Lead Opinion
At thе session of 1901 the General Assembly constituted the Corporation Commission a Board of State Tax Commissioners, and imposed upon such board certain duties relative to the listing, assessment, and taxation of property. The statutes defining and circumscribing these duties, as modified or amended from time to time, have since been continued in force and effect; but on 8 March, 1921, the duties of the State Tax Commissioners were transferred to the State Department of Revenue to be perfprmed after 1 May by the Commissioner of Revenue, except as otherwise provided, and thereupon the Tax Commission became functus officio. The original summons in the proceeding was issued against the Board of State Tax Commissioners on 6 May, 1922, and purports to have been served on the chairman of the board, but A. D. 'Watts, the commissioner of revenue, was thereafter made a party defendant, and the suit is prosecuted against him alone.
On the day the summons was issued the plaintiff filed his “complaint and petition.” After reciting certain duties of the Tax Commission, the constitutional mandate that property shall be taxed by a uniform rule, and the statutory provisions for listing corporate property for taxation, he alleges in substance that all “exempting statutes” are unconstitutional, that shareholders in corporations by means of “device, camouflage, and fraud” evade the payment of all taxes except an “irreducible minimum on their visible property,” and bear none of the burdens of government, but leave them to be borne by the “rural homesteader” and the dwellers in cities and towns. He further alleges that the contention that a tax on stocks is paid by the corporations in which they are held is a “smoke screen to hide the duplicity” of the owners, from the “burdened taxpayers of the visible property of North Carolina,” and that the “board of State taxation” should require not only the capital stock of corporations, but the stocks held by individuals to be listed for taxation at their true value in money.
The defendant demurred, and moved to dismiss the petition on the ground that it does not state a cause of action, and that the court had no jurisdiction to grant the relief demanded. His Honor sustained the demurrer, and the plaintiff, appealed.
Shorn of verbiage, the contention of the plaintiff is this: That the Constitution of North Carolina, Art. Y, sec. 3, provides that “laws shall
On the other hand, the defendant insists that the plaintiff’s contention' is based on a misconception both of the constitutional requirement and of the laws enacted for the purpose of carrying it into effect, and that the existing method of taxing property, corporate and individual, is in strict compliance with the mandate of the organic law.
These respective contentions illustrate a situation out of which have arisen two theories concerning the taxation of investments in the stocks of corporations. The first is that the statutory method just referred to is such an evasion of Article Y, section 3, of the Constitution as exempts from taxation practically all shares of stocks in corporations (with a few exceptions) organized under the laws of North Carolina, and that while the corporation should pay a tax upon the capital stock, the shareholder should likewise pay a tax upon his investment in or contribution to such capital stock, the alleged reason being that the shares or certificates of stock are the individual property of the shareholder, and arejseparate and distinct from the capital stock of the corporation. The advocates of the other theory concede that the property of a shareholder in the stock of a corporation is for certain purposes, and in a restricted sense distinct from the property owned by the corporation as a legal entity, but they say that shares of stock are, and for many years have been, returned for taxation by the proper officer of the corporation on behalf of the owner, and that the tax assessed thereon is paid by the company; that the situs of the shares for taxation is transferred from the residence of the owner to the place where the principal office of the corporation is situated, and that this method assures the taxation of all shares of stock, many of which, especially those of nonresident owners, had previously escaped taxation; that in no other way is the stockholder relieved of the direct payment of tax on his stock; and that under these circumstances the payment of a tax on his shares by the individual owner would amount to double taxation, which, while not prohibited by the Constitution, has not been sanctioned by the General Assembly. It is further insisted that this method has been adopted by the Legislature as the most effective means of securing the best financial returns from such taxation, and that provision has been made for imposing upon all classes of assessable corporate property, real and personal (including the capital stock, the franchise, and shares of stock), a just and equitable proportion of the burdens of government.
In the first place, the relief sought could not be obtained in any event without the exercise of legislative functions, and the plaintiff’s fatal error is found in the assumption that such functions may be exercised by the courts, notwithstanding the constitutional separation of the several departments of the government. The Declaration of Rights provides: “The legislative, executive, and supreme judicial powers of the government ought to be forever separate and distinct from each other.” Art. I, sec. 8. As to the wisdom of this provision there is practically no divergence of opinion — it is the rock upon which rests the fabric of our government. Indeed, the whole theory of constitutional government in this State and in the United States is characterized by the care with which the separation of the departments has been preserved, and by a marked jealousy of encroachment by one upon another. In Black’s Constitutional Law it is said: “It is a fundamental maxim of political science, recognized and carried into effect in the Federal Constitution and the constitutions of all the states, that good government and the protection of rights require that the legislative, executive, and judicial powers should not be confided to the same person or body, but should be apportioned to separate and mutually independent depаrtments of government” (p. 83). “As the rule, it may be said that the American state constitutions now divide the powers of government, and provide that no person or body belonging to one branch shall exercise powers or functions belonging to the others. But even in the absence of such an explicit declaration, the creation of the several departments and the description of their respective powers would be sufficient to secure each against encroachments by the others” (ibid., p. 86).
The power to levy taxes is vested exclusively in the legislative department of the government. Constitution, Art. V. “Within constitutional limits, the power of the Legislature in matters of taxation is supreme, and its action cannot be revised or annulled by the judicial department. Nor can the courts be authorized or required by statute to levy and collect taxes, as that is a legislative function and not judicial.” Black Con. Law, 93. And Judge Cooley says: “It must always be conceded that the proper authority to determine what should and what should not constitute a public burden is the legislative department of the State. This is not only true for the State at large, but it is true,
The courts have absolutely no authority to control or supervise the power vested by the Constitution in the General Assembly as a coordinate branch of the government. They do not assume to direct the course of legislation or to share in the making of the laws or to exercise any power to repeal a statute. They concede that the fundamental law guarantees to the Legislature the inherent right to discharge its functions and to regulate its internal concerns in accordance with law without interference by any other department of the government, and that their jurisdiction is limited to interpreting and declaring the law as it is written. It is only when the Legislature transcends the bounds prescribed by the Constitution, and the question of the constitutionality of a law is directly and necessarily involved that the courts may say, “Hitherto thou shalt come, but no further.”
It is in the light of these principles that we must consider the following provision, which has been enacted at each biennial session of the Legislature since 1881: “Individual stockholders in any corporation, joint-stock association, limited partnership, or a company paying á tax on its capital stock shall not be required to pay any tax on said stock or list the same, nor shall corporations legally holding capital stock in other corporations upon which the tax has been paid by the corporation issuing the same be required to pay any tax on said stock or list the same.” Laws 1921, ch. 34, sec. 4.
It is evident, therefore, that the plaintiff has resorted to the courts for a writ of mandamus to compel the defendant to subject himself to liability to removal from office by doing an act which the law expressly forbids, and the futility of his application is found in the principle, unquestioned and fundamental, that an officer, inferior or other, is not responsible at the suit of private parties for the nonperformance of an act omitted by him in obedience to the commands of the law. This has been repeatedly decided. In Wilson v. Jenkins,
But the plaintiff insists that this Court may declare an act of the Legislature unconstitutional, and that the statute in question is in conflict with Article V, section 3, of the Constitution, and hence should be disregarded. This question is hereinafter discussed, but to the suggestion there are two other answers which are conclusive against the plaintiff’s demands. The first is this: Even if the act should be stricken out or declared to be ineffective, the plaintiff, upon the allegations in his complaint, would still be without remedy. It will be seen upon a casual reading that section 3, Article Y, of the Constitution is not self-executing ; in express terms it provides that laws shall be passed taxing property by a uniform rule; and unless such laws are passed property cannot be taxed. If the act were declared void, by what authority could the Court or the defendant enact a law commanding the shareholder to list his stocks for taxation? More than this, if the statute should be treated as of no effect, the parties would still be bound by another to the effect that the owner shall return for taxation only such investments, stocks, and bonds as are not taxed through the corporation itself. Laws 1921, ch. 38, sec. 40.
