184 Wis. 88 | Wis. | 1924
Lead Opinion
The following opinion was filed February 12, 1924:
The question to be solved is whether this state can lawfully impose an inheritance tax on the transfer of shares of stock, owned and possessed by a nonresident, in a corporation organized and having its principal place of business in another state, but having property and being licensed to do business in this state.
(1) An inheritance or succession tax is a tax on the right to receive property from a decedent. It attaches to a person and not to property or to an interest in property, though it is imposed and enforced through a control of the transfer of the property. The only other relation that the property has to it is that its value measures the amount of the tax. Nunnemacher v. State, 129 Wis. 190, 108 N. W. 627; Montague v. State, 163 Wis. 58, 157 N. W. 508.
(2) The property of a corporation is its property and not that of the stockholders. There is a fundamental difference between the capital of a corporation and its capital stock. The former belongs to the corporation; the latter, when issued, to the stockholders. The former may be either real or personal property; the latter, when issued, is always personal property. See cases and statutes cited infra.
(3) The state must have jurisdiction of the subject matter of the tax. Such subject matter is the transfer of title to property from a decedent to another. If the state has nothing to do with such transfer it has no jurisdiction to impose an inheritance tax. Its right to impose the tax springs from its right to prescribe reasonable conditions for permitting and making the transfer. Our state cannot deny
Applying the facts of the present case to the above stated principles of judicial and statutory law, we find (1) that the property to be transferred was not within the state: it was in New Jersey; (2) that the decedent was not a resident of this state at the time of her death but of New Jersey, and the persons to whom transfers were made were nonresidents; (3) that no recourse to the laws of this state was necessary to secure the transfer of the property. New York, the home of the corporation, could authorize the transfer of the stock. Under such circumstances it has uniformly been held that the state acquires no jurisdiction to tax. Matter of Bronson, 150 N. Y. 1, 8, 44 N. E. 707; McMullen’s Estate, 199 App. Div. 393, 192 N. Y. Supp. 49, affirmed in 236 N. Y. 518, 142 N. E. 266, on the ground that there was no transfer of property within the state; Welch v. Treasurer, 223 Mass. 87, 111 N. E. 774; Tyler v. Dane Co. 289 Fed. 843; Oaksman v. Small, 282 Ill. 360, 118 N. E. 775; State ex rel. Peterson v. Dunlap, 28 Idaho, 784, 156 Pac. 1141; In re Estates of Harkness, 83 Okl. 107, 204
The opinion might well close here were it not for some contentions made by the state that deserve more detailed consideration.
The attorney general, in arguing that an affirmative answer to the question is the only correct one that can be given, relies principally upon two statutory provisions, both of which he claims are constitutional enactments. The first is sub. (3) of sec. 72.11, Stats. 1923, which provides that
“Where stocks, bonds, mortgages, or other securities of corporations organized under the laws of this state or of foreign corporations owning property or doing business in this state shall have been transferred by a nonresident decedent, the tax shall be upon such proportion of the value thereof as the property of such corporation in this state bears to the total property of the corporation issuing such stocks, bonds, mortgages, or other securities.”
The. second is sec. 226.02, Stats. 1923, formerly sec. 1770&, providing the conditions upon which foreign corporations may do business within this state.
Our present inheritance law was first enacted in 1903 and has since been amended in various matters. Sub. (3) quoted above was an amendment made in 1913. It will be noticed that it is essentially a declaration of a rule of computation in certain cases, and not a declaration of a liability to an inheritance tax. The declaration of liability is found in sec. 72.01 and in the first three subdivisions thereof. They read, omitting exception;
“A tax shall be and is hereby imposed upon any transfer of property, real, personal or mixed, or any interest therein, or income therefrom in trust or otherwise, to any person, association or corporation . . . within the state, ... in the following cases except as hereinafter provided:
“(1) While a resident of state. When the transfer is by will or by the intestate laws of this state from any person dying possessed of the property while a resident of the state.
*94 “(2) Nonresidenfs property within the state. When a transfer is by will or intestate law, of property within the state or within its jurisdiction and the decedent was a nonresident of the state at the time of his death.
“(3) Transfers in contemplation of death. When the transfer is of property made by a resident or by a nonresident when such nonresident’s property is within this state, or within its jurisdiction, by deed, grant, bargain, sale or gift, made in contemplation of the death of the grantor, vendor or donor, or intended to take effect in possession or enjoyment at or after such death.”
