Source: https://supreme.justia.com/cases/federal/us/302/506/
Timestamp: 2019-04-18 14:36:28+00:00

Document:
1. A state law, as construed by the State Supreme Court to sustain a tax, was found unconstitutional by this Court, and mandate issued reversing the judgment and remanding the cause for further proceedings not inconsistent with the opinion. Held, that the state court was not thereby precluded from reassessing the tax upon a revised construction of the statute eliminating the unconstitutional features. P. 302 U. S. 512.
2. Whether state courts, in construing a taxing act so as to avoid conflict with the Federal Constitution, in effect exercised legislative power in violation of the state constitution, held not a federal question. P. 302 U. S. 512.
3. The tax in respect of trust companies laid by the Pennsylvania Act of June 13, 1907, as amended, is a tax upon the shares, rather than upon the corporate assets. P. 302 U. S. 512.
4. In taxing shares of a trust company on the basis of their value as reflected from its paid-in capital stock, surplus, and undivided profits, a State is not obliged to exclude from the valuation obligations of the Federal Government or its instrumentalities belonging to the company. P. 302 U. S. 513.
But shares of national banks already taxed to the company, as owner pursuant to R.S. § 5219, cannot be included in such valuation.
5. Under Pennsylvania Act of June 13, 1907, as amended, the shares of a local trust company are valued for taxation on the basis of the amount of the company's paid-in capital stock, surplus, and undivided profits minus its investments in shares of Pennsylvania corporations which are liable to pay, or are exempted from, a capital stock tax, or which are relieved from a tax on shares. If the trust company fails to show that such investments represent capital, surplus, and undivided profits, rather than purchase with deposits, they are allowed a partial or "proportionate" exemption, computed by use of a formula.
exempted in the same way as other investments of a trust company, there was no ground to claim discrimination against such obligations in assessing the share tax. P. 302 U. S. 514.
(2) The fact that the shareholders of a trust company whose investments consist of national bank stock would pay no tax, because R.S. § 5219 permits but a single tax thereon which has been paid by the company as owner, whereas those holding shares in a trust company which owns only other federal securities would not be entitled to a similar total exemption, but only to a proportionate deduction, unless it could be shown that those securities were purchased from capital, surplus, and undivided profits does not evidence any illegal discrimination against such securities. P. 302 U. S. 514.
(3) The principle of equal protection does not demand that, because one company owns wholly exempt securities, with consequent exemption of its shareholders from the tax on shares, the State shall abstain from taxing the shareholders of another company whose investments carry no such exemption. P. 302 U. S. 514.
6. A state tax on the shares of a domestic corporation, assessed on the basis of the corporate assets and payable by or collected through the corporation, may, consistently with the Fourteenth Amendment, extend to shares owned by nonresidents. Corry v. Baltimore, 196 U. S. 466. P. 302 U. S. 514.
So held where the corporate charter antedated the creation of the tax liability, but was subject to a power to alter, amend, or repeal reserved by the state constitution.
7. Where a State has reserved the right to alter, amend, and repeal the charter of a corporation, every stockholder acquires his shares with full knowledge that his interest in the corporation is subject to regulation and taxation by the State. P. 302 U. S. 516.
327 Pa. 127, 193 Atl. 638, affirmed.
Appeal from the affirmance of a judgment redetermining a tax assessment. Cf. 296 U. S. 113.
purchased out of capital, surplus, or undivided profits. Upon such a showing, these securities are fully exempt from tax. Where the company has not made this showing, the practice in assessing the tax has been to grant a so-called proportionate deduction in respect of such exempt securities. [Footnote 3] This is accomplished by the use of the following formula: a fraction, the numerator of which is the capital, surplus, and undivided profits at book value, less the book value of those investments, if any, for which a full deduction has been made, and the denominator, the book value of the permanent investments, less the book value of those investments, if any, for which a full deduction has been made, is applied to the book value of the securities which are to be apportioned, after adjustment for appreciation or depreciation of those securities, and the resulting sum is deducted from the capital, surplus, and undivided profits. In this manner, a portion of the value of each exempted security reflected in the capital, surplus, and profits is deducted before the value per share is determined by dividing the capital surplus and profits so diminished by the number of shares outstanding.
appellant. An alternative claim was that, if the levy was upon the shares as such, the application of the act worked a discrimination against national bank shares and other federal securities by excluding from the base a proportionate part of the value of shares of certain Pennsylvania corporations, while leaving in the base national bank shares and federal securities, and that, if the tax was upon the shares, it was bad, as the Commonwealth was without power to tax the shares of nonresident stockholders. The Commonwealth insisted the tax was upon the shares, and not upon assets, that the application of the statute involved no discrimination against federal securities, and that the State had jurisdiction to tax the shares of nonresident shareholders.
