Source: https://openjurist.org/307/us/313
Timestamp: 2019-04-22 10:06:13+00:00

Document:
STATE BOARD OF TAX APPEALS et al. UNIVERSAL INS. CO. et al. v. SAME.
Argued April 18, 19, 1939.
As Corrected June 5, 1939.
Mr. Justice REED announced an opinion in which the CHIEF JUSTICE, Mr. Justice BUTLER and Mr. Justice ROBERTS, concurred.
'Every fire insurance company and every stock insurance company other than life insurance, shall be assessed in the taxing district where its office is situate, upon the full amount of its capital stock paid in and accumulated surplus. * * * No franchise tax shall be imposed upon any such fire insurance company or other stock insurance company included in this section.' The appellant is a stock fire insurance corporation organized under the laws of New Jersey which at the time of this assessment required it to locate its principal office and to conduct its general business in the state.3 It is stipulated that a registered office is maintained in Newark, New Jersey, together with such books as the law requires to be kept within the state. The only business carried on in this Newark office is a local or regional claim and underwriting department for Essex and three other counties. No executive officer is there and reports are sent to the New York office. The stipulation further shows that the company's 'executive officers and its executive office are located at 150 William Street, New York City. The general accounts of the company are kept in the office in New York City. The general accounting, underwriting and executive offices of the company are all located at the main office at 150 William Street, New York City. All cash and securities of the company are located there or in banks in that City or in other banks outside of the State of New Jersey, with the exception of the sum of $6,425.32 on deposit in New Jersey banks. All of the general affairs$of the company are conducted at the main office in New York City and have been so conducted there since appellant moved its main office from Newark six years ago.' No personal property tax is paid in New York. The company does pay there a franchise tax based upon premiums.
Appellant urges error in sustaining the assessment in the face of the conclusion that the tax is a property tax upon intangibles with a business situs in New York, the commercial domicile of the corporation. Such approval, it is claimed, violates the due process clause of the 14th Amendment, U.S.C.A.Const.
The present tax, as administered, is levied upon an assessment of the full amount of capital stock and surplus. It is a tax on the net value of the corporation less allowable deductions, reached by taking liabilities from gross value of assets and subtracting exempt items from the remainder. This is apparently because capital stock and surplus are treated as invested in the exempt assets.8 The value thus assessed is not determined by specific items but is the result of a calculation in which all assets are involved except those definitely exempted. Our conclusion makes it unnecessary to resolve doubts as to whether this is a property tax.
There are occasions, however, when the use of intangible personalty in other states becomes so inextricably a part of the business there conducted that it becomes subject to taxation by that state.16 The carrying on of the business of the corporation in New York, it is urged, has withdrawn its intangibles completely from the tax jurisdiction of New Jersey. With the assumption of a business situs and commercial domicile in New York, that state, under the authorities cited, would have the right to tax intangibles with this relation to its sovereignty. Appellant contends that if New York may levy a property tax on these intangibles, it will violate the due process clause of the 14th Amendment, U.S.C.A.Const., to permit New Jersey to do the same thing; that property cannot be in two places; that if it is in New York for tax purposes, it cannot be in New Jersey. We are asked to decide that both states have not the power to tax the same property for the same incidents. This question has been heretofore reserved.17 We do not find it necessary to answer it in this case.