And the second answer is that the record does not present for decision the constitutionality of the statute as a concrete question. It is true that the prayer for relief does not necessarily determine the nature of the action, but the allegations in the complaint considered in connection with the plaintiff’s demand for relief, present for decision an 'abstract question of law, merely a matter of academic interest. The plaintiff first prays the Court to “declare and adjudge any legislative enactment reducing and exempting property in North Carolina to be unlawful, unconstitutional, unjust, inequitable, and against public policy.” This language evidently includes real and personal property held by the State and by counties, cities, towns, school districts, religious bodies, and educational and charitable institutions, besides such household and kitchen furniture, mechanical and agricultural implements, and other kinds of personal property as are expressly exempted from taxation; but we may reasonably assume that it is not the purpose of the proceeding to abolish the exemption which has been extended to such property.
The plaintiff is equally ill-advised in the selection of his tribunal and in the choice of his remedial process. His forum is the Legislature, but if it were a judicial tribunal, mandamus could not avail him. While this writ, originally prerogative, is now substantially a proceeding to enforce legal rights, it is nevertheless limited by conditions that are not applicable to an ordinary suit at law, and is employed as an extraordinary remedy in cases where other remedies fail. It is generally invoked to enforce a ministerial act or duty, and in some instances to command the performance of an imperative public duty for which there is no specific remedy, and it is uniformly denied where, as in this case, it would be nugatory or unavailing. It is essential for the petition to set out the respondent’s failure to perform a manifest duty imposed upon
It should be borne in mind that the petitioner does not sufficiently allege a breach of duty by the respondent. He alleges that it is the duty of the respondent to have listed on the tax books by the owners for the purpose of taxation investments in bonds, stocks, and joint-stock companies, but he further alleges that this duty is enjoined by Public Laws of 1921, ch. 38, sec. 3, and an еxamination of this section and others will show that the Department of Revenue is utterly devoid of power to say what property shall or shall not be taxed. The Board of Tax Commissioners was given general supervision of the system of taxation, and the administration of all assessments and tax laws, as well as of assessors and boards of equalization, to the end that all assessments of ' property should be made relatively just and uniform, and that all property should be assessed at its true value in money. It was authorized to receive complaints as to property liable to taxation that had been assessed fraudulently or improperly, or not assessed at all, and to make such orders as were necessary to correct the irregularity complained of, and when advisable, to reconvene the county boards of equalization and to direct them to raise or to lower any assessment in order to equalize as far as practicable the valuation of all classes of property. The Tax Commissioners were constituted, also, a Board of Equalization, with power to equalize the sundry valuations of real property in the several counties of the State. These, in brief, are the duties prescribed by statute, and from this legislation appear two conspicuous facts: (1) The Legislature refrained from the preposterous attempt to delegate to the Tax Commissioners authority to say what property should be taxed; and apart from this, and as incidental to the main question, it appears that (2) the powers conferred upon them involve the exercise of judicial discretion which the courts have no power to control. And these facts are equally applicable to the State Department of Revenue. In view of these things, and of established fundamental principles, it would be perfectly idle to say either that the courts may assume the office of legislation or control the exercise of judicial discretion in the performance of the duties required of a public officer. Public Laws 1921, chs. 38 and 40; Brodnax v. Groom,
The statute objected to simply provides that if the corporation pays a tax on its capital stock the shareholder shall not be required either to list or to pay a tax on his individual shares.
In his assault upon this statute the plaintiff says, in effect, that the Constitution requires the payment of a tax by the shareholder upon his individual stock, even when the corporation pays the tax on its capital stock. This is the plaintiff’s fundamental and fatal error. In the Constitution of North Carolina there is no such provision. It is required that laws be passed taxing by a uniform rule all moneys, credits, investments in bonds, stocks, joint-stock companies, or otherwise. Constitution, Art. Y, sec. 3. It is the investment that is to be taxed, not necessarily the shares or certificates of stock. What is meant by investment? It is the laying out of money in the purchase of property, or the amount of money invested, either by way of loan or in the purchase of stocks, securities, or any other kind of income-producing property. It is defined, also, as some species of property from which an income or profit is expected to.be derived in the ordinary course of business. Bank v. Barrett (Cal.),
We have examined tbe cases cited by tbe plaintiff, and have made a somewhat diligent search among tbe decisions of other states and of tbe Supreme Court of tbe United States and have failed to find a single authority among our own decisions or elsewhere tbat supports tbe plaintiff’s argument as to tbe question under discussion. Several decisions were cited in which occur -expressions to tbe effect tbat payment of a tax on tbe capital stock and on tbe holder’s shares is not double taxation, but neither of them was decided on facts tbat presented the question of double taxation when tbe capital stock of tbe corporation was valued and taxed as it is in North Carolina. This fact should be kept in mind, for we are admonished by authority no less eminent than ■Chief Justice Marshall tbat every opinion, to be correctly understood, ought to be considered with a view to tbe case in which it was delivered. U. S. v. Burr,
This Court has already expressed its opinion as to tbe constitutional' validity of this exemption. Neither in Belo v. Comrs.,
This decision is approved in Pullen v. Corporation Com.,
“The fairness and justness of the principle of deductions in the method of ascertaining the taxable value of the subjects of taxation, in order to avoid the essential harshness and inequity of double taxation, was, we think, distinctly sanctioned as long ago as 1882, in R. R. v. Comrs.,
In the later case of Brown v. Jackson,
This Court and the Legislature have apparently agreed in their construction of Article Y, section 3, of the Constitution, so far as it relates to this statute, and although we are not bound by it, the legislative interpretation is entitled to our respectful consideration. So this Court has declared. In Attorney-General v. Bank,
Examination of the legislative policy concerning the taxation of cor- ' porate property reveals the intent, uniform and continuous, not to tax [[ both the capital stock and the shares of the holder. This was the policy | of the State before the Constitution of 1868 was adopted, and it has since been continued, as will appear by reference to the various acts.
“The stock or interest held by individuals in all corporations, except- ”)i ing banks, shall not be listed or assessed among the individual property j of the stockholders, but shall be listed by the corporation, and the corpo- ¡ ration shall pay the tax thereon.” Public Laws 1860-61, ch. 31, sec. 5. *
“The tax list shall contain stocks in any incorporated company or joint-stock association and their estimated value; but the stock shall not be taxed if the company pays a tax.” Public Laws 1869, ch. 74, sec. 12 (6).
Practically the same legislation was reenacted at each session until 1887, when the Legislature passed the “exempting statute,” which with unimportant changes has since been continued in effect.
To understand the trend and significance of this “exempting statute,” when considered in connection with Article Y, section 3, of the Constitution, it is necessary to bear in mind the existing method of taxing corporate stock. For such purpose the following synopsis will be suffi
It is argued that there is a distinction between common and preferred stock, and that the latter is a debt of the corporation, and should be treated as a bond. To this we do not agree, so far as the question of taxation is concerned. Both classes of stocks are “investments” in the capital- stock of the corporation. The investor in the common stock elects to hazard his investment against the company’s failure to earn dividends and against its liability to liquidation. Preferred stock is no less an investment, the investor therein assuming a similar hazard on condition that he be given a prior lien on the earnings and property of the company. As an equitable balance against the prior lien given the preferred stockholders the holders of common stock are usually entrusted with the management of the business. The holders of both kinds of stocks are creditors of the corporation in the sense that the corporation owes them a return on their investment, but neither occupies toward the corporation the relation of a bondholder. The distinction is this: The corporation is required by statute to make return to the Commissioner of Revenue of all its shares of stock, common and preferred alike, to be assessed and valued at the actual value of such shares, so that no investment in the capital stock of such corporation may escape taxation. The corporation also pays a franchise tax based upon its preferred as well as its common stock. The relation between a corporation and the holders of its bonds is the complete relation of debtor and creditor. Bonds issued by a corporation are not in any sense a part of its capital stock; they are not reported by it or assessed against it as a part of its capital stock; and, therefore, the holders of such bonds are required to list them for taxation.