We found it unnecessary to determine whether the tax was upon shares or assets. Amongst the assets were shares of national bank stock which had been taxed to the company as owner, pursuant to R.S. § 5219, as amended. [Footnote 4] These, we held, must be excluded from the base upon which the tax was calculated. We held further that the exclusion from the base of a proportion of the value of tax-exempt shares of Pennsylvania corporations, and the refusal of like treatment of federal securities, operated as an unconstitutional discrimination against the latter. We reversed the judgment of the Supreme Court of Pennsylvania, and remanded the cause for further proceedings not inconsistent with our opinion.
against federal securities and in favor of the exempted stock of Pennsylvania corporations; and that, if the tax is otherwise valid, the fact that it is laid upon all shareholders, including nonresidents, does not void it as respects the latter.
First. When the case was previously heard, we held the statute invalid as construed, and applied and remanded the cause for further proceedings not inconsistent with our opinion. It is clear that the State courts were not precluded from construing the statute so as to eliminate the unconstitutional features. It follows that the appellant was not entitled, as a matter of right, to a general judgment in its favor exempting it from all tax.
Second. The contention that the State courts really have not construed the act, but have themselves amended it, and that this is judicial legislation forbidden by the Constitution of Pennsylvania, is not open here. As the trial court pointed out, courts, in applying a statute general and sweeping in its terms, may construe it as not intended to reach subjects which, by reason of constitutional prohibition, the Legislature is without power to touch. Whether the courts of the Commonwealth exceeded their powers under the State Constitution is not a federal question. We accept their construction of the act.
respecting taxation of banks and trust companies in Pennsylvania leads to the same conclusion. [Footnote 9] We are of opinion that the tax is one upon the shares, as such, and not upon the assets of the company.
other than national bank stock. [Footnote 10] And the discrimination found upon the earlier appeal in failing to accord proportionate exemption to federal securities similar to that extended to exempt shares of domestic corporations has been removed, for all are now accorded like treatment by way of deduction.
Fifth. The fact that the shareholders of a trust company whose investments consist of national bank stock would pay no tax, because R.S. § 5219 permits but a single tax thereon which has been paid by the company as owner, whereas those holding shares in a trust company which owns only other federal securities would not be entitled to a similar total exemption, but only to a proportionate deduction unless it could be shown that those securities were purchased from capital, surplus, and undivided profits, does not evidence an illegal discrimination against such securities. The inability of a State to measure a tax by certain assets exempted by federal law does not preclude it from reckoning in the tax base all those it can reach. And the principle of equal protection does not demand that, because one company owns wholly exempt securities, with consequent exemption of its shareholders from the exaction, the State shall abstain from taxing the shareholders of another company whose investments carry no such exemption.
Act of June 13, 1907, P.L. 640, as amended by the acts of July 11, 1923, P.L. 1071, May 7, 1927, P.L. 853, and April 25, 1929, P.L. 673.
Act of April 9, 1929, § 807, P.L. 393.
See Commonwealth v. Hazelwood Savings & Trust Co., 271 Pa. 375, 114 A. 368.
U.S.C. Title 12, § 548.
327 Pa. 127, 193 A. 638.
Commonwealth v. Schuylkill Trust Co., 315 Pa. 429, 173 A. 309; Commonwealth v. Mortgage Trust Co., 227 Pa. 163, 174, 76 A. 5; Commonwealth v. Union Trust Co., 237 Pa. 353, 355, 85 A. 461; Northern Trust Co. v. McCoach, 215 F. 991.
"The policy of the commonwealth for more than 20 years was to tax the capital stock of these companies in the same manner as other corporations created under the general corporation act of 1874 were taxed. . . . This method of taxing the capital stock of these institutions continued in force until the act of 1907 was passed. As the trust company business grew in magnitude, . . . the question of the proper method of taxing the capital stock of these corporations frequently arose. It was contended in their behalf that banks were their natural competitors, that their business partook of the nature of banking, and that they should be taxed in like manner. As a result of this feeling and the agitation which followed it, the act of 1907 was passed. It is apparent that the Legislature intended to tax trust companies on the same basis as banks."
Van Allen v. Assessors, 3 Wall. 573; First National Bank v. Commonwealth of Kentucky, 9 Wall. 353, 76 U. S. 359; Cleveland Trust Co. v. Lander, 184 U. S. 111; Des Moines National Bank v. Fairweather, 263 U. S. 103.
The case has been cited repeatedly with approval. Covington v. First National Bank, 198 U. S. 100, 198 U. S. 112; Hawley v. Malden, 232 U. S. 1, 232 U. S. 12; Rogers v. Hennepin County, 240 U. S. 184, 240 U. S. 191; Rhode Island Hospital Trust Co. v. Doughton, 270 U. S. 69, 270 U. S. 81.
Stockholders of Bank of Abingdon v. Supervisors, 88 Va. 293, 13 S.E. 407; Scandinavian-American Bank v. Pierce County, 20 Wash. 155, 55 P. 40; State v. Travelers' Insurance Co., 70 Conn. 590, 40 A. 465; St. Albans v. National Car Co., 57 Vt. 68; Koochiching Co. v. Mitchell, 186 Iowa 1216, 173 N.W. 151.
First Bank Stock Corp. v. Minnesota, 301 U. S. 234.

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