*1 BANK v. FIRST STOCK CORPORATION.1 STATE 30,836.
No. June 1936. Frank At- Shannon, J. Williamis and Edward J. Assistant County torneys, for State. &
Junell, Driscoll, Fletcher, Dorsey Barken* and A. McG. Wash- hurn, respondent.
1Reported
N. W.
Defendant or a of majority It owns all its officehere. stock principal and banks in the Ninth Federal about 81 national Reserve from managed by it subsidiaries, prin- Distriсt. These are its its held by Their stocks are not defendant cipal Minneapolis. office They dealt in merely traded, for investment. are not or but were acquired are owned for the of defendant purpose giving plenary and colloquially control the banks. The subsidiaries are and politi- over cally They banks.” managed, super- characterized as “chain are periodically examined defendant. It selects all their vised, policies. officers and dictates all their Another subsidiary corpora- argument, tion two.are mentioned but evidence there nothing change about them to the essential de- concerning facts ownership fendant’s and use its bank stocks.
Whatever be said its de- properties separately considered, very important unit, fendant’s business is a economic which, as headquarters Minnesota, is localized in management, wherein also many are both which it banks, national, state and controls through stock Its seal is at Minne- ownership. corporate kept its apolis All office. its meetings stockholders, directors, board held in Minnеapolis executive committee are or St. Raul. certificates for its subsidiary banks kept are at Minneapolis regularly office. Defendant its returns for taxation all money taxable other credits than the stocks in state banks As latter, other states. to the it denies that Minnesota has them tax or itself as owner of them. Presently involved six are stocks of Montana and two North (The
Dakota state banks. by any case is unembarrassed problem banks.) to the taxation shares in national peculiar Defendant owns, cases, as it doеs most stock, all their except qualifying of the few directors necessarily shares and officers held Even such shares bank. of each the domicile at
resident at to repurchase in defendant an option subject the owners * will. ' Avith Dakota, together North Montana and Each domi taxed, by and is taxation, property, tangible non Avhenheld shares, even are their stock So also ciliary state. again below, is position, sustained Defendant’s residents.* in Min defendant OAvnership in the possession double be not thereof, Avould tax it as the ownеr or to nesota, in violation of of law process a denial of due but also due process and the Minnesota, art. of the constitution 1, § of the constitution fourteenth amendment clause of 1 of the § United States. tax. excise, and not an property, Avith a dealing
We are noAV In N. Minn. 189 W. Education, v. Board of Hicken Minn. St. credits” taxed under Mason “money this mills and Ioav rate three special 2337 to at a 1927, §§ from other local exempt fair and are each dollar of cash value personal prop- become a 2348, they part taxation. Under § *3 Need- with in resulting liability personam. tax of the OAvner with- (not say, any money to it Avasnot intended that or credits less in OAAmed inhabitants of express exceptions statute)3 the the should escape. this state imposed 2In Montana the on both banks is and shares Supp. provided Montana,
and its collection for Revised Codes 1927 2067; Dakota, Dakota, Compiled 1913 in and North under Laws North § (& Supp.), 2115(1) well as the 1925 to 2117. The shares as such as §§ taxed, and, corporation stock, is are as the tax on the the payment. made in similar fashion “the stoсk liable Minnesota taxes every mortgage company” organized laws. under bank and loan 1927, 1 2029. Mason Minn. St. 2026-1 to §§ 3 “moneyed exceptions capital individ- is in the hands of One of those coming competition Avith the business ual citizens of this 1927, the case is Whether national 1 Mason Minn. St. 2337. banks.” § exception not consider. occasion to and do that we have .no affected (L. 1923, 102) was not in e. and so amendment in 1923 It was added years 1922, money were the credits taxes for which in 1921 effect 235, Bank, subject W. 164 Minn. 204 N. in First Nat. State v. of decision 375. 205 N. W. in its corporate persоn jurisdiction Defendant within its subject .taxing to the state’s poAver. argument The local against upon taxation is nature of the put property fact that to taxation in In other states. appraise order properly argument, the nature of involved property, corporate shares, must not be overlooked. That personal are as and, such, subject to tax long Iuavs has been settled Iuav.
Shares are “mere contract in rights, or, technical language, in choses action.” 1 Morawetz, Private Corporations (2 ed.) Hаwley v. City Malden, § U. S. 1, 34 S. Ct.