It requires no careful scrutiny of these provisions declaring when a tax shall be imposed to disclose that,they do not include the imposition of a tax upon the transfer of stock held and possessed by a nonresident decedent in a foreign corporation having property and being licensed to do business in this state, unless the property of the corporation is held to be the property of the stockholders. But this court has never so held. Button v. Hoffman, 61 Wis. 20, 20 N. W. 667; Van Dyke v. Milwaukee, 159 Wis. 460, 150 N. W. 509. In the latter case it was held that dividends declared after the passage of the income tax law out of profits of the corporation made before the passage of the act were taxable because the profits of the corporation did not become the property of the stockholders till distributed as dividends. See, also, Miller v. Payne, 150 Wis. 354, 136 N. W. 811; Will of Pabst, 146 Wis. 330, 131 N. W. 739. The supreme court of the United States has never so held. It has declared that the property of the shareholders in their respective shares is distinct from the corporate property, franchises, and capital stock. Hawley v. Malden, 232 U. S. 1, 34 Sup. Ct. 201; Eisner v. Macomber, 252 U. S. 189, 40 Sup. Ct. 189. In Des Moines Nat. Bank v. Fairweather, 263 U. S. 103, 44 Sup. Ct. 23, the court had occasion to point out the difference between corporate assets of the corporation and shares. It held the former belonged to the corporation as an artificial entity and the latter to the stockholders.
The argument that the decedent had an equitable interest in the property of the corporation located within the state is beside the question, for, as already stated, an inheritance tax is not a tax upon property or an interest in property whether legal or equitable, but a tax upon the right to succeed to property left by a decedent; and we have already pointed out how under our statutes the state acquires jurisdiction to invoke the right to tax. For the reasons stated we will not discuss or distinguish a large number of cases cited by the state showing to what extent courts have gone to reach by taxation property or interests in property.
The other statute relied upon by the attorney general is sec.'226.02, Stats. 1923, formerly sec. 1770&, prescribing the conditions upon which foreign corporations may do business in this state. The argument is that by accepting the conditions of that section they have agreed to obey and abide by our laws, and therefore cannot question their validity. Assuming but not deciding that a corporation can bind its stockholders, no lengthy discussion is necessary to refute the fallacy of this claim. The foreign corporations by agreeing to abide by the conditions of sec. 226.02 agree to abide
Unless a clear distinction is kept in mind between the capital of a corporation and its capital stock, and between the property of the corporation and the property of the stockholders as evidenced by their shares of stock, it is easy to get the property of the plaintiffs into this state, certainly to get an equitable interest in property located within our borders. But such confusion of terms brings us nowhere, because even under such construction our laws are not invoked to do anything in the way of a transfer, and hence we are without jurisdiction to impose a valid tax.
We heartily concur in the state’s desire to avoid multiple taxation, but it must be secured, if at all, by constitutional means. And unless concurred in by other states every additional method a state discovers to impose a legal tax adds to multiple taxation. But it is a question of power, not of policy.
So much of sec. 72.11 as prescribes the rate of taxation upon stocks held in foreign corporations under conditions existing in this case is held unconstitutional.
As noted in the statement of facts, there is joined to the
However, the fact that we now hold that there is a rem
By the Court. — The demurrer to the complaint is overruled, and judgment is ordered entered, for plaintiffs as prayed for in the complaint.
Dissenting Opinion
The following opinion was filed March 12, 1924:
(dissenting). I respectfully dissent because I am impelled to the belief that the decision of the court has been reached by wrong reasoning. It does the' state of Wisconsin and its taxpayers a great and lasting injustice; discriminates against domestic corpoi'ations; favors foreign corporations; discriminates in favor of foreign investors in foreign. corporations doing business in this state; and works against the welfare of foreign investors in domestic corporations. It encourages evasion of our laws and the fraudulent holdings of stock without our jurisdiction, to escape just, fair, and reasonable taxes; it enables foreign investors to seek and receive the protection of our laws without rendering a fair equivalent.
In the first place, I do not think the court has given to our statutes the presumptions of constitutionality to which they are entitled under uniform decisions of the highest court of the state and nation. Mr. Chief Justice Dixon, who. sat in at the making of our constitution, said that it is only when a statute can be seen to be unconstitutional at first blush that this court should so declare. And the same thought has been repeatedly stated in another way by all the courts; that is, a statute will only be held unconstitu
We may premise this case by the admitted facts that the statutes here in question fix a fair, reasonable, and just basis of taxation; that they seek to avoid discrimination; that they seek to prevent duplication of taxes on the same property for the same purpose; and that there is a crying need for the method provided by such statutes. These facts were admitted on the argument and not open to denial. Wherein does the court find any specific provision of our constitution that is offended by the statute? None can be pointed out except the due-process clause. Do these statutes offend against such provision?
It is trite to say that “the property of a corporation is its property and not that of its stockholders,” but it is an expression of a mere fiction of law, not accurate for any purpose, and this fiction should give way to the statutes on the subject. The legal title is. in the corporation, but the corporation is trustee for the shareholders and the shareholders have an equitable interest in the property. They may by vote dissolve the corporation and repossess their property at any time.