When the existing system of taxing corporate property is considered, it is not difficult to perceive that care has been taken to insure the taxation of investments in the stocks of corporations by dealing primarily 'with the companies and not with the shareholders. This, in fact, is the system which generally prevails. The North Carolina Corporation Code is authority for the statement that a large majority of the states (enumerating forty-four) have adopted a policy similar to or identical with that pursued in our own legislation (p. 501). However that may be, the oft-repeated enactment of a statute which was intended to prevent double taxation has evidently met the approval of the State. We are
In our opinion, the statute which provides that individual stockholders in any corporation or company paying a tax on its capital stock shall not be required to pay any tax on said stock, or list the same, is not in conflict with Article Y, section 3, of the Constitution of North Carolina.
The plaintiff’s action must be dismissed.
Action dismissed.
Concurrence Opinion
concurring: I concur fully in all that is said in the clear and able opinion of Associate Justice Adams, speaking for the Court. But, in view of the wide range of discussion which the case has taken, I deem it not amiss to add the following:
Article V, section 3, of the State Constitution provides: “Laws shall be passed taxing by a uniform rule all moneys, credits, investments in bonds, stocks, joint-stock companies, or otherwise; and, also, all real and personal property, according to its true value in money.”
It will be observed that this provision does not require the Legislature to levy a tax on investments in bonds, stocks, etc., in the hands of the individual holders thereof, nor is there any provision in the Constitution requiring that such investments shall be taxed twice. Section 40 of the Machinery Act of 1921 specifies what shall be enumerated on the tax list of each individual taxpayer; and item 21 of said section is as follows: “Money, investments, stocks and bonds, and shares of stock in incorporated companies which are not taxed through the corporation itself.” Note the words, “which are not taxed through the corporation itself.” The purpose of this language was to exempt from taxation in the hands of individual shareholders certificates of stock in corporations, where the State had already exercised the right to tax such stock through the corporation itself, or “at its source,” as it is sometimes called. Manifestly, so far as the constitutional mandate is concerned, it is immaterial whether the Legislature impose a uniform tax on such investments in the hands of the individual shareholders or levy and collect such tax through the corporation itself. The method to be employed is one involving a question of state-craft, to be determined by the Legislature, and not for the courts to decide. Our functions are judicial, аnd we have no power to levy assessments or to devise a scheme of taxation. Fert. Co. v. McFall,
That tbe stock of a corporation bas no intrinsic value separate and apart from tbe property of tbe corporation is clearly shown from what is said in Gibbons v. Mahon,
“A stock dividend really takes nothing from tbe property of tbe corporation, and adds nothing to tbe interests of tbe shareholders. Its property is not diminished, and their interests are not increased. After such a dividend, as before, tbe corporation bas tbe title in all tbe corporate property; tbe aggregate interests therein of all tbe shareholders are represented by tbe whole number of shares, and tbe proportional interest of each shareholder remains tbe same. Tbe only change is in tbe evidence, which represents that interest, tbe new shares and tbe original shares together representing tbe same proportional interest that tbe original shares represented before tbe issue of new ones. In short, tbe corporation is no poorer and tbe stockholder is no richer than they were before.” See, also, Logan County v. U. S.,169 U. S., 255 .
But more directly to tbe point at issue is tbe language of Chief Justice Chase in Van Allen v. The Assessors,
“It is true that tbe shareholder bas no right to tbe possession of any part of tbe corporate property while tbe corporation exists and its affairs are honestly managed. He bas committed bis .interest, for a time, to tbe possession and control of tbe corporation of which be is a member, and be bas only a member’s voice in tbe management of it.
“So a man who bas leased a farm bas no right to possession or control during tbe lease; but who denies bis property in tbe farm? And if a dozen owners join in tbe lease, bas not each one an interest in tbe property to tbe extent of one-twelfth? (And if, under tbe law or by agreement, tbe lessee be required to pay tbe tax on tbe farm, who would contend that tbe owner should pay it again?)
“So, if for tbe time tbe property of tbe shareholder is placed beyond bis direct control and converted into property of tbe association, bow*516 can that circumstance affect the intrinsic character of his shares as shares of the whole corporate property? How can a man’s shares of any property be the subject of valuation at all if not with reference to the amount and productiveness of the property of which they are a part % What value can they have except that given them by that amount and that productiveness ? A certificate of title to a share is not a share. It is evidence of. the shareholder’s interest. His interest may be transferred by the transfer of the certificate; but it is not the certificate that is valued when the worth of the share is estimated either by the speculator in the market or by the tax assessor. It is the property which it represents that is valued by the speculator often with reference to speculation only, but by the public officer, always, if he does his duty, by the real worth of the property, all things considered.”
Undoubtedly the State, in creating a corporation, may provide for the taxation locally of all its shares of stock, whether owned by residents or nonresidents; and this, by virtue of the authority of the chartering state to determine the basis of organization and the liability of all of its shareholders. Corry v. Baltimore,
The “capital stock” of a corporation, strictly speaking, is the amount in money or property subscribed and paid in, or secured to be paid in, by the shareholders, and always remains the same unless changed by proper legal authority. Burrall v. Railroad Co.,
■ It is of no avail to say that capital stock and shares of stock are separate and distinct pieces of property, and therefore taxable, one in the name of the corporation and the other in the hands of the individual shareholders, when, as a matter of fact, the State taxes both (in the sense they are spoken of as different pieces of property) through the corporation itself. Farrington v. Tenn., supra; Bank v. Tenn.,
Congress has expressly provided that shares of stock in national banks, wherever held, shall be taxable in the State, and only in the State, where the bank is located; thus recognizing the propriety and really suggesting the wisdom of taxing shares of stock in a corporation only at its home office or through the company issuing the same. U. S. Revised Statutes, sec. 5219 (Comp. St., sec. 9784); Merchants Nat. Bank v. Richmond,
This arrangement, which has been followed by the General Assembly of North Carolina from time immemorial, does no violence to the letter
In a case from Obio, witb a constitutional provision exactly similar to tbe one in tbe North Carolina Constitution, and under a statute of that state, exempting shares of stock in domestic corporations from taxation in tbe bands of individual shareholders, when tbe same was paid by tbe corporation itself, tbe Supreme Court of tbe United States recognized and treated witb approval tbe principle and arrangement there adopted. See Sturges v. Carter,
In addition to Obio, tbe following states have adopted policies of taxation, in regard to corporate stock, either similar to or identical witb tbe legislation in tbis State, though it is conceded that their constitutional requirements may be different, to wit: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Texas, Utah, Yirginia, Washington, West Virginia, Wisconsin, and District of Columbia. In short, so far as I have been able to ascertain, no state in tbe American Union bas adopted and carried into actual practice tbe policy advoсated by tbe plaintiff in tbis suit. Indeed, tbe adoption of such a system by our Legislature, in my judgment,'would be exceedingly unwise and fraught witb incalculable barm to tbe State, for justice would be a stranger to such a system.
