314 Mass. 142 | Mass. | 1943
This action of contract brought in the Superior Court to recover the sum of fifty-five cents and interest thereon was heard upon a demurrer to the declaration. The demurrer stated five grounds of demurrer including the ground that the declaration “fails to state substantive facts
The amount in controversy would not warrant consideration of the plaintiff’s appeal if no substantial right was at stake. Feeney v. Eastern Racing Association, Inc. 303 Mass. 602, 603, and cases cited. See A. Doykos & T. Pappas, Inc. v. Leventhal, 290 Mass. 375, 376-377. The defendant, however, does not raise the point. And counsel for the plaintiff assures us that the question involved in the present case is a matter of substantial interest to the plaintiff by reason of the existence of numerous agreements to which it is a party similar in form and effect to the agreement upon which the action is brought. Consequently we consider the case.
The plaintiff’s declaration alleges that “it is a manufacturing corporation duly organized under the laws of the State of New Jersey and at all times hereinafter mentioned was engaged in manufacture in this Commonwealth and had a principal place of business in Boston in the County of Suffolk and Commonwealth of Massachusetts, and that the defendant is a manufacturing corporation duly organized under the laws of the Commonwealth of Massachusetts and at all times hereinafter mentioned was engaged in manufacture in this Commonwealth and had a principal place of business in North Adams in the County of Berkshire and Commonwealth of Massachusetts; that the plaintiff for many years prior to 1936 paid to the Commonwealth of Massachusetts, under the provisions of G. L., Chap. 63, a tax on corporate excess and that in calculating its corporate excess it was allowed a deduction for machinery owned by it and leased to divers corporations including the defendant for use in manufacturing in this Commonwealth; that the machinery so leased lyas taxed under the provisions of G. L. Chap. 59 by the Massachusetts city or town in which the same was located and that under the provisions of the leases relating to such machinery the taxes locally assessed thereon were paid by the respective corporate lessees including defendant; that by the enactment
The demurrer admits only facts well pleaded and does not admit inferences from those facts unless they are necessary inferences, nor does it admit conclusions of law from facts averred. Johnson v. East Boston Savings Bank, 290 Mass. 441, 446-447.
Fundamental facts alleged by the declaration and admitted by the demurrer are that the plaintiff is a foreign manufacturing corporation; that during the year 1936 it was engaged in manufacturing within the Commonwealth; that the plaintiff was then the owner of a machine of the value of $100 which by an agreement for a consideration and under seal it had leased in 1930 to the defendant, a domestic manufacturing corporation engaged in manufacturing in this Commonwealth, and which was being used in 1936 by the defendant for manufacturing within the Commonwealth; and that by the lease the defendant covenanted and agreed, among other things, that “at all times until redelivery of the leased machinery to the . . . Eplain
On the facts above stated the plaintiff was subject in the year 1936 to the excise imposed by G. L. (Ter. Ed.) c. 63, § 39, as amended by St. 1936, c. 362, § 6, which, so far as material, is as follows: "Except as otherwise provided herein, every foreign corporation shall pay annually, with respect to the carrying on or doing of business by it within the commonwealth, an excise equal to the sum of the following, provided that every such corporation shall pay annually a total excise not less in amount than one twentieth of one per cent of such proportion of the fair value of its capital stock as the assets, both real and personal, employed in any business within the commonwealth on the day fixed for determination of the value of the corporate excess employed within the commonwealth bear to the total assets of the corporation employed in business on said date: (1) An amount equal to five dollars per thousand upon the value of its corporate excess employed by it within the commonwealth or five dollars per thousand upon the value of such of its tangible property situated in the commonwealth on said day as is not subject to local taxation, whichever is higher. (2) An amount equal to two and one half per cent of its net income determined to be taxable in accordance with the provisions of this chapter.”
General Laws (Ter. Ed.) c. 63, § 30 (4), as appearing in St. 1934, c. 237, § 1 (see now St. 1939, c. 24, § 6), defined the term "Corporate excess employed within the commonwealth” (as used in G. L. [Ter. Ed.] c. 63, §§ 30-52, inclusive) by a foreign corporation, so far as here material, as "such proportion of the fair value of its capital stock on the last day of the taxable year as defined in paragraph six of this section, as the value of the assets, both real and personal, employed in any business within the commonwealth on that date, after deducting therefrom the value of (a) and (b) following, bears to the value of the total
General Laws (Ter. Ed.) c. 63, § 31, provided that in “determining . . . the corporate excess employed within the commonwealth by a foreign corporation, the surplus and undivided profits shall be included in estimating the value of the capital stock, and there shall not be deducted” the value of certain described securities and certain debts.
On the facts above recited the plaintiff was also subject in the year 1936 to the temporary additional tax imposed by St. 1936, c. 397, of ten per cent of the excise imposed upon the plaintiff by G. L. (Ter. Ed.) e. 63, § 39, as amended.