L. ed. 477, 482, Ann. 1916C, Cas. 842. The distinction must ob served betAveenthe shares abstract Avliich “and intangible, the transferable certificates AAdiich lat represent rights.” these ter “are something more. They constantly tangible treated as property in commercial transactions, and, by nego of their reason tiable character, are in fact tangible great value, just negotiable notes and are.” bills 1 Morawetz, Corporations Private (2 ed.) 226. § in question are not locally, taxable defendant
they would not be so the hands of another OAvnereArenthough he than a corporation. If, Averean indiAidual rather in respect to his shares, subjected owner foreign cannot be here, might taxation he enjoy immunity a similar from contributing of gwernment the maintenance its services Minnesota respect foreign corporations. to his shares The jurisdiction in. of Minnesota to tax at challenged, all is supporting argu rest, finally, ment must not so much fact taxation other as on their supposed tax, states exclusive whether poAver not, exercised or lack supposed Minnesota qt to tax all. allegation
Defendant’s of denial of due process is untenable made by Hawley City Malden, 232 U. S. ed. 1, 34 Ct. L. *4 Ann. 1916C, question Cas. 842. The the there was whether of stock, by taxation of shares OAvned a Massachusetts, resident of in foreign corporation, Avhichdid no business and had property no in the It was decided process. of due was a denial state,
in that negative. had it decision, power sustained the at time of the
Even the all, if'not of states question by most, without exercised been the as observed constitutionality, Its days. from their earliest numerous repeated the had been sustained court, supreme prop- drawn between the distinction was cited. The decisions and that of the shares the shareholders of de- The numerous taxed.” “may separately former itself. The were ruled power sustained the followed, which were cisions, and, having no situs personal view that are by “the whether domicile, of the owner’s elsewhere, are taxable the state argument that foreign or domestic.” The corporations be incorporation” was re- solely shares were “taxablе the state tax domicile to jected and the the owner’s them sustained. but say later, have more to situs, we shall question
Upon 232 U. S. the court said: Malden, Hawley interest of the share- dealing intangible with we “When question situs, so far as physical no manifestly holder, there tax concerned, jurisdiction and the right is imoperty this distinct location of the lands and chattels upon is not dependent the corporation.” held U. corporate shares, the court
Further, respect 12] [232 action, shares, legislation “in the absence of that, choses such аs * * * related to appropriately different rule prescribing him his con- owner, being domicile, of the held at person and, obligation is under to con- respect with which he stitute en- government protection whose he support tribute to the joys.” Hawley City authority Malden, deciding
Upon law, federal hold that strictly as one of constitutional we attempted under our Minnesota, money the taxation stocks in the Montana and North law, the involved credits a denial of Bristol banking corporations, process. due Dakota
549 701; v. U. Washington County, 133, 177 S. 20 S. Ct. 44 L. 585, ed. City New 175 Stempel, Orleans v. U. S. 20 S. 44 309, 110, Ct. L. ed. L. Co. 174; Metropolitan City v. of New Orleans, Ins. 205 U. 27 395, 499, S. S. Ct. 51 L. ed.
The argument against
application
Hawley
the rule
v.
1,
232 U.
is
Malden,
“only
S.
that
can
one state
constitution
ally
impose
upon
intangibles, and
as
state
banks, such a tax may
imposed
only
incorpora
the state of
tion,
not by
the
state
domicile
the owner of the
[of
shares]
or business
proposition
situs.” That
upon
authority
is
the
put
the more recent inheritance tax cases (overruling Blackstone v.
188 U.
Miller,
189,
S.
23 S. Ct.
47
277,
439,
L. ed.
and the other
approving
decisions
to-wit:
L.
it),
& Co.
Farmеrs
T.
v. Minnesota,
280 U.
204,
S.
50 S. Ct.
74
98,
L. ed.
65 A. L. R.
371,
1000; Bald
win v.
281
Missouri,
U. S. 586, 50 S.
74 L.
436,
1056,
Ct.
ed.
72
gouth
A. L. R. 1303; Beidler v.
Tax
U.
Carolina
Comm. 282
S. 1,
54,
51 S. Ct.
75 L. ed. 131; First Nat. Bank Maine,
v.