In the Stempel, Bristol, Comptoir National, Metropolitan and Liverpool cases, cited in note 16, supra, the integration of the foreign-owned intangibles with local activities was evident from the continued course of business. The presence or absence of the evidences of the credits from the jurisdiction was immaterial.19 The non-resident individuals and corporations carried on continuously a course of lending money or granting credits within the taxing states. The taxed intangibles grew out of these transactions. They were, in fact, a part of them. In the Wheeling Steel case, the same type of amalgamation occurred. West Virginia sought to tax a Delaware corporation on counts receivable and bank deposits. The opinion points out, 298 U.S. at pages 212 and 213, 56 S.Ct. at page 778, 80 L.Ed. 1143, that these choses in action were the indebtedness for or the proceeds of sales confirmed in West Virginia, attributable 'to the place where they arise in the course of the business of making contracts of sale.' In First Bank Stock Corporation v. Minnesota, supra, another Delaware corporation was found to have established a commercial domicile for itself and given a business situs to certain of its intangibles. The intangibles in question were stocks of Montana and North Dakota state banks, purchased and held as part of the corporation's assets in its Minnesota business of holding the shares and managing, through stock ownership, the business of numerous banks, trust companies and other financial institutions of the Ninth Federal Reserve District. As this business was localized in Minnesota, the stocks of these banks were an essential factor of that business and therefore had a taxable situs in Minnesota.
The conception of a business situs for intangibles enables the tax gathering entity to distribute the burden of its support equitably among those receiving its protection. It makes the notion of a tax situs for particular intangibles more definite. It is not the substitution of a new fiction as to the mass of choses in action for the established fiction of a tax situs at the place of incorporation. To overcome the presumption of domiciliary location, the proof of business situs must definitely connect the intangibles as an integral part of the local activity. The facts presented by this record fall far short of this requirement.
The tax is upon 'the full amount of capital stock and surplus' less certain allowed deductions of real estate and exempt securities. The evidence gives no explanation of the amount or source of the assets making up the amount $3,370,080.66 which balances with the capital stock and surplus less these deductions. The stipulation shows 'agreed' figures,.$8,107,901.83 presumably of capital and surplus, as shown below.20 Agreed deductions are $4,737,821.17. But the assessment is $1,069,000. From the stipulation, we learn the 'general accounts' are kept in New York City and all cash except $6,425.32 and all securities are located at the New York office or in banks outside of New Jersey. If we assume that the 'general accounts' mentioned are the company's claims against agents, other insurance companies, and similar bills receivable, no progress is made towards their identification with New York business. Nothing is shown as to the volume of New York business in comparison with New Jersey or the other states. We are not told where business is accepted, moneys collected or insurance contracts made. The securities may represent local loans or investments in New Jersey or elsewhere made from funds derived from similar insurance contracts with a business situs at those points.21 They may be the result of insurance activities of many kinds, taking place far from New York. If we were to assume that the intangibles of a corporation may have only one taxable situs, the mere fact that general affairs of a foreign corporation are conducted by general officers in New York without further evidence of the source and character of the intangibles does not destroy the taxability of a part of these intangibles by the state of the corporation's legal domicile. The presumption of a taxable situs solely in New Jersey is not overturned.
Universal Insurance Company and Universal Indemnity Insurance Company have appeals involving the same questions. By stipulation these cases were consolidated for review below and appeal here.
These appellants are New Jersey insurance corporations, assessed by the City of Newark in the same way, under the same statute and with the same result in the state courts as the appellant in No. 449.
There are no significant distinctions between the cases. A management corporation handles these companies at a New York office, where accounts are payable. Seven per cent of the business of Universal Insurance Company originates in New Jersey. The corresponding percentage for the other company is not shown. As in No. 449, the record is silent as to the character, source and use of the securities and credits.
Mr. Justice FRANKFURTER announced the following opinion, concurred in by Mr. Justice STONE, Mr. Justice BLACK, and Mr. Justice DOUGLAS.
Wise tax policy is one thing; constitutional prohibition quite another. The task of devising means for distributing the burdens of taxation equitably has always challenged the wisdom of the wisest financial statesmen. Never has this been more true than today when wealth has so largely become the capitalization of expectancies derived from a complicated network of human relations. The adjustment of such relationships, with due regard to the promotion of enterprise and to the fiscal needs of different governments with which these relations are entwined, is peculiarly a phase of empirical legislation. It belongs to that range of the experimental activities of government1 which should not be constrained by rigid and artificial legal concepts. Especially important is it to abstain from intervention within the autonomous area of the legislative taxing power where there is no claim of encroachment by the states upon powers granted to the national government. It is not for us to sit in judgment on attempts by the states to evolve fair tax policies. When a tax appropriately challenged before us is not found to be in plain violation of the Constitution our task is ended.