Our domestic corporations are fully taxed. They pay a franchise tax, also an ad valorem tax on all their real, personal, and tangible property in accordance witb tbe Constitution, and then they list all tbe shares of their capital stock for tbe owners thereof, and pay tbe taxes thereon for tbe shareholders at a valuation fixed by tbe State’s taxing officers. Thus, all tbe property of North Carolina corporations, including all tbe shares of stock, whether owned by citizens of North Carolina or nonresidents, contribute to tbe support of our State Government and its subdivisions.
Tbe fallacy of tbe plaintiff’s argument lies in tbe fact that it is based on a false premise. He assumes that shares of stock in domestic corpo
“Within constitutional limits, the power of the Legislature in matters of taxation is supreme, and its action cannot be revised or annulled by the judicial department. Nor can the courts be authorized or required by statute to levy and collect taxes, as that is a legislative function, and not judicial.” Black on Const. Law (3 ed.), p. 93.
Those who criticise our revenue laws would have the Legislature to double the tax on the corporate holdings of progressive North Caro-linians who have invested their money in all kinds of industrial and commercial enterprises within the State; and this, it should be remembered, in face of the fact that only residents would pay such tax, for nonresident holders of stock in domestic corporations would be exempt from its payment. No state can levy a tax, except through the corporation itself, on shares of stock in the hands of nonresidents of the taxing state, for such property is beyond its jurisdiction. Metropolitan L. Ins. Co. v. New Orleans,
The principle of taxation here sought to he established is in vogue nowhere in this country.. Then why should it be adopted in North Carolina? Ordinarily, under modern conditions, capital will cooperate to achieve large and beneficial results only in corporate form; and, if it is to be taxed twice in the same jurisdiction, it will flee from the borders of the State and seek investment under fairer and more favorable laws.
The constant agitation of this matter can serve no good purpose; and, while the case might be allowed to go off on a question of procedure, it is probably not amiss for us to say that, in our opinion, the policy heretofore established by the Legislature, and now in vogue in this State, is entirely permissible and is in full compliance with the constitutional requirement above recited, and that the sections of the Eevenue and Machinery Acts here called in question are valid.
Walker and Hoee, JJ., concurring.
Not concurring in the dismissal of the action: The Constitution of North Carolina, Art. V, sec. 3, provides: “Laws shall be passed taxing by a uniform rule all moneys, credits, investments in bonds, stocks, joint-stock companies, or otherwisej and, also, all real and personal property, according to its true value in money.”
“Investments in stocks” are made by those who buy them, or otherwise acquire them, and not by the corporations who sell them. The owners of the stock possess them absolutely, have a right to devise, sell, or otherwise dispose of them. The corporation which has sold the stock has received the purchase price therefor, and has parted with and has no control over the stock of the purchaser to whom it has sold. The corporation is no wise liable for the debts of the stockholder and the stockholder is no wise liable for the debts of the corporation. The two are entirely separate and distinct. The owner has acquired this stock as he would acquire livestock and the seller has sold it and received the purchase price just as the seller of livestock or any other property.
Compare the clear language of the Constitution and the statute. It would be impossible to conceive of any more direct and palpable conflict with the Constitution, which requires that “investments in stocks” shall be taxed like all other property, “according to its true value in money,” than this statute, which exempts “investments in stocks” from all taxation. It does not require one to be a lawyer, but simply the capacity to read the English language to see the absolute conflict between this statute exempting these immense accumulations of capital invested in stocks and bonds and the Constitution, which requires without equivocation that they shall be taxed.
Indeed, in the very same chapter, Laws 1921, ch. 34, sec. 6 (7), it is recognized that all stocks are the property of the owner and not the property of the corporation, for it is provided that as to the inheritance taxes, the State Tax Commission shall “determine the amount of inheritance tax due the State of North Carolina on the transfer of any such bonds or stocks; it shall determine the value of such bonds or stock, and shall have full authority to do all things necessary to make full and final settlement of all such inheritance taxes due, or to become due, and shall make prompt return to the State Treasury of all such taxes collected.” In this section the whole subject of bonds and shares of stock of any decedent holder is treated, and it is provided that such stocks and bonds are liable to the payment of the inheritance tax prior to any other creditor. It regulates the transfer of such stocks and bonds as
Not only every office-holder, but every voter takes an oath to support and maintain tbe Constitution of tbe State. Such an open, not to say defiant, contradiction of this provision of tbe Constitution by tbe statute entitled tbe plaintiff, and all others of like mind, to place their complaint before tbe courts that it may be declared whether such exemption is valid or not. Tbe great railroads are now maintaining in tbe courts a complaint that they are taxed in violation of tbe Constitution. Surely tbe plaintiff and those who concur with him have a right to place before tbe judicial tribunals of tbe State a like complaint that by this statute they have been overtaxed to threefold or more tbe former tax rate, and that this is caused by tbe exemption of this vast amount of tbe “canned wealth” of tbe State, tbe money invested in stocks and bonds, which by this statute has been exempted from paying their fair share, or any share, of tbe burdens of carrying on tbe Government.
Tbe total valuation of all tbe real and personal property for tbe year 1921 filed in tbe State Auditor’s office is in round numbers $3,119 millions. Tbe estimate of tbe total valuation of stocks and bonds which are exempted from taxation is not returned to tbe Auditor’s office, but we know from tbe official records of tbe U. S. Government that tbe corporations in this State, which are in number about 6,000, return as tbe valuation of their stock to tbe Federal Government on 4,300 of these corporations $932,000,000 for tbe past year. This is a matter of which we can take judicial notice. As tbe statute requires no corporations having less than $5,000 of stocks to make this return, and as the return omits not only all stocks in corporations under $5,000, but there is no return made to tbe Government on tbe stocks held in this State issued by corporations outside of North Carolina, it is probably an under-estimate to say that all tbe untaxed stocks in this State will aggregate over fifteen hundred millions, or in round numbers, nearly one-half of tbe amount of property listed for taxation. We know that tbe taxation on tbe listed property in most of our cities averages $2.50 per $100. Putting tbe rate of taxation, State, county, and town, at tbe low average of $1 per $100, it is very clear that tbe owners of stocks in tbe State are illegally exempted annually from tbe payment of $15,000,000 of taxes. That
This amount, which should be paid by the owners of stocks in corporations, is paid for them by adding it to the taxation of those who are not wealthy enough to have idle сapital to invest in stocks.
It follows, therefore, that if all property were taxed as the Constitution requires, “uniformly, including investments in stocks and bonds,” the rate of taxation from the realty, livestock, and other personal property, and others not wealthy enough to invest in stocks, would be reduced at least one-third. This would he accomplished simply by the owners of the bonds and stocks paying taxes- thereon at the same rate as the owners of other property. They would not pay $15,000,000, for the total of taxpaying property being increased the rate would be decidedly lower.
In this estimate omission has been made of the fact that the Constitution requires that bonds should be taxed, and while we have no data, such as returns of stocks which the Federal Government gives us, we know from high authority that throughout the country there is altogether fifty billions invested in bonds which are exempted from taxation. One-half of this fifty billions is stated to be the bonds of the Federal and State Government, which are exempted from taxation upon the ground that to some extent, at least, their exemption from taxation is a collection of taxes at the source by the lower rate of interest. However, it may be as to the alleged financial reasons for exempting National and State bonds, there is no such ground for the exemption of the stocks or bonds of railroads, banks, cotton mills, water-power companies, tobacco companies, or any other corporations. They pay, and should pay, on their property, but in doing so there is no reason why those to whom they sell their stocks, and whose money they have received in exchange, . should be exempt from taxation on the stocks and bonds of these corporations on which the owners receive dividends and interest, and not infrequently nontaxable stock dividends doubling and trebling their “tax-free” holdings.
