new york;stock exchange membership taxable IN OHIO.

Court of Appeals for Hamilton County.

#### John M. Anderson v. Peter W. Durr, as Auditor, et al.*

Decided, February 3, 1919.

*Taxation*— Seat *in a Stock Exchange is Personal Property*— And *Subject to Taxation in Ohio.*

1. A membership in the New- York Stock Exchange is property in the nature of a chose in action.

2. Such property is taxable at the domicile and residence of the owner and the laws of Ohio subject it to taxation.

3. The Constitution of Ohio imposes on the General Assembly the duty to pass laws taxing all property with certain named exceptions. This requires the enactment of laws to carry it into effect.

*4.*In construing a statute passed pursuant to such provisions the court imputes to the General Assembly the intention to comply with the constitutional requirement.

*Murray Seasongood,*for plaintiff.

*John V. Campbell,*Prosecuting Attorney, and *Walter M. Loche,*Assistant Prosecuting Attorney, contra.

For opinion below see 20 N.P.(N.S.), 538.

Shohl, J.

This is an action in which plaintiff seeks to enjoin the auditor of Plamilton county from listing on the tax duplicate as taxable property plaintiff’s membership in the New York Stock Exchange, and to restrain the treasurer from collecting taxes thereon.

The case was heard on appeal, and there was a stipulation as to the facts in addition to' the admissions in the pleadings.

The plaintiff is, and has been for a number of years, a member of the New York Stock Exchange, an unincorporated association of eleven hundred members. It owns the entire' capital *466stock of the New York Stock Exchange Company, a corporation which holds title to real estate in New York City, and certain other stocks and securities. It furnishes exchange rooms and other facilities, in New York City, for the convenient transaction of brokerage business by members. The right conferred by the membership is to trade in accordance with the regulations which now authorize trading at the exchange in New York City, and not elsewhere, in certain securities listed on said exchange according to certain conditions, and at certain hours. Persons are admitted to membership only upon the vote of two-thirds of the fifteen members comprising the committee on admissions. They pay annual dues, and there is a life insurance feature for the benefit of their families. A transfer of membership may be made -upon the submission of the name of the candidate to the committee on admissions and the approval of the transfer by two-thirds of the committee. There are no stock certificates but persons elected are notified by letter signed by the secretary. The exchange has regular meetings at which officers and committees are elected, and they manage the business of the association. The plaintiff paid over $60,000] for his seat. It has a market value, and, subject to the acceptability of the transferee to the committee on admissions, is transferable by sale. The market value ranged from $60,000 or thereabouts in 1911 as low as $34,000 in 1914 to over $70,00(0 at the present time. Under the rules of the Exchange members charge their customers not less than one-eighth of one per cent, as commission for purchases and sales of securities. When such purchaser is another.member, however, he may purchase for a commis sion of one-fourth the regular amount, and in certain cases for one-fiftieth of one per cent. In the ease of removal or suspension of a member, or at his death, his seat is sold and the net proceeds of such sale, after satisfying’the claims of such creditors as are members, are paid over to the member or his personal representatives.

Plaintiff contends that the membership is a privilege incident to real estate in New York, that it is an incorporeal hereditament, and therefore not taxable in Ohio; second, that even if *467it is property in Ohio, it is not within the terms of the statute specifying the property which should be listed for taxation; and, third, that if the property were taxed in Ohio it would violate constitutional rights.

There is no question but what a seat on. a stock exchange is property. It is conceded by counsel, and the authorities are clear. *Rogers*v. *Hennepin County,*240 U. S., 184; *Page*v. *Edmunds,*187 U. S., 596 (Philadelphia Stock Exchange); *Sparhawk*v. *Yerkes,*142 U. S., 1 (New York Stock Exchange); *Hyde*v. *Woods,*94 U. S., 523 (San Francisco Stock and Exchange Board); *In re Currie,*185 Fed., 731; *O’Dell*v. *Boyden,*150 Fed., 731; *Bank*v. *Abbott,*181 Mass., 531; *State*v. *McPhail,*124 Minn., 398; *Powell*v. *Waldron,*89 N. Y., 328; *Platt*v. *Jones,*96 N. Y., 24.