Inheritance event, on an transfer which place on, are fixed takes rea- simply that, The conclusion is of, son death. inasmuch as the tax property transferred, is not but rather and an upon only excise event which transfers it, having the power one, levy one, to make there can be but wherein the event, the transfer death of the owner, place. takes Even taxes, inheritanсe succession recent and con- explicitly cases trolling limited so as to apply where the the transfer of property, which is to be sought has an taxed, actual or “business situs” elsewhere than in the state of the owner’s g. In & domicile. Farmers L. T. Co. v. Minnesota U. 208], [280 declaring rule, first the new emphasized ivas that none of the bonds, any “had property, municipal connection with business car- ried on or for the decedent Minnesota.” can an ever have actual or situs” in a “business itself,
other than there such a situs of defendant’s shares Minnesota. “It is difficult to conceive how [550] DeGanay localized.” See completely more could be where 1042, L. ed. 524, Ct. 382, 526, 39 S. U.
Lederer, management possession in the were securities the “localized” We alien owner. States for a nonresident United agent of an incorporeal rights between the the real distinction again stress them certificates certificates the stock by the stock evidenced dealt tangible and the latter intangible being the former selves, Minn. Matheson, First Trust Co. Compare with as such. bearer payable L. thаt bonds 478, holding 87 A. R. N. W. *6 in quasi to an action tangibles properly far as to be so cited, therein case, rem rule of that and the others here. Under the 585, 16 S. 161 U. Ct. particularly Brown, Hamilton S. ques in if to be the stocks that, L. ed. there seems no and he Minnesota, tion were owned an individual resident of Minnesota here, heirs, jurisdiction should die intestate and without the cer capable would one the escheat of adjudging rights and the -property thereby tificates evidenced. case, present feature of this important
There is another Mon eight cases. It is that tax the inheritance state, this seeks banks which North Dakota state tana and ownership reason their have, by levy money credits a an banks, importance in 76 other the stocks use by defendant, avíüi if they possess which Avouldnot nature, local value, use banks were considered subsidiary in each of defendant’s the stock subsid a itself. The stocks defendant’s unit isolation Ninth widely through the numerous and scattered themselves iaries, a bank amalgamated super have been District, Reserve Federal in defendant’s and control. There unit ing and economic poAver banking neAv over activities and has a arisen there area. increment important a Whate\Ter the large interests therefrom, tllat together it is undeniable resulting of value inte property, and valuable highly important new unit of make a here or a situs noAvhere. and with grated must a seqmmtur personam apply to such maxim mohilia museum piece or it become mere ancient has Iuav. it will taxed whole, tax the not be elseAvhere cannot If Minnesota except the extent that fractions of it sepаrately taxed in the states wherein defendant’s subsidiaries are incorporated. That process cannot larger new unit of business and value touch and operated by owned defendant in Minnesota. The local owner the increment of worth added amalgamation Avillby so much escape argument taxation if we sustain for defendant. That would not be double which defendant an opposes, but escape from taxation, which no one advocates, however much he it. any wants Inherent in theory calculated to pеrmit large values their escape just government share the burden of own refutation. local business situs of
The established defendant’s bank stocks use here a new unitary integer business and prop support furnish the basis needed to challenged tax, hold which we defendant liable. Like State v. Pittsburgh Plate Minn. 339, Glass Co. 147 180 N. W. the recent case of Wheeling- 193, 211, Steel Corp. Fox, U. S. 56 Ct. 773, 777, 80 L. ed. 809, applies issue the idea concrete of a “business in situs” of tangibles of a corporation outside its home state. Sustained was Virginia the claim of West “that the accounts rеceivable and bank * i:' deposits acquired had a taxable situs” in that al state, though was chartered “The Delaware. constitu *7 authority Virginia tional of West to tax,” said the court, “cannot ground be denied that they the intangibles in question] [the are solely taxable in Delaware. The they is whether should be deemed to be Virginia.” localized West The decisive answer was in the affirmative. Its factual basis, summarized, was the sought credits to be taxed in West Virginia had been created and liquidated were managed part there as of the business of the оwner localized there. presently
The considered were not created but here, they are owned here. More important is the fact that here an integrated of part, the main one, distinctly localized unit of business, property and value. further defendant’s
Exploring argument anent taxation, double one answer is that there is no constitutional prohibition duplicate
552 event taxing the same twice a difference between There is
