Provident Life & Trust Co. v. Durham, Appeal, No. 131

Appeal, No. 131 | Pa. | May 15, 1905

Lead Opinion

Opinion by

Mb. Justice Fell,

In 1900 the Provident Life and Trust Company, the appellee, reported to the auditor general that its capital stock, the par value of which was $1,000,000, was of the actual value of $5,100,000, and it paid thereon the five mills tax imposed by the act of 1891. It reported that as trustee, executor, administrator and guardian it held bonds, mortgages and other securities of the value of $6,455,282. On this it paid the state tax of four mills. It also paid a tax of eight mills on its gross premiums, and other taxes amounting in all to over $150,000. Upon notice from the board of revision of taxes of the city of Philadelphia, it made a return under protest of so-called insurance assets aggregating $31,646,779.17. The question raised by this appeal is whether these assets are subject to a state tax of four mills. They are subject to the tax if within the meaning of the act of assembly they are held in trust for others. They are exempt from taxation, except as they are included in the value of the capital stock of the company, if they are owned by it in its own right.

The first section of the Act of June 1, 1889, P. L. 420, in terms includes corporations with natural persons in imposing a tax on money at interest, but by the fourth proviso to the twenty-first section, imposing a tax on capital stock, corporations are relieved from any tax on bonds, mortgages and other securities “ belonging to them and constituting any portion of their assets included within the appraised value of their capital stock.” This section of the act of 1889 was amended by the Act of June 8, 1891, P. L. 229, and the words of the proviso above quoted were omitted from the later act and the exemption was extended to mortgages, bonds and other securities held by corporations, “owned by them in their own right.” In construing the act of 1889, it was held that the intent of the proviso was to prevent double taxation and that the tax imposed by the twenty-first section was not cumulative but in substitution for that imposed by the first section: Fidelity Ins., etc., Co. v. Loughlin, 139 Pa. 612" court="Pa." date_filed="1891-02-02" href="https://app.midpage.ai/document/fidelity-etc-co-v-loughlin-6240253?utm_source=webapp" opinion_id="6240253">139 Pa. 612. The same construction would apply to the act of 1891.

This is briefly the legislation on the subject. The facts to which it is applied are these : The Provident Life and Trust' Company is a corporation conducting the business of a life insurance and trust company. In the management of its business all receipts are mingled in a common fund. In order to keep track of its different branches, the receipts from insurance are credited to the insurance branch, and the expenses, death losses and payments on endowment policies are charged to this branch. The surplus with accumulations of interest is held as a reserve fund to meet the payment of policies as they mature and to make certain the fulfillment of the contracts of insurance.

The contention that the insurance assets are not owned by the corporation is based on the Act of February 18,1869, P. L. 194, amending the act under which the company was incorporated which provides ; “ That all the net profits to be derived from the business of life insurance after deducting the expenses of the company, shall be divided pro rata among the holders of the policies of such life insurance, equitably and ratably, as the directors of said company shall and may, from time to time, ascertain, determine and report the same for division.” These assets do not represent the net profits of the insurance branch. They are a part of the gross assets of the company, subject to its insurance liabilities, which amount to over $43,000,000. The clear finding on this subject is: “ Thére is no provision of law that plaintiff’s assets or any part of them derived from its business of insurance shall be set apart for the benefit of policy holders, and they.are not so set apart, but, as matter of bookkeeping, plaintiff keeps a separate and distinct account of the assets pertaining to that side of its business. Its contract with its policy holders contains no provision giving them a claim upon any particular assets, but is the ordinary standard form of insurance policy. When insurance losses occur, they are paid out of the general fund of the company, and subsequently as a matter of bookkeeping charged to the insurance side of its business. The $31,646,779.17 of securities reported by plaintiff under protest was owned by it in its own right, and not as trustee, executor, administrator, guardian or any other fiduciary capacity.”

These securities constitute a fund owned by the company in its own right' to meet contingent liabilities. No particular assets represent the net profits, which in 1900 amounted to $6,279,520, to which the policy holders will become entitled when the directors- of the company ascertain and report .them for division. Until they are reported for division, the policy holders are entitled to nothing, and then not to securities in kind but to money. This fund is under the absolute control of the trust company and was created to meet future indebtedness. The management of the company does not differ in this regard from the management of other financial institutions that create an adequate reserve against certain liabilities. It is only by regarding the company as a holding company and its branches as distinct entities for whose benefit investments are made and securities held that any conception of a distinct trust relation arises. If so regarded it is a trustee as well for its depositors of all securities purchased with funds received by its banking department, and these are liable to taxation. The act of 1891 contemplates no snch shadowy trust relation as this.