It is not taxed in New York under the general laws *(People*v. *Feitner,*167 N. Y., 1), though it is taxable under the New York inheritance tax law. *Matter of Hellman,*174 N. Y., 245.

In the Rogers case, 240 U. S., at page 189, the court cites with approval the language of the Minnesota case as follows:

> “A membership has a use value and a buying and selling or market value. It is bought and sold. * * * There is a lien upon it for balances due members * * * It passes by will or descent or by insolvency or bankruptcy. * * * It is true that there are certain restrictions in the ownership and use of a membership. These may increase or decrease its value, probably in the case of a board of trade membership greatly enhance it. They do not prevent its being property.”

The exact nature of the property arising from membership in a stock exchange has not been conclusively adjudicated by the Supreme Court. In support of the argument thaft it constituted real estate in New York, reference was made by plaintiff to the case of *Louisville Ferry Company*v. *Kentucky,*188 U. S., 385, holding that the ferry franchise granted .by the state of Indiana was an incorporeal hereditament, and therefore not taxable in Kentucky. -On first impression there are points of similarity between a membership in a stock exchange and a *468ferry franchise. The rights to exercise the incidents of membership as to buying and selling stocks and securities are with respect to a specific piece of real estate in New York City, at least the present rules of the Stock Exchange so indicate. A careful analysis of the Louisville Perry Company case shows, however, that the decision rests primarily upon historical reasons. See pp. 394, 395. The reference in Kent’s Commentaries and Washburn on Real Property show this, and the court points out that a widow has been allowed dower in a ferry.

The law of incorporeal hereditaments is a relic of medieval law. Pollock and Maitland’s History of English Law, pp. 123-148, shows how the jurists of earlier days regarded certain rights with respect to land as “things.” Tiffany on Real Property, pp. 9-13, shows the modern laiv and summarizes as follows : :

> “We find the only things of this nature recognized in this country are rights as to the use or profits of another’s land, and franchises, or certain classes of franchises, and consequently these together with land and things annexed thereto (corporeal things real) are among the subjects of real property.”

There is no authority and no justification for any extension of the law in respect to incorporeal hereditaments to adjudge a stock exchange membership to be realty. It does not descend to the heirs of the owner. The title to the land on which the business is done is held in fee simple in the realty corporation, The unclouded title could be conveyed away by it without the plaintiff’s consent. It is urged that the ownership of all the stock in the realty company is a mere form, and that plaintiff’s, interest is substantially in real estate. This is no more true than a similar claim with respect to the right of a share holder in any realty company. Such stock is personalty no matter what the corporation owns. *Morawetz on Corporations,*Section 225; *Hawley*v. *Malden,*232 U. S., 1, 12; *Lee*v. *Sturges,*46 O.

S., 153, 161.

The nature of a membership in an exchange was before the Supreme Court in the case of *Rogers*v. *Hennepin County,*240*469U. S., 184. The question involved theré arose in connection with the taxability of a membership in the Chamber of Commerce of Minneapolis. -The tax authorities were claiming that memberships were taxable in Minnesota. If such memberships constituted incorporeal hereditaments and were therefore realty,, it would have been very simple for the Supreme Court to have said so and to have decided the ease upon that ground. At. page 191 the court uses the analogies of a credit in favor of a non-resident and of shares Of stock. We do not regard the right as being in the nature of an incorporeal hereditament, but that does not dispose Of the question. There is no doubt that a state law which attempts to tax personal property, permanently situated in another state, is void. *Southern Pacific Company*v. *Kentucky,*222 U. S. 63, 74; *Western Union Telegraph Company*v. *Kansas,*216 U. S., 1; *Metropolitan Life Insurance Company*v. *New Orleans,*205 U. S., 385; *Union Refrigerator Transit Company*v. *Kentucky,*199 U. S., 194; *Delaware, etc., R. R. Co.*v. *Pennsylvania,*198 U. S., 341; *State Tax on Foreign-Held Bonds,*15 Wallace, 300.

