The news & observer., 1901-01-06
RIGHT OF LEGISLATURE TO TAX.
Its Power to Tax Stock of Corporations Dis
cussed.

~~@S
cussed
To the Editor: The question as TO the
right OF the Legislature to tax the in
come of the railroads as recommended by
me has been raised in certain sections
OF the State. | wish. therefore to cite
and quote from the Ii6th n. G. Reports
bearing upon this subject in the case OF
Board of Commissioners of Durham coun-
ty VS.. Blackwell Durham Tobacco Com.
Dany.
1 hope the members of the Legislature
who are lawyers will read the decision
of the court in full
The summary of the decision is as fol-
lows
l. 1t is within the legislative power OF
taxation, in respect to corporations, ia
levy any two or more of the following
taxes simultaneously () on the franchise
(including corporate dividends); (2) on
the capital stock; 60 on the tangible
property of the corporation, and (4) on the
shares of the stockholders. The tax on
the two subjects last named is imperative
2. Capital stock" is a distinct subject
of taxation from shares of capital
stock, the former representing the en-
tire property, business. good will, etc,
of the corporation and belongs to it,
while the latter belong to the Individual
stockholders and are taxable ad valo-
rem like other property.
3. The imposition upon a corporation
of tax on its capital stock" in addi-
tion to requirement that it shall list
for taxation and pay the taxes assessed
on the shares of it's stockholders, does
not make double taxation.
4. 1t is competent for the Legislature
to tax the whole of the capital stock OF
8 corporation. although to the extent OF
the value of its real and personal proper
ty (Which must r. taxed it is double tax
alton, but under section SO of chapter 296
Acts of 1898, providing for the taxation
of capital stock of corporations. such
double taxation is avoided by taxing only
the value of the capital stock in excess
of the value of its real and personal
property listed for taxation in the State
8. Where the value of the capital stock
Of a corporation was agreed to be equal
to the aggregate value of its real and
personal property in this and another
State, the proper method of determining
the capital stock" required to be listed
under section SO, chapter 296, Acts OF
1898, is to deduct from such agreed value
the value OF the real and personal prop
erty listed for taxation in this State only,
and not the value Of that located in the
foreign States.
After certain authorities have been Civ
en- and comments given the court says
From this summary it Will be seen
that the State is within it's taxing in the
provision of chapter 296 of the Acts OF
1898. 1t legies. l. A tax upon the real
and personal property of corporation. 2
Upon the shares which are the personal
property of the shareholders but requires
them to be listed and collected through
the agency of the corporation. 3. 1t
levies no tax upon franchises and divi-
dends. /. II does not tax the entire
capital stock. but only the excess of it's
total value above the value of the real
and personal property which the corpora
ton lists for taxation.
The capital stock belongs to the cor
poration. The shares or certificates OF
stock are entirely different matter
They belong to the shareholders individ-
Ually, and under the Constitution must be
taxed ad valorem like other property
belonging to the holder, independently OF
the taxation upon the corporation, its
franchise. &c" The case Of Peld VS.
Commissioners is cited and Chief Justice
Smith is quoted as follows He further
says that the relation of the stock hold
ers to the corporation is very analogous
to that of a creditor towards his debtor
The latter must bear the taxation inn
posed upon its property and this may
diminish its dstributable profits, but the
stockholder cannot, any more than the
creditor claim exemption on this ac-
count for his stock as distinct and sepa-
rate property in his own hands" 81 \
c., 420. The court furthers says
ITO tax only the real and personal
property of the corporation would leave
as we have said untaxed that large
part Of it's capital stock which represents
its good will, its trade mark, the profit
ableness of its business, all Of which are
property, as much protected by The laws
and as capable Of being turned into money
as the real and personal property which
The corporation owns. To tax the whOlI
of the canital stock in addition to the
tax upon the real and personal, would
be, 10 the extent of the tax on the latter
double taxation, of the same kind as the
tax On mortgaged property and tax al
the same time on the mortgagor's notes
in the hands of the mortgagee, but there
is nothing in either case 10 restrict the
legislative power to so decree Here
however, there is no doube tax. but simply
a tax on so much of the real and person
al property of the corporation as is locat-
ed in this State and tax on the value
Of its capital stock in excess Of The
amount OF realty and personally which j:
listed for taXotion here. The tax on th'
shares is a separate matter. and is {
tax on the share holders on their proper
ty whether they reside in or out OF the
State collected through the medium of {
quasi statutory garnishment on the cor
DoratiCn.
"Tt has long been the common il mo-
the only mode in many States, and, in
deed IS the only mode to collect taxes
on the shares of non resident share
holders
This statement and decision is quoted
ana sent to you for publication, because
enquiry has been made Of me relative