136 A. 66 | Md. | 1927
In the course of their administration, the executors of the will of Mary Ann Henrietta Watts, a citizen of Maryland, who died in the City of Baltimore, were directed to transfer to the Fidelity Trust Company and Frank W. Watts, trustees under the will, two hundred and eighty shares of the stock of the Northern Central Railway Company, forming part of the decedent's estate. The stock is transferable on the books of the railway company at its principal office in Baltimore. The company declined to make the proposed transfer of the stock from the executors to the trustees without the consent of the State of Pennsylvania, evidencing the payment or waiver of an inheritance tax imposed by one of its laws upon transfers of stock of Pennsylvania corporations. The Northern Central Railway Company was formed in 1854 by the consolidation of four railway companies, three of which had been incorporated under the laws of Pennsylvania and one under a Maryland statute. Concurrent legislative acts of the two states authorized the consolidation. Under the dual incorporation thus accomplished, the Northern *96 Central Railway Company operates as a single railroad organization. The Pennsylvania statute imposing the tax in question specifically includes transfers of stock held by non-resident owners. It subjects to a penalty any corporation of that state making a taxable transfer before the prescribed tax has been paid. The question to be decided in this suit is whether, in view of the Fourteenth Amendment of the Federal Constitution, the Pennsylvania tax is validly chargeable on the transfer of Northern Central Railway stock owned by a resident of Maryland and passing, as part of an estate administered under its laws, to beneficiaries who are not residents of Pennsylvania.
The effect of the consolidation, under Maryland legislative sanction, of the constituent railway companies forming the Northern Central Railway system, was to create a corporation of distinctly Maryland origin. While there was a similar and contemporaneous consolidation in Pennsylvania, the creation of the new corporation in this state was an independent exercise of Maryland sovereignty. The legal entity thus brought into existence was as completely a Maryland corporation as though the Pennsylvania consolidation had not occurred. State v. NorthernCentral Railway Co.,
The Supreme Court of Pennsylvania, in Allegheny v. Clevelandand Pittsburgh R. Co., 51 Pa. St. 228, held that the defendant company, having been incorporated first by Ohio and then by Pennsylvania, "became thus a separate corporation in each state." This conclusion was based upon the opinion delivered by Chief Justice Taney, in Ohio and Mississippi R. Co. v. Wheeler, 1 Black, 286.
The relations of a Northern Central stockholder to the two railway corporations of that name are identical. The certificate for his shares represents precisely similar interests in the Northern Central Railway Company in each of its separate capacities as a corporation independently created under the laws of the two commonwealths. In considering, therefore, whether the transfer of the stock involved in this case is taxable by the State of Pennsylvania, we must give due regard to the fact that the stock is not the issue solely of the Maryland corporation, but is equally attributable to the Pennsylvania corporation simultaneously created for the same purposes.
The case of Rhode Island Hospital Trust Co. v. Doughton,
"The tax here is not upon property, but upon the right of succession to property, but the principle that the subject to be taxed must be within the jurisdiction of the state applies as well in the case of a transfer tax as in that of a property tax. A state has no power to tax the devolution of the property *98
of a non-resident unless it has jurisdiction of the property devolved or transferred. In the matter of intangibles, like choses in action, shares of stock and bonds, the situs of which is with the owner, a transfer tax of course may be properly levied by the state in which he resides. So, too, it is well established that the state in which a corporation is organized may provide in creating it for the taxation in that state of all its shares, whether owned by residents or non-residents. Hawleyv. Malden,
"In this case the jurisdiction of North Carolina rests on the claim that because the New Jersey corporation has two thirds of its property in North Carolina, the state may treat shares of its stock as having a situs in North Carolina to the extent of the ratio in value of its property in North Carolina to all of its property. This is on the theory that the stockholder is the owner of the property of the corporation, and the state which has jurisdiction of any of the corporate property has pro tanto jurisdiction of his share of stock. We cannot concur in this view. The owner of the shares of stock in a company is not the owner of the corporation's property. He has a right to his share in the earnings of the corporation, as they may be declared in dividends, arising from the use of all its property. In the dissolution of the corporation he may take his proportionate share in what is left, after all the debts of the corporation have been paid and the assets are divided in accordance with the law of its creation. But he does not own the corporate property. * * * North Carolina can not control the devolution of New Jersey shares. That is determined by the laws of Rhode Island where the decedent owner lived or by those of New Jersey, because the shares have a situs in the state of incorporation. * * *
"In an addendum to its opinion in this case, the Supreme Court of North Carolina suggests that the jurisdiction of the state to tax the shares of the New Jersey corporation may be *99 based on the view that the corporation has been domesticated in North Carolina. So far as the statutes of the state show, it has been authorized to do and does business in the state, and owns property therein and pays a fee for the permission to do so. It has not been re-incorporated in the state. It is still a foreign corporation and the rights of its stockholders are to be determined accordingly."