Under the Rogers case, 240 U. S., 184, the memberships could be taxed in New York. That does not necessarily prevent it from being within the power of the state of Ohio to tax them, *Fidelity & Columbia Trust Co.*v. *Louisville,*245 U. S., 54, 58; *Blackstone*v. *Miller,*188 U. S., 189, 204, 205.

In *Hawley*v. *Malden,*232 U. S., 1, in distinguishing the Louisville Ferry Company case from the case of a share of stock, the Supreme Court says at page 12:

> “While the shareholder’s rights are those of a member of a corporation entitled to have the corporate enterprise conducted in accordance with its charter, they are still in the nature of contract rights or dioses in action. Morawetz on Corporations. Section. 225. As such, in the absence of legislation prescribing1 a different rule, they are appropriately related to the person of the owner, and, being held by him at his domicile, constitute property with respect to which he is under obligation to contribute to the support of the government whose protection he enjoys. *Kirtland*v. *Hotchkiss,*100 U. S., 491; *Bonaparte*v. *Tax*
>       *470
>       *Court,*104 U. S., 592; *Covington*v. *First National Bank,*198 U. S., 100, 111, 112; *Southern Pacific Company*v. *Kentucky, supra; Cooley on Taxation*(3d ed.), 26.”

The rights of a member of a stock exchange likewise entitle him to have the enterprise conducted in accordance with its regulations and purposes, and, are likewise in the nature of contract rights or choses in action. The right to go to the Exchange Building on "Wall street and there buy- and sell is no doubt the most important incident of the membership, but the right to “split commissions” and the right of a member to procure the service of other brokers at a lower rate are also’ valuable rights. They follow him wherever he goes. The relationship between the members is governed by the constitution of the exchange, which every member is required to sign. By such signature he “pledges” himself to abide by the same and by all subsequent amendments thereto. The basis of his rights therefore is a contract, a chose in action.

The situs of an ordinary chose in action is well settled. It is regarded as property where the obligee is. In the ease of *State Tax on Foreign Held Bonds,*15 Wallace, 300, the court considers the suggestion that a debt is property where the debtor is. At page 320 the court says:

> “To call debts property of the debtors is simply to misuse terms. All the property there can be in the nature of things in debts of corporations, belongs to the creditors, to whom they are payable, and. follows their domicile, wherever that may be. Their debts can have no locality separate from the parties to whom they are due.”

The normal situs, for purposes of taxation, of choses in action is at the domicile of the owner. *Southern Pacific Co.*v. *Kentucky,*222 U. S., 63, 76; *Union Transit Co.*v. *Kentucky,*199 U. 8., 194, 205; *Bonaparte*v. *Tax Court,*104 U. S., 592; *Kirtland*v. *Hotchkiss,*100 U. S., 491; *Cooley on Taxation,*89-93, 650, 651.

As this property is in the nature of a chose in action, it is taxable at the domicile of the owner. It has been established *471that, under certain exceptional conditions, choses in action may be given a situs for taxation elsewhere. *Hawley*v. *Malden,*232 U. S., 1, 12; *Liverpool, etc., Insurance Co.*v. *Orleans Assessors,*221 U. S., 346; *Metropolitan Life Insurance Co.*v. *New Orleans,*205 U. S., 395; *Blackstone*v. *Miller,*188 U. S., 189; *Kidd*v. *Alabama,*188 U. S., 730; *New Orleans*v. *Stempel,*175 U. S., 314; *State, ex rel Goetzman*v. *Lord,*161 N. W., 516.