taxation. taxing prop- the same state, and twice but one happen which can susceptibility, or interest, quality, or to an erty, respect once to another again in respect jurisdiction, to one related especially power. taxing to the second clearly related as multiple taxation against our law is trend of present The the clause of process of the due employment “the intangibles. in- eliminate the multi-state taxation amendment to fourteenth Impose “State Jurisdiction tangible personalty” (Rottscliaefer, 307) L. continue and evolve 305, 42 Yale Jour. Taxes,” be a reexam- 'there must symmetrical barring such plan tax- states practice an of the ination, probably end, present nonresi- in the ing corporations shares of their the anom- are an levies, effect, dents. Such extraterritorial in practical ultra, if aly not fact vires. at by nonresidents owned and held a corporation,
The bonds taxing poAver beyond the states, other their domiciles & R. Co. Cleveland, Painesville Ashtabula chartering state. tax ed. 179: location 300, U. 21 L. S. Pennsylvania, depend in a chose action should made able interest an stubborn deter phrasing idea. The any mere fiction locality independent has no actuality “right is that the minative it a alone, may give he He, it resides.” whom party Washington his own. Bristol taxation other than situs for L. L. 585, 701; Metropolitan 20 S. ed. 177 U. S. Ct. County, S. Ct. Orleans, of New 205 U. Ins. Co. v. L. ed. 853. n in action no than are choses corporate less bonds Stock the owners of them. corporation obligations attended truly as do bonds evidence those duties Stock certificates In both, and interest. pay principal promise obligees. corporate bonds, As the holders obligor, owned beyond state cannot them when chartering oavu from apart them a for taxation give It cannot situs boundaries. the owner. domicile of *8 different that state How are stock and stock certificates so it do for with do and with them what cannot bonds? may for for by legislative If it cannot a mere assertion localize the bonds theory may what it localize what upon —under formula — frankly the stock for the same Even if realism be dis- purpose? media avowedly reasoning, carded and fictions made the it is that that fits apparent any allowable fiction either bonds equally for the apt other. The power domiciliary state nonresident owners stock taxation corporate rests its supposed power (sus t Corry City ained 196 U. S. Baltimore, S. Ct. L. 556), ed. to fix creating the “the situs” corporation, of all stock,
its wherever for owned, purposes of taxation. If it may so situs, why may establish one it be made the only one?
If the domiciliary states have the power, taxing shares their corporations, to exclude all taxation thereof other states reside, why wherеin the owners may they not do byso exempting such ? from taxation Suppose, example, that Montana Dakotá, North instead taxing stocks, taxed only the corpora- tions as such and expressly had declared that the shares be should exempt. It is a question of the reach of sovereign and, power, whatever sovereign power may do it affirmation, should able be accomplish by equally significant negation. fix for property the home state situs taxation, why may it Why may not do the same for excises? it not declare it only shall be the state to tax the transfer of stock on the death of even nonresident owners? That cannot do so now seems It has suggested established. never been that the home state could declare itself the one to take escheat the shares of non- dying resident owners intestate and Avithout Equally heirs. beyond legal scope thought is the idea that a state somay monopolize the situs of stocks as declare that, Avherever owned, they Avill descend, owner, on the death of the under its OAvnlaAvand no other. domiciliary
The a corporation, of course, may tax it as a corporation. company and local property of all sorts are if But, in the home taxable state. that state may tax also the *9 by it so much shares, in their is of nonresidents special property case In such beyond jurisdiction. its persons and taxing property unless boundaries taxing beyond its fact home state therein which property have no of the shares holders foreign terri- beyond the any purpose, for anywhere, them carry with can tory of that state. a enfranchising сorporation rejoined, upon a state may it
But, and and activities all use corporate it wishes all may condition as to if there are no limits its may So it of its shares. ownership corporation there none as to the supposed Let it be power. incorpora- a and of the state itself, legal person is made which domiciliary states? The tion. But what shareholders other sepa- and their personam, respect cannot tax them on state interests, may unless it so condition the issue rate may issue, transfer, It conditiоn and corporation. its going beyond limits. is it not But,
shares within constitutional jurisdiction by imposing operate, a condition which is intended can and its practice operate, only subjects, property, and in other states? owners, it and corporation a enfranchises condition may