Chapter 236 of the New Jersey Laws of 1918, N.J.S.A. 54:4—1 et seq., as plied to the circumstances of these two cases, clearly does not offend the Constitution. In substance, such legislation has heretofore been found free from constitutional infirmity. Cream of Wheat Co. v. Grand Forks, 253 U.S. 325, 40 S.Ct. 558, 64 L.Ed. 931, affirming 41 N.D. 330, 170 N.W. 863. During all the vicissitudes which the so-called 'jurisdiction-to-tax' doctrine has encountered since that case was decided, the extent of a state's taxing power over a corporation of its own creation, recognized in the Cream of Wheat case, has neither been restricted nor impaired. That case has not been cited otherwise than with approval.2 Questions affecting the fictional 'situs' of intangibles, which received full consideration in Curry v. McCanless, 307 U.S. 357, 59 S.Ct. 900, 83 L.Ed. —-, decided this day, do not concern the present controversies. Cream of Wheat Co. v. Grand Forks, supra, and the cases that have followed it, afford a wholly adequate basis for affirming the judgments below.
28 U.S.C. § 344(a), 28 U.S.C.A. § 344(a).
N.J.Laws 1918, p. 847; also in N.J.Rev.Stats. 1937, 54:4—1 et seq., J.S.A. 54:4—1 et seq.
118 N.J.L. 525, 193 A. 912.
120 N.J.L. 185, 198 A. 836.
118 N.J.L. at page 526, 193 A. 912, at page 913.
N.J.Laws 1903 c. 208, p. 394.
Fidelity Trust Co. v. Board of Equalization, 77 N.J.L. 128, 130, 71 A. 61.
Lafayette Insurance Co. v. French, 18 How. 404, 15 L.Ed. 451; St. Louis v. Wiggins Ferry Co., 11 Wall. 423, 429, 20 L.Ed. 192; Seaboard Rice Milling Co. v. Chicago, R.I. & P.R. Co., 270 U.S. 363, 366, 46 S.Ct. 247, 70 L.Ed. 633; Fairbanks Steam Shovel Co. v. Wills, 240 U.S. 642, 36 S.Ct. 466, 60 L.Ed. 841. Cf. International Milling Co. v. Columbia Transp. Co., 292 U.S. 511, 519, 54 S.Ct. 797, 799, 78 L.Ed. 1396.
Bank of Augusta v. Earle, 13 Pet. 519, 588, 10 L.Ed. 274.
Oklahoma Natural Gas Co. v. Oklahoma, 273 U.S. 257, 259, 47 S.Ct. 391, 392, 71 L.Ed. 634; Canada Southern Ry. v. Gebhard, 109 U.S. 527, 537, 538, 3 S.Ct. 363, 369, 370, 20 L.Ed. 1020.
Safe Deposit & Trust Co. v. Virginia, 280 U.S. 83, 92, 50 S.Ct. 59, 60, 74 L.Ed. 180, 67 A.L.R. 386; Blodgett v. Silberman, 277 U.S. 1, 9, 48 S.Ct. 410, 413, 72 L.Ed. 749.
Cream of Wheat Co. v. Grand Forks, 253 U.S. 325, 329, 40 S.Ct. 558, 559, 64 L.Ed. 931; Virginia v. Imperial Coal Sales Co., 293 U.S. 15, 19, 55 S.Ct. 12, 13, 79 L.Ed. 171; First Bank Stock Corp. v. Minnesota, 301 U.S. 234, 237, 57 S.Ct. 677, 678, 81 L.Ed. 1061, 113 A.L.R. 228. Cf. Johnson Oil Refining Co. Oklahoma, 290$U.S. 158, 161, 54 S.Ct. 152, 153, 78 L.Ed. 238.
Act of April 18, 1884, N.J.Laws 1884, c. 159, p. 232.