While the fact is not alleged in specific terms, we treat the declaration as alleging that the plaintiff was assessed in 1936 an excise “with respect to the carrying on or doing of business by it within the commonwealth,” one element of which was an “amount equal to five dollars per thousand upon the value of its corporate excess employed by it within the commonwealth,” referred to in G. L. (Ter. Ed.) c. 63, § 39, as amended, and was also assessed under St. 1936, c. 397, an additional tax of ten per cent of such amount. The declaration, however, alleges that the plaintiff has paid to. the Commonwealth the sum of fifty-five cents. It is apparent that this sum is an amount equal to $5 per $1,000 upon the value ($100) of the machine leased by the plaintiff to the defendant and an additional ten per cent of this amount. The contention of the plaintiff is that this sum of fifty-five cents was a part of the excise assessed upon the plaintiff as above set forth and constituted a tax or assessment “upon or in respect to” the machine valued at $100 leased by the plaintiff to the defendant within the meaning of the covenant in the lease so that the plaintiff is entitled to "recover this sum of fifty-five cents in this action.
The decision of this case depends upon an interpretation
The covenant in the lease relates to “all taxes and assessments” described therein. General Laws (Ter. Ed.) c. 63, § 39, as amended, however, imposed upon the plaintiff an “excise” under the authority conferred by the Constitution of the Commonwealth upon the General Court “to impose and levy, reasonable duties and excises” rather than under the authority so conferred “to impose and levy
“'Tax’ in some connections is a word of comprehensive meaning and may include excises as well as a pecuniary burden laid directly on property. The Legislature has sometimes designated an excise as a tax and nothing more. . . . Many of the revenue exactions made by the Commonwealth from corporations, which have been upheld as excises, were named in the statutes a tax and not an excise.” Eaton, Crane & Pike Co. v. Commonwealth, 237 Mass. 523, 527-528. See also Commissioner of Insurance v. Commonwealth Mutual Liability Ins. Co. 308 Mass. 385, 387. Indeed, the ten per cent additional pecuniary burden imposed by St. 1936, c. 397, constituting a part of the amount that the plaintiff seeks to recover in this action, is described as a “tax,” though obviously it is of the same nature as the “excise” imposed by G. L. (Ter. Ed.) c. 63, § 39, as amended, to which it is an addition. In view, therefore, of the not uncommon use of the word “tax” in a comprehensive sense broad enough to include an “excise,” the use by the parties in the covenant of the word “taxes” and the failure to use the word “excises” are not necessarily conclusive that the covenant was not intended to apply to “excises.” But they are of some weight. “Excises” were not unfamiliar at
The cases heretofore decided by this court have related to Federal income taxes on rent of leased property. In Codman v. American Piano Co. 229 Mass. 285, it was held that the covenant therein above described did not require the lessee to pay Federal income taxes imposed upon the lessor upon the rent of those premises. See also Greenburg v. Bopp, 251 Mass. 433; Stony Brook Railroad v. Boston & Maine Railroad, 260 Mass. 379; Nashua & Lowell Railroad v. Boston & Maine Railroad, 260 Mass. 387; Boston & Providence Railroad v. Old Colony Railroad, 269 Mass. 190; Eastern Massachusetts Street Railway v. Boston Elevated Railway, 310 Mass. 659. Where a different result has been reached, “rent” has been expressly mentioned in the covenant as the subject of the taxes to be paid (Suter v. Jordan Marsh Co. 225 Mass. 34; Kimball v. Cotting, 229 Mass. 541; Kimball v. Cotting, 234 Mass. 172; Kimball v. Maddison, 286 Mass. 277) or some word has been used naturally meaning or including rent. Pittsfield & North Adams Railroad v. Boston & Albany Railroad, 260 Mass. 390. It has been intimated that such a result could be attained without the use of the word “rent” if taxes upon “income” of the lessor were referred to. Boston & Providence Railroad v. Old Colony Railroad, 269 Mass. 190, 195. Eastern Massachusetts Street Railway v. Boston Elevated Railway, 310 Mass. 659, 670.