The Constitution forbids expressly the exemption of stocks and bonds, but it is clearly violated. There is no more reason that the owners of the stocks which the corporations have sold to those who own them should be exempted from taxation than that their bonds or the indebtedness by individuals should be exempt from taxation. A certificate of stock in a corporation is simply an indebtedness on which the seller agrees to pay dividends in lieu of interest. On common stock, the rate
The provision that “all investments in bonds and stocks” shall be taxed by the same uniform rate as all other property was put into the Constitution as a guarantee that those not able to purchase stocks and bonds should not be over-taxed by the exemption of owners of stocks and bonds, who are, of all people, most able to pay taxes, but whose influence might procure exemption from taxation, as it has done, notwithstanding the constitutional guarantee against it.
There is no question that has come up to this Court which is more entitled to a fair and full consideration. If the railroads are entitled to have considered their claim for over-taxation, surely the masses of the people, those who, not owning exempted property, are paying the taxes which should be paid by the property illegally exempted, have the right to have their complaint considered and the Constitution enforced by holding invalid and illegal any tax levy that taxes them and exempts so large a body of idle wealth, the taxes on which are paid by those who do not have money to invest in such exempted property.
Not only are the stocks of corporations of this State exempted, but the same chapter which levies the revenue, Laws 1921, ch. '34, sec. 3, provides that not only are individual stockholders in corporations in this State exempted from payment of taxes thereon, but the statute, Laws 1921, ch. 34, sec. 4, provides: “Nor shall any individual stockholder of any foreign corporation be required to list or pay taxes on any share of its capital stock if two-thirds in value of its entire property is situated and taxed in the State of North Carolina, or if such corporation has tangible assets within this State assessed for taxation at a value not exceeding the par value of the total stock owned by citizens of this State, and the said corporation pays franchise tax on its entire issue and outstanding capital stock at the same rate as paid by domestic corporations.”
It is to be noted that as to the franchise tax which is levied on corporations for the privilege of doing business and which is analogous to license tax paid by lawyers, merchants, and all others for carrying on business, the franchise tax has been usually one-twenty-fifth of 1 per cent, and never over one-tenth of 1 per cent, which produces an insignificant amount. There is no reason, as this Court has often held, to grant an exemption to stockholders on this ground.
It may be further noted that while there is an illusory provision that where the capital stock is more than the aggregate value of the property
It can be readily seen that upon a fair estimate of the stocks and bonds and other property illegally exempted from taxation there is approximately at least one-third in “tax-free” stocks, and adding “tax-free” bonds, more than one-half in value of the property in this State which pays no taxes whatever, though the Constitution requires expressly that this exempted property shall be taxed uniformly with other property. This exemption is of the property owned by the wealthiest section of the people with the result that it more than doubles the taxes upon the farmers and other real estate owners and the laborers and merchants and all others unable to spare surplus money to be invested in exempted stocks and bonds.
From the adoption of the Constitution in 1868 down to 1887 — 20 years- — -this constitutional provision that stocks and bonds should be taxed uniformly with other property according to its true value was observed. In 1887 two great railroads of this State were entirely exempt on all their property, which exemption was later declared illegal in 1892, and set aside by this Court in the well known case of R. R. v. Allsbrook,
The corporations not foreseeing in 1887 that the State would enforce the taxation of their properties, and by the aid of other corporations, secured in addition to some extent the exemption from taxation of the stocks sold by them to investors. .This enhanced the selling price of their stocks by making them much more desirable to investors. The great increase in the number of corporations, railroads, cotton mills, tobacco companies, and for other purposes lent force to the movement to
Uniform taxation would not have placed, however, 15 million dollars taxation on this property, because by uniform taxation on all property alike the rate would have been largely reduced to all, to the immense relief of farmers and other owners of real estate, and all others who were unable to invest their money in “tax-free stocks and bonds.” The taxation of property equally is the simplest justice which the plaintiffs and all other citizens are entitled to demand, and the failure to observe it is in direct violation of the obligation of every citizen to maintain and support a Constitution which guarantees equality and uniformity in the taxation of property.
In reply to the above, the owners of these vast quantities of “tax-free” securities contend that to tax their stocks is double taxation. There is no requirement in the Constitution forbidding double taxation. The opinion-in-chief in this case admits this, and it has often been held, S. v. Wheeler,
But it is not true, either as a matter of fact or of law, that because the corporation pays tax on its property that it will be double taxation to tax the stocks and bonds which they have sold to other people, which have become the property of other people, and for which the corporations have received full value.
This matter has been often before this Court and before the Supreme Court of the United States, and in every case, without exception, it has been held in both courts that to tax the property of a corporation and to tax the purchasers of its stocks and bonds is not double taxation. Every court in states whose Constitution, like ours, requires uniform taxation of property, has also held that to tax the stocks and bonds of corporations is not double taxation. It is not “double taxation” to tax the shares in the hands of the shareholders when taxes have been laid upon the tangible property and capital stock of the corporation itself. This plea is denied by all the courts, and is unfounded in fact and in justice.
It is estimated, and probably justly, that more than half the wealth in the United States is either owned by corporations or is invested in their bonds and stocks. The latter is idle capital, whose owners do nothing for the public welfare, but simply live on that which comes to them without effort as coupon clippers or dividend drawers. Mr. McAdoo, late Secretary of the United States Treasury, has said, that indeed they “should pay a far higher rate of taxation than any other class in the community, since they do less for the public welfare.”
The propaganda for their total exemption from taxation has been so widespread and persistent, and the end sought is so unjust and dangerous to the foundations of society, that it will not be amiss to set out at some length what the courts have all said as to the wholly unfounded hypothesis that to tax shares in the hands of shareholders is “double taxation,” and therefore unconstitutional.
The courts all hold that the taxation of stocks in the hands of the owner is not “double taxation,” simply because the corporation itself is taxed, and even if it were, it would not be unconstitutional.
In Pullen v. Corporation Commission,
Concurrence Opinion
in the same case, concurring, says, at p. 562: “I agree, also, that it is well settled that the shares of stock in any corporation, when owned by individuals, are separate and distinct property from the assets of the corporation and may be taxed as such.”
In the same case Holce, J.,
A later case, Brown v. Jackson,
Tbe above decisions of tbis State and of tbe United States Supreme Court are uniform, and without variation or shadow of turning, to tbe effect that tbe shares of stock in tbe bands of tbe stockholders are separate and distinct from tbe tangible property, tbe franchises and capital stock of tbe corporation, and that it is not double taxation to tax tbe shares in tbe bands of tbe stockholders and also to tax tbe franchises, capital stock, and other property of tbe corporation. These decisions should be tbe end of tbe controversy.
But there are many decisions in other courts to precisely tbe same effect.
In our own Court are many other cases. In Comrs. v. Tobacco Co.,
It is further, said in tbe same case, on tbe identical point presented here, as follows: “Tbe capital stock belongs to tbe corporation. Tbe shares or certificates of stock are entirely a different matter. They belong to tbe shareholders individually, and under tbe Constitution must be taxed ad valorem like other ‘property belonging to tbe bolder, independently of tbe taxation upon tbe corporation, its franchises/ ” etc.
This case has been cited with approval: Comrs. v. S. S. Co.,
Tbe corporations are further discriminated in favor of by tbe provision at bottom of page 148, Laws 1921, that if they bold stock in other corporations (paying tbe small “excess capital” tax) they shall not pay taxes upon tbe money invested in such other corporations. When tbe American Tobacco Company was dissolved it appeared that that com
There is also a provision in the Laws of 1921, p. 148, not far from the bottom, that corporations paying this tax on the small part of the capital known as “excess capital stock” (and amounting in the whole State to almost nothing), “shall not be required to pay tax on the mortgages, bonds, other securities and credits owned by them” — though every one else must do so.
