Source: http://masscases.com/cases/sjc/314/314mass142.html
Timestamp: 2019-04-19 08:20:51+00:00

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UNITED SHOE MACHINERY CORPORATION vs. GALE SHOE MANUFACTURING COMPANY.
This court considered a case although the amount in controversy was but fifty-five cents, where the question involved was the construction of a contract between the plaintiff and the defendant and counsel for the plaintiff asserted the existence of numerous similar contracts between the plaintiff and others giving rise to the same question.
The pecuniary burden imposed on a foreign corporation by G. L. (Ter. Ed.) c. 63, Section 39, as amended, is an excise and is too remote from the property of the corporation to constitute a tax "upon or in respect to" its property.
The language of a provision of a lease of machinery drawn by the lessor, a foreign corporation doing business in Massachusetts, that the lessee should "pay all taxes and assessments which shall be assessed upon or in respect to the leased machinery or any interest therein or the rights to payments thereunder upon whomsoever the same shall be assessed," did not require the lessee to pay any part of the excise imposed on the lessor by G. L. (Ter. Ed.) c. 63, Section 39, as amended, after the enactment of St. 1936, c. 362, had exempted the machinery from the local tax theretofore assessed upon it and paid by the lessee and thus had increased such excise upon the lessor by depriving it of the right to deduct the value of the machinery in computing the corporate excess.
CONTRACT. Writ in the Superior Court dated June 1, 1938.
The case was heard by Hanify, J.
P. Nichols, for the plaintiff.
necessary to constitute the cause of action alleged." The demurrer was sustained and the plaintiff appealed. G. L. (Ter. Ed.) c. 231, Section 96.
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.
excess was computed; that the plaintiff has performed all of its covenants in said lease contained but that the defendant has failed to perform its covenant to pay all taxes and assessments which shall be assessed upon or in respect to the leased machinery in that it has neglected and refused (though requested so to do) to reimburse the plaintiff to the extent of fifty-five cents, said sum being the amount [by] which on account of the value of said machine the plaintiff's tax on corporate excess was in 1936, under the provisions of G. L., Chap. 63 as amended by Secs. 6 and 7 of Chap. 362 of the Acts of 1936 and as amended by Secs. 1 and 5 of Chap. 397 of the Acts of 1936, greater than such tax on corporate excess would have been under the provisions of G. L., Chap. 63 if the same had not been amended by Chaps. 362 and 397 of the Acts of 1936; and which sum the plaintiff has paid to the Commonwealth. WHEREFORE the defendant owed the plaintiff the sum of fifty-five cents with interest from October 20, 1936, the date on which interest on said tax on corporate excess began to run against the plaintiff in favor of the Commonwealth of Massachusetts."
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.
the . . . [defendant] shall pay all taxes and assessments which shall be assessed upon or in respect to the leased machinery or any interest therein or the rights to payments thereunder upon whomsoever the same shall be assessed."
On the facts above stated the plaintiff was subject in the year 1936 to the excise imposed by G. L. (Ter. Ed.) c. 63, Section 39, as amended by St. 1936, c. 362, Section 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."
assets of the corporation on said date: (a) Works, structures, real estate, motor vehicles, machinery, poles, underground conduits, wires and pipes owned by it within the commonwealth subject to local taxation, except such part of said real estate as represents the interest of a mortgagee. (b) . . . [Certain nontaxable securities]."
General Laws (Ter. Ed.) c. 63, Section 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.) c. 63, Section 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, Section 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.
directly brought to their attention. We can construe the contract only as they actually made it." Stony Brook Railroad v. Boston & Maine Railroad, 260 Mass. 379, 386. The covenant in the lease does not necessarily mean that the taxation situation as between the plaintiff and the defendant was to remain the same irrespective of statutory changes. Whether such a result is effected in any year -- so far as the present case is concerned in the year 1936 -- depends upon the correct interpretation of the covenant in the lease in its application under the governing statutes in force in that year. And if the language of the covenant correctly interpreted is broad enough to cover a situation created by statutes enacted after the lease was made, it is immaterial that the mode of taxation prescribed by such statutes came into existence after the lease was made. Kimball v. Cotting, 234 Mass. 172, 173. Eastern Massachusetts Street Railway v. Boston Elevated Railway, 310 Mass. 659, 668. But where, as here, it is sought to shift the burden of taxation from the person upon whom it is imposed by statute, the intention of the parties to accomplish that result must clearly appear. Pittsfield & North Adams Railroad v. Boston & Albany Railroad, 260 Mass. 390, 397. Moreover, the allegations of the declaration -- and the assurance of counsel for the plaintiff as to the existence of similar leases -- naturally import that the lease was drawn by the plaintiff, the lessor. At least, no intendment to the contrary can be made. Pollock v. New England Telephone & Telegraph Co. 289 Mass. 255, 258. If, therefore, the language of the lease is "doubtful or uncertain and the intention of the parties cannot be ascertained from its terms," it must be construed most strongly against the plaintiff. See Schaffer v. Hotel & Railroad News Co. 266 Mass. 276, 277.