The decisions that covenants to pay “taxes” “upon,” “on,” “for,” “in respect of” or “on account of” leased property do not include a tax upon the “rent” of such property received by the lessor furnish some indication that
Real estate within the Commonwealth (G. L. [Ter. Ed.] c. 59, §§ 2, 3) and also certain tangible property (G. L. [Ter. Ed.] c. 59, § 4), with certain exceptions (G. L. [Ter. Ed.] c. 59, § 5), are subject to local property taxation. Property the income of which is taxable under the income tax law or would be taxable thereunder if it yielded income is exempt from the local property tax. G. L. (Ter. Ed.) c. 59, § 5, Twenty-seventh. Obviously this particular exemption is for the purpose of avoiding what in effect would be double taxation. Rents of real estate are not taxable as. income of an individual (G. L. [Ter. Ed.] c. 62, § 1), obviously because such real estate is taxed directly, and a tax on the rents would in effect amount to double taxation. And this principle is carried further by excluding, from the taxation of interest, interest on “Loans secured exclusively by duly recorded mortgage of real estate, taxable as real estate, situated in the commonwealth, to an amount not exceeding the assessed value of the mortgaged real estate less the amount of all prior mortgages” (G. L. [Ter. Ed.] c. 62, § 1 [a] Third), and by providing for a deduction from business income of an “amount equal to five per cent of the assessed value, less the amount of all mortgages thereon, of the stock in trade and other tangible property, real and personal . . . [with exceptions not here material] owned by the person taxed and used or employed in the profession, employment, trade or business within the commonwealth.” G. L. (Ter. Ed.) c. 62, § 6 (g), as amended by St. 1935, c. 436, § 1. But the careful avoidance of what is in effect double taxation does not mean that a tax upon income, in the form of rent or otherwise, is fairly within the descrip
It is true that this court has said that the “income tax established by our laws is a tax on property and not an excise tax” (Harrison v. Commissioner of Corporations & Taxation, 272 Mass. 422, 427), and that a “tax upon the income of property is in reality a tax upon the property itself. Income derived from property is also property. Property by income produces its kind, that is, it produces property and not something different. It does not matter what name is employed. The character of the tax cannot be changed by calling it an excise and not a property tax. In its essence a tax upon income derived from property is a tax upon the property.” Hart v. Tax Commissioner, 240 Mass. 37, 39. See Opinion of the Justices, 220 Mass. 613, 624. But in Stony Brook Railroad v. Boston & Maine Railroad, 260 Mass. 379, 384-385, where a covenant to pay taxes on property, was involved, it was said in holding that the covenant did not include Federal income taxes that the “distinction between taxes on property and taxes on income is well established. The tax on the rental received from property is not the same as a tax on the property itself. An assessment upon income is an assessment upon a subject different from a tax upon property.” The implication is plain that the Massachusetts income tax — though a property tax — is not a tax “upon or in respect to” the property from which such income is derived within the meaning of a covenant to pay such taxes.
The pecuniary burden imposed upon the plaintiff by G. L. (Ter. Ed.) c. 63, § 39, as amended, is clearly an “excise.” Such an “excise” imposed upon a corporation is too remote from the property of the corporation to con
The substance of the plaintiff’s contention is that its property, including the leased machinery, is reached for taxation indirectly by an “excise” imposed upon it “with respect to the carrying on or doing of business by it within the commonwealth.” See Eastern Massachusetts Street Railway v. Boston Elevated Railway, 310 Mass. 659, 669. Undoubtedly such an excise imposed upon a corporation may to some extent be a “medium of reaching for taxation” the property of the corporation. Eastern Massachusetts Street Railway v. Boston Elevated Railway, 310 Mass. 659, 669. That this may be the effect of an “excise” upon a corporation has been recognized as a ground for exemption from local property taxation of property of a corporation subject to an excise for the purpose of avoiding double taxation. Thus it was said in Opinion of the Justices, 195 Mass. 607, 611: “If a reasonable excise tax is lawfully imposed upon a corporation, according to the amount of its property or business, it is in the power of the Legislature, for the purpose of avoiding double taxation, to exempt its property held and used in the business for which the excise tax is paid, and to exempt the stockholders, or owners of the beneficial interest in this property, from liability to a property tax upon it.” See also Opinion of the Justices, 261 Mass. 523, 545. And an “excise” upon a corporation may bear so directly upon property of the corporation as to be subject to constitutional objections on the ground that in effect it taxes property that is not subject to the taxing power of the State. See Connecticut General Life Ins. Co. v. Johnson, 303 U. S. 77, 80-81. No such constitutional
Doubtless, as the situation was treated before the amendment of G. L. (Ter. Ed.) c. 63, § 39, by St. 1936, c. 362, § 6, the governing statute might have provided that the plaintiff’s machinery, including the leased machinery here in question, should be subject to the local property tax and for the purpose of avoiding double taxation its value deducted in determining the value of the corporate excess of the corporation employed within the Commonwealth. This object of avoiding double taxation, however, might also be accomplished constitutionally, as it was by St. 1936, c. 362, §§ 1, 2, by rendering such machinery exempt from the local property tax and not permitting deduction of its value in determining the corporate excess. Though this exemption is permissible for the purpose of avoiding double taxation, it does not follow that the “excise,” in the determination of the amount of which the leased machinery is an element, is a tax “upon or in respect to” the leased machinery within the meaning of the covenant. Indeed, the following analysis of the statute relating to the “excise” shows that the relation between the “excise” and the leased machinery is very remote.