Then there is a further provision, which secures safety even from public criticism, that the Public Treasurer and the State Tax Commission shall not allow the lax returns of the corporations to be examined, Laws 1921, top of p. 251, and prescribes a penalty of $1,000, one year’s imprisonment, and dismissal from office for any one giving information. This enables them to do anything and deny everything!
The banks, which formerly were taxed in the manner provided in Revisal, 5267 and 5268, have now “received theirs,” as can be found by reference to Laws 1921, p. 248. Thus everybody who could foresee the coming and necessary increase of taxation has “gotten under shelter” except only those who create the wealth of the State, or who by their own efforts, manual or mental, earn the incomes which they receive.
To this may be added that while the constitutional amendment of 1920 provides that “incomes from property already taxed may be taxed,” by recent legislation (Laws 1921, ch. 34, sec. 306 (5), page 210) : “Dividends from stock in any corporation, the income of which shall ■have been assessed and the tax on such income paid by the corporation” shall not be taxed! That is, not only the money invested in “stock” by individuals and others (amounting in this State probably to fifteen hundred million dollars) is absolutely exempted from taxation in defiance of the constitutional provision, Article V, section 3, that “all stocks” and other personal property shall be taxed, but it is now further provided that the income or dividends received by the stockholders, and which is paid into their pockets from such stock is exempt from taxation in spite of the recent amendment that “incomes derived from property taxed” (even if the stock had been the property of the corporation) shall be taxed. And it is further provided by a more recent act, Special Session 1921, p. 152, that banking corporations may deduct from taxation 5 per cent of their surplus and undivided profits, besides, also, the total amount of the surplus and undivided profits invested in State or United States bonds, or the bonds of the Federal Farm Loan Banks and Joint-stock Land Banks.
In the very recent case of Brown v. Jackson,
In Belo v. Comrs.,
It is further said in Comrs. v. Tobacco Co.,
That opinion further said: “The capital stock belongs to the corporation. The shares or certificates of stock are entirely a different matter. They belong to the shareholders individually, and under the Constitution must be 'taxed ad valorem like other ‘property belonging to the holder, independently of the taxation upon the corporation, its franchises, etc.’
To the same effect aré the decisions throughout the country, which can be found grouped in the elaborate notes to State Board v. Coggin (Ill.), 58 L. R. A., 513-618, which cite the. above case at pp. 590, 594, 601. On p. 594 it quotes from Chief Justice Waite, in Tenn. v. Whit
The Constitution of this State, Article Y, section 3, specifies the only property which may be exempted from taxation, and in it there is no authority to the Legislature to exempt the owners of the ‘stocks’ and ‘bonds’ of any corporation from payment of taxes upon the true value thereof because the corporation has paid taxes (as it rightly should do) upon its own property, nor for any other reason. In that same article, section 5, there is authority to exempt “wearing apparel, arms for muster, household and kitchen furniture, and mechanical and agricultural implements of mechanics and farmers, libraries, and scientific instruments, or any other personal property, to a value not exceeding $300.” But the State has felt so poor that every farmer and mechanic for more than 50 years has been required to pay taxes on his clothing for his family, his household and kitchen furniture, his blacksmith’s and farming tools and plows “above $25,” until, the matter being called to the attention of the Legislature (see concurring opinion in this Court, Wagstaff v. Highway Commission, 177 N. C., at bottom of page 360), this exemption was raised to $300 for the first time by the Legislature of 1919.
Those who labor and toil have been required to pay taxes on everything above $25 — on their pots and pans, the washing tub of the washerwoman, the farmer on his plows, the blacksmith on his tools, and every one on everything above $25. The Tax Commission now contends that the Legislature, contrary to the equality of taxation, required alike by the Constitution and by justice, had power to exempt, and has exempted, the investment of fifteen hundred millions of the best property in the State, the stock of its most prosperous corporations, from paying any share of the burden of maintaining the Government under which they live, and thus made it nontaxable, though this Court and the United States Supreme Court have held that the property of the corporation itself could not be exempted from taxation by the act of the Legislature. R. R. v. Allsbrook,
It is a maxim of the law, as well as of political economy, that the “power to tax is the power to destroy,” and there is no power more deadly to the prosperity of a people than to increase taxation on those of small means, and who by their labor and their efforts earn a bare living, while wholly exempting stocks issued and sold by the wealthy and powerful corporations, the just share of taxation on the purchasers of which must thus be paid by the class that is less wealthy and influential.
The decisions from the U. S. Supreme Court are uniform, like our decisions, on this point. In Van Allen v. Assessors, 70 U. S. (3 Wall.), 573, 583, and 584, it is said: “The tax on shares is not a tax on the capital of the bank. The corporation is the legal owner of all the property of the bank, real and personal; and within the powers conferred upon it by the charter, and for the purposes for which it was created, can deal with corporate property as absolutely as a private individual can deal with his own, . . . the interest of the shareholder entitles him to participate in the net profits earned by the bank in the employment of his capital, during the existence of its charter, in proportion to the number of his shares; and upon its dissolution or termination, to his proportion of the property that may remain, of the corporation, after the payment of its debts. This is a distinct, independent interest or property, held by the shareholder like any other property that may belong to him.” This is quoted verbatim and approved. People v. Comrs.,
And in Tennessee v. Whitworth,
In Bank v. Tennessee,
In New Orleans v. Houston,
In a more recent case, Hawley v. Malden,
These uniform decisions by the U. S. Supreme Court and by our own Court — for there is no decision to the contrary — are sufficient, but we may add the following to the same purport from those States, whose Constitution, like ours, require uniformity and equality in the taxation of property.
Alabama: In Bank v. Hewitt, 112 Alabama, 553, it is said: “The question has been fully considered and settled that the ownership of land by a corporation is entirely separate from the ownership by shareholders of stock in the corporation. The former is realty, the latter is personalty under all circumstances. The corporation acting through the power conferred by its charter, the shareholder disposes of his shares as he does of any other property he may own. The property of each is subject to taxation, without regard to the other. The one may become insolvent, while the other is entirely solvent. A private corporation, like an individual, may invest its money in nontaxable property. "When it does so, the property remains subject to taxation. Desty on Taxation, 330; ibid., 371; Maguire v. Board of Revenue,
Georgia: In 125 Georgia, 595 (1906), it is said: “It would be more than idle to contend in this day that one who owns shares of stock in a corporation is not the owner of property. It is true the value of the property depends largely, if not entirely, upon a fiction of the law. But every holder of a share of stock in any corporation is a property owner. Shares of stock are bought and sold. They are bequeathed to legatees and descend to heirs. The Legislature may have even the right under our Constitution to declare that the situs for taxation of shares of foreign stock held by a resident of Georgia is not in Georgia, but they clearly have the power to declare that shares of such stock have a situs for taxation in this State. The General Assembly has so declared, and residents in this State who own this class of property must bea/r the same burden of taxation as is required of owners of other hinds of property.”
Illinois: In Bank v. Kinsella, 201 Illinois, 31 (1903), the Court says: “The taxing of tangible property to the corporation and of the shares of stock to the holders thereof is not double taxation,” quoting from Banking Co. v. Parks, 88 Illinois, 173, as follows: “This Court has repeatedly held that the tangible property of a corporation and the
Indiana: In Building Co. v. Board, 30 Indiana App., 13, it is said that the assessment of taxes upon the company for money loaned arising from interest and premium does not amount to double taxation on the grounds that the stockholders are assessed on their shares since their shares are assessable against the stockholders, citing, on p. 21, several cases from the Indiana Supreme Court.