A further discussion of the subject would be a useless repetition of the reasons so clearly stated in the able opinion of the learned judge of the common pleas.

The decree is affirmed at the cost of the appellant.

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Dissenting Opinion

Mr. Justice Potter,

dissenting :

It is admitted in the opinion filed on behalf of the majority of the court in this case, that the invested funds aggregating §81,646,779, are properly to be taxed, if they are held in trust for others. It can only fairly escape the same taxation as other moneys at interest pay, if it is owned by the trust company in its own right. It appears from the record that in 1898, when the commonwealth undertook to do the very thing which the trust company now says ought to be done, that is, tax the insurance assets as the property of the company held by it in its own right, the company strenuously resisted. It then set forth, referring to its charter, that it was “ authorized by said charter to conduct, and it does conduct, in pursuance of said charter authority, two separate and distinct branches of business, viz.: the business ordinarily incident to a trust company and the business of a life insurance company. . . .

“ Its capital stock, surplus fund, and undivided profits above mentioned are not used with reference to, or in connection with, or as part of, its life insurance business in any way whatsoever, but are entirely separate and distinct therefrom, and its stockholders, as such stockholders, have no interest in the life insurance business, which is conducted as other life insurance companies are conducted, not for the benefit of stockholders but for the benefit of the insured; it being expressly provided by the Act of February 18, 1869, P. L. 194, supplementary to the original act incorporating the company, that £ the net profits to be derived from the business of life insurance, after deducting the expenses of the company, shall be divided pro rata among the holders of the policies of such life insurance, equitably and ratably, as the directors of said company shall and may, from time to time, ascertain, determine, and report the same for division.’ Such divisions are from time to time made to the holders of policies, but no division of profits arising from the insurance business are, or ever have been divided among the stockholders as such. The assets of the insurance part of the company’s business are kept in an entirely separate and distinct fund, and are not covered by the capital stock of the company, and have no relation thereto, no more than if the insurance business were conducted by an entirely separate and distinct corporation.”

The contention of the company in this respect was well founded and was sustained by the Dauphin county court. But the present attitude of the company is entirely inconsistent with the view for which it so stoutly and successfully contended at that time. The result is that under the conclusion reached by the trial judge in this case, and affirmed by the majority of this court, this very large invested fund, composed of the insurance assets of the company, escapes taxation altogether. Under any other circumstances than those in which it now seeks to avoid taxation, the company would no doubt reject with vigor, any suggestion that it did not hold the insurance assets in trust for the policy holders. It would be most insistent that in common with all other sound and reliable insurance companies, its attitude to its policy holders is that of a pure trusteeship. The policy holders contribute the capital, which is invested on their account to equalize the mortality risks; and after paying the cost of administration, the whole amount, surplus as well as legal reserve, is morally and equitably the property of the policjr holders. Not a dollar of it belongs to, or can in any way lawfully be distributed among the stockholders of the trust company. They have no more right to it than to any fund which the company may hold as guardian, administrator or receiver.

There can be no question but that the fund now under consideration is made up of the proceeds of premiums paid by the policy holders to cover the mortality risks for the whole period' of their policies. It is the amount reserved to meet claims accruing from the insurance in force. It belongs to the holders of policies who are entitled at their maturity to the face value and in addition to a pro rata share in the accumulated profits.

How then is it possible to hold that this is not a fund held by the company in trust for them ?

The company holds the legal title to the fund, but to suggest that it holds the fund in its own right, for the benefit of its stockholders, is startling in the extreme. The only benefit which can accrue to the stockholders of the trust company, is in the handling of the fund as a deposit in course of investment, and from the incidental advantages which accrue from the control of large sums of money. In addition to this, under its charter privilege, all expenses of conducting the trust company are chargeable to the insurance department of the business. To my mind, it is perfectly clear that the fund in question is made up of trust assets, and as such, they are taxable as in the case of individuals.

I would therefore reverse the decree of the court below, and dismiss the bill.

Dean, J., concurs in this dissent.