In the Hawley case the court states that the question does not arise there, and need not be decided, whether the provision by the state of incorporation, fixing the situs of shares for the purpose of taxation there, excluded the taxation of the shares by other states in which the owners resided. The case of *Fidelity, etc., Trust Company*v. *Louisville,*245 U. S., 54, probably ends the doubts on this point. But in the case at bar no such provision is involved. The normal situs for taxation at the domicile has therefore not been disturbed. It follows that the state of Ohio has the power to impose a tax upon plaintiff’s membership in the New York Stock Exchange.

Section 2 of Article XII of the Ohio Constitution imposes upon the General Assembly the duty to pass laws taxing all property at its true value in money, with certain exceptions. This requires the enactments of laws to carry it into effect. *Zanesville*v. *Richards,*5 O. S., 589, 593; *Exchange Bank*v. *Hines,*3 O. S., 1. Unless statutes were passed which did include the property in question, it is not taxed. *Whitely*v. *Arbogast,*6 N.P(N.S.), 313; 9 C.C.(N.S.), 584 (affd. 79 O. S. 429).

The question then is, have laws been passed taxing property of this character?

In the case of *Gould*v. *Gould,*245 U. S., 151, the court states that in the interpretation of statutes imposing taxes it is the established rule not to extend their provisions by implication beyond the clear import of the language used, nor to enlarge their provisions so as to embrace matters not specifically pointed out. In cases of doubt they are construed in favor of the citizens. The statutes there involved were passed pursuant to constitutional provisions that enabled the Legislature to enact statutes. A special rule applies where the Legislature is passing statutes *472which it is specifically required to enact. The purpose of the framers of the Ohio statutes must be interpreted in view of that constitutional duty.

In the case of *Lee*v. *Sturges,*46 O. S., 153, 159, the court says:

> “ It is clear that the purpose of section one is to tax all investments in stocks held within the state. This we are bound to assume, for every presumption is in favor of that construction of the law which gives effect to the requirement of the section of the Constitution referred to, and we are forced to the conclusion that the General Assembly, in enacting this law, intended, so far as the complex nature of human business affairs should make it practicable, to include within the taxing provisions all property within the state.”

T-he precise distinction seems to have been in the contemplation of the court in the case of *Cincinnati*v. *Connor,*55 O. S., 82, 91, wherein the court says:

> “The rule generally prevails that, *independent of any legislative requirement on the subject,*statutes imposing taxes and public burdens of that nature are to be strictly construed; and where there is ambiguity which raises a doubt as to the legisla.tive intent, the doubt must be resolved in favor of the subject or citizen on whom the burden is sought to be imposed. ’ ’

Section 5328 of the'General Code provides:

> “All real and personal property in this state, belonging to individuals or corporations, and all moneys, credits, investments in bonds, stocks or otherwise, of persons residing in this state, shall be subject to taxation, except only such property as may be expressly exempted therefrom. Such property, moneys, credits, and investments shall be entered on the list of taxable property as prescribed in this title.”

"We have already decided that a seat on the stock exchange constitutes personal property in this state. It is taxable, therefore, unless Section 5328 is limited by Section 5325. Section 5325 defines personal property, and, being *in pari materia,*the two sections must be construed together. *Cincinnati*v. *Connor,*55 O. S., 62, 89. If therefore “personal property” as used in *473Section 5328 includes only the enumerated items set forth .in Section 5325, it may be difficult to find it specified therein. A majority- of the .court are of the opinion that it might be included under the phrase “the capital stock, undivided profits, and all other means not forming part of the capital stock of every company, whether incorporated or unincorporated, and every share, portion or interest in such stocks, profits or means by. whatsoever name designated.” I can not agree with them as to that.