Iowa: In Judy v. Beckwith, 137 Iowa (1908), 30, the Court says: “A shareholder and the corporation are two distinct persons, their rights and interests with relations to the property and business are distinct and separable. The corporation is the sole owner of such property, while the shares of the capital stock simply entitles the holder to demand his just proportion of the dividends, and when the corporation is dissolved, to also demand his like proportion of the remnant of assets.” Then, after citing authorities that the owner of the stock can bring an action to recover them, and that on his death it is distributed to his heirs, the Court adds: “Such shares being personalty, representing valuable rights personal to the owner, no good reason can be assigned why they should not be governed by the usual rule, which makes such property taxable at the owner’s domicile. With but very little discord in the cases, save as objection has been occasionally made in academic discussions, such taxation is upheld by all the courts,” citing numerous authorities from many states. It is further said (p. 35) : "Capital stock and shares of capital stock represent different property rights, one belonging to the corporation and the other to the shareholders, and both
In Head v. Board,
Kansas: In Bank v. Moon, Kansas (1918), the Court held: “The distinction between the class of property known as shares of stock and the class of property owned by the corporation called capital stock, and sometimes called capital, has always been recognized and enforced by the Supreme Court of the United States. Its decisions are authoritative because of the legislative purpose to conform the tax law to the requirements of the Eederal law. A specious argument frequently advanced is that the shares of stock represent the capital stock, which in turn represents the property of the corporation, so that a tax return of shares by the stockholders, or the corporation for them, and a return of capital stock or property by the corporation, accomplish the same end, but by different methods. The fallacy of this argument is exposed by the decision in People v. Comrs., 71 U. S. (4 Wall.), 244.” The Court then quotes from the several cases from the U. S. Supreme Court above set out.
Kentucky: In Franklin Co. v. Bank, 87 Kentucky, 382, it is said: “The capital stock of a bank and the shares of capital are distinct things, and both may be taxed. So, also, the franchise, the surplus earnings, and the real estate are things distinct from the capital stock, and from each other, and the State may tax the bank under each of these heads without imposing double taxation.” The Court says: “It may be regarded as settled by the current of authority, and for the purpose of this investigation we will concede that it is so settled, that the appellee’s capital stock and the shares of its stock are distinct things. That the capital stock is the money authorized to be paid in, and actually paid in, as the basis of the business of the bank, and the means of conducting its operations. The corporation cannot increase or diminish this capital stock without express authority to do so; for the reason that it constitutes a trust fund which is held by the appellee as trustee, first, for the purpose of meeting and making good its liabilities; second, after discharging its obligations for the benefit of its stockholders. The shares of the capital stock are represented by certificates. Each holder is a beneficiary to the extent of his ownership. But he cannot control or withdraw a dollar of the principal; that must remain as the basis of
Massachusetts: In Hawley v. Malden,
In Loring v. Beverly, 222 Mass. (1916), 332, it is said, citing the above case: “Shares of stock are property distinct in kind from the capital, franchise or other property of a corporation. Taxation upon one or all of these elements of property of the corporation does not prevent taxation upon the shares of stock as the property of the owner at his domicile.”
New Jersey: In State v. Branin, 23 N. J. L., 484, the Court held: “The stock of incorporated banks, although the bank pays a tax on its capital, may be taxed in the hands of stockholders if authorized by the Legislature.” In that State the Constitution does not require, as here, the equal and uniform taxation of all property, including “investments in bonds and stocks.”
Ohio: In Bradley v. Bauder,
“The argument is that the capital of the corporation is invested in property which is taxed in the name of the corporation, and that the shares in the capital stock, when owned by individuals, only represent proportions in the ownership of such property, and hence, to tax the shares is another mode of taxing the property of the corporation, and that a tax upon both, although the tax upon one is imposed by another State, violates the rule or principle of equality established by the Constitution. This argument, however plausible it seems, has never met with favor from the courts. Double taxation, in a legal sense, does not exist, unless the double tax is levied upon the same property within the*536 same jurisdiction. Here the property owned by the plaintiffs is not only nоt the same as that owned by the corporation, but its sitios, so fa/r as shares of sioclc are capable of one, is in a different State."
Tennessee: In State v. Bank, 95 Tennessee, 221, tbe Court “reaffirms that taxation of capital sioclc to the corporation and of the shares of stock to its stockholders is not double taxation. Capital stock and shares of stock are separate and distinct property interests and form separate and distinct subjects for taxation,” citing numerous cases. Tbe capital of a corporation, whatever invested in, and tbe individual shares of stock, are distinct species of property. Farrington v. Tennessee,
Virginia: In Commonwealth v. Charlottesville, 90 Virginia, 190, the Court quotes with approval and reaffirms the proposition laid down in Bank v. Richmond, 79 Virginia, 113, as follows: “The capital stock and the shares of capital stock are distinct things, the former belonging to the corporation and the latter to individuals. Both may be taxed, and it is not double taxation.” At that time the Constitution of Virginia, like ours, required uniformity in taxation, but at their Convention in 1900 that provision was struck out. In this State it has simply been ignored.
That Court, citing cases, added: “The two are very different things. The capital or capital stock belongs to the corporation; the shares to individuals, and being different property interests, and consequently distinct subjects of taxation, the better opinion is that taxing both is not double taxation. Burroughs, Taxation, 170; Bank v. Richmond,
Washington: In Bank v. Pierce Co.,
STJMMARY
It appears clearly from tbe above authorities that it is held uniformly always and everywhere — ubique, semper et eadem — -that tbe stock in tbe bands of shareholders is bis individual property, and that tbe capital stock, franchises, and tangible property of tbe corporation are its property, that there is a distinct ownership by tbe two parties of a separate and distinct species of property, and that tbe taxation of one does not exempt tbe property of tbe other from taxation. Tbe cases say tbe opposite contention is “specious.”
It also appears that in all cases where the Constitution, as in this State, requires that all property, real and personal, shall be taxed, it is unconstitutional to exempt the shares of the stockholders from taxation upon the ground that the property of the corporation, whether capital stock, franchises, or tangible property, is taxed.
There are some states in which the requirement of tbe Constitution of North Carolina and of some other states that there shall be “uniform taxation of all property,” and that “all moneys, investments in bonds, stocks, etc., shall be taxed uniformly” does not appear. In those states it is held to be discretionary what property shall be taxed. But, in all others, tbe shares in tbe bands of tbe stockholders are required to be taxed, and to refrain from doing so is a clear evasion of an imperative constitutional duty, which was imposed for tbe protection of those who might not have idle money to invest in stocks and other securities.
But the defendants claim that the Court is without authority to issue a mandamus to the Corporation Commission to levy the tax. Every citizen is entitled to have the Court pass upon his claim that the taxes imposed by any statute, or even which is likely to be imposed, shall be declared illegal by the courts if contrary to the constitutional protection. This is constantly done when injunctions are sought against issuance of bonds, and formerly, when there was a provision requiring equation between the taxes on the poll and taxes on the property, this Court repeatedly held statutes laying taxation without observing this equation to be invalid.
This prohibition of the exemption of investments in stocks and bonds is in section 3 of Article V. Section 1 of that same article required, until recently amended, that there should be an equation in the statute levying taxes between the tax on property and the tax on polls, and as to that it has been repeatedly held that when that requirement was not observed the statute levying the tax issue was void. R. R. v. Comrs.,
Indeed, in R. R. v. Comrs.,
In this case, the plaintiffs are seeking under section 3 of the same article to require the lightening of the burdens upon the property of nonstockholders by placing upon the tax list (or holding void an act which does not do so) an immensely greater relief by taxing investments in stocks as required by section 3 of the same article. If, as the above cases hold, it was invalid to omit the levy of a poll tax because this made somewhat heavier the tax on property, for a stronger reason it is necessary to require fifteen hundred millions of money invested (whatever the sum is, it is very large) in the best property of the State to be placed on the tax list, that this equality and uniformity in taxation of all property may be observed, which the Constitution requires.