Likewise it is true that there is a difference between a corporation’s capital and its capital stock. Its capital is the value of its property; its capital stock represents the investment of the stockholders, but in legal parlance the difference is shadowy and immaterial. It is not correct to say, however, that the former belongs to the corporation and the latter to the shareholders. The legal title to both belongs
That before it may levy a transfer tax on the foreign shareholder of a foreign corporation the state must have jurisdiction of the person or of the property to be transferred, I agree. That the state has that jurisdiction, I maintain is capable of demonstration: 1. No foreign corporation can enter the state except on such conditions as the state may impose, except where the constitution provides otherwise. 2. Stockholders, in organizing a corporation, make the corporation their agent to do the business authorized by the articles of incorporation, and shareholders by subsequent purchase are bound by the same conditions as the original incorporators. 3. A corporation submitting to the laws of this-state speaks for its shareholders, and they are bound by its action. 4. The foreign shareholder has exactly the same kind of property and the same kind of interest in a foreign corporation doing business in this state as a foreign stockholder has in a domestic corporation doing business in this state. It is admitted that the foreign stockholder of a domestic corporation may be assessed a transfer tax. 5. The state may impose on the foreign corporation, as a condition of doing business in this state, exactly the same conditions it imposes on its domestic corporation, except as the federal constitution may provide otherwise. It has done so. 6. The conditions binding on foreign, shareholders of a domestic corporation may be made just as binding on the foreign shareholder of a foreign corporation doing business under the laws of this state as upon the shareholders of the domestic corporation. That follows as axiomatic from the power of the,state to impose conditions on
I maintain with confidence based on a careful search of the authorities that the foregoing propositions are sustained by such authorities, and that there is no precedent to the contrary except the single case of Tyler v. Dane Co. 289 Fed. 843, in the United States district court for the Western district of Wisconsin. This case has been appealed by the state. Every case cited by the court to the contrary is distinguishable on the law and the facts. None was involved under statutes like those of Wisconsin. To my mind the court has made the palpable mistake of reasoning in a circle from a wrong assumption. It contends that our statutes are unconstitutional as applied to plaintiffs because of lack of jurisdiction, and there is lack of jurisdiction because the statute is unconstitutional. Neither premise is true. Jurisdiction is obtained of the property because the corporation, as the agent of plaintiff, brings the property into the state and expressly consents to its jurisdiction as to that property. The law is constitutional because it deals with taxation, the subject matter of which is actually, physically, within the state.
It seems fatuous to cling blindly to the statement that the tax is on transfer of property and not on property. No one denies this; but the property in the state measures the
It is claimed by the plaintiffs and the opinion of the court that plaintiffs were not required to submit to our laws to secure a transfer of the stock — they might snap their fingers under our noses and go into the state of New York, the home state of the corporation, and there compel the transfer. If so, why are they here, 1,500 miles from home, when all they had to do was to step across the state line and begin their action? I think they were well advised by competent counsel. Had they gone into' court by mandamus in New York for such purpose, the corporation could have answered in equity and set up the conditions under which it entered Wisconsin, and then have referred to sub. (6), sec. 72.11, Stats., which reads:
“(6) Reports; duty to pay tax. The tax commission shall require such reports and information, and shall make such orders, rules, and regulations as it may deem necessary to enable the commission to secure the necessary information from corporations, domestic and foreign, and to ascertain the amount of and collect such tax; and no holding company or other corporation subject to the provisions of this section shall deliver or transfer any such stocks, bonds, mortgages, or other securities of a nonresident decedent based upon or representing in whole or in part, directly or indirectly, the value of Wisconsin property, or stocks, bonds, mortgages, or other securities of a Wisconsin corporation or a corporation owning property in this state, without retaining a sufficient portion or amount thereof to pay any tax which may thereafter be assessed on account of such*103 transfer, except upon order of the proper court or a certificate of the tax commission.”
I am constrained to believe that the New York courts would have quashed the writ. And I am quite certain that plaintiffs must have been so advised by New York attorn neys; otherwise they would not be here. It would appear that plaintiffs chose the wiser course when they appealed to Wisconsin courts. It is quite true that plaintiffs were not required to come into court in Wisconsin. The corporation, however, had, as a condition of doing business in this state, agreed to withhold transfer of the stock until a sufficient sum had been paid to it to cover the tax.
It seems to me that under no consideration of this case are the plaintiffs entitled to recover. Take the assumption of the court that our state had nothing to do with the transfer of plaintiffs’ property; that they had the right to step across the line into New York and there compel the transfer and thus wholly ignore the Wisconsin law — let me inquire, then, why they did not do so ? Why did they come from New Jersey to Wisconsin and voluntarily go into the Dane county court and there petition the court to assess the tax, and expressly waive notice and consent to the jurisdiction and judgment of the court? And having done so, what right in morals or equity have they to complain? It is not the amount of the tax about which they complain, but of lack of jurisdiction. They invoked the jurisdiction of the court— they submitted to it; they are estopped from appealing to the original equitable jurisdiction of this court to. recover money paid into the county court under a void assessment, as they claim.
The proposition of law here set forth seems to be supported by overwhelming authority when rightly considered. A discussion of the cases has become useless, unfortunately as it may be, in view of the fact that the federal
I think the tax should have been sustained and the judgment of the county court affirmed.
A motion for a rehearing was denied, without costs, on June 3, 1924.