An important difference between the case just cited and the one now under decision is in the fact that the tax here in question is upon the transfer of stock of a corporation created by the state whose power to impose the tax is the subject of inquiry. If the New Jersey corporation had been "re-incorporated" in North Carolina, the two cases would be more analogous. In that event the position of North Carolina would have been comparable to that of Pennsylvania in the present case. The principle that shares of corporate stock have a situs in the state of incorporation might then have been found applicable. There was an application of that principle in Welch v. Treasurer etc.,
"A different situation exists as to the succession tax on the shares of stock in the Chicago and Northwestern Railway. That corporation was a single corporation so far as concerned its operation, management, stock and profits, but it owed corporate allegiance to each of the states in which it was incorporated.Attorney General v. N.Y., N.H. H.R.R.,
In the case of Kingsbury v. Chapin, to which Chief Justice Rugg referred, the court was considering the taxability, under a Massachusetts collateral inheritance tax statute, of stock held by the estate of a New Hampshire decedent in railroad corporations organized under the laws of Massachusetts and of other states through which their lines extend. In the course of the opinion delivered in that case Chief Justice Knowlton said: "We infer from the pleadings, the agreed facts and the arguments that each of these corporations is incorporated in each of the states into which its road runs; that in each case the name is the same in each state, and there is recognition by each state of the fact that the corporation is connected with the corporation of the same name in the other state, in such a way that the two, deriving their authority from two different sources, are parts of one general organization engaged in a single general enterprise, and exhibiting *102 activities and owning property in two or more states, while held in the same ownership. It is averred by the petitioners and admitted by the respondent that `in the case of all the railroad companies there is but a single issue of capital stock representing all the property of the said companies.' In a sense, such a railroad company is a domestic corporation in each of the states where it is incorporated and owns or operates a railroad. We think that stock in such a corporation `is property within the jurisdiction of the Commonwealth,' under the language of our statute authorizing taxation of collateral inheritance. Rev.Laws, c. 15, sec. 1; St. 1905, p. 481, c. 470; St. 1906, p. 453, c. 436. We think it is property within the jurisdiction of the Commonwealth in a constitutional sense, such as to enable the state to subject it to taxation as against a non-resident owner."
In the case of Re Cooley,
The value, as precedents, of the cited Massachusetts and New York decisions is questioned because they are said to *103
be based on the theory, which was rejected by the Supreme Court of the United States in the Doughton case, supra, that a stockholder is the owner of the corporate property. This is not our understanding as to the ground of the decisions thus challenged. It was only in reference to a proper apportionment of taxation among the concurrently incorporating states that the relation of the stock to the property of the corporation was considered. A just basis of such an apportionment was held to be the value of the property in each state which the corporate stock "represented." This did not involve a decision that the holders of the stock were owners of the corporate assets. The right to tax was sustained on the principle that the situs of stock held by non-residents could be validly regarded as being in the incorporating state which imposed the tax, although one or more other states had simultaneously given it corporate existence. A proper limitation upon the exercise of the taxing power was held to be an assessment restricted to a valuation of the stock proportioned to the value of the corporate property in the state asserting the prerogative. In the Massachusetts case of Welch v.Treasurer, etc., supra, the court said: "The circumstance that there is property of the corporation in Michigan does not confer jurisdiction upon that state to impose a tax on the succession to the shares of stock of the corporation. That property does not in any direct sense belong to the shareholders. The full and complete legal title to it is in the corporation." In the opinion delivered in the Doughton case, supra, reference was made to the case of Re Bronson,
In our opinion the stock transfer under consideration in this case is subject to taxation under the Pennsylvania statute. The situs of the stock, for taxation purposes, is in *104 both of the states in which the corporation issuing the stock originated. The constitutional right of Pennsylvania to tax the transfer of stock of its corporate creature is not affected by the fact that a corporation having a similar name and identical powers and property interests was organized under the laws of Maryland, and that the principal office of the dual corporate organization is maintained in Baltimore. It is a necessary incident of the issues of stock by a corporation having a double or plural state origin that its transfer is susceptible to taxation by any or all of the incorporating sovereignties. Oppressive results from the exercise of such a taxing power by two or more states, with regard to the same devolution of stock, may be obviated by the method of apportionment described and approved in the Massachusetts and New York cases to which we have referred. In so far as the transfer tax law of Pennsylvania applies to shares of stock and other property passing to lineal descendants of the deceased owner, it has no counterpart in Maryland legislation. The Pennsylvania law provides that the tax shall be payable on the clear value of the property transferred. This is the effect also of the Maryland law in regard to collateral inheritance taxes. Code, art. 81, sec. 124. But the omission of either state to provide a suitable apportionment of the value of stock which both desire to assess for the purposes of inheritance transfer taxation does not impair the authority of either to make such exactions.
The decree appealed from was passed upon the theory that the Pennsylvania tax law is invalid to the extent to which it attempts to tax the transfer of stock in the situation of that with which this case is concerned. We are unable to agree with that conclusion and must, therefore, reverse the decree, and dismiss the bill of complaint, which seeks to compel by mandatory injunction the transfer of the stock to which the suit refers, regardless of the non-payment of the Pennsylvania tax.
Decree reversed, with costs, and bill dismissed. *105