The entire court is in agreement as to the following. Section 5325 provides “the term ‘personal property’ as so used shall include,” * * * Then follows an enumeration of certain forms of property. This does not exclude the property in question. If the statute had been passed pursuant to constitutional provisions which merely authorized or empowered the levying of a tax, we would be disposed to hold that other kinds of property were excluded by the rule of *“éxpressio uwius est exclusio alterius.”*However, the Legislature was required to pass laws subjecting all real and personal property to taxation. The effect to be given to this is well stated by the Supreme Court of Minnesota. That state had a constitutional provision substantially like that of Ohio. In the ease of *State*v. *McPhail,*124 Minn. 398, in discussing whether a seat of the Duluth Board of Trade was taxed, the court says:

> “Section 797 names 11 specific classes of personal property, in no one of which are by name included board of trade memberships. So far as here material, its language is as follows: Personal Property * * * shall be construed to include:

> “1. All goods, chattels, moneys and effects.” Then follows ten other particular classes of property.”

> “Section 835 provides that the assessor shall fix the value of the items of personal property under thirty heads, the last of which is ‘the value of all other articles of personal property not included in the -preceding items. ’

> “We think it should not be held that Section 797 was intended to describe all personal property that was subject to taxation. The language of the section does not compel such a conclusion. ‘Shall be construed to include’ does not necessarily mean ‘shall *474only include.’ The section was not intended to be restrictive, but rather to help define what was meant by ‘all personal property,’ as that term is used in Section 794. -The view is greatly strengthened by the unquestioned fact that it is the settled policy of the stae, as expressed in is Constitution, statutes, and decisions, that all property within the state shall be taxed, unless exempt. *Board of County Commissioners of Rice County*v. *Citizens National Bank of Faribault,*23 Minn., 280, 286; *State*v. *Jones,*24 Minn., 251; *County of Olmstead*v. *Barber,*31 Minn. 256; 17 N. W., 473, 944; *In re Jefferson,*35 Minn., 215, 219, 28 N. W., 256; *State*v. *Stearns,*72 Minn., 200, 222, 75 N. W., 210. In the Rice County ease, decided in 1877, in referring to Section 1, c. 1, p. 1, Laws 1874, which provides that “all real property in this state, and all personal property of persons residing therein, * * * is subject to taxation’ the Court said: ‘The evident purpose of this section was to declare, in general terms, that all property, both real and personal, within the jurisdiction of the state, unless specifically exempted, should be subject to taxation.’ In *State*v. *Jones,*where it was decided that a certain debt was property and subject to taxation, Chief Justice Gilfillan said: ‘This debt was property, and it was the intention both of the Constitution and statute that all property, unless expressly exempted, should be taxed.’ At the time these and other decisions were rendered, there were in force statutory provisions similar to Section 797, Laws 1874, p. 1, c. 1. Section 3, provided that ‘personal property shall, for the purpose of taxation, be construed to include’ certain described classes of property, and the same provision was contained in chapter 1, Section 3, Laws 1878, in chapter 11, Sections 3 G. S. 1878, and in Section 1510, G. S. 1894. In no case has it been considered that these provisions amounted to a declaration that no property was to be taxed that was not covered by the classes. It would have been a breach on the part of the Legislature of a duty imposed by the Constitution to omit from taxation property that'was not exempt, and we certainly should not find such a breach unless the statute is fairly open to no other construction. ’ ’

Unless the statute is fairly open to no other construction, we should not impute to the Legislature an intention to omit from taxation property which the Constitution requires it to tax.

The application for an injunction must be refused, and the petition will be dismissed.

Jones, P. J., and Hamilton, J., concur.

*475Opinion on Application por Re-hearing.

(Decided, February 20, 1919.)

**Murray Seasongood,*for plaintiff.

*Louis H. Capelle,*Prosecuting Attorney, and *8. G. Roettinger,*Assistant Prosecuting Attorney, contra.

Shohl, P. J.

Although the constitutional question was considered by the court, no specific reference was made to it in our former opinion. The matter is discussed in the eases there cited, particularly in the ease of *Rogers*v. *Hennepin County,*240 U. S. 184, at pages 191, 192. It does not appear that the other forms of property are exempt in Ohio, and if they were the Rogers case disposes of the effect of such discrimination on the constitutionality of the law.

The application for re-hearing will be denied.

Hamilton, J., concurs; Cushing, J., not participating.