How far may powers It limit and con- therein? and stockholders the stock corpora- if it permits domain. But its to its own fine their exercise action the latter will be states, corporate other tion to into go limitation its original, domiciliary by local lаw. governed respects But other a cor- inescapable. congenital it of its home state whenever becomes escape does the laws poration incorpora- the act of in another. For the home state domiciled corporations go its others attempt permit tion to by resisting appropri- their otherwise deny jurisdiction, there to ultra vires. taxation, plainly would be ate “You says corporations: a state to its example, Suppose, tangible owned; wherever your a tax on all pay must business condition, go into another state and do to that acquires tangible prop- so and does Suppose there.” there, physical it its actual situs keeps in another state It taxation there. only. escape there cannot use there and Obviously also not. Must it at home? Either must pay home, at keep corporations or, permitting its them roam into states, acknowledge other must for the laws of the latter full their subjects'. upon proper reach and effect the state of incor- corporations sо condition its poration going cannot into other similar conditions states, impose stockholders Iioav its beyond jurisdiction? own The recent cases multi-state be- prevent inheritance of multiplication, cause but because of the territorial limi- prevents tation which one taxing event, state from an such as a property transfer, beyond which transpires its own boundaries those, within laws, virtue of another state. In that new light, principle Corry Baltimore, 196 S.U. *10 need may reexamination. not, say It is to the least, sym- a metrical of system prеventing multiple state taxation of the same
economic interest, which bars such assessment of a transfer of stock and yet it permits as to the stock itself. The asymmetry results from the inclusion in tax permission structure of to a state, a organizing corporation, to resort to an of expedient condition or regulation which in fact projects jurisdiction own its to property and persons beyond its boundaries. to domiciliary tax shares of power
The a corpora- tion, nonresidents, when owned is based even its authority organization “to determine basis the liabilities of share- power” Illustrative is the “dominant congress holders.” in the it exercise of which as to national banks fixed “has the places at which shares in those may alone institutions be taxed.” Hawley v. City Malden, U. S. a
There is vital difference between congressional power to in all banks, national “dominant” the states and competent fix any (and for all the status of national the slates shares) its them, of a power state, all of which can reach no into anything. other as to that state taxation of argument foreign-held
The up- shares rests also falls short of its mark. Liberty contract contract does bargain not a resident Minnesota to himself permit or prop- his contract a jurisdiction. Minnesota Such from exemption be- Avouldbe one So also public policy. as against void Avouldbe subjecting expressly and a nonresident itself the state tween domicile and a at the OAvner’s having situs here taxation attempts if it How, then, state, there. can a taxation subject to may effectually contract that charter, by corporate do so even any jurisdiction? Certainly its beyond or persons taxing to vest a state an extraterritorial attempting contract so of illegality. fall under the condemnation Avould poAver sovereign reach question to a state’s all comes back It Corry fix for If it as decided of taxation. 196 U. S. the situs all stock Baltimore, an end to the matter. there is stands corporations, , have It is for us determine otherAvise. What Ave so decided. only intended additional ob subject on the to stress some said way denying poAver in the Minnesota’s tо tax defendant’s stacles of other states. stock in the banks not forget, Avedo are not banks,
State wanderers from They home states. are not authorized to do business elseAvhere. not and But their stocks are cannot Avellbe at home. That kept cannot taxed there Avhenowned be nonresidents we do not to decide. Neither do we attempt suggest as matter of present they cannot, not, subjected should taxation both in the Iuav chartering state and also in that of the nonresident owner. We conclude that Avhenowned and used Minnesota, as de- owns and fendant uses those now question, they taxation Minnesota.
The order under revieAvmust be reversed Avithdirections to amend of fact and findings conclusions of laAV accordance with the expressed views this decision and to order judgment for the state. ordered.
So
Upon Application Reargument. For 9, 1936, On October the following opinion was filed: Justice. Stone, petition respondent, First Bank Stock Corporation, denied. But in order to rehearing insure that certain unfounded thereby fears shall not expressed bе shared others, append we following. While we noted for what it was worth the distinction between stock certificates and the incorporeal property of which they are the evidence, we did not mean even to suggest that two distinct properties are being taxed —that the domiciliary Montana states, and North Dakota, are taxing the shares while Minnesota was at- tempting to reach only the certificates. agree We with counsel that “double taxation is not thus to be explained away.” Our view if that Montana and North may Dakota and do tax the shares question, there is double taxation of the same property or interest if Minnesota also 'has the to and does tax the shares.
Nor did Avemean to suggest that the respondent, through plenary character of its control of its subsidiary banks and use it makes thereof, is going “beyond that which is proper part on the , of a majority stockholder.” We regard do as unimportant fact that much of the supervision formerly exercised by respondent directly has been taken over its wholly owned subsidiary the “First Serviсe Corporation.”
It may
necessary
not be
to add more to
plain
make
our realiza
judgment
tion that
of this court does not settle the matter.
Deliberately we have tried to
throw the
into bold relief.
It
counsel
may
necessary,
be
suggest, to
“overrule” either Corry
City Baltimore,