New Orleans v. Stempel, 175 U.S. 309, 20 S.Ct. 110, 44 L.Ed. 174; Bristol v. Washington County, 177 U.S. 133, 20 S.Ct. 585, 44 L.Ed. 701; State Board of Assessors v. Comptoir National D'Escompte, 191 U.S. 388, 24 S.Ct. 109, 48 L.Ed. 232; Metropolitan Life Ins. Co. v. New Orleans, 205 U.S. 395, 27 S.Ct. 499, 51 L.Ed. 853; Liverpool & L. & G. Ins. Co. v. Board of Assessors, 221 U.S. 346, 31 S.Ct. 550, 55 L.Ed. 762, L.R.A.1915C, 903; Wheeling Steel Corporation v. Fox, 298 U.S. 193, 56 S.Ct. 773, 80 L.Ed. 1143; First Bank Stock Corp. v. Minnesota, 301 U.S. 234, 57 S.Ct. 677, 81 L.Ed. 1061, 113 A.L.R. 228.
First Bank Stock Corp. v. Minnesota, 301 U.S. 234, 237, 241, 57 S.Ct. 677, 678, 680, 81 L.Ed. 1061, 113 A.L.R. 228. Cf. Farmers' Loan & Trust Co. v. Minnesota, 280 U.S. 204, 213, 50 S.Ct. 98, 101, 74 L.Ed. 371, 65 A.L.R. 1000; First Nat. Bank v. Maine, 284 U.S. 312, 331, 52 S.Ct. 174, 178, 76 L.Ed. 313, 77 A.L.R. 1401.
Beidler v. South Carolina Tax Commission, 282 U.S. 1, 8, 51 S.Ct. 54, 55, 75 L.Ed. 131, and cases cited.
Metropolitan Life Ins. Co. v. New Orleans, 205 U.S. 395, 402, 27 S.Ct. 499, 501, 51 L.Ed. 853.
Reserves for unearned premiums and for reinsurance are a taxable asset in New Jersey. City of Trenton v. Standard Fire Ins. Co., 77 N.J.L. 757, 764, 765, 73 A. 606. The Board of Tax Appeals held the agency balances an asset, and the reserve for taxes a liability which is deductible. Nothing was said about the reserve for contingencies. Addition of the items known to constitute assets—capital stock, surplus, reserve for unearned premiums, reserve for reinsurance, agency balances—equals.$8,107,901.83.
Metropolitan Life Ins. Co. v. New Orleans, 205 U.S. 395, 27 S.Ct. 499, 51 L.Ed. 853.
See Citizens' National Bank of Cincinnati v. Durr, 257 U.S. 99, 109, 42 S.Ct. 15, 17, 66 L.Ed. 149; Schwab v. Richardson, 263 U.S. 88, 92, 44 S.Ct. 60, 62, 68 L.Ed. 183; Baker v. Druesedow, 263 U.S. 137, 141, 44 S.Ct. 40, 41, 68 L.Ed. 212; Swiss Oil Corp. v. Shanks, 273 U.S. 407, 413, 47 S.Ct. 393, 395, 71 L.Ed. 709; Hellmich v. Hellman, 276 U.S. 233, 238, 48 S.Ct. 244, 246, 72 L.Ed. 544, 56 A.L.R. 379; Montgomery Ward & Co. v. Emmerson, 277 U.S. 573, 48 S.Ct. 435, 72 L.Ed. 994; Educational Films Corp. v. Ward, 282 U.S. 379, 391, 51 S.Ct. 170, 172, 75 L.Ed. 400, 71 A.L.R. 1226; Nebraska ex rel. Beatrice Creamery Co. v. Marsh, 282 U.S. 799, 800, 51 S.Ct. 38, 75 L.Ed. 719; First Bank Stock Corp. v. Minnesota, 301 U.S. 234, 237, 57 S.Ct. 677, 678, 81 L.Ed. 1061, 113 A.L.R. 228.

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