten dollars, and it cannot be said that such a franchise or privilege can ever be worth more than that amount while our laws remain unchanged. A tremendous distinction is, of course, to be observed between this franchise to be a corporation and some special franchise to do a particular thing, as the franchise to use a particular city street for street railroad purposes. Such a franchise, and others of like kind, often have enormous value, and this value comes from the fact that once granted, no other person can obtain them. It is not open to citizens upon the same terms, but it is in its nature monopolistic. But I advert to this merely in passing, for we are here dealing with the franchise to be a corporation. To illustrate the fallacy of assessing the difference *598
in value between the market value of stock and the value of the tangible property as franchise let us instance a case. Three men as copartners are engaged in the business of selling dry goods. By the exercise of varied qualities which go to make business success they have developed an enormous and profitable business. They are assessed for the value of their tangible property, the stock on their shelves and their solvent credits or book accounts. They decide to incorporate, and without the slightest change in location, stock, book accounts, without the slightest change of any kind, they pay ten dollars to the state of California, obtain articles of incorporation and issue to themselves each one third of the shares. These shares have a value far in excess of the total value of the goods on the shelves and of the solvent credits. Upon an investment say of a million dollars their profits show a return of six per cent upon ten millions of dollars. Finding, therefore, the value of the solvent credits and goods on hand at one million dollars and the value of the stock at ten million dollars, the assessor assesses this corporation nine million dollars for its franchise, for which franchise but the day before it paid the state ten dollars, and as to which franchise — which is merely the privilege as a corporation to carry on the business of buying and selling dry goods — any three men in the state of California may secure the identical privilege for the same expenditure of money. The necessary result would be that while yesterday the privilege was assessed for a million dollars, to-day the corporation is assessed for ten millions of dollars, nine millions of which is the so-called value of the franchise. I am not disputing the existence of this nine millions of property. I do insist that it was not called into being, nor in any way created, through the privilege to be a corporation so granted by the state. This nine million dollars is, and logically can be, nothing other than the good-will of the business, which good-will is itself a species of property distinctly recognized by the laws of this state, property capable of private ownership, and, therefore, property which should be assessed. And not only should it be assessed, but I insist it should be assesesd not under the misleading and deceptive misnomer of franchise, but assessed for what it really is, good-will. (Civil Code, secs.