For a stronger reason, when the taxes laid upon that large portion of our people who own no stocks in corporations is greatly increased, being probably double or more than it should be by reason of thе fact that the investments by the wealthy of their funds in so-called “tax-free stocks”
It has been over and over again held by this Court that the form of the prayer of relief is immaterial; and, indeed, if there were no prayer at all for relief it would not be a defect, but “the party can obtain any relief to which the facts alleged entitled him.” McCullock v. R. R.,
The complaint which is made in this proceeding is based upon the soundest principles of justice, and upon the clear and unmistakable language of the Constitution, which requires that “investments in stocks and bonds” shall be taxed uniformly with other property, and it is not denied, and cannot be denied, that a vast sum, if not fully a billion and a half, of money is invested in stocks, owned by the influential classes, and is absolutely exempt from all taxation, and thereby the taxation of all others is probably doubled. These latter are those who pay double taxation, for they not only pay taxes on their own property, assessed often at a high figure, but they pay the taxes which ought to be paid by the owners of “investments in stocks and bonds,” as is explicitly required by the Constitution.
This provision of the Constitution is relied upon by the plaintiffs as a shield against the continuance of this discrimination, and this action is brought in accordance with numberless precedents adjudging invalid statutes authorizing issuance of bonds, and which invalidated statutes levying taxation in disregard of the equation between the property and the poll tax, and in divers other cases. A statute which exempts so large a part of the property of the State from all taxation with the result of doubly taxing those who do not own stocks in corporations, the plaintiffs claim, should therefore be declared illegal.
The plaintiffs claim that the illegally exempted stocks should pay fifteen million dollars city, county, and State taxes annually. It may be more or less than that sum. An exact knowledge of the amount cannot be ascertained until this exempted property is placed upon the tax list, like real estate and other property, as the Constitution plаinly requires. Until then, only an estimate can be made, for the statute above quoted makes it punishable, with penalty of $1,000, a year’s imprisonment, and dismissal from office to give information on the subject from the corporation reports. Laws 1921, ch. 34, sec. 805 (2), p. 222. The corporations offering for sale “tax-free” securities are well protected.
The plaintiffs have asked for a mandamus against the Tax Commission and the Tax Commissioner to place this omitted property upon the tax list. The U. S. District and Circuit Courts of Appeal and the Supreme Court of the United States have held that a mandamus will lie at the instance of a private creditor to force tax assessors to put property on their books, increase their assessed value, and do such other things as may be necessary to bring the property upon the tax list that taxes may be collected thereon to pay judgments of the courts or bonded indebtedness, notwithstanding, as in the well known case of Carteret County of this State, there may be express legislation forbidding the tax assessors to do so.
If the courts are sufficiently jealous of the rights of private creditors and bondholders to issue a mandamus against the officials to collect a debt, how much more jealous should the courts be when the rights of all the people are involved. A leading case upon this subject is Falls City Construction Co. v. Jimmerson,
The legislative enactment relied upon in this case to exempt so immense a mass of property as the money invested throughout the State in stocks, which are exempted from all taxation, is in direct violation of the express provision оf the highest law, which is the Constitution of the State.
In Hicks v. Cleveland,
In United Brethren v. Comrs.,
In that ease, it was said that the fundamental principle of our Constitution is that all property shall be taxed uniformly except that which is either expressly exempted by the Constitution itself or as to which the power of exemption by the Legislature is left discretionary within the limits prescribed by the Constitution, citing Redmond v. Comrs.,
This case has been cited with approval by Hoke, J., in Davis v. Salisbury,
The present case is much stronger, for here not only no exemption is granted or discretionary authority to exempt, but there is an express requirement that investments in stocks and bonds shall be taxed.
Since this ease was argued here, the President of the United States, yielding to an urgent and Union-wide demand, has urged upon Congress the adoption of an amendment forbidding the issuance of “tax-free” securities, and both Houses of Congress are already engaged in considering a bill to that effect. The steady accumulation of vast masses of wealth by corporations and individuals is a menace to our institutions. It has been largely caused by the exemption of their investments from taxation, thereby doubling the taxation upon all others. In response to an unmistakable public demand, the XVI Amendment was adopted, which required the levy of a heavily graduated income tax to put some restriction uрon such vast accumulations, but this has been largely nullified by the device which special interests have secured in both national and state legislation of making it heavily penal for any officer to give information as to the returns on income. In this State it has also been greatly restricted by the recent constitutional amendment limiting the income tax to 6 per cent. In addition, the accumulation of great estates in corporations and in individual hands has been most strongly fostered by disregarding the constitutional provision now before us which forbids the exemption from taxation of “investments in stocks and bonds.”
The provision of our Constitution prohibiting the issuance of “tax-free” securities should be strictly enforced, both because required by the Constitution and by a wise and just regard for those who produce the wealth of the State, and as a political necessity for the security of our free institutions.
When the United States Supreme Court set aside the income tax law, Judge Brown, one of the dissenting judges, stated that if that decision stood this country would “sink into a despotism of sordid wealth,” and the other dissenting judges were as outspoken and emphatic. The people of this country stood with the dissenting judges and wrote into the Constitution XVI Amendment under which we have now not only an income tax, but one that (until lately) was graduated to run as high as 68 per cent. Without this, the prophecy of the dissenting judges would not only have become true, but it would have been impossible to carry on the late war, or, indeed, the Government, with its greatly increased expenditures.
There is in this State, beyond all question, a vast amount of double taxation, which is caused entirely by the fact that a vast sum, probably fifteen hundred millions, invested in stocks, besides bonds are entirely exempted from all taxation with the result that the nonstockholding masses are taxed double and even treble their former taxation to make up the taxes which the Constitution requires shall be paid by uniform taxation on all property, including “investments in stocks and bonds.”
The result of this vast exemption is that all fluid wealth flows naturally to these illegally “tax-free” investments. Only in the last few days one of the corporations in this State has declared a 500 per cent stock dividend; that is $600- to every owner of stock for $100 invested, and each owner has thus $600 for every $100 put in the property, all of which is tax-free.
As to the plea that tbe statute of limitations is a protection of this illegal exemption because it bas been acquiesced in more or less by legislation, it must be said that this legislation bas been held illegal by every decision of tbe Court of this State and of tbe United States, and of all tbe other states whose Constitution, like ours, requires equal and uniform taxation of all property, except such as is exempted or authorized to be exempted by tbe Constitution itself. Tbe fact that tbe validity of this particular statute bas not until now been presented to tbe court, in its present shape, makes it all tbe more necessary to bold it invalid. That there is no statute of limitations in favor of unconstitutional legislation was held in R. R. v. Allsbrook,
Tbe question whether tbe courts can bold any act of tbe Legislature unconstitutional bas been debated, but if any case should require that it be done tbe plaintiffs are presenting it now. So many statutes have been held unconstitutional by this Court without it being deemed a reflection upon tbe legislative department, surely tbe remedy should not be denied in a matter which affects vitally tbe rights of every taxpayer, even tbe humblest.
If tbe people of this State, with tbe facts before them, are content to continue this legislative exemption of fully one-third of tbe property
"Whether the provision in the Constitution forbidding the exemption of investments in stocks and bonds is in conflict with legislation which exempts all investments in stocks in corporations; and whether the decisions of the courts of this State and of the United States, and others above mentioned, have held such legislation illegal or not is not a, matter of argument, but simply a question of reading the decisions themselves and the constitutional provision, as above set forth.
In setting forth the decisions themselves holding uniformly such exemption to be in conflict with the express letter of the Constitution, as well as its spirit — and contrary to the eternal justice of “equal rights to all and special privileges to none” — -and my deep conviction that this Court should declare these exemptions invalid, I have simply done my duty as it has been given me to see that duty.