(a) The “excise” is not imposed directly upon property of the corporation but is imposed rather upon its “commodity or privilege” of “carrying on or doing . . . business” within the Commonwealth. § 39.
(b) There are several prescribed measures of this “commodity or privilege,” but as applied to the plaintiff there is a combined measure consisting of two elements: (1) net income, and (2) “the value of its corporate excess employed by it within the commonwealth.” § 39. The first of
(c) The value of such corporate excess is a “proportion of the fair value” of the “capital stock” of the corporation. § 30 (4). This language was substituted by St. 1927, c. 258, § 1, for the phrase “proportion of the fair cash value of all the shares constituting the capital stock” of the corporation (see G. L. c. 63, § 30 [4]), a phrase in which “all the shares constituting the capital stock” means “shares outstanding in the hands of the shareholders.” Commissioner of Corporations & Taxation v. Boston Edison Co. 310 Mass. 674, 680, 687. If this change in phrase effected no change in meaning and “capital stock” in the present statute means the same as “all the shares constituting the capital stock” in the previous statute, there might be a great difference between the “fair value” of the “capital stock” in this sense and the value of the property of the corporation. “The price for which all the shares would sell may greatly exceed the aggregate of the corporate property, or it may fall very far short of it.” Commonwealth v. Hamilton Manuf. Co. 12 Allen, 298, 302. As was said in Commonwealth v. Cary Improvement Co. 98 Mass. 19, 22, “the property held by a corporation does not furnish a proper measure of the value of its capital stock regarded as a franchise.” See Commissioner of Corporations & Taxation v. Boston Edison Co. 310 Mass. 674, 693. But even if the change in the phrase of the statute changed its meaning so that the value of the “capital stock” is not to be considered from the standpoint of the shareholders but is to be considered rather from the standpoint of the corporation, “the fair value of its capital stock” may be very different from the value of its corporate property. The Legislature in making this change in the language of G. L. c. 63, § 30 (4), by St. 1927, c. 258, § 1, and also a change in G. L. c. 63, § 31, by St. 1927, c. 258, § 2, whereby it was provided that, in determining the corporate excess employed within the Commonwealth by a foreign corporation, “the surplus and undivided profits shall be included in estimating the value of the capital stock,” followed closely the language of
(d) The governing statute as applied to the “excise” here in question deals directly with property of a corporation only in the provision that the “corporate excess employed within the commonwealth” by a foreign corporation, with exceptions not here material, shall be “such proportion of "the fair value of its capital stock ... as the value of the assets, both real and personal, employed in any business within the commonwealth . . . [with certain deductions], bears to the value of the total assets of the corporation . . . .” §30(4). Under this provision the assets of a foreign corporation constitute a measure of the “excise” and not the subject thereof. Though the application of this measure undoubtedly is a reasonable method of determining the extent to which a foreign corporation shall be subject to taxation within the Commonwealth (see National Leather Co. v. Commonwealth, 256 Mass. 419, affirmed 277 U. S. 413; Atlantic Lumber Co. v. Commissioner of Corporations & Taxation, 292 Mass. 51, affirmed 298 U. S. 553; Southern National Gas Corp. v. Alabama, 301 U. S. 148, 156-157), it does not necessarily result in fixing as the value of “the corporate excess employed within the commonwealth” by a foreign corporation, based upon its “capital stock,” subject to an “excise” at the rate of $5.50 (including the ten per cent additional) per $1,000, a value equivalent to the value of the total assets of the corporation employed in business within the Commonwealth, with certain deductions, or in allocating to each specific asset included in these total assets, such as the leased machinery here in question, a part of the “excise” equivalent to $5.50 per $1,000 upon the value of such specific asset. There may be. intangible elements affecting the value of the “capital stock” of a corporation allocated to this Commonwealth, in accord
Doubtless the declaration is not bad upon demurrer merely because the allegations of fact therein do not support a claim for damages in the precise amount alleged in the declaration. The allegation of the amount of damages is merely a conclusion of law. Frisbee v. Prussian National Ins. Co. 223 Mass. 159, 161. Moreover, if a tax is of such a nature as to be within the scope of a lessee’s covenant to pay taxes, it is not fatal to recovery by the lessor that it has paid a single gross amount greater than, but including, the tax that the lessee has covenanted to pay and that a more or less complicated analysis and computation is required to determine the part of this gross amount properly apportionable to the lessee. See Kimball v. Maddison, 286 Mass. 277, 281. But that is not this case.
Where, as here, the “excise,” a part of which the plaintiff, the lessor, seeks to recover from the defendant, the lessee, under a covenant to pay taxes “assessed upon or in respect to” the leased property, considered in accordance with its true nature, is not a tax on property (see Eastern Massachusetts Street Railway v. Boston Elevated Railway,
Order sustaining demurrer affirmed.
Judgment for the defendant.