proportional and reasonable assessments, rates, and taxes." Constitution, Part II, c. 1, Section 1, art. 4. The pecuniary burden so imposed "is not a tax on tangible or other property. It is not an income tax. It is measured by property and net income fairly attributable to the business done within the Commonwealth. It is an excise for the commodity or privilege of having a place for the transaction of intrastate business in Massachusetts with the protection of our laws and the financial, commercial and other advantages appertaining thereto." Atlantic Lumber Co. v. Commissioner of Corporations & Taxation, 292 Mass. 51, 53; affirmed 298 U.S. 553. See also Commissioner of Corporations & Taxation v. Ford Motor Co. 308 Mass. 558, 563-564. The plaintiff is seeking in this action to recover from the defendant a part of this "excise" under a covenant providing for payment by the defendant to the plaintiff of "all taxes and assessments" described in the covenant.
property therein described. But in Codman v. American Piano Co. 229 Mass. 285, 291, where the covenant was to pay "all taxes and assessments whatsoever" "for or in respect of the leased premises," it was said that it "may readily be conceded that a tax `on' or `for' or `in respect of' leased premises means the same thing, and that no sound distinction exists between them," and that the "legal signification" of "taxes for or `in respect of' the leased premises" is that "the taxes are those which relate directly to the premises themselves."
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.
such covenants do not include an "excise" such as is here involved imposed upon the lessor "with respect to the carrying on or doing of business by it within the commonwealth." Neither such a tax nor such an "excise" is imposed directly upon the leased property. Each is somewhat remote from the leased property, although either, as a practical matter, might be regarded as imposing some pecuniary burden upon the owner of the leased property by reason of the ownership thereof.
of taxes "upon or in respect to" the property from which rent is derived in a covenant for the payment of such taxes. Clearly, as has been decided, a Federal income tax upon rent, which has been regarded as an "excise," is not within such a description. Codman v. American Piano Co. 229 Mass. 285, 289. Stony Brook Railroad v. Boston & Maine Railroad, 260 Mass. 379, 385-386. See Kimball v. Cotting, 229 Mass. 541, 543-544; Hart v. Tax Commissioner, 240 Mass. 37, 39.
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.
a tax "upon or in respect to" the property of the corporation within the meaning of a covenant to pay such taxes if a Federal income tax, in its nature an "excise," or a State income tax, in its nature a property tax, upon rent of leased property is too remote from such property to be a tax "upon or in respect to" such property, within the meaning of such a covenant, in the absence, as here, of any other indication of an intention of the parties to the lease that the covenant therein shall apply to an "excise" such as is here involved.
question, however, is here presented. It is not always easy to determine where the ultimate burden of a tax or excise falls. But the narrow language of the covenant here in question -- similar to language that has been interpreted and applied in relation to income taxes upon rent -- does not disclose an intention of the parties that the lessee shall bear all the burdens of taxation in any form that might be thought to fall more or less indirectly upon machinery owned by the plaintiff and leased to the defendant.
Doubtless, as the situation was treated before the amendment of G. L. (Ter. Ed.) c. 63, Section 39, by St. 1936, c. 362, Section 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, Sections 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. Section 39.
these elements, however, is not involved in the present case.
same -- as they would not necessarily be -- the leased machinery in question included in the gross assets of the corporation would not necessarily be represented in the "capital stock" of the lessor at the value of $100. If regarded as represented therein at all, it might be at a very much smaller value. Other possible divergencies need not be discussed.
with the statutory provisions, as its "corporate excess employed within the commonwealth" that render such corporate excess of much greater value than the total assets of the corporation employed in business in the Commonwealth after making the statutory deductions. The governing statute does not contemplate any fixed relation between the "excise" imposed upon a foreign corporation and its total assets employed within the Commonwealth or any specific asset, such as the leased machinery here in question, included in these assets. The relation between them, as the analysis of the governing statute demonstrates, in the case of each corporation would depend upon the whole financial situation of the corporation and would be little more than a comparison of figures with only a remote logical connection. Clearly it cannot be said upon the allegations of the declaration that the "excise" here in question reaches the leased machinery for the purpose of taxation at the rate of $5.50 per $1,000 upon its value of $100 if it reaches it at all.
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.
310 Mass. 659, 669) and bears so remote a relation to the leased property as the foregoing analysis of the governing statute discloses, the covenant in the narrow form in which it is drawn, in the absence of any significant aid to its interpretation other than its language, cannot rightly be interpreted as disclosing an intention of the parties thereto that the lessee shall pay any part of the "excise" imposed upon the corporation, the lessor, on the theory that such "excise" is "a medium of reaching for taxation the property of the lessor," including the leased property. See Eastern Massachusetts Street Railway v. Boston Elevated Railway, 310 Mass. 659, 669. The cases interpreting covenants for the payment of taxes by lessees, previously decided by this court and cited earlier in this opinion, while different in their facts from the present case, tend to support the conclusion here reached, and furnish no support for the broader interpretation of the covenant urged by the plaintiff.

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